AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 6, 1999
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REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTEGRATED HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 23-2428312
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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10065 Red Run Boulevard, Owings Mills, Maryland 21117, (410) 998-8400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Marshall A. Elkins, Esq., Executive Vice President and General Counsel
Integrated Health Services, Inc., 10065 Red Run Boulevard, Owings Mills,
Maryland 21117, (410) 998-8400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies of all communications, including all communications sent
to the agent for service, should be sent to:
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<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)
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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>
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT OF SHARES PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED PRICE PER SHARE(1) PRICE PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value per share
(including the Preferred Stock Purchase
Rights)(2) ............................ 1,076,601 $ 5.125 $5,517,580.13 $1,534.00
====================================================================================================================================
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(1) Estimated solely for the purpose of calculating the registration fee. Such
estimates have been calculated in accordance with Rule 457(c) under the
Securities Act of 1933 and are based upon the average of the high and low
prices per share of the Registrant's Common Stock on the New York Stock
Exchange Composite Transaction Tape on April 5, 1999.
(2) The Preferred Stock Purchase Rights, which are attached to the shares of
Common Stock being registered, will be issued for no additional
consideration; no additional registration fee is required.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
================================================================================
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SUBJECT TO COMPLETION DATED APRIL 6, 1999
PROSPECTUS
1,076,601 SHARES
[GRAPHIC OMITTED]
INTEGRATED HEALTH SERVICES, INC.
COMMON STOCK
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Our stockholders listed in this prospectus are offering and selling from
time to time an aggregate of shares of our Common Stock. All but two of these
stockholders obtained their shares in connection with our purchase of their
businesses, at which time we agreed to register their shares for resale. The
other two stockholders are deferred compensation plans for certain of our senior
executives; we contributed shares of our Common Stock, rather than cash, to
these plans in 1998.
We 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.
Our Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "IHS." On April 5, 1999, the closing price of our Common Stock,
as reported by the NYSE, was $4.375 per share.
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SEE "RISK FACTORS," WHICH BEGINS ON PAGE 6 OF THIS PROSPECTUS, FOR CERTAIN
INFORMATION THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN THE SHARES BEING
OFFERED PURSUANT TO THIS PROSPECTUS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE IHS COMMON STOCK BEING OFFERED
PURSUANT TO THIS PROSPECTUS OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is , 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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TABLE OF CONTENTS
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PAGE
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About this Prospectus .............................. 2
Where You Can Find More Information ................ 2
Note Regarding Forward-Looking Statements .......... 3
The Company ........................................ 4
Risk Factors ....................................... 6
Use of Proceeds .................................... 14
Selling Stockholders ............................... 14
Plan of Distribution ............................... 17
Legal Matters ...................................... 17
Experts ............................................ 18
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ABOUT THIS PROSPECTUS
This prospectus is a part of a registration statement on Form S-3 filed
by us with the Securities and Exchange Commission (the "SEC") to register
1,076,601 shares of our Common Stock on behalf of the Selling Stockholders. 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 SEC. Accordingly, you should refer to the registration
statement and its exhibits for further information about us and our Common
Stock. Copies of the registration statement and its exhibits are on file with
the SEC. Statements contained in this prospectus concerning the documents we
have filed with the SEC are not intended to be comprehensive, and in each
instance we refer you to the copy of the actual document filed as an exhibit to
the registration statement or otherwise filed with the SEC. Each such statement
is qualified in its entirety by such reference.
You should rely only on the information provided in this prospectus and the
registration statement. We have not authorized anyone to provide you with
different information. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or of any sale of Common Stock.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, therefore, file reports,
proxy statements and other information with the SEC. You can read and copy all
of our filings at the SEC's public reference facilities in Washington, D.C., New
York, New York and Chicago, Illinois. You may obtain information on the
operation of the SEC's public reference facilities by calling the SEC at
1-800-SEC-0300. You can also read and copy all of our filings at the offices of
the NYSE, 20 Broad Street, New York, New York 10005. You may also obtain our SEC
filings from the SEC's Web site on the Internet that is located at
http://www.sec.gov.
The SEC allows us to "incorporate by reference" much of the information we
file with them (File No. 1-12306), which means that we can disclose important
information to you by referring you to those publicly available documents. The
information that we incorporate by reference is considered to be part of this
prospectus. Because we are incorporating by reference our future filings with
the SEC, this prospectus is continually updated and those future filings may
modify or supersede some or all of the information included or incorporated in
this prospectus. This means that you must look at all of the SEC filings that we
incorporate by reference to determine if any of the statements in this
prospectus or in any
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document previously incorporated by reference have been modified or superseded.
This prospectus incorporates by reference the documents listed below and any
future filings we will make with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act until the selling stockholders sell all their shares
of stock:
(a) Our Annual Report on Form 10-K for the year ended December 31, 1998;
(b) Our Current Report on Form 8-K dated September 25, 1997 and filed
October 10, 1997, reporting our 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 and Amendment No. 1 to Form 8-K/A filed
May 29, 1998;
(c) Our Current Report on Form 8-K dated October 21, 1997 and filed
November 5, 1997, reporting our acquisition of RoTech Medical Corporation, as
amended by Form 8-K/A filed November 25, 1997;
(d) Our Current Report on Form 8-K dated December 31, 1997 and filed
January 14, 1998, reporting our 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 and Amendment No. 1 to Form 8-K/A filed May 29, 1998;
(e) The description of our Common Stock contained in Item 1 of our
Registration Statement on Form 8-A dated September 1, 1993; and
(f) The description of our Preferred Stock Purchase Rights contained in
Item 1 of our Registration Statement on Form 8-A dated September 28, 1995.
The information about us contained in this prospectus should be read
together with the information in the documents incorporated by reference. You
may request a copy of any or all of these filings, at no cost, by writing or
telephoning us at 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.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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 about our
financial condition, results of operations and business that are based on our
current and future expectations. You can find many of these statements by
looking for words such as "estimate," "project," "believe," "anticipate,"
"intend," "expect" and similar expressions. Such statements reflect our current
views with respect to future events and are subject to risks and uncertainties,
including those discussed under "Risk Factors," that could cause our actual
results to differ materially from those contemplated in such forward-looking
statements. We caution you that no forward-looking statement is a guarantee of
future performance and you should not place undue reliance on these
forward-looking statements, which speak only as of the date of this prospectus.
We do 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 which may cause our
actual results to differ from those expressed or implied by the forward-looking
statements contained in this prospectus.
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THE COMPANY
We are 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. Our post-acute care services
and products include:
(i) inpatient services, including subacute care, skilled nursing
facility care, contract rehabilitation and hospice services;
(ii) home respiratory care, infusion and durable medical equipment;
(iii) lithotripsy services; and
(iv) diagnostic services.
Our 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. Our post-acute healthcare system is
intended to provide cost-effective continuity of care for our patients and
enable payors to contract with one provider to provide all of a patient's needs
following discharge from acute care hospitals. Our post-acute care network
currently consists of over 1,700 service locations in 47 states and the District
of Columbia.
Our post-acute care network strategy is to provide cost-effective
continuity of care for our patients, 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. To
implement our post-acute care network strategy, we have focused on:
(i) developing market concentration for our 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 services we offer 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.
We presently operate 370 geriatric care facilities (285 owned or leased and
85 managed) and 17 specialty hospitals. We provide a wide range of basic medical
and subacute care services as well as a comprehensive array of respiratory,
physical, speech, occupational and physiatric therapy in all of our geriatric
care facilities. We have over 10,000 contracts to provide services, primarily
physical, occupational, speech and respiratory therapies, to skilled nursing
facilities, subacute care centers, assisted living facilities, hospitals and
other locations. We also provide mobile diagnostics such as portable x-ray and
EKG to patients in geriatric care facilities and other settings, lithotripsy
services on an outpatient basis, as well as diversified home respiratory care,
home infusion therapy and other pharmacy-related services and products and
durable medical equipment products from approximately 800 primarily non-urban
locations in 44 states and the District of Columbia.
In implementing our post-acute care network strategy, we focused in 1996,
1997 and 1998 on expanding the services we provide to take advantage of
healthcare payors' increasing focus on having healthcare provided in the
lowest-cost setting possible and recent advances in medical technology which
have facilitated the delivery of medical services in alternative sites.
Consistent with our strategy, in October 1997 we 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, we 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 we offer to patients, payors and other
providers. Lithotripsy is a non-invasive technique that
4
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utilizes shock waves to disintegrate kidney stones. Following these
acquisitions, we continued to acquire smaller companies providing home
respiratory care and mobile diagnostic services. We are currently exploring the
sale of our home respiratory, infusion and durable medical equipment business.
We have also continued to expand our post-acute care network by increasing
the number of facilities we operate or manage. In September 1997, we acquired
Community Care of America, Inc. ("CCA"), which developed and operated skilled
nursing facilities in medically underserved rural communities (the "CCA
Acquisition"). CCA broadened our post-acute care network to include more rural
markets, which we believed would complement RoTech's business, which has also
focused on non-urban locations. In addition, in December 1997, we acquired from
HEALTHSOUTH Corporation ("HEALTHSOUTH") 139 owned, leased or managed long-term
care facilities (13 of which were subsequently sold) 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").
In 1996 and 1997 we also focused on providing home health nursing in order
to meet patients' desires to be treated at home. Consistent with this strategy,
in October 1996 we 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. Following the acquisition we continued to acquire smaller
companies providing home health nursing services. Prior to implementation of an
interim payment system for home health nursing, we intended 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 our post-acute care
network; and (iii) provide a cost-effective site for case management and patient
direction.
However, the delay in the implementation of a prospective payment system
("PPS") for Medicare home health nursing until after October 1, 2000 at the
earliest and a reduction in current cost reimbursement for Medicare home health
nursing pending implementation of a prospective payment system mandated in the
Balanced Budget Act of 1997 ("BBA"), enacted in August 1997, adversely impacted
our financial performance. Accordingly, in the third quarter of 1998 we
determined to exit the home health nursing business, and sold substantially all
of this business in the first quarter of 1999.
In 1999, we intend to focus primarily on ensuring that our core business is
operating efficiently and profitably under PPS. We also intend to take advantage
of attractive acquisition opportunities which we believe will occur as smaller
companies have difficulty in operating successfully under PPS.
We were incorporated in March 1986 as a Pennsylvania corporation, but we
reorganized as a Delaware corporation in November 1986. Our principal executive
offices are located at 10065 Red Run Boulevard, Owings Mills, Maryland 21117 and
our telephone number is (410) 998-8400. Unless the context indicates otherwise,
the terms "we," "us," "our," "IHS" and the "Company" include Integrated Health
Services, Inc. and our subsidiaries.
5
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RISK FACTORS
In addition to the other information in this prospectus, you should
carefully consider the following factors in evaluating us and our 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).
OUR SUBSTANTIAL INDEBTEDNESS COULD LIMIT OUR GROWTH AND OUR ABILITY TO RESPOND
TO CHANGING CONDITIONS
We have a large amount of indebtedness when compared to the equity of our
stockholders. At December 31, 1998, our total long-term debt, including current
portion, accounted for 71.7% of our total capitalization. We also have
significant lease obligations with respect to the facilities operated pursuant
to long-term leases, which aggregated approximately $878.0 million at December
31, 1998. For the year ended December 31, 1998 our rent expense was $126.2
million. In addition, pursuant to the agreement relating to the acquisition of
First American, we are obligated to pay an additional $155.0 million in respect
of the acquisition of First American during 2000 to 2004. Our December 31, 1998
balance sheet includes as a liability the $122.1 million present value of this
$155.0 million payment. We have discontinued our home health nursing business
and sold substantially all of it.
Our strategy of 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 we are leveraged, as
well as our rent expense, could have important consequences to securityholders,
including:
(i) our 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 our cash flow from operations may be
dedicated to the payment of principal and interest on our
indebtedness and rent expense, thereby reducing the funds
available to us for our operations;
(iii) certain of our borrowings bear, and will continue to bear,
variable rates of interest, which exposes us to increases in
interest rates; and
(iv) certain of our 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, our substantial debt may also adversely affect our ability to
respond to changing business and economic conditions or continue our growth
strategy.
Our ability to satisfy our liabilities depends upon our future operating
performance, which may be affected by prevailing economic conditions and
financial, business and other factors, many of which are beyond our control. We
cannot assure you that our operating results will be sufficient to pay our debt.
If we are unable to meet interest, principal or lease payments, or satisfy
financial covenants, we could be required to seek renegotiation of such payments
and/or covenants or obtain additional equity or debt financing. If we raise
additional funds by issuing equity securities, our stockholders, including you,
may experience dilution. Further, such equity securities may have rights,
preferences or privileges senior to those of the Common Stock. To the extent we
finance activities with additional debt, we may become subject to certain
additional financial and other covenants that may restrict our ability to pursue
our growth strategy and to pay dividends on the Common Stock. We cannot assure
you that any such efforts would be successful or timely or that the terms of any
such financing or refinancing would be acceptable to us. See "-- We May Need
Additional Funds to Implement Our Growth Strategy."
In March 1999, Standard & Poors ("S&P") lowered our corporate credit and
bank loan ratings from B+ to B- and our subordinated debt rating from B- to CCC.
S&P stated that it took this action in light of our high debt leverage and the
impact of PPS. Our debt remains on CreditWatch with negative implications.
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WE HAVE LIMITED EXPERIENCE WITH THE NEW MEDICARE PROSPECTIVE PAYMENT SYSTEM FOR
SKILLED NURSING FACILITIES
The BBA, enacted in August 1997, made numerous changes to the Medicare and
Medicaid programs that are significantly affecting our operations. The BBA
provides for the phase-in of PPS for skilled nursing facilities over a four year
period effective January 1, 1999 for our owned and leased facilities other than
the facilities we acquired in the Facility Acquisition, which facilities will
become subject to PPS on June 1, 1999. Under PPS, Medicare will pay skilled
nursing facilities a fixed fee per patient day based on the acuity level of the
patient to cover all post-hospital extended care routine service costs, as well
as substantially all items and services, such as rehabilitation therapy,
furnished during a covered stay for which reimbursement was formerly made
separately under Medicare. During the first three years of the phase-in,
reimbursement will be based on a blend of the facility's historical costs and
federal costs. Thereafter, the per diem rates will be based 100% on federal
costs. It is unclear what the impact of PPS will be on us, and we cannot assure
you that the implementation of PPS will not have a material adverse effect on
our results of operations and financial condition. To date, the implementation
of PPS has resulted in reduced demand for, and reduced operating margins from,
the rehabilitation services we provide to third parties because such providers
are admitting fewer Medicare patients and are reducing utilization of
rehabilitation services.
The profitability of our inpatient services segment will be significantly
affected by the amount of the federally established per diem rate and our cost
of providing care. There can be no assurance that the per diem rate will cover
our cost of providing care, particularly with respect to higher acuity patients.
Although our cost of care for subacute patients generally exceeded regional
reimbursement limits established under Medicare prior to the implementation of
PPS, we were historically able to recover a significant portion of these excess
costs. However, under PPS we will receive reimbursement at a pre-established
daily rate, regardless of our cost of care. We cannot assure you that this daily
rate, which over time will be based less on our historical cost of care and more
on a blended rate based on all facilities' costs of care, will be sufficient to
cover our actual cost of care and to provide us with a reasonable profit. As a
result, there can be no assurance that our financial condition and results of
operations will not be materially and adversely affected.
The BBA also reduced significantly Medicare payment amounts for oxygen and
oxygen equipment, and froze fees for durable medical equipment and certain
infusion levels. There can be no assurance that these fees will cover our cost
of providing such services. As a result, there can be no assurance that our
financial condition and results of operations will not be materially and
adversely affected.
SUCCESS OF OUR GROWTH STRATEGY MAY BE LIMITED BY OUR ABILITY TO ACQUIRE OTHER
BUSINESSES AND TO GROW THROUGH INTERNAL DEVELOPMENT
Our growth strategy involves growth through acquisitions and internal
development and, as a result, we are subject to various risks associated with
this growth strategy. Our planned expansion and growth require that we expand
our home respiratory, infusion and durable medical equipment services through
the acquisition of additional providers and that we acquire, or establish
relationships with, third parties which provide post-acute care services which
we do not currently provide and that we acquire, lease or acquire the right to
manage for others additional facilities. Such expansion and growth will depend
on our ability to create demand for our post-acute care programs, the
availability of suitable acquisition, lease or management candidates and our
ability to finance such acquisitions and growth. The successful implementation
of our post-acute healthcare system will depend on our ability to expand the
amount of post-acute care services we offer directly to our patients rather than
through third-party providers. However, we may not be able to locate suitable
acquisition candidates, complete acquisitions or successfully integrate acquired
facilities and companies into our operations. Even if we successfully accomplish
the foregoing, it will not guaranty that our post-acute healthcare system,
including the capitation of rates, can be successfully implemented. The
post-acute care market is highly competitive, and we face substantial
competition from hospitals, subacute care providers, rehabilitation providers
and home healthcare providers, including competition for acquisitions. We
anticipate that competition for acquisition opportunities will intensify due to
the ongoing consolidation in the healthcare industry. See "-- The Industry in
Which We Compete is Highly Competitive."
7
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The successful integration of acquired businesses is important to our
future financial performance. We may not achieve the anticipated benefits from
any acquisition unless the operations of the acquired business are successfully
combined with ours in a timely manner. The integration of our acquisitions will
require substantial attention from our management. The diversion of the
attention of our management, and any difficulties encountered in the transition
process, could have a material adverse effect on our operations and financial
results. 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. In addition, the process of integrating the various
businesses could also 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 our operations and financial results. There can be no
assurance that we will realize any of the anticipated benefits from our
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 our profitability.
Our current and anticipated future growth has placed, and will continue to
place, significant demands on our management, operational and financial
resources. Our ability to manage our growth effectively will require us to
continue to improve our operational, financial and management information
systems and to continue to attract, train, motivate, manage and retain key
employees. We may not be able to manage our expanded operations effectively. See
"-- We May Need Additional Funds to Implement Our Growth Strategy."
We may not be successful in implementing our strategy or in responding to
ongoing changes in the healthcare industry which may require adjustments to our
strategy. If we are unable to implement our strategy successfully or do not
respond timely and adequately to ongoing changes in the healthcare industry, our
business, financial condition and results of operations will be materially
adversely affected.
WE MAY NEED ADDITIONAL FUNDS TO IMPLEMENT OUR GROWTH STRATEGY
Our growth strategy requires substantial capital for the acquisition of
additional service providers and geriatric care facilities. The effective
integration, operation and expansion of our existing businesses will also
require substantial capital. We expect to finance new acquisitions from a
combination of funds from operations, borrowings under our bank credit facility
and the issuance of debt and equity securities. We may raise additional capital
through the issuance of long-term or short-term debt or the issuance of
additional equity securities in private or public transactions, at such times as
we deem 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. We may not be able to
obtain financing for future acquisitions or for the integration and expansion of
existing businesses and operations on terms which we find acceptable or at all.
Our bank credit facility limits our ability to make acquisitions, and certain of
the indentures under which our outstanding senior subordinated debt securities
were issued limit our ability to incur additional indebtedness unless certain
financial tests are met. See "-- Our Substantial Indebtedness Could Limit Our
Growth and Our Ability to Respond to Changing Conditions."
WE RELY ON THIRD PARTY PAYORS TO PAY FOR OUR SERVICES
We receive payment for services rendered to patients from private insurers
and patients themselves, from the Federal government under Medicare, and from
the states in which we operate 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 us, which has adversely affected, and may
continue to adversely affect, our margins, particularly in our inpatient
facilities. Aspects of certain healthcare reform proposals, such as cutbacks in
the Medicare and Medicaid programs, reductions in Medicare reimbursement rates
8
<PAGE>
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 us. The BBA makes
numerous changes to the Medicare and Medicaid programs which will significantly
impact our business and financial results. We cannot assure you that we will be
reimbursed by Medicare and private insurers in amounts that are adequate to
cover our costs of providing services and to provide us with a reasonable
profit. Significant limits on the scope of services reimbursed and on
reimbursement rates and fees could have a material adverse effect on our results
of operations and financial condition. See "-- Additional Healthcare Reform
Measures Could Adversely Affect Our Business." During the years ended December
31, 1996, 1997 and 1998, we derived approximately 62%, 46% and 46%,
respectively, of our patient revenues from Medicare and Medicaid.
The sources and amounts of our patient revenues derived from our operation
of our geriatric care facilities are determined by a number of factors,
including licensed bed capacity of our facilities, occupancy rate, the mix of
patients and the rates of reimbursement among payor categories (private,
Medicare and Medicaid). Changes in the mix of our patients among the private
pay, Medicare and Medicaid categories can significantly affect our
profitability. We also contract with private payors, including health
maintenance organizations and other managed care organizations, to provide
certain healthcare services to patients for a set per diem payment for each
patient. The rates we receive from those payors may not be adequate to cover our
cost of providing services to covered beneficiaries.
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 us as a preferred provider and/or engage our
competitors as a preferred or exclusive provider, our business could be
materially adversely affected. In addition, private payors, including managed
care payors, increasingly are demanding discounted fee structures or the
assumption by healthcare providers of all or a portion of the financial costs
through prepaid capitation.
ADDITIONAL HEALTHCARE REFORM MEASURES COULD ADVERSELY AFFECT OUR BUSINESS
In addition to extensive existing government healthcare regulation, in
recent years a number of laws have been enacted which have effected major
changes in the healthcare system, both nationally and at the state level. The
BBA makes numerous changes to the Medicare and Medicaid programs which will
significantly impact us. 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 (subsequently delayed to October 1, 2000), 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. Our inability to provide inpatient services
and/or home respiratory, infusion and durable medical equipment services at a
cost below the established Medicare fee schedule could have a material adverse
effect on our home healthcare operations, post-acute care network and business
generally. We expect 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 our business. See "-- We Rely on Third Party Payors to Pay for Our
Services." There can be no assurance that currently proposed or future
healthcare legislation or
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other changes in the administration or interpretation of governmental healthcare
programs will not have an adverse effect on our business 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 ours,
and may similarly affect the price of our Common Stock in the future. See "--
Government Regulation Could Adversely Affect Our Business ."
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 acuity
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. 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 began January 1, 1999 for our owned and leased
skilled nursing facilities other than the facilities we acquired from
HEALTHSOUTH, which facilities will become subject to prospective payment on June
1, 1999. Prospective payment for skilled nursing facilities which we manage
becomes 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.
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, and we believe many
states will move towards a prospective payment type system similar to PPS.
While we have prepared certain estimates of the impact of PPS, it is not
possible to fully quantify the effect of the recent legislation, the
interpretation or administration of such legislation or any other governmental
initiatives on our business. Accordingly, there can be no assurance that the
impact of PPS will not be greater than estimated or that these legislative
changes or any future healthcare legislation will not adversely affect our
business.
We anticipate that federal and state governments will continue to review
and assess alternative healthcare delivery systems and payment methodologies.
There can be no assurance that future healthcare legislation or other changes in
the administration or interpretation of government healthcare programs will not
have an adverse effect on our operations.
GOVERNMENT REGULATION COULD ADVERSELY AFFECT OUR BUSINESS
The healthcare industry generally, including us, is 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 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 our business. The failure to maintain or renew any required
regulatory approvals or licenses could prevent us from offering existing
services or from obtaining reimbursement. In certain circumstances, our failure
to comply at one facility may affect our ability to obtain or maintain licenses
or approvals under Medicare and Medicaid programs at other facilities. In
10
<PAGE>
addition, our 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 ordinary course of our business, our facilities receive notices of
deficiencies for failure to comply with various regulatory requirements.
Generally, the facility and the reviewing agency will agree upon the measures to
be taken to bring the facility into compliance with regulatory requirements. In
some cases or upon repeat violations, the reviewing agency may take adverse
actions against a facility, including the imposition of fines, temporary
suspension of admission of new patients to the facility, suspension or
decertification from participation in the Medicare or Medicaid programs, and, in
extreme circumstances, revocation of a facility's license. These adverse actions
may adversely affect the ability of the facility to operate or to provide
certain services and its eligibility to participate in the Medicare or Medicaid
programs. In addition, such adverse actions may adversely affect other
facilities we operate. There can be no assurance that we will be able to
maintain compliance with all regulatory requirements or that it will not be
required to expend significant amounts to do so.
We are 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 "OIG"), 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. We seek to structure our business arrangements in
compliance with these laws and, from time to time, we have 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 our practices.
In 1995, a major anti-fraud demonstration project, "Operation Restore
Trust," was announced by the OIG. A primary purpose for the project was to
scrutinize the activities of healthcare providers which are reimbursed under the
Medicare and Medicaid programs. Investigative efforts focused on skilled nursing
facilities, home health and hospice agencies and durable medical equipment
suppliers, as well as several other types of healthcare services. Operation
Restore Trust originally focused on California, Florida, Illinois, New York and
Texas, but has now been expanded to all states. This effort is focused on
problems with claims for services not rendered or not provided as claimed and
claims falsified to circumvent coverage limitations on medical supplies. We
expect these types of efforts to continue.
False claims are prohibited pursuant to criminal and civil statutes.
Criminal provisions prohibit filing false claims or making false statements to
receive payment or certification under Medicare or Medicaid, or failing to
refund overpayments or improper payments; offenses for violation are felonies
punishable by up to five years' imprisonment and/or $25,000 fines. Civil
provisions prohibit the knowing filing of a false claim or the knowing use of
false statements to obtain payment; penalties for violations are fines of not
less than $5,000 nor more than $10,000, plus treble damages, for each claim
filed. Suits alleging false claims can be brought by individuals, including
employees and competitors, who share in any amounts paid by the entity to the
government in fines or settlement. In addition to qui tam actions brought by
11
<PAGE>
private parties, we believe that governmental enforcement activities have
increased at both the federal and state levels. If it were found that any of our
practices failed to comply with any of the anti-fraud provisions discussed in
the paragraphs above, our business could be materially adversely affected.
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 before we can expand our 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.
We are 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 our business, results of operations and financial condition.
See "-- Additional Healthcare Reform Measures Could Adversely Affect Our
Business."
THE INDUSTRY IN WHICH WE COMPETE IS HIGHLY COMPETITIVE
The healthcare industry is highly competitive and is subject to continuing
changes in the provision of services and the selection and compensation of
providers. We compete on a local and regional basis with other providers on the
basis of the breadth and quality of our services, the quality of our facilities
and, to a more limited extent, price. We also compete with other providers in
the acquisition and development of additional facilities and service providers.
Our 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 other home respiratory
care, infusion and durable medical equipment companies and similar institutions,
many of which have significantly greater financial and other resources than we
do. In addition, we compete 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 us. New service introductions
and enhancements, acquisitions, continued industry consolidation and the
development of strategic relationships by our competitors could cause a
significant decline in sales or loss of market acceptance of our services or
intense price competition or make our 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 our business. There can be no
assurance that we will be able to compete successfully against current or future
competitors or that competitive pressures will not have a material adverse
effect on our business, financial condition and results of operations. We also
compete with various healthcare providers with respect to attracting and
retaining qualified management and other personnel. Any significant failure by
us to attract and retain qualified employees could have a material adverse
effect on our business, results of operations and financial condition.
CERTAIN PROVISIONS OF DELAWARE LAW AND OUR CORPORATE GOVERNANCE DOCUMENTS MAY
AFFECT A THIRD PARTY'S ABILITY TO ACQUIRE IHS
Our 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 our Common Stock. Certain of these provisions allow
us 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, our Stockholders' Rights Plan,
which provides for discount purchase rights to certain of our stockholders upon
certain acquisitions of 20% or more of the outstanding shares of
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<PAGE>
Common Stock, may also inhibit a change in control of IHS. As a Delaware
corporation, we are subject to Section 203 of the DGCL, which, in general,
prevents an "interested stockholder" (defined generally as a person owning 15%
or more of the corporation's outstanding voting stock) from engaging in a
"business combination" (as defined) for three years following the date such
person became an interested stockholder unless certain conditions are satisfied.
OUR STOCK PRICE HAS BEEN VOLATILE
There has been significant volatility in the market price of our Common
Stock, and it is likely that the price of our Common Stock will fluctuate in the
future. Factors such as the following could have a significant effect on our
stock price:
o fluctuations in our operating results;
o changes in government regulations;
o developments affecting our competitors;
o changes in analysts' recommendations regarding us and our competitors;
and
o changes in general conditions in the economy, the financial markets or
the healthcare industry.
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 our business, operating results and financial condition.
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<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 November 25, 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>
FARMERS AND MERCHANTS BANK & TRUST, TRUSTEE(1) .......... 376,471 376,471 0
FBO Integrated Health Services, Inc. Supplemental
Deferred Compensation Plan
SMITH BARNEY PRIVATE TRUST COMPANY, TRUSTEE(2) .......... 282,353 282,353 0
FBO Integrated Health Services, Inc. Key
Employee Supplemental Executive Retirement Plan (Plan A)
ACCUCARE MEDICAL CORPORATION(3)
Walter/Hendry Revocable Trust of 1998 .................. 82,918 82,918 0
Steven Richards & Associates, Inc.(4) .................. 10,727 8,701 2,026
Paul A. Bernou ......................................... 3,455 3,455 0
CoreStates Bank, N.A., as escrow agent(5) .............. 33,898 33,898 0
AMERICAN OXYGEN SERVICES OF TENNESSEE, INC.(6)
Timothy O. Bates ....................................... 9,149 9,149 0
Michael Campbell ....................................... 27,448 27,448 0
Amerimed Healthcare, Inc. .............................. 18,299 18,299 0
Crestar Bank, as escrow agent(5) ....................... 6,165 6,165 0
THOMAS D. SCOTT(7) ...................................... 24,089 14,089 10,000
INDIANA RESPIRATORY CARE, INC.(8)
Indiana Respiratory Care, Inc. ......................... 47,850 47,850 0
Strausser, Inc.(9) ..................................... 2,696 2,696 0
CoreStates Bank, N.A., as escrow agent(5) .............. 16,849 16,849 0
FIRST COMMUNITY CARE, INC.(10)
Aaron Bowser ........................................... 232 80 152
Gary Colella ........................................... 2,779 958 1,821
Dacian Connell ......................................... 1,696 585 1,111
James Connell .......................................... 12,107 4,175 7,932
Maurice Jack Connell ................................... 9,204 3,174 6,030
Peter Cummiskey ........................................ 7,830 2,700 5,130
Francis Fermoile ....................................... 3,114 1,074 2,040
Elizabeth Fox .......................................... 1,696 585 1,111
Under Uniform Gifts To Minors
Emily Fox .............................................. 1,696 585 1,111
Under Uniform Gifts To Minors ........................
Patricia Connell Fox ................................... 12,305 4,243 8,062
Gregory Guay ........................................... 4,832 1,666 3,166
Richard Keilman ........................................ 175 60 115
John Koss .............................................. 175 60 115
Joan M. Myers .......................................... 175 60 115
George Navik ........................................... 175 60 115
</TABLE>
14
<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>
Peter Parisi ................................................. 175 60 115
Maureen DaCosta Redmond ...................................... 12,107 4,175 7,932
Zebadiah Redmond ............................................. 1,696 585 1,111
Joann Shaw Smith and James M. Shaw, Joint Tenants with
Rights of Survivorship ..................................... 1,105 381 724
Constance Verity ............................................. 350 121 229
David Verity ................................................. 7,830 2,700 5,130
Betty Watts .................................................. 232 80 152
Richard J. Wilwohl ........................................... 3,178 1,096 2,082
John Young ................................................... 5,763 1,988 3,775
MEDICAL CONVALESCENT AIDS OF PINELLAS, INC. D/B/A MEDAIDS(11)
Arthur Tepper and Elizabeth Tepper, as Trustees, FBO Arthur
Tepper UTD 7/14/78 ......................................... 88,477 47,245 37,532
Joseph D. Valenti, as Trustee, FBO Joseph D. Valenti
Revocable Trust UTD 6/10/98 ................................ 77,879 45,221 37,326
Samuel J. Jarczynski & Helen Leann Jarczynski JTWROS ......... 28,153 17,252 10,901
Thomas A. Valenti, as Trustee, FBO Thomas A. Valenti Trust
UTD 5/22/96 ................................................ 6,736 4,406 2,330
Steven G. Tepper ............................................. 1,442 885 557
</TABLE>
- ----------
(1) Represents shares of Common Stock we contributed to our deferred
compensation plan for certain of our senior executives in lieu of cash.
(2) Represents shares of Common Stock we contributed to our retirement plan
for Dr. Robert N. Elkins, our Chairman of the Board, Chief Executive
Officer and President, in lieu of cash.
(3) Except for Steven Richards & Associates, Inc. (see note 4 below), these
stockholders received their shares from us in connection with our
acquisition of substantially all of the assets of Accucare Medical
Corporation ("Accucare") pursuant to an Agreement for Sale and Purchase of
Assets and Restrictive Covenants, dated as of September 25, 1998. Of these
shares, 33,898 shares are being held in escrow by our escrow agent,
CoreStates Bank, N.A., to secure indemnification obligations and purchase
price adjustments. Purchase price adjustments will be based upon a review
of the operating profit of Accucare from September 1, 1998 to August 31,
2000.
(4) This stockholder received its shares as a finder's fee in connection with
the sale of assets of Accucare.
(5) Does not include shares of Common Stock held in escrow in respect of other
acquisitions we made.
(6) These stockholders received their shares from us in connection with our
acquisition of substantially all of the assets of American Oxygen Services
of Tennessee, Inc. ("American Oxygen") pursuant to an Agreement for Sale
and Purchase of Assets, dated as of August 14, 1998. Of these shares, an
aggregate of 6,165 shares are being held in escrow by our escrow agent,
Crestar Bank, to secure indemnification obligations.
(7) This stockholder received his 14,089 shares from us as an engagement fee
in connection with our appointment as a manager of two skilled nursing
facilities pursuant to a Management Agreement, dated as of September 1,
1998.
(8) Except for Strausser, Inc. (see note 9 below), these stockholders received
their shares in connection with our acquisition of substantially all of
the assets of Indiana Respiratory Care, Inc. ("Indiana Respiratory")
pursuant to an Agreement for Sale and Purchase of Assets and Restrictive
Covenants, dated as of November 18, 1998. Of these shares, 16,849 shares
are being held in escrow by our escrow agent, CoreStates, Bank, N.A., to
secure indemnification obligations and purchase price adjustments.
Purchase price adjustments will be based upon a review of the operating
profit of Indiana Respiratory from December 1, 1998 to November 30, 2000.
(9) This stockholder received its shares as a finder's fee in connection with
the sale of assets of Indiana Respiratory.
(10) These stockholders received their shares from us as part of a post-closing
adjustment to the purchase price for substantially all of the assets of
First Community Care, Inc. ("First Community Care") pursuant to an
Agreement for Sale and Purchase of Assets and Restrictive Covenants dated
as of April 29, 1998.
(11) Information as of March 26, 1999. These stockholders received their shares
from us as part of post-closing adjustments to the purchase price in
connection with our acquisition of Medicare Convalescent Aids of Pinellas,
Inc. d/b/a Medaids pursuant to the Agreement and Plan of Reorganization
dated as of February 10, 1998.
TRANSACTIONS INVOLVING SELLING STOCKHOLDERS
Effective November 19, 1998, we contributed 376,471 shares of our Common
Stock, having a value of $4 million, from our treasury to our Supplemental
Deferred Compensation Plan for our senior officers. Our contribution of stock
was in lieu of a cash contribution.
15
<PAGE>
Effective November 19, 1998, we contributed 282,353 shares of our Common
Stock, having a value of $3 million, from our treasury to our Key Employee
Supplemental Executive Retirement Plan (Plan A), in which Dr. Robert N. Elkins,
our Chairman of the Board, Chief Executive Officer and President, is the sole
participant. Our contribution of stock was in lieu of a cash contribution.
On September 25, 1998, we acquired substantially all of the assets of
Accucare Medical Corporation, which operates a home respiratory care and durable
medical equipment business in California. The purchase price for the assets and
certain restrictive covenants agreed to by the seller and its stockholders was
$3.5 million, less $646,500 in assumed liabilities, of which we paid $2,583,500
through the issuance of 128,972 shares of our Common Stock. The stockholders of
Accucare are now offering their shares pursuant to this prospectus.
On August 14, 1998, we acquired substantially all of the assets of American
Oxygen Services of Tennessee, Inc., which operates a home respiratory care and
durable medical equipment business in Florida and Tennessee. The purchase price
for the assets was approximately $2.0 million. We paid this purchase price
through the issuance of 61,061 shares of our Common Stock. The stockholders of
American Oxygen are now offering their shares pursuant to this prospectus.
On September 1, 1998, we acquired substantially all of the assets of
Pinnacle Health Care, Inc., which operates a home respiratory care and durable
medical equipment business in Florida. The purchase price for the assets and
certain restrictive covenants agreed to by the seller and its shareholders was
$223,000, all of which we paid in cash. In connection with this acquisition, our
subsidiary entered into a management agreement with a subsidiary of Pinnacle,
which operates two skilled nursing facilities in Louisiana, to manage the
facilities. In consideration for the appointment of our subsidiary as a manager
of these facilities, we issued to Mr. Scott, a principal owner of the Pinnacle
subsidiary, 14,089 shares of our Common Stock, which he is now offering pursuant
to this prospectus.
On November 18, 1998, we acquired substantially all of the assets of
Indiana Respiratory Care, Inc., which operates a home respiratory care and
durable medical equipment business in Indiana. The purchase price for the assets
and certain restrictive covenants agreed to by the seller and its stockholders
was $1.2 million, of which we paid $1.0 million through the issuance of 67,395
shares of our Common Stock. The stockholders of Indiana Respiratory are now
offering their shares pursuant to this prospectus.
On April 30, 1998, we acquired substantially all of the assets of First
Community Care, Inc., which operates a home respiratory and durable medical
equipment business in New York. The purchase price for the assets and certain
restrictive covenants agreed to by the seller and its stockholders was $8.6
million, of which we paid $2,282,000 through the issuance of 59,376 shares of
our Common Stock. On September 18, 1998, pursuant to the agreement between the
parties, we issued an additional 31,251 shares of our Common Stock to the
stockholders of First Community Care as a post-closing purchase price
adjustment. The stockholders of First Community Care are now offering their
additional shares pursuant to this prospectus.
On February 11, 1998, we acquired through merger all of the outstanding
capital stock of Medicare Convalescent Aids of Pinellas, Inc. d/b/a Medaids,
which operates a home respiratory and durable medical equipment business in
Florida. We paid $2,480,000 of the $3.7 million merger consideration through the
issuance of 83,057 shares of our Common Stock. In the first quarter of 1999,
pursuant to the agreement between the parties, we issued an additional 115,009
shares of our Common Stock to the former stockholders of Medaids as post-closing
purchase price adjustments. The former stockholders of Medaids are now offering
their additional shares pursuant to this prospectus.
16
<PAGE>
PLAN OF DISTRIBUTION
We are registering the shares on behalf of the Selling Stockholders. We are
paying all costs, expenses and fees in connection with the registration of the
shares offered hereby. 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 us 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 stockholders of Accucare, as a group, have agreed not to sell in excess
of 75,000 shares of our Common Stock during any consecutive 30-day period. The
former stockholders of Medaids, as a group, and the former stockholders of Prime
Medical Services, Inc., as a group, have jointly agreed not to sell in excess of
30,000 shares of our Common Stock during any 30-day period. Each of the selling
stockholders (except for the former stockholders of American Oxygen and Indiana
Respiratory Care) has agreed that all sales of our Common Stock will be effected
solely through Salomon Smith Barney, Inc. as broker. The stockholders of Indiana
Respiratory Care, as a group, have agreed that all sales of their shares of our
Common Stock will be effected solely through A.G. Edwards & Sons, Inc., as
broker.
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 Exchange Act, 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
us 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 us by Fulbright & Jaworski L.L.P., New
York, New York. At April 1, 1999, partners of Fulbright & Jaworski L.L.P. owned
an aggregate of 300 shares of Common Stock.
17
<PAGE>
EXPERTS
The consolidated financial statements of Integrated Health Services, Inc.
and subsidiaries as of December 31, 1997 and 1998 and for each of the years in
the three-year period ended December 31, 1998 have been incorporated by
reference in this prospectus and elsewhere in the Registration Statement in
reliance upon the report dated March 30, 1999 of KPMG LLP, independent certified
public accountants, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
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 dated April 14, 1997 of KPMG
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 LLP refers to the change in accounting method in 1996 to adopt
Statement of Financial Accounting Standards No. 121 relating to the impairment
of long-lived assets.
The financial statements of RoTech Medical Corporation as of July 31, 1996
and 1997 and for each of the years in the three year period ended July 31, 1997
incorporated in this prospectus and in the Registration Statement by reference
from IHS' Current Report on Form 8-K (dated October 21, 1997) have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report dated
September 18, 1997 (October 21, 1997 as to Note 1), 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 two year period ended May 31,
1997 incorporated in this prospectus and in the Registration Statement by
reference from IHS' Amendment No. 1 to Current Report on Form 8-K/A (dated
December 31, 1997) have been audited by Arthur Andersen LLP, independent public
accoutnants, as indicated in their report with respect thereto, which is
incorporated herein by reference and has been so incorporated in reliance upon
the authority of such firm as experts in accounting and auditing.
18
<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 .......... $ 1,534.00
Legal, accounting and printing fees and expenses ............... 25,000.00*
Miscellaneous .................................................. 3,766.00*
------------
Total ....................................................... $ 40,000.00*
=============
</TABLE>
- ----------
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the General Corporation Law of the State of Delaware ("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 Accucare Shares, the American Oxygen
Shares, the Indiana Respiratory Shares, the Pinnacle Health Shares, the First
Community Care Shares and the Medaids Shares were issued (Exhibits 2.1, 2.2,
2.3, 2.4, 2.5, 2.6 and 2.7, 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>
2.1 --Agreement for Sale and Purchase of Assets and Restrictive
Covenants made as of September 25, 1998 by and among Accucare
Medical Corporation, Robert D. Walter, Marcia Hendry-Walter and
Paul Bernou, Integrated of Garden Terrace, Inc. and Integrated
Health Services, Inc.
2.2 --Agreement for Sale and Purchase of Assets made as of August
14, 1998 by and among American Oxygen Services of Tennessee,
Inc., Timothy O. Bates, Michael Campbell, Amerimed, Healthcare,
Inc., IHS Acquisition XXVII, Inc. and Integrated Health
Services, Inc.
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
2.3 --Agreement for Sale and Purchase of Assets and Restrictive Covenants made
as of November 18, 1998 by and among Indiana Respiratory Care, Inc., J.
Bard Beesley, Integrated of Westcliff Park, Inc. and Integrated Health
Services, Inc.
2.4 --Agreement for Sale and Purchase of Assets and Restrictive Covenants made
as of September 1, 1998 by and among Pinnacle Health Care, Inc., Brad
Levine, Richard R. Rizzo, Harold Winters and Doug Shirley, and RoTech
Oxygen and Medical Equipment, Inc.
2.5 --Management Agreement made and entered into effective as of September 1,
1998 by and between Pinnacle Health Facilities of Louisiana, LLC and
Integrated Health Services at Franklin, Inc.
2.6 --Agreement for Sale and Purchase of Assets and Restrictive Covenants made
as of April 29, 1998 by and among First Community Care, Inc. ("Seller")
each of the holders of capital stock of Seller, Northeast Medical
Equipment, Inc. and Integrated Health Services, Inc. (1)
2.7 --Agreement and Plan of Merger dated as of February 10, 1998 among
Integrated Health Services, Inc. and RoTech Oxygen & Medical Equipment,
Inc. and Medicare Convalescent Aids of Pinellas, Inc. d/b/a Medaids and
the Shareholders of the Constituent Corporations. (1)
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 LLP.
23.2 --Consent of Deloitte & Touche LLP.
23.3 --Consent of Arthur Andersen LLP
23.4 --Consent of Marshall A. Elkins, Esq. (included in Exhibit 5).
24 --Power of Attorney (included on signature page).
</TABLE>
- ----------
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-3 (No. 333-59891).
(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.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (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 April 6, 1999.
INTEGRATED HEALTH SERVICES, INC.
By: /s/ ROBERT N. ELKINS
----------------------------------------
Robert N. Elkins, Chairman of the Board,
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert N. Elkins and C. Taylor Pickett, jointly
and severally, his true and lawful attorneys-in-fact and agents, each with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
registration statement, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that each of said attorneys-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- ---------------------------------- --------------
<S> <C> <C>
/s/ ROBERT N. ELKINS Chairman of the Board, President April 6, 1999
- ----------------------------- and Chief Executive Officer
(Robert N. Elkins) (Principal Executive Officer)
/s/ EDWIN M. CRAWFORD Director April 6, 1999
- -----------------------------
(Edwin M. Crawford)
/s/ KENNETH M. MAZIK Director April 6, 1999
- -----------------------------
(Kenneth M. Mazik)
/s/ ROBERT A. MITCHELL Director April 6, 1999
- -----------------------------
(Robert A. Mitchell)
/s/ CHARLES W. NEWHALL, III Director April 6, 1999
- -----------------------------
(Charles W. Newhall, III)
/s/ TIMOTHY F. NICHOLSON Director April 6, 1999
- -----------------------------
(Timothy F. Nicholson)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- ----------------------------------- --------------
<S> <C> <C>
/s/ JOHN L. SILVERMAN Director April 6, 1999
- -----------------------------
(John L. Silverman)
/s/ GEORGE H. STRONG Director April 6, 1999
- -----------------------------
(George H. Strong)
/s/ C. TAYLOR PICKETT Executive Vice President- April 6, 1999
- ----------------------------- Chief Financial Officer (Principal
(C. Taylor Pickett) Financial Officer)
/s/ W. BRADLEY BENNETT Executive Vice President- April 6, 1999
- ----------------------------- Chief Accounting Officer
(W. Bradley Bennett) (Principal Accounting Officer)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION PAGE NO.
- ----------- ----------------------------------------------------------------------------------------------- ---------
<S> <C>
2.1 -- Agreement for Sale and Purchase of Assets and Restrictive Covenants made as of September
25, 1998 by and among Accucare Medical Corporation, Robert D. Walter, Marcia
Hendry-Walter and Paul Bernou, Integrated of Garden Terrace, Inc. and Integrated Health
Services, Inc.
2.2 -- Agreement for Sale and Purchase of Assets made as of August 14, 1998 by and among
American Oxygen Services of Tennessee, Inc., Timothy O. Bates, Michael Campbell,
Amerimed, Healthcare, Inc., IHS Acquisition XXVII, Inc. and Integrated Health Services, Inc.
2.3 -- Agreement for Sale and Purchase of Assets and Restrictive Covenants made as of November
18, 1998 by and among Indiana Respiratory Care, Inc., J. Bard Beesley, Integrated of Westcliff
Park, Inc. and Integrated Health Services, Inc.
2.4 -- Agreement for Sale and Purchase of Assets and Restrictive Covenants made as of September
1, 1998 by and among Pinnacle Health Care, Inc., Brad Levine, Richard R. Rizzo, Harold
Winters and Doug Shirley, and RoTech Oxygen and Medical Equipment, Inc.
2.5 -- Management Agreement made and entered into effective as of September 1, 1998 by and
between Pinnacle Health Facilities of Louisiana, LLC and Integrated Health Services at
Franklin, Inc.
2.6 -- Agreement for Sale and Purchase of Assets and Restrictive Covenants made as of April 29, 1998
by and among First Community Care, Inc. ("Seller") each of the holders of capital stock of
Seller, Northeast Medical Equipment, Inc. and Integrated Health Services, Inc. (1)
2.7 -- Agreement and Plan of Merger dated as of February 10, 1998 among Integrated Health
Services, Inc. and RoTech Oxygen & Medical Equipment, Inc. and Medicare Convalescent Aids
of Pinellas, Inc. d/b/a Medaids and the Shareholders of the Constituent Corporations. (1)
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 LLP.
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of Arthur Andersen LLP
23.4 -- Consent of Marshall A. Elkins, Esq. (included in Exhibit 5).
24 -- Power of Attorney (included on signature page).
</TABLE>
- ----------
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-3 (No. 333-59891).
(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 2.1
AGREEMENT FOR SALE AND PURCHASE OF ASSETS
AND RESTRICTIVE COVENANTS
THIS AGREEMENT is made as of Sept. 25, 1998, by and among ACCUCARE MEDICAL
CORPORATION, a California corporation, having its principal place of business at
2900 Telegraph Avenue, Oakland, California 94609 (the "SELLER" or the
"CORPORATION"), ROBERT D. WALTER, MARCIA HENDRY-WALTER AND PAUL BERNOU, the sole
shareholders of Seller (the "SHAREHOLDERS" and each a "SHAREHOLDER"), INTEGRATED
OF GARDEN TERRACE, INC., a Delaware corporation (the "BUYER") and INTEGRATED
HEALTH SERVICES, INC., a Delaware corporation ("IHS").
W I T N E S S E T H :
WHEREAS, Seller operates a home respiratory care and durable medical
equipment business in the State of California (the "BUSINESS"); and
WHEREAS, Shareholders are the sole shareholders of the Seller; and
WHEREAS, Buyer is a wholly owned subsidiary of IHS; and
WHEREAS, Seller wishes to sell, and Buyer desires to purchase from Seller,
substantially all of the assets of the Business in exchange for voting shares of
the common stock, par value $.001, of IHS (the "IHS STOCK") in a transaction
intended to qualify as a "reorganization" within the meaning of ss.368(a)(1)(c)
of the Internal Revenue Code of 1986, as amended (the "CODE"), it being
contemplated by the Seller and Buyer that the Seller will thereafter, as an
integral part of the transaction, distribute the IHS Stock to the Shareholders
in complete liquidation of the Seller and dissolve; and Buyer also desires to
acquire from Seller and each Shareholder, and each of Seller and each
Shareholder desires to grant to Buyer, covenants not to compete and other
restrictive covenants as described in paragraph 17 hereof (the "RESTRICTIVE
COVENANTS"); and
WHEREAS, the consent or approval of all persons necessary for the
consummation of the transactions contemplated hereby has been obtained,
including without limitation, all approvals of governmental authorities and
parties to any contracts to be assigned to Buyer in connection herewith.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, it is hereby agreed as follows:
1. Sale of Assets and Restrictive Covenants.
(a) The Assets. As of the Closing Date referred to below in paragraph
9, Seller shall sell transfer, convey and assign, free and clear of all liens,
claims, security interests, pledges, restrictions on transfer or use and other
encumbrances of any kind or nature whatsoever ("LIENS"), except for the Assumed
Liabilities (as defined in paragraph 6(b) herein), all of Seller's rights, title
and interest in, to or under:
-1-
<PAGE>
(i) Accounts Receivable. All of the accounts receivable of the
Business including, without limitation, all accounts receivable set forth
on the Schedule of Accounts Receivable Data attached hereto as Schedule
1(a)(i); and
(ii) Inventory; Fixed Assets. All inventory and fixed assets of
the Business, including, without limitation, all of the same set forth on
the Schedule of Inventory and Fixed Assets attached hereto as Schedule
1(a)(ii); and
(iii) Motor Vehicles. All motor vehicles of the Business,
including without limitation, all of the same set forth on the Schedule of
Motor Vehicles attached hereto as Schedule 1(a)(iii); and
(iv) Property Rights. All real property, easements and rights of
way permitting access to the Business; and
(v) Other Assets. All other assets of any kind, tangible or
intangible, real, personal or mixed, owned and used or held for use by
Seller in connection with the Business, including, without limitation, all
of the following: (A) the Patients' List of the Business, as described in
Schedule 1(a)(v)(A); (B) the telephone numbers listed on the Schedule of
Telephone Numbers and Licenses attached hereto as Schedule 1(a)(v)(B); (C)
all personal property, machinery and equipment, whether owned or leased
including, without limitation, the leasehold interests listed on Schedule
1(a)(v)(C); (D) all of Seller's prepaid assets; (E) rights under contracts,
agreements, including, without limitation, franchise agreements, and
instruments; and (F) all intangible rights of Seller of every kind and
description used in, or held for use in connection with, the operation of
the Business, including, without limitation, all intangible assets, and to
the extent permitted by applicable law, all licenses, permits and
authorizations.
(b) Excluded Assets. Notwithstanding the foregoing, the Assets shall
not include, and Seller shall not be deemed to have sold, transferred, conveyed
or assigned the following assets to Buyer: Seller's cash, Articles of
Incorporation, qualification to do business in any jurisdiction, taxpayer
identification number, minute books, stock transfer records and other documents
related specifically to Seller's corporate organization and maintenance
(collectively, "EXCLUDED ASSETS").
(c) Restrictive Covenants. Pursuant to paragraph 17 hereof, each of
Seller and each Shareholder is granting to Buyer the Restrictive Covenants.
2. Purchase Price; Method of Payment.
(a) Purchase Price. Buyer shall pay an amount for the Assets and the
Restrictive Covenants equal to Three Million Five Hundred Thousand Dollars
($3,500,000.00), less the amount of the Assumed Liabilities (as defined below in
paragraph 6), which amount of Assumed Liabilities shall be $646,500 (the
"PURCHASE PRICE"). The Purchase Price shall be allocated among the Assets and
the Restrictive Covenants in the manner set forth on the Allocation Schedule
attached hereto as Schedule 2(a), and the parties hereto expressly consent to
the allocation stated therein.
-2-
<PAGE>
(b) Method of Payment. At the Closing (as defined in paragraph 9),
Buyer shall pay, disburse, and deliver the Purchase Price as follows:
(i) IHS Stock having a value (using the Trade Price (as such term
is defined in paragraph 4(a)) to value such IHS Stock) equal to Three
Hundred Fifty Thousand ($350,000) Dollars (the "GENERAL ESCROW AMOUNT") and
Four Hundred Thousand ($400,000) Dollars (the "CLAW-BACK AMOUNT") (the
General Escrow Amount and the Claw-back Amount shall be referred to as the
"ESCROW FUND") shall be delivered to CoreStates Bank, N.A., as escrow agent
("Escrow Agent"), to be held by Escrow Agent during the Escrow Period (as
defined in paragraph 6(d), below) pursuant to the terms of a Escrow
Agreement, in the form attached hereto as Exhibit 2(b)(i) (the "ESCROW
AGREEMENT"). The entire Escrow Fund shall be subject to the provisions of
paragraphs 7 and 18 hereof.
(ii) IHS Stock having a value (using the Trade Price to value
such IHS Stock) equal to One Hundred Ninety Two Thousand Five Hundred
Dollars ($192,500) (the "BROKER'S FEE") shall be paid, on behalf of Seller,
to Steven Richards & Associates, Inc. (the "BROKER"), in satisfaction of
all fees and compensation due at the Closing to the Broker in connection
with the transactions contemplated by this Agreement. Buyer shall also pay
to Broker on behalf of Seller seven percent (7%) of any portion of the
General Escrow Amount and the Claw-back Amount if, when and to the extent
released to Seller, and any such payment shall be credited against the
amount of the Claw-back Amount payable to Seller. Seller represents and
warrants to Buyer that the Broker has acted as Seller's representative and
broker in connection with the transactions contemplated by this Agreement,
and authorizes and directs Buyer to withhold such sums from the Purchase
Price and disburse such sum directly to the Broker. Notwithstanding the
foregoing, IHS and Buyer shall not be required to make any such delivery to
the Broker unless the Broker shall have executed and delivered a
Confirmation Agreement in the form and substance of Exhibit 2(b)(ii)
hereto.
(iii) IHS Stock having a value (using the Trade Price to value
such IHS Stock) equal to One Million Nine Hundred Eleven Thousand Dollars
($1,911,000) (the balance of the Purchase Price), to the Shareholders.
3. Purchase Price Adjustment. The parties acknowledge that the Purchase
Price was determined using a multiple of the expected Annual Operating Profit
(as hereinafter defined) of the Business after the Closing, and such expected
Annual Operating Profit was based upon the Seller's best good faith estimate
thereof. Accordingly, if the average Annual Operating Profit during the period
commencing on September 1, 1998 and ending August 31, 2000 (the "APPLICABLE
PERIOD") shall be less than $700,000, then the Buyer shall be entitled to
receive an amount from the Seller equal to five times (5x) the amount of such
deficiency (the "CLAW-BACK PAYMENT"); provided that the Claw-back Payment shall
not exceed the Claw- back Amount. For purposes hereof, the term "ANNUAL
OPERATING PROFIT" shall be determined as set forth on Exhibit 3 attached hereto.
The parties further acknowledge that they have used their best efforts to
determine that the Purchase Price is consistent with the fair market value of
the Business and its assets as of the Closing, based in part on the projected
future revenues of the Business. The foregoing provisions of this paragraph 3
are intended solely to adjust the Purchase Price, if necessary, to reflect fair
market value and not to induce Seller or the Shareholders to refer or influence
the referral of any prospective client, customer or patient (collectively,
"PROSPECTIVE PATIENTS") to the Business or to recommend the Business to any
Prospective Patients. Accordingly, (i) prior to the Closing, Seller and the
Shareholders shall not engage in any marketing activities (including any direct
solicitation of Prospective Patients) except in the ordinary and usual course of
conducting the Business, consistent with lawful past practices, and (ii) after
the Closing, Seller and Shareholders shall not take any action, directly or
indirectly, to induce any Prospective Patients to become patients of the
Business.
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4. IHS Stock. A portion or all of the Purchase Price shall be payable by
means of the delivery of shares of IHS Stock issued to the Shareholders (in
contemplation of the liquidation and dissolution of Seller), as aforesaid, in
accordance with the following:
(a) Share Value. The number of shares of IHS Stock issuable upon
execution of this Agreement (the "EXECUTION DATE SHARE COUNT") shall be
calculated based upon a price per share of such stock equal to the average
closing New York Stock Exchange ("NYSE") price of such stock for the five (5)
trading day period immediately preceding the date which is two (2) trading days
before the date hereof (the "TRADE PRICE").
(b) Registration Rights. IHS will prepare and use its reasonable
commercial efforts to cause to be filed within one-hundred and twenty (120) days
following the Closing Date, and will use its reasonable commercial efforts to
have declared effective by the Securities and Exchange Commission (the
"COMMISSION"), a registration statement covering the resale of the IHS Stock
issued to the Shareholders in connection with this transaction, including the
shares, if any, issuable as a share adjustment pursuant to paragraph 4(c), under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), and IHS shall
maintain the effectiveness of such registration statement for a period of one
(1) year following the date it became effective (the "REGISTRATION DATE"),
except to the extent that an exemption from registration may be available.
(c) Share Adjustment. Promptly following the Share Adjustment Date (as
hereinafter defined), the number of shares deliverable as part of the Purchase
Price (including the shares delivered to the Broker, but excluding any other
shares that have previously been transferred by the Shareholders) shall be
re-calculated to be the number of shares of IHS Stock that would have been
delivered in lieu of such retained shares had the Recalculated Value (as defined
below) been used on the date hereof in lieu of the Trade Price with respect to
the portion of the Purchase Price represented by such retained shares. For
purposes hereof, the "RECALCULATED VALUE" shall mean the average closing NYSE
price for IHS Stock for the 5-trading day period ending on the Share Adjustment
Date (as defined below). If the number of shares as re-calculated under this
subparagraph (c) (the "ADJUSTED SHARE COUNT") exceeds the Execution Date Share
Count, IHS promptly shall deliver over to the Shareholders, and the Broker an
additional number of shares of IHS Stock as shall be equal to such excess, and
such additional shares shall be included in the aforementioned registration
statement by means of a pre-effective amendment thereto. If the Execution Date
Share Count exceeds the Adjusted Share Count, the Shareholders, and the Broker
promptly will return to the Buyer that number of shares of IHS Stock as shall be
equal to such excess; provided, however, that the Adjusted Share Count may not
exceed twice the Execution Date Share Count; and provided further, that the
Adjusted Share Count shall not be less than one-half the Execution Date share
Count. For purposes hereof, "SHARE ADJUSTMENT DATE" shall mean the date which is
two trading days before the Registration Date.
(d) Registration Expenses. Shareholders shall not be responsible for,
and Buyer shall bear, all of the reasonable expenses of IHS related to such
registration including, without limitation, the fees and expenses of its counsel
and accountants, all of its other costs, fees and expenses incident to the
preparation, printing, registration and filing under the Securities Act of the
registration statement and all amendments and supplements thereto, the cost of
furnishing copies of each preliminary prospectus, each final prospectus and each
amendment or supplement thereto to underwriters, dealers and other purchasers of
IHS Stock and the costs and expenses (including fees and disbursements of its
counsel) incurred in connection with the qualification of IHS Stock under the
Blue Sky laws of various jurisdictions. Buyer, however, shall not be required to
pay underwriter's or brokerage discounts, commissions or expenses, or to pay any
costs or expenses arising out of Shareholders' or any transferee's failure to
comply with its obligations under this Article 4.
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(e) Resale Limitations.
The aggregate sales by the Shareholders, and Broker shall not, at
any time, exceed 75,000 shares in the aggregate during any 30 consecutive
day period, and all such sales shall be effected solely through Salomon
Smith Barney, Inc.
(f) Registration Procedures, etc. In connection with the registration
rights granted to the Shareholders with respect to the IHS Stock as provided in
this Article 4, Buyer covenants and agrees as follows:
(i) At Buyer's expense, Buyer will keep the registration and
qualification under this Article 4 effective (and in compliance with the
Securities Act) by such action as may be necessary or appropriate until the
first anniversary of the Registration Date, except to the extent that an
exemption from registration may be available. Buyer will promptly notify
the Representative (as hereinafter defined), at any time when a prospectus
relating to a registration statement under this Article 4 is required to be
delivered under the Securities Act, of the happening of any event known to
Buyer as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing.
(ii) Buyer shall furnish the Representative 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 Representative, provided that Buyer
shall not be obligated to qualify as a foreign corporation or dealer to do
business under the laws of any such jurisdiction.
(iv) The information included or incorporated by reference in the
registration statement filed pursuant to this Article 4 will not, at the
time any such registration statement becomes effective, contain any untrue
statement of a material fact, or omit to state any material fact required
to be stated therein as necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading or
necessary to correct any statement in any earlier filing of such
registration statement or any amendments thereto. The registration
statement will comply in all material respects with the provisions of the
Securities Act and the rules and regulations thereunder. Buyer shall
indemnify the Shareholders, their successors and assigns, 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 ("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
Shareholder expressly for use in such registration statement, any amendment
or supplement thereto or any application, as the case may be. If any action
is brought against the Shareholders or any controlling person of any
Shareholder in respect of which indemnity may be sought
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against Buyer pursuant to this subparagraph 4(f)(iv), such Shareholder 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 Shareholder or such
controlling person). Notwithstanding anything contained in the foregoing
sentence, the failure of such Shareholder or controlling person to provide
Buyer with notice of such action within thirty (30) days will not have an
adverse affect on the rights of such Shareholder or controlling person to
seek indemnity against Buyer except to the extent that Buyer is prejudiced
by the failure to give such notice. The Shareholders or such controlling
person shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of
the Shareholders or such controlling person unless (A) the employment of
such counsel shall have been authorized in writing by Buyer in connection
with the defense of such action, or (B) Buyer shall not have employed
counsel to have charge of the defense of such action, or (C) such
indemnified party or parties shall have reasonably concluded (after notice
to Buyer) that there may be defenses available to it or them which are
different from or additional to those available to Buyer (in which case,
Buyer shall not have the right to direct the defense of such action on
behalf of the indemnified party or parties), in any of which events the
fees and expenses of not more than one additional firm of attorneys for the
Shareholders and such controlling persons shall be borne by Buyer. Except
as expressly provided in the previous sentence, in the event that Buyer
shall not previously have assumed the defenses of any such action or claim,
Buyer shall not thereafter be liable to the Shareholders or such
controlling person in investigating, preparing or defending any such action
or claim.
(v) The Shareholders, 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 incorrect or
incomplete information furnished by or on behalf of such Shareholders, or
their successors or assigns for specific inclusion in such registration
statement.
(g) Notice of Sale.
(i) Prior to any proposed sale or other transfer of any
interest in any of the shares of IHS Stock issued to any Shareholder pursuant to
this Agreement, such Shareholder shall give notice (a "PROPOSED SALE NOTICE") to
Buyer of any such proposed transfer describing in reasonable detail such
Shareholder's intention to effect the proposed transfer, the manner of the
proposed transfer, the number of shares proposed to be transferred and the
mailing address and the telefacsimile number, if any, for such Shareholder. Each
Proposed Sale Notice also shall contain a certification to the effect that such
Shareholder shall comply with the volume limitations and other provisions of
this Agreement relating to the transfer of such interest in the shares. Each
Proposed Sale Notice may be sent by telefacsimile transmission to
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Marc Levin, Executive Vice President -- Investor Relations
fax number: (410) 998-8714
phone number: (410) 998-8428
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<PAGE>
with a copy to:
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Elizabeth B. Kelly, Executive Vice President
fax number: (410) 902-2110
No Shareholder shall resell or otherwise transfer any interest in any of the
shares of IHS Stock issued to such Shareholder pursuant to this Agreement unless
such transfer shall comply with all of the provisions of this Agreement and such
Shareholder shall have received notice from Buyer's Investor Relations
Department (which notice may be given orally or by telefacsimile transmission)
that the registration statement covering such proposed transfer is effective and
"current", or, if such transfer is not to be made pursuant to a registration
statement, that Buyer has determined (with the advice of legal counsel after
receipt of the legal opinion referred to below) that the proposed transfer of
shares of IHS Stock may be made without registration under the Securities Act
and all applicable state securities laws. If an applicable Shareholder shall not
have been otherwise notified (orally, by telefacsimile transmission or by other
method) by the close of business on the third trading day following the date on
which Buyer's Investor Relations Department shall have received the applicable
Proposed Sale Notice, then the Investor Relations Department shall be deemed to
have consented to such transfer.
(ii) If the transfer is to be pursuant to an effective
registration statement as provided herein, such Shareholder will resell only in
compliance with the disclosure therein and discontinue any offers and sales
thereunder upon notice from Buyer to said Shareholder 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 such registration statement as may be necessary to bring it
current and to give prompt notice to such Shareholder when the registration
statement has again become current.
(iii) If any of the Shareholders 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 of shares of IHS Stock may be made without registration under the
Securities Act and all applicable state securities laws, such Shareholder will,
subject to Section 3.1(e) above, be entitled to transfer said shares of IHS
Stock in accordance with the terms of the notice and opinion of their counsel.
(h) Furnish Information. It shall be a condition precedent to the
obligations of Buyer to take any action pursuant to this Article 4 that the
Shareholders and the Broker shall each furnish to 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 its IHS Stock. In that connection, each transferee of Shareholders and/or
Broker (whose shares would be included in a Registration other than transferees
pursuant to an effective registration statement) shall be required to represent
to Buyer that all such information which is given is both complete and accurate
in all material respects. The Shareholders and the Broker shall each deliver to
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 (whose shares would be included in a Registration other than
transferees pursuant to an effective registration statement) will, severally,
promptly notify Buyer at any time when a prospectus relating to a registration
statement covering such transferee's shares under this Article 4 is required to
be delivered under the Securities Act, of the happening of any event known to
such transferee as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
statements as then existing.
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<PAGE>
(i) Investment Representations. The Shareholders and the Broker
represent and warrant to Buyer that the IHS Stock being issued hereunder are
being acquired, and will be acquired, by the Shareholders and the Broker for
investment for their own accounts and not with a view to or for sale in
connection with any distribution thereof within the meaning of the Securities
Act or the applicable state securities law; the Shareholders and the Broker
acknowledge that the IHS Stock constitutes restricted securities under Rule 144
promulgated by the Commission pursuant to the Securities Act, and may have to be
held indefinitely, and the Shareholders and the Broker agree that no IHS Stock
may be sold, transferred, assigned, pledged or otherwise disposed of except
pursuant to an effective registration statement or an exemption from
registration under the Securities Act, the rules and regulations thereunder, and
under all applicable state securities laws. The Shareholders and the Broker have
knowledge and experience in financial and business matters, are capable of
evaluating the merits and risks of the investment, and are able to bear the
economic risk of such investment. The Shareholders and the Broker have had the
opportunity to make inquiries of and obtain from representatives and employees
of Buyer such other information about IHS as they deem necessary in connection
with such investment.
(j) Legend. It is understood that the certificates evidencing the IHS
Stock shall bear a legend substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THESE SHARES UNDER THE SECURITIES ACT OF 1933 OR AN OPINION
OF THE COMPANY'S COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT.
(k) Certain Transferees. Prior to the effective date of registration
of the IHS Stock, Shareholders and the Broker shall not transfer any shares of
IHS Stock to any person or entity except as expressly permitted by this
Agreement and unless such transferee shall have agreed in writing to be bound by
the provisions applicable to the Shareholders and the Broker under this Article
4. IHS shall not unreasonably withhold its consent to the inclusion in the
registration statement covering the Shareholders' shares of IHS Stock of resales
by permitted transferees of the shares of IHS Stock acquired by them from the
Shareholders so long as such transferees (or the Shareholders) reimburse IHS for
all of its expenses and costs arising out of such inclusion.
5. Indemnity Against Creditors Claims; No Assumption of Liabilities.
Seller has requested that Buyer waive the requirements of the bulk sales and
transfer laws of the State of California. Seller and Shareholders agree to
indemnify Buyer and save and hold Buyer harmless against all Damages (as defined
in paragraph 17(c)) arising out of any claims made by creditors (including,
without limitation, any Federal, state or local taxing authority) of Seller that
relate to the Business, or that arise out of the failure to comply with any of
such laws.
6. Closing Date Liabilities.
(a) Seller and the Shareholders represent and warrant that, to the
best of Seller's and Shareholders' knowledge and belief after diligent inquiry,
all of Seller's liabilities, as of the Closing Date are listed on the Schedule
of Liabilities attached hereto as Schedule 6(a) (the "LISTED LIABILITIES"). For
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purposes of this Agreement "LIABILITIES" shall mean and include all claims,
lawsuits, liabilities, obligations or debts 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, whether or not asserted as of the date hereof, 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, any liabilities
relating to any Excluded Assets, malpractice or other tort claims, claims for
breach of contract, any claims of any kind asserted by patients, former
patients, employees and former employees of Seller or any other party that are
based on acts or omissions by Seller occurring on or before the Closing Date,
amounts due or that may become due in connection with the participation of
Seller in the Medicare or Medicaid programs or due to any other health care
reimbursement or payment intermediary, or that may be due by Seller to any other
third party payor, accounts payable, notes payable, trade payables, lease
obligations, indebtedness for borrowed money, accrued interest, and contractual
obligations. Seller and Shareholders acknowledge that the Purchase Price for the
Assets is based on the accuracy of Seller's and Shareholders' representations
and warranties contained in this Agreement, including, but not limited to,
Seller's and Shareholders' representations and warranties contained in this
paragraph 6(a).
(b) At the Closing, Buyer shall undertake to pay, discharge and
perform, as and when due, the Listed Liabilities to the extent indicated as
being assumed on Schedule 6(a) of the Seller (the "ASSUMED LIABILITIES");
provided, however, that Buyer shall not assume, be liable for, or have
responsibility for Assumed Liabilities in an aggregate amount in excess of Six
Hundred Forty Six Thousand Five Hundred ($646,500) Dollars (the "ASSUMED
LIABILITY CAP"). In the event that, at any time following the Closing Date,
Buyer shall have paid any amounts in excess of the Assumed Liability Cap, such
amount shall constitute a Liabilities Deficiency under the provisions of
paragraph 7 hereof. Except for the Assumed Liabilities, Buyer will not assume
any, and Seller shall remain liable for each, liability of Seller arising out of
any facts, circumstances, matters or occurrences existing on or prior to the
Closing Date (whether or not known) ("CLOSING DATE LIABILITIES").
(c) Without limiting the generality of the provisions of subparagraph
(a) above, Buyer shall not assume the Contracts (as hereinafter defined in
paragraph 14(b)), if any, set forth on Schedule 6(b), or any liabilities with
respect thereto.
7. Right of Offset Against the Escrow Fund.
(a) Event of Deficiency. If:
(i) Buyer pays for any liabilities in excess of the Assumed
Liabilities Cap, then Seller and the Shareholders shall, jointly and
severally, reimburse Buyer for such payment (a "LIABILITIES DEFICIENCY");
or
(ii) the aggregate value of the Corporation's collectible
accounts receivable as of the Closing Date is determined to be less than
$470,000, as determined by actual net cash collections of such receivables
during the twelve (12) month period immediately following the Closing Date,
then Seller and Shareholders, jointly and severally, shall pay to Buyer the
amount of such deficiency ("ASSET VALUE DEFICIENCY"); or
(iii) Buyer is entitled to any payment pursuant to paragraph 3
above (an "ADJUSTMENT CLAIM");
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(iv) Buyer shall be entitled to be indemnified for any Damages
pursuant to this Agreement ("INDEMNIFICATION CLAIMS", and together with any
Liabilities Deficiencies, Asset Value Deficiencies and Adjustment Claims
collectively "CLAIMS" and each, a "CLAIM"); or
then, and in any of such events, Buyer may provide written notice to Seller of
the Claim, in which case Buyer shall be entitled to recover the amount of such
Claim in accordance with the following procedure.
(b) Procedure if Seller Fails to Pay. If Seller fails to pay any Claim
in full to Buyer within ten (10) days from the date of such written notice (said
ten (10) day period hereinafter referred to as the "NOTICE PERIOD"), Buyer shall
have the right to make offset against the Escrow Fund, in accordance with the
terms and conditions of the Escrow Agreement, in amounts from time to time equal
to the amount of such Claim (subject, however, in the case of a "DISPUTE", to
the provisions of paragraph 18 hereof applicable thereto), and Seller agrees to
any such offset. Buyer's right to proceed against the Escrow Fund shall not be
exclusive of any other rights or remedies that it may have under this Agreement,
law, equity or otherwise.
(c) Escrow Period.
(i) The "ESCROW PERIOD" shall terminate twenty-four (24) months
following the Closing Date.
(ii) (A) On the first anniversary of the Closing Date, Seller
shall receive an amount equal to the Escrow Fund, less (x) the amount of any
Claims paid out of the Escrow Fund pursuant to paragraph 7(a) above, (y) any
amounts withheld pursuant to clause (iii) below, and (z) the Claw-Back Amount.
(B) The balance, if any, of the Escrow Fund remaining (the
"REMAINING ESCROW FUNDS") at the close of business on the last day of the Escrow
Period, shall be disbursed to Seller within forty-five (45) days after the last
day of the Escrow Period.
(iii) Notwithstanding anything to the contrary contained in this
subparagraph (c), if any Claim made by Buyer is in dispute at the time that any
amounts are otherwise to be disbursed to Seller, then there shall be withheld
from such amount to be disbursed and there shall be retained in the Escrow Fund,
an amount such that there will be remaining in the Escrow Fund at least one and
one-half times the amount of the Claim asserted by Buyer until the final
settlement of such Claim or Claims.
(e) Valuation of Shares. The value of any shares of IHS Stock
delivered to Buyer in respect of any Claim shall be the Recalculated Value.
(f) Sales from Escrow. At the request of the Shareholders, Buyer shall
sell any shares of IHS Stock held in the Escrow Fund in the open market pursuant
to an effective registration statement provided that Buyer shall be satisfied
that proper procedures shall be undertaken to assure Buyer that at all times the
shares of IHS Stock being sold or the proceeds thereof shall be held by the
Buyer pursuant to the Escrow Agreement, subject to no Liens.
8. Employees. 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 of the Seller, although Buyer shall have the right to offer
employment to any such employees. Seller shall remain fully responsible for any
severance, benefits, costs or liabilities arising out of the termination by
Seller of any of its employees, all of which
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liabilities shall constitute Closing Date Liabilities. Seller and the
Shareholders shall also remain fully responsible for any benefits, costs or
liabilities incurred or accrued prior to Closing with respect to each employee
retained by Buyer.
9. Closing Date. The consummation of the transactions contemplated by this
Agreement is sometimes referred to as the "CLOSING", and the date on which such
consummation occurs, including, without limitation, the execution and delivery
of this Agreement by each of the parties hereto, is sometimes referred to as the
"CLOSING DATE". Notwithstanding the foregoing, the Effective Date for the
transactions contemplated by this Agreement shall be September 25, 1998.
10. Asset Condition and Quality. Seller and the Shareholders, jointly and
severally, represent, warrant and covenant that, as of the Closing Date, all
physical Assets of Seller are free of material defects and in good working
order, condition and repair, except for ordinary wear and tear, and conform in
all material respects with all applicable ordinances, regulations, zoning and
other laws.
11. Instruments of Conveyance and Transfer. At the Closing:
(a) Seller will deliver to Buyer such bills of sale, assignments,
motor vehicle certificates of title, and other good and sufficient instruments
of conveyance and transfer in form sufficient to sell, assign and transfer the
Assets to Buyer as of the Closing Date, such documents to contain full
warranties of title, and which documents shall be effective to vest in Buyer
good, absolute, and marketable title to the Assets of the Business being
transferred to Buyer by Seller, free and clear of all Liens, except for the
Assumed Liabilities.
(b) Simultaneously with such delivery, Seller will take all steps as
may be requisite to put Buyer in actual possession, operation and control of the
Assets to be transferred hereunder.
(c) Seller will deliver to Buyer an opinion, dated the Closing Date,
of its counsel, in substantially the form attached hereto as Schedule 11(c).
(d) Seller will deliver a certificate of its Secretary or other
officer certifying as of the Closing Date a copy of resolutions of its board of
directors and, if applicable, its stockholders, authorizing the execution,
delivery and full performance of this Agreement and the Transaction Documents
(as defined in paragraph 14(a) below), and the incumbency of its officers.
12. Sales and Transfer Taxes; Fees. All applicable sales, transfer, use,
filing and other taxes and fees that may be due or payable as a result of the
conveyance, assignment, transfer or delivery of the Assets of the Business to be
conveyed and transferred as provided herein, whether levied on Seller or Buyer,
shall be borne by Seller.
13. Restrictions on Operations of Seller. Seller and the Shareholders,
jointly and severally, represent, warrant and covenant that, except as expressly
disclosed on Schedules hereto, since the most recent Financial Statement Date
referred to in paragraph 14(o) below, through the Closing Date, there has been
no material adverse change in the condition (financial or otherwise) or
prospects of the Seller or the Business, and Seller has not:
(i) sold, assigned or transferred any Assets, except in the ordinary
course of business, consistent with past practice;
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(ii) subjected any Assets to any Liens, except in the case of
acquisitions in the ordinary course of business;
(iii) entered into any contract or transaction binding the Business
other than contracts or transactions entered into in the ordinary course of
business, consistent with past practice;
(iv) incurred any liabilities or indebtedness other than in the
ordinary course of business, consistent with past practice;
(v) except in the ordinary course of business, consistent with past
practice, or otherwise to comply with any applicable minimum wage law, paid any
bonuses, 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;
(vi) 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 Corporation or the Assets;
(vii) failed to collect any accounts receivable in the ordinary course
of business, consistent with past practice;
(viii) changed any of the accounting principles followed by it or the
methods of applying such principles;
(ix) canceled, modified or waived any debts or claims held by it, or
waived any rights of substantial value other than in the ordinary course of
business, consistent with past practice; or
(x) 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 of its
affiliates except for payments of compensation in the ordinary course of
business, consistent with past practice and disclosed to Buyer as such;
(xi) instituted, settled or agreed to settle any litigation, action or
proceeding before any Governmental Authority (as such term in defined in
paragraph 14(d) below) relating to it or its property or received any threat
thereof; or
(xii) entered into any material transaction other than in the ordinary
course of business, consistent with past practice.
14. Representations and Warranties by Seller and the Shareholders. As a
material inducement to Buyer to execute and perform its obligations under this
Agreement, Seller and Shareholder hereby, jointly and severally, represent and
warrant to Buyer as follows as of the Closing Date:
(a) Organization of Seller; Enforceability.
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(i) Seller is a corporation, organized, and in good standing,
respectively, in the State of California, and is qualified to do business and is
in good standing in each other State where the nature of its business or the
assets held by it requires such qualification, and has requisite corporate power
and authority to carry on its Business as presently being conducted, to enter
into this Agreement, and to carry out and perform the terms and provisions of
this Agreement. Each of this Agreement and each agreement, instrument,
certificate and document in connection with this Agreement or the transactions
contemplated hereby ("TRANSACTION DOCUMENTS") constitutes the legal, valid and
binding obligations of Seller, enforceable against it in accordance with its
respective terms, subject to and limited by the effect of applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws and court
decisions of general application or of legal and equitable principles relating
to, limiting or affecting the enforcement of creditors' rights generally. Seller
does not have any subsidiaries.
(ii) This Agreement and each Transaction Document to which each
Shareholder is a party constitutes the legal, valid and binding obligations of
each Shareholder, enforceable against each Shareholder in accordance with its
terms, subject to and limited by the effect of applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws and court
decisions of general application or of legal and equitable principles relating
to, limiting or affecting the enforcement of creditors' rights generally.
(b) Consents. No authorization, consent, approval, license, exemption
by, filing or registration with any Governmental Authority or of any party to
any contract, agreement, instrument, commitment, lease, indenture or
understanding (written, oral or implied) by which Seller or any of the Assets is
bound ("CONTRACTS") or by which any Shareholder or any Shareholder's assets is
bound ("SHAREHOLDER CONTRACTS") is necessary in connection with the execution,
delivery and performance of this Agreement or any of the Transaction Documents
by Seller or Shareholder.
(c) Litigation. Except as set forth on Schedule 14(c), there are no
actions, suits or proceedings affecting Seller or any of the Assets which are
pending or threatened against Seller or affecting any of its properties or
rights, at law or in equity, or before any Governmental Authority (as
hereinafter defined), nor is Seller or any of its respective officers or
directors or Shareholder aware of any facts which to them or their knowledge
might reasonably be expected to result in any such action, suit or proceeding.
(d) Compliance with Laws and Contracts. Seller is not in violation of,
or in default under: any term or provision of its Articles of Incorporation or
By-Laws; or any judgment, order, writ, injunction, decree, statute, law, rule,
regulation, directive, mandate, ordinance or guideline ("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"); or of any Contract. The execution and delivery by
Seller and each Shareholder of, and the performance and compliance by each of
them with this Agreement, and the Transaction Documents and the transactions
contemplated hereby and thereby, does not and will not result in the violation
of or conflict with or constitute a default under any such term or provision or
result in the creation of any Lien on any of the properties or assets of Seller
or any Shareholder pursuant to any such term or provision or any term or
provision of any Governmental Requirement by which any Shareholder is bound or
of any Shareholder Contract.
(e) Corporate Acts and Proceedings. The execution, delivery and
performance of this Agreement and each of the Transaction Documents, and the
transactions contemplated hereby and thereby, including the sale and transfer of
the Assets by Seller as provided for in this Agreement, have been approved and
consented to by the Board of Directors of Seller and, if applicable, by the
requisite number of holders of its outstanding capital stock, and all action
required by any applicable Governmental Requirement by the stockholders of
Seller with regard thereto have been appropriately authorized and accomplished.
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(f) Title to Assets. Seller has good and marketable title to all of
the Assets, free and clear of all Liens except for the Assumed Liabilities.
(g) Contracts. Set forth on Schedule 14(g) hereto is a list of all
material Contracts of Seller including, without limitation, each:
(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, or agent or group
of employees, or any non-competition, non-solicitation, confidentiality or
similar agreement with any such person or persons;
(ii) contract, agreement or arrangement for the acquisition or
disposition of any assets, property or rights outside the ordinary course of
business or requiring the consent of any party to the transfer and assignment of
any such assets, property or rights (by purchase or sale of assets, purchase or
sale of stock, merger or otherwise), that is executory or that was entered into
during the three (3) year period ending on the date hereof;
(iii) contract, agreement or commitment which contains any
provisions requiring the Seller or the Business to indemnify or act for any
other person or entity or to guaranty or act as surety for any other person or
entity;
(iv) contract, agreement or commitment restricting the Seller or
the Business from, or in favor of either of the Seller or the Business 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;
(vii) contract, agreement or arrangement granting a leasehold or
other interest in real property, including without limitation, subleases,
licenses and sublicenses (the "LEASES");
(viii) 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 Seller or the Business
not covered by clause (i) above;
(ix) agreement, consent order, plea bargain, settlement or
stipulation or similar arrangement with any Governmental Authority;
(x) agreement with respect to the settlement of any litigation or
other proceeding with any third person or entity;
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(xi) agreement relating to the ownership, transfer, voting or
exercise of other rights with respect to any equity in the Seller, or any other
entity, including without limitation, registration rights agreements, voting
trust agreements and shareholder and proxy agreements;
(xii) contract, agreement or commitment to provide services or
products, or
(xiii) agreement not made in the ordinary and normal course of
business and consistent with past practice, or involving consideration in excess
of $25,000 in each case, that is not set forth in subsections (i) through (xii)
above.
To the best of Seller's and Shareholders' knowledge, no party to any
Contract other than Seller is in default under any Contract. Seller has
delivered to Buyer true and complete copies of each written Contract (or a
description of each oral Contract) requested by Buyer.
(h) Brokers. Seller has been represented solely by the Broker, and as
a result a brokerage commission payable by Seller to the Broker as set forth in
paragraph 2(b)(ii) above is due, and no broker or finder is entitled to any
additional broker's or finder's fee or other commission in respect thereof based
in any way on agreements, understandings or arrangements with Seller.
(i) Employment Contracts; Employees. There are no Contracts of
employment between Seller and any officer or other employee of the Business,
except as set forth on Schedule 14(g)(i) above. The name, position, current rate
of compensation and any vacation or holiday pay, sick pay, personal leave,
severance and any other compensation arrangements or fringe benefits, of each
current employee, sales representative, consultant and agent of the Seller,
contained on the Schedule of Personnel Payrates and Advances attached hereto as
Schedule 14(i) is accurate and complete. No employee, consultant or agent of the
Seller has any vested or unvested retirement benefits or other termination
benefits, except as described on Schedule 14(i). Since the date that is two (2)
years prior to the Closing Date, there has been no material adverse change in
the relationship between the Seller and its 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. No
employees of the Seller are represented by any labor union or similar
organization in connection with their employment by or relationship with,
Seller, and to the knowledge of the Seller and Shareholder, there are no pending
or threatened activities the purpose of which is to achieve such representation
of all or some of such employees, and there are no threats of strikes, work
stoppages or pending grievances by any such employees. Seller is not party to
any collective bargaining or other labor contracts.
(j) Employee Benefit Plans. Except as set forth on Schedule 14(j),
Seller has no pension, bonus, profit-sharing, or retirement plans for officers
or employees of the Business, nor is Seller required to contribute to any such
plan. Without limiting the generality of the foregoing, Seller 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 the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or to any multi-employer plan subject to the terms of the
Multi-Employer Pension Plan Amendment Act of 1980 (the "MULTI-EMPLOYER ACT").
(k) Insurance. All inventories, buildings and fixed assets owned or
leased by the Seller are and will be adequately insured against fire and other
casualty through the Closing Date. The information contained on the Schedule of
Insurance Policies, attached hereto as Schedule 14(k), is accurate and complete.
Schedule 14(k) also sets forth any claims made under any of the insurance
policies referred to above or increases
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in premiums therefore during the past two years. True and complete copies of all
policies of fire, liability and other forms of insurance held or owned by the
Seller or otherwise in force and providing coverage for the Business or any of
the Assets (including but not limited to medical malpractice insurance, and any
state sponsored plan or program for worker's compensation) have been delivered
to Buyer. Such policies are owned by and payable solely to the Seller, and said
policies or renewals or replacements thereof will be outstanding and duly in
force at the Closing Date, and all premiums due on or before the Closing Date in
respect thereof have been paid.
(l) Disclosure. No representation or warranty by Seller or any
Shareholder in this Agreement or in any Transaction Document, contains any
untrue statement of material fact or omits to state any material fact, of which
any Shareholder or Seller or any of its officers, directors or stockholders has
knowledge or notice, required to make the statements herein or therein contained
not misleading.
(m) Officers, Directors and Shareholders of Seller. As of the Closing
Date, the Shareholders are the sole shareholders of Seller and the following
individuals are all of the officers and directors of Seller:
Name Office/Position
---- ---------------
Robert D. Walter President
Marcia Hendry-Walter Vice President/Treasurer
Paul A. Bernou Secretary
(n) Inventory and Fixed Assets. The information contained on the
Schedule of Inventory and Fixed Assets as of the most recent Financial Statement
Date, attached hereto as Schedule 1(a)(ii), is accurate and complete.
(o) Tax Returns and Financial Statements. Seller has furnished Buyer
with its tax returns (the "TAX RETURNS") for the period(s) ended September 30,
1997, and has furnished Buyer with its financial statements (the "FINANCIAL
STATEMENTS") for the periods ended September 30, 1996, September 30, 1997 and
June 30, 1998 (the "FINANCIAL STATEMENT DATES"), copies of which are attached
hereto as Schedule 14(o). The Financial Statements: (i) are in accordance with
the books and records of the Seller; (ii) fairly present the financial condition
of the Seller at such date and the results of its operations for the periods
specified; (iii) were prepared in accordance with GAAP applied on a basis
consistent with prior accounting periods; (iv) with respect to all Contracts of
the Seller, reflect adequate reserves for all reasonably anticipated losses and
costs in excess of anticipated income; and (v) with respect to any balance
sheets, disclose all of the liabilities of the Seller at the Financial Statement
Dates and include the appropriate reserves for all taxes and other accrued
liabilities, except that certain contingent liabilities, if not disclosed on
such balance sheets, shall be considered to be disclosed pursuant to this
subparagraph, if expressly disclosed on an Schedule to this Agreement. 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, consistent with past
practice, except as expressly specified therein, and such Financial Statements
include all adjustments, which consist only of normal recurring accruals,
necessary for such fair presentation.
(p) Supplemental Tax Information. Seller has furnished Buyer with its
most recent (i) tax registration certificates (if required), and (ii) tax
returns required of it by the federal government and each state or other
locality in which it conducts business, which tax returns in all instances where
applicable include, but shall not be limited to franchise taxes, federal, state
and local tangible personal property tax returns, and federal, state and local
sales tax returns, which registration certificates and tax returns are set
forth, collectively, on the Schedule of Supplemental Tax Information, attached
hereto as Schedule 14(p).
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(q) Adverse Business Developments. No notice has been received by
Seller or Shareholder of any new or substantially expanded firm or individual
engaged in a business directly competitive to Seller in its primary service area
within six (6) months before the date hereof. Neither Seller nor any Shareholder
has received, either orally or in writing, any notice specific to it of pending
or threatened adverse action with respect to any Medicare, Medicaid, private
insurance or third party payor reimbursement method, practice or allowance as to
any business activity engaged in by Seller, nor has Seller or any Shareholder
received, or been threatened with, any claim for refund specific to it in excess
of $500.00 by a Medicare or Medicaid carrier, except as disclosed in the
Schedule of Proceedings attached hereto as Schedule 14(q).
(r) Relationships. Except as disclosed on Schedule 14(r), neither
Seller, its officers, directors and employees, nor any Shareholder and no member
of any of their respective immediate families, 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
disclosed on Schedule 14(r), no Affiliate of Seller or any Shareholder is
guaranteeing any obligations of the Seller.
(s) Assets Comprising the Business. The Assets are all of the tangible
and intangible properties (real, personal and mixed), including, without
limitation, all licenses, intellectual property, permits and authorizations, and
contracts that are necessary or material to the operation of the Business as now
operated. The quantities of inventory and supply items included in the Assets
are reasonable in light of the present and anticipated volume of the Business of
the Seller in the ordinary course of the business of the Seller, consistent with
past practice, as determined by the Seller in good faith and consistent with
past practice.
(t) Questionable Payments. Seller has not, and to the knowledge of the
Seller and each Shareholder, none of their Affiliates or employees have offered,
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.
(u) Reimbursement Matters. Seller, to the extent necessary to conduct
its business in a manner consistent with past practice, is qualified for
participation in the Medicare and Medicaid programs. Except as disclosed on
Schedule 14(u), (i) Seller nor any Shareholder has received any notice of denial
or recoupment from the Medicare or Medicaid programs, or any other third party
reimbursement source (inclusive of managed care organizations) with respect to
products or services provided by it, (ii) to Seller's and Shareholders'
knowledge, there is no basis for the assertion after the Closing Date of any
such denial or recoupment claim, and (iii) neither Seller nor any Shareholder
has received notice from any Medicare or Medicaid program or any other third
party reimbursement source (inclusive of managed care organizations) of any
pending or threatened investigations or surveys with respect to, or arising out
of, products or services provided by Seller or otherwise, and to the knowledge
of Seller and Shareholder, no such investigation or survey is pending,
threatened or imminent.
(v) Environmental Compliance. Except as disclosed on Schedule 14(v),
at all times during Seller's ownership of the Business, the Business has not
been, and currently is not, in violation of any environmental Governmental
Requirement and no notice has ever been served upon Shareholder or Seller, their
agents or representatives or any prior owner of the Business, claiming any
violation of any Governmental Requirement concerning the environmental state,
condition or quality of any real or personal property related to the Business,
or requiring or calling attention to the need for any work, repairs or
demolition on or in connection with any of the real property in order to comply
with any governmental requirement concerning the environmental or healthful
state, condition or quality of the real property.
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(w) Questionnaires. The healthcare law questionnaire heretofore
delivered to the Seller by Buyer attached hereto as Exhibit 14(w) (the
"QUESTIONNAIRE") 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.
15. Representations and Warranties of Buyer and IHS. Buyer and IHS each
represent and warrant to Seller and Shareholder that:
(a) Due Organization. Each of Buyer and IHS is a duly organized, valid
corporation under the laws of the State of Delaware.
(b) Due Authority. Each of Buyer and IHS is duly authorized by law and
corporate policy and approval to: (i) enter into this Agreement and each
Transaction Document; (ii) make all warranties and representations made by each
of them herein; and (iii) deliver all consideration provided for under the terms
hereof.
(c) Binding Authority. All signatories and agents designated as
agents/officers for Buyer and IHS for signing purposes have the authority to
bind Buyer and IHS, as the case may be, to the terms of this Agreement.
(d) Binding Agreement. This Agreement is, and when executed and
delivered by Buyer and IHS at the Closing, each of the Transaction Documents
executed by Buyer and IHS will be, the legal, valid and binding obligation of
Buyer and IHS, enforceable against Buyer and IHS in accordance with their
respective terms. Each of Buyer and IHS will continue the historic business of
the Seller or will use a significant portion of the Assets in a Business.
(e) Brokers. No broker or finder has acted for the Buyer or IHS in
connection with the transactions contemplated by this Agreement, and no broker
or finder is entitled to any broker's or finder's fee or other commission in
respect thereof based in any way on agreements, understandings or arrangements
with the Buyer or IHS.
(f) IHS Stock. IHS has duly authorized and reserved for issuance the
IHS Stock to be issued in connection herewith, and when issued in accordance
with the terms of paragraph 4, such IHS Stock will be validly issued, fully paid
and nonassessable.
(g) SEC Documents. IHS has furnished the Seller and the Shareholders
with a correct and complete copy of its report on Form 10-K for its fiscal year
ended December 31, 1997 (the"10-K"), its reports on Form 10-Q for its fiscal
quarters ended March 31, 1998 and June 30, 1998 (the"10-QS"), and its proxy
statement prepared in connection with its annual meeting held on May 22, 1998
(the "PROXY STATEMENT"). As of their respective dates, none of the 10-Ks, 10-Qs,
and Proxy Statements and no press release or other schedule or report required
by IHS to be publicly disclosed or filed with the Securities and Exchange
Commission (the "SEC") pursuant to the Exchange Act since January 1, 1998 (all
of the foregoing being 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.
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(h) 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 nor the performance by Buyer 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, or (b) any law, rule, judgment, order, writ, injunction, or decree of
any court currently in effect applicable to Buyer, or (c) any Governmental
Requirement applicable to Buyer, 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 is bound.
(i) Consents. Except as set forth on Schedule 15(i), no authorization,
consent, approval, license, exemption by, filing or registration with any
Governmental Authority, is or will be necessary in connection with the
execution, delivery and performance of this Agreement or any of the Transaction
Documents by Buyer.
16. Survival of Representations and Warranties. The representations and
warranties of Seller, Shareholders, and Buyer contained in or made pursuant to
this Agreement shall survive the execution of this Agreement.
17. Restrictive Covenants.
(a) Non-Compete. Each of Seller and each Shareholder hereby agree that
until the fifth (5th) anniversary of the Closing Date (the "RESTRICTED PERIOD"),
it, he or she will not, directly or indirectly, except to the extent expressly
required pursuant to any Shareholder's obligations as an employer or contractor
of Buyer, own, manage, operate, join, control or participate, or have a
proprietary interest in, the ownership, management, operation or control, of or
be connected with, in any manner, any home health care business (including,
without limitation, the provision of respiratory medications, respiratory rental
equipment, durable medical equipment, respiratory therapy services and other
health care products and services to persons at their homes) that provides
services or products (including, without limitation, through the mail or courier
service) within fifty (50) miles of any location set forth on the Schedule of
Locations attached hereto as Schedule 17(a).
(b) Confidential Information. Certain confidential and proprietary
information is included within the Assets ("TRADE SECRETS"), including, without
limitation, with respect to some or all of the following categories of
information: (i) financial information, including but not limited to information
relating to earnings, assets, debts, prices, pricing structure, reimbursement
matters, volume of purchases or sales or other financial data whether related to
Seller or generally, or to particular products, services, geographic areas, or
time periods; (ii) supply and service information, including but not limited to
information relating to goods and services, suppliers' names or addresses, terms
of supply or service contracts or of particular transactions, or related
information about potential suppliers to the extent that such information is not
generally known to the public, and to the extent that the combination of
suppliers or use of a particular supplier, though generally known or available,
may yield advantages to the Buyer, details of which are not generally known;
(iii) marketing information, including but not limited to information relating
to details about ongoing or proposed marketing programs or agreements by or on
behalf of the Seller, sales forecasts, advertising formats and methods or
results of marketing efforts or information about impending transactions; (iv)
personnel information, including but not limited to information relating to
employees' personal or medical histories, compensation or other terms of
employment, actual or proposed promotions, hirings, resignations, disciplinary
actions, terminations or reasons therefor, training methods, performance, or
other employee information; (v) customer and patient information, including but
not limited to information relating to names, addresses or backgrounds of past,
existing or prospective clients, customers, payors, referral sources, and
patients, records of agreements and prices, proposals
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or agreements between any of them and Seller, status of accounts or credit,
patients' medical histories or related information as well as customer lists;
and (vi) inventions and technological information, including but not limited to
information related to proprietary technology, trade secrets, research and
development data, processes, formulae, data and know-how, improvements,
inventions, techniques, and information that has been created, discovered or
developed, or has otherwise become known to Seller or any Shareholder, and/or in
which property rights have been assigned or otherwise conveyed to Seller, which
information has commercial value in the business in which the Seller is engaged.
Seller and each Shareholder shall hold all Trade Secrets in confidence and will
not discuss, communicate or transmit to others, or make any unauthorized copy of
or use any of the Trade Secrets; and will take all reasonable actions that Buyer
deems reasonably necessary or appropriate, to prevent unauthorized use or
disclosure of or to protect the Buyer's interest in the Trade Secrets. The
foregoing does not apply to information that by means other than deliberate or
inadvertent disclosure by Seller, any Shareholder or any of their respective
Affiliates, becomes well known to the public; or disclosure compelled by
judicial or administrative proceedings after they afford Buyer the opportunity
to obtain assurance that compelled disclosures will receive confidential
treatment.
(c) Non-Solicitation and Non-Pirating. Each of Seller and each
Shareholder hereby agrees that, during the Restricted Period it, he or she will
not, directly or indirectly, for itself, himself or herself or on behalf of any
other person, firm, entity or other enterprise: (i) solicit or in any way divert
or take away any person or entity that, prior to the Closing Date, was a
patient, client, customer, payor, referral source, facility or patient of the
Seller; or (ii) hire, entice away or in any other manner persuade any person who
was an employee, consultant, representative or agent of the Seller prior to the
Closing Date, to alter, modify or terminate their relationship with the Buyer.
(d) Necessary Restrictions. Each of Seller and each Shareholder
acknowledge that the restrictions contained in this Agreement are reasonable and
necessary to protect the legitimate business interests of the Buyer and that any
violation thereof by any of them would result in irreparable harm to the Buyer,
and that damages in the event of any such breach of this Agreement will be
difficult, if not impossible, to ascertain. Accordingly, each of the Seller and
each Shareholder agree that upon the violation of any of the restrictions
contained in this Agreement, the 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, equity, under this Agreement or otherwise,
without the necessity of posting any bond or other security whatsoever. In the
event any of the foregoing restrictions are adjudged unreasonable in any
proceeding, then the parties agree that the period of time or the scope of such
restrictions (or both) shall be adjusted to such a manner or for such a time (or
both) as is adjudged to be reasonable.
(e) Remedies For Breach. Each of the Seller and each Shareholder
acknowledges that the covenants contained in this Agreement are independent
covenants and that any failure by the Buyer to perform its obligations under
this Agreement or any other agreement shall not be a defense to enforcement of
the covenants contained in this Agreement, including but not limited to a
temporary or permanent injunction.
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18. Indemnification; Remedies.
(a) Indemnification by Seller and the Shareholders. Seller and the
Shareholders shall, jointly and severally, indemnify and hold harmless at all
times Buyer and its stockholders, directors, officers, employees, agents and
assigns, from and against any Damages (as hereinafter defined) arising out of:
(i) any inaccurate representation made by Seller or Shareholder in, pursuant to
or under this Agreement or any Transaction Document; (ii) any breach of any
warranty made by Seller or any Shareholder in, pursuant to or under this
Agreement or any Transaction Document; (iii) any breach or default in the
performance by Seller or any Shareholder of any of the covenants to be performed
by Seller or any Shareholder hereunder or in any Transaction Document; and (iv)
any Closing Date Liabilities (other than Assumed Liabilities).
(b) Indemnification by Buyer. Buyer shall indemnify and hold harmless
at all times Seller or Shareholders from and against any Damages arising out of:
(i) any inaccurate representation made by Buyer in, pursuant to or under this
Agreement; (ii) any breach of any warranty made by Buyer in, pursuant to or
under this Agreement; and (iii) any breach or default in the performance by
Buyer of any of the covenants to be performed by Buyer hereunder.
(c) Definition of Damages. The term "DAMAGES" as used herein shall
include any demands, claims, actions, deficiencies, losses, delinquencies,
defaults, assessments, fees, costs, taxes, expenses, debts, liabilities,
obligations, settlements, penalties, and damages, including, without limitation,
counsel fees incurred in investigating or in attempting to avoid or oppose the
imposition thereof. The term "Damages" shall include, but shall not be limited
to, any Claims, (as defined in paragraph 7 hereof).
(d) Remedies.
(i) Buyer's Remedies. Seller and each Shareholder shall make
payment of any Claim made against it, him or her by no later than the last
day of the Notice Period as provided in paragraph 7(b) above.
(ii) Seller's Remedies. If Seller or Shareholders make written
request to Buyer for the payment of Damages, then Buyer shall pay to Seller
or the Shareholders the amount of Damages requested within ten (10) days
from the date that such notice is delivered to Buyer (also a "NOTICE
PERIOD").
(iii) Notice of Dispute. Notwithstanding the foregoing provisions
of this subparagraph (d), if a party (the "DEMANDING PARTY") serves a
request for payment on the other party (the "OBLIGATED PARTY"), the
Obligated Party shall have the option to provide written notice to the
Demanding Party (the "NOTICE OF DISPUTE") within the applicable Notice
Period that the Obligated Party disputes, in good faith, the validity or
amount of the Damages set out in the request for payment of Damages, and if
the affected parties cannot agree on the validity or amount of such Damages
within ten (10) days following the Notice Period, the dispute as to the
validity or amount of such claim or liability (the "DISPUTE") shall be
settled as set forth in subparagraph (e) of this paragraph 18, with the
non-prevailing party bearing the prevailing party's costs of arbitration if
such Dispute is resolved by arbitration.
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<PAGE>
(iv) Arbitration. If arbitration is required pursuant to this
paragraph 18, Buyer, on the one hand, and the affected Seller and
Shareholders, on the other hand, each shall select an arbitrator within ten
(10) business days after the Notice of Dispute is delivered; those two
arbitrators will then select a third arbitrator; and the three arbitrators
so chosen will determine the validity of the claim for Damages. If Seller
or Buyer delays in appointing an arbitrator when required, and ten (10)
days or more has elapsed, the arbitrator appointed by the other party shall
arbitrate the dispute. If the Seller and the Shareholders shall be subject
to a Dispute with Buyer and IHS, they shall, unless Buyer and IHS elect
otherwise in their sole and absolute discretion, be required to act as a
group with respect to any and all rights and obligations with respect to
the resolutions of the Dispute as provided in this paragraph 18 and
Representative shall have the authority to settle such Dispute and/or any
Claims on behalf of such group.
(e) Settlement of Disputes.
(i) Disputes Not Involving Third Parties. If a Dispute involves
claims not involving any third party, Buyer and Seller or Shareholders
shall settle the Dispute by submitting the same to binding arbitration.
(ii) Disputes Involving Claims Made by Third Parties. If a
Dispute involves claims made by one or more third parties (a "THIRD PARTY
CLAIM"), the party asserting its right to indemnification for such Third
Party Claim shall give written notice to the other party as soon as
practical after such asserting party receives notice of such Third Party
Claim; provided, however the failure to timely give such notice shall not
affect such party's right to indemnification except to the extent the party
to receive the notice is damaged by such delay. Upon such notice to Seller
or Shareholder, Buyer and Seller and/or Shareholders shall submit the
Dispute to arbitration, and the following procedures shall apply:
(A) Solely for purposes of determining the party responsible
for defending the Third Party Claim, the arbitrators shall deem such
Third Party Claim to be valid (although such consideration shall not
be an admission by any party as to any liability to any party). The
arbitrators then shall decide which party shall be liable for the
Third Party Claim if it is successfully prosecuted by such third party
or parties, and the decision of such arbitrators with respect to such
liability shall be final and binding as among the parties. (Such party
determined to be liable for such claim sometimes shall be referred to
herein as the "RESPONSIBLE PARTY".)
(B) If the Responsible Party refuses to settle (and pay the
settlement amount of) the Third Party Claim immediately, then the
Responsible Party immediately shall select one of the following two
options:
Option One: The Responsible Party, at the Responsible
Party's sole expense and risk, can assume the defense of the
Third Party Claim, provided the Responsible Party first places in
escrow, in favor of the other party, adequate collateral (as
determined by the arbitrators on consideration of all relevant
facts) to protect the other party from all Damages with respect
to such Third Party Claim (in which case the other party
immediately shall be reimbursed by the Responsible Party for any
amount the other party is required to pay with respect to such
Third Party Claim; or
-22-
<PAGE>
Option Two: The Responsible Party, at the Responsible
Party's expense and risk, can co-defend the Third Party Claim
with the other party, with the Responsible Party also responsible
for paying all costs incurred by the other Party in connection
with such defense, including, without limitation, the legal fees
and expenses of the other party's counsel for its reasonable
involvement in such defense. If the other party is found to be
liable for any portion of such Third Party Claim, the Responsible
Party immediately shall reimburse the other party for any amount
required to be paid by the other party with respect thereto;
provided, however, if the Responsible Party selects this option,
the Responsible Party shall attempt diligently to have the other
party removed as a party to any legal action involving the Third
Party Claim (and, upon such removal, the involvement of the other
party's counsel shall cease unless requested by the Responsible
Party or the Responsible Party's counsel); and
(C) No party may settle any Third Party Claim without the
prior consent of the other parties hereto unless the settlement will
not have a material adverse effect on the other party hereto. The
parties will resolve any Dispute with respect to any such proposed
settlement in accordance with this paragraph 18.
(D) Any party responsible for defending a Third Party Claim
shall proceed with diligence and in good faith with respect thereto.
(E) Nothing contained in this paragraph 18(e)(ii) shall
prevent any party from assuming control of the defense and/or settling
any Third Party Claim against it for which indemnification is not
sought under this Agreement.
19. Use of Corporate and Fictitious Names. Seller and the Shareholders,
jointly and severally, agree to take all actions necessary to assist Buyer in
obtaining the rights to use the corporate name and any fictitious names used in
its conduct of any of the Business, including but not limited to the execution
of any assignments and consents to use such name. If Buyer attempts to use such
name, Seller shall consent to Buyer's use of such name if such consent is
required by any state, county or local governmental authority.
20. Prepaid Items; Deposits; Etc. All prepaid insurance premiums, rent and
utility deposits, and similar items paid by or owing to the Seller by any
person, shall be considered to be part of the Assets being purchased by Buyer
and, on consummation of the transactions contemplated by this Agreement, shall
be the property of Buyer.
21. Post-Closing Requirements of Seller and Buyer.
(a) Final Financial Information. Not later than sixty (60) days
following Closing, Seller, at Seller's sole cost and expense, shall deliver to
Buyer (to the attention of Gayle Lamson) "FINAL FINANCIAL INFORMATION", which
shall include:
(i) a balance sheet of Seller as of the Effective Date prepared
in accordance with
GAAP;
(ii) an income statement of Seller for the period commencing on
the date succeeding the last day of the most recent Financial Statement
Date and ending on the Effective Date which agrees with the balance sheet
submitted at Closing;
-23-
<PAGE>
(iii) an inventory of fixed assets of Seller as of the Effective
Date which agrees with the balance sheet submitted at Closing; and
(iv) a listing of resale inventory of Seller as of the Effective
Date which agrees with the balance sheet submitted at Closing.
(v) a cash settlement summary of Seller in a form provided by
Buyer.
(b) Liabilities Deficiency. If all such Final Financial Information or
if any document, instrument or agreement required to be delivered in accordance
with paragraph 10(a), including, without limitation, original motor vehicle
certificates of title property endorsed, is not delivered to Buyer within sixty
(60) days following Closing, Seller and Shareholder shall be liable to Buyer in
an amount equal to $500.00 for each day after such sixty (60) day period until
all such Final Financial Information and such documents, instruments and
agreements are delivered to Buyer, and such liability shall constitute a
Liabilities Deficiency under the provisions of paragraph 7, above.
(c) Wells Fargo Bank Line of Credit. No later than two (2) business
days following Closing, Seller will provide Buyer with the current outstanding
balance (the "Wells Fargo Balance") of that certain Line of Credit Agreement
between Seller and Wells Fargo Bank, dated . Buyer shall pay the Wells Fargo
Balance no later than five (5) business days following the receipt from Seller
of the Wells Fargo Balance. In addition, Seller shall use its best efforts to
have UCC-3 Termination Statements filed with the Secretary of State of
California and the County Clerk in each applicable jurisdiction.
22. Third Party Beneficiaries. Nothing in this Agreement, expressed or
implied, is intended to confer on any person, other than the parties hereto, and
their successors, any rights or remedies under or by reason of this Agreement
other the affiliates entitled to indemnification pursuant to paragraph 18.
23. Expenses. Except as otherwise stated herein, each of the parties shall
bear all expenses incurred by them in connection with this Agreement and in
consummation of the transactions contemplated hereby in preparation thereof.
24. Notices. All notices, consents, waivers and other communications
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:
to Seller: c/o Robert D. Walter
P. O. Box 6564
Incline Village, Nevada 89450
to the Shareholders: Robert D. Walter
Marcia Hendry Walter
P. O. Box 6564
Incline Village, Nevada 89450
-24-
<PAGE>
Paul A. Bernou
2610 Otis Drive
Alameda, CA 94501
with a copy to: Mark T. Schieble
Foley & Lardner
One Maritime Plaza, Sixth Floor
San Francisco, CA 94111-3404
to Buyer: c/o RoTech Medical Corporation
4506 L.B. McLeod Road, Suite F
Orlando, FL 32811
Attention: Stephen P. Griggs
with copies to: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Marshall Elkins
and
Blass & Driggs
461 Fifth Avenue
New York, NY 10017
Attn: Andrew S. Bogen
25. Choice of Law. The laws of the State of California applicable to
contracts executed, delivered and to be fully performed in such State govern the
validity of this Agreement, the construction of its terms, and the
interpretation of the rights and duties of the parties.
26. Sections and Other Headings. Section, paragraph, and other headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
27. Counterpart Execution. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which,
together, shall constitute but one instrument.
28. Gender. All gender employed in this Agreement shall include all
genders, and the singular shall include the plural and the plural shall include
the singular whenever and as often as may be appropriate.
29. Parties in Interest. This Agreement shall be binding on and shall inure
to the benefit of, and be enforceable by, Seller, Shareholder and Buyer and
their respective successors and assigns. Buyer shall be entitled to assign its
rights under this Agreement and the Transaction Documents after the Closing.
Seller and the Shareholders may not assign this Agreement or any of their rights
hereunder without the prior consent of Buyer.
-25-
<PAGE>
30. Entire Agreement. This Agreement including all Schedules and Exhibits
hereto, and all Transaction Documents constitute the entire agreement between
the parties hereto with respect to the subject matter hereof and there are no
agreements, understandings, restrictions, warranties, or representations between
the parties with respect to the subject matter hereof other than as set forth
herein or as herein provided.
31. Performance. In the event of a breach by Seller or any Shareholder of
any of their respective 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 each of Seller and each
Shareholder hereby waives the defense that there may be an adequate remedy at
law.
32. Waiver, Discharge, Etc. This Agreement and the Transaction Documents
and the obligations hereunder and thereunder 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 or any Transaction Document 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 such Transaction Document, as the case may be, 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 or any Transaction
Document shall be held to be a waiver of any other or subsequent breach.
33. 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 or 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 purpose of this Agreement, and to vest in
Buyer good title to, possession of and control of all the Assets.
34. Joint and Several. Seller and the Shareholders shall be jointly and
severally liable for all representations, warranties and obligations, including,
without limitation, indemnification obligations, and covenants made by any of
them pursuant to this Agreement, including, without limitation, any made
pursuant to any Transaction Document. For all purposes of this Agreement, any
representation or warranty that is qualified to be "to the knowledge of Seller"
or by a requirement that Seller shall have received "notice" of any matter, or
any similar qualification shall be deemed to include the knowledge of the
Shareholder or notices to the Shareholders, as the case may be.
35. Independent Legal Counsel; Tax-Free Qualification. Seller and each
Shareholder represent and warrant that each party has had the opportunity to
seek the advice of independent legal counsel prior to signing this Agreement,
and that the Buyer has recommended to Seller and each Shareholder that such
party obtain legal counsel. In addition, Seller and each Shareholder hereby
acknowledge that the Buyer has made no representations or warranties herein with
respect to the qualification of the transactions contemplated by this Agreement
and the Transaction Documents as a "reorganization" under ss.368(a)(1)(c) of the
Code.
36. Representative. Notwithstanding anything contained herein to the
contrary, each of Seller and each Shareholder hereby designates Robert D. Walter
and each of Seller and each Shareholder hereby accepts the designation of Robert
D. Walter as the representative of the Seller and Shareholders (the
"REPRESENTATIVE") to act for and on behalf of the Seller and Shareholders as
provided in this Agreement. Each of Seller and each Shareholder shall be bound
by all actions taken or omitted by the Representative on behalf of any Seller or
Shareholder, and each of Seller and each Shareholder shall be deemed to have
received notice deemed given or payment made to the Representative in accordance
with the notice provisions of this Agreement on the date deemed given or the
date paid to the Representative, and Buyer shall be entitled to rely on all
notices and consent given, and all settlements entered into on behalf of Seller
or any Shareholder to the extent authorized pursuant
-26-
<PAGE>
to the terms of this Agreement notwithstanding any objections made by any Seller
or Shareholder prior to, concurrently with or subsequent to the giving of any
such notice or consent or the settlement of any such matter. The Representative
may be replaced only if and when Seller and all of the Shareholders shall notify
Buyer that a new individual person (named in such notice) has been unanimously
selected by them to be to be the new Representative, in which case such new
person shall thereafter be the Representative.
37. Drafting. Buyer's counsel has drafted this Agreement and the other
Transaction Documents as a matter of convenience for the parties hereto; and the
parties hereto have carefully reviewed and negotiated the terms of this
Agreement and the Transaction Documents; and accordingly any drafting errors,
ambiguities or inconsistencies shall not be interpreted against Buyer.
[SIGNATURES ON THE FOLLOWING PAGE]
-27-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first stated above.
INTEGRATED HEALTH SERVICES, INC. BUYER:
INTEGRATED OF GARDEN
TERRACE, INC.
/s/ MARK KOVINSKY
------------------------------
By: /s/ MARK KOVINSKY By: /s/ MARK KOVINSKY
------------------------------ ---------------------------
Name: Mark Kovinsky Name: Mark Kovinsky
Title: SVP Title: SVP
SELLER:
ACCUCARE MEDICAL
CORPORATION
By: /s/ ROBERT D. WALTER
---------------------------
Name: Robert D. Walter
Title: President
SHAREHOLDERS:
/s/ ROBERT D. WALTER
------------------------------
Robert D. Walter
/s/ MARCIA HENDRY-WALTER
------------------------------
Marcia Hendry-Walter
/s/ PAUL A BERNOU
------------------------------
Paul A. Bernou
The undersigned hereby agrees to be bound by, and jointly and severally
liable with Paul A. Bernou with respect to, all of the provisions of the
preceding agreement; provided, however, that the Buyer and IHS shall have
recourse solely to the undersigned's interest, if any, in any considerations
received or to be received by Paul A. Bernou arising out of the transactions
contemplated by such agreement, and any proceeds of, or distributions made in
respect of, any of such consideration.
/s/ CARI L. BERNOU
------------------------------
Cari L. Bernou
-28-
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
- --------------------------------------------------------------------------------
State of California
} ss
County of San Francisco
On September 28, 1998, before me, David Bonner, Notary Public personally
appeared Robert D. Walter/President and Shareholder
[X] personally known to me
-- proved to me on the basis of
satisfactory evidence
to be the person(s) whose name(s)
is/are subscribed to the within
instrument and acknowledged to me that
he/she/they executed the same in
[SEAL] his/her/their authorized capacity(ies),
DAVID BONNER and that by his/her/their signature(s)
COMMISSION #1192886 on the instrument the person(s), or the
NOTARY PUBLIC-CALIFORNIA entity upon behalf of which the
SAN FRANCISCO COUNTY person(s) acted, executed the
MY COMM. EXPIRES AUG 14, 2002 instrument.
WITNESS my hand and official seal.
/s/ David Bonner
-------------------------------------
Place Notary Seal Above Signature of Notary Public
- --------------------------------- OPTIONAL ---------------------------------
Though the information below is not required by law, it may prove valuable to
persons relying on the document and could prevent fraudulent removal and
reattachment of this form to another document
DESCRIPTION OF ATTACHED DOCUMENT
Title or Type of Document:_____________________________________________________
Document Date:_________________________________ Number of Pages: ______________
Signer(s) Other Than Named Above ______________________________________________
CAPACITY(IES) CLAIMED BY SIGNER
-----------------
Signer's Name: ____________________________________________ RIGHT THUMBPRINT
OF SIGNER
[ ] Individual Top of thumb here
[ ] Corporate Officer -- Title(s):_________________________
[ ] Partner -- [ ] Limited [ ] General
[ ] Attorney in Fact
[ ] Trustee
[ ] Guardian or Conservator
[ ] Other _________________________________________________
Signer is Representing: ___________________________________ ---------------
- --------------------------------------------------------------------------------
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
- --------------------------------------------------------------------------------
State of California
} ss
County of San Francisco
On September 28, 1998, before me, David Bonner, Notary Public personally
appeared Marcia Hendry-Walter.
[X] personally known to me
-- proved to me on the basis of
satisfactory evidence
to be the person(s) whose name(s)
is/are subscribed to the within
instrument and acknowledged to me that
he/she/they executed the same in
[SEAL] his/her/their authorized capacity(ies),
DAVID BONNER and that by his/her/their signature(s)
COMMISSION #1192886 on the instrument the person(s), or the
NOTARY PUBLIC-CALIFORNIA entity upon behalf of which the
SAN FRANCISCO COUNTY person(s) acted, executed the
MY COMM. EXPIRES AUG 14, 2002 instrument.
WITNESS my hand and official seal.
/s/ David Bonner
-------------------------------------
Place Notary Seal Above Signature of Notary Public
- --------------------------------- OPTIONAL ---------------------------------
Though the information below is not required by law, it may prove valuable to
persons relying on the document and could prevent fraudulent removal and
reattachment of this form to another document
DESCRIPTION OF ATTACHED DOCUMENT
Title or Type of Document:_____________________________________________________
Document Date:_________________________________ Number of Pages: ______________
Signer(s) Other Than Named Above ______________________________________________
CAPACITY(IES) CLAIMED BY SIGNER
-----------------
Signer's Name: ____________________________________________ RIGHT THUMBPRINT
OF SIGNER
[ ] Individual Top of thumb here
[ ] Corporate Officer -- Title(s):_________________________
[ ] Partner -- [ ] Limited [ ] General
[ ] Attorney in Fact
[ ] Trustee
[ ] Guardian or Conservator
[ ] Other _________________________________________________
Signer is Representing: ___________________________________ ---------------
- --------------------------------------------------------------------------------
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
- --------------------------------------------------------------------------------
State of California
} ss
County of San Francisco
On September 28, 1998, before me, David Bonner, Notary Public personally
appeared Paul A Bernou.
[X] personally known to me
-- proved to me on the basis of
satisfactory evidence
to be the person(s) whose name(s)
is/are subscribed to the within
instrument and acknowledged to me that
he/she/they executed the same in
[SEAL] his/her/their authorized capacity(ies),
DAVID BONNER and that by his/her/their signature(s)
COMMISSION #1192886 on the instrument the person(s), or the
NOTARY PUBLIC-CALIFORNIA entity upon behalf of which the
SAN FRANCISCO COUNTY person(s) acted, executed the
MY COMM. EXPIRES AUG 14, 2002 instrument.
WITNESS my hand and official seal.
/s/ David Bonner
-------------------------------------
Place Notary Seal Above Signature of Notary Public
- --------------------------------- OPTIONAL ---------------------------------
Though the information below is not required by law, it may prove valuable to
persons relying on the document and could prevent fraudulent removal and
reattachment of this form to another document
DESCRIPTION OF ATTACHED DOCUMENT
Title or Type of Document:_____________________________________________________
Document Date:_________________________________ Number of Pages: ______________
Signer(s) Other Than Named Above ______________________________________________
CAPACITY(IES) CLAIMED BY SIGNER
-----------------
Signer's Name: ____________________________________________ RIGHT THUMBPRINT
OF SIGNER
[ ] Individual Top of thumb here
[ ] Corporate Officer -- Title(s):_________________________
[ ] Partner -- [ ] Limited [ ] General
[ ] Attorney in Fact
[ ] Trustee
[ ] Guardian or Conservator
[ ] Other _________________________________________________
Signer is Representing: ___________________________________ ---------------
- --------------------------------------------------------------------------------
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
- --------------------------------------------------------------------------------
State of California
} ss
County of San Francisco
On September 28, 1998, before me, David Bonner, Notary Public personally
appeared Cari L. Bernou.
[X] personally known to me
-- proved to me on the basis of
satisfactory evidence
to be the person(s) whose name(s)
is/are subscribed to the within
instrument and acknowledged to me that
he/she/they executed the same in
[SEAL] his/her/their authorized capacity(ies),
DAVID BONNER and that by his/her/their signature(s)
COMMISSION #1192886 on the instrument the person(s), or the
NOTARY PUBLIC-CALIFORNIA entity upon behalf of which the
SAN FRANCISCO COUNTY person(s) acted, executed the
MY COMM. EXPIRES AUG 14, 2002 instrument.
WITNESS my hand and official seal.
/s/ David Bonner
-------------------------------------
Place Notary Seal Above Signature of Notary Public
- --------------------------------- OPTIONAL ---------------------------------
Though the information below is not required by law, it may prove valuable to
persons relying on the document and could prevent fraudulent removal and
reattachment of this form to another document
DESCRIPTION OF ATTACHED DOCUMENT
Title or Type of Document:_____________________________________________________
Document Date:_________________________________ Number of Pages: ______________
Signer(s) Other Than Named Above ______________________________________________
CAPACITY(IES) CLAIMED BY SIGNER
-----------------
Signer's Name: ____________________________________________ RIGHT THUMBPRINT
OF SIGNER
[ ] Individual Top of thumb here
[ ] Corporate Officer -- Title(s):_________________________
[ ] Partner -- [ ] Limited [ ] General
[ ] Attorney in Fact
[ ] Trustee
[ ] Guardian or Conservator
[ ] Other _________________________________________________
Signer is Representing: ___________________________________ ---------------
- --------------------------------------------------------------------------------
<PAGE>
SCHEDULES AND EXHIBITS
Schedule 1(a)(i) - Accounts Receivable
Schedule 1(a)(ii) - Inventory; Fixed Assets
Schedule 1(a)(iii) - Automobiles
Schedule 1(a)(v)(A) - Patients List of the Business
Schedule 1(a)(v)(B) - Telephone Numbers and Licenses
Schedule 2(a) - Allocation of Purchase Price
Schedule 6(a) - Closing Date Liabilities
Schedule 11(c) - Seller's Opinion
Schedule 14(c) - Litigation
Schedule 14(g) - Contracts
Schedule 14(i) - Personnel Payrates; Employee Benefits
Schedule 14(k) - Insurance
Schedule 14(o) - Tax Returns and Financial Statements
Schedule 14(p) - Supplemental Tax Information
Schedule 14(q) - Adverse Business Developments
Schedule 14(r) - Relationships
Schedule 14(u) - Reimbursement Matters
Schedule 14(v) - Environmental Compliance
Schedule 17(a) - Locations
Exhibit 2(b)(i) - Escrow Agreement
Exhibit 14(w) - Healthcare Questionnaire
-31-
<PAGE>
EXHIBIT 3
OPERATING PROFIT
1. General Standards.
(a) Performance. Except as otherwise expressly agreed in writing, the
parties intend that the financial and economic performance to be determined and
measured pursuant to this Exhibit "3" shall be determined solely with respect to
so much of the business operations of Corporation as consists of the business
enterprise previously conducted by the Acquired Entity (the "ACQUIRED
ENTERPRISE") before being acquired by Corporation. Accordingly, all references
herein to revenues, expenses, costs, profits, losses, and any other transaction
or activity, whether by reference to "Corporation", or in any other manner,
shall mean and refer only to so much thereof as pertains directly to the
Acquired Enterprise, unless such reference specifically provides otherwise. The
parties expressly intend all such calculations to provide a determination of the
profitability of the Acquired Enterprise, determined as if such Acquired
Enterprise at all times operated as an autonomous entity.
(b) Determination of Operating Profit. The Operating Profit to be
determined hereunder shall be calculated on a pre-tax basis in accordance with
generally accepted accounting principles, consistently applied ("GAAP"), as
further defined, limited, or explained as set forth herein.
2. Income and Cost.
(a) Income and Revenue. Income shall be accounted for on the accrual
method consistent with the prior accounting methods of the Acquired Enterprise,
and shall consist of all direct revenues, defined as all "Rental Revenue" and
"Sales Revenue", plus or minus the net change in unbilled revenue, plus or minus
gain or loss from equipment sales, plus or minus sales credits and allowances,
plus investment income.
(b) Costs and Expenses. Costs shall include the following:
(1) DIRECT EXPENSES incurred on behalf of the Acquired Enterprise
as kept on the accrual method, including salary paid to the Employees and
related payroll taxes.
(2) BAD DEBT expenses shall be the actual bad debts written off,
plus or minus the change in allowance for bad debts. For the purpose of this
calculation, the allowance for bad debts is considered equal to the amount of
all accounts receivable in excess of 120 days old.
(3) REASONABLE TRAVEL EXPENSES of employees or representatives of
ROTECH MEDICAL CORPORATION ("ROTECH") to and from its corporate offices on
behalf of the Acquired Enterprise's matters, to be allocated on a reasonable
basis.
(4) INTEREST on all or any net intercorporate borrowing from
Integrated Health Services, Inc. ("IHS") at the cost of such funds to IHS.
(5) GROUP OR CONSOLIDATED PURCHASES for items benefitting the
Acquired Enterprise purchased by IHS, RoTech or by Corporation, to be allocated
at actual cost in accordance with usage. Costs to be allocated include costs, if
any, of transportation, storage, etc.
(6) DEPRECIATION EXPENSES will be calculated on a consistent
basis as previously and historically calculated by the Acquired Enterprise.
-32-
<PAGE>
(7) CORPORATION'S OVERHEAD. The general, administrative, and
overhead costs of Corporation, to the extent allocable to the Acquired
Enterprise on a reasonable basis.
(c) Excluded Items. Costs and expenses for purposes of calculating
operating profits shall not include the following:
(1) BRANCH OFFICES. All start-up costs, operating profits, and
operating losses incurred by Enterprise in the initial six (6) months on the
start-up, opening, or operation of a branch office or location opened after the
date hereof shall be excluded from calculations of Operating Profits for
purposes of this Agreement.
(2) IHS/ROTECH OVERHEAD. Unless otherwise mutually agreed by the
Acquired Enterprise and Seller, IHS and RoTech corporate overhead or costs will
not beallocated to the Acquired Enterprise or considered in Operating Profits.
(3) COSTS OF ACQUIRING THE ACQUIRED ENTERPRISE. The calculation
of Operating Profits will not include cost or amortization of costs incurred in
the acquisition of the Acquired Enterprise, and any liabilities assumed by
RoTech and subsequently paid off, which will be included in the intercorporate
borrowings in paragraph 2(b)(4), above.
(d) Acquisition of Further Enterprises. Nothing contained herein shall
be deemed to affect, limit or restrict the right of RoTech or IHS to make any
acquisitions.
-33-
EXHIBIT 2.2
AGREEMENT FOR SALE AND PURCHASE OF ASSETS
THIS AGREEMENT is made as of August 14, 1998, by and among AMERICAN
OXYGEN SERVICES OF TENNESSEE, INC., a Florida corporation, having its principal
place of business at 165 Westmoreland Street, Harrogate, TN 37752 (the "SELLER"
or the "CORPORATION"), TIMOTHY O. BATES ("BATES"), MICHAEL CAMPBELL
("CAMPBELL"), AMERIMED HEALTHCARE, INC., a Florida corporation ("AMERIMED")
(Bates, Campbell and Amerimed are hereinafter sometimes collectively referred to
as "SHAREHOLDERS" and individually as a "SHAREHOLDER"), IHS ACQUISITION XXVII,
INC., a Delaware corporation (the "BUYER") and INTEGRATED HEALTH SERVICES, INC.,
a Delaware corporation ("IHS").
W I T N E S S E T H :
WHEREAS, Seller operates a home respiratory care and durable medical
equipment business in the States of Florida and Tennessee (the "BUSINESS"); and
WHEREAS, Shareholders are the sole shareholders of the Seller; and
WHEREAS, Buyer is a wholly owned subsidiary of IHS;
WHEREAS, the Seller wishes to transfer its business and substantially
all of its assets to the Buyer solely in exchange for voting shares of IHS in a
transaction intended to qualify as a "reorganization" within the meaning of
ss.368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (thE "CODE"),
it being contemplated by the Seller and Buyer that the Seller will thereafter,
as an integral part of the transaction, distribute the IHS Shares (as
hereinafter defined) to the Shareholders in complete liquidation of the Seller
and dissolve; and Buyer also desires to acquire from Seller and each
Shareholder, and Seller and each Shareholder desire to grant to Buyer, covenants
not to compete and other restrictive covenants as set forth in certain
Restrictive Covenant and Indemnification Agreements of even date herewith (the
"RESTRICTIVE COVENANT AGREEMENTS"); and
WHEREAS, the consent or approval of all persons necessary for the
consummation of the transactions contemplated hereby has been or will be
obtained, including without limitation, all approvals of governmental
authorities and parties to any contracts to be assigned to Buyer in connection
herewith.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed as follows:
1. Purchase and Sale of Assets.
(a) The Assets. As of the Closing Date referred to below in
paragraph 8, Seller shall be deemed to have sold, transferred, conveyed and
assigned, free and clear of all liens, claims, security interests, pledges,
restrictions on transfer or use and other encumbrances of any kind or nature
whatsoever ("LIENS") other than the "Permitted Liens" as hereinafter defined,
all of Seller' rights, title and interest in, to or under:
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(i) Accounts Receivable. All of the accounts receivable
of the Business including, without limitation, all accounts receivable
set forth on the Schedule of Accounts Receivable Data attached hereto
as Schedule 1(a)(i); and
(ii) Inventory; Fixed Assets. All inventory and fixed
assets of the Business, including, without limitation, all of the same
set forth on the Schedule of Inventory and Fixed Assets attached hereto
as Schedule 1(a)(ii); and
(iii) Motor Vehicles. All motor vehicles of the
Business, including without limitation, all of the same set forth on
the Schedule of Motor Vehicles attached hereto as Schedule 1(a)(iii);
and
(iv) Other Assets. All other assets of any kind,
tangible or intangible, real, personal or mixed, owned and used or held
for use by Seller in connection with the Business, including, without
limitation, all of the following: (A) the Patients List of the
Business, as described in Schedule 1(a)(iv)(A); (B) the telephone
numbers listed on the Schedule of Telephone Numbers and Licenses
attached hereto as Schedule 1(a)(iv)(B); (C) all personal property,
machinery and equipment other than the Excluded Assets (as hereinafter
defined); (D) all of Seller's prepaid assets; (E) rights under
contracts, agreements, including, without limitation, franchise
agreements, and instruments; (F) any other assets used in the operation
of the Business, other than the Excluded Assets and real and personal
property leased pursuant to certain equipment operating leases, leases
for Seller's locations in LaFollette, Tennessee and Sneedville,
Tennessee (the "REAL ESTATE LEASES") and the property to be leased by
Seller to Buyer in Harrogate, Tennessee, pursuant to the Excluded Lease
(as hereinafter defined); and (G) all intangible rights of Seller of
every kind and description used in, or held for use in connection with,
the operation of the Business, including, without limitation, all
intangible assets, and to the extent permitted by applicable law, all
licenses, permits and authorizations. The assets described in
subsections 1(a)(i), (ii), (iii) and (iv) are referred to herein as the
"Assets".
(b) For purposes of this Agreement, "Permitted Liens" shall
include all liens, claims or encumbrances, including, but not limited to,
personal and real property taxes, on any of Seller's assets to the extent
securing of the Closing Assumed Lease Payables, any liens for current tax
assessments that are not yet due and payable, the Real Estate Leases and the
Assumed Liabilities (as hereinafter defined).
(c) Excluded Assets. Notwithstanding the foregoing, the Assets
shall not include, and Seller shall not be deemed to have sold, transferred,
conveyed or assigned the following assets to Buyer: Seller's building in
Harrogate, Tennessee, and the related ground lease (the "EXCLUDED LEASE"),
certain computer equipment and software used by Seller in its Orlando, Florida
location and owned by Amerimed Healthcare, Inc., certain computer equipment and
software owned and used by Chip Newcomb in connection with the performance of
his duties as an employee of Seller, the ownership interests in the real
property subject to the Real Estate Leases, the ownership interest in equipment
subject to the equipment operating leases and a conditional sale agreement
assumed by Buyer, loan receivable in the amount of $15,000.00 owed by Timothy O.
Bates to Seller, loan receivable in the amount of $15,000.00 owed by Michael
Campbell to Seller, $4,691.07 in cash retained by Seller to pay Seller's
outstanding accounts payable as of the Closing, the rights to any federal or
state income tax refunds due Seller, Certificate of Incorporation, qualification
to do business in any jurisdiction, taxpayer identification number, minute
books, stock transfer records and other documents related specifically to
Seller's corporate organization and maintenance (collectively, the "EXCLUDED
ASSETS"). Seller agrees to lease to Buyer, and Buyer agrees to lease from
Seller, the portion of Seller's building in Harrogate, Tennessee presently used
by Seller in the operation of the Business, in accordance with the terms and
conditions set forth in the lease agreement (the "LEASE AGREEMENT") attached
hereto as Exhibit 1(c), and Buyer and Seller agree to execute and deliver said
Lease Agreement at the Closing (as hereinafter defined).
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(d) Restrictive Covenants. Concurrently herewith, Buyer, IHS
and each of Seller and each Shareholder shall enter into a Restrictive Covenant
Agreement, in such form as attached hereto as
Exhibit 1(c)-1, 1(c)-2, 1(c)-3 and 1(c)-4.
2. Purchase Price; Method of Payment.
(a) Purchase Price. The aggregate "PURCHASE PRICE" for the
Assets shall be One Million Seven Hundred Fifty Thousand Dollars ($1,750,000)
increased by (i) the amount of Seller's accounts receivable balance (net of
reserve for doubtful accounts) as of the Closing (the "CLOSING NET RECEIVABLES
AMOUNT") and (ii) the amount of Seller's cash balance as of the Closing (the
"CLOSING CASH AMOUNT") and reduced by (A) the aggregate unpaid balance of
Seller's operating leases as of the Closing (the "CLOSING ASSUMED LEASE
PAYABLES"), and (B) any accrued vacation and sick leave pay owing by Seller to
any of Seller's employees as of the Closing Date (the "EMPLOYEE BENEFITS
PAYABLES"), all of which shall be payable by delivery of newly issued shares of
voting common stock of IHS (the "IHS SHARES") valued as set forth in paragraph
6(a) below. Seller and Shareholders represent and warrant that the Closing Net
Receivables Amount is $350,000, the Closing Cash Amount is $0, the Closing
Assumed Lease Payables amount is $111,239.43, and the Employee Benefits Payables
amount is $7933.75 and accordingly, that the Purchase Price, as adjusted, is
$1,980,826.82
(b) Method of Payment. At the Closing (as defined in paragraph
8), Buyer shall pay, disburse, and deliver the Purchase Price as follows:
(i) by delivery of IHS Shares equal to Two Hundred
Thousand Dollars ($200,000) (having a value determined as of the date
hereof in accordance with Section 6(a) below) (the "ESCROWED SHARES" or
"ESCROW FUND") to Crestar Bank, as escrow agent ("ESCROW AGENT"), to be
held by Escrow Agent during the Escrow Period (as defined in paragraph
5(d), below) pursuant to the terms of an Escrow Agreement, in the form
attached hereto as Exhibit 2(b)(i)-A (the "ESCROW AGREEMENT"), pursuant
to which, among other things, the Escrow Agent shall acknowledge that
it is holding the Escrowed Shares as the agent of Buyer pursuant to the
Stock Pledge Agreement in the form of Exhibit 2(b)(i)-B hereto (the
"STOCK PLEDGE AGREEMENT"). The entire Escrow Fund shall be subject to
the provisions of paragraphs 5 and 16 hereof; and
(ii) by delivery of IHS Shares equal One Million Seven
Hundred Eighty Thousand Eight Hundred Twenty Six Dollars and Eighty Two
Cents ($1,780,826.82) (having a value determined as of the date hereof
in accordance with Section 6(a) below) (the balance of the Purchase
Price) to Seller. Said IHS Shares shall, immediately after the Closing,
be transferred by Seller to the Shareholders as part of a distribution
by Seller to the Shareholders in connection with the complete
liquidation of Seller. Buyer shall deliver the IHS Shares pursuant to
this Section 2(b)(ii) to Seller at the Closing, and subject to Section
6, IHS agrees to reissue the IHS Shares delivered to Seller pursuant to
this Section 2(b)(ii) to the Shareholders within a reasonable period of
time following the Closing.
3. Indemnity Against Creditors Claims; No Assumption of Liabilities.
Seller has requested that Buyer waive the requirements of the bulk sales and
transfer laws of the State of Tennessee. Seller and each Shareholder agree to
indemnify Buyer and save and hold Buyer harmless against all Damages (as defined
in paragraph 16(c)) arising out of any claims made by creditors (including,
without limitation, any Federal, state or local taxing authority) of Seller that
relate to the Business, or that arise out of the failure to comply with any of
such laws other than the Permitted Liens, the Closing Assumed Lease Payables,
obligations arising prior to Closing under the Real Estate Leases, the Employee
Benefits Payables and the Assumed Liabilities.
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4. Closing Date Liabilities.
(a) Seller and Shareholders represent and warrant that, to the
best of Seller's and each Shareholder's knowledge and belief after diligent
inquiry, all of Seller's liabilities (except for the Closing Assumed Lease
Payables, the Real Estate Leases, the Employee Benefits Payables and the Assumed
Liabilities) as of the Closing Date are listed on the Schedule of Liabilities
attached hereto as Schedule 4(a) (the "LISTED LIABILITIES"). For purposes of
this Agreement "LIABILITIES" shall mean and include all claims, lawsuits,
liabilities, obligations or debts 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, whether or not asserted as of the date hereof, 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, any liabilities relating to any Excluded Assets
(including, without limitation, the Excluded Lease), malpractice or other tort
claims, claims for breach of contract, any claims of any kind asserted by
patients, former patients, employees and former employees of Seller or any other
party that are based on acts or omissions by Seller occurring on or before the
Closing Date, amounts due or that may become due in connection with the
participation of Seller in the Medicare or Medicaid programs or due to any other
health care reimbursement or payment intermediary, or that may be due by Seller
to any other third party payor, accounts payable, notes payable, trade payables,
lease obligations, indebtedness for borrowed money, accrued interest, and
contractual obligations other than the Closing Assumed Lease Payables, the Real
Estate Leases, the Employee Benefits Payables and the Assumed Liabilities.
Seller and each Shareholder acknowledge that the Purchase Price for the Assets
is based on the accuracy of Seller's and each Shareholder's representations and
warranties contained in this Agreement, including, but not limited to, Seller's
and each Shareholder's representations and warranties contained in this
paragraph 4(a). Without limiting the generality of the foregoing, Buyer will not
assume any, and Seller shall remain liable for each, liability of Seller arising
out of any facts, circumstances, matter or occurrences existing on or prior to
the Closing Date (whether or not known) ("CLOSING DATE LIABILITIES"), other than
the Closing Assumed Lease Payables, the Real Estate Leases, the Employee
Benefits Payables and the Assumed Liabilities.
(b) Without limiting the generality of the provisions of
subparagraph (a) above, Buyer shall not assume the Contracts (as hereinafter
defined in paragraph 13(b)), if any, set forth on Schedule 4(b), or any
liabilities with respect thereto, and except as provided in subsection (c)
below, Buyer shall not, in any case, assume any liabilities under any Contracts
(whether or not such Contracts are assumed by Buyer) to the extent such
liabilities arise out of facts or circumstances in existence, or obligations to
be satisfied, on or prior to the Closing Date.
(c) At Closing, Buyer shall assume the Closing Assumed Lease
Payables, the Real Estate Leases, the Employee Benefits Payables and the Assumed
Liabilities and shall satisfy the same in the ordinary course of business as the
same shall become due and payable from and after the Closing; provided, however,
that Buyer shall fully satisfy the outstanding obligations with respect to the
Closing Assumed Lease Payables by not later than August 31, 1998. The Closing
Assumed Lease Payables, the Real Estate Leases, the Employee Benefit Payables
and the Assumed Liabilities shall not constitute Closing Date Liabilities or
Listed Liabilities. The "ASSUMED LIABILITIES" shall be those liabilities of
Seller set forth on Schedule 4(c).
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5. Right of Offset Against the Escrow Fund.
(a) Event of Deficiency. If:
(i) Buyer pays for any Closing Date Liabilities, then
Seller and Shareholders shall jointly and severally reimburse Buyer for
such payment (a "LIABILITIES DEFICIENCY"); or
(ii) the actual net cash collections of the Seller's
accounts receivables included in the Assets during the twelve (12)
month period immediately following the Closing Date shall be less than
the Closing Net Receivables Amount, then Seller and Shareholders,
jointly and severally, shall pay to Buyer the amount of such deficiency
("ASSET VALUE DEFICIENCY") and Buyer acknowledges and agrees that the
Shareholders shall be entitled to assist Buyer in collecting Seller's
accounts receivable included in the Assets during the twelve (12) month
period following the Closing Date and agrees to cooperate with the
Shareholders in such collection efforts and if Shareholders assist
Buyer in collecting receivables that exceed the Closing Net Receivables
Amount, i.e. a collection of receivables included in the reserve for
doubtful accounts, then Buyer agrees to deliver additional IHS Shares
to Shareholders calculated based upon the Trade Price as defined in
paragraph 6(a) below; or
(iii) Buyer shall be entitled to be indemnified for
any Damages pursuant to this Agreement ("INDEMNIFICATION CLAIMS", and
together with any Liabilities Deficiencies and Asset Value
Deficiencies, collectively "CLAIMS" and each, a "CLAIM");
then, and in any of such events, Buyer may provide written notice to the
Representative of the Claim, in which case Buyer shall be entitled to recover
the amount of such Claim in accordance with the following procedure.
(b) Procedure if Seller Fails to Pay. If Seller fails to pay
any Claim in full to Buyer within ten (10) days from the date of such written
notice (said ten (10) day period hereinafter referred to as the "NOTICE
PERIOD"), Buyer shall have the right to make offset against the Escrow Fund, in
accordance with the terms and conditions of the Stock Pledge Agreement, in
amounts from time to time equal to the amount of such Claim (subject, however,
in the case of a "DISPUTE", to the provisions of paragraph 16 hereof applicable
thereto), and Seller agrees to any such offset. Buyer's right to proceed against
the Escrow Fund shall not be exclusive of any other rights or remedies that it
may have under this Agreement, law, equity or otherwise, subject, however, in
the case of a "DISPUTE" to the provisions of paragraph 16 below.
(c) Escrow Costs. The fees of the Escrow Agent shall be
borne fifty percent (50%) by Buyer and fifty percent (50%) by Seller.
(d) Escrow Period.
(i) The "ESCROW PERIOD" shall terminate three hundred
sixty five (365) days following the Closing Date.
(ii) The balance, if any, of the Escrow Fund
remaining (the "REMAINING ESCROW FUNDS") at the close of business on
the last day of the Escrow Period shall be disbursed to Seller within
fifteen (15) days after the last day of the Escrow Period.
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(iii) Notwithstanding anything to the contrary
contained in this subparagraph (d), if any Claim made by Buyer is in
dispute at the time that any amounts are otherwise to be disbursed to
Seller, then there shall be withheld from such amount to be disbursed
and there shall be retained in the Escrow Fund, an amount such that
there will be remaining in the Escrow Fund at least one hundred
twenty-five percent (125%) of the amount of the Claim asserted by Buyer
until the final settlement of such Claim or Claims.
(iv) Any interest accruing or income earned or
distributed on any portion of the Escrow Fund shall be paid to the
party receiving such portion of the Escrow Fund.
6. IHS Stock. The Purchase Price shall be payable by Buyer by the
delivery of IHS Shares to Seller in accordance with the following:
(a) Share Value. The number of IHS Shares issuable at Closing
(the "CLOSING DATE SHARE COUNT") or deliverable to any claimant from the Escrow
Fund shall be calculated based upon a price per share of such stock equal to the
average closing New York Stock Exchange ("NYSE") price of such stock for the
thirty (30) trading day period ending on the date that is two (2) business days
immediately preceding the Closing Date (the "TRADE PRICE").
(b) Registration Rights.
(i) IHS will prepare and use its reasonable
commercial best efforts to cause to be filed and declared effective by
the Securities and Exchange Commission (the "COMMISSION"), within one
hundred and twenty (120) days following the Closing Date a registration
statement for the registration of the IHS Shares (including the IHS
Shares in the Escrow Fund) issued to Seller (and subsequently reissued
to the Shareholders as a result of the distribution of the IHS Shares
by Seller to the Shareholders in connection with complete liquidation
of Seller) in connection with this transaction, under the Securities
Act of 1933, as amended (the "SECURITIES ACT"), and IHS shall maintain
the effectiveness of such registration statement for a period of one
(1) year following the date it became effective (the "REGISTRATION
DATE"). IHS agrees that before filing such registration statement or
the prospectus included therein or any amendments or supplements
thereto, IHS shall endeavor to furnish counsel selected by the
Shareholders copies of all such documents proposed to be filed (which
documents shall be subject to the review and comment of such counsel).
(ii) The registration rights provided each of the
Shareholders hereunder may be transferred by each of the Shareholders,
in connection with any sale, assignment, exchange or other disposition
by the Shareholders of their IHS Shares prior to the effective date of
the registration statement required to be filed hereunder, and in
connection with any dispositions made thereafter, other than
dispositions made thereafter pursuant to the registration statement
filed in accordance with Section 6; provided that, as a condition to
such transfer, each such transferee shall have agreed, in writing, to
be bound by the provisions applicable to the transferring Shareholder
under this Section 6. Upon and after any such transfer, references to
the "Shareholder" or a "Shareholder" in Section 6 shall refer to each
such transferee, as the context may indicate, for so long as each such
transferee owns IHS Shares. In the event of any such transfer of
registration rights on or after the Registration Date, if, solely by
reason of such transfer, the prospectus included in the registration
statement addressing the transferring Shareholder and his intended
method of disposing of his registered IHS Shares is required to be
amended or supplemented, as determined in the reasonable discretion of
IHS, then IHS' reasonable costs of preparing and filing such amendment
or supplement, together with the reasonable costs of providing all
selling
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Shareholders named in the prospectus including the transferee each with
a copy of the prospectus, as so amended or supplemented, shall be paid
by the transferring Shareholder or such transferee.
(c) Registration Expenses. Seller and the Shareholders shall
not be responsible for, and IHS shall bear, all of the expenses of IHS related
to such registration including, without limitation, the fees and expenses of its
counsel and accountants, all of its other costs, fees and expenses incident to
the preparation, printing, registration and filing under the Securities Act of
the registration statement and all amendments and supplements thereto, the cost
of furnishing copies of each preliminary prospectus, each final prospectus and
each amendment or supplement thereto to underwriters, dealers and other
purchasers of IHS Shares and the costs and expenses (including fees and
disbursements of its counsel) incurred in connection with the qualification of
IHS Shares under the "Blue Sky" laws of various jurisdictions. IHS, however,
shall not be required to pay underwriter's or brokerage discounts, commissions
or expenses, or to pay any costs or expenses arising out of any Shareholder's or
any transferee's failure to comply with its obligations under this Section 6.
IHS, shall in all events, pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit or quarterly
review, the expense of any liability insurance and the expenses and fees for
listing the Shareholders' registered IHS Shares on each securities exchange on
which similar securities issued by IHS are then listed or, if applicable, on the
NASDAQ system.
(d) INTENTIONALLY DELETED BY THE PARTIES
(e) Registration Procedures, etc. In connection with the
registration rights granted to Seller (and the Shareholders) with respect to the
IHS Shares as provided in this Section 6, IHS covenants and agrees as follows:
(i) IHS shall promptly respond to reasonable
inquiries of the Shareholders regarding the effectiveness of the
registration statement filed hereunder, and shall prepare and file with
the Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of
one year and shall otherwise comply with the provisions of the
Securities Act with respect to the disposition of all securities
covered by such registration statement during such period in accordance
with the methods of disposition by the Shareholders set forth in such
registration statement.
(ii) IHS will promptly notify the Shareholders at any
time when a prospectus relating to a registration statement under this
Section 6 is required to be delivered under the Securities Act and of
the happening of any event known to IHS as a result of which the
prospectus included in such registration statement, as then in effect,
would include an untrue statement of a material fact or omits to state
any material fact required to be stated therein in order to make the
statements set forth therein not misleading in light of the
circumstances then existing. At the request of any Shareholder, IHS
shall expeditiously prepare and file a supplement or amendment to such
prospectus so that, as thereafter delivered to purchasers of the
Shareholders' registered IHS Shares, such prospectus shall not contain
an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading.
(iii) IHS shall, upon request of the Shareholders,
furnish such number of prospectuses as shall reasonably be requested.
(iv) The Shareholders agree that if they sell their
IHS Shares included in the registration statement they will do so in
compliance with the disclosed method of disposition set forth therein,
and shall discontinue any offers and sales thereunder upon notice from
IHS that the registration
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statement relating to their IHS Shares is not current, until IHS gives
further notice that offers and sales may be recommenced.
(v) IHS shall otherwise use its best efforts to
comply with all applicable rules and regulations of the Commission.
(vi) In the event of the issuance of any stop order
suspending the effectiveness of the registration statement, or of any
order suspending or preventing the use of any related prospectus or
suspending the qualification of any IHS Shares included in such
registration statement for sale in any jurisdiction, IHS shall promptly
use its reasonable commercial efforts to obtain the withdrawal of such
order.
(vii) IHS shall cause all of the Shareholders' IHS
Shares included in the registration statement to be listed on the NYSE.
(viii) IHS shall take all necessary action which may
be required in qualifying or registering IHS Shares included in a
registration statement for offering and sale under the securities or
Blue Sky laws of such states as reasonably are requested by the
Shareholders, provided that IHS shall not be obligated to qualify as a
foreign corporation or dealer to do business under the laws of any such
jurisdiction; and
(ix) The information included or incorporated by
reference in the registration statement filed pursuant to this Section
6 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.
(f) Indemnification.
(i) IHS shall indemnify the Shareholders, their
successors and assigns, and each person, if any, who controls such
Seller within the meaning of ss.15 of the Securities Act or ss.20(a) of
the Securities Exchange Act of 1934, 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
registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or contained in any documents
or information furnished by IHS filed in any jurisdiction in order to
qualify IHS Shares under the securities laws thereof (the "BLUE SKY
FILINGS") or filed with the Commission, any state securities commission
or agency, the 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 IHS by any of
the Shareholders expressly for use in such registration statement, any
amendment or supplement thereto or any application, as the case may be.
If any action is brought against the Shareholders in respect of which
indemnity may be sought
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against IHS pursuant to this subsection 6(f)(i), such Shareholder shall
within thirty (30) days after the receipt thereby of a summons or
complaint notify IHS in writing of the institution of such action
(provided, however, that the failure to timely give such notice shall
not affect the Shareholders' right to indemnification hereunder except
to the extent that IHS is damaged by such delay and IHS shall assume
the defense of such actions, including the employment and payment of
fees and expenses of counsel (reasonably satisfactory to such
Shareholder). The Shareholders shall have the right to employ their own
counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of the Shareholders unless (A) the employment
of such counsel shall have been authorized in writing by IHS in
connection with the defense of such action, or (B) IHS shall not have
employed counsel to have charge of the defense of such action, or (C)
such indemnified party or parties shall have reasonably concluded
(after notice to IHS) that there may be defenses available to it or
them which are different from or additional to those available to IHS
(in which case, IHS shall not have the right to direct the defense of
such action on behalf of the indemnified party or parties), in any of
which events the fees and expenses of not more than one additional firm
of attorneys for the Shareholders and such controlling persons shall be
borne by IHS.
(ii) To the extent permitted by law, the
Shareholders, and their successors and assigns, shall severally, and
not jointly, indemnify IHS, its officers and directors and each person,
if any, who controls IHS 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 written
information furnished by or on behalf of such Shareholders, or their
successors or assigns expressly for inclusion in such registration
statement, provided that the obligation to indemnify shall be limited
to the net amount of proceeds received by any such Shareholder from the
sale of such Shareholder's IHS shares pursuant to such registration
statement.
(iii) The indemnification provided for under this
Section 6 shall remain in force and effect regardless of any
investigation made by or on behalf of the indemnified party or any
officers, directors or controlling persons of such indemnified party,
and shall survive the transfer of the IHS Shares. Each party agrees to
make such provisions, as are reasonably requested by any of the other
parties, for contribution in the event that a party's indemnification
is unavailable for any reason.
(g) Notice of Sale. If the Shareholders desire to transfer all or any
of the IHS Shares other than pursuant to the registration statement, they will
deliver prior written notice to IHS, 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 Seller will sell the IHS Shares in compliance with subsection
6(e)(iv) above. If the Shareholders deliver to IHS an opinion of counsel
reasonably acceptable to IHS and its counsel and to the effect that the proposed
transfer of IHS Shares may be made without registration under the Securities
Act, the Shareholders will be entitled to transfer IHS Shares in accordance with
the terms of the notice and opinion of their counsel.
(h) Furnish Information. The Shareholders shall furnish promptly, in
writing, such information and affidavits as IHS reasonably requests in
connection with such registration statement (or the prospectus included
therein), including written information regarding themselves and their intended
method of disposition of their IHS Shares included in the registration
statement. In that connection, each transferee of any Shareholder shall be
required to represent to IHS that all such information which is given is both
complete and accurate in all material
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<PAGE>
respects. Such Shareholders shall deliver to IHS a statement in writing from the
beneficial owners of such securities that they bona fide intend to sell,
transfer or otherwise dispose of such securities. Each transferee will,
severally, promptly notify IHS at any time when a prospectus relating to a
registration statement covering such transferee's shares under this Section 6 is
required to be delivered under the Securities Act, of the happening of any event
applicable to and known to such transferee as a result of which the information
provided by the Shareholders to IHS in writing in connection with the
registration rights for inclusion 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. The
Shareholders agree and acknowledge that any failure by any of them to timely
satisfy their obligations under this subsection (h) may result in delays,
including delay of the resale of the IHS Shares in a registration statement.
(i) Investment Representations. All IHS Shares to be issued hereunder
will be newly issued shares of IHS. Seller represents and warrants to IHS that
the IHS Shares being issued hereunder are being acquired, and will be acquired,
by the Shareholders for investment for their own accounts and not with a view to
or for sale in connection with any distribution thereof within the meaning of
the Securities Act or the applicable state securities law; the Shareholders
acknowledge that the IHS Shares constitute restricted securities under Rule 144
promulgated by the Commission pursuant to the Securities Act, and may have to be
held indefinitely, and the Shareholders agree that no IHS Shares may be sold,
transferred, assigned, pledged or otherwise disposed of except pursuant to an
effective registration statement or an exemption from registration under the
Securities Act, the rules and regulations thereunder, and under all applicable
state securities laws. The Shareholders have the knowledge and experience in
financial and business matters, are capable of evaluating the merits and risks
of the investment, and are able to bear the economic risk of such investment.
The Shareholders have had the opportunity to make inquiries of and obtain from
representatives and employees of IHS such other information about IHS as they
deem necessary in connection with such investment.
(j) Restrictions on Transferability/Legend. The Shareholders
acknowledge and agree that, except for the Shareholders' IHS Shares that are to
be sold pursuant to an effective registration statement filed in accordance with
this Section 6, the Shareholders will not be permitted to sell, assign, pledge,
encumber or otherwise dispose of their IHS Shares unless otherwise registered
under the Securities Act or sold pursuant to an exemption from the registration
requirements of the Securities Act. The Shareholders each agree that, prior to
each Shareholder's sale, transfer, pledge or other disposition of such
Shareholder's IHS Shares, other than sales or dispositions made pursuant to an
effective registration statement, each such Shareholder shall provide IHS with
an opinion of counsel, reasonably acceptable to IHS, that the proposed sale,
transfer or other disposition of such Shareholder's IHS Shares may be made
without registration under the Securities Act. In furtherance of the foregoing,
it is understood that the certificates evidencing the IHS Shares shall bear a
legend substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE
SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT
BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES
UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF THE
COMPANY'S COUNSEL THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT.
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<PAGE>
IHS agrees to remove the above-described legend from the certificate(s)
evidencing the Shareholders' IHS Shares at such time as they are sold pursuant
to an effective registration statement or pursuant to an exemption from the
registration requirements of the Securities Act.
(k) Certain Transferees. Prior to the effective date of registration of
the IHS Shares, no Shareholder shall transfer any IHS Shares to any person or
entity except as expressly permitted by this Agreement and unless such
transferee shall have agreed in writing to be bound by the provisions applicable
to the Shareholders under this Section 6.
(l) Rule 144 Reporting. As long as any Shareholder owns any IHS Shares,
with a view of making available certain rules and regulations of the Commission
which permit the sale of restricted securities to the public without
registration, IHS agrees to:
(i) make "current public information" available as those terms
are understood and defined in Rule 144 of the regulations under the
Securities Act, as amended;
(ii) use its best efforts to file with the Commission, in a
timely manner, all reports and other documents required to be filed by
IHS under the Exchange Act so long as IHS remains subject to such
reporting requirements; and
(iii) subsequent to the first anniversary of this Agreement,
furnish to any Shareholder, upon request:
(a) a written statement by IHS as to its compliance
with the reporting requirements of Rule 144 under the Exchange
Act (so long as IHS remains subject to such reporting
requirements);
(b) a copy of the most recent annual report of IHS;
and
(c) such other reports and documents filed with the
Commission as any such Shareholder may reasonably request in
availing itself of Rule 144 or any successor statute thereto.
7. Employees. 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 of the Seller, although Buyer shall have the right
to offer employment to any such employees. Seller shall remain fully responsible
for any severance, benefits, costs or liabilities arising out of the termination
by Seller of any of its employees, all of which liabilities shall constitute
Closing Date Liabilities. Seller and Shareholders shall also remain fully
responsible for any benefits, costs or liabilities incurred or accrued prior to
Closing with respect to each employee retained by IHS, excluding the Employee
Benefits Payables.
8. Closing Date. The consummation of the transactions contemplated by
this Agreement is sometimes referred to as the "CLOSING", and the date on which
such consummation occurs, including, without limitation, the execution and
delivery of this Agreement by each of the parties hereto, is sometimes referred
to as the "CLOSING DATE". The Closing Date for the transactions contemplated
under this Agreement will be August , 1998.
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<PAGE>
9. Asset Condition and Quality. Seller and Shareholders, jointly and
severally, represent, warrant and covenant that, as of the Closing Date, all
physical Assets of Seller are free of defects and in good working order,
condition and repair, except for ordinary wear and tear, and conform in all
material respects with all applicable ordinances, regulations, zoning and other
laws.
10. Instruments of Conveyance and Transfer. At the Closing:
(a) Seller will execute and deliver to Buyer such bills of
sale, assignments, motor vehicle certificates of title, and other good and
sufficient instruments of conveyance and transfer in form sufficient to sell,
assign and transfer the Assets to Buyer as of the Closing Date, such documents
to contain full warranties of title, and which documents shall be effective to
vest in Buyer good, absolute, and valid legal title to the Assets of the
Business being transferred to Buyer by Seller, free and clear of all Liens other
than the Permitted Liens, the Closing Assumed Lease Payables, the Excluded
Lease, the Real Estate Leases, the Employee Benefits Payables and the Assumed
Liabilities.
(b) Simultaneously with such delivery, Seller will take all
steps as may be requisite to put Buyer in actual possession, operation and
control of the Assets to be transferred hereunder.
(c) Seller will deliver to Buyer and IHS an opinion or
opinions, dated the Closing Date, of its counsel, in substantially the form
attached hereto as Schedule 10(c).
(d) Seller will deliver a certificate of its Secretary or
other officer certifying as of the Closing Date a copy of resolutions of its
board of directors and, if applicable, its stockholders, authorizing the
execution, delivery and full performance of this Agreement and the Transaction
Documents (as defined in paragraph 13(a) below), and the incumbency of its
officers.
(e) Buyer and Seller shall execute and deliver an assignment
and assumption of equipment leases for the Closing Assumed Lease Payables.
(f) Shareholders shall execute and deliver stock powers
endorsed in blank to the Escrow Agent, covering all of the IHS Shares deposited
with the Escrow Agent.
(g) Seller will deliver a check for the Closing Cash Amount to
Buyer.
(h) Buyer will deliver the Escrow Shares to the Escrow Agent
in accordance with Section 2(b)(i) above.
(i) Buyer will deliver to Seller the IHS Shares in accordance
with Section 2(b)(ii) above,
(j) Buyer and Seller shall execute and deliver the assignment
and assumption of the Real Estate Leases.
(k) Buyer and Seller shall execute and deliver the Lease
Agreement attached hereto as Exhibit 1(c).
(l) Buyer and Seller shall execute and deliver the Stock
Pledge Agreement and the Escrow Agreement.
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<PAGE>
(m) Buyer shall execute an Assumption Agreement for the
Assumed Liabilities, the Real Estate Leases, the Closing Assumed Lease Payables
and the Employee Benefits Payables.
(n) Buyer and IHS will deliver to Seller and Shareholders an
opinion, dated as of the Closing, of their counsel in substantially the form
attached hereto as Schedule 10(n).
(o) Buyer will deliver a certificate of its Secretary or other
officer certifying as of the Closing Date a copy of resolutions of its Board of
Directors and, if applicable, its sole shareholder, IHS, authorizing the
execution, delivery and full performance of this Agreement and the Transaction
Documents (as defined in paragraph 13(a) below) and the incumbency of its
officers.
(p) IHS will deliver to Seller a certificate of its Secretary
or other officer certifying as of the Closing Date a copy of resolutions of its
Board of Directors authorizing the execution, delivery and full performance of
this Agreement and its obligations hereunder and the incumbency of its officers.
11. Sales and Transfer Taxes; Fees. All applicable sales, transfer,
use, filing and other taxes and fees that may be due or payable as a result of
the conveyance, assignment, transfer or delivery of the Assets of the Business
to be conveyed and transferred as provided herein, whether levied on Seller or
IHS, shall be borne by Seller and Buyer.
12. Restrictions on Operations of Seller. Seller and Shareholders,
jointly and severally, represent, warrant and covenant that, except as expressly
disclosed on Schedules hereto, since the most recent Financial Statement Date
referred to in paragraph 13(o) below, through the Closing Date, there has been
no material adverse change in the condition (financial or otherwise) or
prospects of the Seller or the Business, and Seller has not:
(i) sold, assigned or transferred any Assets, except in the
ordinary course of business, consistent with past practice;
(ii) subjected any Assets to any Liens other than the Permitted
Liens;
(iii) entered into any contract or transaction binding the
Business other than contracts or transactions entered into in the ordinary
course of business, consistent with past practice;
(iv) incurred any liabilities or indebtedness other than in the
ordinary course of business, consistent with past practice;
(v) except in the ordinary course of business, consistent with
past practice, or otherwise to comply with any applicable minimum wage law, paid
any bonuses, 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;
(vi) 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 Corporation or the Assets;
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<PAGE>
(vii) failed to collect its accounts receivable in the ordinary
course of business, consistent with past practice;
(viii) changed any of the accounting principles followed by it or
the methods of applying such principles;
(ix) 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
(x) 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 of its
affiliates except for payments of compensation in the ordinary course of
business, consistent with past practice and disclosed to IHS as such;
(xi) instituted, settled or agreed to settle any litigation,
action or proceeding before any Governmental Authority (as such term in defined
in paragraph 13(d) below) relating to it or its property or received any threat
thereof; or
(xii) entered into any material transaction other than in the
ordinary course of business, consistent with past practice.
13. Representations and Warranties by Seller and Shareholder. As a
material inducement to Buyer and IHS to execute and perform their obligations
under this Agreement, Seller and Shareholders hereby, jointly and severally,
represent and warrant to Buyer and IHS as follows as of the Closing Date:
(a) Organization of Seller; Enforceability.
(i) Seller is a corporation, organized, and in good
standing, respectively, in the State of Florida, and is qualified to do
business and is in good standing in each other State where the nature
of its business or the assets held by it requires such qualification,
and has requisite corporate power and authority to carry on its
Business as presently being conducted, to enter into this Agreement,
and to carry out and perform the terms and provisions of this
Agreement. Each of this Agreement and each agreement, instrument,
certificate and document in connection with this Agreement or the
transactions contemplated hereby ("TRANSACTION DOCUMENTS") constitutes
the legal, valid and binding obligations of Seller, enforceable against
it in accordance with its respective terms. Seller does not have any
subsidiaries.
(ii) This Agreement and each Transaction Document to which
any Shareholder is a party constitutes the legal, valid and binding
obligations of such Shareholder, enforceable against that Shareholder
in accordance with its terms.
(b) Consents. Except as set forth on Schedule 13(b), no
authorization, consent, approval, license, exemption by, filing or registration
with any Governmental Authority or of any party to any contract, agreement,
instrument, commitment, lease, indenture or understanding (written, oral or
implied) by which Seller
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<PAGE>
or any of the Assets is bound ("CONTRACTS") or by which any Shareholder or any
Shareholder's assets is bound ("SHAREHOLDER CONTRACTS") is necessary in
connection with the execution, delivery and performance of this Agreement or any
of the Transaction Documents by Seller or any Shareholder.
(c) Litigation. Except as set forth on Schedule 13(c), there
are no actions, suits or proceedings affecting Seller or any of the Assets which
are pending or threatened against Seller or affecting any of its properties or
rights, at law or in equity, or before any Governmental Authority (as
hereinafter defined), nor is Seller or any of its respective officers or
directors or any Shareholder aware of any facts which to them or their knowledge
might reasonably be expected to result in any such action, suit or proceeding.
(d) Compliance with Laws and Contracts. Seller is not in
violation of, or in default under: any term or provision of its Articles of
Incorporation or Bylaws, or any judgment, order, writ, injunction, decree,
statute, law, rule, regulation, directive, mandate, ordinance or guideline
("GOVERNMENTAL REQUIREMENT") 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
(collectively, "GOVERNMENTAL AUTHORITIES" and individually "GOVERNMENTAL
AUTHORITY"); or of any Contract. The execution and delivery by Seller and each
Shareholder of, and the performance and compliance by each of them with this
Agreement, and the Transaction Documents and the transactions contemplated
hereby and thereby, does not and will not result in the violation of or conflict
with or constitute a default under any such term or provision or result in the
creation of any Lien on any of the properties or assets of Seller or any
Shareholder pursuant to any such term or provision or any term or provision of
any Governmental Requirement by which any Shareholder is bound or of any
Shareholder Contract.
(e) Corporate Acts and Proceedings. The execution, delivery
and performance of this Agreement and each of the Transaction Documents, and the
transactions contemplated hereby and thereby, including the sale and transfer of
the Assets by Seller as provided for in this Agreement, have been approved and
consented to by the Board of Directors of Seller and, if applicable, by the
requisite number of holders of its outstanding capital stock, and all action
required by any applicable Governmental Requirement by the stockholders of
Seller with regard thereto have been appropriately authorized and accomplished.
(f) Title to Assets. Seller has good and indefeasible title
to all of the Assets, free and clear of all Liens other than the Permitted
Liens.
(g) Contracts. Set forth on Schedule 13(g) hereto is a list
of all material Contracts of Seller including, without limitation, each:
(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, or agent or group of employees, or any
non-competition, non- solicitation, confidentiality or similar
agreement with any such person or persons;
(ii) contract, agreement or arrangement for the
acquisition or disposition of any assets, property or rights outside
the ordinary course of business or requiring the consent of any party
to the transfer and assignment of any such assets, property or rights
(by purchase or sale of assets, purchase or sale of stock, merger or
otherwise), that is executory or that was entered into during the three
(3) year period ending on the date hereof;
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<PAGE>
(iii) contract, agreement or commitment which contains
any provisions requiring the Seller or the Business to indemnify or act
for any other person or entity or to guaranty or act as surety for any
other person or entity;
(iv) contract, agreement or commitment restricting the
Seller or the Business from, or in favor of either of the Seller or the
Business 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;
(vii) contract, agreement or arrangement granting a
leasehold or other interest in real property, including without
limitation, subleases, licenses and sublicenses (the "LEASES");
(viii) 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
Seller or the Business not covered by clause (i) above;
(ix) agreement, consent order, plea bargain, settlement
or stipulation or similar arrangement with any Governmental Authority;
(x) agreement with respect to the settlement of any
litigation or other proceeding with any third person or entity;
(xi) agreement relating to the ownership, transfer,
voting or exercise of other rights with respect to any equity in the
Seller, or any other entity, including without limitation, registration
rights agreements, voting trust agreements and shareholder and proxy
agreements;
(xii) contract, agreement or commitment to provide
services or products, or
(xiii) agreement not made in the ordinary and normal
course of business and consistent with past practice, or involving
consideration in excess of $25,000 in each case, that is not set forth
in subsections (i) through (xii) above.
To the best of Seller's and each Shareholder's knowledge, no party to
any Contract other than Seller is in default under any Contract. Seller has
delivered to IHS true and complete copies of each written Contract (or a
description of each oral Contract) requested by IHS.
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<PAGE>
(h) Brokers. No broker or finder has acted for Seller in
connection with the transactions contemplated by this Agreement, and no broker
or finder is entitled to any broker's or finder's fee or other commission in
respect thereof based in any way on agreements, understandings or arrangements
with Seller.
(i) Employment Contracts; Employees. There are no Contracts of
employment between Seller and any officer or other employee of the Business,
except as set forth on Schedule 13(g) above. The name, position, current rate of
compensation and any vacation or holiday pay, sick pay, personal leave,
severance and any other compensation arrangements or fringe benefits, of each
current employee, sales representative, consultant and agent of the Seller,
contained on the Schedule of Personnel Payrates and Advances attached hereto as
Schedule 13(i) is accurate and complete. No employee, consultant or agent of the
Seller has any vested or unvested retirement benefits or other termination
benefits, except as described on Schedule 13(i). Since the date that is two (2)
years prior to the Closing Date, there has been no material adverse change in
the relationship between the Seller and its 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. No
employees of the Seller are represented by any labor union or similar
organization in connection with their employment by or relationship with,
Seller, and to the knowledge of the Seller and Shareholder, there are no pending
or threatened activities the purpose of which is to achieve such representation
of all or some of such employees, and there are no threats of strikes, work
stoppages or pending grievances by any such employees. Seller is not party to
any collective bargaining or other labor contracts.
(j) Employee Benefit Plans. Seller has no pension or 401K
plans existing as of the Closing Date. Except as disclosed in Schedule 13(j),
Seller has no other bonus, profit-sharing, or retirement plans for officers or
employees of the Business, nor is Seller required to contribute to any such
plan. Without limiting the generality of the foregoing, Seller 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 the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or to any multi-employer plan subject to the terms of the
Multi-Employer Pension Plan Amendment Act of 1980 (the "MULTI-EMPLOYER ACT").
(k) Insurance. All inventories, buildings and fixed assets
owned or leased by the Seller are and will be adequately insured against fire
and other casualty through the Closing Date. The information contained on the
Schedule of Insurance Policies, attached hereto as Schedule 13(k), is accurate
and complete. Schedule 13(k) also sets forth any claims made under any of the
insurance policies referred to above or increases in premiums therefor during
the past two years. True and complete copies of all policies of fire, liability
and other forms of insurance held or owned by the Seller or otherwise in force
and providing coverage for the Business or any of the Assets (including but not
limited to medical malpractice insurance, and any state sponsored plan or
program for worker's compensation) have been delivered to IHS. Such policies are
owned by and payable solely to the Seller, and said policies or renewals or
replacements thereof will be outstanding and duly in force at the Closing Date,
and all premiums due on or before the Closing Date in respect thereof have been
paid.
(l) Disclosure. No representation or warranty by Seller or any
Shareholder in this Agreement or in any Transaction Document, contains any
untrue statement of material fact or omits to state any material fact, of which
any Shareholder or Seller or any of its officers, directors or stockholders has
knowledge or notice, required to make the statements herein or therein contained
not misleading.
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<PAGE>
(m) Officers, Directors and Shareholders of Seller. As of the
Closing Date, the Shareholders are the sole shareholders of Seller and the
following individuals are all of the officers and directors of Seller:
<TABLE>
<CAPTION>
Name Office/Position
---- ---------------
<S> <C>
Michael Campbell President/Director
Timothy O. Bates Vice President/Director
Deborah Campbell Secretary - Treasurer
</TABLE>
(n) Inventory and Fixed Assets. The information contained on
the Schedule of Inventory and Fixed Assets as of the most recent Financial
Statement Date, attached hereto as Schedule 1(a)(ii), is accurate and complete.
(o) Tax Returns and Financial Statements. Seller has furnished
IHS with its tax returns (the "TAX RETURNS") for the periods ended September 30,
1996 and September 30, 1997, and has furnished IHS with its financial statements
(the "FINANCIAL STATEMENTS") for the periods ended September 30, 1996, September
30, 1997 and June 30, 1998 (the "FINANCIAL STATEMENT DATES"), copies of which
are attached hereto as Schedule 13(o). The Financial Statements: (i) are in
accordance with the books and records of the Seller; (ii) fairly present the
financial condition of the Seller at such date and the results of its operations
for the periods specified; (iii) the Financial Statement for the year ended
September 30, 1996 was prepared on the cash basis of accounting and the
Financial Statement for the year ended September 30, 1997 was prepared in
accordance with GAAP; (iv) with respect to all Contracts of the Seller, reflect
adequate reserves for all reasonably anticipated losses and costs in excess of
anticipated income; and (v) with respect to any balance sheets, disclose all of
the liabilities of the Seller at the Financial Statement Dates and include the
appropriate reserves for all taxes and other accrued liabilities, except that
certain contingent liabilities, if not disclosed on such balance sheets, shall
be considered to be disclosed pursuant to this subparagraph, if expressly
disclosed on any Schedule to this Agreement. 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, consistent with past practice, except as expressly
specified therein, and such Financial Statements include all adjustments, which
consist only of normal recurring accruals, necessary for such fair presentation.
(p) Supplemental Tax Information. Seller has furnished IHS
with its most recent (i) tax registration certificates, and (ii) tax returns
required of it by the federal government and each state or other locality in
which it conducts business, which tax returns in all instances where applicable
include, but shall not be limited to franchise taxes, federal, state and local
tangible personal property tax returns, and federal, state and local sales tax
returns, which registration certificates and tax returns are set forth,
collectively, on the Schedule of Supplemental Tax Information, attached hereto
as Schedule 13(p).
(q) Adverse Business Developments. No notice has been received
by Seller or any Shareholder of any new or substantially expanded firm or
individual engaged in a business directly competitive to Seller in its primary
service area within six (6) months before the date hereof. Neither Seller nor
any Shareholder has received, either orally or in writing, any notice specific
to it of pending or threatened adverse action with respect to any Medicare,
Medicaid, private insurance or third party payor reimbursement method, practice
or allowance as to any business activity engaged in by Seller, nor has Seller or
any Shareholder received, or been threatened with, any claim for refund specific
to it in excess of $500.00 by a Medicare or Medicaid carrier, except as
disclosed in the Schedule of Proceedings attached hereto as Schedule 13(q).
(r) Relationships. Except as disclosed on Schedule 13(r),
neither Seller, its officers, directors and employees, nor any Shareholder and
no member of any of their respective immediate families, and no person or entity
which is controlled by, under common control with, or controlling any of them
(each, an
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<PAGE>
"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. No Affiliate
of Seller or any Shareholder is guaranteeing any obligations of the Seller.
(s) Assets Comprising the Business. Except as disclosed on
Schedule 13(s), the Assets, with the Excluded Assets, are all of the tangible
and intangible properties (real, personal and mixed), including, without
limitation, all licenses, intellectual property, permits and authorizations, and
contracts that are necessary or material to the operation of the Business as now
operated. The quantities of inventory and supply items included in the Assets
are reasonable in light of the present and anticipated volume of the Business of
the Seller in the ordinary course of the business of the Seller, consistent with
past practice, as determined by the Seller in good faith and consistent with
past practice.
(t) Questionable Payments. Seller has not, and to the
knowledge of the Seller and Shareholders, none of their Affiliates or employees
have offered, 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.
(u) Reimbursement Matters. Seller, to the extent necessary to
conduct its business in a manner consistent with past practice, is qualified for
participation in the Medicare and Medicaid programs. Except as disclosed on
Schedule 13(u), (i) Seller and Shareholders have not received any notice of
denial or recoupment from the Medicare or Medicaid programs, or any other third
party reimbursement source (inclusive of managed care organizations) with
respect to products or services provided by it, (ii) to Seller's and each
Shareholder's knowledge, there is no basis for the assertion after the Closing
Date of any such denial or recoupment claim, and (iii) Seller and Shareholders
have 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 with respect to, or arising
out of, products or services provided by Seller or otherwise, and to the
knowledge of Seller and Shareholders, no such investigation or survey is
pending, threatened or imminent.
(v) Environmental Compliance. Except as disclosed on Schedule
13(v), at all times during Seller's ownership of the Business, the Business has
not been, and currently is not, in violation of any environmental Governmental
Requirement and no notice has ever been served upon any Shareholder or Seller,
their agents or representatives or any prior owner of the Business, claiming any
violation of any Governmental Requirement concerning the environmental state,
condition or quality of any real or personal property related to the Business,
or requiring or calling attention to the need for any work, repairs or
demolition on or in connection with any of the real property in order to comply
with any Governmental Requirement concerning the environmental or healthful
state, condition or quality of the real property.
(w) Questionnaires. The healthcare law questionnaire
heretofore delivered to the Seller by IHS attached hereto as Exhibit 13(w) (the
"QUESTIONNAIRE") 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.
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14. Representations and Warranties of Buyer and IHS. Buyer and
IHS, jointly and severally, represent and warrant to Seller and Shareholders
that:
(a) Due Organization of Buyer; Etc. Buyer is a corporation
duly organized and validly existing and in good standing under the laws of
Delaware and is duly qualified and registered to do business as a foreign
corporation and is in active status or good standing as applicable to each
jurisdiction that requires such qualification or registration except where the
failure to so qualify or register would not have a material adverse affect on
Buyer. Buyer has all the necessary corporate power to own its own properties,
conduct its business as presently conducted and to do and perform all acts and
things required to be done by Buyer under this Agreement. Buyer is a
wholly-owned subsidiary of IHS.
(b) Buyer's Authority to Enter Into Transaction. Buyer has
full power and authority (including full corporate power and authority) to
execute and deliver this Agreement and all of the Transaction Documents
contemplated to be executed by Buyer under this Agreement and to perform its
obligations hereunder and thereunder, and the execution and delivery of this
Agreement has been duly authorized and approved by Buyer's Board of Directors.
This Agreement and all of such documents when executed and delivered by Buyer in
connection with this Agreement will constitute the valid and legally binding
obligations of Buyer enforceable in accordance with their respective terms and
conditions.
(c) Noncontravention With Respect to Buyer. Neither the
execution and delivery of this Agreement or any of the Transaction Documents to
be executed by Buyer as contemplated under this Agreement nor the consummation
of the transactions contemplated in this Agreement or the Transaction Documents
will: (i) violate any constitution, statute, regulation, rule, injunction,
judgement, order, decree, ruling, charge or other restriction of any government,
governmental agency or court to which Buyer is subject or any provision of
Buyer's articles of incorporation or bylaws or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify or cancel, or require any
notice under any agreement, contract, lease, license, instrument or other
arrangement to which Buyer is a party or by which it is bound or to which any of
its assets is subject.
(d) Broker's Fees. Neither Buyer nor IHS has any liability or
obligation to pay fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement for which Seller
and/or the Shareholders could become liable or obligated, and no broker or
finder has acted for Buyer or IHS in connection with the transactions
contemplated under this Agreement.
(e) Stock Payment Authority. Buyer and IHS have the authority
to cause the payment of the purchase price consisting of the IHS Shares to be
delivered to Seller and to Escrow Agent in accordance with the terms of this
Agreement.
(f) Due Organization of IHS, Etc. IHS is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is duly qualified or registered to do business as a foreign
corporation and is in active status or good standing as applicable to each
jurisdiction that requires such qualification or registration except where the
failure to so qualify or register would not have a material adverse affect on
IHS. IHS has all the necessary corporate power to own its own properties,
conduct its business as presently conducted and to do and perform all acts and
things required to be done by IHS under this Agreement.
(g) Noncontravention With Respect to IHS. Neither the
execution and delivery of this Agreement or any of the Transaction Documents to
be executed by IHS as contemplated under this Agreement nor the consummation of
the transactions contemplated in this Agreement or the Transaction Documents
will: (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling , charge or other
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restriction of any government, governmental agency or court to which IHS is
subject or any provision of IHS' articles of incorporation or bylaws or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify
or cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which IHS is a party or by which it is bound
or to which any of its assets is subject.
(h) IHS Stock. IHS has duly authorized and reserved for
issuance the IHS Shares to be issued in connection with this Agreement and, when
issued in accordance with the terms of Section 6 of this Agreement, such IHS
Shares will be validly issued, fully paid and nonassessable.
(i) IHS' Authority to Enter Into Transactions Contemplated
Under the Agreement. IHS has full power and authority (including full corporate
power and authority) to execute and deliver this Agreement and any other
Transaction Documents to be executed by IHS as contemplated under this Agreement
and to perform its obligations with respect thereto including the registration
rights provided to Seller and/or the Shareholders in Section 6 of this
Agreement, and such documents when executed and delivered will constitute the
valid and legally binding obligations of IHS enforceable in accordance with
their respective terms and conditions. The execution of this Agreement and all
of the other documents contemplated in this Agreement to be executed by IHS has
been duly authorized and approved by IHS' Board of Directors.
(j) Securities and Exchange Commission Filings and Financial
Statements. IHS has furnished the Seller and Shareholders with a correct and
complete copy of its Annual Report and its report on Form 10-K for its fiscal
year ended December 31, 1997 (the "10-KS"), its reports on Form 10-Q for its
fiscal quarters ended September 30, 1997 and March 31, 1998 (the "10-QS") and
its proxy statement prepared in connection with its annual meeting held on May
22, 1998 (the "PROXY STATEMENT"). As of their respective dates, none of the
10-Ks, the Annual Report, the 10-Qs and Proxy Statement and no press release or
other schedule or report required by IHS to be publicly disclosed or filed with
the Commission pursuant to the Exchange Act since January 1, 1997 (all of the
foregoing being the "SEC DOCUMENTS") contained any untrue statements, or omitted
to state 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. The financial statements of IHS and its combined subsidiaries and
the notes thereto contained in the Commission reports are correct and complete
in all material respects and fairly present the combined financial position of
IHS and its combined subsidiaries as of the respective dates thereof and the
results of operations for the periods then ended except as disclosed therein or
in the notes thereto or in the explanations thereof contained in the Commission
reports; and the balance sheets and notes thereto show and properly reflect all
material liabilities of IHS and its combined subsidiaries on the respective
dates thereof which were required to be disclosed in accordance with GAAP,
except for any claims and lawsuits against IHS and its combined subsidiaries now
pending which claims and lawsuits IHS does not expect to materially adversely
affect the business, properties or financial condition of IHS and its combined
subsidiaries taken as a whole. Each such financial statement was prepared in
conformity with GAAP consistently applied and presents fairly the financial
condition of IHS and its combined subsidiaries as of such dates, and the results
of operations of IHS and its combined subsidiaries for such periods are correct
and complete in all material respects and are consistent with the books and
records of IHS and its combined subsidiaries. Since the date of the most recent
10-Q, there has not been any material adverse change singularly or in the
aggregate in the business, financial condition, operations, results of
operations, accounting methods, liabilities, assets or earnings of IHS and its
combined subsidiaries.
15. Survival of Representations and Warranties. The representations and
warranties of Seller, Shareholders, IHS and Buyer contained in or made pursuant
to this Agreement shall survive the execution of this Agreement and the
consummation of the transactions contemplated under this Agreement.
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16. Indemnification; Remedies.
(a) Indemnification by Seller and each Shareholder. Seller and
each Shareholder shall, jointly and severally, indemnify and hold harmless at
all times Buyer and IHS and their stockholders, directors, officers, employees,
agents and assigns, from and against any Damages (as hereinafter defined)
arising out of: (i) any inaccurate representation made by Seller or any
Shareholder in, pursuant to or under this Agreement or any Transaction Document;
(ii) any breach of any warranty made by Seller or any Shareholder in, pursuant
to or under this Agreement or any Transaction Document; (iii) any breach or
default in the performance by Seller or any Shareholder of any of the covenants
to be performed by Seller or any Shareholder hereunder or in any Transaction
Document; and (iv) any Closing Date Liabilities.
(b) Indemnification by Buyer and IHS. Buyer and IHS shall,
jointly and severally indemnify and hold harmless at all times Seller and/or
Shareholders from and against any Damages arising out of: (i) any inaccurate
representation made by Buyer and/or IHS in, pursuant to or under this Agreement;
(ii) any breach of any warranty made by Buyer and/or IHS in, pursuant to or
under this Agreement; and (iii) any breach or default in the performance by
Buyer and/or IHS of any of the covenants and agreements to be performed by Buyer
and/or IHS hereunder.
(c) Definition of Damages. The term "DAMAGES" as used herein
shall include any demands, claims, actions, deficiencies, losses, delinquencies,
defaults, assessments, fees, costs, taxes, expenses, debts, liabilities,
obligations, settlements, penalties, and damages, including, without limitation,
reasonable counsel fees incurred in investigating or in attempting to avoid or
oppose the imposition thereof. The term "Damages" shall include, but shall not
be limited to, any Liabilities Deficiency, as defined in paragraph 5 hereof.
(d) Remedies.
(i) Buyer's and IHS' Remedies. Seller and each
Shareholder shall make payment of any Claim made against it, him or her
by no later than the last day of the Notice Period as provided in
paragraph 5(b) above.
(ii) Seller's Remedies. If Seller or any Shareholder
makes written request to Buyer and/or IHS for the payment of Damages,
then Buyer and/or IHS shall pay to Seller or Shareholders the amount of
Damages requested within ten (10) days from the date that such notice
is delivered to Buyer and/or IHS (also a "NOTICE PERIOD").
(iii) Notice of Dispute. Notwithstanding the foregoing
provisions of this subparagraph (d) and Section 5(b) above, if a party
(the "DEMANDING PARTY") serves a request for payment on the other party
(the "OBLIGATED PARTY"), the Obligated Party shall have the option to
provide written notice to the Demanding Party (the "NOTICE OF DISPUTE")
within the applicable Notice Period that the Obligated Party disputes,
in good faith, the validity or amount of the Damages set out in the
request for payment of Damages, and if the affected parties cannot
agree on the validity or amount of such Damages within ten (10) days
following the Notice Period, the dispute as to the validity or amount
of such claim or liability (the "DISPUTE") shall be settled as set
forth in subparagraph (e) of this paragraph 16, with the non-prevailing
party bearing the prevailing party's costs of arbitration if such
Dispute is resolved by arbitration.
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(iv) Arbitration. If arbitration is required pursuant to
this paragraph 16, Buyer and IHS, on the one hand, and the
Representative, on the other hand, each shall select an arbitrator
within ten (10) business days after the Notice of Dispute is delivered;
those two arbitrators will then select a third arbitrator; and the
three arbitrators so chosen will determine the validity of the claim
for Damages. If Representative or Buyer and IHS delays in appointing an
arbitrator when required, and ten (10) days or more has elapsed, the
arbitrator appointed by the other party shall arbitrate the dispute. If
the Seller and the Shareholders shall be subject to a Dispute with
Buyer and IHS, they shall, unless Buyer and IHS elect otherwise in
their sole and absolute discretion, be required to act as a group with
respect to any and all rights and obligations with respect to the
resolutions of the Dispute as provided in this paragraph 16 and
Representative shall have the authority to settle such Dispute and/or
any Claims on behalf of such group. Any arbitration required pursuant
to this paragraph 16 shall be conducted in accordance with and under
the rules of the American Arbitration Association.
(e) Settlement of Disputes.
(i) Disputes Not Involving Third Parties. If a
Dispute involves claims not involving any third party, Buyer and IHS
and Seller and Shareholders shall settle the Dispute by submitting the
same to binding arbitration in accordance with subsection 16(d)(iv)
above.
(ii) Disputes Involving Claims Made by Third Parties.
If a Dispute involves claims made by one or more third parties (a
"THIRD PARTY CLAIM"), the party asserting its right to indemnification
for such Third Party Claim shall give written notice to the other party
as soon as practical after such asserting party receives notice of such
Third Party Claim; provided, however the failure to timely give such
notice shall not affect such party's right to indemnification except to
the extent the party to receive the notice is damaged by such delay.
Upon such notice to Representative or the applicable Seller or
Shareholder, Buyer and IHS and Seller and/or Shareholders shall submit
the Dispute to arbitration, and the following procedures shall apply:
(A) Solely for purposes of
determining the party responsible for defending the
Third Party Claim, the arbitrators shall deem such
Third Party Claim to be valid (although such
consideration shall not be an admission by any party
as to any liability to any party). The arbitrators
then shall decide which party shall be liable for the
Third Party Claim if it is successfully prosecuted by
such third party or parties, and the decision of such
arbitrators with respect to such liability shall be
final and binding as among the parties. (Such party
determined to be liable for such claim sometimes
shall be referred to herein as the "RESPONSIBLE
PARTY".)
(B) If the Responsible Party refuses
to settle (and pay the settlement amount of) the
Third Party Claim immediately, then the Responsible
Party immediately shall select one of the following
two options:
Option One: The Responsible Party,
at the Responsible Party's sole expense and
risk, can assume the defense of the Third
Party Claim, provided the Responsible Party
first places in escrow, in favor of the
other party, adequate collateral (as
determined by the arbitrators on
consideration of all relevant facts) to
protect the other party from all Damages
with respect to such Third Party Claim (in
which case the other party immediately shall
be
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reimbursed by the Responsible Party for any
amount the other party is required to pay
with respect to such Third Party Claim); or
Option Two: The Responsible Party,
at the Responsible Party's expense and risk,
can co-defend the Third Party Claim with the
other party, with the Responsible Party also
responsible for paying all costs incurred by
the other party in connection with such
defense, including, without limitation, the
legal fees and expenses of the other party's
counsel for its reasonable involvement in
such defense. If the other party is found to
be liable for any portion of such Third
Party Claim, the Responsible Party
immediately shall reimburse the other party
for any amount required to be paid by the
other party with respect thereto; provided,
however, if the Responsible Party selects
this option, the Responsible Party shall
attempt diligently to have the other party
removed as a party to any legal action
involving the Third Party Claim (and, upon
such removal, the involvement of the other
party's counsel shall cease unless requested
by the Responsible Party or the Responsible
Party's counsel); and
(C) No party may settle any Third
Party Claim without the prior consent of the other
party or parties hereto unless the settlement will
not have a material adverse effect on the other party
or parties hereto. The parties will resolve any
Dispute with respect to any such proposed settlement
in accordance with this paragraph 16.
(D) Any party responsible for
defending a Third Party Claim shall proceed with
diligence and in good faith with respect thereto.
(E) Nothing contained in this
paragraph 16(e) shall prevent any party from assuming
control of the defense and/or settling any Third
Party Claim against it for which indemnification is
not sought under this Agreement.
17. Use of Corporate and Fictitious Names. Seller and Shareholders,
jointly and severally, agree to take all actions necessary to assist Buyer in
obtaining the rights to use the corporate name and any fictitious names used in
its conduct of any of the Business, including but not limited to the execution
of any assignments and consents to use such name. If Buyer attempts to use such
name, Seller shall consent to Buyer's use of such name if such consent is
required by any state, county or local governmental authority.
18. Prepaid Items; Deposits; Etc. All prepaid insurance premiums, rent
and utility deposits, and similar items paid by or owing to the Seller by any
person, shall be considered to be part of the Assets being purchased by Buyer
and, on consummation of the transactions contemplated by this Agreement, shall
be the property of Buyer.
19. Post-Closing Requirements of Seller.
(a) Final Financial Information. Not later than sixty (60)
days following Closing, Seller, at Seller's sole cost and expense,
shall deliver to Buyer "FINAL FINANCIAL INFORMATION", which shall
include:
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(i) a balance sheet of Seller as of the Closing Date
prepared in accordance with GAAP;
(ii) an income statement of Seller for the period
commencing on the date succeeding the last day of the most
recent Financial Statement Date and ending on the Closing Date
which agrees with the balance sheet submitted at Closing;
(iii) an inventory of fixed assets of Seller as of
the Closing Date which agrees with the balance sheet submitted
at Closing; and
(iv) a listing of resale inventory of Seller as of
the Closing Date which agrees with the balance sheet submitted
at Closing.
(v) a cash settlement summary of Seller in a form
provided by Buyer.
(b) Liabilities Deficiency. If all such Final Financial
Information is not delivered to Buyer within such sixty (60) day period
following Closing, Seller and Shareholders shall be liable to Buyer in
an amount equal to $500.00 for each day after such sixty (60) day
period until all such Final Financial Information is delivered to
Buyer, and such liability shall constitute a Liabilities Deficiency
under the provisions of paragraph 5, above.
20. Third Party Beneficiaries. Nothing in this Agreement, expressed or
implied, is intended to confer on any person, other than the parties hereto, and
their successors, any rights or remedies under or by reason of this Agreement
other than the affiliates entitled to indemnification pursuant to paragraph 16.
21. Expenses. Except as otherwise stated herein, each of the parties
shall bear all expenses incurred by them in connection with this Agreement and
in consummation of the transactions contemplated hereby in preparation thereof.
22. Notices. All notices, consents, waivers and other communications
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 next 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:
to Seller: American Oxygen Services of Tennessee, Inc.
2454 E. Michigan Street
Orlando, FL 32806
Attention: Timothy O. Bates
to Shareholders: Timothy O. Bates
7726 White Ash Street
Orlando, FL 32819
Michael Campbell
4341 General Carl Steiner Highway
LaFollette, TN 37766
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<PAGE>
Amerimed Healthcare, Inc.
2454 Michigan Street
Orlando, FL 32806
Attention: Timothy O. Bates, President
with a copy to: Dean, Mead Egerton, Bloodworth,
Capouano & Bozarth, P.A.
800 N. Magnolia Avenue, Suite 1500
Orlando, FL 32803
Attention: Albert D. Capouano, Esq.
to IHS or Buyer: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Marshall Elkins
Elizabeth B. Kelly
with copies to: c/o RoTech Medical Corporation
4506 L.B. McLeod Road, Suite F
Orlando, FL 32811
Attention: Stephen P. Griggs
and
Blass & Driggs
461 Fifth Avenue
New York, NY 10017
Attn: Andrew S. Bogen
Any party hereto may change the address to which notices, requests,
demands, claims and other communications hereunder are to be delivered by giving
the other party or parties notice in the manner herein set forth.
23. Choice of Law. The laws of the State of Tennessee applicable to
contracts executed, delivered and to be fully performed in such State govern the
validity of this Agreement, the construction of its terms, and the
interpretation of the rights and duties of the parties.
24. Sections and Other Headings. Section, paragraph, and other headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
25. Counterpart Execution. This Agreement and/or any of the Transaction
Documents may be executed in two or more identical counterparts. If so executed,
each of such counterparts is to be deemed an original for all purposes and all
such counterparts shall, collectively, constitute one agreement, but, in making
proof of this Agreement and/or any of such Transaction Documents, it shall not
be necessary to produce or account for more of such counterparts than are
required to show that each party hereto executed at least one such counterpart.
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26. Gender. All gender employed in this Agreement shall include all
genders, and the singular shall include the plural and the plural shall include
the singular whenever and as often as may be appropriate.
27. Parties in Interest. This Agreement shall be binding on and shall
inure to the benefit of, and be enforceable by, Seller, Shareholder and Buyer
and IHS and their respective successors and assigns. Buyer shall be entitled to
assign its rights, but not its obligations, under this Agreement and the
Transaction Documents after the Closing. Seller and the Shareholders may not
assign this Agreement or any of their rights hereunder without the prior consent
of Buyer.
28. Entire Agreement. This Agreement including all Schedules and
Exhibits hereto, and all Transaction Documents constitute the entire agreement
between the parties hereto with respect to the subject matter hereof and there
are no agreements, understandings, restrictions, warranties, or representations
between the parties with respect to the subject matter hereof other than as set
forth herein or as herein provided.
29. Performance. In the event of a breach by Seller or Shareholders of
any of their respective 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 Seller and each Shareholder
hereby waives the defense that there may be an adequate remedy at law.
30. Waiver, Discharge, Etc. This Agreement and the Transaction
Documents and the obligations hereunder and thereunder 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 or any Transaction
Document 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 such Transaction
Document, as the case may be, 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 or any Transaction Document shall be held to be a waiver of any
other or subsequent breach.
31. 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 or 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 purpose of this Agreement, and to vest in
Buyer good title to, possession of and control of all the Assets.
32. Joint and Several. Seller and the Shareholders shall be jointly and
severally liable for all representations, warranties and obligations, including,
without limitation, indemnification obligations, and covenants made by any of
them pursuant to this Agreement, including, without limitation, any made
pursuant to any Transaction Document. For all purposes of this Agreement, any
representation or warranty that is qualified to be "to the knowledge of Seller"
or by a requirement that Seller shall have received "notice" of any matter, or
any similar qualification shall be deemed to include the knowledge of the
Shareholders or notices to the Shareholders, as the case may be. Buyer and IHS
shall be jointly and severally liable for all representations, warranties and
obligations including, without limitation, indemnification obligations and
covenants made by either of them pursuant to this Agreement including, without
limitation, any made pursuant to any Transaction Document or other document
executed in connection with this Agreement.
33. Independent Legal Counsel. Seller and Shareholders represent and
warrant that each party has had the opportunity to seek the advice of
independent legal counsel prior to signing this Agreement, and that the Buyer
has recommended to Seller and Shareholders that such party obtain legal counsel.
34. Representative. Notwithstanding anything contained herein to the
contrary, Seller and each Shareholder hereby designates Timothy O. Bates and
Seller and each Shareholder hereby accepts the designation
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of Timothy O. Bates as the representative of the Seller and Shareholders (the
"REPRESENTATIVE") to act for and on behalf of the Seller and Shareholders as
provided in this Agreement. Seller and each Shareholder shall be bound by all
actions taken or omitted by the Representative on behalf of Seller or any
Shareholder as provided in this Agreement, and Seller and each Shareholder shall
be deemed to have received notice deemed given or payment made to the
Representative in accordance with the notice provisions of this Agreement on the
date deemed given or the date paid to the Representative, and Buyer shall be
entitled to rely on all notices and consent given, and all settlements entered
into on behalf of Seller or any Shareholder to the extent authorized pursuant to
the terms of this Agreement notwithstanding any objections made by Seller or any
Shareholder prior to, concurrently with or subsequent to the giving of any such
notice or consent or the settlement of any such matter. The Representative may
be replaced only if and when Seller and all of the Shareholders shall notify
Buyer that a new individual person (named in such notice) has been unanimously
selected by them to be to be the new Representative, in which case such new
person shall thereafter be the Representative.
35. IHS' Guarantee of Buyer's Obligations. IHS hereby guarantees to
Seller and Shareholders the full and timely payment of all amounts due or to
become due from Buyer to Seller/and or the Shareholders under this Agreement and
all amounts due or that become due from Buyer to Seller and/or the Shareholders
under the provisions of the Transaction Documents and the full and timely
performance of all covanants and agreements to be performed by Buyer and under
this Agreement and/or the Transaction Documents. This guarantee by IHS is a
guarantee of payment and performance, and Seller and/or the Shareholders shall
not be first required to seek or obtain a judgement against Buyer or institute
any proceedings or take any action with respect to Buyer before Seller and/or
the Shareholders can enforce their rights under this guarantee against IHS.
36. Litigation Expenses. In the event of any litigation, including
appellate proceedings, arising out of or under this Agreement or any of the
Transaction Documents, the prevailing party or parties in such litigation shall
be entitled to recover reasonable attorneys' fees and court costs from the
nonprevailing party or parties.
37. Facsimile signatures. A facsimile, telecopy or other reproduction
of this Agreement and/or any of the Transaction Documents may be executed by the
parties (in counterparts or otherwise) and shall be considered valid, binding
and effective for all purposes. At the request of any party, the parties hereto
agree to execute an original of this Agreement and/or any of such Transaction
Documents as well as any facsimile, telecopy or other reproduction.
[SIGNATURES ON THE FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first stated above.
IHS:
INTEGRATED HEALTH SERVICES,
INC.
By: /s/ MARK KOVINSKY
------------------------------
Name: Mark A. Kovinsky
Title: Senior Vice President
BUYER:
IHS ACQUISITION XXVII, INC.
By: /s/ MARK KOVINSKY
------------------------------
Name: Mark A. Kovinsky
Title: Senior Vice President
SELLER:
AMERICAN OXYGEN SERVICES OF
TENNESSEE, INC.
By: /s/ MICHAEL CAMPBELL
------------------------------
Name: Michael Campbell
Title: President
SHAREHOLDERS:
/s/ TIMOTHY O. BATES
---------------------------------
Timothy O. Bates
/s/ MICHAEL CAMPBELL
---------------------------------
Michael Campbell
AMERIMED HEALTHCARE, INC.
By: /s/ TIMOTHY O. BATES
------------------------------
Timothy O. Bates
Title: Chief Executive Officer and Treasurer
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STATE OF______________
COUNTY OF_____________
The foregoing instrument was acknowledged before me by Michael
Campbell, as a shareholder of American Oxygen Services of Tennessee, Inc., a
Florida corporation, and who is personally known to me; or has produced ____
______________ as identification.
- -------------------------- ----------------------------------
Date Notary Signature
----------------------------------
Notary Name Printed
My Commission Expires:
STATE OF_____________
COUNTY OF____________
The foregoing instrument was acknowledged before me by Timothy O.
Bates, as Chief Executive Officer and Treasurer of Amerimed Healthcare, Inc., a
Florida corporation, on behalf of the corporation, and who is personally known
to me; or has produced ______________ as identification.
- -------------------------- ----------------------------------
Date Notary Signature
----------------------------------
Notary Name Printed
My Commission Expires:
STATE OF MARYLAND
COUNTY OF BALTIMORE
The foregoing instrument was acknowledged before me by Mark Kovinsky ,
as a Senior Vice President of IHS Acquisition XXVII, Inc., a Delaware
corporation, on behalf of the corporation, and who is personally known to me; or
has produced driver's license as identification.
8/12/98 /s/ Joyce Walker Duley
- -------------------------- ----------------------------------
Date Notary Signature
JOYCE WALKER DULEY
----------------------------------
Notary Name Printed
My Commission Expires:
JOYCE WALKER DULEY
NOTARY PUBLIC STATE OF MARYLAND
MY COMMISSION EXPIRES DECEMBER 24, 2000
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<PAGE>
STATE OF MARYLAND
COUNTY OF BALTIMORE
The foregoing instrument was acknowledged before me by Mark Kovinsky,
as a Senior Vice President of Integrated Health Services, Inc., a Delaware
corporation, on behalf of the corporation, and who is personally known to me; or
has produced driver's license as identification.
8/12/98 /s/ Joyce Walker Duley
- -------------------------- ----------------------------------
Date Notary Signature
JOYCE WALKER DULEY
----------------------------------
Notary Name Printed
My Commission Expires:
JOYCE WALKER DULEY
NOTARY PUBLIC STATE OF MARYLAND
MY COMMISSION EXPIRES DECEMBER 24, 2000
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<PAGE>
SCHEDULES AND EXHIBITS
<TABLE>
<S> <C> <C>
Schedule 1(a)(i) - Accounts Receivable
Schedule 1(a)(ii) - Inventory; Fixed Assets
Schedule 1(a)(iii) - Motor Vehicles
Schedule 1(a)(iv)(A) - Patients List
Schedule 1(a)(iv)(B) - Telephone Numbers and Licenses
Schedule 4(a) - Listed Liabilities
Schedule 4(b) - Unassumed Contracts
Schedule 4(c) - Assumed Liabilities
Schedule 10(c) - Seller's Opinion
Schedule 10(n) - Buyer's and IHS' Opinion
Schedule 13(b) - Consents
Schedule 13(c) - Litigation
Schedule 13(g) - Contracts
Schedule 13(i) - Personnel Payrates and Advances
Schedule 13(j) - Employee Benefit Plans
Schedule 13(k) - Insurance Policies
Schedule 13(o) - Tax Returns and Financial Statements
Schedule 13(p) - Supplemental Tax Information
Schedule 13(q) - Adverse Business Developments
Schedule 13(r) - Relationships
Schedule 13(s) - Assets Comprising the Business
Schedule 13(u) - Reimbursement Matters
Schedule 13(v) - Environmental Compliance
Exhibit 1(c) - Lease Agreement
Exhibit 1(c)-1 - Restrictive Covenant Agreement among Buyer, IHS and American
Oxygen Services of Tennessee, Inc.
Exhibit 1(c)-2 - Restrictive Covenant Agreement among Buyer, IHS and Timothy O. Bates
Exhibit 1(c)-3 - Restrictive Covenant Agreement among Buyer, IHS and Michael Campbell
Exhibit 1(c)-4 - Restrictive Covenant Agreement among Buyer, IHS and Amerimed
Exhibit 2(b)(i)-A - Escrow Agreement
Exhibit 2(b)(i)-B - Stock Pledge Agreement
Exhibit 13(w) - Healthcare Questionnaire
</TABLE>
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EXHIBIT 2.3
AGREEMENT FOR SALE AND PURCHASE OF ASSETS
AND RESTRICTIVE COVENANTS
THIS AGREEMENT is made as of November 18, 1998, by and among INDIANA
RESPIRATORY CARE, INC., an Indiana corporation, having its principal place of
business at 5335 North Tacoma Avenue, Indianapolis, IN 46220 (the "SELLER" or
the "CORPORATION"), J. BARD BEESLEY, the sole shareholder of Seller (the
"SHAREHOLDER"), [and Shareholder's spouse, , if a community property state],
INTEGRATED OF WESTCLIFF PARK, INC., a Delaware corporation (the "BUYER") and
INTEGRATED HEALTH SERVICES, INC., a Delaware corporation ("IHS").
W I T N E S S E T H :
WHEREAS, Seller operates a home respiratory care and durable medical
equipment business in the State of Indiana (the "BUSINESS"); and
WHEREAS, Shareholder is the sole shareholder of the Seller; and
WHEREAS, Buyer is a wholly owned subsidiary of IHS;
WHEREAS, Seller wishes to transfer its business and substantially all
of its assets to the Buyer in exchange for voting shares of IHS and a limited
amount of cash in a transaction intended to qualify as a "reorganization" within
the meaning of ss.368(a)(1)(c) of the Internal Revenue Code of 1986, as amended
(the "CODE"), it being contemplated by the Seller and Buyer that the Seller will
thereafter, as an integral part of the transaction, distribute the IHS shares to
the Shareholder in compile liquidation of the Seller and dissolve, and Buyer
also desires to acquire from Seller and Shareholder, and each of Seller and
Shareholder desire to grant to Buyer, covenants not to compete and other
restrictive covenants as described in paragraph 16 hereof (the "RESTRICTIVE
COVENANTS"); and
WHEREAS, the consent or approval of all persons necessary for the
consummation of the transactions contemplated hereby has been obtained,
including without limitation, all approvals of governmental authorities and
parties to any contracts to be assigned to Buyer in connection herewith.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is hereby agreed as follows:
1. Sale of Assets and Restrictive Covenants.
(a) The Assets. As of the Closing Date referred to below in
paragraph 8, Seller shall be deemed to have sold, transferred, conveyed and
assigned, free and clear of all liens, claims, security interests, pledges,
restrictions on transfer or use and other encumbrances of any kind or nature
whatsoever ("LIENS"), all of Seller' rights, title and interest in, to or under:
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<PAGE>
(i) Accounts Receivable. All of the accounts
receivable of the Business including, without limitation, all accounts
receivable set forth on the Schedule of Accounts Receivable Data
attached hereto as Schedule 1(a)(i); and
(ii) Inventory; Fixed Assets. All inventory and fixed
assets of the Business, including, without limitation, all of the same
set forth on the Schedule of Inventory and Fixed Assets attached hereto
as Schedule 1(a)(ii); and
(iii) Motor Vehicles. Except as set forth below, all
motor vehicles of the Business, including without limitation, all of
the same set forth on the Schedule of Motor Vehicles attached hereto as
Schedule 1(a)(iii); and
(iv) Other Assets. All other assets of any kind,
tangible or intangible, real, personal or mixed, owned and used or held
for use by Seller in connection with the Business, including, without
limitation, all of the following: (A) the Patients' List of the
Business, as described in Schedule 1(a)(iv)(A); (B) the telephone
numbers listed on the Schedule of Telephone Numbers and Licenses
attached hereto as Schedule 1(a)(iv)(B); (C) all personal property,
machinery and equipment including, but not limited to, the equipment as
set forth on Schedule 1(a)(iv) attached hereto; (D) all of Seller's
prepaid assets; (E) rights under contracts, agreements, including,
without limitation, franchise agreements, and instruments; (F) any
Assets used in the operation of the Business, but not owned by the
Seller; and (G) all intangible rights of Seller of every kind and
description used in, or held for use in connection with, the operation
of the Business, including, without limitation, all intangible assets,
and to the extent permitted by applicable law, all licenses, permits
and authorizations.
(b) Excluded Assets. Notwithstanding the foregoing, the Assets
shall not include, and Seller shall not be deemed to have sold, transferred,
conveyed or assigned the following assets to Buyer: Seller's real property
located at 6349 Cardinal Lane, Indianapolis, IN 46220, two leased 1998 Chevrolet
Blazers, cash on hand and an anticipated tax refund in the amount of
approximately $30,000, Certificate of Incorporation, qualification to do
business in any jurisdiction, taxpayer identification number, minute books,
stock transfer records and other documents related specifically to Seller's
corporate organization and maintenance (collectively, "EXCLUDED ASSETS").
(c) Restrictive Covenants. Pursuant to paragraph 17 hereof,
each of Seller and Shareholder is granting to Buyer the Restrictive Covenants.
2. Purchase Price; Method of Payment.
(a) Purchase Price. The aggregate "PURCHASE PRICE" for the
Assets and the Restrictive Covenants shall be One Million Two Hundred Thousand
Dollars ($1,200,000). The Purchase Price shall be allocated among the Assets and
the Restrictive Covenants in the manner set forth on the Allocation Schedule
attached hereto as Schedule 2(a), and the parties hereto expressly consent to
the allocation stated therein.
(b) Method of Payment. At the Closing (as defined in paragraph
9), Buyer shall pay, disburse, and deliver the Purchase Price as follows:
(i) by delivery of shares of common stock, $.001 par
value, of IHS ("IHS SHARES" or "IHS STOCK") having a value equal to
Fifty Thousand Dollars ($50,000) using the Trade Price (as such term is
defined in paragraph 7(a) to value such shares (the "GENERAL ESCROW
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<PAGE>
AMOUNT" or "ESCROW FUND") and IHS Shares having a value equal to Two
Hundred Thousand Dollars ($200,000) using the Trade Price to value such
shares (the "CLAW-BACK AMOUNT") (the General Escrow Amount, the
Claw-back Amount, and all accrued interest and income earned thereon
shall be referred to as the "ESCROW FUND") to CoreStates Bank, N.A. as
escrow agent ("ESCROW AGENT"), to be held by Escrow Agent during the
Escrow Period (as defined in paragraph 6(d), below) pursuant to the
terms of an Escrow Agreement, in the form attached hereto as Exhibit
2(b)(i)-A (the "ESCROW AGREEMENT") pursuant to which, among other
things, the Escrow Agent shall acknowledge that it is holding the
Escrow Shares as the agent of Buyer pursuant to the Stock Pledge
Agreement in the form of Exhibit 2(b)(i)-B hereto (the "STOCK PLEDGE
AGREEMENT"). The entire Escrow Fund shall be subject to the provisions
of paragraphs 6 and 18 hereof.
(ii) $200,000 in cash, shall be paid and delivered to
the "PAYING AGENT" designated by Seller (and reasonably satisfactory to
Buyer), to be held and administered pursuant to the "PAYMENT ESCROW
AGREEMENT" attached hereto as Exhibit 2(b)(ii); and
(iii) by delivery of IHS Shares having a value equal
to Forty Thousand Dollars ($40,000) using the Trade Price to value such
shares (the "INITIAL BROKER'S FEE") on behalf of Seller, to Strausser,
Inc. (the "BROKER"), in satisfaction of all fees and compensation due
to the Broker at Closing in connection with the transactions
contemplated by this Agreement. Buyer shall also pay to Broker on
behalf of Seller an additional two percent (2%) of any portion of the
Claw- back Amount upon its release to Seller; and any such payment
shall be credited against the amount of the Claw-back Amount payable to
Seller. Seller represents and warrants to Buyer that the Broker has
acted as Seller's representative and broker in connection with the
transactions contemplated by this Agreement, and authorizes and directs
Buyer to withhold such sums from the Purchase Price and disburse such
sums directly to the Broker.
(iv) by delivery of IHS Shares having a value equal
to Seven Hundred Ten Thousand Dollars ($710,000) using the Trade Price
to value such shares (the balance of the Purchase Price) shall be paid
to Seller.
(c) Other Obligations. From and after the Closing Date, the
Seller will not engage in any business, will promptly liquidate and dissolve as
a corporation and will distribute the IHS Stock received pursuant to this
paragraph 2 to the Shareholder in complete cancellation and redemption of the
Seller's IHS Shares.
3. Purchase Price Adjustment. The parties acknowledge that the Purchase
Price was determined using a multiple of the expected Annual Operating Profit
(as hereinafter defined) of the Business after the Closing, and such expected
Annual Operating Profit was based upon the Seller's best good faith estimate
thereof. Accordingly, if the average Annual Operating Profit during the period
commencing on December 1, 1998 and ending November 30, 2000 (the "APPLICABLE
PERIOD") shall be less than $300,000, then the Buyer shall be entitled to
receive an amount from the Seller equal to five times (5x) the amount of such
deficiency (the "CLAW-BACK PAYMENT"); provided that the Claw-back Payment shall
not exceed the amount of the Claw-back Amount. For purposes hereof, the term
"ANNUAL OPERATING PROFIT" shall be determined as set forth on Exhibit 3 attached
hereto.
The parties further acknowledge that they have used their best efforts
to determine that the Purchase Price is consistent with the fair market value of
the Business and its assets as of the Closing, based in part on the projected
future revenues of the Business. The foregoing provisions of this paragraph 3
are intended solely to adjust the Purchase Price, if necessary, to reflect fair
market value and not to induce Seller or the Shareholder to refer or influence
the referral of any prospective client, customer or patient (collectively,
"PROSPECTIVE PATIENTS") to the Business or to recommend the Business to any
Prospective Patients. Accordingly, (i) prior to the Closing, Seller and the
Shareholders shall not engage in any marketing activities
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<PAGE>
(including any direct solicitation of Prospective Patients) except in the
ordinary and usual course of conducting the Business, consistent with lawful
past practices, and (ii) after the Closing, Seller and Shareholders shall not
take any action, directly or indirectly, to induce any Prospective Patients to
become patients of the Business.
4. Indemnity Against Creditors Claims; No Assumption of Liabilities.
Seller has requested that Buyer waive the requirements of the bulk sales and
transfer laws of the State of Indiana. Seller and Shareholder agree to indemnify
Buyer and save and hold Buyer harmless against all Damages (as defined in
paragraph 16(c)) arising out of any claims made by creditors (including, without
limitation, any Federal, state or local taxing authority) of Seller that relate
to the Business, or that arise out of the failure to comply with any of such
laws.
5. Closing Date Liabilities.
(a) Seller and Shareholder represent and warrant that, to the
best of Seller's and Shareholder's knowledge and belief after diligent inquiry,
all of Seller's liabilities, as of the Closing Date are listed on the Schedule
of Liabilities attached hereto as Schedule 5(a) the "LISTED LIABILITIES"). For
purposes of this Agreement "LIABILITIES" shall mean and include all claims,
lawsuits, liabilities, obligations or debts 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, whether or not asserted as of the date hereof, 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, any liabilities
relating to any Excluded Assets, malpractice or other tort claims, claims for
breach of contract, any claims of any kind asserted by patients, former
patients, employees and former employees of Seller or any other party that are
based on acts or omissions by Seller occurring on or before the Closing Date,
amounts due or that may become due in connection with the participation of
Seller in the Medicare or Medicaid programs or due to any other health care
reimbursement or payment intermediary, or that may be due by Seller to any other
third party payor, accounts payable, notes payable, trade payables, lease
obligations, indebtedness for borrowed money, accrued interest, and contractual
obligations. Seller and Shareholder acknowledge that the Purchase Price for the
Assets is based on the accuracy of Seller's and Shareholder's representations
and warranties contained in this Agreement, including, but not limited to,
Seller's and Shareholder's representations and warranties contained in this
paragraph 5(a). Without limiting the generality of the foregoing, Buyer will not
assume any, and Seller shall remain liable for each, liability of Seller arising
out of any facts, circumstances, matter or occurrences existing on or prior to
the Closing Date (whether or not known) ("CLOSING DATE LIABILITIES").
(b) Without limiting the generality of the provisions of
subparagraph (a) above, Buyer shall not assume the Contracts (as hereinafter
defined in paragraph 14(b)), if any, set forth on Schedule 5(b), or any
liabilities with respect thereto, and shall not, in any case, assume any
liabilities under any Contracts (whether or not such Contracts are assumed by
Buyer) to the extent such liabilities arise out of facts or circumstances in
existence, or obligations to be satisfied, on or prior to the Closing Date.
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<PAGE>
6. Right of Offset Against the Escrow Fund.
(a) Event of Deficiency. If:
(i) Buyer pays for any Closing Date Liabilities, then
Seller and Shareholder shall jointly and severally reimburse Buyer for
such payment (a "LIABILITIES DEFICIENCY"); or
(ii) the aggregate value of the Corporation's
collectible accounts receivable as of the Closing Date is determined to
be less than $215,000 as determined by actual net cash collections of
such receivables during the 365-day period immediately following the
Closing Date, then Seller and Shareholder, jointly and severally, shall
pay to Buyer the amount of such deficiency ("ASSET VALUE DEFICIENCY");
or
(iii) Buyer is entitled to any payment pursuant to
paragraph 3 above (an "ADJUSTMENT CLAIM"); or
(iv) Buyer shall be entitled to be indemnified for
any Damages pursuant to this Agreement ("INDEMNIFICATION CLAIMS", and
together with any Liabilities Deficiencies and Asset Value
Deficiencies, and Adjustment Claims, collectively "CLAIMS" and each, a
"CLAIM") provided, however, that Seller's indemnification obligations
arising from any Asset Value Deficiencies and Adjustment Claims shall
not exceed the lesser of the value of the balance of shares held in
escrow or $250,000;
then, and in any of such events, Buyer may provide written notice to Seller of
the Claim, in which case Buyer shall be entitled to recover the amount of such
Claim in accordance with the following procedure.
(b) Procedure if Seller Fails to Pay. If Seller fails to pay
any Claim in full to Buyer within ten (10) days from the date of such written
notice (said ten (10) day period hereinafter referred to as the "NOTICE
PERIOD"), Buyer shall have the right to make offset against the Escrow Fund, in
accordance with the terms and conditions of the Escrow Agreement, in amounts
from time to time equal to the amount of such Claim (subject, however, in the
case of a "DISPUTE", to the provisions of paragraph 16 hereof applicable
thereto), and Seller agrees to any such offset. Buyer's right to proceed against
the Escrow Fund shall not be exclusive of any other rights or remedies that it
may have under this Agreement, law, equity or otherwise.
(c) Escrow Costs. The fees of the Escrow Agent shall be borne
fifty percent (50%) by Buyer and fifty percent (50%) by Seller.
(d) Escrow Period.
(i) The "ESCROW PERIOD" shall terminate on the date that
is ninety (90) days after the second anniversary of the Closing Date.
(ii) To the extent funds remain in the Escrow Fund:
(A) an amount equal to (x) the General Escrow
Amount, less (y) the amount of any Asset Value Deficiencies, Indemnification
Claims and Liabilities Deficiencies Claims claimed pursuant to paragraph 6(a)
above, shall be paid to Seller on the first anniversary of the Closing Date; and
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<PAGE>
(B) The balance, if any, of the Escrow Fund
remaining (the "REMAINING ESCROW FUNDS") at the close of business on the last
day of the Escrow Period, shall be disbursed to Seller within fifteen (15) days
after the last day of the Escrow Period.
(iii) Notwithstanding anything to the contrary contained
in this subparagraph (d), if any Claim made by Buyer is in dispute at the time
that any amounts are otherwise to be disbursed to Seller, then there shall be
withheld from such amount to be disbursed and there shall be retained in the
Escrow Fund, an amount such that there will be remaining in the Escrow Fund at
least twice the amount of the Claim asserted by Buyer until the final settlement
of such Claim or Claims.
(iv) Any interest accruing or income earned on any
portion of the Escrow Fund shall be paid to the party receiving such portion of
the Escrow Fund.
7. IHS Stock. The Purchase Price shall be payable by means of the
delivery of IHS Shares in accordance with the following:
(a) Share Value. The number of IHS Shares issuable at Closing (the
"CLOSING DATE SHARE COUNT") shall be calculated based upon a price per share of
such stock equal to the average closing New York Stock Exchange ("NYSE") price
of such stock for the thirty (30) trading day period ending on the date that is
two (2) business days immediately preceding the Closing Date (the "TRADE
PRICE").
(b) Registration Rights. IHS will prepare and use its reasonable
commercial efforts to cause to be filed within one-hundred and twenty (120) days
following the Closing Date, and will use its reasonable commercial efforts to
have declared effective by the Securities and Exchange Commission (the
"COMMISSION"), a registration statement for the registration of the IHS Shares
issued to the Seller or Shareholder in connection with this transaction,
including the shares, if any, issuable as a share adjustment pursuant to
paragraph 7(c), under the Securities Act of 1933, as amended (the "SECURITIES
ACT"), and IHS shall maintain the effectiveness of each such registration
statement for a period of one (1) year following the date it became effective
(the "REGISTRATION DATE"), except to the extent that an exemption from
registration may be available.
(c) If the value of the IHS Shares (that have not previously been
transferred by the Seller) on the date that is two (2) trading days prior to the
Registration Date is more than $2.00 per share less than the Trade Price, then
IHS will issue an additional number of shares to Seller that would increase the
total number of shares issued to Seller to be equivalent to the number of IHS
Shares that Seller would have received had the price per share been no more than
$2.00 less per share than the Trade Price ("FLOOR PRICE"). Buyer shall promptly
deliver to Seller the number of IHS Shares as required hereunder. If the value
of the IHS Shares on the Registration Date is equivalent to or greater than the
Floor Price, Seller shall not be required to return any IHS Shares previously
delivered by Buyer.
(d) Registration Expenses. Seller and the Shareholder shall not be
responsible for, and IHS shall bear, all of the reasonable expenses of IHS
related to such registration including, without limitation, the fees and
expenses of its counsel and accountants, all of its other costs, fees and
expenses incident to the preparation, printing, registration and filing under
the Securities Act of the registration statement and all amendments and
supplements thereto, the cost of furnishing copies of each preliminary
prospectus, each final prospectus and each amendment or supplement thereto to
underwriters, dealers and other purchasers of IHS Shares and the costs and
expenses (including fees and disbursements of its counsel) incurred in
connection with the qualification of IHS Shares under the Blue Sky laws of
various jurisdictions. IHS, however, shall not be required to pay underwriter's
or brokerage discounts, commissions or expenses, or to pay any costs or expenses
arising out of any Shareholder's or any transferee's failure to comply with its
obligations under this Section 7.
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<PAGE>
(e) Resale Limitations. The Shareholder hereby covenants with IHS
that all sales by the Shareholder shall be effected solely through A.G. Edwards.
(f) Registration Procedures, etc. In connection with the
registration rights granted to the Shareholder with respect to the IHS Shares as
provided in this Section 7, IHS covenants and agrees as follows:
(i) IHS will promptly notify the Shareholder, at any time when
a prospectus relating to a registration statement under this Section 7
is required to be delivered under the Securities Act, of the happening
of any event known to IHS as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing.
(ii) IHS shall furnish the Shareholder with such number of
prospectuses as shall reasonably be requested.
(iii) IHS shall take all necessary action which may be
required in qualifying or registering IHS Shares 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
Shareholder, provided that IHS shall not be obligated to qualify as a
foreign corporation or dealer to do business under the laws of any such
jurisdiction.
(iv) The information included or incorporated by reference in
the registration statement filed pursuant to this Section 7 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. IHS shall indemnify the Shareholder, his
successors and assigns, and each person, if any, who controls the
Shareholder within the meaning of ss.15 of the Securities Act or
ss.20(a) of the Securities Exchange Act of 1934, as amended ("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 IHS or based upon
written information furnished by IHS filed in any jurisdiction in order
to qualify IHS Shares 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 IHS by the Seller or Shareholder 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 Shareholder in respect of which indemnity may be sought
against IHS pursuant to this subparagraph 7(f)(iv), such Shareholder
shall within thirty (30) days after the receipt thereby of a summons or
complaint, notify IHS in writing of the institution of such action and
IHS shall assume the defense of such actions, including the employment
and payment of reasonable fees and expenses of counsel (reasonably
satisfactory such Shareholder). The Shareholder shall have the right to
employ his own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of the Shareholder unless (A) the
employment of such counsel shall have been authorized in writing by
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<PAGE>
IHS in connection with the defense of such action, or (B) IHS shall not
have employed counsel to have charge of the defense of such action, or
(C) such indemnified party or parties shall have reasonably concluded
(after notice to IHS) that there may be defenses available to him or
them which are different from or additional to those available to IHS
(in which case, IHS shall not have the right to direct the defense of
such action on behalf of the indemnified party or parties), in any of
which events the fees and expenses of not more than one additional firm
of attorneys for the Shareholder and such controlling persons shall be
borne by IHS.
(v) The Shareholder, and his successors and assigns, shall
indemnify IHS, its officers and directors and each person, if any, who
controls IHS 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 Shareholder, or his
successors or assigns for specific inclusion in such registration
statement.
(g) Notice of Sale. If the Shareholder desires to transfer all or
any IHS Shares, he will deliver prior written notice to IHS, describing in
reasonable detail his 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 Shareholder will sell the IHS
Shares in compliance with the disclosure therein and discontinue any offers and
sales thereunder upon notice from IHS that the registration statement relating
to the IHS Stock being transferred is not "current" until IHS gives further
notice that offers and sales may be recommenced. In the event of any such notice
from IHS, IHS agrees to use it reasonable commercial efforts to file
expeditiously such amendments to the registration statement as may be necessary
to bring it current during the period specified in Section 7(b) and to give
prompt notice to the Shareholder when the registration statement has again
become current. If the Shareholder delivers to IHS an opinion of counsel
reasonably acceptable to IHS and its counsel and to the effect that the proposed
transfer of IHS Shares may be made without registration under the Securities
Act, the Shareholder will be entitled to transfer IHS Shares in accordance with
the terms of the notice and opinion of their counsel.
(h) Furnish Information. It shall be a condition precedent to the
obligations of IHS to take any action pursuant to this Section 7 that the
Shareholder shall furnish to IHS such information regarding himself, the IHS
Shares held by him, and the intended method of disposition of such securities as
shall be required to effect the registration of his IHS Shares. In that
connection, each transferee of the Shareholder shall be required to represent to
IHS that all such information which is given is both complete and accurate in
all material respects. Such Shareholder shall deliver to IHS a statement in
writing from the beneficial owners of such securities that they bona fide intend
to sell, transfer or otherwise dispose of such securities. Each transferee will,
severally, promptly notify IHS at any time when a prospectus relating to a
registration statement covering such transferee's shares under this Section 7 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.
(i) Investment Representations. The Shareholder and Seller represent
and warrant to IHS that the IHS Shares being issued hereunder are being
acquired, and will be acquired, by the Shareholder for investment for his own
account and not with a view to or for sale in connection with any distribution
thereof within the meaning of the Securities Act or the applicable state
securities law; the Shareholder acknowledges that the IHS Shares constitute
restricted securities under Rule 144 promulgated by the
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Commission pursuant to the Securities Act, and may have to be held indefinitely,
and the Shareholder agrees that no IHS Shares 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 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
Shareholder has had the opportunity to make inquiries of and obtain from
representatives and employees of IHS such other information about IHS as he
deems necessary in connection with such investment.
(j) Legend. It is understood that the certificates evidencing the
IHS Shares shall bear a legend substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THESE SHARES UNDER THE SECURITIES ACT OF 1933 OR AN OPINION
OF THE COMPANY'S COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT.
(k) Certain Transferees. Prior to the effective date of registration
of the IHS Shares, the Shareholder shall not transfer any shares of IHS Shares
to any person or entity except as expressly permitted by this Agreement and
unless such transferee shall have agreed in writing to be bound by the
provisions applicable to the Shareholder under this Section 7.
8. Employees. 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 of the Seller, although Buyer shall have the right
to offer employment to any such employees. Seller shall remain fully responsible
for any severance, benefits, costs or liabilities arising out of the termination
by Seller of any of its employees, all of which liabilities shall constitute
Closing Date Liabilities. Seller shall also remain fully responsible for any
benefits, costs or liabilities incurred or accrued prior to Closing with respect
to each employee retained by Buyer.
9. Closing Date. The consummation of the transactions contemplated by
this Agreement is occurring concurrently herewith and is sometimes referred to
as the "CLOSING", and the date on which such consummation occurs, including,
without limitation, the execution and delivery of this Agreement by each of the
parties hereto, is sometimes referred to as the "CLOSING DATE".
10. Asset Condition and Quality. Seller and Shareholder, jointly and
severally, represent, warrant and covenant that, as of the Closing Date, all
physical Assets of Seller are free of defects and in good working order,
condition and repair, except for ordinary wear and tear, and conform in all
material respects with all applicable ordinances, regulations, zoning and other
laws.
11. Instruments of Conveyance and Transfer. At the Closing:
(a) Seller will deliver to Buyer such bills of sale, assignments,
motor vehicle certificates of title, and other good and sufficient instruments
of conveyance and transfer in form sufficient to sell, assign and transfer the
Assets to Buyer as of the Closing Date, such documents to contain full
warranties of
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title, and which documents shall be effective to vest in Buyer good, absolute,
and marketable title to the Assets of the Business being transferred to Buyer by
Seller, free and clear of all Liens.
(b) Simultaneously with such delivery, Seller will take all steps
as may be requisite to put Buyer in actual possession, operation and control of
the Assets to be transferred hereunder.
(c) Seller will deliver to Buyer an opinion, dated the Closing
Date, of its counsel, in substantially the form attached hereto as Schedule
11(c).
(d) Seller will deliver a certificate of its Secretary or other
officer certifying as of the Closing Date a copy of resolutions of its board of
directors and, if applicable, its stockholders, authorizing the execution,
delivery and full performance of this Agreement and the Transaction Documents
(as defined in paragraph 14(a) below), and the incumbency of its officers.
12. Sales and Transfer Taxes; Fees. All applicable sales, transfer,
use, filing and other taxes and fees that may be due or payable as a result of
the conveyance, assignment, transfer or delivery of the Assets of the Business
to be conveyed and transferred as provided herein, whether levied on Seller or
Buyer, shall be borne by Seller.
13. Restrictions on Operations of Seller. Seller and Shareholder,
jointly and severally, represent, warrant and covenant that, except as expressly
disclosed on Schedules hereto, since the most recent Financial Statement Date
referred to in paragraph 14(o) below, through the Closing Date, there has been
no material adverse change in the condition (financial or otherwise) or
prospects of the Seller or the Business, and Seller has not:
(i) sold, assigned or transferred any Assets, except in the
ordinary course of business, consistent with past practice;
(ii) subjected any Assets to any Liens;
(iii) entered into any contract or transaction binding the Business
other than contracts or transactions entered into in the ordinary course of
business, consistent with past practice;
(iv) incurred any liabilities or indebtedness other than in the
ordinary course of business, consistent with past practice;
(v) except in the ordinary course of business, consistent with past
practice, or otherwise to comply with any applicable minimum wage law, paid any
bonuses, 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;
(vi) 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 Corporation or the Assets;
(vii) failed to collect any accounts receivable in the ordinary
course of business, consistent with past practice;
(viii) changed any of the accounting principles followed by it or
the methods of applying such principles;
(ix) 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
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(x) 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 of its
affiliates except for payments of compensation in the ordinary course of
business, consistent with past practice and disclosed to Buyer as such;
(xi) instituted, settled or agreed to settle any litigation, action
or proceeding before any Governmental Authority (as such term in defined in
paragraph 13(d) below) relating to it or its property or received any threat
thereof; or
(xii) entered into any material transaction other than in the
ordinary course of business, consistent with past practice.
14. Representations and Warranties by Seller and Shareholder. As a
material inducement to Buyer to execute and perform its obligations under this
Agreement, Seller and Shareholder hereby, jointly and severally, represent and
warrant to Buyer as follows as of the Closing Date:
(a) Organization of Seller; Enforceability.
(i) Seller is a corporation, organized, and in good standing,
respectively, in the State of Indiana, and is qualified to do business and is in
good standing in each other State where the nature of its business or the assets
held by it requires such qualification, and has requisite corporate power and
authority to carry on its Business as presently being conducted, to enter into
this Agreement, and to carry out and perform the terms and provisions of this
Agreement. Each of this Agreement and each agreement, instrument, certificate
and document in connection with this Agreement or the transactions contemplated
hereby ("TRANSACTION DOCUMENTS") constitutes the legal, valid and binding
obligations of Seller, enforceable against it in accordance with its respective
terms. Seller does not have any subsidiaries.
(ii) This Agreement and each Transaction Document to which
Shareholder is a party constitutes the legal, valid and binding obligations of
Shareholder, enforceable against Shareholder in accordance with its terms.
(b) Consents. No authorization, consent, approval, license,
exemption by, filing or registration with any Governmental Authority or of any
party to any contract, agreement, instrument, commitment, lease, indenture or
understanding (written, oral or implied) by which Seller or any of the Assets is
bound ("CONTRACTS") or by which Shareholder or any Shareholder's assets is bound
("SHAREHOLDER CONTRACTS") is necessary in connection with the execution,
delivery and performance of this Agreement or any of the Transaction Documents
by Seller or Shareholder.
(c) Litigation. Except as set forth on Schedule 14(c), there are no
actions, suits or proceedings affecting Seller or any of the Assets which are
pending or threatened against Seller or affecting any of its properties or
rights, at law or in equity, or before any Governmental Authority (as
hereinafter defined), nor is Seller or any of its respective officers or
directors or Shareholder aware of any facts which to them or their knowledge
might reasonably be expected to result in any such action, suit or proceeding.
(d) Compliance with Laws and Contracts. Seller is not in violation
of, or in default under: any term or provision of its Articles of Incorporation
or By-Laws; or any judgment, order, writ, injunction, decree, statute, law,
rule, regulation, directive, mandate, ordinance or guideline ("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"); or of any Contract. The execution and delivery by
Seller and Shareholder of, and the performance and compliance by each of them
with this Agreement, and the
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Transaction Documents and the transactions contemplated hereby and thereby, does
not and will not result in the violation of or conflict with or constitute a
default under any such term or provision or result in the creation of any Lien
on any of the properties or assets of Seller or Shareholder pursuant to any such
term or provision or any term or provision of any Governmental Requirement by
which any Shareholder is bound or of any Shareholder Contract.
(e) Corporate Acts and Proceedings. The execution, delivery and
performance of this Agreement and each of the Transaction Documents, and the
transactions contemplated hereby and thereby, including the sale and transfer of
the Assets by Seller as provided for in this Agreement, have been approved and
consented to by the Board of Directors of Seller and, if applicable, by the
requisite number of holders of its outstanding capital stock, and all action
required by any applicable Governmental Requirement by the stockholders of
Seller with regard thereto have been appropriately authorized and accomplished.
(f) Title to Assets. Seller has good and indefeasible title to all
of the Assets, free and clear of all Liens.
(g) Contracts. Set forth on Schedule 14(g) hereto is a list of all
material Contracts of Seller including, without limitation, each:
(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, or agent or group
of employees, or any non-competition, non-solicitation, confidentiality or
similar agreement with any such person or persons;
(ii) contract, agreement or arrangement for the acquisition or
disposition of any assets, property or rights outside the ordinary course of
business or requiring the consent of any party to the transfer and assignment of
any such assets, property or rights (by purchase or sale of assets, purchase or
sale of stock, merger or otherwise), that is executory or that was entered into
during the three (3) year period ending on the date hereof;
(iii) contract, agreement or commitment which contains any
provisions requiring the Seller or the Business to indemnify or act for any
other person or entity or to guaranty or act as surety for any other person or
entity;
(iv) contract, agreement or commitment restricting the Seller
or the Business from, or in favor of either of the Seller or the Business 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;
(vii) contract, agreement or arrangement granting a leasehold
or other interest in real property, including without limitation, subleases,
licenses and sublicenses (the "LEASES");
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(viii) 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 Seller or the Business
not covered by clause (i) above;
(ix) agreement, consent order, plea bargain, settlement or
stipulation or similar arrangement with any Governmental Authority;
(x) agreement with respect to the settlement of any litigation
or other proceeding with any third person or entity;
(xi) agreement relating to the ownership, transfer, voting or
exercise of other rights with respect to any equity in the Seller, or any other
entity, including without limitation, registration rights agreements, voting
trust agreements and shareholder and proxy agreements;
(xii) contract, agreement or commitment to provide services or
products, or
(xiii) agreement not made in the ordinary and normal course of
business and consistent with past practice, or involving consideration in excess
of $25,000 in each case, that is not set forth in subsections (i) through (xii)
above.
To the best of Seller's and Shareholder's knowledge, no party to any
Contract other than Seller is in default under any Contract. Seller has
delivered to Buyer true and complete copies of each written Contract (or a
description of each oral Contract) requested by Buyer.
(h) Brokers. Seller has been represented solely by the Broker, and
as a result, a brokerage commission is due and payable by Seller to the Broker
by delivery of IHS Shares having a value equal to $40,000 (using the Trade Price
to value such shares) at the Closing and 2% of any portion of the Claw-back
Amount payable to Seller is due, and no other broker or finder is entitled to
any additional broker's or finder's fee or other commission in respect thereof
based in any way on agreements, understandings or arrangements with Seller.
(i) Employment Contracts; Employees. There are no Contracts of
employment between Seller and any officer or other employee of the Business,
except as set forth on Schedule 14(g)(i) above. The name, position, current rate
of compensation and any vacation or holiday pay, sick pay, personal leave,
severance and any other compensation arrangements or fringe benefits, of each
current employee, sales representative, consultant and agent of the Seller,
contained on the Schedule of Personnel Payrates and Advances attached hereto as
Schedule 14(i) is accurate and complete. No employee, consultant or agent of the
Seller has any vested or unvested retirement benefits or other termination
benefits, except as described on Schedule 14(i). Since the date that is two (2)
years prior to the Closing Date, there has been no material adverse change in
the relationship between the Seller and its 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. No
employees of the Seller are represented by any labor union or similar
organization in connection with their employment by or relationship with,
Seller, and to the knowledge of the Seller and Shareholder, there are no pending
or threatened activities the purpose of which is to achieve such representation
of all or some of such employees, and there are no threats of strikes, work
stoppages or pending grievances by any such employees. Seller is not party to
any collective bargaining or other labor contracts.
(j) Employee Benefit Plans. Seller has no pension, bonus,
profit-sharing, or retirement plans for officers or employees of the Business,
nor is Seller required to contribute to any such plan. Without limiting the
generality of the foregoing, Seller 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
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to the minimum funding standards of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or to any multi-employer plan subject to the
terms of the Multi-Employer Pension Plan Amendment Act of 1980 (the
"MULTI-EMPLOYER ACT").
(k) Insurance. All inventories, buildings and fixed assets owned or
leased by the Seller are and will be adequately insured against fire and other
casualty through the Closing Date. The information contained on the Schedule of
Insurance Policies, attached hereto as Schedule 14(k), is accurate and complete.
Schedule 14(k) also sets forth any claims made under any of the insurance
policies referred to above or increases in premiums therefore during the past
two years. True and complete copies of all policies of fire, liability and other
forms of insurance held or owned by the Seller or otherwise in force and
providing coverage for the Business or any of the Assets (including but not
limited to medical malpractice insurance, and any state sponsored plan or
program for worker's compensation) have been delivered to Buyer. Such policies
are owned by and payable solely to the Seller, and said policies or renewals or
replacements thereof will be outstanding and duly in force at the Closing Date,
and all premiums due on or before the Closing Date in respect thereof have been
paid. Seller purchased title insurance as set forth on Schedule 14(k).
(l) Disclosure. No representation or warranty by Seller or
Shareholder in this Agreement or in any Transaction Document, contains any
untrue statement of material fact or omits to state any material fact, of which
Shareholder or Seller or any of its officers, directors or stockholders has
knowledge or notice, required to make the statements herein or therein contained
not misleading.
(m) Officers, Directors and Shareholders of Seller. As of the
Closing Date, the Shareholder is the sole shareholder of Seller and the
following individuals are all of the officers and directors of Seller:
Name Office/Position
---- ---------------
J. Bard Beesley President/Secretary
------------------- -------------------------
------------------- -------------------------
------------------- -------------------------
(n) Inventory and Fixed Assets. The information contained on the
Schedule of Inventory and Fixed Assets as of the most recent Financial Statement
Date, attached hereto as Schedule 1(a)(ii), is accurate and complete.
(o) Tax Returns and Financial Statements. Seller has furnished Buyer
with its tax returns (the "TAX RETURNS") for the periods ended December 31, 1996
and December 31, 1997, and has furnished Buyer with its financial statements
(the "FINANCIAL STATEMENTS") for the periods ended December 31, 1997, April 30,
1998 and September 30, 1998 (the "FINANCIAL STATEMENT DATES"), copies of which
are attached hereto as Schedule 14(o). The Financial Statements: (i) are in
accordance with the books and records of the Seller; (ii) fairly present the
financial condition of the Seller at such date and the results of its operations
for the periods specified; and (iii) were prepared on a basis consistent with
prior accounting periods. 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, consistent with past practice, except as expressly specified therein,
and such Financial Statements include all adjustments, which consist only of
normal recurring accruals, necessary for such fair presentation.
(p) Supplemental Tax Information. Seller has furnished Buyer with
its most recent (i) tax registration certificates, and (ii) tax returns required
of it by the federal government and each state or other locality in which it
conducts business, which tax returns in all instances where applicable include,
but shall not be limited to franchise taxes, federal, state and local tangible
personal property tax returns, and federal, state and local sales tax returns,
which registration certificates and tax returns are set forth, collectively, on
the Schedule of Supplemental Tax Information, attached hereto as Schedule 14(p).
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(q) Adverse Business Developments. No notice has been received by
Seller or Shareholder of any new or substantially expanded firm or individual
engaged in a business directly competitive to Seller in its primary service area
within six (6) months before the date hereof. Neither Seller nor Shareholder has
received, either orally or in writing, any notice specific to it of pending or
threatened adverse action with respect to any Medicare, Medicaid, private
insurance or third party payor reimbursement method, practice or allowance as to
any business activity engaged in by Seller, nor has Seller or Shareholder
received, or been threatened with, any claim for refund specific to it in excess
of $500.00 by a Medicare or Medicaid carrier, except as disclosed in the
Schedule of Proceedings attached hereto as Schedule 14(q).
(r) Relationships. Except as disclosed on Schedule 14(r), neither
Seller, its officers, directors and employees, nor Shareholder and no member of
any of their respective immediate families, 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. No Affiliate
of Seller or Shareholder is guaranteeing any obligations of the Seller.
(s) Assets Comprising the Business. The Assets are all of the
tangible and intangible properties (real, personal and mixed), including,
without limitation, all licenses, intellectual property, permits and
authorizations, and contracts that are necessary or material to the operation of
the Business as now operated. The quantities of inventory and supply items
included in the Assets are reasonable in light of the present and anticipated
volume of the Business of the Seller in the ordinary course of the business of
the Seller, consistent with past practice, as determined by the Seller in good
faith and consistent with past practice.
(t) Questionable Payments. Seller has not, and to the knowledge of
the Seller and Shareholder, none of their Affiliates or employees have offered,
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.
(u) Reimbursement Matters. Seller, to the extent necessary to
conduct its business in a manner consistent with past practice, is qualified for
participation in the Medicare and Medicaid programs. Except as disclosed on
Schedule 14(u), (i) Seller and Shareholder have not received any notice of
denial or recoupment from the Medicare or Medicaid programs, or any other third
party reimbursement source (inclusive of managed care organizations) with
respect to products or services provided by it, (ii) to Seller's and
Shareholder's knowledge, there is no basis for the assertion after the Closing
Date of any such denial or recoupment claim, and (iii) Seller and Shareholder
have 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 with respect to, or arising
out of, products or services provided by Seller or otherwise, and to the
knowledge of Seller and Shareholder, no such investigation or survey is pending,
threatened or imminent.
(v) Environmental Compliance. Except as disclosed on Schedule 14(v),
at all times during Seller's ownership of the Business, the Business has not
been, and currently is not, in violation of any environmental Governmental
Requirement and no notice has ever been served upon Shareholder or Seller, their
agents or representatives or any prior owner of the Business, claiming any
violation of any Governmental Requirement concerning the environmental state,
condition or quality of any real or personal property related to the Business,
or requiring or calling attention to the need for any work, repairs or
demolition on or in connection with any of the real property in order to comply
with any governmental requirement concerning the environmental or healthful
state, condition or quality of the real property.
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(w) Questionnaires. The healthcare law questionnaire heretofore
delivered to the Seller by Buyer attached hereto as Exhibit 14(w) (the
"QUESTIONNAIRE") 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.
(x) Corporation Stock. Schedule 14(x) sets forth a complete list and
description of the authorized capital stock of the Corporation, the number of
shares issued and outstanding of each class or series of such capital stock, and
the identity of each Shareholder of the Corporation, in each case indicating the
class and number of shares held. No shares of the Corporation Stock are held in
the treasury of the Company. The Sellers are the record owners of all of the
Corporation 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 Corporation pursuant to any provision of law or the Articles of
Incorporation or By-Laws of the Corporation or by agreement or otherwise. On the
Closing Date there shall not be outstanding any warrants, options, or other
rights to subscribe for or purchase from any of the Corporation any shares of
capital stock of the Corporation nor shall there be outstanding any securities
convertible into or exchangeable for such shares.
15. Representations and Warranties of Buyer and IHS. Buyer and IHS
represent and warrant to Seller and Shareholder that:
(a) Due Organization. Each of Buyer and IHS is a duly organized,
valid corporation under the laws of its respective state of incorporation.
(b) Due Authority. Each of Buyer and IHS is duly authorized by law
and corporate policy and approval to: (i) enter into this Agreement and each
Transaction Document; (ii) make all warranties and representations made by Buyer
or IHS herein; and (iii) deliver all consideration provided for under the terms
hereof.
(c) Binding Authority. All signatories and agents designated as
agents/officers for Buyer and IHS for signing purposes have the authority to
bind Buyer and IHS to the terms of this Agreement.
(d) Cash Payment Authority. Buyer has the authority to cause the
cash payment of the Purchase Price to be delivered in accordance with the terms
of this Agreement.
(e) Brokers. No broker or finder has acted for the Buyer or IHS in
connection with the transactions contemplated by this Agreement, and no broker
or finder is entitled to any broker's or finder's fee or other commission in
respect thereof based in any way on agreements, understandings or arrangements
with the Buyer or IHS.
(f) IHS Stock. IHS has duly authorized and reserved for issuance
the IHS Stock to be issued in connection herewith, and when issued in accordance
with the terms of paragraph 14 such IHS Stock will be validly issued, fully paid
and nonassessable and free of preemptive rights. IHS has complied, or will
comply in a timely manner, and will act in compliance with all applicable
Governmental Requirements with respect to the issuance of IHS Stock.
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(g) SEC Documents. Buyer has furnished the Seller and the
Shareholder with a correct and complete copy of its report on Form 10-K for its
fiscal year ended December 31, 1997 (the"10-K"), its reports on Form 10-Q for
its fiscal quarter ended December 31, 1997, (the"10-Q"), and its proxy statement
prepared in connection with its annual meeting held on April 30, 1998 (the
"PROXY STATEMENT"). As of their respective dates, none of the 10-K, 10-Q, and
Proxy Statements and no press release or other schedule or report required by
the Companies to be publicly disclosed or filed with the Securities and Exchange
Commission (the "SEC") pursuant to the Exchange Act since January 1, 1998 (all
of the foregoing being 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.
16. Survival of Representations and Warranties. The representations and
warranties of Seller, Shareholder, IHS, and Buyer contained in or made pursuant
to this Agreement shall survive the execution of this Agreement.
17. Restrictive Covenants.
(a) Non-Compete. Seller and Shareholder hereby agree that until
the fifth (5th) anniversary of the Closing Date (the "RESTRICTED PERIOD"), each
of them will not, directly or indirectly, own, manage, operate, join, control or
participate, or have a proprietary interest in, the ownership, management,
operation or control, of or be connected with, in any manner, any home health
care business that provides services or products within fifty (50) miles of any
location set forth on the Schedule of Locations attached hereto as Schedule
17(a).
(b) Confidential Information. Certain confidential and proprietary
information is included within the Assets ("TRADE SECRETS"), including, without
limitation, with respect to some or all of the following categories of
information: (i) financial information, including but not limited to information
relating to earnings, assets, debts, prices, pricing structure, reimbursement
matters, volume of purchases or sales or other financial data whether related to
Seller or generally, or to particular products, services, geographic areas, or
time periods; (ii) supply and service information, including but not limited to
information relating to goods and services, suppliers' names or addresses, terms
of supply or service contracts or of particular transactions, or related
information about potential suppliers to the extent that such information is not
generally known to the public, and to the extent that the combination of
suppliers or use of a particular supplier, though generally known or available,
may yield advantages to the Buyer, details of which are not generally known;
(ii) marketing information, including but not limited to information relating to
details about ongoing or proposed marketing programs or agreements by or on
behalf of the Seller, sales forecasts, advertising formats and methods or
results of marketing efforts or information about impending transactions; (iv)
personnel information, including but not limited to information relating to
employees' personal or medical histories, compensation or other terms of
employment, actual or proposed promotions, hirings, resignations, disciplinary
actions, terminations or reasons therefor, training methods, performance, or
other employee information; (v) customer and patient information, including but
not limited to information relating to names, addresses or backgrounds of past,
existing or prospective clients, customers, payors, referral sources, and
patients, records of agreements and prices, proposals or agreements between any
of them and Seller, status of accounts or credit, patients' medical histories or
related information as well as customer lists; and (vi) inventions and
technological information, including but not limited to information related to
proprietary technology, trade secrets, research and development data, processes,
formulae, data
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and know-how, improvements, inventions, techniques, and information that has
been created, discovered or developed, or has otherwise become known to Seller
or Shareholder, and/or in which property rights have been assigned or otherwise
conveyed to Seller, which information has commercial value in the business in
which the Seller is engaged. Seller and Shareholder shall hold all Trade Secrets
in confidence and will not discuss, communicate or transmit to others, or make
any unauthorized copy of or use any of the Trade Secrets; and will take all
reasonable actions that Buyer deems reasonably necessary or appropriate, to
prevent unauthorized use or disclosure of or to protect the Buyer's interest in
the Trade Secrets. The foregoing does not apply to information that by means
other than deliberate or inadvertent disclosure by Seller, Shareholder or any of
their respective Affiliates, becomes well known to the public; or disclosure
compelled by judicial or administrative proceedings after they diligently try to
avoid each disclosure and afford Buyer the opportunity to obtain assurance that
compelled disclosures will receive confidential treatment.
(c) Non-Solicitation and Non-Pirating. Each of Seller and
Shareholder hereby agree that, during the Restricted Period it or he will not,
directly or indirectly, for itself or himself or on behalf of any other person,
firm, entity or other enterprise: (i) solicit or in any way divert or take away
any person or entity that, prior to the Closing Date, was a patient, client,
customer, payor, referral source, facility or patient of the Seller; or (ii)
hire, entice away or in any other manner persuade any person who was an
employee, consultant, representative or agent of the Seller prior to the Closing
Date, to alter, modify or terminate their relationship with the Buyer.
(d) Necessary Restrictions. Each of Seller and Shareholder
acknowledge that the restrictions contained in this Agreement are reasonable and
necessary to protect the legitimate business interests of the Buyer and IHS and
that any violation thereof by any of them would result in irreparable harm to
the Buyer and IHS, and that damages in the event of any such breach of this
Agreement will be difficult, if not impossible, to ascertain. Accordingly, each
of the Seller and Shareholder agree that upon the violation of any of the
restrictions contained in this Agreement, IHS and 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, equity, under this
Agreement or otherwise, without the necessity of posting any bond or other
security whatsoever. In the event any of the foregoing restrictions are adjudged
unreasonable in any proceeding, then the parties agree that the period of time
or the scope of such restrictions (or both) shall be adjusted to such a manner
or for such a time (or both) as is adjudged to be reasonable.
(e) Remedies For Breach. Each of the Seller and Shareholder
acknowledge that the covenants contained in this Agreement are independent
covenants and that any failure by IHS or the Buyer to perform its obligations
under this Agreement or any other agreement shall not be a defense to
enforcement of the covenants contained in this Agreement, including but not
limited to a temporary or permanent injunction.
18. Indemnification; Remedies.
(a) Indemnification by Seller and Shareholder. Seller and
Shareholder shall, jointly and severally, indemnify and hold harmless at all
times Buyer and IHS and their respective stockholders, directors, officers,
employees, agents and assigns, from and against any Damages (as hereinafter
defined) arising out of: (i) any inaccurate representation made by Seller or
Shareholder in, pursuant to or under this Agreement or any Transaction Document;
(ii) any breach of any warranty made by Seller or Shareholder in, pursuant to or
under this Agreement or any Transaction Document; (iii) any breach or default in
the performance by Seller or Shareholder of any of the covenants to be performed
by Seller or Shareholder hereunder or in any Transaction Document; and (iv) any
Closing Date Liabilities.
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<PAGE>
(b) Indemnification by Buyer and IHS. Buyer and IHS shall
indemnify and hold harmless at all times Seller or Shareholder from and against
any Damages arising out of: (i) any inaccurate representation made by either of
them in, pursuant to or under this Agreement; (ii) any breach of any warranty
made by either of them in, pursuant to or under this Agreement; and (iii) any
breach or default in the performance by either of them of any of the covenants
to be performed by either of them hereunder.
(c) Definition of Damages. The term "DAMAGES" as used herein shall
include any demands, claims, actions, deficiencies, losses, delinquencies,
defaults, assessments, fees, costs, taxes, expenses, debts, liabilities,
obligations, settlements, penalties, and damages, including, without limitation,
counsel fees incurred in investigating or in attempting to avoid or oppose the
imposition thereof. The term "Damages" shall include, but shall not be limited
to, any Liabilities Deficiency, as defined in paragraph 5 hereof.
(d) Remedies.
(i) Buyer's Remedies. Seller and each Shareholder shall make
payment of any Claim made against it, him or her by no later than the
last day of the Notice Period as provided in paragraph 6(b) above.
(ii) Seller's Remedies. If Seller or Shareholder makes written
request to Buyer or IHS for the payment of Damages, then Buyer or IHS
shall pay to Seller or Shareholder the amount of Damages requested
within ten (10) days from the date that such notice is delivered to
Buyer or IHS (also a "NOTICE PERIOD").
(iii) Notice of Dispute. Notwithstanding the foregoing
provisions of this subparagraph (d), if a party (the "DEMANDING PARTY")
serves a request for payment on the other party (the "OBLIGATED
PARTY"), the Obligated Party shall have the option to provide written
notice to the Demanding Party (the "NOTE OF DISPUTE") within the
applicable Notice Period that the Obligated Party disputes, in good
faith, the validity or amount of the Damages set out in the request for
payment of Damages, and if the affected parties cannot agree on the
validity or amount of such Damages within ten (10) days following the
Notice Period, the dispute as to the validity or amount of such claim
or liability (the "DISPUTE") shall be settled as set forth in
subparagraph (e) of this paragraph 18, with the non-prevailing party
bearing the prevailing party's costs of arbitration if such Dispute is
resolved by arbitration.
(iv) Arbitration. If arbitration is required pursuant to this
paragraph 18, Buyer, on the one hand, and the affected Seller and
Shareholders, on the other hand, each shall select an arbitrator within
ten (10) business days after the Notice of Dispute is delivered; those
two arbitrators will then select a third arbitrator; and the three
arbitrators so chosen will determine the validity of the claim for
Damages. If Seller or Buyer delays in appointing an arbitrator when
required, and ten (10) days or more has elapsed, the arbitrator
appointed by the other party shall arbitrate the dispute. If the Seller
and the Shareholder shall be subject to a Dispute with Buyer, they
shall, unless Buyer or IHS elects otherwise in its sole and absolute
discretion, be required to act as a group with respect to any and all
rights and obligations with respect to the resolutions of the Dispute
as provided in this paragraph 18.
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<PAGE>
(e) Settlement of Disputes.
(i) Disputes Not Involving Third Parties. If a Dispute
involves claims not involving any third party, Buyer, IHS, Seller and
Shareholder shall settle the Dispute by submitting the same to binding
arbitration.
(ii) Disputes Involving Claims Made by Third Parties. If a
Dispute involves claims made by one or more third parties (a "THIRD
PARTY CLAIM"), the party asserting its right to indemnification for
such Third Party Claim shall give written notice to the other party as
soon as practical after such asserting party receives notice of such
Third Party Claim; provided, however the failure to timely give such
notice shall not affect such party's right to indemnification except to
the extent the party to receive the notice is damaged by such delay.
Upon such notice to Seller or Shareholder, Buyer and Seller and/or
Shareholder shall submit the Dispute to arbitration, and the following
procedures shall apply:
(A) Solely for purposes of determining the party
responsible for defending the Third Party Claim, the
arbitrators shall deem such Third Party Claim to be valid
(although such consideration shall not be an admission by any
party as to any liability to any party). The arbitrators then
shall decide which party shall be liable for the Third Party
Claim if it is successfully prosecuted by such third party or
parties, and the decision of such arbitrators with respect to
such liability shall be final and binding as among the
parties. (Such party determined to be liable for such claim
sometimes shall be referred to herein as the "RESPONSIBLE
PARTY".)
(B) If the Responsible Party refuses to settle (and pay
the settlement amount of) the Third Party Claim immediately,
then the Responsible Party immediately shall select one of the
following two options:
Option One: The Responsible Party, at the Responsible
Party's sole expense and risk, can assume the defense of
the Third Party Claim, provided the Responsible Party
first places in escrow, in favor of the other party,
adequate collateral (as determined by the arbitrators on
consideration of all relevant facts) to protect the other
party from all Damages with respect to such Third Party
Claim (in which case the other party immediately shall be
reimbursed by the Responsible Party for any amount the
other party is required to pay with respect to such Third
Party Claim; or
Option Two: The Responsible Party, at the Responsible
Party's expense and risk, can co-defend the Third Party
Claim with the other party, with the Responsible Party
also responsible for paying all costs incurred by the
other Party in connection with such defense, including,
without limitation, the legal fees and expenses of the
other party's counsel for its reasonable involvement in
such defense. If the other party is found to be liable
for any portion of such Third Party Claim, the
Responsible Party immediately shall reimburse the other
party for any amount required to be paid by the other
party with respect thereto; provided, however, if the
Responsible Party selects this option, the Responsible
Party shall attempt
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<PAGE>
diligently to have the other party removed as a party to
any legal action involving the Third Party Claim (and,
upon such removal, the involvement of the other party's
counsel shall cease unless requested by the Responsible
Party or the Responsible Party's counsel); and
(C) No party may settle any Third Party Claim without the
prior consent of the other parties hereto unless the
settlement will not have a material adverse effect on the
other party hereto. The parties will resolve any Dispute with
respect to any such proposed settlement in accordance with
this paragraph 18.
(D) Any party responsible for defending a Third Party
Claim shall proceed with diligence and in good faith with
respect thereto.
(E) Nothing contained in this paragraph 18(e) shall
prevent any party from assuming control of the defense and/or
settling any Third Party Claim against it for which
indemnification is not sought under this Agreement.
19. Use of Corporate and Fictitious Names. Seller and Shareholder,
jointly and severally, agree to take all actions necessary to assist Buyer in
obtaining the rights to use the corporate name and any fictitious names used in
its conduct of any of the Business, including but not limited to the execution
of any assignments and consents to use such name. If Buyer attempts to use such
name, Seller shall consent to Buyer's use of such name if such consent is
required by any state, county or local governmental authority.
20. Prepaid Items; Deposits; Etc. All prepaid insurance premiums, rent
and utility deposits, and similar items paid by or owing to the Seller by any
person, shall be considered to be part of the Assets being purchased by Buyer
and, on consummation of the transactions contemplated by this Agreement, shall
be the property of Buyer.
21. Post-Closing Requirements of Seller.
(a) Payment Escrow. At Closing, Buyer shall pay over and deliver to
or on behalf of Seller (and shall be credited, dollar-for-dollar, as partial
payment of the Purchase Price) to the Paying Agent, in escrow (the "PAYMENT
ESCROW"), an amount equal to the Listed Liabilities as specified in paragraph
2(b)(i), to be held by the Paying Agent subject to the terms, conditions, and
provisions of the Payment Escrow Agreement. The Paying Agent shall be an
attorney at law authorized to practice law in the state of Indiana or a trust
company or bank having trust powers in such State, which Paying Agent has been
selected by Seller and approved by Buyer.
(i) Seller shall pay all costs and expenses of the Payment
Escrow, including without limitation, any fees or costs of the Paying
Agent.
(ii) Seller shall be obligated to see that the Paying Agent
timely and properly pays all Listed Liabilities, and that the Paying
Agent obtains and delivers to Buyer the "Final Release" referred to in
the Payment Escrow Agreement, or other reasonable evidence of payment
acceptable to Buyer.
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<PAGE>
(iii) The existence of the Payment Escrow shall not affect the
obligations of the Seller and the Shareholder to hold Buyer harmless
against any Closing Date Liabilities as provided in paragraph (18)(a).
(b) Final Financial Information. Not later than forty-five (45)days
following Closing, Seller, at Seller's sole cost and expense, shall deliver to
Buyer (to the attention of Gale Lamson) "FINAL FINANCIAL INFORMATION", which
shall include:
(i) a balance sheet of Seller as of the Closing Date prepared
on a basis consistent with prior accounting periods;
(ii) an income statement of Seller for the period commencing on
the date succeeding the last day of the most recent Financial Statement
Date and ending on the Closing Date which agrees with the balance sheet
submitted at Closing;
(iii) an inventory of fixed assets of Seller as of the Closing
Date which agrees with the balance sheet submitted at Closing; and
(iv) a listing of resale inventory of Seller as of the Closing
Date which agrees with the balance sheet submitted at Closing.
(v) a cash settlement summary of Seller in a form provided by
Buyer.
(c) Liabilities Deficiency. If all such Final Financial Information
or if any document, instrument or agreement required to be delivered in
accordance with paragraph 11(a), including, without limitation, original motor
vehicle certificates of title, properly endorsed, is not delivered to Buyer
within forty-five (45) days following Closing, Seller and Shareholder shall be
liable to Buyer in an amount equal to $500.00 for each day after such forty-five
(45) day period until all such Final Financial Information and other such
documents, instruments and agreements are delivered to Buyer, and such liability
shall constitute a Liabilities Deficiency under the provisions of paragraph 6,
above.
22. Third Party Beneficiaries. Nothing in this Agreement, expressed or
implied, is intended to confer on any person, other than the parties hereto, and
their successors, any rights or remedies under or by reason of this Agreement
other the affiliates entitled to indemnification pursuant to paragraph 18.
23. Expenses. Except as otherwise stated herein, each of the parties
shall bear all expenses incurred by them in connection with this Agreement and
in consummation of the transactions contemplated hereby in preparation thereof.
24. Notices. All notices, consents, waivers and other communications
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:
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<PAGE>
to Seller: Indiana Respiratory Care, Inc.
5335 North Tacoma Avenue, Suite 20
Indianapolis, IN 46220
Attention: Mr. J. Bard Beesley
to Shareholder: J. Bard Beesley
8225 N. Pennsylvania St.
Indianapolis, IN 46240
with a copy to: Ruppert & Schaefer, P.C.
151 North Delaware Street
Suite 1525
Indianapolis, Indiana 46204
Attention: Michael G. Ruppert
to Buyer: c/o RoTech Medical Corporation
4506 L.B. McLeod Road, Suite F
Orlando, FL 32811
Attention: Stephen P. Griggs
with copies to: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Marshall Elkins
and
Blass & Driggs
461 Fifth Avenue
New York, NY 10017
Attn: Andrew S. Bogen
25. Choice of Law. The laws of the State of Indiana applicable to
contracts executed, delivered and to be fully performed in such State govern the
validity of this Agreement, the construction of its terms, and the
interpretation of the rights and duties of the parties.
26. Sections and Other Headings. Section, paragraph, and other headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
27. Counterpart Execution. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which,
together, shall constitute but one instrument.
28. Gender. All gender employed in this Agreement shall include all
genders, and the singular shall include the plural and the plural shall include
the singular whenever and as often as may be appropriate.
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<PAGE>
29. Parties in Interest. This Agreement shall be binding on and shall
inure to the benefit of, and be enforceable by, Seller, Shareholder and Buyer
and their respective successors and assigns. Buyer shall be entitled to assign
its rights under this Agreement and the Transaction Documents after the Closing.
Seller and the Shareholder may not assign this Agreement or any of their rights
hereunder without the prior consent of Buyer.
30. Entire Agreement. This Agreement including all Schedules and
Exhibits hereto, and all Transaction Documents constitute the entire agreement
between the parties hereto with respect to the subject matter hereof and there
are no agreements, understandings, restrictions, warranties, or representations
between the parties with respect to the subject matter hereof other than as set
forth herein or as herein provided.
31. Performance. In the event of a breach by Seller or Shareholder of
any of their respective 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 each of Seller and Shareholder
hereby waives the defense that there may be an adequate remedy at law.
32. Waiver, Discharge, Etc. This Agreement and the Transaction
Documents and the obligations hereunder and thereunder 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 or any Transaction
Document 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 such Transaction
Document, as the case may be, 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 or any Transaction Document shall be held to be a waiver of any
other or subsequent breach.
33. 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 or 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 purpose of this Agreement, and to vest in
Buyer good title to, possession of and control of all the Assets.
34. Joint and Several. Seller and the Shareholder shall be jointly and
severally liable for all representations, warranties and obligations, including,
without limitation, indemnification obligations, and covenants made by any of
them pursuant to this Agreement, including, without limitation, any made
pursuant to any Transaction Document. For all purposes of this Agreement, any
representation or warranty that is qualified to be "to the knowledge of Seller"
or by a requirement that Seller shall have received "notice" of any matter, or
any similar qualification shall be deemed to include the knowledge of the
Shareholder or notices to the Shareholder, as the case may be.
35. Independent Legal Counsel. Seller and Shareholder represent and
warrant that each party has had the opportunity to seek the advice of
independent legal counsel prior to signing this Agreement, and that the Buyer
has recommended to Seller and Shareholder that such party obtain legal counsel.
36. Drafting. Buyer's counsel has drafted this Agreement and the other
Transaction Documents as a matter of convenience for the parties hereto; and the
parties hereto have carefully reviewed and negotiated the terms of this
Agreement and the Transaction Documents; and accordingly any drafting errors,
ambiguities or inconsistencies shall not be interpreted against Buyer.
[SIGNATURES ON THE FOLLOWING PAGE]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first stated above.
IHS:
INTEGRATED HEALTH SERVICES,
INC.
By: /s/ MARK KOVINSKY
-------------------------------
Name: Mark A. Kovinsky
Title: Senior Vice President
BUYER:
INTEGRATED OF WESTCLIFF
PARK, INC.
By: /s/ MARK KOVINSKY
-------------------------------
Name: Mark A. Kovinsky
Title: Senior Vice President
SELLER:
INDIANA RESPIRATORY CARE, INC.
By: /s/ J. BARD BEESLEY
-------------------------------
Name: J. Bard Beesley
Title: President
SHAREHOLDER:
/s/ J. BARD BEESLEY
----------------------------------
J. Bard Beesley
[SHAREHOLDER'S SPOUSE]
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<PAGE>
STATE OF INDIANA
COUNTY OF MARION
The foregoing instrument was acknowledged before me by J. Bard Beesley,
as President and sole shareholder of Indiana Respiratory Care, Inc., a Indiana
corporation, and who is personally known to me; or has produced n.a. as
identification.
Nov. 18, 1998 /s/ Michael G. Ruppert
- ------------------------- ------------------------------
Date Notary Signature
Michael G. Ruppert
------------------------------
Notary Name Printed
My Commission Expires: 10/29/01
Resident of Marion County
STATE OF
COUNTY OF
The foregoing instrument was acknowledged before me by______________,
as spouse of Shareholder of Seller, an Indiana corporation, on behalf of the
corporation, and who is personally known to me; or has produced _______
__________________ as identification.
- ------------------------- ------------------------------
Date Notary Signature
------------------------------
Notary Name Printed
My Commission Expires:
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<PAGE>
SCHEDULES AND EXHIBITS
Schedule 1(a)(i) - Accounts Receivable
Schedule 1(a)(ii) - Inventory; Fixed Assets
Schedule 1(a)(iii) - Automobiles
Schedule 1(a)(iv) - Certain Medical Equipment
Schedule 1(a)(v)(B) - Other Assets
Schedule 1(a)(v)(C) - Telephone Numbers
Schedule 2(a) - Allocation of Purchase Price
Schedule 2(b)(iv) - Wire Instructions
Schedule 5(a) - Closing Date Liabilities
Schedule 5(b) - Unassumed Contracts
Schedule 11(c) - Seller's Opinion
Schedule 14(c) - Litigation
Schedule 14(g) - Contracts
Schedule 14(i) - Personnel Payrates; Employee Benefits
Schedule 14(k) - Insurance
Schedule 14(o) - Tax Returns and Financial Statements
Schedule 14(p) - Supplemental Tax Information
Schedule 14(q) - Adverse Business Developments
Schedule 14(r) - Relationships
Schedule 14(u) - Reimbursement Matters
Schedule 14(v) - Environmental Compliance
Schedule 17(a) - Locations
Exhibit 2(b)(i) - Escrow Agreement
Exhibit 2(b)(ii) - Payment Escrow Agreement
Exhibit 14(w) - Healthcare Questionnaire
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<PAGE>
SCHEDULE 1(A)(IV)
Equipment to Be Assumed and paid for by Buyer
QUANTITY ITEM NUMBER DESCRIPTION
10 265-25000-00 Assembly, 31LL Protege
(DF)(SB0115, SB0125,
SB0142, SB0146, SB0150,
SB0158, SB0167, SB0169,
SB0177, SB0178)
5 265-25020-00 Assembly, NPB Portable
(PB0285, PB0330,
PB0385, PB0422,
PB0437)
5 265025021-00 Assembly, Care Portable
(PB0170, PBO171,
PBO178
10 265025015-00 Assembly, Roller Base
10 265025006-00 Assembly FCV 0-6
L.P.M.
10 505 Alliance Concentrator with
OPI (50543109-
50543118)
10 0781-3007 O.C.P.R. Assembly
(CGA87)
10 1421-0064 Cantera Style Carrying Case
40 0916-0165 (HAX) CYLAL "M6"
OXY PO
10 970S SMARTMONITOR -
Enhanced Memory
(B80320, B80328,
B80422, B80488, B80735,
B80822, B80836, B91001,
B81012, B81069)
10 505 Alliance Concentrator with OPI, DOM/INT
(50543654, 50543655,
50543682-50543689)
<PAGE>
Equipment Lease dated as of September 10, 1998 between Respironics and Indiana
Respiratory Care, Inc. regarding the following equipment to be assumed and
paid for by Buyer:
12 B-778966-00 31LL Side Fill
12 B-778966-00 31LL Side Fill
15 B-775099-00 C100
15 B-776090-00 Rollerbases
3 B0775910-00 C21
Equipment Lease, undated between Respironics and Indiana Respiratory Care,
regarding the following equipment to be assumed and paid for by Buyer:
10 701296-00 C41 Dual Fills
10 778965-00 31LL
2 701295-00 C31 Dual Fills
22 776090-00 Rollerbases
Equipment to be assumed and paid for by Buyer, with reimbursement by Seller in
the amount of $5,105.64.
QUANTITY ITEM NUMBER DESCRIPTION
12 7300 Tranquility Quest
(73080576, 73080582,
73080584, 73080616,
73080642, 73080720,
73080725, 7308060,
73080866, 73080888,
730889, 73080899)
12 7025-20 Mask, Med-Nar
24 100-0078-10 Air Inlet Filler
12 7800 CPAP Passover Humidifier
4 622093 Virtuoso LX Deluxe
N.A.M. (608223, 608250,
6-8260, 608300)
<PAGE>
4 302328 Simple Strap
4 532116 Aria/Virtuosso/Solo Carry
Case
2 622093 Virtuoso LX Deluxe
N.A.M. (608013, 608016)
2 532116 Aria/Virtuoso/Solo Carry
Case
2 302328 Simple Strap
5 622093 Virtuoso LX Deluxe
N.A.M. (608571, 608578,
608618, 608620, 608630)
1 622093 Virtuoso LX Deluxe
N.A.M. (608303)
6 532116 Aria/Virtuoso/Solo Carry
Case
3 1700 Tranquillity Bi-Level
System (17011268,
17011271, 17011275)
<PAGE>
EXHIBIT
OPERATING PROFIT
1. General Standards.
(a) Performance. Except as otherwise expressly agreed in
writing, the parties intend that the financial and economic performance to be
determined and measured pursuant to this Exhibit "A" shall be determined solely
with respect to so much of the business operations of Corporation as consists of
the business enterprise previously conducted by the Acquired Entity (the
"ACQUIRED ENTERPRISE") before being acquired by Corporation. Accordingly, all
references herein to revenues, expenses, costs, profits, losses, and any other
transaction or activity, whether by reference to "Corporation", or in any other
manner, shall mean and refer only to so much thereof as pertains directly to the
Acquired Enterprise, unless such reference specifically provides otherwise. The
parties expressly intend all such calculations to provide a determination of the
profitability of the Acquired Enterprise, determined as if such Acquired
Enterprise at all times operated as an autonomous entity.
(b) Determination of Operating Profit. The Operating Profit to
be determined hereunder shall be calculated on a pre-tax basis in accordance
with generally accepted accounting principles, consistently applied ("GAAP"), as
further defined, limited, or explained as set forth herein.
2. Income and Cost.
(a) Income and Revenue. Income shall be accounted for on the
accrual method consistent with the prior accounting methods of the Acquired
Enterprise, and shall consist of all direct revenues, defined as all "Rental
Revenue" and "Sales Revenue", plus or minus the net change in unbilled revenue,
plus or minus gain or loss from equipment sales, plus or minus sales credits and
allowances, plus investment income.
(b) Costs and Expenses. Costs shall include the following:
(1) DIRECT EXPENSES incurred on behalf of Corporation as
kept on the accrual method, including salary paid to the Employee and related
payroll taxes.
(2) BAD DEBT expenses shall be the actual bad debts
written off, plus or minus the change in allowance for bad debts. For the
purpose of this calculation, the allowance for bad debts is considered equal to
the amount of all accounts receivable in excess of 120 days old.
(3) REASONABLE TRAVEL EXPENSES of employees or
representatives of ROTECH MEDICAL CORPORATION ("ROTECH") to and from its
corporate offices on behalf of Corporation's matters, to be allocated on a
reasonable basis.
(4) INTEREST on all or any net intercorporate borrowing
from Integrated Health Services, Inc. ("IHS") at the cost of such funds to IHS.
(5) GROUP OR CONSOLIDATED PURCHASES for items benefitting
the Acquired Enterprise purchased by IHS, RoTech or by Corporation, to be
allocated at actual cost in accordance with usage. Costs to be allocated include
costs, if any, of transportation, storage, etc.
(6) DEPRECIATION EXPENSES will be calculated on a
consistent basis as previously and historically calculated by the Acquired
Enterprise.
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(7) CORPORATION'S OVERHEAD. The general, administrative,
and overhead costs of Corporation, to the extent allocable to the Acquired
Enterprise on a reasonable basis.
(c) Excluded Items. Costs and expenses for purposes of
calculating operating profits shall not include the following:
(1) BRANCH OFFICES. All start-up costs, operating profits,
and operating losses incurred by Corporation in the initial six (6) months on
the start-up, opening, or operation of a branch office or location opened after
the date hereof shall be excluded from calculations of Operating Profits for
purposes of this Agreement.
(2) IHS/ROTECH OVERHEAD. Unless otherwise mutually agreed
by Corporation and Employee, IHS and RoTech corporate overhead or costs will not
be allocated to Corporation or considered in Operating Profits.
(3) COSTS OF ACQUIRING THE ACQUIRED ENTERPRISE. The
calculation of Operating Profits will not include cost or amortization of costs
incurred in the acquisition of the Acquired Enterprise, and any liabilities
assumed by RoTech and subsequently paid off, which will be included in the
intercorporate borrowings in paragraph 2(b)(4), above.
(d) Acquisition of Enterprises. Nothing contained herein shall
be deemed to affect, limit or restrict the right of RoTech or IHS to make any
acquisitions.
3. Consultation and Advice. So long as employed by Corporation,
Employee shall consult with and advise Corporation and RoTech regarding the
Acquired Enterprise, including reviewing, advising on, and general control of
operations, expansion matters, and including marketing and cost control.
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EXHIBIT 2.4
AGREEMENT FOR SALE AND PURCHASE OF ASSETS
AND RESTRICTIVE COVENANTS
THIS AGREEMENT is made as of 9/1, 1998, by and among PINNACLE HEALTH
CARE, INC. a Florida corporation, having its principal place of business at 3121
West Hallandale Beach Boulevard, Suite 110, Hallandale, Florida 33009 (the
"SELLER" or the "CORPORATION"), BRAD LEVINE, RICHARD R. RIZZO, HAROLD WINTERS,
AND DOUG SHIRLEY, all the shareholders of Seller (the "SHAREHOLDERS"), and
ROTECH OXYGEN AND MEDICAL EQUIPMENT, INC., a Florida corporation (the "BUYER").
W I T N E S S E T H :
WHEREAS, Seller operates a home respiratory care and durable medical
equipment business in the State of Florida (the "BUSINESS"); and
WHEREAS, Shareholders are the shareholders of the Seller; and
WHEREAS, Seller wishes to sell, and Buyer desires to purchase from
Seller, substantially all of the assets of the Business; and Buyer also desires
to acquire from Seller and Shareholders, and each of Seller and Shareholders
desire to grant to Buyer, covenants not to compete and other restrictive
covenants as described in paragraph 15 hereof (the "RESTRICTIVE COVENANTS"); and
WHEREAS, the consent or approval of all persons necessary for the
consummation of the transactions contemplated hereby has been obtained,
including without limitation, all approvals of governmental authorities and
parties to any contracts to be assigned to Buyer in connection herewith.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is hereby agreed as follows:
1. Sale of Assets and Restrictive Covenants.
(a) The Assets. As of the Effective Date referred to below in
paragraph 7, Seller shall be deemed to have sold, transferred, conveyed and
assigned, free and clear of all liens, claims, security interests, pledges,
restrictions on transfer or use and other encumbrances of any kind or nature
whatsoever ("LIENS"), all of Seller' rights, title and interest in, to or under:
(i) Inventory; Fixed Assets. All inventory and fixed assets of
the Business, including, without limitation, all of the same set forth
on the Schedule of Inventory and Fixed Assets attached hereto as
Schedule 1(a)(i); and
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(ii) THIS SPACE INTENTIONALLY LEFT BLANK; and
(iii) Other Assets. All other assets of any kind, tangible or
intangible, real, personal or mixed, owned and used or held for use by
Seller in connection with the Business, including, without limitation,
all of the following: (A) the Patients' List of the Business, as
described in Schedule 1(a)(iii)(A); (B) any and all rights Seller has
in the telephone numbers listed on the Schedule of Telephone Numbers
and Licenses attached hereto as Schedule 1(a)(iii)(B); (C) all personal
property, machinery and equipment, except for trucks and other vehicles
leased by the Seller and more fully set forth on Schedule 1(b); (D)
THIS SPACE INTENTIONALLY LEFT BLANK; (E) rights under contracts,
agreements, including, without limitation, franchise agreements, and
instruments; (F) any leased Assets used in the operation of the
Business, but not owned by the Seller prior to the Closing but which
will be paid off and owned by Seller immediately prior to Closing as
set forth on Schedule 1(a)(iii)(F); and (G) all intangible rights of
Seller of every kind and description used in, or held for use in
connection with, the operation of the Business, including, without
limitation, all intangible assets, and to the extent permitted by
applicable law, all licenses, permits and authorizations.
(b) Excluded Assets.
(i) Notwithstanding the foregoing, the Assets shall not
include, and Seller shall not be deemed to have sold, transferred,
conveyed or assigned the following assets to Buyer: Seller's lease for
the Premises, cash, accounts receivable, Certificate of Incorporation,
qualification to do business in any jurisdiction, taxpayer
identification number, minute books, stock transfer records and other
documents related specifically to Seller's corporate organization and
maintenance and the items set forth on Schedule 1(b) attached hereto
(collectively, "EXCLUDED ASSETS").
(ii) The Buyer hereby acknowledges that all accounts receivable
up until the Closing Date shall be the property of Seller who shall
have sole responsibility for collecting same. At Closing, Seller shall
provide Buyer with a list of accounts receivable and the amounts owing
Seller. However, should any accounts receivable be paid to Buyer after
the departure of Seller, Buyer shall, within thirty (30) business days
of receipt of payment, promptly pay over to the Paying Agent, on behalf
of the Seller the amount for accounts receivable incurred prior to the
Closing Date along with a copy of the invoice or other documentation
which Buyer shall have or receive with respect to the payment being
made. Any default or failure by Buyer to promptly pay over accounts
receivable belonging to Seller, shall constitute a default under the
terms of this Agreement, and shall entitle Seller to all the remedies
set forth herein, including the indemnification provisions set forth in
paragraph 16. This paragraph shall survive the execution, delivery and
closing of this Agreement.
(c) Restrictive Covenants. Pursuant to paragraph 15 hereof,
the Seller and each Shareholder is granting to Buyer the Restrictive Covenants.
2. Purchase Price; Method of Payment.
(a) Purchase Price. The aggregate "PURCHASE PRICE" for the Assets
and the Restrictive Covenants shall be Two Hundred Twenty Three Thousand Dollars
($223,000). The Purchase Price shall be allocated among the Assets and the
Restrictive Covenants in the manner set forth on the Allocation Schedule
attached hereto as Schedule 2(a), and the parties hereto expressly consent to
the allocation stated therein.
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(b) Method of Payment. At the Closing (as defined in paragraph 7),
Buyer shall pay, disburse, and deliver the Purchase Price as follows:
(i) Twenty-Two Thousand Dollars ($22,000) thereof (the "GENERAL
ESCROW AMOUNT" or "ESCROW FUND") (the General Escrow Amount, and all
accrued interest thereon shall be referred to as the "ESCROW FUND")
shall be paid and delivered to Crestar Bank as escrow agent ("ESCROW
AGENT"), to be held by Escrow Agent during the Escrow Period (as
defined in paragraph 5(d), below) pursuant to the terms of an Escrow
Agreement, in the form attached hereto as Exhibit 2(b)(i) (the "ESCROW
AGREEMENT"). The entire Escrow Fund shall be subject to the provisions
of paragraphs 5 and 16 hereof.
(ii) One Hundred and Four Thousand Dollars ($104,000) in cash,
the approximate amount necessary to payoff all the creditors and
liabilities of Seller set forth on Schedule 4(a), shall be delivered by
wired funds to Neimark & Nadel, P.A. Trust Account, at the account
number as set forth on the Schedule of Wire Instructions attached
hereto as Schedule 2(b)(iii), to be held and administered by Neimark &
Nadel, P.A. (hereinafter referred to as the "PAYING AGENT"), pursuant
to the "PAYMENT ESCROW AGREEMENT" attached hereto as Exhibit 2(b)(ii)
with any remaining balance to be distributed by the Paying Agent to the
Shareholders; and
(iii) Ninety-Seven Thousand Dollars ($97,000) in cash (the
balance of the Purchase Price) shall be delivered to Neimark & Nadel,
P.A. Trust Account by wired funds to Neimark & Nadel, P.A. account
number as set forth on the Schedule of Wire Instructions attached
hereto as Schedule 2(b)(iii).
3. Indemnity Against Creditors Claims; No Assumption of Liabilities.
Seller has requested that Buyer waive the requirements of the bulk sales and
transfer laws of the State of Florida. Seller and Shareholders agree to
indemnify Buyer and save and hold Buyer harmless against all Damages (as defined
in paragraph 16(c)) arising out of any claims made by creditors (including,
without limitation, any Federal, state or local taxing authority) of Seller that
relate to the Business, or that arise out of the failure to comply with any of
such laws.
4. Closing Date Liabilities.
(a) Seller and Shareholders represent and warrant that, to the best
of Seller's and Shareholders' knowledge and belief after diligent inquiry, all
of Seller's liabilities, as of the Closing Date are listed on the Schedule of
Liabilities attached hereto as Schedule 4(a) the "LISTED LIABILITIES"). For
purposes of this Agreement "LIABILITIES" shall mean and include all claims,
lawsuits, liabilities, obligations or debts 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, whether or not asserted as of the date hereof, 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, any liabilities
relating to any Excluded Assets, malpractice or other tort claims, claims for
breach of contract, any claims of any kind asserted by patients, former
patients, employees and former employees of Seller or any other party that are
based on acts or omissions by Seller occurring on or before the Closing Date,
amounts due or that may become due in connection with the participation of
Seller in the Medicare or Medicaid programs or due to any other health care
reimbursement or
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payment intermediary, or that may be due by Seller to any other third party
payor, accounts payable, notes payable, trade payables, lease obligations,
indebtedness for borrowed money, accrued interest, and contractual obligations.
Seller and Shareholders acknowledge that the Purchase Price for the Assets is
based on the accuracy of Seller's and Shareholders' representations and
warranties contained in this Agreement, including, but not limited to, Seller's
and Shareholders' representations and warranties contained in this paragraph
4(a). Without limiting the generality of the foregoing, Buyer will not assume
any, and Seller shall remain liable for each, liability of Seller arising out of
any facts, circumstances, matters or occurrences existing on or prior to the
Closing Date (whether or not known) ("CLOSING DATE LIABILITIES").
(b) Without limiting the generality of the provisions of
subparagraph (a) above, Buyer shall not assume the Contracts (as hereinafter
defined in paragraph 12(b)), if any, set forth on Schedule 4(b), or any
liabilities with respect thereto, and shall not, in any case, assume any
liabilities under any Contracts (whether or not such Contracts are assumed by
Buyer) to the extent such liabilities arise out of facts or circumstances in
existence, or obligations to be satisfied, on or prior to the Closing Date.
5. Right of Offset Against the Escrow Fund.
(a) Event of Deficiency. If:
(i) Buyer pays for any Closing Date Liabilities, Buyer shall be
entitled to be indemnified for any Damages pursuant to the terms of
this Agreement from the Escrow Fund ("INDEMNIFICATION CLAIMS", and
together with any Liabilities Deficiencies (as defined below),
collectively "CLAIMS" and each, a "CLAIM"); and
(ii) In the event Buyer is not indemnified pursuant to the
terms of this Agreement from the Escrow Fund, the Seller and
Shareholders (other than Harold Winters) shall jointly and severally
reimburse Buyer for such payment (a "LIABILITIES DEFICIENCY").
As a prerequisite to either of the events set forth in paragraph
5(a)(i) or (ii) occurring, Buyer shall be required to provide written notice to
Seller and each of the Shareholders (except Harold Winters) of the Claim within
ten (10) business days of receipt of the Claim, along with any and all
information which Buyer has with respect to the Claim, in which case Buyer shall
be entitled to recover the amount of such Claim in accordance with the following
procedure.
(b) Procedure if Seller Fails to Pay. If Seller fails to pay any
Claim in full to Buyer or to claimant, as applicable, within ten (10) days from
the receipt of such written notice from Buyer (said ten (10) day period
hereinafter referred to as the "NOTICE PERIOD"), Buyer shall have the right to
make offset against the Escrow Fund, in accordance with the terms and conditions
of the Escrow Agreement, in amounts from time to time equal to the amount of
such Claim (subject, however, in the case of a "DISPUTE", to the provisions of
paragraph 16 hereof applicable thereto), and Seller agrees to any such offset.
Buyer shall be required to initially proceed against the Escrow Fund, but in the
event the Escrow Fund is insufficient to pay the Claim in full, Buyer shall be
entitled to pursue any other rights or remedies that it may have under this
Agreement, in law, equity or otherwise.
(c) Escrow Costs. The fees of the Escrow Agent shall be borne fifty
percent (50%) by Buyer and fifty (50%) by Seller.
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(d) Escrow Period.
(i) The "ESCROW PERIOD" shall terminate three hundred
sixty-five (365) days following the Closing Date.
(ii) The balance, if any, of the Escrow Fund, including any
interest earned thereon, remaining at the close of business on the last day of
the Escrow Period, shall be disbursed to the Paying Agent on behalf of the
Seller pursuant to the provisions of paragraph 2(b)(iii) within fifteen (15)
days after the last day of the Escrow Period.
(iii) Notwithstanding anything to the contrary contained in
this subparagraph (d), if any Claim made by Buyer is in dispute at the time that
any amounts are otherwise to be disbursed to Seller, then there shall be
withheld from such amount to be disbursed and there shall be retained in the
Escrow Fund, an amount such that there will be remaining in the Escrow Fund at
least 1.5 times the amount of the Claim asserted by Buyer until the final
settlement of such Claim or Claims.
(iv) Any interest accruing on any portion of the Escrow Fund
shall be paid to the party receiving such portion of the Escrow Fund.
6. Employees. 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 of the Seller, although Buyer shall have the right
to offer employment to any such employees. Seller shall remain fully responsible
for any severance, benefits, costs or liabilities arising out of the termination
by Seller of any of its employees, all of which liabilities shall constitute
Closing Date Liabilities. Seller shall also remain fully responsible for any
benefits, costs or liabilities incurred or accrued prior to Closing with respect
to each employee retained by Buyer.
7. Closing Date. The consummation of the transactions contemplated by
this Agreement is sometimes referred to as the "CLOSING", and the date on which
such consummation occurs, including, without limitation, the execution and
delivery of this Agreement by each of the parties hereto, is sometimes referred
to as the "CLOSING DATE". The closing date (the "CLOSING DATE") for the
transaction contemplated under this Agreement will be 9/1, 1998.
8. Asset Condition and Quality. Seller and Shareholders, jointly and
severally, represent, warrant and covenant that, as of the Closing Date, to the
best of their knowledge, all physical Assets of Seller being sold to the Buyer
are free of defects and are in good working order, condition and repair, except
for ordinary wear and tear, and conform in all material respects with all
applicable ordinances, regulations, zoning and other laws. Notwithstanding the
aforementioned, Buyer hereby acknowledges that Buyer is acquiring all of the
Seller's physical Assets in "As Is" condition with no warranties of
merchantability of fitness for any particular purpose.
9. Instruments of Conveyance and Transfer. At the Closing:
(a) Seller will deliver to Buyer such bills of sale, assignments,
and other good and sufficient instruments of conveyance and transfer in form
sufficient to sell, assign and transfer the Assets to Buyer as of the Closing
Date, with such documents containing full warranties of title, and which
documents shall be effective to vest in Buyer good, absolute, and marketable
title to the Assets of the Business being transferred to Buyer by Seller, free
and clear of all Liens.
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(b) Simultaneously with such delivery, Seller will take all steps
as may be requisite to put Buyer in actual possession, operation and control of
the Assets to be transferred hereunder.
(c) Seller will deliver to Buyer an opinion, dated the Closing
Date, of its counsel, in substantially the form attached hereto as Exhibit 9(c).
(d) Seller will deliver a certificate of its Secretary or other
officer certifying as of the Closing Date a copy of resolutions of its board of
directors and, if applicable, its stockholders, authorizing the execution,
delivery and full performance of this Agreement and the Transaction Documents
(as defined in paragraph 12(a) below), and the incumbency of its officers.
10. Sales and Transfer Taxes; Fees. All applicable sales, transfer,
use, filing and other taxes and fees that may be due or payable as a result of
the conveyance, assignment, transfer or delivery of the Assets of the Business
to be conveyed and transferred as provided herein, whether levied on Seller or
Buyer, shall be borne by Seller.
11. Restrictions on Operations of Seller. Seller and Shareholders,
jointly and severally, represent, warrant and covenant that, except as expressly
disclosed on Schedules hereto, since the most recent Financial Statement Date
referred to in paragraph 12(o) below, through the Closing Date, there has been
no material adverse change in the condition (financial or otherwise) of the
Seller or the Business, and Seller has not:
(i) sold, assigned or transferred any Assets, except in the
ordinary course of business, consistent with past practice;
(ii) subjected any Assets to any Liens;
(iii) entered into any contract or transaction binding the
Business other than contracts or transactions entered into in the ordinary
course of business, consistent with past practice;
(iv) incurred any liabilities or indebtedness other than in the
ordinary course of business, consistent with past practice;
(v) except in the ordinary course of business, consistent with
past practice, or otherwise to comply with any applicable minimum wage law, paid
any bonuses, 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;
(vi) 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 Corporation or the Assets;
(vii) failed to collect any accounts receivable in the ordinary
course of business, consistent with past practice;
(viii) changed any of the accounting principles followed by it or
the methods of applying such principles;
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(ix) 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
(x) 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 of its
affiliates except for payments of compensation in the ordinary course of
business, consistent with past practice and disclosed to Buyer as such;
(xi) instituted, settled or agreed to settle any litigation,
action or proceeding before any Governmental Authority (as such term in defined
in paragraph 12(d) below) relating to it or its property or received any threat
thereof; or
(xii) entered into any material transaction other than in the
ordinary course of business, consistent with past practice.
12. Representations and Warranties by Seller and Shareholders. As a
material inducement to Buyer to execute and perform its obligations under this
Agreement, Seller and Shareholders hereby, jointly and severally, represent and
warrant to Buyer (it being understood that for purposes of this paragraph 12,
Harold Winters only represents and warrants to Buyer to the best of his
knowledge) as follows as of the Closing Date:
(a) Organization of Seller; Enforceability.
(i) Seller is a corporation, organized, and in good standing in
the State of Florida, and has requisite corporate power and authority to carry
on its Business as presently being conducted, to enter into this Agreement, and
to carry out and perform the terms and provisions of this Agreement. Each of
this Agreement and each agreement, instrument, certificate and document in
connection with this Agreement or the transactions contemplated hereby
("TRANSACTION DOCUMENTS") constitutes the legal, valid and binding obligations
of Seller, enforceable against it in accordance with its respective terms.
Seller does not have any subsidiaries.
(ii) This Agreement and each Transaction Document to which each
Shareholder is a party constitutes the legal, valid and binding obligations of
such Shareholder, enforceable against such Shareholder in accordance with its
terms.
(b) Consents. No authorization, consent, approval, license,
exemption by, filing or registration with any Governmental Authority or of any
party to any contract, agreement, instrument, commitment, lease, indenture or
understanding (written, oral or implied) by which Seller or any of the Assets is
bound ("CONTRACTS") or by which any Shareholder or any Shareholder's assets is
bound ("SHAREHOLDER CONTRACTS") is necessary in connection with the execution,
delivery and performance of this Agreement or any of the Transaction Documents
by Seller or any Shareholder.
(c) Litigation. Except as set forth on Schedule 12(c), to the best
of Seller's knowledge, there are no actions, suits or proceedings affecting
Seller or any of the Assets which are pending or threatened against Seller or
affecting any of its properties or rights, at law or in equity, or before any
Governmental Authority (as hereinafter defined), nor is Seller or any of its
respective officers or directors or any Shareholder
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aware of any facts which to them or their knowledge might reasonably be expected
to result in any such action, suit or proceeding.
(d) Compliance with Laws and Contracts. Seller is not in violation
of, or in default under: any term or provision of its Articles of Incorporation
or By-Laws; or any judgment, order, writ, injunction, decree, statute, law,
rule, regulation, directive, mandate, ordinance or guideline ("GOVERNMENTAL
REQUIREMENTS") of any Federal, state, local or other governmental or
quasi-governmental agency, bureau, board, council, administrator, court,
arbitrator, commission, department, instrumentality ("GOVERNMENTAL
AUTHORITIES"); or of any Contract. The execution and delivery by Seller and
Shareholders of, and the performance and compliance by each of them with this
Agreement, and the Transaction Documents and the transactions contemplated
hereby and thereby, does not and will not result in the violation of or conflict
with or constitute a default under any such term or provision or result in the
creation of any Lien on any of the properties or assets of Seller or any
Shareholder pursuant to any such term or provision or any term or provision of
any Governmental Requirement by which any Shareholder is bound or of any
Shareholder Contract.
(e) Corporate Acts and Proceedings. The execution, delivery and
performance of this Agreement and each of the Transaction Documents, and the
transactions contemplated hereby and thereby, including the sale and transfer of
the Assets by Seller as provided for in this Agreement, have been approved and
consented to by the Board of Directors of Seller and, if applicable, by the
requisite number of holders of its outstanding capital stock, and all action
required by any applicable Governmental Requirement by the stockholders of
Seller with regard thereto have been appropriately authorized and accomplished.
(f) Title to Assets. Seller has good and indefeasible title to all
of the Assets, free and clear of all Liens.
(g) Contracts. Set forth on Schedule 12(g) hereto is a list of all
material Contracts of Seller including, without limitation, each:
(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, or agent or group
of employees, or any non-competition, non-solicitation, confidentiality or
similar agreement with any such person or persons;
(ii) contract, agreement or arrangement for the acquisition or
disposition of any assets, property or rights outside the ordinary course of
business or requiring the consent of any party to the transfer and assignment of
any such assets, property or rights (by purchase or sale of assets, purchase or
sale of stock, merger or otherwise), that is executory or that was entered into
during the three (3) year period ending on the date hereof;
(iii) contract, agreement or commitment which contains any
provisions requiring the Seller or the Business to indemnify or act for any
other person or entity or to guaranty or act as surety for any other person or
entity;
(iv) contract, agreement or commitment restricting the Seller
or the Business from, or in favor of either of the Seller or the Business 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;
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(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;
(vii) contract, agreement or arrangement granting a leasehold
or other interest in real property, including without limitation, subleases,
licenses and sublicenses (the "LEASES");
(viii) 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 Seller or the Business
not covered by clause (i) above;
(ix) agreement, consent order, plea bargain, settlement or
stipulation or similar arrangement with any Governmental Authority;
(x) agreement with respect to the settlement of any litigation
or other proceeding with any third person or entity;
(xi) agreement relating to the ownership, transfer, voting or
exercise of other rights with respect to any equity in the Seller, or any other
entity, including without limitation, registration rights agreements, voting
trust agreements and shareholder and proxy agreements;
(xii) contract, agreement or commitment to provide services or
products, or
(xiii) agreement not made in the ordinary and normal course of
business and consistent with past practice, or involving consideration in excess
of $25,000 in each case, that is not set forth in subsections (i) through (xii)
above.
To the best of Seller's and Shareholders' knowledge, no party to any
Contract other than Seller is in default under any Contract. Seller has
delivered to Buyer true and complete copies of each written Contract (or a
description of each oral Contract) requested by Buyer.
(h) Brokers. No broker or finder has acted for Seller in connection
with the transactions contemplated by this Agreement, and no broker or finder is
entitled to any broker's or finder's fee or other commission in respect thereof
based in any way on agreements, understandings or arrangements with Seller.
(i) Employment Contracts; Employees. There are no Contracts of
employment between Seller and any officer or other employee of the Business,
except as set forth on Schedule 12(g)(i) above. The name, position, current rate
of compensation and any vacation or holiday pay, sick pay, personal leave,
severance and any other compensation arrangements or fringe benefits, of each
current employee, sales representative, consultant and agent of the Seller,
contained on the Schedule of Personnel Payrates and Advances attached hereto as
Schedule 12(i) is accurate and complete. No employee, consultant or agent of the
Seller has any vested or unvested retirement benefits or other termination
benefits, except as described on Schedule 12(i). Since the date that is two (2)
years prior to the Closing Date, there has been no material adverse change in
the relationship between the Seller and its 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. No
employees of the Seller are represented by any labor union or similar
organization in connection with their employment by or
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relationship with, Seller, and to the knowledge of the Seller and Shareholder,
there are no pending or threatened activities the purpose of which is to achieve
such representation of all or some of such employees, and there are no threats
of strikes, work stoppages or pending grievances by any such employees. Seller
is not party to any collective bargaining or other labor contracts.
(j) Employee Benefit Plans. Seller has no pension, bonus,
profit-sharing, or retirement plans for officers or employees of the Business,
nor is Seller required to contribute to any such plan. Without limiting the
generality of the foregoing, Seller 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 the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or to any
multi-employer plan subject to the terms of the Multi-Employer Pension Plan
Amendment Act of 1980 (the "MULTI-EMPLOYER ACT").
(k) Insurance. All inventories, buildings and fixed assets
owned or leased by the Seller are and will be adequately insured against fire
and other casualty through the Closing Date. The information contained on the
Schedule of Insurance Policies, attached hereto as Schedule 12(k), is accurate
and complete. Schedule 12(k) also sets forth any claims made under any of the
insurance policies referred to above or increases in premiums therefore during
the past two years. True and complete copies of all policies of fire, liability
and other forms of insurance held or owned by the Seller or otherwise in force
and providing coverage for the Business or any of the Assets (including but not
limited to medical malpractice insurance, and any state sponsored plan or
program for worker's compensation) have been delivered to Buyer. Such policies
are owned by and payable solely to the Seller, and said policies or renewals or
replacements thereof will be outstanding and duly in force at the Closing Date,
and all premiums due on or before the Closing Date in respect thereof have been
paid. Seller purchased title insurance as set forth on Schedule 12(k).
(l) Disclosure. No representation or warranty by Seller or any
Shareholder in this Agreement or in any Transaction Document, contains any
untrue statement of material fact or omits to state any material fact, of which
any Shareholder or Seller or any of its officers, directors or stockholders has
knowledge or notice, required to make the statements herein or therein contained
not misleading.
(m) Officers, Directors and Shareholders of Seller. As of the
Closing Date, the Shareholders are the sole shareholders of Seller and the
following individuals are all of the officers and directors of Seller:
Name Office/Position
---- ---------------
Doug Shirley President, Secretary
(n) Inventory and Fixed Assets. The information contained on
the Schedule of Inventory and Fixed Assets as of the most recent Financial
Statement Date, attached hereto as Schedule 1(a)(i), is accurate and complete.
(o) Tax Returns and Financial Statements. Seller has furnished
Buyer with its tax returns (the "TAX RETURNS") for the periods ended December
31, 1996 and December 31, 1997, and has furnished Buyer with its financial
statements (the "FINANCIAL STATEMENTS") for the periods ended December 31, 1996,
December 31, 1997 and the interim period ending April 30, 1998 (the "FINANCIAL
STATEMENT DATES"), copies of which are attached hereto as Schedule 12(o). The
Financial Statements: (i) are in accordance with the books and records of the
Seller; (ii) fairly present the financial condition of the Seller at such date
and the results of its operations
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for the periods specified; (iii) were prepared in accordance with GAAP applied
on a basis consistent with prior accounting periods; (iv) with respect to all
Contracts of the Seller, reflect adequate reserves for all reasonably
anticipated losses and costs in excess of anticipated income; and (v) with
respect to any balance sheets, disclose all of the liabilities of the Seller at
the Financial Statement Dates and include the appropriate reserves for all taxes
and other accrued liabilities, except that certain contingent liabilities, if
not disclosed on such balance sheets, shall be considered to be disclosed
pursuant to this subparagraph, if expressly disclosed on an Schedule to this
Agreement. 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,
consistent with past practice, except as expressly specified therein, and such
Financial Statements include all adjustments, which consist only of normal
recurring accruals, necessary for such fair presentation.
(p) Supplemental Tax Information. Seller has furnished Buyer
with its most recent (i) tax registration certificates, and (ii) tax returns
required of it by the federal government and each state or other locality in
which it conducts business, which tax returns in all instances where applicable
include, but shall not be limited to franchise taxes, federal, state and local
tangible personal property tax returns, and federal, state and local sales tax
returns, which registration certificates and tax returns are set forth,
collectively, on the Schedule of Supplemental Tax Information, attached hereto
as Schedule 12(p).
(q) Adverse Business Developments. No notice has been received
by Seller or any Shareholder of any new or substantially expanded firm or
individual engaged in a business directly competitive to Seller in its primary
service area within six (6) months before the date hereof. Neither Seller nor
any Shareholder has received, either orally or in writing, any notice specific
to it of pending or threatened adverse action with respect to any Medicare,
Medicaid, private insurance or third party payor reimbursement method, practice
or allowance as to any business activity engaged in by Seller, nor has Seller or
any Shareholder received, or been threatened with, any claim for refund specific
to it in excess of $500.00 by a Medicare or Medicaid carrier, except as
disclosed in the Schedule of Proceedings attached hereto as Schedule 12(q).
(r) Relationships. Except as disclosed on Schedule 12(r),
neither Seller, its officers, directors and employees, nor any Shareholder and
no member of any of their respective immediate families, 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. No
Affiliate of Seller or any Shareholder is guaranteeing any obligations of the
Seller.
(s) Assets Comprising the Business. The Assets are all of the
tangible and intangible properties (real, personal and mixed), including,
without limitation, all licenses, intellectual property, permits and
authorizations, and contracts that are necessary or material to the operation of
the Business as now operated. The quantities of inventory and supply items
included in the Assets are reasonable in light of the present and anticipated
volume of the Business of the Seller in the ordinary course of the business of
the Seller, consistent with past practice, as determined by the Seller in good
faith and consistent with past practice.
(t) Questionable Payments. Seller has not, and to the knowledge
of the Seller and Shareholders, none of their Affiliates or employees have
offered, 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.
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(u) Reimbursement Matters. Seller, to the extent necessary to
conduct its business in a manner consistent with past practice, is qualified for
participation in the Medicare and Medicaid programs. Except as disclosed on
Schedule 12(u), (i) Seller and Shareholders have not received any notice of
denial or recoupment from the Medicare or Medicaid programs, or any other third
party reimbursement source (inclusive of managed care organizations) with
respect to products or services provided by it, (ii) to Seller's and
Shareholders' knowledge, there is no basis for the assertion after the Closing
Date of any such denial or recoupment claim, and (iii) Seller and Shareholders
have 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 with respect to, or arising
out of, products or services provided by Seller or otherwise, and to the
knowledge of Seller and Shareholders, no such investigation or survey is
pending, threatened or imminent.
(v) THIS PARAGRAPH INTENTIONALLY LEFT BLANK.
(w) Questionnaires. The healthcare law questionnaire heretofore
delivered to the Seller by Buyer attached hereto as Exhibit 12(w) (the
"QUESTIONNAIRE") 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.
13. Representations and Warranties of Buyer. Buyer represents
and warrants to Seller and Shareholders that:
(a) Due Organization. Buyer is a duly organized, valid
corporation under the laws of the State of Florida.
(b) Due Authority. Buyer is duly authorized by law and
corporate policy and approval to: (i) enter into this Agreement and each
Transaction Document; (ii) make all warranties and representations made by Buyer
herein; and (iii) deliver all consideration provided for under the terms hereof.
(c) Binding Authority. All signatories and agents designated as
agents/officers for Buyer for signing purposes have the authority to bind Buyer
to the terms of this Agreement.
(d) Cash Payment Authority. Buyer has the authority to cause
the cash payment of the Purchase Price to be delivered in accordance with the
terms of this Agreement.
(e) Brokers. No broker or finder has acted for the Buyer in
connection with the transactions contemplated by this Agreement, and no broker
or finder is entitled to any broker's or finder's fee or other commission in
respect thereof based in any way on agreements, understandings or arrangements
with the Buyer.
14. Survival of Representations and Warranties. The representations
and warranties of Seller, Shareholders, and Buyer contained in or made pursuant
to this Agreement shall survive the execution of this Agreement.
15. Restrictive Covenants.
(a) Non-Compete. Seller and Shareholders hereby agree that
until the fifth (5th) anniversary of the Closing Date (the "RESTRICTED PERIOD"),
it or he will not, directly or indirectly, own, manage,
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operate, join, control or participate, or have a proprietary interest in, the
ownership, management, operation or control, of or be connected with, in any
manner, any home health care business that provides services or products within
fifty (50) miles of any location set forth on the Schedule of Locations attached
hereto as Schedule 15(a).
(b) Confidential Information. Certain confidential and
proprietary information is included within the Assets ("TRADE SECRETS"),
including, without limitation, with respect to some or all of the following
categories of information: (i) financial information, including but not limited
to information relating to earnings, assets, debts, prices, pricing structure,
reimbursement matters, volume of purchases or sales or other financial data
related to Seller; (ii) supply and service information, including but not
limited to information relating to goods and services, suppliers' names or
addresses, terms of supply or service contracts or of particular transactions,
or related information about potential suppliers to the extent that such
information is not generally known to the public, and to the extent that the
combination of suppliers or use of a particular supplier, though generally known
or available, may yield advantages to the Buyer, details of which are not
generally known; (ii) marketing information, including but not limited to
information relating to details about ongoing or proposed marketing programs or
agreements by or on behalf of the Seller, sales forecasts, advertising formats
and methods or results of marketing efforts or information about impending
transactions; (iv) personnel information, including but not limited to
information relating to employees' personal or medical histories, compensation
or other terms of employment, actual or proposed promotions, hirings,
resignations, disciplinary actions, terminations or reasons therefor, training
methods, performance, or other employee information; (v) customer and patient
information, including but not limited to information relating to names,
addresses or backgrounds of past, existing or prospective clients, customers,
payors, referral sources, and patients, records of agreements and prices,
proposals or agreements between any of them and Seller, status of accounts or
credit, patients' medical histories or related information as well as customer
lists, to the extent not generally known to the public; and (vi) inventions and
technological information, including but not limited to information related to
proprietary technology, trade secrets, research and development data, processes,
formulae, data and know-how, improvements, inventions, techniques, and
information that has been created, discovered or developed, or has otherwise
become known to Seller or Shareholders, and/or in which property rights have
been assigned or otherwise conveyed to Seller, which information has commercial
value in the business in which the Seller is engaged. Seller and Shareholders
shall hold all Trade Secrets in confidence and will not discuss, communicate or
transmit to others, or make any unauthorized copy of or use any of the Trade
Secrets; and will take all reasonable actions that Buyer deems reasonably
necessary or appropriate, to prevent unauthorized use or disclosure of or to
protect the Buyer's interest in the Trade Secrets. The foregoing does not apply
to information that by means other than deliberate or inadvertent disclosure by
Seller, Shareholders or any of their respective Affiliates, becomes or is well
known to the public; or disclosure compelled by judicial or administrative
proceedings after they diligently try to avoid each disclosure and afford Buyer
the opportunity to obtain assurance that compelled disclosures will receive
confidential treatment.
(c) Non-Solicitation and Non-Pirating. Each of Seller and each
Shareholder hereby agree that, during the Restricted Period it or he will not,
directly or indirectly, for itself or himself or on behalf of any other person,
firm, entity or other enterprise: (i) solicit or in any way divert or take away
any person or entity that, prior to the Closing Date, was a patient, client,
customer, payor, referral source, facility or patient of the Seller; or (ii)
hire, entice away or in any other manner persuade any person who was an
employee, consultant, representative or agent of the Seller prior to the Closing
Date, to alter, modify or terminate their relationship with the Buyer.
(d) Necessary Restrictions. Each of Seller and each Shareholder
acknowledge that the restrictions contained in this Agreement are reasonable and
necessary to protect the legitimate business interests of the Buyer and that any
violation thereof by any of them would result in irreparable harm to the Buyer,
and that damages in the event of any such breach of this Agreement will be
difficult, if not impossible, to ascertain. Accordingly, each of the Seller and
each Shareholder agree that upon the violation of any of the restrictions
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contained in this Agreement, the 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, equity, under this Agreement or otherwise,
without the necessity of posting any bond or other security whatsoever. In the
event any of the foregoing restrictions are adjudged unreasonable in any
proceeding, then the parties agree that the period of time or the scope of such
restrictions (or both) shall be adjusted to such a manner or for such a time (or
both) as is adjudged to be reasonable.
(e) Remedies For Breach. Each of the Seller and each
Shareholder acknowledge that the covenants contained in this Agreement are
independent covenants and that any failure by the Buyer to perform its
obligations under this Agreement or any other agreement shall not be a defense
to enforcement of the covenants contained in this Agreement, including but not
limited to a temporary or permanent injunction.
16. Indemnification; Remedies.
(a) Indemnification by Seller and Shareholders (other than
Harold Winters). Seller and Shareholders (other than Harold Winters) shall,
jointly and severally, indemnify and hold harmless at all times Buyer and its
stockholders, directors, officers, employees, agents and assigns, from and
against any Damages (as hereinafter defined) arising out of: (i) any inaccurate
representation made by Seller or Shareholders in, pursuant to or under this
Agreement or any Transaction Document; (ii) any breach of any warranty made by
Seller or Shareholders in, pursuant to or under this Agreement or any
Transaction Document; (iii) any breach or default in the performance by Seller
or Shareholders of any of the covenants to be performed by Seller or
Shareholders hereunder or in any Transaction Document; and (iv) any Closing Date
Liabilities. Notwithstanding the aforementioned, in the event Harold Winters
breaches the provisions of paragraph 15, Harold Winters shall be liable for any
Damages (as hereinafter defined) incurred by the Buyer and its stockholders,
directors, officers, employees, agents and assigns, as a result of Harold
Winters' breach of the provisions of paragraph 15 and Harold Winters shall be
subject to the provisions of this paragraph 16.
(b) Indemnification by Buyer. Buyer shall indemnify and hold
harmless at all times Seller or Shareholders from and against any Damages
arising out of: (i) any inaccurate representation made by Buyer in, pursuant to
or under this Agreement; (ii) any breach of any warranty made by Buyer in,
pursuant to or under this Agreement; (iii) any breach or default in the
performance by Buyer of any of the covenants to be performed by Buyer hereunder
based upon or arising out of any event, transaction, default, act or omission
which occurred or was committed by the Buyer on or after the Closing Date; and
(iv) the failure of Buyer to comply with the provisions of paragraph 1(b)(ii).
(c) Definition of Damages. The term "DAMAGES" as used herein
shall include any judgments, claims, actions, deficiencies, losses,
delinquencies, defaults, assessments, fees, costs, taxes, expenses, debts,
liabilities, obligations, settlements, penalties, and damages, including,
without limitation, reasonable counsel fees incurred in investigating or in
attempting to avoid or oppose the imposition thereof. The term "Damages" shall
include, but shall not be limited to, any Liabilities Deficiency, as defined in
paragraph 5 hereof.
(d) Remedies.
(i) Buyer's Remedies. If Buyer makes written request to
Seller or Shareholders for the payment of Damages, then Seller or
Shareholders, as the case may be, shall pay to Buyer the amount of
Damages requested by no later than the last day of the Notice Period as
provided in paragraph 5(b) above.
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(ii) Seller's Remedies. If Seller or any Shareholder makes
written request to Buyer for the payment of Damages, then Buyer shall
pay to Seller or such Shareholder the amount of Damages requested by no
later than the last day of the Notice Period as provided in paragraph
5(b), above.
(iii) Notice of Dispute. Notwithstanding the foregoing
provisions of this subparagraphs (d)(i) and (ii), if a party (the
"DEMANDING PARTY") serves a request for payment on the other party (the
"OBLIGATED PARTY"), the Obligated Party shall have the option to
provide written notice to the Demanding Party (the "NOTICE OF DISPUTE")
within the applicable Notice Period that the Obligated Party disputes,
in good faith, the validity or amount of the Damages set out in the
request for payment of Damages, and if the affected parties cannot
agree on the validity or amount of such Damages within ten (10) days
following the Notice Period, the dispute as to the validity or amount
of such claim or liability (the "DISPUTE") shall be settled as set
forth in subparagraph (e) of this paragraph 16, with the non-prevailing
party bearing the prevailing party's fees and costs of arbitration if
such Dispute is resolved by arbitration.
(iv) Arbitration. If arbitration is required pursuant to
this paragraph 16, Buyer, on the one hand, and the affected Seller and
Shareholders, on the other hand, each shall select an arbitrator within
ten (10) business days after the Notice of Dispute is delivered; those
two arbitrators will then select a third arbitrator; and the three
arbitrators so chosen will determine the validity of the claim for
Damages. If Seller or Buyer delays in appointing an arbitrator when
required, and ten (10) days or more has elapsed, the arbitrator
appointed by the other party shall arbitrate the dispute. If the Seller
and the Shareholders shall be subject to a Dispute with Buyer, they
shall, unless Buyer elects otherwise in its sole and absolute
discretion or unless the Dispute concerns the actions of a Shareholder
under paragraph 15, be required to act as a group with respect to any
and all rights and obligations with respect to the resolutions of the
Dispute as provided in this paragraph 16.
(e) Settlement of Disputes.
(i) Disputes Not Involving Third Parties. If a Dispute
involves claims not involving any third party, Buyer and Seller or
Shareholders shall settle the Dispute by submitting the same to binding
arbitration.
(ii) Disputes Involving Claims Made by Third Parties. If a
Dispute involves claims made by one or more third parties (a "THIRD
PARTY CLAIM"), the party asserting its right to indemnification for
such Third Party Claim shall give written notice to the other party
along with any and all information such party has with respect to the
Third Party Claim, by no later than the last day of the Notice Period
as provided in paragraph 5(b), and the failure to provide such to
timely give such notice shall affect such party's right to
indemnification to the extent the party to receive the notice is
damaged by such delay. Upon such notice to Seller or Shareholders,
Buyer and Seller and/or Shareholders shall submit the Dispute to
arbitration, and the following procedures shall apply:
(A) Solely for purposes of determining the party
responsible for defending the Third Party Claim, the
arbitrators shall deem such Third Party Claim to be valid
(although such consideration shall not be an admission by any
party as to any liability to any party). The arbitrators then
shall decide which party shall be liable for the Third Party
Claim if it is successfully prosecuted by such third party or
parties, and the decision of such arbitrators with respect to
such liability shall be final and binding
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as among the parties. (Such party determined to be liable for
such claim sometimes shall be referred to herein as the
"RESPONSIBLE PARTY".)
(B) If the Responsible Party refuses to settle (and
pay the settlement amount of) the Third Party Claim
immediately, then the Responsible Party immediately shall
select one of the following two options:
Option One: The Responsible Party, at the Responsible
Party's sole expense and risk, can assume the defense of
the Third Party Claim, provided the Responsible Party
first places in escrow, in favor of the other party,
adequate collateral (as determined by the arbitrators on
consideration of all relevant facts) to protect the other
party from all Damages with respect to such Third Party
Claim (in which case the other party immediately shall be
reimbursed by the Responsible Party for any amount the
other party is thereafter required to pay the third party
with respect to such Third Party Claim; or
Option Two: The Responsible Party, at the Responsible
Party's expense and risk, can co-defend the Third Party
Claim with the other party, with the Responsible Party
also responsible for paying all costs incurred by the
other Party in connection with such defense, including,
without limitation, the reasonable legal fees and
expenses of the other party's counsel for its reasonable
involvement in such defense. If the other party is found
to be liable for any portion of such Third Party Claim,
the Responsible Party immediately shall reimburse the
other party for any amount required to be paid by the
other party with respect thereto; provided, however, if
the Responsible Party selects this option, the
Responsible Party shall attempt diligently to have the
other party removed as a party to any legal action
involving the Third Party Claim (and, upon such removal,
the involvement of the other party's counsel shall cease
unless requested by the Responsible Party or the
Responsible Party's counsel); and
(C) No party may settle any Third Party Claim without
the prior consent of the other parties hereto unless the
settlement will not have a material adverse effect on the
other party hereto or a full release of liability from the
Third Party Claim is provided to all the parties affected by
the Third Party Claim. The parties will resolve any Dispute
with respect to any such proposed settlement in accordance
with this paragraph 16.
(D) Any party responsible for defending a Third Party
Claim shall proceed with diligence and in good faith with
respect thereto.
(E) Nothing contained in this paragraph 16(e)(ii)
shall prevent any party from assuming control of the defense
and/or settling any Third Party Claim against it for which
indemnification is not sought under this Agreement.
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17. Use of Corporate and Fictitious Names. Seller and Shareholders,
jointly and severally, agree to take all actions necessary to assist Buyer in
obtaining the rights to use the corporate name and any fictitious names used in
its conduct of any of the Business, including but not limited to the execution
of any assignments and consents to use such name. If Buyer attempts to use such
name, Seller shall consent to Buyer's use of such name if such consent is
required by any state, county or local governmental authority.
18. Prepaid Items; Deposits; Etc. All prepaid insurance premiums, rent
and utility deposits, and similar items paid by or owing to the Seller by any
person, shall not be considered to be part of the Assets being purchased by
Buyer and, on consummation of the transactions contemplated by this Agreement,
shall be the property of Seller.
19. Post-Closing Requirements of Seller.
(a) Payment Escrow. At Closing, Buyer shall pay over and deliver to
or on behalf of Seller (and shall be credited, dollar-for-dollar, as partial
payment of the Purchase Price) to the Paying Agent, in escrow (the "PAYMENT
ESCROW"), an amount equal to the Closing Date Liabilities as specified in
paragraph 2(b)(ii), to be held by the Paying Agent subject to the terms,
conditions, and provisions of the Payment Escrow Agreement. The Paying Agent
shall be an attorney at law authorized to practice law in the state of Florida
or a trust company or bank having trust powers in such State, which Paying Agent
has been selected by Seller and approved by Buyer.
(i) Seller shall pay all costs and expenses of the
Payment Escrow, including without limitation, any fees or costs of the
Paying Agent.
(ii) Seller shall be obligated to see that the Paying Agent
timely and properly pays all Listed Liabilities, including without
limitation the costs for the Yellow Page advertisements, and that the
Paying Agent obtains and delivers to Buyer the "Final Release" referred
to in the Payment Escrow Agreement, or canceled checks referred to in
the Payment Escrow Agreement.
(iii) The existence of the Payment Escrow shall not affect the
obligations of the Seller and the Shareholders to hold Buyer harmless
against any Closing Date Liabilities as provided in paragraph (16)(a).
(b) Final Financial Information. Not later than forty-five (45)
days following Closing, Seller, at Seller's sole cost and expense, shall deliver
to Buyer (to the attention of Gayle Lamson) "FINAL FINANCIAL INFORMATION", which
shall include:
(i) a balance sheet of Seller as of the Effective Date prepared
in accordance with GAAP;
(ii) an income statement of Seller for the period commencing on
the date succeeding the last day of the most recent Financial Statement
Date and ending on the Effective Date which agrees with the balance
sheet submitted at Closing;
(iii) an inventory of fixed assets of Seller as of the
Effective Date which agrees with the balance sheet submitted at
Closing; and
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(iv) a listing of resale inventory of Seller as of the
Effective Date which agrees with the balance sheet submitted at
Closing.
(v) a cash settlement summary of Seller in a form provided by
Buyer.
(c) Liabilities Deficiency. If all such Final Financial Information
or if any document, instrument or agreement required to be delivered in
accordance with paragraph 9(a), is not delivered to Buyer within forty-five (45)
days following Closing, Seller and Shareholder shall be liable to Buyer in an
amount equal to $500.00 for each day after such forty-five (45) day period until
all such Final Financial Information and such documents, instruments and
agreements are delivered to Buyer, and such liability shall constitute a
Liabilities Deficiency under the provisions of paragraph 5, above.
20. Third Party Beneficiaries. Nothing in this Agreement, expressed or
implied, is intended to confer on any person, other than the parties hereto, and
their successors, any rights or remedies under or by reason of this Agreement
other the affiliates entitled to indemnification pursuant to paragraph 16.
21. Expenses. Except as otherwise stated herein, each of the parties
shall bear all expenses incurred by them in connection with this Agreement and
in consummation of the transactions contemplated hereby in preparation thereof.
22. Notices. All notices, consents, waivers and other communications
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:
to Seller: Pinnacle Health Care, Inc.
3121 West Hallandale Beach Boulevard
Suite 110
Hallandale, FL 33009
to Representative: Howard B. Nadel, Esq.
Neimark & Nadel, P.A.
800 Corporate Drive
Suite 420
Ft. Lauderdale, FL 33334
with a copy to: Howard B. Nadel, Esq.
Neimark & Nadel, P.A.
800 Corporate Drive
Suite 420
Ft. Lauderdale, FL 33334
to Buyer: c/o RoTech Medical Corporation
4506 L.B. McLeod Road, Suite F
Orlando, FL 32811
Attention: Stephen P. Griggs
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with copies to: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Marshall Elkins
and
Blass & Driggs
461 Fifth Avenue
New York, NY 10017
Attn: Andrew S. Bogen
23. Choice of Law. The laws of the State of Florida applicable to
contracts executed, delivered and to be fully performed in such State govern the
validity of this Agreement, the construction of its terms, and the
interpretation of the rights and duties of the parties.
24. Sections and Other Headings. Section, paragraph, and other headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
25. Counterpart Execution. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which,
together, shall constitute but one instrument.
26. Gender. All gender employed in this Agreement shall include all
genders, and the singular shall include the plural and the plural shall include
the singular whenever and as often as may be appropriate.
27. Parties in Interest. This Agreement shall be binding on and shall
inure to the benefit of, and be enforceable by, Seller, Shareholders and Buyer
and their respective successors and assigns. Buyer shall be entitled to assign
its rights under this Agreement and the Transaction Documents after the Closing.
Seller and the Shareholders may not assign this Agreement or any of their rights
hereunder without the prior consent of Buyer.
28. Entire Agreement. This Agreement including all Schedules and
Exhibits hereto, and all Transaction Documents constitute the entire agreement
between the parties hereto with respect to the subject matter hereof and there
are no agreements, understandings, restrictions, warranties, or representations
between the parties with respect to the subject matter hereof other than as set
forth herein or as herein provided.
29. Performance. In the event of a breach by Seller or any Shareholder
of any of their respective 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 Seller and each
Shareholder hereby waives the defense that there may be an adequate remedy at
law.
30. Waiver, Discharge, Etc. This Agreement and the Transaction
Documents and the obligations hereunder and thereunder 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 or any Transaction
Document shall in no way be construed to be a waiver of any such provision, nor
in any way
-19-
<PAGE>
to affect the validity of this Agreement or such Transaction Document, as the
case may be, 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 or any
Transaction Document shall be held to be a waiver of any other or subsequent
breach.
31. 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 or 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 purpose of this Agreement, and to vest in
Buyer good title to, possession of and control of all the Assets.
32. Joint and Several. Seller and the Shareholders shall be jointly and
severally liable for all representations, warranties and obligations, including,
without limitation, indemnification obligations, and covenants made by any of
them pursuant to this Agreement, including, without limitation, any made
pursuant to any Transaction Document, unless such joint and several liability
has been expressly excluded under the terms of this Agreement. For all purposes
of this Agreement, any representation or warranty that is qualified to be "to
the knowledge of Seller" or by a requirement that Seller shall have received
"notice" of any matter, or any similar qualification shall be deemed to include
the knowledge of the Shareholders or notices to the Shareholders, as the case
may be.
33. Independent Legal Counsel. Seller and Shareholders represent and
warrant that each party has had the opportunity to seek the advice of
independent legal counsel prior to signing this Agreement, and that the Buyer
has recommended to Seller and Shareholders that such party obtain legal counsel.
34. Representative. Notwithstanding anything contained herein to the
contrary, each of Seller and each Shareholder hereby designates Howard B. Nadel
of the law firm of Neimark & Nadel, P.A. and each of Seller and each Shareholder
hereby accepts the designation of Howard B. Nadel of the law firm of Neimark &
Nadel, P.A. as the representative of the Seller and Shareholders (the
"REPRESENTATIVE") to act for and on behalf of the Seller and Shareholders as
provided in this Agreement. Each of Seller and each Shareholder shall be bound
by all actions taken or omitted by the Representative on behalf of any Seller or
Shareholder as provided in this Agreement, and each of Seller and each
Shareholder shall be deemed to have received notice deemed given or payment made
to the Representative in accordance with the notice provisions of this Agreement
on the date deemed given or the date paid to the Representative, and Buyer shall
be entitled to rely on all notices and consent given, and all settlements
entered into on behalf of Seller or any Shareholder to the extent authorized
pursuant to the terms of this Agreement notwithstanding any objections made by
any Seller or Shareholder prior to, concurrently with or subsequent to the
giving of any such notice or consent or the settlement of any such matter. The
Representative may be replaced only if and when Seller and all of the
Shareholders shall notify Buyer that a new individual person (named in such
notice) has been unanimously selected by them to be to be the new
Representative, in which case such new person shall thereafter be the
Representative.
[SIGNATURES ON THE FOLLOWING PAGES]
-20-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first stated above.
BUYER:
ROTECH OXYGEN AND MEDICAL
EQUIPMENT, INC.
By: /s/ Stephen P. Griggs
----------------------
Name: Stephen P. Griggs
Title: President
STATE OF FLORIDA
COUNTY OF ORANGE
The foregoing instrument was acknowledged before me by, Stephen P.
Griggs, as President of RoTech Oxygen and Medical Equipment, Inc., a Florida
corporation, and who is personally known to me; or has produced ________________
as identification.
9/3/98 /s/ Elizabeth S. Brown
- --------------------- --------------------------
Date Notary Signature
NOTARY PUBLIC
STATE OF FLORIDA -------------------------
[SEAL] Notary Name Printed
ELIZABETH S. BROWN My Commission Expires:
MY COMMISSION #CC 733172
EXPIRES: JUNE 25, 2002 SELLER:
Bonded Thru Notary Public Underwriters
PINNACLE HEALTH CARE, INC.
By: /s/ Doug Shirley
-----------------------
Name: Doug Shirley
Title: President
-21-
<PAGE>
STATE OF FLORIDA
COUNTY OF BROWARD
The foregoing instrument was acknowledged before me by, Doug Shirley,
as President of Pinnacle Health Care, Inc., a Florida corporation, and who is
personally known to me; or has produced LICENSE as identification.
8/31/98 /s/ Howard B. Nadel
- --------------------- -----------------------
Date Notary Signature
[SEAL] -----------------------
HOWARD B. NADEL Notary Name Printed
Notary Public, State of Florida My Commission Expires:
My Comm. Expires April 22, 2000
No. CC 522201
Bonded Thru Official Notary Service
1-(800) 723-0121
-22-
<PAGE>
SHAREHOLDERS:
/s/ Brad Levine
-------------------------
Brad Levine
STATE OF FLORIDA
COUNTY OF BROWARD
The foregoing instrument was acknowledged before me by Brad Levine, as
a shareholder of Pinnacle Health Care, Inc., a Florida corporation, and who is
personally known to me; or has produced LICENSE as identification.
8/31/98 /s/ Howard B. Nadel
- --------------------- -------------------------
Date Notary Signature
[SEAL] -------------------------
HOWARD B. NADEL Notary Name Printed
Notary Public, State of Florida My Commission Expires:
My Comm. Expires April 22, 2000
No. CC 522201 /s/ Richard R. Rizzo
Bonded Thru Official Notary Service -------------------------
1-(800) 723-0121 Richard R. Rizzo
STATE OF FLORIDA
COUNTY OF BROWARD
The foregoing instrument was acknowledged before me by Richard R.
Rizzo, as a shareholder of Pinnacle Health Care, Inc., a Florida corporation,
and who is personally known to me; or has produced LICENSE as identification.
8/31/98 /s/ Howard B. Nadel
- ------------------- -------------------------
Date Notary Signature
[SEAL]
HOWARD B. NADEL -------------------------
Notary Public, State of Florida Notary Name Printed
My Comm. Expires April 22, 2000 My Commission Expires:
No. CC 522201
Bonded Thru Official Notary Service
1-(800) 723-0121
-23-
<PAGE>
/s/ Harold Winters
-------------------------
Harold Winters
STATE OF FLORIDA
COUNTY OF BROWARD
The foregoing instrument was acknowledged before me by Harold Winters,
as a shareholder of Pinnacle Health Care, Inc., a Florida corporation, and who
is personally known to me; or has produced LICENSE as identification.
8/31/98 /s/ Howard B. Nadel
- --------------------- -------------------------
Date Notary Signature
[SEAL]
HOWARD B. NADEL -------------------------
Notary Public, State of Florida Notary Name Printed
My Comm. Expires April 22, 2000 My Commission Expires:
No. CC 522201
Bonded Thru Official Notary Service /s/ Doug Shirley
1-(800) 723-0121 -------------------------
Doug Shirley
STATE OF FLORIDA
COUNTY OF BROWARD
The foregoing instrument was acknowledged before me by Doug Shirley as
a shareholder of Pinnacle Health Care, Inc., a Florida corporation, and who is
personally known to me; or has produced LICENSE as identification.
8/31/98 /s/ Howard B. Nadel
- --------------------- -------------------------
Date Notary Signature
[SEAL]
HOWARD B. NADEL -------------------------
Notary Public, State of Florida Notary Name Printed
My Comm. Expires April 22, 2000 My Commission Expires:
No. CC 522201
Bonded Thru Official Notary Service
1-(800) 723-0121
-24-
<PAGE>
SCHEDULES AND EXHIBITS
Schedule 1(a)(i) - Inventory; Fixed Assets
Schedule 1(a)(iii)(B) - Patients' List
Schedule 1(a)(iii)(C) - Telephone Numbers
Schedule 1(a)(iii)(F) - Paid Off Assets
Schedule 1(b) - Excluded Assets
Schedule 2(a) - Allocation of Purchase Price
Schedule 2(b)(iii) - Wire Instructions
Schedule 4(a) - Closing Date Liabilities
Schedule 4(b) - Unassumed Contracts
Schedule 12(c) - Litigation
Schedule 12(g) - Contracts
Schedule 12(i) - Personnel Payrates; Employee Benefits
Schedule 12(k) - Insurance
Schedule 12(o) - Tax Returns and Financial Statements
Schedule 12(p) - Supplemental Tax Information
Schedule 12(q) - Adverse Business Developments
Schedule 12(r) - Relationships
Schedule 12(u) - Reimbursement Matters
Schedule 15(a) - Locations
Exhibit 2(b)(i) - Escrow Agreement
Exhibit 2(b)(ii) - Payment Escrow Agreement
Exhibit 9(c) - Seller's Opinion
Exhibit 12(w) - Healthcare Questionnaire
-25-
EXHIBIT 2.5
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (the "Agreement") is made and entered into
effective as of September 1, 1998, by and between PINNACLE HEALTH FACILITIES OF
LOUISIANA, L.L.C., a Texas limited liability company with offices at 2901 Dallas
Parkway. Plano Texas 75093 ("Tenant") and INTEGRATED HEALTH SERVICES AT
FRANKLIN, INC., a Delaware corporation with offices at 10065 Red Run Boulevard,
Owings Mills, MD 21117 ("Manager").
WHEREAS, Louisiana Two Associates, LLC, a California limited liability
company ("Owner") is the owner of (i) a skilled nursing facility named Franklin
Nursing Home located at 1904 China Berry St., Franklin, LA 70538, together with
the equipment, furnishings, and other tangible personal property to be used in
connection therewith ("Franklin"), and (ii) a skilled nursing facility named St.
Mary's Guest House located at 740 Justa St., Morgan City, LA 70380, together
with the equipment, furnishings, and other tangible personal property to be used
in connection therewith ("Morgan", and together with Franklin, the "Facilities"
and each, individually, a "Facility"); and
WHEREAS, pursuant to that certain lease agreement dated June 1, 1998
between Owner and Tenant (the "Lease"), Tenant has leased the Facilities from
Owner, together with the equipment, furnishings, and other tangible personal
property to be used in connection therewith, for a term of 20 years; and
WHEREAS, the Manager is engaged in the ownership and operation of similar
facilities and is experienced in various phases of the management, operation and
ownership thereof; and
WHEREAS, the Tenant desires to engage the Manager to manage the Facilities
for Tenant's account during the term herein provided, and the Manager desires to
accept such engagement, upon the terms and subject to the conditions contained
herein.
NOW, THEREFORE, in consideration of the premises and covenants herein
contained, and intending to be legally bound hereby, the parties agree as
follows:
ARTICLE I
RETENTION OF THE MANAGER
1.1 RETENTION. For and during the term of this Agreement, the Tenant hereby
grants to the Manager the sole and exclusive right, and employs the Manager to
supervise, manage, and operate the Facilities in the name and for the account of
the Tenant upon the terms and conditions hereinafter set forth.
<PAGE>
1.2 ACCEPTANCE. The Manager accepts such appointment and agrees that it
will (a) faithfully perform its duties and responsibilities hereunder, (b) use
its best efforts to supervise and direct the management and operation of the
Facilities in accordance with the operating budget contemplated in Section
3.11(a)(iii), (c) consult with the Tenant and keep the Tenant advised of all
major policy matters relating to the Facilities, and (d) cooperate with Tenant
in Tenant's administration of the terms of the Lease. Subject to the foregoing
and to the other provisions of this Agreement, the Manager, without the approval
of the Tenant (unless such approval is herein specifically required as to
policies and manner of operation) shall have sole control and discretion with
regard to the operation and management of the Facilities for all customary
purposes (including the exercise of its rights and performance of its duties
provided for in Article III hereof), and the right to determine all policies
affecting the appearance, maintenance, standards of operation, or quality of
service, and any other matter affecting the Facilities or the operation thereof.
1.3 INDEPENDENT CONTRACTOR. It is expressly agreed by Tenant and Manager
that Manager is at all times acting and performing under this Agreement as an
independent contractor, and that no act, commission or omission by either Tenant
or Manager shall be construed to make or constitute the other its partner,
principal, agent, joint venturer or associate, except to the extent specified
herein.
1.4 OWNERSHIP OF LICENSES AND CONTRACTS. Tenant shall be the owner and
holder of all licenses, permits and contracts obtained with respect to the
Facilities, and shall be the "provider" within the meaning of all third-party
contracts for the Facilities. Specifically, and without limitation, Tenant shall
own the Medicare and Medicaid provider numbers, the Medicare provider agreements
with Health Care Financing Administration (HCFA), and Medicare and Medicaid
certifications with respect to the Facilities.
ARTICLE II
TERM
2.1 TERM. The initial term of this Agreement ("Term") shall immediately
commence upon the date hereof (the "Commencement Date") and shall be for a
period of thirty (30) months from the date hereof; provided that this Agreement
shall immediately terminate upon any termination or expiration of the Lease.
2.2 OPTION TO TRANSFER MANAGEMENT. Manager shall have the option,
exercisable in its discretion by the giving of thirty (30) days advance written
notice (the "Option Notice") to Tenant at any time prior to February 28, 2001
(the "Option Date"), to cause the Facilities to be managed under and pursuant to
that certain Management Agreement (the "Preferred Care Agreement"), dated March
29, 1995, by and among Thomas Scott, Preferred Care, Inc. ("Preferred Care"),
and Integrated Health Services at Big Sail, Inc. ("IHS at Big Sail"). In the
event that such election is made, the transfer of management of the Facilities
to IHS at Big Sail shall be consummated not later than thirty (30) days after
the Option Notice is made to Tenant, and at the closing of such transaction the
parties hereto shall execute and deliver such agreements, instruments and other
documents, and do or cause
2
<PAGE>
to be done such other things, as shall be necessary or desirable to include the
Facilities among the nursing facilities managed by IHS at Big Sail under the
Preferred Care Agreement, including, without limitation, joining Tenant as a
party thereunder, and upon such transfer, this Agreement shall terminate,
subject to Section 8.3 hereof. In the event that Manager exercises the option
referred to in this Section 2.2, the Facilities shall also be subject to that
certain Purchase Option Agreement dated March 29, 1995 (the "Option Agreement")
by and among Preferred Care, certain affiliates of Preferred Care, and IHS at
Big Sail, and shall be added as "Additional Properties" under said Option
Agreement, to the extent therein set forth. In the event that Manager fails to
exercise the option referred to in this Section 2.2 by the Option Date, this
Agreement shall forthwith terminate, subject to Section 8.3 hereof.
ARTICLE III
RIGHTS AND DUTIES OF THE MANAGER
During the term of this Agreement, and in the course of its management and
operation of the Facilities:
3.1 EMPLOYEES. Manager, on Tenant's behalf, shall hire, promote, discharge,
and supervise the work of the administrators, assistant administrators and
department heads of the Facilities, and all operating and service employees
performing services in and about the Facilities. All of such employees shall be
employees of the Tenant, except for the Facility Administrators and Directors of
Nurses, who shall be employees of the Manager, and the aggregate compensation,
including fringe benefits, with respect to all such employees, including the
Administrators and Directors of Nurses, shall be charged to Tenant as an expense
of the operation of the Facilities. The term "fringe benefits" as used herein
shall include but not be limited to the employer's contribution of FICA,
unemployment compensation, and other employment taxes, retirement plan
contributions, workman's compensation, group life, accident, and health
insurance premium, profit sharing contributions, disability, and other similar
benefits paid or payable by Manager with respect to other facilities which may
be managed by Manager. The cost of same shall be charged to Tenant as additional
expenses of the operation of the Facilities.
3.2 LABOR CONTRACTS. Manager, if requested by Tenant, will negotiate, on
Tenant's behalf and at Tenant's expense, with any labor union lawfully entitled
to represent the employees at the Facilities, but any collective bargaining
agreement or labor contract resulting therefrom must first be approved by Tenant
who shall be the only person authorized to execute the same. Tenant agrees that
all fees and costs of outside professionals in conducting and concluding such
negotiations shall be charged to Tenant as an expense of the operation of the
Facilities, provided that if any such fees and expenses are charged in
connection with services provided by an affiliate of Manager, such services must
be rendered at levels of quality and pricing that are reasonably competitive
with those otherwise available in the community.
3
<PAGE>
3.3 CONCESSIONAIRES, ETC. Manager shall negotiate and consummate in the
name and at the expense of the Tenant, contracts or arrangements with
concessionaires, licensees, subtenants, and other intended users of the
Facilities. Any fees and expenses incurred in connection therewith shall be
charged to the Tenant as an expense of the operation of the Facilities, provided
that if any such fees and expenses are charged in connection with services
provided by an affiliate of Manager, such services must be rendered at levels of
quality and pricing that are reasonably competitive with those otherwise
available in the community
3.4 ANCILLARY SERVICES, UTILITIES, ETC. Manager shall enter into such
contracts in the name of and at the expense of Tenant as may be deemed necessary
or advisable for the furnishing of all ancillary services, utilities,
concessions, supplies and other services as may be needed from time to time for
the maintenance and operation of the Facilities. Manager is authorized to
contract for or provide ancillary services, including, but not limited to,
pharmacy (drug and I.V.), rehabilitation and respiratory therapy services, and
mobile diagnostic services, through providers which are affiliates of Manager,
provided that such services are rendered at levels of quality and pricing that
are competitive with those available in the community.
3.5 PURCHASES. Manager shall be solely responsible for purchase of food,
beverages, operating supplies, and other materials and supplies in the name of
and for the account and at the expense of Tenant as may be needed from time to
time for the maintenance and operation of the Facilities, provided that if any
such purchases are made from any affiliate of Manager, such purchases must be at
levels of quality and pricing that are reasonably competitive with those
otherwise available in the community.
3.6 REPAIRS. Manager shall make or install or cause to be installed at
Tenant's expense and in the name of the Tenant any proper repairs, replacements,
additions, and improvements in and to the Facilities and the furnishings and
equipment thereof as Manager, in its reasonable judgment, shall deem necessary
in order to keep and maintain the same in good repair, working order and
condition, and outfitted and equipped for the proper operation thereof in
accordance with industry standards comparable to those prevailing in other
similar facilities, and all applicable state or local rules, regulations, or
ordinances, or as otherwise required by Owner under the Lease. Without limiting
the generality of the foregoing, Tenant acknowledges that Manager shall be
making capital expenditures, at Tenant's expense, for the Facilities of not less
than $175,000 in the aggregate during the first twenty-four (24) months
following the Commencement Date (it being understood that Manager shall have the
right, exercisable in its sole and absolute discretion, to cause such capital
expenditures to be made, in whole or in part, at any time, or from time to time,
during such 24-month period, including causing all such capital expenditures to
be made immediately upon the commencement of the Term of this Agreement).
3.7 LICENSES AND PERMITS. Manager shall apply for and use its reasonable
best efforts to obtain and maintain in the name and at the expense of the
Tenant, all licenses and permits required in connection with the management and
operation of the Facilities. The Tenant agrees to cooperate with Manager in
applying for, obtaining, and maintaining such licenses and permits.
4
<PAGE>
3.8 GOVERNMENTAL REGULATION.
(A) The Manager shall use its reasonable best efforts to take such
action as shall be reasonably necessary to insure that each Facility and the
management thereof by the Manager complies with all federal, state and local
laws, regulations and ordinances applicable to such Facility or the management
thereof by the Manager.
(B) The Manager shall promptly provide to the Tenant as and when
received by the Manager, all notices, reports or correspondence from
governmental agencies that assert material deficiencies or charges against the
Facilities or that otherwise threaten the suspension, revocation, or any other
action adverse to any approval, authorization, certificate, determination,
license or permit required or necessary to own or operate the Facilities. The
Manager shall promptly provide to the Tenant as and when received by the Manager
copies of all surveys taken by Federal and state health and life safety code
agencies. The Manager may, in its name or in the name of the Tenant, but in any
event at the expense of the Tenant, appeal any action taken by any governmental
agency against the Facilities or contest by proper legal proceedings the
validity of any statute, ordinance, law, regulation or order adverse to the
Facilities; provided, however, that if the Manager pursues any such appeal or
asserts any such legal proceeding, the Tenant shall adequately secure and
protect the Manager from loss, cost, damage or expense by bond or other means
satisfactory to Manager. If any action taken by any government agency against
any Facility could result in a loss, cost, damage, or expense as to which
Manager must indemnify Tenant under this Agreement, as determined by Manager,
then Manager shall be permitted to appeal or contest such action without the
necessity of Tenant's consent, and the Tenant shall have no obligation to secure
and protect the Manager from any loss, cost, damage or expense that arises
directly out of any such appeal or contest.
3.9 TAXES. The Manager shall cause all taxes, assessments, and charges of
every kind imposed upon the Facilities by any governmental authority ("Facility
Taxes"), including interest and penalties thereon, to be paid when due.
Notwithstanding the foregoing the Manager shall not cause Facility Taxes to be
paid, if (i) same are in good faith being contested by the Tenant at its sole
expense and without cost to the Manager, (ii) enforcement thereof is stayed, and
(iii) Tenant shall have given Manager written notice of such contest and stay
and authorized the non-payment thereof, not less than ten (10) days prior to the
date on which such tax assessment, or charge is due and payable. Interest or
penalty payments shall be reimbursed by Manager to Tenant if imposed upon Tenant
by reason of negligence on the part of the Manager in making the payment if
funds are available therefor.
3.10 DEPOSIT AND DISBURSEMENT OF FUNDS. Manager shall deposit in a banking
institution which is a member of the FDIC in accounts in Manager's name as agent
for Tenant, all monies arising from the operation of the Facilities or otherwise
received by Manager for and on behalf of Tenant ("Facility Funds"), and shall
disburse and pay the same from said accounts on behalf and in the name of Tenant
in the following order of priority and, in each case, in such amounts and at
such times as such Facility Funds are required to be paid in connection with:
5
<PAGE>
(A) Payment of Facility Debt Service (as defined below), any and all
payments required under the Lease, and all costs, fees and expenses,
whether operating or capital, arising out of the leasing, maintenance, and
operation of the Facilities, including, without limitation, the
reimbursable expenses, plus all accrued and unpaid interest on any unpaid
balances thereon, of Manager as set forth in Section 3.16 hereof hereto;
(B) Payment of Manager's Base Management Fee provided for in Article
V, below (including any accrued and unpaid Base Management Fees, plus all
accrued and unpaid interest thereon, for prior periods);
(C) Payment of Manager's Incentive Management Fee provided for in
Article V, below (including any accrued and unpaid Incentive Management
Fees, plus all accrued and unpaid interest thereon, for prior periods);
(D) The balance of such funds, after provision for such adequate
working capital reserves on a monthly basis as shall be determined by
Manager in its reasonable business judgment, shall be distributable to
Tenant.
As used herein, "Facility Debt Service" means scheduled payments of the
principal and interest with respect to:
(X) debt service payments pursuant to Schedule C hereof; and
(Y) any additional indebtedness incurred by Tenant for the
improvement, maintenance, or operation of the Facilities as mutually agreed
upon by Tenant and Manager.
"Facility Debt Service" does not include any amounts payable by reason of
voluntary prepayments or the acceleration of such indebtedness for any reason.
3.11 STATEMENTS.
(A) Manager shall deliver or cause to be delivered to Tenant
statements and budgets as follows:
(I) Within thirty (30) days following the end of each calendar
month, a profit and loss statement and balance sheet statement (both
prepared on an accrual basis in accordance with Generally Accepted
Accounting Principles ("GAAP") ) showing the results of operation of the
Facilities for such calendar month and the year-to-date, and having annexed
thereto a computation of the management fee (as determined under Article V
hereof) for such preceding month and the year-to-date; and
(II) On or before one hundred eighty (180) days after the close
of each fiscal year during the term of this Agreement, Manager will also
deliver or cause to be delivered to the Tenant a balance sheet and related
statement of profit and loss prepared in
6
<PAGE>
accordance with GAAP showing the assets employed in the operation of the
Facilities and the liabilities incurred in connection therewith as of the
end of the fiscal year, and the results of the operation of the Facility
during the preceding twelve (12) months then ended, and having annexed
thereto (A) a copy of the Medicare and Medicaid cost report prepared by
Manager with respect to each Facility for such twelve month period, and (B)
a computation of the management fee for such twelve (12) month period. In
its discretion, Tenant may elect to have such annual statements certified
by an independent public accounting firm of Tenant's choice. Should Tenant
so elect, it will notify Manager not later than 31 days after the end of
the calendar year with respect to which such election is made.
(III) An operating budget and a capital budget that provide for
maintaining and continuing standards of operation of the Facilities as
nursing homes at levels consistent with similar nursing facilities managed
by Manager shall be prepared by Manager and approved by the Tenant (such
approval not to be unreasonably withheld or unduly delayed) prior to the
beginning of each year of this Agreement; provided that at the Manager's
election a calendar year budget may be used rather than a budget for each
annual period commencing with the date of this Agreement. It is agreed that
an initial operating budget and capital budget, as required by this
Agreement, will be prepared by the Manager and approved by Tenant within
fifteen (15) business days from the date hereof. Should capital repairs,
replacement, additions and/or improvements exceed the pre-approved capital
budget by $25,000 per any specific item or by $100,000 in the aggregate for
all items, any expenditures beyond that level will require the prior
written approval of the Tenant. Manager shall not exceed any operating
expense line item of any annual operating budget by $25,000 or all
operating expense items of any annual operating budget by $100,000 in the
aggregate, in either case without the prior written approval of the Tenant.
(B) All costs and expenses incurred in connection with the preparation
of any statements, schedules, computations, and other reports required under
this Section 3.11(a)(ii) shall be charged to the Tenant as an expense of the
operation of the Facilities.
3.12 LEGAL ACTIONS. Manager may institute, in its own name or in the name
of the Tenant, but in any event at the expense of the Tenant, any and all legal
actions or proceedings relating to the operations of the Facilities, including,
without limitation, to collect charges, rent, or other sums due the Facilities
or to lawfully oust or dispossess tenants or other persons in possession under,
or lawfully cancel, modify, or terminate any lease, license, or concession
agreement for the breach thereof or default thereunder by the tenant, licensee,
or concessionaire thereunder.
Unless otherwise directed by Tenant, Manager may take, at Tenant's expense,
appropriate steps to protect and/or litigate to final judgment in any
appropriate court any violation or order affecting the Facilities. Any counsel
to be engaged under this or the immediately preceding paragraph of this Section
shall be approved by Tenant, which approval shall not be unreasonably withheld.
Manager shall promptly notify Tenant of all legal actions filed in respect of
any of the Facilities.
7
<PAGE>
3.13 DATA PROCESSING. Manager shall, directly or through an affiliate,
provide the data processing required to maintain the financial, payroll, and
accounting records of the Facilities.
3.14 BOOKS AND RECORDS. Manager on behalf of the Tenant shall supervise and
direct the keeping of full and accurate books of account and such other records
reflecting the results of operation of the Facilities as required by law.
3.15 REIMBURSABLE EXPENSES; INTEREST. Manager may from time to time (but
shall not be obligated to) advance or incur expenses in respect of the operation
or maintenance of the Facilities, including, without limitation, the items
listed on Exhibit A. Such expenses, with the exception of Manager consultant
travel expenses (which shall remain an obligation and expense of Manager), shall
be immediately reimbursable to Manager out of Facility Funds, in the priority
set forth in Section 3.10(a). To any extent that Facility Funds are not
available for such purpose, such advances by Manager shall be repayable by
Tenant to Manager, with interest, within twenty four (24) hours of demand
therefor. Any such expenses advanced by Manager which are not repaid by Tenant
within said twenty-four (24) hour period shall bear interest from the date that
demand therefor is made until paid in full at a rate per annum equal to the
prime rate of Citibank, NA, as then in effect, plus four (4%) percent. Except as
may otherwise be provided herein or on Exhibit A, the cost to Manager of
performing its duties enumerated in Article III of this Agreement shall not
constitute reimbursable expenses.
3.16 MANAGEMENT SERVICES. Manager shall endeavor to provide the Facilities
with substantially the same level of management services and techniques, if
applicable, which Manager employees in operating other nursing facilities which
it manages and which may be applicable to and beneficial to the Facilities.
ARTICLE IV
RIGHTS AND DUTIES OF THE TENANT
During the term of this Agreement:
4.1 RIGHT OF INSPECTION. Tenant shall have the right to enter upon any part
of the Facilities, upon reasonable advance notice to the Manager, for the
purpose of examining or inspecting same or examining or making copies of books
and records of the Facilities, but the same shall be done with as little
disruption to the business of the Facilities as possible. However, the books and
records of the Facilities shall not be removed from the Facility without the
express written consent of the Manager. Tenant acknowledges that some books and
records will be maintained at Manager's principal place of business, and Manager
acknowledges that Tenant shall have the right upon reasonable advance notice to
Manager to examine and inspect such books and records during reasonable business
hours.
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Tenant shall direct all inquiries regarding operations, procedures,
policies, employee relations, patient care, and all other matters concerning the
Facilities to Integrated Health Services' Skilled Nursing Facility Regional
Manager for the Southwest Region or other officer of Manager as Manager may from
time to time designate in a written notice to Tenant.
4.2 COOPERATION WITH MANAGER. Tenant will fully cooperate with Manager in
operating and supervising the operations of the Facilities.
4.3 OPERATING CAPITAL.
(A) Tenant shall provide Manager with such amount of working capital
as may be required from time to time for the operation of the Facilities on a
sound financial basis, including, without limitation, amounts required to pay
Facility Taxes and amounts necessary to pay the items set forth at subsections
(a), (b) and (c) of Section 3.10. If additional working capital is required,
Manager shall notify Tenant thereof in writing and Tenant shall provide Manager
with such increase in working capital within fifteen (15) days thereafter. If
Tenant fails to provide such additional working capital, Manager may, but is not
obligated to, provide the same as a loan to Tenant in accordance with Section
3.15.
(B) In order to induce Manager to enter into and perform this
Agreement, Mr. Thomas Scott ("Scott") the principal owner of Tenant, hereby
personally, unconditionally and irrevocably guarantees the payment of all
amounts required to be paid or advanced to Manager by Tenant hereunder. This
guaranty shall become immediately due and payable upon written notice by Manager
to Scott following the default by Tenant to comply with its obligations
hereunder regarding the payment or provision of money to Manager. Scott's
guaranty is in no way conditional or contingent, except as expressly stated in
the immediately preceding sentence, and constitutes a valid, present,
continuing, irrevocable and absolute obligation of Scott as guarantor. Scott
agrees to pay all costs and expenses, including reasonable attorneys' fees, in
connection with the collection of amounts guaranteed hereunder and the
enforcement of his guaranty.
4.4 CAPITAL IMPROVEMENTS. Tenant shall provide Manager with such amount of
funds as may be required from time to time to make all necessary capital
improvements to the Facilities pursuant to the capital budget provided for in
Section 3.11(a)(iii) above, in order to maintain and continue standards of
operation of the Facilities as nursing homes and otherwise to comply with
requirements, if any, regarding capital improvements set forth in the Lease.
4.5 INSURANCE. Manager shall apply for, obtain and maintain on Tenant's
behalf and at Tenant's expense at all times during the term of this Agreement
the following insurance with respect to each Facility, in such amounts and
coverage as may be mutually agreed upon by the Tenant and Manager, or as may be
required by the Lease, but in any event no less than the amounts specified
below:
(A) (I) Commercial General Liability insurance in the amount of
$1,000,000 per occurrence and $3,000,000 in the aggregate for bodily injury
and property damage;
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(II) Products and Completed Operations insurance coverage in the
amount of $2,000,000 in the aggregate;
(III) Auto Liability insurance coverage in the amount of
$1,000,000 bodily injury/property damage combined single limit per
occurrence;
(IV) Professional Liability insurance in the amount of $1,000,000
per occurrence and $3,000,000 in the aggregate.
The policies listed in subsections 4.5(a)(i)-(iv) above will insure the
Tenant and name Manager as an Additional Insured
(B) Such workers' compensation and other similar insurance as may be
required by law or as may be required to insure Tenant against loss or the
payment of damages for such liabilities as may be imposed by law;
(C) Unemployment Compensation insurance through the appropriate state
agencies; and
(D) Fidelity and honesty insurance.
(E) Business interruption insurance.
All insurance provided for under the foregoing provisions of this Section
shall be effected by policies issued by insurance companies with at least an
"A-VI" rating from A.M. Best and Company of good reputation, of sound adequate
financial responsibility, and properly licensed and qualified to do business in
the State of Louisiana.
Each of the policies of insurance referred to in Paragraphs (a) through (d)
of this Section shall insure the Tenant, the subject Facility, the Owner and
their respective officers, partners, directors, shareholders, members, managers
and employees. Manager, its respective officers, partners, directors,
shareholders, managers and employees shall, to the extent permissible, be named
as additional insured under all such policies of insurance.
ARTICLE V
COMPENSATION AND DISTRIBUTIONS
5.1 As full and exclusive compensation for all of the services to be
rendered by Manager during the Term of this Agreement, the Tenant shall pay to
the Manager at its principal office, or at such other place as the Manager may
from time to time designate in writing, and at the times hereinafter specified:
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(A) A monthly fee (the "Base Management Fee") equal to six and
one-half (6 1/2 %) percent of Adjusted Gross Revenues (as defined below)
derived from the operation of the Facilities determined on the accrual
method of accounting. The Base Management Fee shall be payable five days
after delivery to Tenant of the monthly financial statement referred to in
Section 3.11 (each such date being hereinafter referred to as a "Payment
Date") and shall be calculated based upon the Adjusted Gross Revenues of
the Facilities during the preceding month as set forth in such financial
statements; and
(B) A quarterly fee (the "Incentive Management Fee") equal to forty
(40%) percent of the Adjusted EBITDA (as defined below) of the Facilities
for each quarterly period during the term of this Agreement. The Incentive
Management Fee for each quarter shall be: (1) calculated and earned on a
quarterly basis as of the last day of such quarter; and (2) paid to Manager
on the next succeeding Payment Date.
For the purposes hereof, "Adjusted EBITDA" for any period means the
earnings of the Facilities for such period before interest, taxes, depreciation
and amortization, and before consideration of the Incentive Management Fee, as
determined in accordance with GAAP, and after adjustment to eliminate prior
period income and expense items.
5.2 For the purposes of determining the Base Management Fee, "Adjusted
Gross Revenues" for any period shall be determined on the basis of all revenues
and income of any kind derived directly or indirectly from the Facilities during
such period (including rental or other payment from concessionaires, licensees,
tenants, and other users of the Facilities, but excluding therefrom all
bequests, gifts, or similar donations) whether on a cash basis or on credit,
paid or unpaid, collected or uncollected, as determined in accordance with GAAP,
consistently applied, excluding, however:
(A) federal, state, and municipal excise, sales, and use taxes
collected directly from patients as a part of the sales prices of
any goods or services;
(B) proceeds of any life insurance policies;
(C) gains or losses arising from the sale or other disposition of
capital assets;
(D) any reversal or accrual of any contingency or tax reserve;
(E) interest earned on sinking funds, Special Security Accounts,
bonds funds, etc. originally and specifically formed as a
requirement of any bond issue utilized to finance the Facilities;
and
(F) recovery of bad debt expense taken with respect to periods prior
to the term of this Agreement;
(G) Uncollectible accounts receivable accrued during the term of this
Agreement.
(H) Third party contractual adjustments accrued during the term of
this Agreement.
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(I) Disallowance for reimbursement claims accrued during the
term of this Agreement.
The proceeds of business interruption insurance or proceeds as a result of
Medicare and Medicaid audits shall be included in gross revenues of the
Facilities. However, funds required to be repaid as a result of Medicare and
Medicaid audits shall be deducted from gross revenues of the Facilities.
5.3 Notwithstanding the foregoing, the Base Management Fee and Incentive
Management Fee (including any amount carried over pursuant to the succeeding
sentence hereof) shall be payable on each Payment Date only to the extent that
Facility Funds (as defined in Section 3.10) shall be sufficient as of such date.
In the event that any portion of the Base Management Fee or Incentive Management
Fee is not paid when due because of the insufficiency of Facility Funds, Manager
shall make written demand for immediate payment thereof by Tenant. If Tenant
does not remit payment for the amount so demanded within twenty four (24) hours
of such demand, interest shall accrue on such unpaid amount from the date
demanded at a rate per annum equal to the prime rate of Citibank, NA, as then in
effect, plus four (4%) percent, and such total amount shall be carried over and
be payable on the immediately succeeding Payment Date. Any and all accrued and
unpaid Base Management Fee and Incentive Management Fee shall become immediately
and fully payable by Tenant upon the expiration or any termination of this
Agreement.
5.4 (A) In order to secure performance and payment of all obligations and
liabilities of Tenant to Manager under this Agreement whether now existing or
hereafter arising, including, without limitation, the payment of all Base
Management Fees, Incentive Management Fees, and reimbursable expenses of Manager
(the "Obligations"), Tenant hereby grants to Manager a security interest in all
of the assets of the Facilities owned by Tenant, including, but not limited to,
the following described property (collectively, the "Collateral"):
(I) Tenant's fee simple interest in any real property;
(II) Tenant's leasehold interest in any real property leased by
Tenant (other than the Facilities) and any and all rights that Tenant now
has or may hereafter acquire to purchase such real property (other than the
Facilities);
(III) all accounts receivable now owned or hereafter acquired by
Tenant in connection with the Facilities;
(IV) all equipment, furniture, and fixtures now owned or
hereafter acquired by the Tenant and located at or used in connection with
the Facilities;
(V) all contract rights now owned or hereafter acquired by Tenant
in connection with the operation of the Facilities;
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(VI) all inventory, supplies, goods, merchandise, work in
progress, finished goods, and other personal property other than accounts
receivable now owned or hereafter acquired by Tenant and located at or used
in connection with the Facilities;
(VII) all licenses, permits and other intangible assets; and
(VIII) any and all proceeds of any of the foregoing.
(B) Tenant represents, warrants and agrees that (i) Tenant owns good
and indefeasible title to the Collateral, (ii) no security interest or lien
has been created by Tenant, or is known by Tenant to exist with respect to
any Collateral, (iii) no financing statement or other security instrument
is on file in any jurisdiction covering such Collateral, and (iv) Tenant
will not create any other security interest or lien and will not file or
permit to be filed any other financing statement or other security
instrument with respect to the Collateral without the consent of Manager.
Tenant will execute, deliver and file such mortgages, financing statements,
security agreements and other documents as may be requested by Manager from
time to time to confirm, perfect and preserve the security interest created
hereby, and, in addition, hereby authorizes Manager to execute on behalf of
Tenant, deliver and file such financing statements, security agreements and
other documents without the signature of Tenant, all at the expense of
Tenant. The lien herein referred to as security for the obligations, in
favor of Manager, is and shall be first, prior and superior to all other
liens with respect to the Collateral.
(C) Manager shall have, in any jurisdiction where enforcement of this
Agreement is sought, in addition to any and all other rights and remedies
it may have under this Agreement, or at law, in equity, by statute or
otherwise, all the rights and remedies of a secured creditor under the
Uniform Commercial Code, including, but not limited to, the right to any
deficiency remaining after disposition of the Collateral.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF TENANT
Tenant represents and warrants to Manager as follows:
6.1 ORGANIZATION AND STANDING OF THE TENANT. The Tenant is a limited
liability company duly formed, validly existing and in good standing under the
laws of the State of Texas. Copies of the Certificate of Formation and Operating
Agreement of the Tenant, and all amendments thereof to date, have been, if
requested, delivered to Manager and are complete and correct. The Tenant 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.
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6.2 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution or delivery of
this Agreement, including all Schedules and Exhibits hereto, or any of the other
instruments and documents required or contemplated hereby and thereby
("Transaction Documents") by the Tenant, nor the performance by the Tenant of
the transactions contemplated hereby and thereby, conflicts with, or constitutes
a breach of or a default or requires the consent of any third party under (i)
the Certificate of Formation or Operating Agreement of the Tenant; or (ii) any
applicable law, rule, judgment, order, writ, injunction, or decree of any court,
currently in effect; or (iii) any applicable rule or regulation of any
administrative agency or other governmental authority currently in effect; or
(iv) the Lease or any other agreement, indenture, contract or instrument to
which the Tenant is now a party or by which the assets of the Tenant are bound.
6.3 CONSENTS. Except as set forth in Schedule 6.3, no authorization,
consent, approval, license, exemption by, filing or registration with any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary in connection with
the execution, delivery and performance of this Agreement by the Tenant.
6.4 MEMBERSHIP INTERESTS. Schedule 6.4 sets forth a complete list and
description of all classes and series of membership interests of the Tenant, and
the identity of each member of the Tenant, in each case indicating the
percentage of all classes and series of membership interests held. The Tenant
does not have outstanding any warrants, options, or other rights to subscribe
for or purchase from the Tenant any interests of the Tenant, nor are there
outstanding any securities convertible into or exchangeable for such interests.
6.5 FINANCIAL STATEMENTS.
(A) The unaudited balance sheets of each Facility as of December 31,
1997, and the related statements of operations for the year then ended,
annexed hereto as Exhibit 6.5(a), present fairly in all material respects
the financial condition and results of operations of such Facility at and
for the periods therein specified and were prepared in accordance with
GAAP, consistently applied.
(B) The unaudited balance sheets and the related statements of
operations of each Facility as of April 30, 1998, for the 4 month period
then ended, certified by the chief financial officer of the Tenant, annexed
hereto as Exhibit 6.5(b), present fairly in all material respects the
financial condition and results of operations of the Facility at and for
the periods therein specified and were prepared in accordance with GAAP,
consistently applied.
(C) Except as set forth on Schedule 6.5(c), or as expressly set forth
on the above-described financial statements, the Tenant has no material
liabilities or obligations (whether absolute, accrued, contingent or
otherwise and whether due or to become due, including, without limitation,
any guarantees of any obligations of any other person or entity) of any
kind or nature whether or not required by GAAP to be reflected in a
corporate balance sheet and/or the notes thereto.
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6.6 MATERIAL CHANGES. Since January 1, 1998, there has not been any
material adverse change in the condition (financial or otherwise) of the assets,
properties or operations of the Tenant and the Facilities, whether or not
covered by insurance, and during such period of time the businesses of the
Facilities have been conducted only in the ordinary and normal course.
6.7 LICENSES AND PERMITS. Schedule 6.7 sets forth a description of all
licenses and other governmental or other regulatory permits or approvals
required for the operation of the Facilities (excluding individual therapists
licenses) that are now in effect (collectively, the "Licenses"). The Tenant has
delivered to Manager copies of all of the Licenses. The Tenant or the
individuals listed on Schedule 6.7 own, possess or have the legal right to use
the Licenses, free and clear of all liens, pledges, claims or other encumbrances
of any nature whatsoever. The Tenant is not in material default under any such
License, and the Tenant has not received any notice of any default or any other
claim or proceeding relating to any such License. No member, director or
officer, employee or former employee of the Tenant, or any person, firm or
corporation other than the Tenant owns or has any proprietary, financial or
other interest, direct or indirect, in whole or in part in any of the Licenses,
other than Licenses necessary for such individuals to practice their own
professions.
6.8 LEGAL PROCEEDINGS. Other than as set forth on Schedule 6.8, there are
no claims, actions, suits or proceedings or arbitrations, either administrative
or judicial, pending, or, to the knowledge of Tenant, overtly threatened against
or affecting the Facilities or the Tenant, its members or affiliates, 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.
6.9 COLLECTIVE BARGAINING, LABOR CONTRACTS, EMPLOYMENT PRACTICES, ETC.
During the two years prior to the Commencement Date, there has been no material
adverse change in the relationship between the owner or operator of the
Facilities and its employees, nor any strike or material labor disturbance by
such employees affecting the business of the Facilities and, to the knowledge of
the Tenant, there is no indication that such a change, strike or labor
disturbance is likely. Except as set forth on Schedule 6.9, the employees of the
Facilities are not represented by any labor union or similar organization and
the Tenant 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 such employees. Except as set forth on Schedules 6.9, there are 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 the employees
of the Facilities. The Tenant 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 its employee benefit plans,
agreements and arrangements, including, without limitation, the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
6.10 RELATIONSHIPS. Except as disclosed on Schedule 6.10 hereto, no
affiliate of the Tenant 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 Facilities by which
the Tenant will be bound after the Commencement Date.
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6.11 ABSENCE OF CERTAIN EVENTS. Except as set forth on Schedule 6.11, since
January 1, 1998:
(A) there have not been any sales, assignments or transfers of any of
assets or properties of the Facilities, except in the ordinary course of
business;
(B) the Facilities or any assets of the Facilities have not been
mortgaged, pledged or subjected to any lien, pledge, mortgage, security
interest, conditional sales contract or other encumbrance of any nature
whatsoever, nor has the Tenant's interest in the Facilities or in such
assets been subject to any of the foregoing;
(C) no material contract, commitment, instrument or agreement of or
relating to the Facilities has been amended or terminated, other than in
the ordinary course of business;
(D) except in the ordinary course of business, or otherwise as
necessary to comply with any applicable minimum wage law, there has been no
increase to the salaries or other compensation of any of the employees of
the Facilities, nor has there been any increase in, or any additions to,
any other benefits to which any of such employees may be entitled;
(E) the Tenant has not failed to pay or discharge when due any of its
liabilities, and there has been no failure to pay or discharge when due any
liabilities of or relating to the Facilities, in either case the failure to
pay or discharge of which has caused or will cause any material damage or
give rise to the risk of a material loss to the Facilities or the Tenant;
(F) there has been no change to any of the accounting principles
followed by the Tenant and the facilities, or any change to the methods of
applying any such accounting principles;
(G) there has been no material transaction entered into with respect
to the Tenant or the Facilities, other than in the ordinary course of
business; or
(H) no notice has been given of any adverse determination made by any
licensing authority or reimbursement source which may reasonably be
expected to have a material adverse effect on the revenues or operations of
the Facilities. The Tenant shall report to Manager, within five (5)
business days after receipt thereof, any written notices that the Tenant or
the Facilities is not in compliance in any material respect with any of the
foregoing.
6.12 COMPLIANCE WITH LAWS. Except for notices of non-compliance as to which
the Tenant has taken corrective action acceptable to the applicable governmental
agency, and as set forth in Schedule 6.12, within the period of twelve months
preceding the date of this Agreement, no written notice has been served on
Tenant or any prior owner or operator of the Facilities that such party or any
Facility fails to comply in any material respect with any applicable Federal,
state, local
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or other governmental laws or ordinances, or any applicable order, rule or
regulation of any Federal, state, local or other governmental agency having
jurisdiction over such party or the Facilities ("Governmental Requirements").
The Tenant shall report to Manager, within five (5) business days after receipt
thereof, any written notices that the Tenant or any Facility is not in
compliance in any material respect with any of the foregoing.
6.13 TAX RETURNS. Except as set forth on Schedule 6.13, all Federal, state,
county and local income, excise, property, employment-related and other tax
returns and abandoned property reports (if any) to date that are due and
required to be filed with respect to the Facilities have been so filed, and
there are no claims, liens, or judgments for taxes due with respect to the
Facilities, and to the knowledge of the Tenant, no basis for any such claim,
lien, or judgment exists.
6.14 CONTRACTS. Schedule 6.14 sets forth a complete and correct list of all
agreements, contracts, and commitments to which directly pertain to the
operation of the Facilities or by which the Facilities or any of the assets of
the Facilities are bound (the "Contracts"). Except as indicated on Schedule
6.14, each of the Contracts was entered into and requires performance in the
ordinary course of business and is in full force and effect. The Tenant is not
in material default under any Contract and there has not been asserted, either
by or against the Tenant under any Contract, any written notice of default,
set-off or claim of default. To the knowledge of the Tenant, the parties to the
Contracts other than the Tenant are not in material default of any of their
respective obligations under the Contracts, and there has not occurred any event
which with the passage of time or the giving of notice (or both) would
constitute a material default or material breach under any Contract. All amounts
payable under the Contracts are on a current basis.
6.15 THE LEASE. Tenant has delivered to Manager a true and correct copy of
the Lease. The Lease was entered into and requires performance in the ordinary
course of business and is in full force and effect. The Tenant is not in default
under the Lease and there has not been asserted, either by or against the Tenant
under the Lease, any written notice of default, set-off or claim of default. To
the knowledge of the Tenant, the Owner is not in material default of its
obligations under the Lease, 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 the Lease. All amounts payable under the Lease
are on a current basis.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF MANAGER
7.1 ORGANIZATION AND STANDING OF THE MANAGER. Manager represents and
warrants to the Tenant that the Manager is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Copies of
the Articles of Incorporation and By-Laws of the Manager, and all amendments
thereof to date, have been, if requested, delivered to the Tenant and are
complete and correct. The Manager 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.
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ARTICLE VIII
TERMINATION RIGHTS
This Agreement may be terminated and, except as to liabilities or claims of
either party hereto which shall have theretofore accrued or arisen, the
obligations of the parties hereto with respect to this Agreement may be
terminated, upon the happening of any of the following events:
8.1 TERMINATION BY THE TENANT: If at any time or from time to time during
the term of this Agreement any of the following events shall occur and not be
remedied within the applicable period of time herein specified, namely:
(A) The Manager shall apply for or consent to the appointment of a
receiver, trustee, or liquidator of the Manager of all or a substantial
part of its assets, file a voluntary petition in bankruptcy, make a general
assignment for the benefit of creditors, file a petition or an answer
seeking reorganization or arrangement with creditors or take advantage of
any insolvency law, or if an order, judgment or decree shall be entered by
any court of competent jurisdiction, on the application of a creditor,
adjudicating the Manager as bankrupt or insolvent or approving a petition
seeking reorganization of the Manager or appointing a receiver, trustee, or
liquidator of the Manager or of all or substantial part of its assets, and
such order, judgment or decree shall continue unstayed and in effect for
any period of ninety (90) consecutive days; or
(B) The Manager shall fail to keep, observe, or perform any material
covenant, agreement, term or provision of this Agreement to be kept,
observed, or performed by the Manager, and such default shall continue for
a period of forty-five (45) days after written notice thereof by the Tenant
to the Manager;
then in case of any such event and upon the expiration of the period of grace
applicable thereto, the term of this Agreement shall expire, at the Tenant's
option and upon ten (10) days written notice to the Manager.
8.2 TERMINATION BY THE MANAGER: If at any time or from time to time during
the term of this Agreement any of the following events shall occur and not be
remedied within the applicable period of time herein specified, namely:
(A) The Tenant shall fail to keep, observe, or perform any material
covenants, agreement, term or provision of this Agreement to be kept,
observed, or performed by the Tenant and such default shall continue for a
period of forty-five (45) days after written notice thereof by the Manager
to the Tenant, except for Tenant's duty to provide for adequate working
capital under Section 4.3 hereof, which shall continue uncured for a period
of thirty (30) days after written notice thereof;
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(B) The Facilities or any portion thereof shall be damaged or
destroyed by fire or other casualty and (i) the Tenant shall fail to
undertake to repair, restore, rebuild, or replace any such damage or
destruction within forty-five (45) days after such fire or other casualty,
or shall fail to complete such work diligently, and (ii) such Tenant shall
fail to permit the Manager to undertake to repair, restore, rebuild, or
replace, at Tenant's expense, any such damage or destruction within
forty-five (45) days after such fire or other casualty;
(C) The Tenant shall apply for or consent to the appointment of a
receiver, trustee, or liquidator of the Tenant or of all or a substantial
part of its assets, file a voluntary petition in bankruptcy or admit in
writing its inability to pay its debts as they become due, make a general
assignment for the benefit of creditors, file a petition or any answer
seeking reorganization or arrangement with creditors or to take advantage
of any insolvency law, or if an order, judgment or decree shall be entered
by a court of competent jurisdiction, on the application of a creditor,
adjudicating the Tenant bankrupt or appointing a receiver, trustee, or
liquidator of the Tenant with respect to all or substantial part of the
assets of the Tenant, and such order, judgment or decree shall continue
unstayed and in effect for any period of ninety (90) consecutive days;
(D) Any license, lease or sub-lease for the operation of any Facility,
including the Lease, is at any time suspended, terminated, or revoked and
such suspension, termination, or revocation shall continue unstayed and in
effect for a period of thirty (30) consecutive days; or
(E) management fees payable to the Manager pursuant to Article V are
accrued and unpaid with respect to any three (3) month period, and Facility
Funds or funds under Section 4.3 shall be insufficient for the payment
thereof;
then in case of any such event and upon the expiration of the period of grace
applicable thereto, the term of this Agreement shall expire, at the Manager's
option and upon ten (10) days written notice to the Tenant.
8.3 SURVIVING RIGHTS UPON TERMINATION. If either party exercises its option
to terminate pursuant to this Article VIII, each party shall forthwith account
for and pay to the other all sums due and owing pursuant to the terms of this
Agreement. Without limiting the generality of the foregoing, upon any
termination of this Agreement, Tenant shall be obligated fully and immediately
to pay to Manager all accrued and unpaid Base Management Fees, Incentive
Management Fees, and reimbursable expenses of Manager, together with all accrued
and unpaid interest thereon, notwithstanding that available Facility Funds may
not be sufficient for such purposes. All other rights and obligations of the
parties under this Agreement shall terminate, except for the rights and
obligation of any party under Section 4.3(b), Article X, and Article XII
hereof).
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ARTICLE IX
ADDITIONAL COVENANTS REGARDING THE LEASE
Tenant covenants, represents and agrees that it will promptly and fully pay
and perform when due all amounts and obligations required to be paid and
performed by it under the Lease, except to the extent that Manager has
undertaken to pay such amounts or perform such obligations pursuant to the terms
of this Agreement, and that it shall not commit or permit any default to occur
under the Lease. Tenant agrees that if, during the term of this Agreement, it
shall be given notice by Owner of any default under the Lease, it shall, within
two (2) days of receipt thereof, provide Manager with a copy of such default
notice.
ARTICLE X
INDEMNIFICATION
10.1 INDEMNIFICATION OF TENANT BY MANAGER. Manager shall indemnify and hold
Tenant and its respective officers, directors, employees and affiliates harmless
from any and all claims, losses, judgments, damages, expenses and liabilities
whatsoever incurred by Tenant and its respective officers, directors, employees
and affiliates, including reasonable attorneys' fees, arising out of Manager's
material breach of this Agreement or any third party claims which are caused in
whole or in part by any negligent act or omission of Manager in connection with
the performance of its duties under this Agreement. However, Manager's
obligation to indemnify Tenant shall not extend to any Medicare or Medicaid cost
disallowances. Manager's obligations under this Section 10.1 shall survive
termination of this Agreement.
10.2 INDEMNIFICATION OF MANAGER BY TENANT. The Tenant shall at all times
indemnify and hold harmless the Manager, its officers, directors, employees, and
shareholders, from and against any and all claims, losses, liabilities, actions,
proceedings, and expenses (including reasonable attorneys fees) arising out of
(i) the ownership or operation of the Facilities prior to the term of this
Agreement, (ii) the breach by Tenant of any of its obligations hereunder, or
(iii) any breach of the representations and warranties made by Tenant in Article
VI of this Agreement. The provisions of this Section 10.2 shall survive the
termination or expiration of this Agreement.
10.3 CONTROL OF DEFENSE OF INDEMNIFIABLE CLAIMS. A party seeking
indemnification under this Article X shall give the other party prompt written
notice of the claim for which it seeks indemnification. Failure of the party
seeking indemnification to give such prompt notice shall not relieve the other
party of its indemnification obligation, provided that such indemnification
obligation shall be reduced by any damages suffered by such other party
resulting from a failure to give prompt notice hereunder. The party receiving
the aforementioned notice shall provide the defense of such claim, including,
without limitation, retention and payment of attorneys.
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ARTICLE XI
ENGAGEMENT FEE
11.1 ENGAGEMENT FEE. In consideration for the appointment of Manger
pursuant to this Agreement, Integrated Health Services, Inc. ("IHS") shall pay
to Scott a single engagement fee (the "Engagement Fee") in the sum of Three
Hundred Fifty Thousand and 00/100 ($350,000) Dollars, payable to Scott on the
Commencement Date by the delivery to Scott of newly issued shares of Common
Stock, par value $.001 of IHS (the "IHS Stock"), in accordance with the
following:
(A) SHARE VALUE. The number of shares of IHS Stock issuable to Tenant
pursuant to this Section 11.1 shall be valued based upon a price per share of
such stock equal to the average closing NYSE price of such stock for the fifteen
(15) trading day period immediately preceding the date which is two (2) trading
days before the Commencement Date.
(B) REGISTRATION RIGHTS. IHS will use its best efforts to cause to be
prepared, filed and declared effective by the Securities and Exchange Commission
(the "Commission") within one hundred twenty (120) days following the
Commencement Date, a registration statement for the registration under the
Securities Act of 1933 (the "Securities Act") of the IHS Stock issued to Tenant
pursuant to this Agreement, and IHS 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 Tenant 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. Tenant shall not be responsible for, and
IHS shall bear, all of the reasonable expenses of IHS related to such
registration including, without limitation, the fees and expenses of its counsel
and accountants, all of its other costs, fees and expenses incident to the
preparation, printing, registration and filing under the Securities Act of the
registration statement and all amendments and supplements thereto, the cost of
furnishing copies of each preliminary prospectus, each final prospectus and each
amendment or supplement thereto to underwriters, dealers and other purchasers of
IHS Stock and the costs and expenses (including fees and disbursements of its
counsel) incurred in connection with the qualification of IHS Stock under the
Blue Sky laws of various jurisdictions. IHS, however, shall not be required to
pay underwriter's or brokerage discounts, commissions or expenses, or to pay any
costs and expenses in excess in the aggregate of $20,000 for Blue Sky
qualifications of the Tenant's (and any transferee's) IHS Stock, or to pay any
costs or expenses arising out of the Tenant's or any transferee's failure to
comply with its obligations under this Article XI.
(D) RESALE LIMITATIONS. Except as otherwise expressly provided in this
Section, all resales of IHS Stock issued pursuant to this Agreement shall be
effected solely through Smith Barney Inc., as broker.
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(E) REGISTRATION PROCEDURES, ETC. In connection with the registration
rights granted to the Tenant with respect to the IHS Stock as provided in this
Section 11.1, IHS covenants and agrees as follows:
(I) At IHS's expense, IHS will keep the registration and
qualification under this Section 11.1 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. IHS
will immediately notify the Tenant, at any time when a prospectus relating to a
registration statement under this Section 11.1 is required to be delivered under
the Securities Act, of the happening of any event known to IHS as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing.
(II) IHS shall furnish the Tenant with such number of
prospectuses as shall reasonably be requested.
(III) IHS shall take all necessary action which may be required
in qualifying or registering IHS Stock included in a registration statement for
offering and sale under the securities or Blue Sky laws of such states as
reasonably are requested by the Tenant, provided that IHS shall not be obligated
to qualify as a foreign corporation or dealer to do business under the laws of
any such jurisdiction.
(IV) The information included or incorporated by reference in the
registration statement filed pursuant to this Section 11.1 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. IHS 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 IHS or based upon written information
furnished by IHS filed in any jurisdiction in order to qualify IHS Stock under
the securities laws thereof or filed with the Commission, any state securities
commission or agency, NYSE 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
22
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in conformity with written information furnished to IHS by the Tenant 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 Tenant
or any controlling person of the Tenant in respect of which indemnity may be
sought against IHS pursuant to this subsection 11.1(e)(iv), the Tenant or such
controlling person shall within thirty (30) days after the receipt thereby of a
summons or complaint, notify IHS in writing of the institution of such action
and IHS shall assume the defense of such actions, including the employment and
payment of reasonable fees and expenses of counsel (reasonably satisfactory to
the Tenant or such controlling person). The Tenant 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 Tenant or
such controlling person unless (A) the employment of such counsel shall have
been authorized in writing by IHS in connection with the defense of such action,
or (B) IHS shall not have employed counsel to have charge of the defense of such
action, or (C) such indemnified party or parties shall have reasonably concluded
that there may be defenses available to it or them which are different from or
additional to those available to IHS (in which case, IHS shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events the fees and expenses of not more than one
additional firm of attorneys for the Tenant and/or such controlling person shall
be borne by IHS. Except as expressly provided in the previous sentence, in the
event that IHS shall not previously have assumed the defenses of any such action
or claim, IHS shall not thereafter be liable to the Tenant or such controlling
person in investigating, preparing or defending any such action or claim. IHS
agrees promptly to notify the Tenant of the commencement of any litigation or
proceedings against IHS or any of its officers, directors or controlling persons
in connection with the resale of IHS Stock or in connection with such
registration statement.
(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 IHS, its officers and directors and each person, if any,
who controls IHS 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 Tenant desires to transfer all or any
portion of the IHS Stock, the Tenant will deliver written notice to IHS,
describing in reasonable detail its 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 Tenant will sell the
IHS Stock in compliance with the disclosure therein and discontinue any offers
and sales thereunder upon notice from IHS that the registration statement
relating to the IHS Stock being transferred is not "current" until IHS gives
further notice that offers and sales may be recommenced. In the event of any
such notice from IHS, IHS agrees to file expeditiously such amendments to the
registration statement as may be necessary to bring it current during the period
specified in Section 11.1(b) and to give prompt notice to the Tenant when the
registration statement has again become current. If the Tenant delivers to IHS
an opinion of counsel reasonably acceptable to IHS and its counsel and to the
effect that the proposed transfer of IHS Stock may be made without registration
under the Securities Act, the Tenant will be entitled to transfer IHS Stock in
accordance with the terms of the notice and opinion of its counsel.
23
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(G) FURNISH INFORMATION. It shall be a condition precedent to the
obligations of IHS to take any action pursuant to this Article XI that the
Tenant shall furnish to IHS such information regarding itself, the IHS Stock
held by it, and the intended method of disposition of such securities as shall
be required to effect the registration of the IHS Stock. In that connection,
each transferee of the Tenant shall be required to represent to IHS that all
such information which is given is both complete and accurate in all material
respects. The Tenant shall deliver to IHS a statement in writing from the
beneficial owners of such securities that they bona fide intend to sell,
transfer or otherwise dispose of such securities. Each transferee will,
severally, promptly notify IHS at any time when a prospectus relating to a
registration statement covering such transferee's shares under this Section 11.1
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 IHS. The Tenant represents and warrants
to IHS that the IHS Stock being issued hereunder is being acquired, and will be
acquired, by the Tenant 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 Tenant
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 Tenant 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 Tenant 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 Tenant
has had the opportunity to make inquiries of and obtain from representatives and
employees of IHS such other information about IHS as it deems necessary in
connection with such investment.
(I) LEGEND. It is understood that, prior to sale of any shares of IHS
Stock pursuant to an effective registration pursuant to subsection (b) above,
the certificates evidencing such shares of IHS Stock shall bear the following
(or a similar) legend (in addition to any legends which may be required in the
opinion of IHS's counsel by the applicable securities laws of any state), and
upon sale of such shares pursuant to such an effective registration, new
certificates shall be issued for the shares sold without such legends except as
otherwise required by law:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE
SECURITIES ACT OF 1933 OR AN OPINION OF THE COMPANY'S COUNSEL THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
24
<PAGE>
(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 Tenant under this Article XI.
ARTICLE XII
CONFIDENTIALITY; NON-SOLICITATION
12.1 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Tenant acknowledges that
Manager's business involves the development and use of Confidential Information
(defined below) and that Manager will make available such Confidential
Information to Tenant in connection with Manager's duties under this Agreement.
Manager acknowledges that Tenant's business involves the development and use of
Confidential Information and that Tenant will make available such Confidential
Information to Manager in connection with Manager's duties under this Agreement.
Except as Tenant and Manager may disclose in fulfillment of their duties and
responsibilities under this Agreement or as may be required to be disclosed by
Tenant, the Facilities and Manager by law, the parties and their respective
officers, directors, employees or agents shall not, at any time during or after
the term of this Agreement, divulge, furnish or make accessible Confidential
Information to any person or entity for any purpose whatsoever. "Confidential
Information" means any confidential or proprietary information, including,
without limitation, manuals, forms, policies and procedures, computer programs,
system documentation and related software, patient records and patient
information, and any other information of any kind with respect to the finances,
business plans or business operations of the parties.
12.2 NON-USE AND RETURN OF MATERIALS. Effective upon a termination of this
Agreement for any reason whatsoever, the parties and their respective officers,
directors, employees or agents shall not use any Confidential Information for
any purpose whatsoever, including, but not limited to, use in connection with
the operation and management of the Facilities.
12.3 NON-SOLICITATION. Tenant and Manager agree that, for the entire term
of this Agreement and for twelve (12) months after the date that this Agreement
is terminated, (i) Tenant shall not entice or induce, directly or indirectly,
any employee to leave the employ of Manager to work with or for the Tenant, or
to work with any person or entity with whom Tenant becomes affiliated to provide
nursing home or skilled nursing facility care services, and (ii) Manager shall
not entice or induce, directly or indirectly, any employee to leave the employ
of Tenant to work with or for Manager, or to work with any other person or
entity with whom Manager is or becomes affiliated.
25
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12.4 REMEDIES. The parties agree that an aggrieved party who is the
beneficiary of any restriction contained herein may not be adequately
compensated for damages for a breach of the covenants contained in this Article
XII, and such aggrieved party shall be entitled to injunctive relief and
specific performance in addition to all other remedies. If a court of competent
jurisdiction shall finally determine that the restraints provided for in this
Article XII are too broad as to the activity, geographic area or time covered,
said activity, geographic area or time covered will be reduced to whatever
extent the court deems necessary, and such covenant shall be enforced as to such
reduced activity, geographic area or time period.
12.5 PROPRIETARY MATERIAL. The Tenant acknowledges and agrees that the
systems, methods, programs, software, brochures, manuals, forms, data,
procedures, and related information used by Manager in the performance of
Manager's obligations under this Agreement are proprietary in nature, shall be
and remain (along with any corresponding copyrights or similar rights) the sole
property of Manager and shall not at any time be directly or indirectly used,
distributed, disclosed, copied or otherwise employed by the Tenant or the
Facilities, except in the operation of the Facilities under Manager's management
during the term of this Agreement. Upon termination of this Agreement, the
Tenant shall to return to the Manager all such proprietary materials and
information and all documents (including all copies thereof) containing such
information in the Tenant's or Facilities' possession or within its control, and
use its best efforts to ensure that its employees have not retained any such
materials, information or documents or copies thereof and, upon request by
Manager, confirm compliance with the foregoing in writing.
ARTICLE XIII
CONDEMNATION
If the whole of either Facility shall be taken or condemned in any eminent
domain, condemnation, compulsory acquisition, or like proceeding by a competent
authority for any public or quasi-public use or purpose or if such portion
thereof shall be taken or condemned as to make it unsuitable for its primary
intended use, then the term of this Agreement shall cease and terminate as to
such Facility on the date on which the Tenant shall be required to surrender
possession of such Facility. The Manager shall continue to supervise and direct
the management of such Facility until such time as the Tenant shall be required
to surrender possession of such Facility as a consequence of such taking or
condemnation.
If only a part of a Facility shall be taken or condemned and the taking or
condemnation of such part does not make it unsuitable for its primary intended
use, this Agreement shall not terminate.
In the event that the parties herein are unable within a period of thirty
(30) days after controversy arising between them to agree upon the apportionment
of any award or are otherwise in dispute as to any matter arising under this
Article XIII, any such dispute shall be resolved by arbitration in accordance
with the provision of Article XIV hereof and the costs thereof or incurred
therein shall be borne or apportioned and paid as determined by said
arbitration.
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ARTICLE XIV
ARBITRATION
If any controversy should arise between the parties in performance,
interpretation, or application of this Agreement which involves any matter,
either party may, after their good faith efforts to resolve the dispute as set
forth below, serve upon the other a written notice stating that such party
desires to have the controversy reviewed by an arbitrator. If the parties cannot
agree within fifteen (15) days from the service of such notice upon the
selection of such arbitrator, an arbitrator shall be selected or designated by
the American Arbitration Association upon written request of either party
hereto. Arbitration of such controversy, disagreement, or dispute shall be
conducted in accordance with the Commercial Arbitration Rules then in force of
the American Arbitration Association and the decision and award of the
arbitrator so selected shall be binding upon the Tenant and Manager. The
arbitration will be held in Baltimore, Maryland .
As a condition precedent to serving notice for the appointment of any
arbitrator, both parties shall be required to make a good faith effort to
resolve the controversy which effort shall continue for a period of thirty (30)
days prior to any demand for arbitration. The cost of any such arbitration shall
be shared equally be the parties. Each party shall pay its own costs incurred as
a result of its participation in any such arbitration.
If the issue to be arbitrated is Manager's alleged breach of this Agreement
and as a result thereof, Tenant has the right to terminate this Agreement,
Manager shall continue to manage the Facilities hereunder pending the outcome of
such arbitration.
The Arbitrator shall have no authority to award punitive damages or any
other damages in excess of the prevailing party's actual damages, and may not
make any ruling, finding or award that does not conform to the terms and
conditions of this Agreement.
ARTICLE XV
SUCCESSORS AND ASSIGNS
15.1 ASSIGNMENTS BY THE MANAGER. The Manager, without the consent of the
Tenant, shall have the right to assign this Agreement to a wholly or majority
owned subsidiary provided that the Manager shall not thereby be released from
its obligations hereunder.
In the event that all or substantially all the assets of the Manager or its
capital stock shall during the term of this Agreement be acquired by another
corporation (hereinafter referred to as the "Acquiring Corporation") as a result
of a merger, consolidation, reorganization, or other transaction, and the
Acquiring Corporation assumes all of the obligations of the Manager then accrued
hereunder, if any, then Manager shall be relieved of all such obligations (and
if such Acquiring Corporation shall be acquired by a subsequent Acquiring
Corporation which assumes all of the obligations of the Manager, then the first
Acquiring Corporation shall be relieved of liability hereunder).
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Except as otherwise permitted herein, the Manager shall have no right to
assign this Agreement.
15.2 SALE, ASSIGNMENT, OR SUB-LEASE BY THE TENANT. Any sale, sub-lease, or
assignment with respect to the Facilities, other than to the Manager, shall be
expressly subject to the terms and provisions of this Agreement and shall not
relieve the Tenant of its liability or obligations hereunder, and Tenant shall
cause any purchaser, assignee, or sub-lessee to deliver to the Manager written
acknowledgment of its agreement to perform hereunder including the payment of
the management fee described herein.
The Tenant may not at any time, without the prior written consent of the
Manager, which shall not be unreasonably withheld, incur any additional debt or
subject its interest in the Facilities or any part thereof to the lien of one or
more deeds of trust, mortgages, or other security instruments. In the event that
such consent is given, such additional debt or security interest shall be
subordinate to Manager's rights and security interest granted pursuant to this
Agreement.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
16.1 NOTICES. Any notice or other communication by either party to the
other shall be in writing and shall be given and be deemed to have been duly
given, upon the date delivered if delivered personally or upon the date received
if mailed postage pre-paid, registered, or certified mail, addressed as follows:
To the Tenant: Pinnacle Health Facilities of Louisiana, LLC
2901 Dallas parkway
Plano, Texas 75093
Attn: Gene Lunceford
To the Manager: Integrated Health Services at Franklin, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attention: Elizabeth B. Kelly, Executive Vice-President
Marshall A. Elkins, Esq.
With a copy to: Blass & Driggs
461 Fifth Avenue
New York, New York 10017
Attention: Michael Blass, Esq.
or to such other address, and to the attention of such other person or officer
as either party may designate in writing by notice.
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16.2 NO PARTNERSHIP OR JOINT VENTURE. Nothing contained in the Agreement
shall constitute or be construed to be or create a partnership or joint venture
between the Tenant, its successors, or assigns on the one part and the Manager,
its successors, or assigns on the other part. Notwithstanding the foregoing, the
parties hereby agree that they shall each have a duty to act in good faith and
to deal fairly with the other party hereto.
16.3 MODIFICATIONS AND CHANGES. This Agreement cannot be changed or
modified except by another agreement in writing signed by the party sought to be
charged therewith or by its duly authorized agent.
16.4 UNDERSTANDING AND AGREEMENTS. This Agreement constitutes the entire
understanding and agreements of whatsoever nature or kind existing between the
parties with respect to the Manager's management of the Facilities.
16.5 HEADINGS. The article and paragraph headings contained herein are for
convenience of reference only and are not intended to define, limit, or describe
the scope of intent of any provision of this Agreement.
16.6 APPROVAL OR CONSENT. Whenever under any provisions of this Agreement,
the approval or consent of either party is required, the decision thereon shall
be promptly given and such approval or consent shall not be unreasonably
withheld. It is further understood and agreed that whenever under any provisions
of this Agreement the approval or consent of the Tenant is required, such
approval or consent is given by the person or any one of the persons, as the
case may be, designated in a notification signed by or on behalf of the Tenant.
For all purposes under this Agreement, the Manager shall determine solely from
the latest such notification received by it the person or persons authorized to
give such approval or consent. The Manager shall rely exclusively and
conclusively on the designation set forth in such notification, notwithstanding
any notice of knowledge to the contrary.
16.7 GOVERNING LAW. This Agreement shall be deemed to have been made and
shall be construed and interpreted in accordance with the laws of the State of
Maryland.
16.8 ENFORCEABILITY. Should any provision of this Agreement be
unenforceable as between the parties, such unenforceability shall not affect the
enforceability of the other provisions of this Agreement.
16.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Management Agreement effective as of the day and year first above written.
TENANT: MANAGER:
PINNACLE HEALTH INTEGRATED HEALTH
FACILITIES OF LOUISIANA, L.L.C. SERVICES AT FRANKLIN, INC.
By: /s/ THOMAS SCOTT By: /s/ ELIZABETH B. KELLY
----------------------------- -------------------------------
Title: Title: EVP, Corporate Development
-------------------------- ----------------------------
AGREED AS TO ARTICLE XI: INTEGRATED HEALTH
SERVICES, INC.
/s/ THOMAS SCOTT
- -------------------------------- By: /s/ ELIZABETH B. KELLY
THOMAS SCOTT -------------------------------
Title: EVP, Corporate Development
----------------------------
AGREED AS TO SECTION 4.3(B):
/s/ THOMAS SCOTT
- --------------------------------
THOMAS SCOTT
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STATE OF TEXAS )
ss:
COUNTY OF: )
On the 4th day of September, 1998, duly appeared Thomas Scott, to me known,
who, being by me duly sworn, did depose and say that he resides at , that he is
the individual who executed the above Management Agreement in his individual
capacity, as guarantor of Tenant thereunder, and he thereupon duly acknowledged
that he executed same.
/s/ Melinda S. Provence
-----------------------
Notary Public
NOTARY PUBLIC
STATE OF TEXAS
[SEAL]
Melinda S. Provence
Notary Public, State of Texas
My Commission Expires
March 17, 2001
31
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EXHIBIT A
The following is a list of items and travel expenses not included in the
management fee. These facility specific expenses are passed directly to the
facility in which the expense was incurred.
o Administrator wages, benefits and related travel expenses. (This
includes an annual administrator conference).
o Computer hardware and software purchased for Facilities.
o Facility specific legal and accounting fees.
o Facility specific fees associated with union organization attempts,
elections, etc.
o Outside consultants used for Medicare or Medicaid cost reports and
Medicare exception requests.
o Travel costs for facility personnel training.
o All other costs incurred related to facility-specific matter.
<PAGE>
SCHEDULE 6.3
CONSENTS
None
<PAGE>
SCHEDULE 6.4
MEMBERSHIP INTERESTS
Thomas D. Scott 50%
Linda K. Scott 50%
EXHIBIT 5
Fulbright & Jaworski L.L.P.
A Registered Limited Liability Partnership
666 Fifth Avenue
New York, New York, 10103-3198
Telephone: 212/318-3000 HOUSTON
Facsimile: 212/752-5958 WASHINGTON, D.C.
AUSTIN
WRITER'S INTERNET ADDRESS: SAN ANTONIO
DALLAS
WRITER'S DIRECT DIAL NUMBER: NEW YORK
LOS ANGELES
LONDON
HONG KONG
April 5, 1999
The Board of Directors
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Dear Sirs,
We refer to the Registration Statement on Form S-3 (the "Registration
Statement"), filed by Integrated Health Services, Inc. (the "Company") on behalf
of the selling stockholders (the "Selling Stockholders") with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, relating to
________ shares of the Company's 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 the purposes of this opinion and, upon the basis of such
examination, advise you that in our opinion the Shares 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,
/s/ Fulbright & Jaworski L.L.P.
Fulbright & Jaworski L.L.P.
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Integrated Health Services, Inc.:
We consent to the use of our report dated March 30, 1999 relating to the
consolidated financial statements of Integrated Health Services, Inc. ("IHS")
and subsidiaries, incorporated herein by reference to IHS 1998 Form 10-K, to the
incorporation herein by reference of our report dated April 14, 1997 relating to
the consolidated financial statements of Community Care of America, Inc. and
subsidiaries, which report appears in Amendment No. 1 to Form 8-K/A of IHS dated
September 25, 1997 and filed May 29, 1998, and to the reference to our firm
under the heading "Experts" in the registration statement.
Our report dated April 14, 1997 refers to the change in accounting method
in 1996 to adopt Statement of Financial Accounting Standards No. 121 relating to
impairment of long-lived assets.
KPMG LLP
Baltimore, Maryland
April 5, 1999
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
on Form S-3 of Integrated Health Services, Inc. (IHS) of our report dated
September 18, 1997 (October 21, 1997 as to Note 1), appearing in the Annual
Report on Form 10-K of RoTech Medical Corporation for the year ended July 31,
1997, which report appears in the Form 8-K, dated October 21, 1997, as amended,
of IHS, and to the reference to us under the heading "Experts" in the
Registration Statement.
Deloitte & Touche LLP
Orlando, Florida
April 5, 1999
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated March 6, 1998
included in Integrated Health Services, Inc.'s Amendment No. 1 to Current Report
on Form 8-K/A dated December 31, 1997 and to all references to our Firm included
in this registration statement.
Arthur Andersen LLP
Albuquerque, New Mexico
April 5, 1999
