AGREEMENT
THIS AGREEMENT is dated as of the 26th day of July, 2000 and is by and
between ROBERT N. ELKINS ("Elkins"), an individual with an address of 7583 Bay
Colony Road, Naples, Florida 34108, and INTEGRATED HEALTH SERVICES, INC. ("IHS"
or the "Company"), a Delaware corporation with an address of 910 Ridgebrook
Road, Sparks, Maryland 21152, on behalf of itself and its subsidiaries,
WHEREAS, IHS and affiliates are debtors and debtors in possession in
procedurally consolidated Chapter 11 cases (the "Case") pending in the United
States Bankruptcy Court for the District of Delaware (the "Court") (IHS and the
other entities who are debtors and debtors in possession in the Case are
sometimes collectively referred to as the "Debtors").
WHEREAS, Elkins and IHS are parties to an Employment Agreement dated
as of January 1, 1994, which was amended by Amendment No. 1 dated as of January
1, 1995, which was amended by Amendment No. 2 dated as of November 18, 1997, and
which was supplemented by Supplemental Agreement dated as of November 18, 1997
and Amendment No. 1 to Supplemental Agreement dated as of September 30, 1998
(collectively the "Employment Agreement"); and
WHEREAS, Elkins is Chairman of the Board, Chief Executive Officer, and
President of IHS and is entitled to indemnity from the Debtors pursuant to the
Company's ByLaws, Certificate of Incorporation, and applicable law; and
WHEREAS, in December 1997, IHS sold an aircraft to RNE Skyview LLC
("Skyview"), a limited liability company in which Elkins is the sole member, and
simultaneously IHS and Skyview entered into an Aircraft Lease Agreement dated as
of December 12, 1997 (the "Aircraft Lease"), which remains in force and effect;
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WHEREAS, IHS from time to time has advanced Elkins money to purchase
stock in IHS, exercise stock options in IHS and pay taxes associated with option
exercise, which advances are memorialized by the documents referred to in
Exhibit A (sometimes collectively referred to as the "Notes"); and
WHEREAS, the Company maintains a primary policy of Directors, Officers
and Corporate Liability insurance with National Union Fire Ins. Co. of
Pittsburgh, PA ("National Union") (policy no. 858-35-56) (the "National Union
Primary Policy"), and excess policies with Zurich American Insurance Company
(policy no. DOC202729302), Gulf Insurance Company (policy no. GA0436277), the
Chubb Group of Insurance Companies (policy no. 7942-44-24-AKCO), and National
Union (policy no. 858-35-55) (said insurance policies, together with all
endorsements through the date hereof, collectively referred to as the "D&O
Policies"), providing a total of $90 million in insurance coverage on the terms
and subject to the conditions set forth in the D&O Policies; and
WHEREAS, as of February 1, 1998 IHS caused its wholly-owned subsidiary
Lyric Health Care LLC. ("Lyric") to sell a 50% membership interest to TFN
Healthcare Investors, Inc. ("TFN"), an entity controlled by Timothy F. Nicholson
("Nicholson"), and Nicholson became Managing Director of Lyric; and
WHEREAS, as of December 31, 1998, one or more of the Debtors sold
twenty-seven (27) long term care facilities and five (5) specialty hospitals to
Monarch Properties, LP ("Monarch LP") for cash, plus contingent earn out
payments. As of March 25, 1999, the Company sold a nursing facility to Monarch
Properties at Jacksonville, LLC ("Monarch Jacksonville"). Monarch LP and Monarch
Jacksonville leased those facilities to affiliates of
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Lyric, and an affiliate of IHS manages those facilities for Lyric pursuant to
management agreements (the "Management Agreements"); and
WHEREAS, the Debtors after careful consideration, have concluded that
entry into and performance of this Agreement represents a sound exercise of the
Debtors' business judgment, and is in the best interests of the Debtors, their
estates and their Creditors; and
WHEREAS, the parties intend this Agreement to resolve, among other
things, all the Claims and causes of action which Elkins and the other Elkins
Released Parties have or may have against the Debtors and all Equity Interests
which the Elkins Released Parties have in IHS, including rights to purchase or
otherwise acquire stock in IHS, and to effect a total termination of Elkins'
interests in IHS and the other Debtors and their subsidiaries.
NOW, THEREFORE, in consideration of their mutual promises and
covenants, and intending to be legally bound, the parties hereto represent,
warrant, covenant and agree as follows:
1.0 DEFINITIONS. As used in this Agreement, the following capitalized
terms (not already defined in the Recitals above) shall have the meanings set
forth below:
1.1 "APPROVAL ORDER" means the Order of the Court authorizing the
Debtors to perform the transactions contemplated by this Agreement, in form and
substance reasonably satisfactory to the parties.
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1.2 "AVOIDANCE POWER CAUSE OF ACTION" means rights and remedies
accruing to or vested in the Debtors pursuant to Chapter 5 of the Bankruptcy
Code, including 11 U.S.C. ss.ss. 544, 547, 548, 549, 550 or 553.
1.3 "BANKRUPTCY CODE" means the Bankruptcy Reform Act of 1978, as
amended, and as codified in title 11 of the United States Code.
1.4 "BANKRUPTCY RULES" means the Federal Rules of Bankruptcy
Procedure.
1.5 "BOARD" means the Board of Directors of IHS.
1.6 "CLAIM" has the meaning set forth in 11 U.S.C.ss.101(5).
1.7 "CLOSING" means the consummation of the transactions contemplated
by this Agreement.
1.8 "CLOSING DATE" means the date on which the transactions
contemplated by this Agreement are consummated, and the Closing occurs.
1.9 "CLOSING PAYMENT" means the sum of $1,494,000 in immediately
available funds, plus transfer of good and clear title to the Tangible Personal
Property..
1.10 "COMMITTEE" means the Official Committee of Unsecured Creditors
duly appointed in the Case, as the same may be constituted from time to time.
1.11 "COBRA" means the Comprehensive Omnibus Budget Reconciliation
Act.
1.12 "CONSULTING AGREEMENT" means the Consulting Agreement, to be
entered into between IHS and Elkins, substantially in the form of Exhibit B
annexed hereto.
1.13 "CREDITOR" means any entity with a claim against any of the
Debtors, including the holder of a Claim arising from ownership of an Equity
Security issued by any of the Debtors.
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1.14 "EFFECTIVE DATE" means the date on which the parties have
executed and delivered this Agreement and the Committee has executed and
delivered to Elkins the letter agreement annexed hereto as Exhibit C.
1.15 "ELKINS RELEASED PARTY" means Elkins, his spouse, his children,
his parents, Skyview, and those Entities set forth on Schedule 1.15 which are
owned or controlled by Elkins, and their respective, successors, heirs, or legal
representatives.
1.16 "ENTITY" has the meaning set forth in 11 U.S.C.ss.101(15).
1.17 "EQUITY SECURITY" has the meaning set forth in 11
U.S.C.ss.101(16).
1.18 "FINAL ORDER" means an order or judgment of the Court, or other
court of competent jurisdiction, as entered on the docket of such court, that
has not been reversed or stayed, and as to which (a) the time to appeal or
petition for certiorari has expired and no timely filed appeal or petition for
certiorari is pending, or (b) any appeal taken or petition for certiorari filed
has been resolved by the highest court to which the order or judgment was
appealed from or from which certiorari was sought.
1.19 "INSURER" means the insurer under any of the D&O Policies.
1.20 "LOSS" has the meaning set forth in the National Union Primary
Policy.
1.21 "MONARCH/LYRIC RELEASED CLAIMS" means any Claim of the Debtors,
including any Avoidance Power Cause of Action, against any of the Monarch/Lyric
Released Parties seeking to unwind, modify, avoid or rescind the transactions
between any of the Debtors and the Monarch/Lyric Released Parties described in
the preamble to this Agreement, including any Claim to recover any property from
any Monarch/Lyric Released Party in connection with or related to any such Claim
to unwind, modify, avoid or rescind any such transaction; provided, however, to
the extent any such Claim is based upon any written contractual obligations of
any
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of the Monarch/Lyric Released Parties to any of the Debtors, such Claim shall
not constitute a Monarch/Lyric Released Claim. Additionally, the Debtors' rights
under the Management Agreements, and any other agreements between or among the
Debtors and the Monarch/Lyric Released Parties and the Debtors' rights to
receive any payments from any of the Monarch/Lyric Released Parties pursuant to
any written agreements between the Debtors and any of such parties, shall not
constitute a Monarch/Lyric Released Claim, and shall not be affected by this
Agreement.
1.22 "MONARCH/LYRIC RELEASED PARTIES" means, collectively, Monarch LP,
Monarch Jacksonville, the affiliates of Monarch LP and Monarch Jacksonville set
forth on Exhibit D hereto(the "Monarch Released Parties" or "Monarch Entities"),
Lyric, the affiliates of Lyric set forth on Exhibit E hereto, TFN and Nicholson
(the "Lyric Released Parties" or "Lyric Entities").
1.23 "PLAN" means any plan of reorganization for any of the Debtors.
1.24 "RELEASED CLAIMS" means all Claims, rights, causes of action
(including Avoidance Power Causes of Action), notes, debts, accounts payable,
rights of reimbursement or contribution, demands, judgments, suits, matters and
issues, known or unknown, whether individual, class, derivative, representative,
legal, equitable, or any other type, or in any other capacity, of the Debtors,
in each case against an Elkins Released Party. Released Claims (i) shall not
include Claims giving rise to a Loss arising from Wrongful Acts, it being the
express intent of the parties to this Agreement that the insurance available, if
any, pursuant to the D&O Policies shall be the sole source of recovery for any
Claims of the Debtors which do not constitute Released Claims; provided,
however, a Claim against Elkins giving rise to a Loss arising from a Wrongful
Act shall constitute a Released Claim if the Loss incurred by Elkins with
respect thereto exceeds the amount actually paid by the Insurer under any D&O
Policy (but shall
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constitute a Released Claim only for the amount of such excess); (ii) shall not
include conduct by Elkins which constitutes criminal fraud, for which Elkins has
been convicted by Final Order of a court of competent jurisdiction; and (iii)
shall not include Elkins' obligations under this Agreement, including under
sections 8.2 and 8.3 hereof. Notwithstanding anything contained herein to the
contrary, Released Claims shall not include Claims, if any, held by Entities
other than the Debtors or their estates, including Claims, if any, held by
Creditors.
1.25 "RELEASEE" means any Entity receiving a Release hereunder.
1.26 "RELEASOR" means any Entity granting a Release of any other
Entity under this Agreement.
1.27 "TANGIBLE PERSONAL PROPERTY" means those items of personal
property set forth on Exhibit F hereto.
1.28 "WRONGFUL ACT" has the meaning set forth in the National Union
Primary Policy.
1.29 OTHER DEFINITIONS. A term used and not defined herein, but that
is defined in the Bankruptcy Code, shall have the meaning set forth therein. The
words "herein", "hereof", "hereto", "hereunder" and others of similar import
refer to this Agreement as a whole and not to any particular section,
subsection, or clause in this Agreement. The word "including" shall mean
"including, without limitation." The singular shall include the plural and vice
versa, unless the context otherwise requires.
2.0 REPRESENTATIONS AND WARRANTIES OF ELKINS.
2.1 Elkins has the legal capacity, power and authority to enter into
and perform (and to cause Skyview to perform) this Agreement. The execution,
delivery and performance of this Agreement will not violate any agreement to
which he or Skyview is a party, nor will it violate any provision of law,
ordinance or regulation to which he or Skyview is subject.
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2.2 All of his representations and warranties will be true and correct
as of the Closing Date.
2.3 Elkins, Skyview and the other Elkins Released Parties will not
transfer, sell, assign or convey any of their Claims against or Equity
Securities issued by any of the Debtors prior to the Closing Date, and they will
not acquire any other Claims against or Equity Securities issued by any of the
Debtors.
2.4 No attachment, execution, assignment for the benefit of creditors,
or voluntary or involuntary proceedings in bankruptcy, or actions pursuant to
any other debtor relief laws are pending against Elkins or Skyview.
2.5 Elkins has performed such investigation, and consulted his
professional advisors, as he deems necessary to allow him to make an informed
determination concerning the merits of this Agreement, and has determined it to
be in his best interests.
2.6 Elkins represents and warrants that all agreements between or
among the Debtors and the Monarch/Lyric Released Parties, including the
Management Agreements, are in full force and effect (except to the extent
enforceability may be limited by application of the Bankruptcy Code) and that
the transactions contemplated by this Agreement (including the termination of
Elkins employment and status as an officer or director of any of the Debtors)
will not adversely impact the Debtors' rights under such agreements, or give any
of the Monarch/Lyric Released Parties the right or ability to terminate, cancel
or materially amend or modify any such agreements.
3.0 REPRESENTATIONS AND WARRANTIES OF DEBTORS.
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3.1 Subject to entry of the Approval Order; (a) the Debtors have the
legal capacity, power and authority to perform the transactions contemplated by
this Agreement, and (b) the execution, delivery and performance of this
Agreement will not violate any agreement to which the Debtors are a party, nor
will it violate any provision of law, ordinance or regulation to which they are
subject.
3.2 All of their representations and warranties will be true and
correct as of the Closing Date.
3.3 The Debtors will not transfer, sell, assign or convey any of their
Claims against any Elkins Released Party or any Monarch/Lyric Released Party
prior to the Closing Date, and they will not acquire any other Claims against
any Elkins Released Party or Monarch/Lyric Released Party.
3.4 The Debtors believe that entry into and performance of this
Agreement represents a sound exercise of their business judgment, and is in the
best interests of the Debtors, their estates and their Creditors.
4.0 COVENANTS OF THE DEBTORS, AND ELKINS.
4.1 Promptly after execution of this Agreement, the Debtors will file
a Motion (the "Motion"), in form and substance satisfactory to the Debtors and
Elkins, for entry of the Approval Order. Notice of the Motion will be served on
Creditors and other parties in interest, in accordance with the Bankruptcy
Rules, or as otherwise ordered by the Court. Concurrently with filing of the
Motion, the Debtors will apply to the Court for an Order (the "Scheduling
Order") fixing the hearing date on the Motion and the parties to be served
therewith. The Debtors will seek to have the Scheduling Order provide that the
time for any Elkins Released Party to file
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a proof of claim or interest against any of the Debtors will be extended to and
including September 30, 2000.
4.2 The Debtors will diligently prosecute the Motion, the Debtors and
Elkins will submit pleadings and such other evidence as are necessary or
appropriate to support the Motion, and the Debtors and Elkins will use their
best efforts to obtain entry of the Approval Order.
4.3 If the Approval Order is entered, the Debtors and Elkins will
fully and timely perform their obligations under this Agreement, and will
promptly close the transactions contemplated by this Agreement.
4.4 Without Elkins written consent, which shall not be unreasonably
withheld, the Debtors will not take any action (whether by way of application to
any court, pursuant to a Plan, or otherwise) (a) to vacate, amend or modify this
Agreement or the Approval Order, or (b) to deprive any Elkins Released Party of
the benefits of this Agreement.
4.5 The Debtors shall not take any action to redeem, terminate,
reduce, cancel or otherwise adversely affect the continuation or maintenance of
the D&O Policies, (including seeking a premium refund, reduction or recovery),
in a manner that would adversely affect the rights of any Elkins Released Party
under this Agreement or under the D&O Policies. The Debtors shall take all
actions reasonably necessary to maintain and continue the D&O Policies in full
force and effect, including the timely payment of all premiums due or to become
due. Elkins shall have no liability for any Retention amount (as defined under
the National Union Primary Policy). If and to the extent National Union contends
that Elkins or the Company are liable for any Retention amount under the
National Union Primary Policy, the Company shall fully discharge and pay all of
such Retention amount. The Debtors shall pay any and all Defense Costs (as
defined in the National Union Primary Policy) reasonably incurred by Elkins
within thirty (30) days of demand for payment, and will be entitled to claim
Elkins' rights of reimbursement
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from the Insurer under any D&O Policy for all such Defense Costs actually paid.
In the event any Insurer refuses to reimburse Defense Costs, which refusal is
sustained as proper by a final judgment of a court of competent jurisdiction in
an action in which Elkins had adequate notice and an opportunity to be heard on
the issue, then Elkins shall promptly refund to IHS any Defense Costs paid to
him by the Debtors but not reimbursed to the Debtors by such Insurer.
4.6 As of the Closing, and for a period of 20 days thereafter, Elkins'
personal assistant, Laura Stouffer, shall be entitled to resign her position
with the Company. If she elects to do so, then within ten days after receipt of
notice of such election from Ms. Stouffer, (a) the Debtors will execute and
deliver to Ms. Stouffer a general release of all Claims against her, if any, and
will pay Ms. Stouffer the sum of $35,000 in full settlement and satisfaction of
all her Claims against the Company, and (b) Ms. Stouffer will execute and
deliver to the Company a general release of all Claims, if any, against the
Debtors held by her.
4.7 The Debtors will not take any action to affect the Tangible
Personal Property prior to Closing, without the prior written consent of Elkins.
4.8 The Debtors and Elkins agree that the Approval Order shall
authorize the Committee to execute and perform the letter agreement annexed as
Exhibit C and shall also contain decretal paragraphs effective upon the
occurrence of the Closing that will provide:
(a) The Debtors and all Entities are permanently barred,
enjoined and restrained from commencing, prosecuting or asserting any Released
Claim against any of the Elkins Released Parties, in any court, arbitration,
administrative agency or forum, or in any other manner, and that all Released
Claims against any of the Elkins Released Parties are extinguished, discharged,
satisfied and unenforceable. The Elkins Released Parties are permanently barred,
enjoined and restrained from commencing, prosecuting or asserting any Claims
against the
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Debtors in any court, arbitration, administrative agency or forum, or in any
other manner, which have been released under this Agreement, and all such Claims
against the Debtors are extinguished, discharged, satisfied and unenforceable.
(b) The Debtors and all Entities are permanently barred,
enjoined and restrained from commencing, prosecuting or asserting any
Monarch/Lyric Released Claim against the Monarch/Lyric Released Parties, in any
court, arbitration, administrative agency or forum, or in any other manner, and
that all Monarch/Lyric Released Claims are extinguished, discharged, satisfied
and unenforceable.
(c) To the extent any Debtor sues an Entity and in connection
with such suit such Entity asserts a claim for contribution, indemnification,
recovery of loss or potential loss, or otherwise, however denominated, arising
under state or federal law, including claims based upon tort or contract, as
direct claims, crossclaims, counterclaims or third party claims in any court,
arbitration, administrative agency or forum or in any other manner (each a
"Contribution Claim" and collectively "Contribution Claims") against any Elkins
Released Party or Monarch/Lyric Released Party which Contribution Claim is not
precluded by the Approval Order, then such Debtor, shall automatically, and
without any further act on the part of any party, credit against or reduce the
amount of any judgment it may obtain against such Entity by an amount equal to
the amount as is determined by trial or otherwise in a Final Order to be the
amount due to such Entity from such Elkins Released Party in excess of any
amounts payable by any Insurer under any of the D&O Policies, or from such
Monarch/Lyric Released Party, by reason of such Entity's
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assertion of a Contribution Claim against such Elkins Released Party or
Monarch/Lyric Released Party.
(d) For termination of the Aircraft Lease as of the Closing Date,
releasing and discharging all Claims held by Skyview arising from such
termination, and providing that IHS shall pay Skyview all normal lease payments
due pursuant to the Aircraft Lease through the Closing Date.
4.9 After the Closing Date, the Debtors will not seek, request or
demand, with or without formal legal process, any discovery, records or
information, pursuant to the Bankruptcy Rules or otherwise, from any Elkins
Released Party directly relating to any Released Claim. After the Closing Date,
Elkins will respond promptly to reasonable requests by the Debtors for
information with respect to other matters.
4.10 To the extent the Debtors seek to include in a Plan exoneration
of, indemnity for, or a release of Claims against any of the debtors' officers
or directors, then the Debtors shall use their reasonable efforts to cause
Elkins to receive the benefits of such exoneration, indemnity or release;
provided, however, that any such release shall not include Claims giving rise to
a Loss arising from Wrongful Acts, unless the Loss incurred by Elkins with
respect thereto exceeds the amount actually paid by the Insurer under any D&O
Policy, but such release shall apply only to the amount of such excess. To the
extent the Debtors apply to any court for an injunction against the commencement
or continuation of any action against any of their officers or directors, in
which Elkins is threatened to be named or is a named party, the Debtors shall
use their reasonable efforts to cause Elkins to receive the benefits of any
injunction which may be sought or issued.
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4.11 Elkins and Laura Stouffer (in the event she resigns her
employment with IHS after the Closing Date) shall be entitled to continuation of
their existing health insurance benefits for a period of eighteen (18) months
after the Closing Date, in accordance with COBRA, and the costs of such
continued benefits will be paid by the Company.
4.12 Elkins shall vacate his office at the Company's Sparks, Maryland
headquarters no later than the Closing Date. The Debtors will provide Elkins
with reasonable access to their business records and accounting personnel on
reasonable advance notice for purposes of facilitating his filing of tax returns
and compliance with this Agreement.
5.0 CLOSING CONDITIONS.
5.1 Conditions to Obligation of Each Party to Effect the Closing. The
respective obligations of each party to effect the Closing shall be subject to
the fulfillment at or prior to the Closing Date of each of the following
conditions:
(a) The Approval Order has been entered.
(b) No restraining order, preliminary or permanent
injunction, or other order issued by any court of competent jurisdiction
prohibiting the consummation of the transactions contemplated hereby shall be in
effect.
5.2 Additional Conditions to Obligations of Elkins. The obligations of
Elkins to effect the Closing are also subject to the following conditions (any
one or more of which may be waived by Elkins in a writing signed by him).
(a) Each of the representations and warranties of the Debtors set forth herein
shall be true and correct, individually and in the aggregate, in all material
respects.
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(b) The Debtors shall have performed or complied in all
material respects with all of their agreements and covenants contained in this
Agreement, to be performed or complied with by any one or more of them at or
prior to the Closing Date.
(c) The Approval Order has become a Final Order.
(d) The Committee is not in default of its obligations under
Exhibit C.
5.3 Additional Conditions to Obligations of Debtors. The obligations
of the Debtors to effect the Closing are also subject to the following
conditions (any one or more of which may be waived by Debtors and Committee in a
writing signed by both of them).
(a) Each of the representations and warranties of Elkins set
forth herein shall be true and correct, individually and in the aggregate, in
all material respects.
(b) Elkins shall have performed or complied in all material
respects with all of his agreements and covenants contained in this Agreement,
to be performed or complied with by him at or prior to the Closing Date.
(c) The Approval Order has become a Final Order.
6.0 THE CLOSING.
6.1 The Closing will occur on a date and at a location mutually
agreeable to the parties, within three business days after satisfaction or
waiver of all conditions to Closing.
6.2 At the Closing, Elkins and/or Skyview shall execute and deliver to
the Debtors the following:
(a) Written resignations by Elkins of all of his positions as
an officer or director of any of the Debtors, effective as of the Closing Date.
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(b) An instrument effective to transfer and convey to IHS all
of Elkins' common stock, and rights to acquire common stock or other equity
interests in IHS.
(c) The Consulting Agreement.
(d) Documents executed by the Elkins Released Parties
providing for the releases granted by such parties under Section 7.1 of this
Agreement.
6.3 At the Closing, the Debtors shall execute, deliver or transfer to
Elkins all of the following, free and clear of any and all liens, claims and
encumbrances:
(a) The Closing Payment (which shall constitute prepayment in
full by the Debtors of all considerations due Elkins under the Consulting
Agreement).
(b) The Notes.
(c) The Consulting Agreement.
6.4 At Closing, IHS shall pay directly to the federal, and appropriate
state and local taxing authorities for the account of Elkins the following
amounts:
(i) to the Internal Revenue Service, an amount equal to: (a)
1.389 multiplied by (b) twenty eight percent (28%) of the sum of (x) the total
amount of outstanding principal plus interest accrued on the Notes as of the
Closing Date, (y) all principal and interest forgiven on the Notes since January
1, 2000 (the sum of clauses (x) and (y) in this subsection referred to herein as
the "Released Amount"), and (z) amounts payable pursuant to Sections 6.4 (ii)
and (iii) (to the extent applicable).
(ii) to the appropriate state and local taxing authority
which imposes a tax on all or any part of Elkins' income: the amount which is
required under applicable state or local law to be withheld by IHS and remitted
to such taxing authority based upon the Released Amount, and any federal, state
or local tax payment, being treated as employee compensation to Elkins as of
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the Closing, grossed up for any additional state or local withholding taxes due
on any amounts payable pursuant to this Section 6.4..
(iii) to the applicable taxing authorities: all employment,
excise and payroll taxes imposed on Elkins or IHS by any federal, state or local
taxing authorities on account of Elkins' constructive receipt of the Released
Amount or of any of the payments to be made by IHS pursuant to this Section 6.4.
Both IHS and Elkins shall treat and report the Released Amount and all
amounts payable under Section 6.4 (i), (ii) and (iii) (to the extent applicable)
as employee compensation to Elkins subject to withholding for all tax purposes.
7.0 RELEASES; COVENANTS NOT TO SUE; INDEMNITY.
7.1 As of the conclusion of the Closing, and without the need for any
further act by any party, and without a separate release being executed: (i)
Elkins, Skyview and the other Elkins Released Parties shall be deemed to have,
and shall have, fully, finally and forever released, relinquished and discharged
all Claims that they individually or collectively, whether directly,
representatively, derivatively or in any other capacity, ever had, now have, or
hereafter can, shall or may have against the Debtors; (ii) the Debtors shall
have, and shall be deemed to have fully, finally and forever released,
relinquished and discharged all Elkins Released Parties from all Released Claims
that they individually or collectively, whether directly, representatively,
derivatively or in any other capacity, ever had, now have, or hereafter can,
shall or may have ; (iii) the Debtors shall have, and shall be deemed to have
fully, finally and forever released, relinquished and discharged all
Monarch/Lyric Released Parties from all Monarch/Lyric Released Claims; and (iv)
the Elkins Released Parties shall have, and shall be
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deemed to have fully, finally and forever released, relinquished and discharged
all present or former members of the Board of Directors of the Debtors from any
Claims they may hold against such persons arising from the service by such
persons on the Debtors' Boards of Directors. Nothing contained herein shall be
deemed to constitute a release, waiver or discharge of any Entity's rights under
this Agreement.
7.2 Each Releasor hereby expressly agrees that it waives and releases,
with respect to the Claims to be released by it pursuant to this Agreement, any
and all provisions, rights and benefits conferred either (i) by ss. 1542 of the
California Civil Code, which reads: "A general release does not extend to claims
which the creditor does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially affected his
settlement with the debtor," or (ii) by any law of any state or territory of the
United States, or principle of common law, which is similar, comparable or
equivalent to ss. 1542 of the California Civil Code.
7.3 Each Releasor hereby covenants and agrees not to bring, commence
or institute any action, proceeding or claim in any court, arbitration panel,
agency or other tribunal against any Releasee seeking to recover on the Claims
released pursuant to the provisions of this Agreement.
7.4 The Debtors shall indemnify the Elkins Released Parties and hold
them harmless from all loss, cost or expense, including reasonable attorneys
fees, which any of them may incur or suffer arising from or related to the
prosecution by any Entity, including the Debtors, the Committee, any Creditor,
any trustee for any of the Debtors who may be appointed or elected in the Case
or in any superseding case under Chapter 7 of the Bankruptcy Code for any of the
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Debtors, or any successor of the Debtors, against any one or more of the Elkins
Released Parties of any of the Released Claims.
8.0 EMPLOYMENT AGREEMENT, NON-COMPETITION, NON-SOLICITATION
8.1 Elkins' Employment Agreement shall be deemed terminated with the
consent of the parties as of conclusion of the Closing. IHS shall pay Elkins all
amounts earned by and due to him under his Employment Agreement for salary,
benefits, and reimbursement of his ordinary and necessary business expenses
through the Closing Date . The terms and conditions and all provisions of the
Employment Agreement shall be deemed terminated, canceled and of no further
force and effect as of the conclusion of the Closing, with the exception of
Article 4.1 thereof. No party to the Employment Agreement shall have any
continuing rights or obligations under the Employment Agreement after the
Closing, except with respect to Article 4.1 of such agreement.
8.2 Beginning on the first day after the Closing Date, and continuing
for a period of one year thereafter, and so long as no default on the part of
the Debtors, or of the Committee under Exhibit C, has occurred and is
continuing, Elkins agrees that he will not, without the express written consent
of IHS and the Committee (if the Committee is still in existence), directly or
indirectly, for himself or on behalf of any other person, (i) solicit for
employment, or recommend that any subsequent employer of Elkins seek to employ,
any person who, at the time of such solicitation or recommendation, is employed
by any of the Debtors; (ii) solicit, or endeavor to entice away, or direct any
other Entity to solicit or endeavor to entice away, any customer of the Debtors
who, at the time of such solicitation, diversion or enticement, is known by
Elkins to be a customer of any of the Debtors ; or (iii) except for Monarch LP,
Monarch
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Jacksonville, and the affiliates of Monarch LP and Monarch Jacksonville set
forth on Exhibit D hereto (the "Monarch Entities"), be employed by, be a
director, officer or manager of, act as a consultant for, be a partner in, have
a material proprietary interest in, or otherwise render material assistance to
any Entity that then derives 5% or more of its consolidated gross revenues from
(a) operating or managing subacute healthcare facilities, or (b) providing
oxygen or durable medical equipment in the home in a manner similar to the
current business operations of the Company's Rotech Medical subsidiaries (the
"Rotech Business") (any such Entity being hereinafter referred to as a
"Competitor"). This provision shall not be construed to prohibit Elkins from (a)
acting as an employee, member, manager, officer, director, or consultant for, or
owning more than 10% of, the outstanding voting shares of the equity securities
of the Monarch Entities; or (b) owning up to 10% of the outstanding voting
shares of the equity securities of any company whose securities are listed for
trading on any national securities exchange, or (c) serving as a director of any
company which is not directly in the business of operating or managing any
subacute healthcare facility or in the Rotech Business, or (d) being employed
by, acting as an officer or director of, investing in or rendering services to,
any subsidiary or division of a Competitor so long as (A) such subsidiary or
division does not itself compete directly with the Debtors in the operation or
management of any subacute healthcare facilities, or in the Rotech Business, and
(B) Elkins has no duties, responsibilities or investment in respect of any
portion of the business of the Competitor that does compete directly with the
Debtors in any subacute healthcare market or in the Rotech Business; or (e)
investing in, owning shares or interests in, or acting as an officer, director,
employee, member, manager or consultant for any Entity which acquires assets or
properties from any of the Debtors and which after such acquisition is not a
Competitor; or (f) acting as an investor, consultant, employee, director,
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member, manager, or in any other capacity in a company which provides advice to
Entities (other than a Competitor) undergoing the restructuring of their assets
and liabilities; or (g) acting as in investor, consultant, employee, director,
member, manager or in any other capacity in respect of any Entity which is not a
Competitor of the Debtors and sells, leases, or otherwise provides goods,
services, personnel, equipment or products of any kind to any of the Debtors or
to any other Entity in the ordinary course of business on arms length terms and
conditions.
8.3 Elkins agrees to hold all Trade Secrets (as defined in his
Employment Agreement) in confidence and to not discuss, communicate or transmit
to others, or make any unauthorized use of the Trade Secrets in any capacity,
position or business; provided, however, nothing contained herein or in Article
4.1 of the Employment Agreement shall preclude Elkins from using Trade Secrets
in connection with the acquisition by Elkins or his affiliate of any assets or
properties from any of the Debtors.
9.0 DEFAULT, REMEDIES
9.1 A default hereunder shall include any of the following:
(a) Any promise, covenant, representation or warranty by any
party hereto contained herein shall prove to be materially false, untrue or
incorrect when made, or shall contain a material omission, the absence of which
renders said representation, warranty, promise or covenant materially
misleading.
(b) Any party shall fail to timely and fully perform any of
its obligations, promises, representations, warranties or covenants set forth
herein. If the Committee defaults on its obligations under Exhibit C, such
default shall constitute a default hereunder by the Debtors.
9.2 If a default shall occur and if such default shall continue
unremedied for a period of ten (10) days after notice thereof has been provided
to the defaulting party and to the Committee, the non-defaulting party shall
have and may exercise all rights available to it at law or equity.
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9.3 Because of the difficulty in ascertaining the damages which may be
suffered by the Debtors if Elkins breaches the provisions of sections 8.2 or
8.3, Elkins agrees that equitable relief, including a temporary or permanent
injunction, is proper to redress his actual or threatened breach of sections 8.2
or 8.3 of this Agreement.
9.4 In any action to enforce the provisions of this Agreement, the
prevailing party shall be entitled to recover from the defaulting party the
prevailing party's actual costs of enforcement of this Agreement, including
attorneys fees and other costs of suit.
9.5 If the Approval Order has not been entered by August 25, 2000, or
if the Closing Date has not occurred by September 30, 2000 (or, in each case,
such later date or dates as may be agreed upon by the Debtors, Elkins and the
Committee), then either the Debtors, Elkins or the Committee shall have the
right to terminate this Agreement (and the letter agreement substantially in the
form of Exhibit C) which termination shall occur automatically upon the giving
of notice of such termination to the other parties in accordance with the notice
provisions hereof. A party that is in default shall not be entitled to elect to
terminate this Agreement or Exhibit C based upon the failure of the Approval
Order to be entered or the Closing Date to occur by the dates set forth above in
this Section 9.5 (or such later dates as may be agreed upon by the Debtors,
Elkins and the Committee).
10. EFFECTIVE DATE This Agreement shall take effect, and shall be
binding and enforceable, on and after the Effective Date.
11. FURTHER ASSURANCES. The obligations of the parties require that
they employ their good faith and best efforts in effectuating and fulfilling the
obligations contemplated
22
<PAGE>
hereunder. In furtherance thereof, the parties agree at any time from time to
time to execute any and all documents reasonably requested by the other parties
to carry out and further the intent of this Agreement.
12. ACTIONS AT CLOSING TO BE CONCURRENT All proceedings to be taken
and all documents to be executed and delivered in connection with the
consummation of the transactions contemplated hereby shall be deemed to have
been taken and executed simultaneously, and no proceeding shall be deemed taken
or any documents delivered until all have been taken and delivered.
13. GOVERNING LAW; CONSENT TO JURISDICTION This Agreement shall be
construed and enforced in accordance with the laws of the State of Delaware. The
parties consent to the jurisdiction of the Court in all actions to enforce this
Agreement until the Case is closed or dismissed; thereafter, the state and
federal courts of Delaware shall have jurisdiction to enforce this Agreement.
14. COUNTERPART EXECUTION This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original. It shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
15. INTEGRATION This is the entire agreement of the parties with
respect to the subject matter hereof. There are no other oral or written
understandings, terms or conditions not contained in this Agreement, and no
party has relied upon any representation or warranty not contained in this
Agreement. Exhibits are an integral part of this Agreement.
16. CONSTRUCTION OF AGREEMENT AND DOCUMENTS The parties hereto agree
that the terms and language of this Agreement were the result of negotiations
between the parties and, as a result, there shall be no presumption that
ambiguities, if any, in this Agreement shall be
23
<PAGE>
resolved against either party; further, any controversy over the construction of
this Agreement shall be decided without regard to events of authorship or
negotiation.
17. AMENDMENT, WAIVER No consent or waiver, express or implied, by any
party to any breach hereof shall be deemed or construed to be a consent or
waiver to a breach hereof at any other time. No failure or delay of any party in
enforcing any remedy for default hereunder shall constitute a waiver of that
party's right to enforce such remedy. This Agreement may not be changed or
modified except by a writing signed by all parties and consented to by the
Committee.
18. SUCCESSORS BOUND This Agreement is binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, administrators,
legal representatives, successors and assigns.
19. CONSIDERATION This Agreement is entered into without force or
duress, in the free will of the parties, and on account of the receipt of
consideration. All parties acknowledge that they have not entered into this
Agreement in reliance upon any inducement or promise not otherwise contained
herein. The parties have consulted extensively with their respective counsel
regarding the terms of this Agreement and the Exhibits hereto. The decision of
the parties to execute this Agreement and the Exhibits is a fully informed
decision, and the parties are aware of all legal and other ramifications of such
decision.
20. HEADINGS Headings, titles and captions preceding the sections
hereof are provided for convenience of reference and shall not be used to
explain or to restrict the meaning, purpose or effect of any provision to which
they refer.
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21. ADMISSIBILITY OF THE AGREEMENT After the Effective Date, the terms
of this Agreement shall be fully admissible in any court. The parties hereto
waive any objection that may be interposed under any state or federal rules of
evidence as to the admissibility of this document.
22. NO THIRD PARTY RIGHTS Except for rights accruing to the Elkins
Released Parties and Monarch/Lyric Released Parties, it is not the intent of the
parties who are signatories to this Agreement to grant any rights whatsoever to
parties who are not signatories to this Agreement, and no provision of this
Agreement should be construed to grant any rights to any party who is not a
signatory hereto.
23. NO ADMISSION Nothing contained in this Agreement, or in any of the
negotiations leading up to the making of this Agreement, shall be construed as
an admission of any sort whatsoever by any party to this Agreement.
24. NOTICES Notice of any event as to which notice may be required
hereunder shall be given in writing by certified mail, by overnight courier
service, or by hand delivery, to each of the parties at the following addresses,
and shall be effective three days after mailing or one day after delivery to an
overnight courier service, or upon receipt if delivered by hand:
25.1 If to Robert N. Elkins
7583 Bay Colony Road
Naples, Florida 34108
25.2 If to the Debtors:
Integrated Health Services, Inc.
910 Ridgebrook Road
Sparks, Maryland 21152
Attention: General Counsel
With a copy (until the effective date of a Plan) to:
Kaye Scholer Fierman Hays & Handler LLP
425 Park Avenue
New York, New York 10022
Attention: Michael J.Crames
25
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Any notice to be given to or by the Debtors shall also be
given to counsel to the Committee at the address set forth on Exhibit C hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and the year first above written.
WITNESS OR ATTEST:
----------------------------- ------------------------------
ROBERT N. ELKINS
RNE SKYVIEW, LLC
By:____________________________
INTEGRATED HEALTH SERVICES, INC.
_______________________________ By:____________________________
26
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AMENDMENT NO. 1 TO AGREEMENT
THIS AMENDMENT NO. 1 TO AGREEMENT (THE "AMENDED AGREEMENT") is dated
as of the day of October, 2000 and is by and between ROBERT N. ELKINS
("Elkins"), an individual with an address of 7583 Bay Colony Road, Naples,
Florida 34108, and INTEGRATED HEALTH SERVICES, INC. ("IHS" or the "Company"), a
Delaware corporation with an address of 910 Ridgebrook Road, Sparks, Maryland
21152, on behalf of itself and its subsidiaries,
WHEREAS, IHS and Elkins are parties to an Agreement dated as of July
26, 2000 (the "Agreement"), and the parties wish to amend the Agreement on the
terms and subject to the conditions set forth herein, and
WHEREAS, on July 27, 2000 the Debtors filed a motion seeking entry of
an Order of the Court approving the Agreement and authorizing consummation of
the transactions contemplated thereby (the " Motion"), and duly served the
Motion in compliance with the Court's Order Limiting and Approving Form and
Manner of Notice. The only objections which were filed and served in opposition
to the Motion are set forth on Schedule 1. The hearing on the Motion is
presently scheduled for November 17, 2000, and
WHEREAS, since the filing of the Motion, the parties and the Committee
have entered into a series of Stipulations, which have been approved by the
Court, extending the dates for (i) entry of the Approval Order to November 30,
2000, and (ii) Closing and for the Elkins Released Parties to file proofs of
claims or interests in the Cases to December 14, 2000, and
WHEREAS, as of December 31, 1998, one or more of the Debtors sold
twenty-seven (27) long term care facilities and five (5) specialty hospitals to
Monarch Properties, LP ("Monarch LP") a subsidiary of Monarch Properties, LLC
("Monarch LLC") for cash, plus
<PAGE>
contingent earn out payments. As of March 25, 1999, the Company sold a nursing
facility to Monarch Properties at Jacksonville, LLC ("Monarch Jacksonville"), a
subsidiary of Monarch Advisory Group, LLC ("MAG"); and
WHEREAS, Elkins is the Chairman and manager of the Management
Committee and a member of Monarch LLC and MAG and jointly with his wife owns a
membership interest in the Monarch Entities as set forth on Exhibit A annexed
hereto, subject to the terms and conditions set forth in the existing agreements
governing membership interests in, and borrowings by, the Monarch Entities,
including the Operating Agreements of Monarch LLC and MAG, (such ownership
interest is referred to herein as "Elkins Monarch Interest" and such agreements
are referred to herein as the "Monarch Agreements"), and
WHEREAS, the Debtors after careful consideration, have concluded that
entry into and performance of this amendment to the Agreement represents a sound
exercise of the Debtors' business judgment, and is in the best interests of the
Debtors, their estates and their Creditors;
NOW, THEREFORE, in consideration of their mutual promises and
covenants, and intending to be legally bound, the parties hereto agree to amend
and modify the Agreement as follows:
1.0 Amendments to Section 1.0 DEFINITIONS. The following definitions
as contained in the Agreement are hereby amended and modified.
1.1 The definition of "CLOSING PAYMENT" contained in Section 1.9 of
the Agreement is hereby amended to provide as follows: "CLOSING PAYMENT" means
the sum of $1,494,000 in immediately available funds."
1.2 The definition of "MONARCH/LYRIC RELEASED CLAIMS" set forth in
Section 1.21 of the Agreement is eliminated from the Agreement.
2
<PAGE>
1.3 Former Section 1.21 is eliminated from the Agreement and is
replaced with a new Section 1.21 to provide as follows: "1.21 "LYRIC ENTITIES"
means, collectively, Lyric, the affiliates of Lyric set forth on Exhibit E
hereto, TFN and Nicholson."
1.4 Section 1.22 of the Agreement is amended and restated to provide
as follows: "1.22 "MONARCH ENTITIES" means, collectively, Monarch LLC, MAG,
Monarch LP, Monarch Jacksonville, and the affiliates of Monarch LP and Monarch
Jacksonville set forth on Exhibit D hereto."
1.5 Section 1.27 of the Agreement is eliminated and is replaced with
the following: "1.27 Intentionally Omitted."
2.0 Amendments to Section 2.0 REPRESENTATIONS AND WARRANTIES OF
ELKINS.
2.1 Section 2.6 of the Agreement is deleted and is replaced with new
Section 2.6 which shall provide as follows:
"2.6 Elkins represents and warrants (which representation as to the
Lyric Entities is based upon representations made to him by the duly authorized
officers of the Lyric Entities) that all agreements between or among the Debtors
and the Monarch Entities and the Lyric Entities, including the Management
Agreements, are in full force and effect (except to the extent enforceability
may be limited by application of the Bankruptcy Code) and that the transactions
contemplated by this Agreement (including the termination of Elkins employment
and status as an officer or director of any of the Debtors) will not adversely
impact the Debtors' rights under such agreements, or give any of the Monarch
Entities or Lyric Entities the right or ability to terminate, cancel or
materially amend or modify any such agreements."
3
<PAGE>
2.2 New Section 2.7 and 2.8 are added to the Agreement as follows:
"2.7 The Aircraft Lease was duly terminated in accordance with the Consent Order
Terminating Lease entered in the Case on or about October 12, 2000. All
references to termination of the Aircraft Lease in the Approval Order may be
deleted. Elkins represents and warrants that in connection with such termination
and otherwise, no Elkins Released Party has received or will receive any
distribution of cash, securities or other property, except as set forth in
exhibits to the Consent Order Terminating Lease."
"2.8 Elkins represents that the only property of the Company in Elkins
possession is set forth on Exhibit B to Amendment No. 1 to Agreement. Elkins
will take no action to adversely affect any property of the Company in his
possession, and will deliver all property of the Company in his possession to
the Company at or within 14 days of Closing. At the Closing, the Company will
obtain all appropriate insurance for its interest in all of the property on
Exhibit B."
3.0 Amendments to Section 3.0 REPRESENTATIONS AND WARRANTIES OF
DEBTORS.
3.1 Section 3.3 of the Agreement is amended to delete references to
"Monarch/Lyric Released Party".
4.0 Amendments to Section 4.0 COVENANTS OF THE DEBTORS, AND ELKINS.
4.1 Section 4.7 of the Agreement is deleted and is replaced with the
following new Section 4.7:
"4.7 At Closing, Elkins and his spouse shall execute and
deliver such documents and instruments in form and substance reasonably
satisfactory to the Debtors,
4
<PAGE>
effective to grant to IHS or its designee the option to acquire the Elkins
Monarch Interest or the proceeds thereof (the "Monarch Interest Option"). The
term of the Monarch Interest Option shall commence on the Closing Date and shall
expire on the effective date of a Plan. The exercise price of the Monarch
Interest Option shall be $1.00. Elkins and his spouse shall not voluntarily
transfer, convey, encumber, or hypothecate the Elkins Monarch Interest from the
date hereof until the expiry of the Monarch Interest Option. Elkins represents
and warrants that there are no security interests in, or liens on the Elkins
Monarch Interest, and that there is no Entity that has any superior rights in or
to the Elkins Monarch Interest. Elkins further represents and warrants that (a)
he and his spouse have the right and authority to grant the Monarch Interest
Option as provided herein ( subject to the terms and conditions of the Monarch
Agreements) and (b) except to the extent, if any, precluded by the Monarch
Agreements, he is aware of no reason why IHS cannot succeed to all of Elkins'
and his spouse's rights in and to the Elkins Monarch Interest if the Monarch
Interest Option is exercised. Except as set forth herein, Elkins makes no
representation or warranty as to the enforceability of the Monarch Interest
Option. Upon closing of the transfer of the Elkins Monarch Interest in
accordance with the Monarch Interest Option, Elkins shall resign as Chairman of
the Management Committee of Monarch LLC and MAG."
4.2 Section 4.8 of the Agreement is amended as follows:
4.2.1 Section 4.8(b) is eliminated from the Agreement.
4.2.2 Section 4.8(c) is redesignated as Section 4.8(b) and is amended
to eliminate all references to "Monarch/Lyric Released Party".
5.0 Amendments to Section 5.0 CLOSING CONDITIONS.
5
<PAGE>
5.1 Section 5.2 of the Agreement is amended by eliminating Section 5.2
(c) and redesignating Section 5.2 (d) as new Section 5.2 (c).
5.2 Section 5.3 of the Agreement is amended by eliminating Section 5.3
(c).
6.0 Amendments to Section 6.0 THE CLOSING.
6.1 Section 6.2 of the Agreement is amended by adding thereto a new
Section "6.2(e) providing as follows:
"6.2 (e) Documents effective to create and convey to the Company the
Monarch Interest Option."
7.0 Amendments to Section 7.0 RELEASES; COVENANTS NOT TO SUE;
INDEMNITY.
7.1 Section 7.1 of the Agreement is amended to eliminate therefrom
clause (iii) in its entirety..
8.0 Amendment to Section 8.0 EMPLOYMENT AGREEMENT, NON-COMPETITION,
NON-SOLICITATION
8.1 Section 8.2 of the Agreement is amended to provide that the term
of Elkins' agreement as set forth in such section shall continue for a period of
three years after the Closing Date.
9.0 Amendment to Section 9.0 DEFAULT, REMEDIES
9.1 The first sentence of Section 9.5 of the Agreement is amended to
provide as follows: "9.5 If the Approval Order has not been entered by November
30, 2000, or if the Closing Date has not occurred by December 14, 2000 (or, in
each case, such later date or
6
<PAGE>
dates as may be agreed upon by the Debtors, Elkins and the Committee), then
either the Debtors, Elkins or the Committee shall have the right to terminate
this Agreement (and the letter agreement substantially in the form of Exhibit C)
which termination shall occur automatically upon the giving of notice of such
termination to the other parties in accordance with the notice provisions
hereof."
10.0 Amendment to Section 22 NO THIRD PARTY RIGHTS
10.1 Section 22 of the Agreement is amended to delete reference to the
"Monarch/Lyric Released Parties".
11.0 CONTINUATION OF AGREEMENT; EFFECTIVE DATE OF AMENDMENT. Except as
specifically modified or amended as provided herein, the Agreement shall remain
in full force and effect. The Effective Date of this Amendment No. 1 to the
Agreement shall be the date on which it has been fully executed by the parties
and the Committee has delivered to Elkins and the Company a letter consenting to
this Amendment No. 1 to the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 1 to Agreement the day and the year first above written.
7
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----------------------------- ------------------------------
ROBERT N. ELKINS
INTEGRATED HEALTH SERVICES, INC.
_____________________________ By: ____________________________
8
