<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Date of Report (Date of earliest event reported):
July 18, 1996
CAPSTONE PHARMACY SERVICES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 0-20606 11-2310352
-------- ----------- ----------
(State or other (Commission File (Employer
jurisdiction of Number) Identification
incorporation) Number)
</TABLE>
2930 Washington Boulevard, Baltimore, Maryland 21230
----------------------------------------------------
(Address of principal executive offices)
(410) 646-7373
----------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
----------------------------------------------------
(Former name or former address,
if changed since last report)
<PAGE> 2
ITEM 5. OTHER EVENTS.
(a) On June 20, 1996, the Registrant entered into a definitive
agreement to acquire Symphony Pharmacy Services, Inc. ("Symphony") from
Integrated Health Services, Inc. ("IHS"). In connection with the pending
acquisition, the Registrant files the attached documents, which the Registrant
deems of importance to security holders.
1. Consolidated Financial Statements of Symphony for the years ended
December 31, 1995 and 1994, including the Notes thereto.
2. Pro Forma Unaudited Consolidated Financial Data, including the
Notes thereto, reflecting the pending acquisition of Symphony by
the Registrant.
In conjunction with the acquisition of Symphony, IHS and Counsel
Corporation, an Ontario, Canada corporation that beneficially owns
approximately 34.4% of the outstanding common stock of the Registrant, have
each agreed to purchase $25.0 million of the Registrant's common stock. The
common stock will be valued at the average of the closing trading price for
such stock on the Nasdaq Stock Market for the 20 trading days ending three
days prior to the closing of the Symphony acquisition. The common stock will
be purchased pursuant to applicable exemptions under federal and state
securities laws.
(b) Effective July 1, 1996, the Registrant acquired from an indirect
subsidiary of Counsel all of the stock of Medidyne Corp. ("Medidyne"), a New
Jersey- and New York- based company providing Medicare Part B services, for
approximately $6,000,000 plus a $400,000 earn-out payable to Counsel based on
the profitability of certain Medidyne operations. The purchase was approved by
an independent committee of the Registrant's Board of Directors. The purchase
agreement provides indemnification to the Registrant for all liabilities that
may have arisen during the period Counsel owned Medidyne. Counsel acquired the
assets of Medidyne earlier in 1996, and the parties agreed to a purchase price
equal to Counsel's acquisition and related transaction costs, less $400,000.
ITEM 7. FINANCIAL STATEMENTS AND EHXIBITS
(c) The exhibits furnished with this report are listed in the Exhibit
Index immediately following the signature page.
2
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Symphony Pharmacy Services, Inc.:
We have audited the accompanying consolidated balance sheets of Symphony
Pharmacy Services, Inc. and subsidiaries (wholly-owned by Integrated Health
Services, Inc.) as of December 31, 1994 and 1995 and the related consolidated
statements of earnings, stockholder's equity and cash flows for each of the
years in the three-year period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Symphony
Pharmacy Services, Inc. (wholly-owned by Integrated Health Services, Inc.) as of
December 31, 1994 and 1995 and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Baltimore, Maryland
July 16, 1996
F-1
<PAGE> 4
SYMPHONY PHARMACY SERVICES, INC. AND SUBSIDIARIES
(WHOLLY-OWNED BY INTEGRATED HEALTH SERVICES, INC.)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 1,342 $ 1,017
Accounts receivable, net of allowance for doubtful accounts of $3,798 in
1994 and $3,223 in 1995 (note 7)...................................... 15,407 19,597
Inventories.............................................................. 5,429 5,321
Other current assets..................................................... 514 466
------- -------
Total current assets............................................. 22,692 26,401
------- -------
Property and equipment, net (note 3)....................................... 9,760 9,875
Intangible assets of businesses acquired, net of accumulated amortization
of $1,073 in 1994 and $2,521 in 1995..................................... 53,567 55,694
Deferred income taxes (note 6)............................................. 3,335 2,640
------- -------
$89,354 $94,610
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses (note 4)........................... $ 7,276 $ 5,465
Advances from parent company............................................. 7,575 5,448
Income taxes payable to parent company (note 6).......................... 4,353 5,188
Interest payable to parent company (note 7).............................. 1,871 4,418
------- -------
Total current liabilities........................................ 21,075 20,519
------- -------
Notes payable to parent company (note 7)................................... 42,058 41,848
Commitments and contingencies (Notes 5 and 8)
Stockholders' equity:
Common stock: $.01 par value. Authorized 1,000 shares;
issued and outstanding 100 shares..................................... -- --
Additional paid-in capital............................................... 24,836 28,361
Retained earnings........................................................ 1,385 3,882
------- -------
Total stockholder's equity....................................... 26,221 32,243
------- -------
$89,354 $94,610
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 5
SYMPHONY PHARMACY SERVICES, INC. AND SUBSIDIARIES
(WHOLLY-OWNED BY INTEGRATED HEALTH SERVICES, INC.)
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
------ ------- -------
<S> <C> <C> <C>
Sales (note 7)..................................................... $9,461 $52,295 $91,016
Cost of sales...................................................... 4,815 27,865 48,837
------ ------- -------
Gross profit............................................. 4,648 24,430 42,179
------ ------- -------
Operating expenses (note 7):
Salaries, wages and benefits..................................... 2,913 12,148 20,642
Depreciation and amortization.................................... 288 1,479 2,682
Other selling, general and administrative expenses............... 1,137 6,835 12,279
------ ------- -------
Total operating expenses................................. 4,338 20,462 35,603
------ ------- -------
Operating income................................................... 308 3,968 6,576
Interest expense -- parent company (note 7)........................ 103 1,768 2,547
------ ------- -------
Earnings before income taxes....................................... 205 2,200 4,029
Federal and state income taxes (note 6)............................ 79 941 1,532
------ ------- -------
Net earnings............................................. $ 126 $ 1,259 $ 2,497
====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 6
SYMPHONY PHARMACY SERVICES, INC. AND SUBSIDIARIES
(WHOLLY-OWNED BY INTEGRATED HEALTH SERVICES, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON ADDITIONAL RETAINED
STOCK PAID-IN CAPITAL EARNINGS
------- --------------- --------
<S> <C> <C> <C>
Balance at January 1, 1993..................................... $ -- $ -- $ --
Net earnings for 1993.......................................... -- -- 126
Contribution of capital -- representing payments by parent
company in connection with business acquisitions............. -- 9,840 --
------- --------------- --------
Balance at December 31, 1993................................... -- 9,840 126
Net earnings for 1994.......................................... -- -- 1,259
Contribution of capital -- representing payments by parent
company in connection with business acquisitions............. -- 14,996 --
------- --------------- --------
Balance at December 31, 1994................................... -- 24,836 1,385
Net earnings for 1995.......................................... -- -- 2,497
Contribution of capital -- representing payments by parent
company in connection with prior business acquisitions....... -- 3,525 --
------- --------------- --------
Balance at December 31, 1995................................... $ -- $26,381 $3,882
======= ========== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 7
SYMPHONY PHARMACY SERVICES, INC. AND SUBSIDIARIES
(WHOLLY-OWNED BY INTEGRATED HEALTH SERVICES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings.................................................... $ 126 $ 1,259 $ 2,497
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization................................ 288 1,479 2,682
Deferred income taxes........................................ -- 413 695
Increase in accounts receivable.............................. (2,655) (3,522) (4,190)
Decrease (increase) in inventories........................... (174) (584) 108
Decrease (increase) in other current assets.................. 526 (249) 80
Decrease in accounts payable and accrued expenses............ (461) (1,458) (1,811)
Increase in income taxes payable to parent company........... 79 526 837
Increase in interest expense payable to parent company....... 103 1,768 2,547
Other........................................................ 11 53 (33)
------- ------- -------
Net cash provided (used) by operating activities.................. (2,157) (315) 3,412
------- ------- -------
Cash flows from financial activities:
Advances from (repayments to) parent company.................... 5,790 1,785 (2,127)
Proceeds (payments) of notes payable to parent company.......... -- 9,573 (211)
Payment on long-term debt....................................... (2,433) (474) --
------- ------- -------
Net cash provided (used) by financing activities.................. 3,357 10,884 (2,338)
------- ------- -------
Cash flows from investing activities:
Business acquisitions (note 1).................................. (560) (6,425) --
Property and equipment additions................................ (640) (2,802) (1,399)
------- ------- -------
Net cash used by investing activities............................. (1,200) (9,227) (1,399)
------- ------- -------
Increase (decrease) in cash....................................... -- 1,342 (325)
Cash, beginning of year........................................... -- -- 1,342
------- ------- -------
Cash, end of year................................................. $ -- $ 1,342 $ 1,017
------- ------- -------
Noncash investing and financing activities:
Net assets of businesses acquired (note 1)...................... $31,532 $25,790 $ 3,525
Contribution of capital and issuance of notes payable to parent
company -- representing payments by parent company in
connection with business acquisitions (note 1)............... $31,532 $25,790 $ 3,525
------- ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 8
SYMPHONY PHARMACY SERVICES, INC. AND SUBSIDIARIES
(WHOLLY-OWNED BY INTEGRATED HEALTH SERVICES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Symphony Pharmacy Services, Inc. (the Company), a Delaware corporation
established on May 9, 1995, is a wholly-owned subsidiary of Symphony Health
Services, Inc., which is wholly-owned by Integrated Health Services, Inc. (IHS
or the parent company). In a corporate reorganization on May 9, 1995, certain
subsidiaries of IHS or its subsidiaries became subsidiaries of Symphony Pharmacy
Services, Inc. These subsidiaries, which formerly operated as the Allied Health
Services division of IHS, are as follows:
Patient Care Pharmacy, Inc.
Patient Care Pharmacy of Colorado Springs, Inc.
Healthcare Pharmacy Services of Florida, Inc.
Healthcare Pharmacy Services of Pennsylvania, Inc.
Healthcare Pharmacy Services of Texas, Inc.
Amcare, Inc.
Amcare Health Services, Inc.
Amcare Santa Barbara, Inc.
Pharmaceutical Dose Services, Inc.
Suncoast Pharmacy Services, Inc.
Such corporations are engaged primarily in the business of selling
pharmaceutical related products and providing institutional pharmacy services to
long-term care and other institutions and their patients. The consolidated
financial statements represent the historical accounts of the Company and the
aforementioned subsidiaries and reflect the elimination of significant
intercompany balances and transactions among such entities.
The aforementioned corporations were acquired by IHS (or its subsidiaries)
at various dates in 1993 and 1994, as discussed more fully below. The new basis
of accounting, reflecting IHS's cost of the businesses acquired, has been
"pushed down" to the accounts of the Company. Such cost basis has been allocated
to the identifiable assets and liabilities acquired based on their respective
fair values at the dates of acquisition. Cost in excess of such aggregate fair
value (goodwill) is being amortized over 40 years using the straight-line
method. Such estimated useful life of goodwill of the pharmacy businesses
acquired gives recognition to the plans of IHS to develop post-acute health care
networks using IHS's long-term care facilities as platforms to provide other
services, including pharmaceutical products and services.
In June 1993, IHS acquired all of the outstanding capital stock of Patient
Care Pharmacy, Inc. (PCP), a business providing pharmacy services to geriatric
care facilities and other health care providers in Southern California. The
total cost for PCP was $10,400, including $9,840 representing 425,674 shares of
IHS common stock. In addition, IHS agreed to make contingent payments in shares
of common stock following each of the next three years based upon the earnings
of PCP. However, in March 1995, the PCP stockholders terminated all rights to
contingent payments in consideration for $3,525 representing 92,434 shares of
IHS common stock.
In December 1993, IHS acquired the capital stock of Central Park Lodges,
Inc. (CPL), a wholly-owned subsidiary of Trizec Corporation, Ltd. (Trizec), a
publicly-held Canadian real estate company. IHS acquired substantially all of
the United States operations of CPL, consisting of 30 geriatric care facilities
located in Florida, Pennsylvania and Texas and nine retirement facilities
located in Florida, with an aggregate of 5,210 beds; the Healthcare Pharmacy
Services division (HPS), which provides pharmacy consulting services and
supplies prescription drugs and intravenous medications to geriatric care
facilities through five pharmacies in Florida, Pennsylvania and Texas; and other
operations. The total purchase price was $185,300, which was
F-6
<PAGE> 9
SYMPHONY PHARMACY SERVICES, INC. AND SUBSIDIARIES
(WHOLLY-OWNED BY INTEGRATED HEALTH SERVICES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
allocated primarily based on the appraised value of the respective businesses
acquired. The allocated cost of the HPS acquisition was $21,692.
On August 8, 1994, the Company acquired substantially all of the assets of
Pikes Peak Pharmacy, Inc. (Pikes), a company which provides pharmacy services to
patients at nine facilities in Colorado Springs, Colorado which have an
aggregate of 625 beds. The total purchase price was $600.
On October 7, 1994, the Company acquired all of the outstanding stock of
Amcare, Inc. (Amcare), an institutional pharmacy serving approximately 135
skilled nursing facilities in California, Minnesota, New Jersey and
Pennsylvania. The purchase price was $21,000, including $10,500 representing the
issuance of 291,101 shares of IHS common stock. In addition, the Company
incurred direct costs of the acquisition of $4,550, representing legal and other
transaction costs of $600, integration costs principally for systems conversion
of $1,850, and severance and other termination costs of $2,100.
On October 11, 1994, the Company acquired substantially all of the assets of
Pharmaceutical Dose Service of La, Inc. (PDS), an institutional pharmacy serving
14 facilities. The purchase price was $4,190, including $3,900 representing the
issuance of 122,117 shares of IHS common stock. In addition, the Company
incurred direct costs of the acquisition of $1,875, representing legal and other
transaction costs of $300, integration costs principally for systems conversion
of $1,175, and severance and other termination costs of $400.
The total cost of the aforementioned acquisitions has been allocated as
follows:
<TABLE>
<CAPTION>
PCP HPS PIKES AMCARE PDS
------- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Current assets.................................. $ 2,667 3,175 183 8,029 638
Property and equipment.......................... 1,001 3,000 -- 3,011 --
Intangible assets............................... 15,595 16,221 417 20,300 5,697
Current liabilities............................. (2,905) (704) -- (5,316) (270)
Long-term debt.................................. (2,433) -- -- (474) --
------- ------ ----- ------ -----
Net assets acquired............................. $13,925 21,692 600 25,550 6,065
======= ====== ==== ====== =====
Equities recorded:
Notes payable to parent company............... $ -- 21,692 -- 10,500 294
Contribution of capital:
1993....................................... 9,840 -- -- -- --
1994....................................... -- -- 600 10,500 3,896
1995....................................... 3,525 -- -- -- --
------- ------ ----- ------ -----
$13,365 21,692 600 21,000 4,190
======= ====== ==== ====== =====
</TABLE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company applies the same significant accounting policies as established
by its parent company, which policies are summarized as follows:
Cash Equivalents
Cash equivalents consist of highly liquid instruments with an original
maturity of three months or less.
F-7
<PAGE> 10
SYMPHONY PHARMACY SERVICES, INC. AND SUBSIDIARIES
(WHOLLY-OWNED BY INTEGRATED HEALTH SERVICES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
Inventories
Inventories consist primarily of purchased pharmaceuticals and medical
supplies held for sale to customers and are stated at the lower of cost or
market. Cost is determined using a pricing convention which approximates the
first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on the
straight-line basis over the estimated useful life of the assets, generally 10
years for equipment and the term of the lease for costs of leasehold
improvements.
Development Costs
Direct and incremental costs incurred to initiate and implement new
pharmacy locations are deferred during the start-up period (not exceeding six
months) and amortized on a straight-line basis over five years.
Income Taxes
The Company and its subsidiaries are included in the parent company's
consolidated Federal income tax return. The income tax provisions reported in
the financial statements are an allocation of the parent company's total income
tax provision. The Company's allocation was determined based on a calculation of
income taxes as if the Company were a separate taxpayer, in accordance with
Statement of Financial Accounting Standards No. 109 (SFAS No. 109), Accounting
for Income Taxes.
Deferred income taxes are recognized for the tax consequences of temporary
differences between financial statement carrying amounts and the related tax
bases of assets and liabilities as required by SFAS No. 109. Such tax effects
are measured by applying enacted statutory tax rates applicable to future years
in which the differences are expected to reverse, and any change in tax rates
will be recognized in the period that includes the date of enactment. Valuation
allowances are recorded for deferred tax assets when it is more likely than not
that such deferred tax assets will not be realized.
Intangible Assets
Intangible assets arise from business combinations accounted for as
purchase transactions and are amortized using the straight-line method over an
estimated useful life of forty years.
Management regularly evaluates whether events or changes in circumstances
have occurred that could indicate an impairment in the value of intangible
assets. In December 1995, the Company adopted SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which had no effect on the financial statements. In accordance with the
provisions of SFAS No. 121, if there is an indication that the carrying value of
an asset is not recoverable, the Company determines the amount of impairment
loss by comparing the carrying amount of the assets to their estimated fair
value. Intangible assets acquired in business combinations accounted for using
the purchase method are included as part of the carrying value in determining
recoverability. Goodwill also is evaluated for recoverability by estimating the
projected undiscounted cash flows, excluding interest, of the related business
activities, and any excess of carrying value over such estimates is written off.
In addition to consideration of impairment upon the events or changes in
circumstances described above, management regularly evaluates the remaining
lives of its long-lived assets. If estimates are changed, the
F-8
<PAGE> 11
SYMPHONY PHARMACY SERVICES, INC. AND SUBSIDIARIES
(WHOLLY-OWNED BY INTEGRATED HEALTH SERVICES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
carrying value of affected assets is allocated over the remaining lives.
Estimation of value and future benefits of intangible assets is made based upon
the related projected undiscounted future cash flows, excluding interest
payments.
Revenue Recognition
Revenue is recognized when products or services are provided. A significant
portion of the Company's revenues from sales of pharmaceutical and medical
products are reimbursable from Medicare and state Medicaid programs. Receivables
under these reimbursement programs and related revenues are reported at the net
realizable amount expected to be received from these third-party payors.
Business and Credit Concentrations
The Company's sales are provided through 26 pharmacies as of December 31,
1995, located in California, Colorado, Texas, Minnesota, Pennsylvania, New
Jersey, Florida and Louisiana. The Company generally does not require collateral
or other security in extending credit to long-term care and other institutions
and their patients; however, the Company routinely obtains assignments of (or is
otherwise entitled to receive) benefits receivable under the health insurance
programs, plans or policies of patients (e.g., Medicare, Medicaid, commercial
insurance and managed care organizations).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Disclosures About Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable and accounts payable
approximate their fair value because of the short-term nature of these
instruments. It is not practicable to estimate the fair value of notes payable
to the parent company because there are no specified due dates for these
instruments.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1994 and
1995:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Equipment........................................................ $ 9,461 $10,736
Furniture, fixtures and leasehold improvements................... 545 618
Development costs................................................ 448 448
------- -------
10,454 11,802
Less accumulated depreciation and amortization................... 694 1,927
------- -------
Net property and equipment....................................... $ 9,760 $ 9,875
======= =======
</TABLE>
F-9
<PAGE> 12
SYMPHONY PHARMACY SERVICES, INC. AND SUBSIDIARIES
(WHOLLY-OWNED BY INTEGRATED HEALTH SERVICES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
(4) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at December
31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Accounts payable -- trade.......................................... $5,556 $2,423
Accrued salaries, wages and benefits............................... 1,720 2,842
Other accrued expenses............................................. -- 200
------ ------
$7,276 $5,465
====== ======
</TABLE>
(5) LEASES
As of December 31, 1995, the Company had operating leases as lessee or
sublessee of 26 distribution facilities and pharmacy units within long-term care
facilities expiring at various dates through June 30, 2002. Minimum rent
payments due under noncancellable operating leases in effect at December 31,
1995 are summarized as follows for the years ended December 31:
<TABLE>
<S> <C>
1996........................................................................ $1,044
1997........................................................................ 960
1998........................................................................ 937
1999........................................................................ 881
2000........................................................................ 479
Thereafter.................................................................. 286
------
$4,587
======
</TABLE>
Eight leases provide renewal options for various terms at fair market
rentals at the expiration of the initial term. The leases generally include
additional rental obligations for real estate taxes, utilities, insurance and
repairs. The Company's rental expense was $257 in 1993, $816 in 1994 and $1,227
in 1995.
(6) INCOME TAXES
The Company is included in the parent company's consolidated federal income
tax return. The allocated provision for income taxes is summarized below for
years ended December 31:
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- ------
<S> <C> <C> <C>
Federal...................................................... $65 $ 768 $1,250
State........................................................ 14 173 282
----- ----- ------
$79 $ 941 $1,532
==== ==== ======
Current...................................................... $79 $ 528 $ 837
Deferred..................................................... -- 413 695
----- ----- ------
$79 $ 941 $1,532
==== ==== ======
</TABLE>
F-10
<PAGE> 13
SYMPHONY PHARMACY SERVICES, INC. AND SUBSIDIARIES
(WHOLLY-OWNED BY INTEGRATED HEALTH SERVICES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
The provision for income taxes is reconciled to the amount computed by
applying the Federal corporate tax rate of 35% to earnings before income taxes
as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----- ------- -------
<S> <C> <C> <C>
Income tax computed at statutory rate.................... $72 $ 770 $ 1,410
State income taxes, net of Federal tax benefit........... 9 112 183
Other.................................................... (2) 59 (61)
----- ------- -------
$79 $ 941 $ 1,532
==== ======= =======
</TABLE>
Deferred income tax (assets) liabilities at December 31, 1994 and 1995 are
as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Excess of book over tax basis of assets.......................... $ 353 $ 853
Allowance for doubtful accounts.................................. (1,462) (1,241)
Pre-acquisition separate company net operating loss
carryforward................................................... (2,790) (2,175)
Other............................................................ 564 (77)
------- -------
$(3,335) $(2,640)
======= =======
</TABLE>
(6) INCOME TAXES
The provision for Federal and state income taxes is recorded using the
overall effective tax rate of the consolidated group applied to the Company's
pre-tax earnings before adjustment for permanent differences related to
nondeductible amortization of goodwill of $210 in 1993, $835 in 1994 and $1,297
in 1995. Deferred income tax (assets) liabilities are recorded for the Company's
temporary differences using the same effective tax rate. The difference between
the total provision for income tax and the deferred income tax provision, both
determined as discussed above, represents income taxes currently payable to the
parent company. The provision for income taxes, deferred income taxes and income
taxes currently payable may vary from such amounts that would have been computed
on a stand-alone basis.
At December 31, 1995, certain subsidiaries of the Company had
pre-acquisition net operating loss carryforwards available for Federal and state
income tax purposes of approximately $5,649 which expire in 2008. The annual
utilization of these net operating loss carryforwards is subject to certain
limitations under the Internal Revenue Code.
Management believes no valuation reserves are needed for deferred income
tax assets and there has been no valuation allowance during the three-year
period ended December 31, 1995. It is the Company's belief that it is more
likely than not that the results of future operations will generate sufficient
taxable income to realize the deferred tax assets.
(7) RELATED PARTY TRANSACTIONS
Notes Payable to Parent Company
The Company had various unsecured notes payable to the parent company of
$42,058 and $41,848 as of December 31, 1994 and 1995, respectively. The notes
were incurred primarily for the Company's business acquisitions during 1994 and
1993, as described in note 1. The notes have no specified due dates, but
management of the parent company has indicated that repayment will not be sought
for at least the next twelve months or until the occurrence of the closing of a
sale of a significant portion of the Company's assets.
F-11
<PAGE> 14
SYMPHONY PHARMACY SERVICES, INC. AND SUBSIDIARIES
(WHOLLY-OWNED BY INTEGRATED HEALTH SERVICES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
The notes bear interest ranging from 5.75% to 8.50% as of December 31, 1994 and
1995. The Company incurred interest expense to the parent company of $103 in
1993, $1,768 in 1994 and $2,547 in 1995.
Advances from Parent Company
Under a cash management facility provided by the parent company, the
Company's accounts payable are transferred to a centralized account and applied
to increase the intercompany account. The Company's available cash is similarly
provided to the parent company through a decrease in the intercompany balance.
Such advances bear no interest. Also, advances from the parent company include
direct costs of business acquisitions discussed in note 1, which bear no
interest.
Corporate Expenses Charged by Parent Company
The consolidated financial statements reflect charges for certain corporate
general and administrative expenses from the IHS corporate office to the Company
and its subsidiaries. Such corporate office charges represent allocations based
on determinations that management believes to be reasonable. However, IHS has
operated certain other businesses and has provided certain services to the
Company and its subsidiaries, including financial, legal, risk management
(workers' compensation and general liability) and other services. Accordingly,
expense allocations to the Company and its subsidiaries may not be
representative of costs of such services if the Company operated on a stand
alone basis.
Costs charged by IHS were insignificant in 1993, and were approximately
$437 in 1994 and $1,088 in 1995.
Accounts Receivable from and Sales to Parent Company
The Company provides pharmaceutical products and services to subsidiaries
of the parent company which operate long-term healthcare facilities and their
patients. Accounts receivable include balances due from such subsidiaries of
approximately $4,576 and $3,215 at December 31, 1994 and 1995, respectively.
Sales to such subsidiaries were approximately $2,300 in 1993, $15,000 in 1994
and $17,500 in 1995.
(8) COMMITMENTS AND CONTINGENCIES
The Company is from time to time subject to claims and suits arising in the
ordinary course of business. In the opinion of management, the ultimate
resolution of pending legal proceedings will not have a material adverse effect
on the Company's financial statements.
(9) SUBSEQUENT EVENTS
On June 19, 1996, the Company and its subsidiaries entered into an Asset
Purchase Agreement with Capstone Pharmacy Services, Inc. (the buyer), pursuant
to which the Company and its subsidiaries have agreed to sell substantially all
their business assets to the buyer. The selling price is $150 million (which is
subject to adjustment in certain circumstances) of which approximately $25
million will be in common stock of the buyer and the remainder will be in cash.
Closing is expected to occur by August 1, 1996.
F-12
<PAGE> 15
CAPSTONE PHARMACY SERVICES, INC.
PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL DATA
The following pro forma financial data may not be indicative of the future
results of operations and what the actual results of operations would have been
had such transactions described previously actually been effective January 1 of
each respective period.
PRO FORMA INCOME STATEMENT DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------
ACQUIRED
ACTUAL(1) OPERATIONS(2) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales.................................. $ 55,894 $ 135,922 $ -- $ 191,816
Cost of sales.............................. 35,182 74,062 -- 109,244
---------- ------------- ----------- ----------
Gross profit............................. 20,712 61,860 -- 82,572
---------- ------------- ----------- ----------
Operating expenses:
Selling, general and administrative
expenses.............................. 20,031 49,718 -- 69,749
Depreciation and amortization............ 1,352 3,318 2,361(3) 7,031
Restructuring charges.................... 2,309 -- -- 2,309
---------- ------------- ----------- ----------
Total operating expenses......... 23,692 53,036 2,361 79,089
---------- ------------- ----------- ----------
Income (loss) from operations.............. (2,980) 8,824 (2,361) 3,483
---------- ------------- ----------- ----------
Non-operating expense, net:
Interest expense, net.................... 776 3,042 (1,570)(4) 2,248
Other income............................. (475) (36) -- (511)
---------- ------------- ----------- ----------
Total non-operating expense,
net............................ 301 3,006 (1,570) 1,737
---------- ------------- ----------- ----------
Income (loss) before income taxes.......... (3,281) 5,818 (792) 1,745
Provision (benefit) for income taxes....... (344) 1,767 (1,292)(5) 131
---------- ------------- ----------- ----------
Income (loss) from continuing operations... $ (2,937) $ 4,051 $ 500 $ 1,614
========= ========== ========= =========
Fully diluted income (loss) from continuing
operations per share..................... $ 0.06
=========
Pro forma weighted average number of shares
outstanding.............................. 27,441,093(6)
</TABLE>
- ---------------
(1) Reflects the Company's actual results of operations for the ten months ended
December 31, 1995 plus results of operations for January and February 1995.
(2) Reflects the acquisitions of Premier, Geri-Care, IMD, Medidyne and the
Symphony Acquisition as if they had been completed on January 1, 1995.
(3) Reflects the additional amortization of goodwill related to the Premier,
Geri-Care, IMD and Medidyne acquisitions and the Symphony Acquisition over
a period of 40 years.
(4) Reflects the net effect of (i) a reduction of interest expense incurred by
Symphony on debt which will not be assumed by Capstone as part of the
acquisition, (ii) a reduction of interest expense assuming that the net
proceeds of the Offering, after repayment of the Bridge Loan, are used to
repay certain other indebtedness and (iii) additional interest expense on
the long-term debt related to the IMD and Medidyne acquisitions, at an
annual interest rate of 7.5%.
(5) Reflects an adjustment to the provision for income taxes to reflect an
effective state tax rate of 7.5%. No federal tax provision has been
reflected due to assumed full utilization of federal net operating loss
carryforwards.
(6) Reflects the fully diluted weighted average number of shares outstanding
for the ten months ended December 31, 1995 plus (i) 1,007,692 shares
issued in conjunction with the Geri-Care acquisition, (ii) 1,035,000
shares issued in the April 1996 private placement, (iii) 4,000,000 shares
to be issued to IHS and Counsel in conjunction with the Symphony
Acquisition and (iv) 9,000,000 Shares contemplated by the Offering at an
assumed price of $12.50 per share.
PF-1
<PAGE> 16
PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL DATA
PRO FORMA INCOME STATEMENT DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
---------------------------------------------------------
ACQUIRED
ACTUAL OPERATIONS(1) ADJUSTMENTS PRO FORMA
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.................................. $ 22,028 $30,993 $ -- $ 53,021
Cost of sales.............................. 13,576 16,193 -- 29,769
----------- ------------- ----------- -----------
Gross profit............................. 8,452 14,800 -- 23,252
Operating expenses:
Selling, general and administrative
expenses.............................. 7,277 10,544 -- 17,821
Depreciation and amortization............ 569 768 494(2) 1,831
Restructuring charges.................... -- -- -- --
----------- ------------- ----------- -----------
Total operating expenses................. 7,846 11,312 494 19,652
----------- ------------- ----------- -----------
Income from operations..................... 606 3,488 (494) 3,600
----------- ------------- ----------- -----------
Non-operating expense, net:
Interest expense, net.................... 263 705 (591)(3) 377
Other income............................. (47) -- -- (47)
----------- ------------- ----------- -----------
Total non-operating expense,
net............................ 216 705 (591) 330
----------- ------------- ----------- -----------
Income (loss) before income taxes.......... 390 2,783 97 3,270
Provision for income taxes................. 103 920 (778)(4) 245
----------- ------------- ----------- -----------
Income from continuing operations.......... $ 287 $ 1,863 $ 875 $ 3,025
========== ========== ========= ==========
Fully diluted income from continuing
operations per share..................... $ 0.02 $ 0.10
========== ==========
Pro forma weighted average number of common
shares outstanding....................... 16,692,186 30,367,186(5)
</TABLE>
- ---------------
(1) Reflects the acquisitions of IMD and Medidyne and the Symphony Acquisition
as if they had occurred on January 1, 1996.
(2) Reflects the additional amortization of goodwill related to the IMD and
Medidyne acquisitions and the Symphony Acquisition over a period of 40
years.
(3) Reflects the net effect of (i) a reduction of interest expense incurred by
Symphony on debt which will not be assumed by Capstone as part of the
acquisition, (ii) a reduction of interest expense assuming that the net
proceeds of the Offering after repaying the Bridge Loan are used to repay
certain other indebtedness and (iii) additional interest expense on the
long-term debt related to the IMD and Medidyne acquisitions at an annual
interest rate of 7.5%.
(4) Reflects the adjustment to pro forma provision for income taxes to reflect
an effective state tax rate of 7.5%. No federal tax provision has been
reflected due to assumed utilization of federal net operating loss
carryforwards.
(5) Reflects the fully diluted weighted average number of shares outstanding
for the three months ended March 31, 1996 plus (i) 1,035,000 shares of
Common Stock issued in the April 1996 private placement, (ii) 4,000,000
shares to be issued to IHS and Counsel in conjunction with the Symphony
Acquisition and (iii) the 9,000,000 shares contemplated by this Offering
at an assumed price of $12.50 per share.
PF-2
<PAGE> 17
PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL DATA
PRO FORMA BALANCE SHEET DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------------------------
ACQUIRED
ACTUAL OPERATIONS(1) ADJUSTMENTS PRO FORMA
-------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.................... $ 1,276 $ 70 $ -- $ 1,346
Accounts receivable, net of allowance for
doubtful accounts......................... 20,107 22,879 -- 42,986
Inventories.................................. 7,237 6,015 -- 13,252
Other current assets......................... 735 1,089 -- 1,824
-------- ------------- ----------- ---------
Total current assets................. 29,355 30,053 -- 59,408
Property, equipment and other assets........... 4,503 10,026 -- 14,529
Goodwill, net of accumulated amortization...... 33,707 55,208 78,080(2) 166,995
-------- ------------- ----------- ---------
Total assets......................... $ 67,565 $ 95,287 $ 78,080 $ 240,932
======== ========== ========= ========
Current liabilities:
Accounts payable............................. $ 4,066 $ 7,613 $ (2,400)(3) $ 9,279
Other current liabilities.................... 5,187 9,264 -- 14,451
-------- ------------- ----------- ---------
Total current liabilities............ 9,253 16,877 (2,400) 23,730
-------- ------------- ----------- ---------
Other long-term liabilities.................... 1,318 -- -- 1,318
Long-term debt, net of current portion......... 24,969 41,818 (44,603)(3) 22,184
-------- ------------- ----------- ---------
Total long-term liabilities.......... 26,287 41,818 (44,603) 23,502
-------- ------------- ----------- ---------
Stockholders' equity:
Common stock and capital in excess of par.... 44,020 30,185 134,490(4) 208,695
Retained earnings (accumulated deficit)...... (11,995) 6,407 (9,407)(5) (14,995)
-------- ------------- ----------- ---------
32,025 36,592 125,083 193,700
-------- ------------- ----------- ---------
Total liabilities and stockholders'
equity............................. $ 67,565 $ 95,287 $ 78,080 $ 240,932
======== ========== ========= ========
</TABLE>
- ---------------
(1) Reflects the acquisition of Medidyne and the Symphony Acquisition as if they
had occurred on March 31, 1996.
(2) Reflects the additional goodwill recorded as part of the Medidyne
acquisition and the Symphony Acquisition as part of the purchase price
allocations.
(3) Reflects the net effect of (i) the additional long-term debt incurred
related to the Medidyne acquisition, (ii) a reduction of long-term debt on
the books of Symphony at March 31, 1996, which is not being assumed by
Capstone and (iii) a reduction in indebtedness from the excess net proceeds
of the Offering and a private placement of $8.8 million of Common Stock in
April 1996.
(4) Reflects $50.0 million of additional equity raised in conjunction with the
Symphony Acquisition, a private placement of $8.8 million of Common Stock
in April 1996 and $106.3 million in estimated net proceeds from the
Offering (assuming no exercise of the overallotment option), net of
intercompany eliminations.
(5) Reflects intercompany eliminations and $3.0 million in fees relating to the
Bridge Loan.
PF-3
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPSTONE PHARMACY SERVICES, INC.
By: /s/ Donald W. Hughes
-------------------------------
Vice-President,
Chief Financial Officer
and Secretary
Date: July 18, 1996
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Numbered Page
- -------- ----------- -------------
<S> <C> <C>
2. Form of Asset Purchase Agreement among Integrated
Health Services, Inc., Symphony Pharmacy
Services, Inc., various of its subsidiaries
and the Registrant*
</TABLE>
---------
* This exhibit contains a list of exhibits, which are not being filed
herewith. The Registrant shall furnish supplementally a copy of any such
omitted exhibit to the Securities and Exchange Commission upon request.
<PAGE> 1
Exhibit 2
____________________________________________________________________________
ASSET PURCHASE AGREEMENT
DATED AS OF JUNE _____, 1996
AMONG
INTEGRATED HEALTH SERVICES, INC.,
SYMPHONY PHARMACY SERVICES, INC.,
VARIOUS OF ITS SUBSIDIARIES, SELLERS
AND
CAPSTONE PHARMACY SERVICES, INC., BUYER
____________________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I: PURCHASE AND SALE OF ASSETS; ASSUMPTION OF CERTAIN
LIABILITIES; CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.1 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.3 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
1.4 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
ARTICLE II: PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
2.1 Determination and Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
2.2 Adjustment to the Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
2.3 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
2.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
2.5 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
2.6 Registration Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
2.7 Registration Procedures, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
2.8 Indemnification Procedures, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
ARTICLE III: THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
3.1 Time and Place of Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
3.2 Buyer's Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF SELLERS AND IHS . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
4.1 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
4.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
4.3 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
4.4 Absence of Conflicting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
4.5 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
4.6 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
4.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
4.8 Licenses; Permits; Certificates of Need . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
4.9 Title, Condition to Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
4.10 Leased Real Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
4.11 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
4.12 Collective Bargaining, Labor Contracts, Employment Practices, etc . . . . . . . . . . . . . . . . -17-
4.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
4.14 Insurance and Surety Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
4.15 Assets Comprising the Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
4.16 Absence of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
4.17 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
4.18 Medicare and Medicaid Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
4.19 Encumbrances Created by this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
4.20 Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
4.21 Patents, Trademarks, Trade Names, Trade Secrets and Copyrights . . . . . . . . . . . . . . . . . . -21-
4.22 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
4.23 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
4.24 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
4.25 No Untrue Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
4.26 Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
4.27 Restricted Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
5.1 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
5.2 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
5.3 Binding Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
5.4 Absence of Conflicting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
5.5 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
5.6 Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
ARTICLE VI: INFORMATION AND RECORDS CONCERNING THE SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
6.1 Access to Information and Records before Closing. . . . . . . . . . . . . . . . . . . . . . . . . -24-
ARTICLE VII: OBLIGATIONS OF THE PARTIES UNTIL CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
- -----------------------------------------------------
7.1 Conduct of Business Pending Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
7.2 Negative Covenants of Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
7.3 Affirmative Covenants of Sellers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
7.4 Pursuit of Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
7.5 Supplementary Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
7.6 H-S-R Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
7.7 Excluded Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
7.8 Nondisclosure of Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
7.11 Notice of Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
ARTICLE VIII: CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
8.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
8.2 Performance of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
8.3 Delivery of Closing Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
8.4 Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
8.5 Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
8.6 Authorization Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
8.7 Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
8.8 Consents to Assignments of Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . -29-
8.9 Bill of Sale and Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
8.10 Non-Competition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
8.11 Hart-Scott Rodino Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
8.12 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
8.13 Non-solicitation Agreements with Certain Persons . . . . . . . . . . . . . . . . . . . . . . . . . -31-
8.14 Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
ARTICLE IX: CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLERS AND IHS . . . . . . . . . . . . . . . . . . . . . . -32-
9.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
9.2 Performance of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
9.3 Delivery of Closing Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
9.4 Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
9.5 Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
9.6 Authorization Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
9.7 Undertaking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
9.8 Hart-Scott Rodino Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
9.9 Lender Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
9.10 Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
ARTICLE X: OBLIGATIONS OF THE PARTIES AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
10.1 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
10.2 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
10.3 Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
10.4 Delivery of Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
10.5 Access to Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
10.6 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
10.7 Temporary License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
10.8 Licensure Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
10.9 Billing and Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
10.10 FINANCIAL CONSOLIDATION SOFTWARE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
10.11 ENFORCEMENT OF NON-COMPETES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
10.12 Cooperation - Further Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
10.13 Introductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
ARTICLE XI: TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
11.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
11.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40-
11.3 Break-up Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40-
ARTICLE XII: MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40-
12.1 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40-
12.2 Benefit and Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40-
12.3 Effect and Construction of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40-
12.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40-
12.5 Waiver, Discharge, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41-
12.6 Rights of Persons Not Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42-
12.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42-
12.8 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42-
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<CAPTION>
SCHEDULES
---------
<S> <C> <C>
Schedule 4.4 - Absence of Conflicting Agreements
Schedule 4.5 - Consents
Schedule 4.6(b) - Contracts
Schedule 4.6(c) - Contracts
Schedule 4.7 - Financial Statements
Schedule 4.8 - Material Changes
Schedule 4.9 - Licenses; Permits, Certificates of Need
Schedule 4.12 - Legal Proceedings
Schedule 4.13 - Collective Bargaining, Labor Contracts, Employment Practices, etc.
Schedule 4.15 - Insurance and Surety Agreements
Schedule 4.17 - Absence of Certain Events
Schedule 4.18 - Compliance with Laws
Schedule 4.22 - Patents, Trade Marks, Trade Names, Trade Secrets and Copyrights
Schedule 4.24(a) - Tax Returns
Schedule 4.25 - Employees
Schedule 5.5 - Consents
EXHIBITS
--------
Exhibit 8.9-1 - Bill of Sale
Exhibit 8.9-2 - Assignment of Contracts
Exhibit 9.7 - Undertaking
Exhibit 10.9 - Billing and Collection Agreement
</TABLE>
(iv)
<PAGE> 6
_________________________________________________________
ASSET PURCHASE AGREEMENT
_________________________________________________________
This Asset Purchase Agreement (the "AGREEMENT") is made as of
the 20th day of June, 1996, among INTEGRATED HEALTH SERVICES, INC., a Delaware
corporation and SYMPHONY HEALTH SERVICES, INC., a Delaware corporation
(collectively, "IHS"), SYMPHONY PHARMACY SERVICES, INC., a Delaware corporation
and a wholly owned subsidiary of IHS ("SYMPHONY PHARMACY"), PATIENT CARE
PHARMACY, INC., a California corporation and a wholly owned subsidiary of
Symphony Pharmacy ("PCPI"), AMCARE, INC., a California corporation and a
wholly owned subsidiary of Symphony Pharmacy ("AI"), AMCARE SANTA BARBARA,
INC., a California corporation and a wholly owned subsidiary of Symphony
Pharmacy ("ASBI"), AMCARE HEALTH SERVICES, INC., a Pennsylvania corporation and
a wholly owned subsidiary of Symphony Pharmacy ("AHSI"), PATIENT CARE PHARMACY
OF COLORADO SPRINGS, INC., a Delaware corporation and a wholly-owned subsidiary
of Symphony Pharmacy ("PCPCSI"), PHARMACEUTICAL DOSE SERVICES, INC., a Delaware
corporation and a wholly owned subsidiary of Symphony Pharmacy ("PDSI"),
HEALTHCARE PHARMACY SERVICES OF FLORIDA, INC., a Florida corporation and a
wholly owned subsidiary of Symphony Pharmacy ("HPSFI"), HEALTHCARE PHARMACY
SERVICES OF PENNSYLVANIA, INC., a Pennsylvania corporation and a wholly owned
subsidiary of Symphony Pharmacy ("HPSPI"), HEALTHCARE PHARMACY SERVICES OF
TEXAS, INC., a Texas corporation and a wholly owned subsidiary of Symphony
Pharmacy ("HPSTI"), and SUNCOAST PHARMACY SERVICES, INC., a Florida corporation
and a wholly owned subsidiary of Symphony Pharmacy ("SPSI" and together with
Symphony Pharmacy, PCPI, AI, ASBI, AHSI, PCPCSI, PDSI, HPSFI, HPSPI, and HPSTI,
the "SELLERS" and each a "SELLER") and CAPSTONE PHARMACY SERVICES, INC., a
Delaware corporation ("BUYER").
WHEREAS, Sellers are engaged in the business of dispensing
pharmacy products and services to long-term care facilities such as skilled
nursing facilities and assisted living facilities, including long-term care
facilities owned, managed or leased by IHS and/or various of its directly or
indirectly owned subsidiaries ("IHS LTC FACILITIES") (the "BUSINESS"); and
WHEREAS, Buyer wishes to purchase from Sellers, and Sellers
wish to sell to Buyer substantially all of the Assets (as hereinafter defined)
of Sellers relating to the Business upon the terms and subject to the
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, IHS, Sellers and Buyer intending to be legally bound,
agree as follows:
<PAGE> 7
ARTICLE I: PURCHASE AND SALE OF ASSETS; ASSUMPTION OF
CERTAIN LIABILITIES; CONTRACTS
1.1 ASSETS.
Subject to the terms and conditions of this Agreement
at the Closing (as hereinafter defined), and in reliance upon the covenants,
representations and warranties of the other parties hereto, Sellers will sell,
assign, convey, transfer and deliver to Buyer free and clear of all Liens (as
such term is hereinafter defined in Section 4.9) other than Permitted Liens (as
such term is hereinafter defined in Section 4.9), and Buyer will purchase and
acquire from Sellers, all of the assets of Sellers which now or hereafter
comprise, all of each Seller's right, title and interest in and to: accounts
receivable, the proceeds collected from any Non-Assignable Receivables (as
defined below); useable and saleable items of pharmaceutical product inventory,
including controlled substances, dangerous drugs and prescription files, office
supplies, contents and other packaging materials; pharmacy equipment,
medication and treatment carts; books, records and other data relating to the
Assets or the business or operations of the Business, including payroll,
personnel and other employee records; facsimile machines, computers, furniture
and fixtures; motor vehicles; Contracts (as hereinafter defined in Section
4.6), and all other contracts, leases, commitments, licenses, and permits;
trade secrets, tradenames, trademarks, the goodwill relating to the Business,
each of the corporate names listed on Schedule 4.21 hereto, and customer and
supplier lists; prepaid expenses, taxes or deposits, and cash; and all other
real and personal property, rights and assets in each case, which now or
hereafter comprise, or which are now or hereafter used or useful in connection
with the operation of, the Business (the "ASSETS"). Notwithstanding the
foregoing or anything else to the contrary contained in this Agreement, the
Assets shall not include the Excluded Assets as defined in Section 1.2 below.
The services currently being performed by Sellers consist of pharmaceutical
dispensing and distribution services and pharmaceutical products, including
intravenous products, supplies and services, and related equipment (including
without limitation, medical carts, telefacsimile machines, treatment carts,
emergency boxes, convenient boxes, automated dispensing cabinets, automated
medical supply cabinets and other new technology) and committed, scheduled
training and education programs, pharmacy consulting services, and medical
records consulting. Notwithstanding the foregoing, the said services do not
include the Excluded Services.
1.2 EXCLUDED ASSETS; EXCLUDED SERVICES.
(A) The Assets shall not include inventory and supplies
disposed of after the date hereof and prior to Closing as permitted in
accordance with Article VII hereof; obsolete equipment disposed of for fair
consideration, if any, after the date hereof and prior to Closing; licenses,
permits and Medicaid provider numbers which may not be transferred in
accordance with applicable Governmental Requirements (as such term is
hereinafter defined in Section 4.4); claims against third parties, including
insurance companies, for reimbursement, indemnification or under any warranties
with respect to the payment or satisfaction by any Seller of any Excluded
Liabilities; contracts covering or relating solely to Excluded Services; Plans
(as hereinafter defined in Section 4.13); each
-2-
<PAGE> 8
rebate, wholesaler and group purchasing agreement of any Seller which is not
assignable and which is subject to non-disclosure provisions as indicated on
Schedule 4.6 (b); use of the acquisition, accounting, legal, management
information service, human resource, risk management and other corporate
functions provided by IHS and the agreements, contracts, leases and commitments
set forth on Schedule 4.15 hereto except to the extent same constitute Subject
IHS Leases (as such term is defined in Section 1.4(b) below); tax refunds, if
any in respect of tax periods ending on or prior to Closing; cash expended,
disbursed or transferred after the date hereof and prior to Closing as
permitted in accordance with Article VII hereof; subject to Section 10.7 below,
the name "Symphony" and the goodwill related thereto; the capital stock of any
Seller and, unless otherwise elected by Buyer prior to the Closing, the capital
stock of Comprehensive Pharmacy Network of California, Inc.; any agreements to
which Comprehensive Pharmacy Network of California, Inc. is a party; all
receivables of Sellers from governmental payors which by law may not be
assigned ("NON- ASSIGNABLE RECEIVABLES"); the assets used solely in connection
with the provision of Excluded Services (as defined below); the assets and
business of Greenline Services, Inc. ("GREENLINE"); and the minute books, stock
record books and stock ledgers and any other books, records or other data
relating solely [Ato Excluded Assets or Excluded Liabilities (as such term is
defined in Section 1.3) of each Seller (collectively, the "EXCLUDED ASSETS").
"EXCLUDED SERVICES" means: (a) the provision to facilities operated by IHS,
Community Care of America, Inc., Integrated Living Communities, Inc. ("ILC")
or any entity which now or hereafter is one of their respective subsidiaries
(by reason of ownership, lease or management agreement) of enteral, ostomy,
colostomy, urological or wound care product dispensing and distributing
services and all services related thereto; and (b) management of healthcare
networks which include management of the provision of pharmacy dispensing and
distribution services (provided that same shall not include actual provision of
pharmacy dispensing and distribution services), other than with respect to the
Walker Joint Venture or Senior Dimensions Pharmacy, Inc. Management Agreements.
1.3 LIABILITIES. At Closing, Buyer shall assume and
undertake to perform all (a) Adjusted Current Liabilities (as defined below),
(b) all amounts that otherwise would be obligations of any Seller but are
expressly stated to be payable by Buyer under Section 12.1 hereof, and (c) all
of each Seller's liabilities, obligations and debts arising under each of the
Contracts identified on Schedule 4.6, and the other leases, contracts,
commitments, licenses and permits included in the Assets to the extent (and
only to the extent) that they relate to the Assets or the Business, are
incident to the performance in accordance with the terms of such agreements,
and relate to periods on or after the Closing (collectively, all of the
foregoing included in subsections (a), (b) and (c) above, being the "ASSUMED
LIABILITIES"). As used herein, "ADJUSTED CURRENT LIABILITIES" means the
aggregate amount of all operating trade payables and operating expenses of
Symphony Pharmacy, on a consolidated basis with the other Sellers, that would
be classified as current liabilities on a balance sheet of Symphony Pharmacy as
of the Closing Date prepared in accordance with GAAP applied on a basis
consistent with the most recent audited financial statements of Symphony
Pharmacy; provided, however, that Adjusted Current Liabilities shall not
include any working capital loans or other amounts (including, without
limitation, interest thereon payable to or from IHS or any of its direct or
indirect subsidiaries including Sellers, or federal, state and local income
taxes payable by any Seller. Except for the Assumed Liabilities,
-3-
<PAGE> 9
Buyer shall not assume any liabilities, debts or obligations of any of Sellers
or IHS of any kind, character or description, whether accrued, absolute,
contingent or otherwise, arising out of or resulting from Sellers' ownership,
possession, operation or use of the Business (or any predecessor business) or
the Assets or otherwise, including without limitation, any of the following
such liabilities or obligations to the extent not constituting Assumed
Liabilities (the "EXCLUDED LIABILITIES"): (i) any liability with respect to the
Business to the extent arising from any accident, occurrence, misconduct, or
breach of fiduciary duty occurring prior to the Closing (but not to the extent
caused by Buyer after the Closing), (ii) any liability for Taxes (as such term
is hereinafter defined in Section 4.23 (b)), including any liability for income
taxes arising as a result of the transactions contemplated by this Agreement;
(iii) any liability or obligation arising out of any Excluded Assets or
Excluded Services; and (iv) any liability or obligation incurred in connection
with (A) the negotiation, execution or performance of this Agreement and the
other agreements contemplated hereby, including any and all legal, accounting,
lenders' and other professional fees and expenses, or (B) any other effort(s)
to sell or dispose of the Assets.
1.4 CONTRACTS.
(A) At Closing, Sellers shall assign all of their
respective rights, title, and interest under each Contract and under each other
contract, lease, commitment, license and permit of any Seller comprising any
part of the Assets to Buyer. Notwithstanding anything to the contrary
contained in this Agreement, Sellers make no representations or warranties as
to the assignability of the Contracts (other than as to the employment
agreements referred to on Schedule 4.6(a)(i)-A (the "EMPLOYMENT AGREEMENTS"))
or of any such other contracts, leases, commitments, licenses or permits which
are included within the Assets, and Buyer shall assume all of the same as
aforesaid regardless of whether the same are by their terms assignable and,
upon their receipt thereof, Sellers shall deliver to Buyer any benefits
received by Sellers arising out of services rendered or products supplied by
Buyer under any of the same after the Closing.
(B) Set forth on Schedule 1.4(b) hereto are
certain equipment, motor vehicle and other personal property leases to which
IHS or one of its subsidiaries (other than any of the Sellers) is a party (the
"Subject IHS Leases"). IHS agrees to use its commercially reasonable efforts
to assign the portion of such Subject IHS Leases which pertain to the operation
of the Business to Buyer at or after the Closing. Buyer shall assume all the
obligations of IHS or its subsidiaries under such Subject IHS Leases to the
extent such Subject IHS Leases are assigned to Buyer and relate to periods on
or after such assignment.
(C) At Closing, IHS shall assign to Buyer and
Buyer shall assume the Consulting Agreement, dated as of October 12, 1994,
between IHS and Jack E. Sassone, as amended by amendments of June 23, 1995,
October 10, 1995 and January 1, 1996 (the "SASSONE CONTRACT") to the extent it
relates to periods on or after Closing. In addition, Buyer shall assume at
Closing the obligation to pay any earn-out which becomes payable to Sassone
after the Closing Date pursuant to Section 2.5 of the Asset Purchase Agreement,
dated October _____, 1994, among IHS, Sassone, Edith Sassone, and
Pharmaceutical Dose Services of La., Inc., but only to the extent that such
earn-out was credited to Sassone in respect of Qualifying Beds (as defined in
the said
-4-
<PAGE> 10
Asset Purchase Agreement) which were contracted for after the Closing Date.
IHS shall continue to be responsible for any such payments which are based upon
Qualifying Beds that were contracted for prior to the Closing Date.
ARTICLE II: PURCHASE PRICE
2.1 DETERMINATION AND PAYMENT OF PURCHASE PRICE. Subject
to adjustment as provided in this Agreement, the aggregate purchase price to be
paid to Sellers for the Assets (the "PURCHASE PRICE") shall be ONE HUNDRED AND
FIFTY MILLION and 00/100 ($150,000,000.00) DOLLARS. Such Purchase Price shall
be payable by Buyer at the Closing as follows:
(A) One Hundred Twenty-Five Million
($125,000,000.00) Dollars in cash by wire transfer of immediately available
funds to the account designated in writing by IHS to Buyer at least two
business days prior to the Closing; and
(B) Twenty-Five Million ($25,000,000.00) Dollars
by the delivery to Sellers of that number of newly issued shares of the common
stock, $.01 par value, of Buyer ("Buyer Stock") as shall be equal in value to
$25,000,000 based upon the average closing NASDAQ price of such stock for the
twenty (20) trading day period which ends on a date which is three (3) business
days prior to the Closing Date.
(C) To the extent that the price per share
calculated in (b) above would result in the issuance of shares of Buyer Stock
to the Sellers which would equal or exceed twenty (20%) percent of the then
outstanding shares of Buyer Stock, the parties agree to reduce the value of
Buyer Stock to be issued to Sellers to the amount which would result in the
issuance to Sellers of less than twenty (20%) percent of the outstanding shares
of Buyer Stock, and the cash portion of the Purchase Price shall be increased
by the amount of the reduction in the value of the Buyer Stock issued to
Sellers.
2.2 ADJUSTMENT TO THE PURCHASE PRICE. In the event that
the Closing Date Bed Count (as defined below) shall be less than 36,500, the
Purchase Price shall be reduced by an amount equal to Three Thousand ($3,000)
Dollars, multiplied by the difference between 36,500 and the Closing Date Bed
Count. As used herein, "Closing Date Bed Count" means the number of licensed
beds immediately prior to the Closing in (a) nursing homes, (b) residential
care facilities, (c) hospice care facilities, and (d) homes for the mentally
retarded receiving or under contract to receive pharmaceutical products and
services from any of Sellers, or from the Walker Joint Venture, or pursuant to
the Management Agreement between Senior Dimensions Pharmacy, Inc. and Symphony
Pharmacy, in each case, whether or not such beds are occupied. Beds in
facilities which receive only medical records or consulting services, are not
included in the CLOSING DATE BED COUNT.
2.3 ALLOCATION OF PURCHASE PRICE. The Purchase Price as
adjusted pursuant to Section 2.2 (and all other capitalizable costs) shall be
allocated among the various categories of Assets, and the Non-Competition
Agreement (as such term is defined in Section 8.10), as shall be determined by
Buyer, subject to the consent of Seller with respect to the allocation
-5-
<PAGE> 11
among the entities and to the Non-Competition Agreement (which consent shall
not unreasonably be withheld or delayed), in accordance with Section 1060 of
the Internal Revenue Code of 1986, as amended (the "CODE"). Each of the parties
hereto agrees to prepare and file all tax returns (including Form 8594) in a
manner consistent with such allocation and to report this transaction for
Federal and state income tax purposes in accordance with such allocation of the
Purchase Price and shall use their reasonable efforts to sustain such
allocation in any subsequent tax audit or dispute.
2.4 [THIS SECTION INTENTIONALLY LEFT BLANK]
2.5 REGISTRATION RIGHTS. IHS will have the following
registration rights with respect to the shares of Buyer Stock issued as part of
the Purchase Price:
(A) INITIAL REGISTRATION. Unless Buyer Stock
has been registered pursuant to the terms of Section 2.5(b) as soon as is
reasonably practicable but in any event within ninety (90) days following the
Closing Date, Buyer will cause to be prepared, filed, and will use its best
efforts to have declared effective by the Securities and Exchange Commission
(the "COMMISSION"), a registration of the Buyer Stock on Form S-3 or its
equivalent and such other documents, including a prospectus, as may be
necessary in the opinion of both counsel for Buyer and counsel for the holders
of Buyer Stock in order to comply with the provisions of the Securities Act of
1933, as amended (the "SECURITIES ACT"), so as to permit a public offering and
sale by the Sellers of the Buyer Stock. The Buyer will not include any
securities other than Buyer Stock in such Registration Statement if such
inclusion would adversely impact registration of Buyers Stock.
(B) PIGGYBACK REGISTRATION RIGHTS. If the Buyer
shall at any time propose to file a registration statement under the Securities
Act for any sales of securities of the Buyer on behalf of the Buyer or
otherwise, the Buyer shall give to Sellers written notice of such registration
no later than thirty (30) days before its filing with the Commission; provided,
that registrations relating solely to securities to be issued by the Buyer in
connection with any acquisition, employee stock option or employee stock
purchase or savings or similar plan on Form S-4 or S-8 (or successor Forms)
under the Securities Act shall not be subject to this Section 2.5(b). If
Sellers so request within fifteen (15) days of the sending of such notice, the
Buyer shall include all of the Buyer Stock in any such registration. However,
the Buyer shall not be obligated to include any portion (or all) of such Buyer
Stock to the extent any underwriter or underwriters of such securities being
otherwise registered by the Buyer shall determine in good faith that the
inclusion of such Buyer Stock or any portion thereof) would jeopardize the
successful sale of such other securities proposed to be sold by such
underwriter or underwriters; provided, however that if such offering includes
securities being offered for resale by other sellers of the Buyer, then the
Buyer Stock may be eliminated from such offering only to the extent that the
securities being offered by such other sellers also are eliminated on a pari
passu basis.
2.6 REGISTRATION EXPENSES. Buyer shall bear all
reasonable expenses related to any registration referred to in Section 2.5.
Such costs and expenses shall include, without limitation, all underwriters'
and brokers' expenses exclusive of discounts and commissions applicable to the
Buyer Stock, the fees and expenses of counsel for the Buyer and of its
-6-
<PAGE> 12
accountants, all other costs, fees and expenses of the Buyer incident to the
preparation, printing, registration and filing under the Securities Act of the
registration statement and all amendments and supplements thereto, the fees and
expenses of one counsel to the Sellers relating to such registration, the cost
of furnishing copies of each preliminary prospectus, each final prospectus and
each amendment or supplement thereto to underwriters, dealers and Sellers.
Notwithstanding the foregoing, if the net proceeds per share to Sellers are
less than the price per share as determined under Section 2.1(b), Buyer shall
pay any underwriting discount to the extent necessary to cause such net
proceeds to equal the price per shares as determined under Section 2.1(b).
2.7 REGISTRATION PROCEDURES, ETC. In connection with
the registration rights granted to the Sellers with respect to the Buyer Stock
as provided in Section 2.5, Buyer covenants and agrees to:
(A) use its best efforts to cause each
registration under Section 2.5 to be declared effective and to remain effective
(and in compliance with the Securities Act) by such action as may be necessary
or appropriate for a period of two (2) years (plus an amount of time equal to
the number of days during which sales of Buyer Stock under such registration
statement shall have been prohibited in any jurisdiction in which such
securities are registered for sale by applicable law, court order or similar
compulsion) after the effective date of such registration statement, or, if
sooner, until an exemption from registration of the Buyer Stock becomes
available to Sellers, including, without limitation, the filing of
post-effective amendments and supplements to any registration statement or
prospectus necessary to keep the registration statement current and the further
qualification under any applicable Blue Sky or other state securities laws to
permit such sale or distribution, all as requested by holders of Buyer Stock.
The Buyer will immediately notify holders of Buyer Stock at any time when a
prospectus relating to a registration statement under Section 2.5 is required
to be delivered under the Securities Act, of the happening of any event 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.
(B) furnish, at least five business days before
filing a registration statement that registers such Buyer Stock, a prospectus
relating thereto or any amendments or supplements relating to such a
registration statement or prospectus, to one counsel selected by the persons
holding a majority of the Buyer Stock being so registered (the "Stockholder
Counsel"), copies of all such documents proposed to be filed (it being
understood that such five-business-day period need not apply to successive
drafts of the same document proposed to be filed so long as such successive
drafts are supplied to the Sellers in advance of the proposed filing by a
period of time that is customary and reasonable under the circumstances);
(C) notify in writing (which notice may be sent
via fax or overnight courier) the Sellers promptly (i) of the receipt by the
Buyer of any notification with respect to any comments by the Commission with
respect to such registration statement or prospectus or any amendment or
supplement thereto or any request by the Commission for the amending or
supplementing thereof or for additional information with respect thereto, to
the extent that such comments or requirements relate to information regarding
the Company or the persons selling
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Buyer Stock (ii) of the receipt by the Buyer of any notification with respect
to the issuance by the Commission of any stop order suspending the
effectiveness of such registration statement or prospectus or any amendment or
supplement thereto or the initiation or threatening of any proceeding for that
purpose and (iii) of the receipt by the Buyer of any notification with respect
to the suspension of the qualification of such Buyer Stock for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purposes;
(D) use its best efforts to obtain the withdrawal
of any order suspending the effectiveness of such registration statement, or
the lifting of any suspension of the qualification or exemption from
qualification of any of the Buyer Stock for sale in any jurisdiction, at the
earliest possible time;
(E) use its best efforts to register or qualify
such Buyer Stock under such other securities or blue sky laws of such
jurisdictions as the Sellers selling Buyer Stock reasonably request and any and
all other acts and things which may be reasonably necessary or advisable to
enable such persons to consummate the disposition in such jurisdictions of the
Buyer Stock; provided, however, that the Buyer will not be required to qualify
generally to do business, subject itself to general taxation or consent to
general service of process in any jurisdiction where it would not otherwise be
required to do so but for this paragraph (e);
(F) furnish to the persons selling Buyer Stock
such number of copies of a summary prospectus or other prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as such persons may reasonably request in order
to facilitate the public sale or other disposition of such Buyer Stock;
(G) use its best efforts to cause such Buyer
Stock to be registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of the
Buyer to enable the persons selling Buyer Stock to consummate the disposition
of such Buyer Stock;
(H) notify the persons selling Buyer Stock on a
timely basis at any time when a prospectus relating to such Buyer Stock is
required to be delivered under the Securities Act of the happening of any event
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 a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing
and, at the request of such persons, prepare and furnish to such persons a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the offerees
of such shares, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(I) make available for inspection by the persons
selling Buyer Stock, any underwriter participating in any disposition pursuant
to such registration statement and any
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<PAGE> 14
attorney, accountant or other agent retained by such persons or underwriter
(collectively, the "Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Buyer (collectively, the
"Records"), as shall be reasonably necessary to enable them to exercise their
due diligence responsibility, and cause the Buyer's officers, directors and
employees and any person possessing such information on behalf of the Buyer to
supply all information (together with the Records, the "Information")
reasonably requested by any such Inspector in connection with such registration
statement; provided that any of the Information which the Buyer determines in
good faith to be confidential, and of which determination the Inspectors are so
notified, shall not be disclosed by the Inspectors unless (i) the disclosure of
such Information is necessary to avoid or correct a misstatement or omission in
the registration statement, (ii) the release of such Information is ordered
pursuant to a subpoena or other order from a court or government agency of
competent jurisdiction or (iii) such Information has been made generally
available to the public; provided, however, that each such person agrees that
it will, upon learning that disclosure of such Information is sought in a court
of competent jurisdiction, give notice to the Buyer and allow the Buyer, at its
expense, to undertake appropriate action to prevent disclosure of the
Information deemed confidential;
(J) use its best efforts to obtain from its
independent certified public accountants "cold comfort" letters addressed to
IHS and each person selling Buyer Stock in customary form and at customary
times and covering matters of the type customarily covered by cold comfort
letters;
(K) use its best efforts to obtain from its
counsel an opinion or opinions addressed to IHS in customary form covering
matters of the type customarily covered by such opinions;
(L) provide a transfer agent and registrar (which
may be the same entity and which may be the Buyer) for such Buyer Stock;
(M) issue to any underwriter to which the Sellers
selling Buyer Stock may sell shares in such offering certificates evidencing
such Buyer Stock (following surrender of any existing certificate for such
securities);
(N) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission and make available to
the Buyer's security holders, as soon as reasonably practicable, publicly
available earnings statements (which need not be audited) covering a period of
twelve (12) months beginning within three (3) months after the effective date
of the Registration Statement, which earnings statements shall satisfy the
provisions of Section 11(a) of the Securities Act; and
(O) use its best efforts to take all other steps
necessary to effect the registration of such Buyer Stock contemplated hereby.
2.8 INDEMNIFICATION PROCEDURES, ETC.
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(A) The information included or incorporated by
reference in the registration statements filed pursuant to Section 2.5 will
not, at the time any such registration statement becomes effective, contain any
untrue statement of a material fact, or omit to state any material fact
required to be stated therein as necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading or necessary to correct any statement in any earlier filing of such
registration statement or any amendments thereto. The registration statements
will comply in all material respects with the provisions of the Securities Act
and the rules and regulations thereunder. The Buyer shall indemnify the
holders of Buyer Stock to be sold pursuant to any registration statement, their
successors and assigns, and each person, if any, who controls such holders
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") against any
and 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 the Buyer 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
holder or its affiliate seeking indemnification expressly for use in such
registration statement, any amendment or supplement thereto or any application,
as the case may be. If any action is brought against the holders or any
controlling person of the holders in respect of which indemnity may be sought
against Buyer pursuant to this subsection 2.8(a), the holders or such
controlling person shall promptly, and in any event, within thirty (30) days
(provided that the failure to give prompt notice shall not relieve the
indemnifying party of its indemnification obligation but such obligation shall
be reduced by any damages suffered by such party resulting from a failure to
give prompt notice) after the receipt thereby of a summons or complaint, notify
Buyer in writing of the institution of such action and Buyer shall assume the
defense of such actions, including the employment and payment of reasonable
fees and expenses of counsel (reasonably satisfactory to the holders or such
controlling person). The holders or such controlling person shall have the
right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of the holders or such
controlling person unless (A) the employment of such counsel shall have been
authorized in writing by Buyer in connection with the defense of such action,
or (B) Buyer shall not have promptly employed counsel to have charge of the
defense of such action, or (C) such indemnified party or parties shall have
reasonably concluded that there may be defenses available to it or them which
are different from or additional to those available to Buyer (in which case,
Buyer shall not have the right to direct the defense of such action on behalf
of the indemnified party or parties), in any of which events the reasonable
fees and expenses of not more than one additional principal firm of attorneys
(and, if necessary, applicable firms to serve as local counsel) for the holders
and/or such controlling person shall be borne by Buyer. Except as expressly
provided in the previous
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sentence, in the event that Buyer shall have assumed the defenses of any such
action or claim, Buyer shall not thereafter be liable to such holders or such
controlling person for their expenses in investigating, preparing or defending
any such action or claim, except for reimbursement of expenses incurred at
Buyer's request (e.g., attending depositions etc.). Buyer agrees promptly to
notify the holders of the commencement or any litigation or proceedings against
Buyer or any of its officers, directors or controlling persons in connection
with the resale of the Buyer Stock or in connection with such registration
statement.
(B) Each holder of the Buyer Stock to be sold
pursuant to a registration statement, and his successors and assigns, shall
severally, and not jointly, indemnify Buyer, any underwriter, its or their
officers and directors and each person, if any, who controls Buyer or any
underwriter within the meaning of Section 15 of the Securities Act or Section
20(a) of the Exchange Act against any and 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 containing any untrue statement of a
material fact furnished in writing by or on behalf of such holder, or his
successors or assigns for specific inclusion in such registration statement.
However, in no event shall the obligation of a seller of Buyer Stock hereunder
exceed the price received by such seller for such shares.
(C) If the indemnification provided for in this
Section 2.8 is held by a court of competent jurisdiction to be unavailable to
an indemnified party with respect to any loss, claim, damage, expense,
liability or action referred to herein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amounts
paid or payable by such indemnified party as a result of such loss, claim,
damage, expense, liability or action in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one and of the
indemnified party on the other in connection with the statement or omissions
which resulted in such loss, claim, damage, expense, liability or action as
well as any other relevant equitable considerations. The relevant fault of the
indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
However, in no event shall the obligation of a seller of Buyer Stock hereunder
exceed the price received by such seller for such shares.
ARTICLE III: THE CLOSING
3.1 TIME AND PLACE OF CLOSING. The closing (the
"CLOSING") of the transactions contemplated by this Agreement shall take place,
at the offices of Sellers, on the date which is two business days following the
date on which all of the conditions to each party's obligations hereunder have
been satisfied or waived or such other date as the parties may agree in
writing, but in any event not later than the date which is thirty (30) days
after the date of this Agreement, except to the extent expressly provided in
Section 8.5, 8.11, 9.5 or 9.8, below, and provided that, for accounting
purposes only, the Closing shall in any event be effective as of June 30, 1996.
The date on which the Closing is held is hereinafter referred to as the
"Closing Date."
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<PAGE> 17
3.2 BUYER'S FINANCING. The parties mutually
acknowledge that Buyer requires financing of approximately $100,000,000 in
order to complete the transaction hereunder (the "Financing"), although the
completion of the Financing is not a condition to Buyer's obligation to close
under this Agreement. In the event that the Financing does not close by August
1, 1996, it is agreed that the Closing Date shall be extended for up to one
hundred (100) days in order to enable Buyer to develop alternative financing
sources. During this period, IHS shall cooperate with Buyer and provide
reasonable assistance in identifying potential sources of the Financing.
Also during this period, the parties will make such reasonable adjustments to
the structure of this transaction as may be necessary to complete the
Financing, provided that in no event shall any party hereto be required to
agree to any such modification which would affect negatively the economic or
business benefits to be derived by such party under this Agreement. In any
event, if the Closing does not occur by the expiration of the said 100-day
period due to Buyer's failure to complete the Financing, the break-up fee
described in Section 11.3 shall be due and payable, subject to the conditions
stated in Section 11.3.
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF SELLERS AND IHS
Each of the Sellers and IHS hereby jointly and severally
represents and warrants to Buyer as follows:
4.1 ORGANIZATION AND STANDING. Each Seller and IHS is a
corporation duly organized, validly existing and in good standing under the
laws of the State of its incorporation. Copies of such corporation's Articles
of Incorporation and By-Laws and all amendments thereof to date, have been
delivered to Buyer, and are complete and correct. Each Seller and IHS has the
power and authority to own the property and assets now owned by it and to
conduct the business currently being conducted by it. Each Seller is
qualified to do business as a foreign corporation in each state where the
failure to be so qualified would have a Material Adverse Effect. Except as set
forth on Schedule 4.1, no Seller nor IHS with respect to the Ownership or use
of the Assets, files franchise, income or other Tax returns in any jurisdiction
based upon the ownership or use of its property therein or its derivation of
income therefrom. For purposes of this Agreement, any event, circumstance or
set of facts shall be deemed to have a "MATERIAL ADVERSE EFFECT" if it has, a
material adverse effect on the value of the Assets or Assumed Liabilities taken
as a whole or on the ability of Sellers to operate the Business consistent with
past practice or on the consolidated financial position of Sellers or on the
results of the operations of Sellers on a consolidated basis with respect to
the period then ended.
4.2 AUTHORITY. Each Seller and IHS has full corporate
power and authority to own, lease and operate its assets, properties and
business and to carry on its business as it is now being conducted. Each
Seller and IHS has the full corporate power and authority to make, execute,
deliver and perform this Agreement, including all Schedules and Exhibits
hereto, and the other agreements, instruments, certificates and documents
required or contemplated hereby or thereby to be executed or delivered by it
("SELLER TRANSACTION DOCUMENTS") and all of the
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transactions contemplated hereby and thereby. Such execution, delivery,
performance and consummation have been duly authorized by all necessary action,
corporate or otherwise, on the part of each Seller, IHS, its respective
directors and, if applicable, shareholders. Sellers and IHS each have
delivered to Buyer copies of (a) its Certificate or Articles of Incorporation,
(b) its Bylaws, and (c) resolutions of its Boards of Directors and, if
applicable, its shareholders authorizing the transactions contemplated by this
Agreement, in each case certified as true and correct by the corporate
secretary of such corporation.
4.3 BINDING EFFECT. This Agreement and the Seller
Transaction Documents executed by each Seller and IHS constitute the legal,
valid and binding obligations of such Seller and IHS, enforceable against each
Seller and IHS in accordance with their respective terms, except (a) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium, and other
laws of general application affecting enforcement of creditors' rights, and (b)
as limited by the application of legal principles affecting the availability of
specific performance, injunctive relief, and other equitable remedies.
4.4 ABSENCE OF CONFLICTING AGREEMENTS. Neither the
execution or delivery of this Agreement or any of the Seller Transaction
Documents by any Seller or IHS nor the performance by any Seller or IHS of the
transactions contemplated hereby and thereby, conflicts with, or constitutes a
breach of or a default (or an event which with notice or lapse of time or both,
would constitute a breach or default) under: (a) such Seller's or IHS's
Articles of Incorporation or By-Laws; or (b) any resolution adopted by the
Board of Directors or the shareholders of IHS or such Seller; or (c) any
judgment, order, writ, injunction, or decree of any court applicable to IHS or
such Seller; or (d) any Federal, state, local or other governmental laws or
ordinances, or any applicable order, rule or regulation ("GOVERNMENTAL
REQUIREMENTS") of any Federal, state, local or other governmental department or
court or other authority having jurisdiction over it ("GOVERNMENTAL
AUTHORITIES") or applicable to such Seller or IHS except as set forth in
Schedule 4.4 or as would not have a Material Adverse Effect; or (e) any
agreement, indenture, contract or instrument to which such Seller or IHS is now
a party or by which any of them or any of the Assets is bound, except for
conflicts, breaches, or defaults arising solely by reason of the assignment of
any Contracts which are not Employment Agreements at Closing, and except as set
forth in Schedule 4.4 or as would not have a Material Adverse Effect.
4.5 CONSENTS. Except as reflected in Schedule 4.5,
except for licenses and permits which constitute Excluded Assets, and except as
would not have a Material Adverse Effect if not obtained, no authorization,
consent, approval, license, exemption by filing or registration by any Seller
or IHS with any Governmental Authority or with the employee under any
Employment Agreement, is necessary in connection with the entry into,
execution, delivery and performance of this Agreement or any of the Seller
Transaction Documents by any Seller or IHS, or for the consummation of the
transactions contemplated hereby and thereby.
4.6 CONTRACTS.
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(A) Schedule 4.6 (a) sets forth a true and
correct list of each of the following contracts (written or oral) to which any
Seller is a party or is bound (together with the contracts set forth on
Schedule 4.6(b), the "CONTRACTS"):
(I) each employment, collective
bargaining, termination or consulting agreement with any directors,
officers, employees or consultants earning in excess of $50,000 per
year;
(II) each agreement restricting the
conduct of business anywhere in the world for any period of time or
the use or disclosure of any confidential or proprietary information;
(III) each 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;
(IV) each agreement pursuant to which the
services and products of the Business are provided, but excluding any
of the same which cover or relate solely to Excluded Services;
(V) each agreement, lease or other
instrument granting a leasehold interest to any Seller in real
property together with any and all non-disturbance agreements with
mortgagees or deed of trust beneficiaries which relate to the real
property covered by such leases (the "REAL PROPERTY LEASES");
(VI) each agreement (whether evidenced by
one document or a series of related documents with the same party)
involving past, present, or future consideration in excess of $50,000.
(B) Schedule 4.6(b) sets forth each material oral
or written contract relating to the Assets or the Business not otherwise listed
on Schedule 4.6(a) hereto. Except to the extent that same would not have a
Material Adverse Effect, each Contract was entered into and requires
performance in the ordinary course of business, is in full force and effect and
constitutes a legal, valid and binding obligation enforceable against the
applicable Seller in accordance with its terms, except (a) as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors's
rights, (b) as limited by the application of legal principles affecting the
availability of specific performance, injunctive relief and other equitable
remedies, and (c) as limited by other applicable law. Sellers are not in
default under any provision of any contract set forth on Schedule 4.6(a) or
4.6(b) and no condition exists which (with notice or lapse of time or both)
would constitute a default by any Seller thereunder, in each case, except to
the extent same would not have a Material Adverse Effect, and to the knowledge
of Sellers and IHS, no other party to any of such contracts is in default under
any provision of any such contract except
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to the extent such default would not have a Material Adverse Effect. The
Sellers previously have delivered true, correct, and complete copies of each
written Contract, including all amendments, modifications, renewals,
supplements, and extensions thereto (except as to those which are indicated on
Schedule 4.6 as being unavailable), and a written description of each oral
contract currently in effect.
4.7 FINANCIAL STATEMENTS.
(A) Attached hereto as Schedule 4.7(a) are the
audited financial statements of Symphony Pharmacy and the other Sellers on a
consolidated basis for the fiscal year ended December 31, 1995 (the "12/31/95
FINANCIAL STATEMENTS"). The Financial Statements (including any related notes
thereto) are true and correct in all material respects and present fairly the
financial condition and results of operations of Symphony Pharmacy and the
other Sellers reflected on a consolidated basis as, at and for the periods
therein specified and were prepared in accordance with GAAP applied on a basis
consistent with prior periods.
(B) Attached hereto as Schedule 4.7(b) are the
unaudited income statement and balance sheet of Symphony Pharmacy and the other
Sellers on a consolidated basis for the fiscal quarter ended March 31, 1996
(the "Interim Financial Statements"), which quarterly financial statements are
true and correct in all material respects and present fairly the financial
condition and results of operations of Symphony Pharmacy and the other Sellers
reflected on a consolidated basis as, at and for the periods therein specified
and were prepared in accordance with GAAP applied on a basis consistent with
prior periods.
4.8 LICENSES; PERMITS; CERTIFICATES OF NEED. Schedule
4.8 sets forth a complete and accurate list of and copy of each material
license or other permit or approval of any Governmental Authority necessary to
the operation of the Business heretofore obtained and that is now in effect
(collectively, the "LICENSES") including any such licenses, permits, or
approvals required by the Federal Food and Drug Administration ("FDA"), the
Federal Drug Enforcement Agency ("DEA"), the State Pharmacy Boards ("STATE
BOARDS"), and the Medicare or Medicaid programs. Each Seller owns, possesses
or has the legal right to use its Licenses. No Seller is in default under any
such License, which default would have a Material Adverse Effect.
4.9 TITLE, CONDITION TO PERSONAL PROPERTY.
(A) Sellers own, or have good and valid leasehold
interests or licenses in, all of the personal property comprising the Assets
and has good and valid title to all such personal property (tangible and
intangible) (or in the case of personal property which is leased or licensed to
it, Seller has the right to use such personal property superior in right to all
others), subject to no liens, claims, security interests, mortgages, pledges,
or encumbrances of any kind or nature whatsoever ("LIENS"), other than
Permitted Liens (as defined below) or Liens which shall be removed at or prior
to Closing. Except to the extent it would not have a Material Adverse Effect,
all of such personal property comprising equipment, improvements, furniture
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and other tangible personal property, whether owned or leased, is in good
operating condition and repair except for normal wear and tear, and is
functioning, in all respects, in the manner and for the purpose for which it
was intended, and is suitable to enable Buyer to operate the Business in a
normal and efficient manner. None of Sellers nor IHS has granted any option or
other right to acquire any material portion of the Assets or the Business other
than pursuant to this Agreement or with respect to inventory in the ordinary
course of business, which option or right is in effect on the date hereof.
There are no pending or, to the knowledge of Sellers and IHS, threatened
condemnation proceedings relating to any of Sellers' leased properties used in
connection with the Business.
(B) "PERMITTED LIENS" means:
(I) each lien set forth on Schedule
4.9(b) hereto;
(II) carriers', warehouseman's,
mechanics, materialmen's, repairmen's or other like liens arising in
the ordinary course of business which do not exceed $50,000 in the
aggregate;
(III) deposits to secure the performance
of bids, trade contracts (other than for borrowed money), leases,
statutory obligations, surety and appeal bonds, performance bonds and
other obligations of like nature incurred in the ordinary course of
business, provided that each such deposit shall be included in the
Assets;
(IV) pledges or deposits in connection
with worker's compensation, unemployment insurance, and other social
security legislation; and
(V) judgment liens which, in the
aggregate, secure amounts not in excess of $50,000 and which are in
existence less than thirty (30) days after the entry thereof and which
are being contested in good faith and with respect to which adequate
cash reserves have been established and with respect to which
execution has been stayed or the payment of which is covered in full
(subject to a reasonable and customary deductible) by insurance.
4.10 LEASED REAL PROPERTIES. No Seller owns any real
property or, other than the Real Property Leases, has a leasehold interest in
any real property. Each Seller has a valid leasehold interest in each of the
properties covered by the Real Property Leases to which it is a party. The
Real Property Leases represent all leasehold interests currently used in the
operation of the Business. Each of the Sellers has the right to quiet
enjoyment of the premises covered by the Real Property Leases leased by it as
tenant for the full term of the lease thereof to the extent provided in such
Real Property Lease, except to the extent same would not have a Material
Adverse Effect.
4.11 LEGAL PROCEEDINGS. Other than as reflected on
Schedule 4.11, there are no disputes, claims, actions, suits or proceedings,
arbitrations or investigations, either
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administrative or judicial, pending, or, to the knowledge of Sellers and IHS,
threatened or contemplated, against or affecting any Seller or any of the
Assets or such Seller's or IHS' rights therein or the conduct or operation of
the Business or the transactions contemplated by this Agreement, at law or in
equity or otherwise, before or by any court or governmental agency or body, in
any case, which would have a Material Adverse Effect.
4.12 COLLECTIVE BARGAINING, LABOR CONTRACTS, EMPLOYMENT
PRACTICES, ETC. No employees of the Business (the "EMPLOYEES") are
represented by any labor union or similar organization except as set forth on
Schedule 4.12, there are no pending or to the knowledge of IHS and each Seller,
threatened activities the purpose of which is to achieve such representation of
all or some of such Employees. To the knowledge of Sellers, except as set
forth in Schedule 4.12, (a) the Business is operating and has been operated in
compliance in all respects with all Government Requirements covering employment
and employment practices, terms and conditions of employment and wages and
hours, including the Immigration Reform and Control Act, the Worker Adjustment
and Retraining Notification Act of 1988 (the "WARN ACT"), any such Government
Requirements respecting employment discrimination, equal opportunity,
affirmative action, employee privacy, wrongful or unlawful termination,
workers' compensation, occupational safety and health requirements,
labor/management relations and unemployment insurance, or related matters and
there are no threatened or pending claims relating thereto, in each case,
except to the extent such noncompliance or claims would not have a Material
Adverse Effect, (b) there is no labor strike, dispute, slowdown or stoppage
pending or threatened against or affecting the Business, and Sellers have not
experienced any work stoppage or other labor difficulty affecting the Business
in the last year which would have a Material Adverse Effect, and (c) in the
event of termination of the employment of any Employee (other than any Employee
referred to on Schedule 4.6(a)(i)-A), Buyer will not, pursuant to any
agreement with any Seller or IHS or by reason of any representation made or
plan adopted by any Seller or IHS prior to the Closing, be liable to any
Employee for so-called "severance pay", parachute payments or any other similar
payments or benefits, including, without limitation, post-employment healthcare
(other than pursuant to COBRA) or insurance benefits, except as shall be
included in the Assumed Liabilities.
4.13 ERISA.
(A) No Seller nor IHS maintains, or makes
contributions to, and no Seller nor IHS has at any time in the past two years
maintained or made contributions to, any employee benefit plan which is subject
to the minimum funding standards of Employee Retirement Income Security Act of
1974, as amended ("ERISA") or subject to the terms of the Multi-employer
Pension Plan Amendment Act of 1980.
(B) Except for the Employment Agreements,
Schedule 4.13(b) sets forth each severance agreement, and each plan, agreement,
arrangement or plan, bonus plan, deferred compensation agreement, employee
pension, profit sharing, savings or retirement plan, group life, health, or
accident insurance or other employee benefit plan, agreement, arrangement or
commitment, including, without limitation, any commitment arising under
severance, holiday, vacation, Christmas or other bonus plans (including, but
not limited to, "employee benefit plans", as defined in Section 3(3) of ERISA
maintained by Seller or IHS for any Employees or with respect to which Sellers
or IHS have liability with respect to any Employees, or make or
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have an obligation to make contributions on behalf of Employees ("PLANS").
Each Plan that covers only Employees has been identified as such on Schedule
4.13(b).
(C) The IHS Retirement Savings Plan has received
a favorable determination letter from the Internal Revenue Service and nothing
has occurred to adversely affect such qualification.
(D) Schedule 4.13(d) identifies all Employees on
leave of absence eligible to receive health benefits, as required by the
continuation health care coverage provisions of Section 4980B of the Code or
Section 601 through 608 of ERISA ("COBRA"). Notice of the availability of
COBRA coverage has been provided to all Employees on leave of absence entitled
thereto, and all persons electing such coverage are being (or have been, if
applicable) provided such coverage.
4.14 INSURANCE AND SURETY AGREEMENTS. Schedule 4.14 sets
forth a true and complete list of policies of fire, liability, property,
workers' compensation and other forms of insurance held or owned by any Seller
or IHS or otherwise in force and providing coverage for the Business or any of
the property covered by the Real Property Leases or Assets. The insurance
policies listed on Schedule 4.14 are in full force and effect, (i) all premiums
due on or before the Closing Date have been or will be paid on or before the
Closing Date, (ii) are carried by insurers of recognized responsibility, (iii)
are sufficient for compliance in all material respects with all requirements of
applicable law, and (iv) insure the Business and the Assets against the types
of liabilities, claims and risks against which similarly situated businesses in
Seller's industry customarily insure. Each Seller and IHS is in compliance in
all material respects with the provisions of such policies and, no Seller nor
IHS has been advised by any of its insurance carriers of an intention to
terminate or modify any such policies.
4.15 ASSETS COMPRISING THE BUSINESS. The Assets represent
all of the real and personal property, licenses, intellectual property, permits
and authorizations, contracts, leases and other agreements that are necessary
to the operation of the Business as now operated, except for the Excluded
Assets. Except as set forth on Schedule 4.15 or except for Excluded Assets,
IHS (as opposed to Sellers) does not own any personal property, licenses,
intellectual property, permits or authorizations, and has not entered into any
contracts, leases or other agreements that are necessary to the operation of
the Business as now operated, except as otherwise expressly set forth in this
Agreement. The quantities of inventory items included in the Assets are
reasonable in light of the present and anticipated volume of the Business and
the inventory is good, usable, merchantable, and saleable in the ordinary
course of Business, in each case, as determined by Sellers in good faith and
consistent with past practice. The accounts receivable of Sellers are
reflected properly on their books and records in accordance with GAAP and have
been billed or invoiced in the ordinary course of business consistent with past
practice
4.16 ABSENCE OF CERTAIN EVENTS. Except as set forth on
Schedule 4.16 or as contemplated or permitted by this Agreement or as reflected
in the 12/31/95 Financial Statements
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(including the notes thereto) or the Interim Financial Statements (the
"Financial Statements"), since December 31, 1995:
(A) there has been no acquisition, sale,
transfer, or other disposition (including any dividend, distribution, or
extraordinary disbursement or expenditure) of any material properties or assets
owned by Sellers (individually or in the aggregate) or used in the Business as
conducted during the period prior to the Balance Sheet Date, except for the
acquisition, sale, expenditure, transfer, or other disposition of inventory,
cash, or other property or assets in the ordinary course of business and
consistent with past practice, including funding to and from IHS and its direct
or indirect subsidiaries;
(B) there has been no change in any Seller's
accounting methods or practices (including any change in depreciation or
amortization policies or rates), except as required by GAAP;
(C) the Business has been conducted in the
ordinary course consistent with past practice;
(D) Sellers and IHS have not mortgaged, pledged,
encumbered or subjected any of the Assets to any Lien other than Permitted
Liens;
(E) except in the ordinary course of business
consistent with past practice, or otherwise to comply with any applicable
minimum wage law, there has not been any increase in the salaries or other
compensation now or hereafter payable to any Employees, or increase in, or any
additions to, other benefits to which any of such Employees may be entitled,
including, without limitation, bonus, incentive compensation or service awards
or other like benefit;
(F) there has not been any settlement or
agreement to settle any litigation, action or proceeding before any court or
governmental body relating to any Seller or their property and no Seller has
received any threat thereof which, in any case, would have a Material Adverse
Effect;
(G) there has been no cancellation, termination,
or express waiver of any contract, agreement, lease (including real property
leases), or other instrument, or any rights or claims thereunder, relating to
the Business other than such cancellations, or terminations, as would not have
a Material Adverse Effect when aggregated with new contracts, agreements or
instruments relating to the Business;
(H) there has not been any loss of service of any
Employee that would have a Material Adverse Effect;
(I) there has not been any material extraordinary
item of loss, or incurrence of any material extraordinary obligation or
liability;
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(J) there has not been any other event,
circumstance or set of facts which is not covered by the representations and
warranties set forth in subsections (a) through (i) above and which has had or
would have a Material Adverse Effect; and
(K) there has not been any agreement, arrangement
or understanding to do any of the foregoing.
4.17 COMPLIANCE WITH LAWS. Sellers and, to the extent
related to the Business, IHS, each licensed Employee are, in compliance with
all applicable statutes, laws, ordinances, rules, orders and regulations of any
Governmental Authority (including without limitation, Environmental Laws (as
such term is hereinafter defined in Section 4.22) and Section 1320a-7b and
Section 1395nn of Title 42 of the United States Code or the regulations
promulgated thereunder, or related state or local statutes or regulations),
applicable to the Business, except where noncompliance would not have a
Material Adverse Effect. Except as set forth in Schedule 4.17, during the
two-year period ending on the date hereof, neither Sellers nor IHS has,
received any written notice or other written communication from a Governmental
Authority that alleges that the Business or any of the Assets is not in
compliance with any Federal, state, local or foreign statute, law, ordinance,
rule, order or regulations (including without limitation, Environmental Laws),
which noncompliance would have a Material Adverse Effect. To the knowledge of
Sellers, Sellers have maintained all records required to be maintained by the
FDA, DEA and State Boards of Pharmacy and the Medicare and Medicaid programs as
required so as not to have a Material Adverse Effect and Sellers have no
knowledge of any presently existing circumstances which are likely to result in
violations of any such regulations which would have a Material Adverse Effect.
Neither Sellers or, to the extent related to the Business, IHS or nor any
officer, director, employee, agent, or other representative of Sellers or, to
the extent related to the Business, IHS or any person acting on behalf of
Sellers has made, directly, or indirectly, any illegal bribes, kickbacks, or
political contributions with corporate funds, illegal payments from corporate
funds to governmental officials in their individual capacities, or illegal
payments from corporate funds to obtain or retain business either within the
United States or abroad which would have a Material Adverse Effect.
4.18 MEDICARE AND MEDICAID PROGRAMS. Sellers, to the
extent necessary to conduct the Business in a manner consistent with past
practice, are qualified for participation in the Medicare and Medicaid programs
except to the extent same would not have a Material Adverse Effect. Except as
reflected on Schedule 4.18 or the Financial Statements, (a) no Seller or IHS
has received any notice of recoupment with respect to the Business from the
Medicaid programs, or any other third party reimbursement source (b) there is
no basis for the assertion after the Closing Date of any such recoupment claim
against Buyer which arose out of any transactions on the part of Sellers prior
to the Closing or against any Seller for which Buyer will be liable except as
reflected in the Financial Statements, and (c) to the knowledge of Sellers and
IHS, no Medicare or Medicaid investigation, survey or audit is pending,
threatened or imminent with respect to the operation of the Business prior to
the Closing.
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4.19 ENCUMBRANCES CREATED BY THIS AGREEMENT. Neither the
execution and delivery of this Agreement by Sellers or IHS nor the execution
and delivery of any of the Seller Transaction Documents creates, and the
consummation of the transactions contemplated hereby or thereby will not
create, any Liens on any of the Assets in favor of third parties.
4.20 FINDERS. No broker or finder has acted for any
Seller 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 any Seller or IHS.
4.21 PATENTS, TRADEMARKS, TRADE NAMES, TRADE SECRETS AND
COPYRIGHTS. Schedule 4.21 contains a complete and accurate list of all United
States and foreign patents and patent applications, trademarks, service marks
(registered or as to which registration has been applied for), registered trade
names, and registered copyrights including, without limitation, proprietary
computer software, owned in whole or in part by any Seller or used by any
Seller in the Business and that, in each case, is material to the Business of
the Sellers as currently conducted ("PROTECTED MATERIAL"). There has been no
infringement or misappropriation, actual or claimed, by the Sellers of any
Protected Material or trade secrets owned by others, or other adverse claim
(including judicial or adversary proceedings) against Sellers with respect to
their usage of Protected Material or trade secrets owned by others or, to the
knowledge of Sellers and IHS, by others of any Protected Material owned by or
licensed to the Sellers or IHS, which would have a Material Adverse Effect.
Except as set forth in Schedule 4.21, none of the Sellers or IHS is in default
under any agreement pursuant to which it is licensing Protected Material of a
third party or granting licenses to its own Protected Material, except for such
defaults which would not have a Material Adverse Effect.
4.22 ENVIRONMENTAL MATTERS. To the knowledge of Sellers,
Sellers are in compliance in all respects with all environmental and related
Governmental Requirements applicable to Sellers, the Business, the Assets and
the real property covered by the Real Property Leases, including, but not
limited to, the Resource Conservation and Recovery Act of 1976, as amended, the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended, the Federal Water Pollution Control Act, as amended by the Clean Water
Act, and subsequent amendments, the Federal Toxic Substances Control Act, as
amended, and the Clean Air Act, as amended, with respect to environmental
matters, public or workplace health or safety, or hazardous, toxic or
infectious wastes, materials or substances (including medical wastes) or
petroleum products, materials or wastes or radioactive substances or wastes
(collectively "ENVIRONMENTAL LAWS"), except to the extent noncompliance would
not have a Material Adverse Effect. The foregoing representation and warranty
applies to the operation of the Business and the use of the Assets including,
but not limited to, the use, handling, treatment, storage, transportation and
disposal of any hazardous, toxic or infectious waste, material or substance
(including medical waste) or petroleum products, material or waste or
radioactive substances or waste whether performed on any of the properties
covered by the Real Property Leases or at any other location. To the knowledge
of Sellers and IHS, no investigation or review is pending or threatened by any
Governmental Authority or other party with respect to
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any alleged violation by Sellers or the Business of any Environmental Law, the
need for any work, repairs, or demolition by any Seller, on or in connection
with any property in order to comply with any Environmental Law, or any actual
or threatened release (including, but not limited to, any spill, discharge,
leak, emission, ejection, escape or dumping) or inadequate storage of, or
contamination caused by, any hazardous, toxic or infectious waste, material or
substance (including medical waste) or petroleum product, material or waste or
radioactive substance or waste, or any such constituent which would have a
Material Adverse Effect.
4.23 TAX RETURNS.
(A) Except as set forth in Schedule 4.23(a), (i)
all Tax (as defined below) returns, statements, reports and forms or extensions
with respect thereto required to be filed with any Governmental Authority on or
before the Closing Date by or on behalf of any Seller (collectively, the "TAX
RETURNS"), have been or will be timely filed on or before the Closing Date in
accordance in all material respects with all applicable Governmental
Requirements; and (ii) each Seller has timely paid all Taxes payable by it.
(B) For purposes of this Agreement, "TAX" means
any net income, gross income, sales, use, franchise, personal, or real property
tax.
4.24 EMPLOYEES. Attached hereto as Schedule 4.24 is the
most recent payroll of the Sellers, indicating the names and compensation of
their employees. All of such information is materially correct as of such
date. To the knowledge of Sellers, none of the Employees, while in the employ
of any of the Sellers, has ever had his or her professional license or
certification denied, suspended, revoked, terminated, or voluntarily
relinquished under threat of disciplinary action, or has ever been restricted
in any way from performing the duties he or she is to provide for the Sellers,
and there is no proceeding pending, or threatened, pursuant to which any of the
foregoing may occur.
4.25 NO UNTRUE STATEMENT. None of the representations and
warranties in this Article IV contains any untrue statement of material fact or
omits to state a material fact necessary, in light of the circumstance under
which it was made, in order to make any such representation not misleading in
any material respect.
4.26 RELATED TRANSACTIONS. Except for transfers of cash
pursuant to IHS's customary corporate treasury and cash management functions,
no transaction has been consummated or committed to between any Sellers or
between any Seller and IHS on other than fair market or arms length terms.
4.27 RESTRICTED STOCK. All shares of Buyer Stock to be
issued hereunder will be newly issued shares of Buyer. Each of the Sellers, by
its acceptance of the Buyer Stock issuable hereunder, represents and warrants
to Buyer that the Buyer Stock being issued hereunder is being acquired, and
will be acquired, by such holder for investment for its own account and not
with a view to or for sale in connection with any distribution thereof within
the
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meaning of the Securities Act or the applicable state securities law; such
holder acknowledges that the Buyer Stock constitutes restricted securities
under Rule 144 promulgated by the Commission pursuant to the Securities Act,
may have to be held indefinitely and may not be sold, transferred, assigned,
pledged or otherwise disposed of except pursuant to an effective registration
statement or an exemption from registration under the Securities Act and the
rules and regulations thereunder. Each Seller has the knowledge and experience
in financial and business matters, is capable of evaluating the merits and
risks of the investment, and is able to bear the economic risk of such
investment. Each Seller has been provided with such materials as are generally
provided to shareholders of the Buyer and has had the opportunity to make
inquiries of and obtain from representatives and employees of the Buyer such
other information about the Buyer as they deem necessary in connection with
such investment.
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to IHS and the Sellers as
follows:
5.1 ORGANIZATION AND STANDING. Buyer has been duly
incorporated and is validly existing and is in good standing under the laws of
the State of Delaware.
5.2 POWER AND AUTHORITY. Buyer has full corporate power
and authority to own, lease and operate its assets, properties and business and
to carry on its business as it is now being conducted. Buyer has the corporate
power and authority to make, execute and deliver this Agreement including all
Schedules and Exhibits hereto, and all of the instruments and agreements
required to be delivered by it to IHS or any Seller at the Closing,
(collectively the "BUYER TRANSACTION DOCUMENTS"), and to perform and consummate
all of the transactions contemplated hereby and thereby. Buyer has delivered
to IHS, (i) its Certificate of Incorporation, (ii) its Bylaws, and (iii)
resolutions of its Board of Directors, and, if applicable, shareholders
authorizing the transactions contemplated by this Agreement, certified as true
and correct by the corporate secretary of Buyer.
5.3 BINDING AGREEMENT. This Agreement has been duly
executed and delivered by Buyer. This Agreement is, and when executed and
delivered by Buyer at the Closing, each of the Buyer Transaction Documents
executed by Buyer will be, the legal, valid and binding obligations of Buyer
enforceable against Buyer in accordance with their respective terms, except (a)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
and other laws of general application affecting enforcement of creditors'
rights, and (b) as limited by the application of legal principles affecting the
availability of specific performance, injunctive relief, and other equitable
remedies.
5.4 ABSENCE OF CONFLICTING AGREEMENTS. Neither the
execution or delivery of this Agreement or of any of the Buyer 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 Articles of Incorporation or By-Laws of Buyer; or (b)
any
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resolution adopted by the Board of Directors or shareholders of Buyer; or (c)
any judgment, order, writ, injunction, or decree of any court applicable to
Buyer; or (c) any Governmental Requirement applicable to Buyer; or (d) any
agreement, indenture, contract or instrument to which Buyer is now a party or
by which it or any of its assets are bound and except as would not have a
Material Adverse Effect.
5.5 CONSENTS. Except as reflected in Schedule 5.5 or
which the failure to obtain would not have a Material Adverse Effect, no
authorization, consent, approval, license, exemption by filing or registration
with any Governmental Authority, is necessary in connection with the entry
into, execution, delivery and performance of this Agreement or any of the Buyer
Transaction Documents by Buyer, or for the consummation by Buyer of the
transactions contemplated hereby and thereby.
5.6 FINDERS. No broker or finder has acted for 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 Buyer.
ARTICLE VI: INFORMATION AND RECORDS CONCERNING THE SELLERS
6.1 ACCESS TO INFORMATION AND RECORDS BEFORE CLOSING.
Prior to the Closing Date, Buyer may make, or cause to be made, such
investigation of Sellers' financial and legal condition as Buyer deems
necessary or advisable to familiarize itself with Sellers and/or matters
relating to their history or operation. Upon reasonable prior notice, each
Seller and IHS shall permit Buyer and its authorized representatives (including
legal counsel and accountants), to have full access to such Seller's books and
records during normal business hours, and each Seller and IHS will furnish, or
cause to be furnished, to Buyer such financial and operating data and other
information and copies of documents with respect to such Seller's products,
services, operations and assets as Buyer shall from time to time reasonably
request and as shall be in the possession or control of IHS or such Seller or
which IHS or such Seller shall have the ability to obtain with reasonable
efforts.
ARTICLE VII: OBLIGATIONS OF THE PARTIES UNTIL CLOSING
7.1 CONDUCT OF BUSINESS PENDING CLOSING. Between the
date of this Agreement and the Closing, IHS shall cause Sellers and Sellers
shall conduct the Business diligently and in the ordinary course consistent
with past practice.
7.2 NEGATIVE COVENANTS OF SELLERS. Without the prior
written approval of Buyer, which approval shall not be unreasonably withheld,
delayed or conditioned, no Seller shall and, to the extent relating to any
Assets or any portion of the Business, IHS shall not, except as otherwise
contemplated or permitted by this Agreement between the date hereof and the
Closing:
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(A) cause or permit (to the extent within the
control of the applicable Seller or IHS) to occur any of the events or
occurrences described in Section 4.16 (Absence of Certain Events) of this
Agreement;
(B) take any action that would prevent Sellers or
IHS from consummating the transactions contemplated by this Agreement;
(C) cancel any material debts or claims due to
it, except in the ordinary course of business or as would not have a Material
Adverse Effect;
(D) fail to comply with any laws, ordinances,
regulations or other governmental restrictions applicable in any respect to the
Business or any of the Assets which would have a Material Adverse Effect;
(E) except as shall be within the ordinary course
of the Business consistent with prior practice, enter into any contract, lease,
order, commitment or other obligation in any one case requiring payments or
expenditures in excess of $50,000 that would constitute an Asset;
(F) except as shall be within the ordinary course
of the Business consistent with prior practice, and except for transfers of
cash pursuant to IHS's customary corporate treasury and cash management
functions, create, incur, guarantee, assume, or otherwise become liable or
obligated with respect to any indebtedness, nor make any loan or advance to, or
any investment in, any person or entity, nor create any lien, security
interest, mortgage, right or encumbrance in any of the Assets.
(G) enter into any agreement, arrangement or
commitment to do any of the things described in any of (a) through (d) above.
7.3 AFFIRMATIVE COVENANTS OF SELLERS. Between the date
hereof and the Closing, each Seller and to the extent relating to any Assets or
any portion of the Business, IHS, shall:
(A) maintain the Assets in substantially the
state of repair, order and condition as on the date hereof, reasonable wear and
tear or loss by insured casualty excepted, except to the extent same would not
have a Material Adverse Effect;
(B) maintain in full force and effect all
Licenses; and shall use its commercially reasonable efforts to perform in all
material respects all of its obligations under the Contracts and Licenses as
such obligations come due;
(C) maintain in full force and effect the
insurance policies and binders currently in effect with respect to Sellers, or
replacements thereof;
(D) use its commercially reasonable efforts: to
preserve intact their present business operations and organization; to keep
available the services of their present employees and agents; and maintain
their relations and good will with patients, suppliers, vendors, employees, and
any others having business relating to the Business; and
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(E) provide Buyer with an affidavit, stating,
under penalty of perjury, its United States taxpayer identification number and
that it is not a foreign person, pursuant to Section 1445(b)(2) of the Code.
7.4 PURSUIT OF CONSENTS AND APPROVALS. Promptly upon
execution of this Agreement, Buyer shall use commercially reasonable efforts to
obtain, at its own cost and expense, all approvals and consents of Governmental
Authorities to the transfer of all transferable Licenses to Buyer and consents
of any third parties to the assignment of the Employment Agreements to Buyer.
Sellers shall fully cooperate with Buyer in respect thereof. The parties agree
that Buyer shall not be required to obtain consent or approval for the transfer
of any Medicare provider numbers prior to Closing. Buyer agrees to obtain, as
soon as possible, all licenses, permits and approvals required by applicable
Governmental Requirements to purchase and resell all of the controlled
substances and dangerous drugs constituting Assets.
7.5 SUPPLEMENTARY FINANCIAL INFORMATION. Within
twenty-five (25) days after the end of each calendar month between the date of
this Agreement and the Closing Date, Symphony Pharmacy shall provide to Buyer
unaudited financial statements (including at the minimum income statement and
balance sheet) for such month then ended that shall present fairly the
consolidated results of the operations of Symphony Pharmacy and the other
Sellers at such date and for the period covered thereby, all in accordance with
GAAP applied on a basis consistent with prior periods, in each case, certified
as true and correct in all material respects by the chief financial officer of
Symphony Pharmacy.
7.6 H-S-R ACT. Buyer and Sellers shall, on the date
hereof, make their respective filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "H-S-R ACT") with respect to the transactions
contemplated by this Agreement, and thereafter shall make any other required
submissions in connection therewith. Each party shall use its best efforts to
obtain early termination of the waiting period under the H-S-R for the
transactions contemplated by this Agreement. Each party represents and
warrants to the other that it has no reason to believe that such early
termination will not be granted.
7.7 EXCLUDED SERVICES. Notwithstanding anything to the
contrary contained in this Agreement, Sellers and IHS shall be entitled to
amend any provider agreements which constitute Contracts to the extent
necessary to exclude therefrom any Excluded Services.
7.8 NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
Sellers and IHS agree not to divulge, communicate, use to the material
detriment of the Business, or misuse in any way, any Protected Material or
trade secrets included in the Assets; provided, however, that the foregoing
obligations do not apply to the extent that (a) any such disclosure is in the
public domain (other than as a result of a disclosure by Sellers, IHS, or any
agent or employee thereof in violation of this Section 7.8), or (b) any
disclosure is necessary in connection with compliance with applicable law and
in such event, to the extent practicable and permitted, after consultation with
Buyer after any such disclosure.
7.9 EMPLOYMENT AGREEMENT WITH DAVID GRAFT. IHS will
grant its consent to permit David Graft to take a leave of absence under his
employment agreement with IHS so as to enable Mr. Graft to perform, at Buyer's
option and expense, full-time services for Buyer
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for a period of up to six (6) months following the Closing Date, with a further
option on the part of Buyer to extend such services for an additional six (6)
months.
7.10 EXCLUSIVITY.
(A) Until the earlier of Closing or the
termination of this Agreement, neither IHS nor any Seller, nor any of their
respective affiliates, shall solicit, entertain, or engage in any discussions
or negotiations directly or indirectly with any other party in respect of the
sale of the Assets, or in respect of any merger, consolidation, or other
reorganization of any or all of Sellers.
(B) Until the earlier of Closing or the
termination of this Agreement, neither Buyer, nor any of its affiliates, shall
engage in any discussions or negotiations directly or indirectly with any other
party for the purpose of obtaining such party's consent to the assignment of
any of the Contracts.
7.11 NOTICE OF BREACH. Sellers will provide prompt
notice to Buyer of any event of which Seller or IHS becomes aware and which
causes or, with the passage of time would reasonably be expected to cause, any
representation and warranty of Sellers or IHS hereunder to be breached in any
material respect.
ARTICLE VIII: CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions
contemplated by this Agreement to occur at the Closing are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions,
any one or more of which may be waived in whole or in part by Buyer in writing.
Upon failure of any of the following conditions, Buyer may terminate this
Agreement prior to Closing pursuant to and in accordance with Article XI
herein.
8.1 REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Sellers and IHS made under this Agreement and under each
Seller Transaction Document shall be true and correct in all material respects
(except those representations and warranties that are qualified by materiality,
which shall be true and correct in all respects) at and as of the Closing Date,
as though such representations and warranties were made at and as of such time
except for changes permitted or contemplated by this Agreement.
8.2 PERFORMANCE OF COVENANTS. Sellers and IHS shall have
performed or complied in all material respects with their respective agreements
and covenants (except those agreements and covenants that are qualified by
materiality, which shall be performed and complied with in all respects)
required by this Agreement and the Seller Transaction Documents to be performed
or complied with by them, prior to or at the Closing.
8.3 DELIVERY OF CLOSING CERTIFICATE. An officer of each
Seller and of IHS shall have executed and delivered to Buyer a certificate,
dated the Closing Date, upon which Buyer may rely, certifying that the
conditions set forth in Sections 8.1 and 8.2 have been satisfied.
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8.4 OPINIONS OF COUNSEL. Sellers and IHS shall have
delivered to Buyer or Buyer's lenders an opinion, dated the Closing Date, of
its applicable counsel, as to the matters covered by the representations and
warranties contained in Sections 4.1, 4.2, 4.3, 4.4(a), (b) and (c) and 4.11
hereof, provided that as to factual matters such counsel may rely on its actual
knowledge and the truth and accuracy of the representations and warranties made
by Sellers and IHS contained in this Agreement, the Seller Transaction
Documents, and certificates supplied to such counsel by the Sellers, IHS and
Governmental Authorities. Said opinion shall be addressed to and may be relied
upon only by Buyer and its lender.
8.5 LEGAL MATTERS. No suit, action, investigation, or
legal or administrative proceeding shall have been brought or shall have been
threatened that questions the validity or legality of this Agreement or the
consummation of the transactions contemplated by this Agreement, which in the
determination of Buyer, upon advice of counsel, is reasonably likely to result
in damages to Buyer in excess of $10,000,000, and no injunction or other order
or decree of any Government Authority shall be in effect which prohibits Buyer
from consummating the transactions contemplated by this Agreement; provided,
however, that if any such injunction shall be temporary, either party may elect
to extend the first date on which this Agreement may be terminated for failure
to meet the condition set forth in this Section 8.5 in accordance with Article
XI hereof until a date which is forty-five (45) days following the date hereof.
Notwithstanding the foregoing, the conditions to Buyer's obligations set forth
in this Section 8.5 shall not be a basis for a termination by Buyer under
Section 11.1 if IHS shall have executed an agreement reasonably satisfactory to
Buyer holding Buyer harmless from and against any loss or liability arising out
of any of the matters described in this Section 8.5, it being understood that
any such indemnification will not be subject to any of the limitations
described in Section 10.2.
8.6 AUTHORIZATION DOCUMENTS. Buyer shall have received a
certificate of the Secretary or other authorized officer of Seller and of IHS
certifying a copy of resolutions of its Board of Directors authorizing the
execution and full performance of this Agreement and the Seller Transaction
Documents to which such Seller or IHS is a party and the incumbency of its
officers.
8.7 MATERIAL ADVERSE EFFECT. Since the date of this
Agreement there shall not have occurred any event or occurrence which would
have a Material Adverse Effect; provided, however, that, subject to the
Purchase Price adjustment provisions of Section 2.2, the termination of
Contracts for the provision of services and products of the Business shall not
be deemed to have a Material Adverse Effect.
8.8 CONSENTS TO ASSIGNMENTS OF EMPLOYMENT AGREEMENTS.
Each employee under each Employment Agreement shall, to the extent required,
have consented to the assignment of the applicable Employment Agreement to
Buyer.
8.9 BILL OF SALE AND ASSIGNMENT. Each Seller shall have
executed and delivered to Buyer a Bill of Sale (the "BILL OF SALE") and an
Assignment of Contracts instrument
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(the "ASSIGNMENT OF CONTRACTS") respectively in the forms of Exhibits 8.9-1 and
8.9-2, and such other endorsements, assignments, and other good and sufficient
instruments of conveyance and transfer (including, without limitation,
assignments of any intellectual properties), in form and substance reasonably
satisfactory to Buyer and its counsel, as are effective to vest in Buyer good
and valid title in the Assets free and clear of all Liens, except Permitted
Liens.
8.10 NON-COMPETITION AGREEMENTS. IHS, on behalf of itself
and all IHS Subsidiaries, shall have entered into a non-competition agreement
(the "NON-COMPETITION AGREEMENT") with Buyer, providing that none of IHS or the
IHS Subsidiaries (collectively, the "BOUND PARTIES"), will, directly or
indirectly, for a period of five (5) years after the Closing, whether as an
owner, partner, shareholder, member, manager, consultant, agent or otherwise,
wholly or partially own or engage in the operation, management or conduct of
any business or enterprise that provides institutional pharmacy dispensing or
consulting services to long-term care facilities (which facilities include,
without limitation, skilled nursing facilities, nursing facilities and assisted
living facilities) and which is located within a one hundred fifty (150) mile
radius of either (i) any pharmacy included in the Assets or operated by Buyer
or (ii) any IHS LTC Facility; provided that no Bound Party would be prohibited
from: (a) providing dispensing services for intravenous products other than to
IHS LTC Facilities, (b) providing Excluded Services, or any other products
currently sold or marketed by Greenline Services, Inc., (c) providing pharmacy
dispensing services to the home health market or the physician practice market,
or (d) acquiring and owning any otherwise prohibited pharmacy dispensing
services business as part of the acquisition of a larger business if such
pharmacy dispensing services business does not constitute the principal
component of the larger business and the purchaser thereof agrees to use its
reasonable commercial efforts to sell such pharmacy dispensing services
business as promptly as possible under the circumstances. For purposes of this
Agreement, "IHS SUBSIDIARY" shall mean any person or entity which on the date
in question, directly or indirectly is controlled by IHS; and, for such
purposes, IHS shall be deemed to "control" another entity if IHS is the
"beneficial owner" (as that term is defined in Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended) of greater than twenty-five
percent (25%) of any class of voting securities (or other voting interests) of
a controlled entity which is a publicly-traded entity, or fifty-one percent
(51%) of any privately-held entity, or IHS possesses, directly or indirectly,
the power to direct or cause the direction of the management or policies of the
controlled entity with respect to the matters covered by the Non-Competition
Agreement, whether through ownership of stock, election of directors, by
contract or otherwise. By way of clarification and not of limitation, it is
understood and agreed that the following are not deemed to be IHS Subsidiaries
for the purposes of this Section 8.10: Tutera Health Care Management, L.P.,
Integrated Living Communities, Inc., Community Care of America, Inc., and HPC
America, Inc.
Such Non-Competition Agreement shall also provide that:
(A) (I) Buyer shall have the right to require that
the fair market value of any (or all) businesses or enterprises
described in subsection 8.10(d) above which are acquired by IHS or any
IHS Subsidiary (each a "PERMITTED ACQUISITION BUSINESS") be
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appraised, at IHS's cost, by an appraisal firm of national standing,
as selected by IHS, and which does not have any material business
relationship with IHS or any IHS Subsidiary, and (ii) for a period of
thirty (30) days after the fair market value of any such Permitted
Acquisition Business has been so determined, Buyer may elect to
purchase such Permitted Acquisition Business for cash at such fair
market value price by delivery of written notice exercising such
option. In the event Buyer exercises such election, Buyer shall close
such acquisition within sixty (60) days after its exercise of its
election. IHS and the IHS Subsidiaries will make available to such
appraiser and to Buyer, its potential lender(s) and their respective
professional advisors all information requested by them with respect
to any such Permitted Acquisition Business;
(B) In the event that any court of competent jurisdiction
finds the restrictions set forth in the Non-Competition Agreement
unenforceable as applied to any act or condition in any specific
instance, but such act or condition would nonetheless be prohibited if
the Non-Competition Agreement were to impose a lesser time, geographic
or scope-of-business restriction, then, as applied to such act or
condition of such Bound Party, then the temporal, geographic and/or
scope of business limitations contained in the Non-Competition
Agreement shall automatically be modified to restrict only such acts
and conditions as such court may determine to be the maximum
enforceable under law; and
(C) Such agreement shall be enforceable except as limited
by the application of legal principles affecting the availability of
specific performance, injunction and other equitable remedies.
8.11 HART-SCOTT RODINO ACT. All applicable waiting
periods under the H-S-R Act shall have expired or been terminated, and no
action shall have been taken or formal protest made by the United States
Department of Justice or the Federal Trade Commission or any other person or
entity to prohibit the transactions contemplated by this Agreement by reason of
a claimed violation of any antitrust laws. Without limiting the foregoing, no
obligation arising out of the H-S-R Act shall have been imposed on Buyer to
divest any material portion of its business by reason of the transactions
contemplated by this Agreement. The parties shall have until a date which is
forty-five (45) days following the date of this Agreement to satisfy the
foregoing condition, and if the foregoing condition shall not have been
satisfied by such date, either party may elect to terminate this Agreement for
failure to satisfy the condition set forth in this Section 8.11 in accordance
with Article XI hereof.
8.12 EMPLOYMENT AGREEMENTS. Sellers shall have assigned
to Buyer the Employment Agreements with each of Ken Chen, Nancy Hoffman, Tracy
Muller, Martin R. Natter and Timothy Quarberg, and Sellers shall have obtained
any required consents and ratifications to effectuate such assignments.
8.13 NON-SOLICITATION AGREEMENTS WITH CERTAIN PERSONS. At
or prior to Closing, Robert N. Elkins, Taylor Pickett, and Scott Robertson
shall have agreed for a period of three years from the Closing Date not to
solicit the institutional pharmacy goods and services dispensing business from
any long-term care facility operated by IHS or any of the IHS Subsidiaries or
from any long-term care facility which is currently receiving such services
from any Seller;
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provided, however, that the foregoing shall not apply to any matter which is
excluded from coverage under the Non-competition Agreement, and further
provided that nothing contained in the foregoing shall be deemed to prohibit
any of such persons from owning any interest in, or being an employee of any
business which is so soliciting such services so long as the principal purpose
of such business is not the provision of such services and such person is not
actively involved with and does not provide any material assistance with
respect to the provision of such services or the solicitation of such business
and does not make use of any relationships which he has with any of such
facilities in connection with any such solicitation. The condition set forth
above may be satisfied by the agreement by IHS (x) to obtain from such
executives an agreement as provided above and (y) to enforce such agreement, in
each case, at the sole cost and expense of Buyer. Buyer shall indemnify and
hold IHS and Sellers harmless from any Loss arising out of any actions taken by
IHS or any Seller at the request of Buyer to enforce said agreement.
8.14 DOCUMENTS. Sellers and IHS shall have furnished
Buyer with all other documents, certificates and other instruments required to
be furnished to Buyer pursuant to the terms hereof.
ARTICLE IX: CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLERS AND IHS
The obligations of each Seller and IHS to consummate the
transactions contemplated hereby to occur at the Closing are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions,
any one or more of which may be waived in whole or in part by Sellers or IHS in
writing. Upon failure of any of the following conditions, Sellers or IHS may
terminate this Agreement prior to Closing pursuant to and in accordance with
Article XI herein.
9.1 REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Buyer made under this Agreement and under each Buyer
Transaction Document shall be true and correct in all material respects (except
those representations and warranties that are qualified by materiality, which
shall be true and correct in all respects) at and as of the Closing Date, as
though such representations and warranties were made at and as of such time
except for changes permitted or contemplated by this Agreement.
9.2 PERFORMANCE OF COVENANTS. Buyer shall have performed
or complied in all material respects with its agreements and covenants (except
those agreements and covenants that are qualified by materially, which shall be
performed and complied with in all respects) required by this Agreement and
each Buyer Transaction Document to be performed or complied with by it prior to
or at the Closing.
9.3 DELIVERY OF CLOSING CERTIFICATE. An authorized
officer of Buyer shall have executed and delivered to each Seller and IHS a
certificate, dated the Closing Date, upon which Sellers and IHS may rely,
certifying that the conditions set forth in Sections 9.1 and 9.2 have been
satisfied.
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9.4 OPINIONS OF COUNSEL. Buyer shall have delivered to
Sellers and IHS an opinion, dated the Closing Date, of its counsel, as to the
matters covered by the representations and warranties contained in Sections
5.1, 5.2 and 5.3 hereof, provided that as to any factual matters such counsel
may rely on its actual knowledge and the truth and accuracy of the
representations and warranties made by Buyer contained in this Agreement, the
Buyer Transaction Documents and certificates supplied to such counsel by
representatives of Buyer and of Governmental Authorities. Said opinion shall
be addressed to and may be relied upon by each Seller and IHS.
9.5 LEGAL MATTERS. No suit, action, investigation, or
legal or administrative proceeding shall have been brought or shall have been
threatened that questions the validity or legality of this Agreement or the
consummation of the transactions contemplated by this Agreement, which in the
determination of IHS, upon advice of counsel, is reasonably likely to result in
damages to IHS or Sellers in excess of $10,000,000, and no injunction or other
order or decree of any Government Authority shall be in effect which prohibits
IHS or any Seller from consummating the transactions contemplated by this
Agreement; provided, however, that if any such injunction shall be temporary,
either party may elect to extend the first date on which this Agreement may be
terminated for failure to satisfy the condition set forth in this Section 9.5
in accordance with Article XI hereof until a date which is forty-five (45) days
following the date hereof.
9.6 AUTHORIZATION DOCUMENTS. Sellers and IHS shall have
received a certificate of the Secretary or other authorized officer of Buyer
certifying a copy of resolutions of its Board of Directors authorizing its
execution and full performance of this Agreement and the Buyer Transaction
Documents to which it is a party and the incumbency of its officers.
9.7 UNDERTAKING. Buyer shall have executed and delivered
to the Sellers and IHS an undertaking in the form and substance of Exhibit 9.7
hereto (the "Undertaking").
9.8 HART-SCOTT RODINO ACT. All applicable waiting
periods under the H-S-R Act shall have expired or been terminated, and no
action shall have been taken or formal protest made by the United States
Department of Justice or the Federal Trade Commission or any other person or
entity to prohibit the transactions contemplated by this Agreement by reason of
a claimed violation of any antitrust laws. The parties shall have until a date
which is forty-five (45) days following the date of this Agreement to satisfy
the foregoing condition, and if the foregoing condition shall not have been
satisfied by such date, either party may elect to terminate this Agreement for
failure to satisfy the condition set forth in this Section 9.8 in accordance
with Article XI hereof.
9.9 LENDER CONSENT. IHS shall have received the written
consent of its senior secured lenders to the transaction contemplated
hereunder, which consent IHS shall use commercially reasonable efforts to
obtain.
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9.10 OTHER DOCUMENTS. Buyer shall have furnished Sellers
and IHS with all other documents, certificates and other instruments required
to be furnished to any of them by Buyer pursuant to the terms hereof.
ARTICLE X: OBLIGATIONS OF THE PARTIES AFTER CLOSING
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made by each party in this Agreement and in each
Schedule and Transaction Document shall survive the Closing Date and for a
period of one (1) year after the Closing notwithstanding any investigation at
any time made by or on behalf of the other party, provided that (i) the
representations and warranties contained in Section 4.18 (Medicare and
Medicaid) and Section 4.23 (Tax), shall survive until the applicable period of
limitations for audits by the applicable Governmental Authority shall have
expired, and (ii) the representations and warranties contained in Section 4.17
(Compliance with Laws) shall survive for a period of eighteen (18) months after
the Closing. All representations and warranties related to any claim asserted
in writing prior to the expiration of the applicable survival period shall
survive (but only with respect to such claim) until such claim shall be
resolved and payment in respect thereof, if any is owing, shall be made.
10.2 INDEMNIFICATION.
(A) Sellers and IHS jointly and severally shall
indemnify and defend and hold harmless Buyer and its officers, directors,
employees, agents, representatives and affiliates against and with respect to
any and all damages, claims, losses, penalties, liabilities, actions, fines,
costs and expenses (including, without limitation, reasonable attorney's fees
and expenses) (all of the foregoing hereinafter collectively referred to as
"LOSS"), regardless of whether an action has been filed or asserted against
Buyer after the Closing Date, arising from, in connection with or with respect
to the following items (i) (A) any misrepresentation or breach of warranty
under this Agreement or any Seller Transaction Document, or (B) any failure to
fulfill any agreement or covenant on the part of any Seller and/or IHS
contained in Article VII hereof or (ii) any failure to fulfill any agreement or
covenant on the part of any Seller and/or IHS (not covered by clause (i) above)
under this Agreement or; any Seller Transaction Document; (iii) any assertion
or claim against Buyer of any Excluded Liability; (iv) a determination that the
sale of the Assets hereunder is ineffective against any creditor of Sellers
(other than Assumed Liabilities) or any taxing authority or other entity
asserting any similar claim against Sellers; (v) any and all actions, suits,
proceedings, judgments, settlements (to the extent approved or entered into by
IHS as hereinafter provided), costs, penalties and legal and other expenses
incident to any of the foregoing.
(B) Buyer shall indemnify and defend and hold
harmless Sellers and IHS and their respective officers, directors, employees,
agents and affiliates against and with respect to any and all Losses regardless
of whether an action has been filed or asserted against Seller or IHS after the
Closing Date, arising from, in connection with or with respect to the following
items: (i) any misrepresentation, breach of any warranty, or failure to
fulfill any
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agreement or covenant on the part of Buyer under this Agreement or any Buyer
Transaction Document, (ii) any Loss arising out of the operation or ownership
of the Assets or the operation of the Business after the Closing Date or out of
any of the Assumed Liabilities, (iii) the use by Buyer of the names referred to
in Section 10.7 (provided that, without implying that any indemnification
obligations covered by this Section 10.2 include consequential damages, it is
expressly understood that Buyer shall not be required to indemnify IHS or any
Seller for consequential damages by reason of this clause (iii)), and (iv) any
and all actions, suits, proceedings, judgements, settlements (to the extent
approved or entered into by Buyer as hereinafter provided), costs, penalties
and legal and other expenses incident to any of the foregoing.
(C) Any claim for indemnification under this
Section 10.2 must be asserted by written notice by a date which is one (1) year
following the Closing Date, except that (i) any claim based upon a breach of
the representations and warranties contained in Section 4.18 (Medicare and
Medicaid) or Section 4.23 (Tax) may be asserted until the applicable period of
limitations for audits by the applicable Governmental Authority shall have
expired, and (ii) any claim based upon a breach of the representations and
warranties contained in Section 4.17 (Compliance with Laws) may be asserted
until the date which is eighteen (18) months following the Closing Date.
(D) At any time, the aggregate liability of
Sellers and IHS for indemnification under this Agreement and the Transaction
Documents shall not exceed (i) $55,000,000, less (ii) the aggregate amount that
previously shall have been paid to Buyer pursuant to the indemnification
provisions of this Agreement by IHS and Sellers.
(E) Notwithstanding anything to the contrary
contained in this Agreement, no Seller nor IHS shall be liable under the
indemnification provisions of this Section 10.2 or otherwise have any liability
for any misrepresentation or breach of warranty or covenant under this
Agreement or otherwise in connection with the transactions contemplated hereby
to the extent that the Loss constitutes an Assumed Liability.
(F) If any action or proceeding be commenced, or
if any claim, demand or assessment be asserted, in respect of which any party
("INDEMNITEE") proposes to hold any other party ("INDEMNITOR") liable under the
indemnity provisions of this Section 10.2 or otherwise under this Agreement or
in connection with the transactions contemplated hereby (a "CLAIM"), then if
the Indemnitor shall, at its option, acknowledge its indemnification obligation
and notify Indemnitee of its election to contest or defend any such Claim, such
Indemnitor shall be entitled, at its sole cost and expense, to contest or
defend the same with counsel of its own choosing, and Indemnitee shall not
admit any liability with respect thereto or settle, compromise, pay or
discharge the same without the prior written consent of the Indemnitor so long
as any Indemnitor is contesting or defending the same in good faith, and
Indemnitee (and its successors and assigns) shall cooperate with the Indemnitor
in the contest or defense thereof (and the Indemnitor shall reimburse
Indemnitee for the Indemnitee's reasonable actual out-of-pocket expenses
incurred in connection with such cooperation) and Indemnitee shall enter into
any
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settlement with respect thereto recommended by Indemnitor so long as the amount
of such settlement is paid by the Indemnitor and no obligation to perform or
refrain from performing any act shall be imposed upon Indemnitee by reason
thereof and such settlement otherwise is reasonable.
(I) Notwithstanding the foregoing, any
Indemnitee shall be entitled to conduct its own defense at the
reasonable cost and expense of the Indemnitor if it would materially
prejudice the Indemnitee due to the nature of any claims or
counterclaims presented or by virtue of a conflict between the
interest of the Indemnitee and the Indemnitor, and provided further
that in any event the Indemnitee may participate in such defense at
its own expense. If Indemnitee shall have given Indemnitor at least
thirty (30) days prior written notice that it intends to assume the
defense of any Claim and if the Indemnitor fails to assume the defense
of such Claim as provided above by the end of such thirty (30) day
period or such later reasonable time (which shall be such period of
time as will not result in prejudice to the rights of the Indemnitee),
then the Indemnitee shall have the right to prosecute and conduct its
own defense by counsel of its choice, and in connection therewith
shall have full right to conduct the defense thereof and to enter
into any compromise or settlement thereof with the consent of the
Indemnitor (which shall not unreasonably be withheld, conditioned or
delayed). Such defense shall be at the cost and expense of the
Indemnitor if it is subsequently determined that the Indemnitor was
obligated to defend or indemnify the Indemnitee with respect to such
action, proceeding, claim, demand or assessment.
(II) It is specifically understood and
agreed that in the event a misrepresentation or breach of warranty or
covenant is discovered by Buyer after the Closing, the remedy of Buyer
shall be limited to the indemnification as set forth in this Section
10.2, and Buyer shall not be entitled to a rescission of this
Agreement.
The obligation of each Indemnitor hereunder shall be without right of
set-off or hold-back in respect of any claim, counterclaim or cross claim such
Indemnitor may have or allege against any Indemnitee, whether under this
Agreement or otherwise, and such Indemnitor hereby waives any such right of
set-off or hold-back it may have or allege to have.
10.3 RESTRICTIONS.
(A) From and after the Closing Date, none of IHS
and Sellers shall disclose, to any person or entity, or make use of, without
the authorization of Buyer, any non-public pricing strategies or records of any
Seller, any proprietary data or trade secrets owned by any Seller and included
in the Assets or any financial or other information about any Seller; provided
that the foregoing restrictions shall not apply to any information which:
(I) is or becomes publicly known through
no negligent or wrongful act or omission on the part of Seller or IHS;
or
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(II) is or becomes available to the
disclosing party on a non-confidential basis from a third party
without a similar restriction and without breach of this Agreement; or
(III) is approved for release by Buyer; or
(IV) is required to be disclosed in
accordance with applicable law.
(B) No Solicitation of Employees. During the
period terminating on the second anniversary of the Closing Date, no Seller
shall and IHS shall not, directly or indirectly through any entity controlled
directly or indirectly by any of them, solicit for purposes of employment, any
Employee; provided, however, that the foregoing shall not apply to general
advertisements or other appeals seeking employees generally made to the public.
(C) (I) Until the fifth anniversary of the
Closing Date, IHS shall take, and shall cause each IHS Subsidiary to take, all
actions which are reasonably necessary to maintain in full force and effect in
accordance with its terms each agreement between IHS or any IHS Subsidiary and
Buyer pursuant to which any institutional pharmacy goods or services are
dispensed by Buyer, and IHS shall not take, and shall not permit any IHS
Subsidiary to take, any action which is not in the ordinary course of business,
consistent with past practice, which would cause a modification, amendment or
termination of such agreement.
(II) Without limitation of clause (i)
above, until the fifth anniversary of the Closing Date, IHS agrees that it will
not, and it will not permit any IHS Subsidiary to, enter into any new agreement
or arrangement with any provider of institutional pharmacy dispensing services
involving provision of such services pursuant to such new agreement or
arrangement to three or more long-term care facilities owned, managed or leased
by IHS and/or IHS Subsidiaries.
(D) IHS and each Seller acknowledge that the
restrictions contained in this Section 10.3 may be specifically enforced.
10.4 DELIVERY OF RECORDS. On the Closing Date, each
Seller shall deliver, cause to be delivered, or make available to Buyer all
records and files then in such Seller's possession relating to the operation of
the Business.
10.5 ACCESS TO RECORDS. After the Closing, at reasonable
times and on reasonable notice, Sellers shall have access to the books and
records pertaining to their operations which were delivered to Buyer (and shall
be permitted to make copies of any portion thereof), and Buyer shall retain
such books and records for a period of six years after the Closing Date, except
as hereinafter provided. Buyer shall notify Sellers of its intention to
dispose of or destroy any of such books and records and, upon any Seller's
request, shall deliver such books and records to such Seller.
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10.6 EMPLOYEES.
(A) Buyer agrees to make offers of employment to
substantially all of the Employees. Any Employee on short term disability or
long term disability as set forth on Schedule 10.6-A shall be offered
employment by Buyer only when and to the extent that such Employee would have
been entitled to reemployment under Sellers' applicable written leave of
absence or other written employment policies relating to the Business. Buyer
agrees to indemnify, and on demand defend and hold IHS and Sellers harmless
from and against and with respect to any and all damage, loss, liability,
deficiency, cost and expense (including, without limitation, reasonable
attorneys' fees and costs), arising out of any failure to give any required
notices to appropriate persons with respect to employment issues that may arise
following the sale contemplated by this Agreement under the WARN Act and any
other applicable similar state notification laws of the States of New Jersey
and Minnesota. Buyer's foregoing indemnification obligations shall not apply
to the extent that any notifications are required by reason of actions taken by
Sellers or IHS.
(B) By no later than December 31, 1996, Buyer
agrees to make available health care benefits (comparable in coverage and rates
to that currently provided by Buyer to its own employees) to the Employees (who
become and remain employees of Buyer pursuant to subsection (a) above) pursuant
to COBRA. Seller shall provide a list bill of all Employee COBRA enrollees
each month and a statement of claims and fixed costs incurred by the fifteenth
of the next month. Until Buyer shall comply with its obligations under the
first sentence of this subsection (b), Buyer shall reimburse Sellers within
five (5) days of submission of an invoice to Buyer setting forth the amount due
(which invoices shall not be presented more frequently than monthly), for the
greater of (x) the COBRA equivalent premiums and (y) the actual fixed costs and
claims incurred after the Closing with respect to Employees and their qualified
beneficiaries.
(C) IHS and Sellers shall provide COBRA coverage,
to the extent elected, to any Employee and their respective qualified
beneficiaries if such person had a qualifying event occurring before or on the
Closing Date. On the Closing Date, Sellers shall provide each Employee and his
qualified beneficiaries a notice as described in Section 4980B of the Code
concerning his right to continuation coverage of IHS's or Sellers' group health
benefits and, to the extent elected, provide such coverage.
10.7 TEMPORARY LICENSE. Symphony Pharmacy hereby grants
a non-exclusive royalty free license to Buyer to use the stock of stationery
included in the Assets and containing the names "Symphony" or any of the names
listed on Schedule 4.21 in connection with the operation of the Business
during the period commencing on the Closing Date and terminating 180 days
thereafter.
10.8 LICENSURE POWER OF ATTORNEY. At the request of
Buyer, Sellers shall execute such powers of attorney as Buyer may reasonably
deem necessary to allow Buyer to utilize any licenses or permits of any Seller
which are not transferable to Buyer for a period not to exceed that permitted
by applicable law without penalty, premium or the like, provided, as a
condition precedent to any Seller's execution of such instrument, Buyer shall
also provide Sellers with (a) appropriate
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covenants that (i) the Assets following Closing shall be operated in accordance
with all applicable laws, rules, regulations and third party payor requirements
in all material respects and that all goods and services shall be provided in
accordance with customary and accepted standards of care and (ii) Buyer shall
use its best efforts to obtain, as soon as reasonably possible, new licenses,
with release of Sellers from any liability resulting from post-Closing
operations, and (b) indemnification against all Loss arising out of the grant
of such powers of attorney and the use thereof in form and substance reasonably
acceptable to Sellers.
10.9 BILLING AND COLLECTION AGREEMENT. At the Closing,
the parties shall enter into a Billing and Collection Agreement in the form and
substance of Exhibit 10.9 hereto pursuant to which Buyer shall collect all of
the Non-Assignable Receivables on behalf of Sellers. Buyer shall not receive
a fee for such services.
10.10 FINANCIAL CONSOLIDATION SOFTWARE. IHS agrees
to make its financial consolidation software with respect to the Business
available to Buyer, at Buyer's sole cost and expense, until December 31, 1996.
10.11 ENFORCEMENT OF NON-COMPETES. IHS agrees to take any
and all actions necessary, including, without limitation, commencement of legal
proceedings, to enforce each of the non-competition agreements set forth on
Schedule 10.11 hereto upon the request of Buyer. Buyer shall indemnify and
hold IHS and Sellers harmless from any Loss arising out of taking any such
actions.
10.12 COOPERATION - FURTHER ASSISTANCE. From time to
time, as and when reasonably requested by Buyer after the Closing, Sellers will
execute and deliver, or cause to be executed and delivered, all such documents,
instruments and consents and will use reasonable efforts to take all such other
action as may be reasonably necessary to carry out the intent and purposes of
this Agreement, and to vest in Buyer good title to, possession of and control
of all of the Assets. Notwithstanding the foregoing, Sellers shall not be
obligated to obtain any consents to assignments of any Contracts other than
Employment Agreements.
10.13 INTRODUCTIONS. Following the Closing, IHS, through
one or more of its senior executives, will provide Buyer with introductions to
representatives of Community Care of America, Inc., Tutera Health Care
Management, L.P., and Integrated Living Communities, Inc., for the purpose of
familiarizing such companies with the pharmacy services available from Buyer
after the Closing.
ARTICLE XI: TERMINATION
11.1 TERMINATION. This Agreement may be terminated at any
time at or prior to the time of Closing by:
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(A) Buyer, if any condition precedent to the
obligations of Buyer hereunder, including without limitation those conditions
set forth in Article VIII hereof, have not been satisfied by a date which is
thirty (30) days following the date of this Agreement, except as otherwise
provided in Section 8.5 or 8.11 hereof;
(B) IHS, if any condition precedent to the
obligations of any Seller or IHS hereunder, including without limitation those
conditions set forth in Article IX hereof, have not been satisfied by a date
which is thirty (30) days following the date of this Agreement, except as
otherwise provided in Section 9.5 or 9.8 hereof;
(C) as otherwise provided in this Agreement; or
(D) the mutual consent of Buyer and IHS.
11.2 EFFECT OF TERMINATION. Subject to the provisions of
11.3, below, if a party terminates this Agreement because one of its conditions
precedent has not been fulfilled, or if this Agreement is terminated by mutual
consent, this Agreement shall become null and void without any liability of any
party to the other; provided, however, that if such termination is by reason of
the breach by Sellers or IHS of any of their representations, warranties, or
obligations under this Agreement, Buyer shall be entitled to be indemnified for
any Loss incurred by it by reason thereof in accordance with Section 10.2
hereof (and for such purposes such Section 10.2 shall survive the termination
of this Agreement).
11.3 BREAK-UP FEE. In the event that this Agreement is
terminated pursuant to Section 11.1 for any reason other than (i) the failure
of any of the conditions to Buyer's obligations to close as set forth in
Article VIII, or the failure of any of the conditions to Seller's obligations
to close as set forth in Section 9.5, 9.8, and 9.9, then in such event, and
provided that Sellers are not then in breach of any of their obligations under
this Agreement in any material respect, the Buyer shall pay to Sellers,
promptly upon demand by Sellers, a cash break-up fee in the amount of
$12,500,000, which amount the Sellers agree to accept as full liquidated
damages hereunder.
ARTICLE XII: MISCELLANEOUS
12.1 COSTS AND EXPENSES. Except as expressly otherwise
provided in this Agreement, each party hereto shall bear its own costs and
expenses in connection with this Agreement and the transactions contemplated
hereby. Buyer shall pay all sales, transfer, recording, and stamp taxes
payable in connection with any of the transactions contemplated by this
Agreement. Buyer shall pay the application fees in connection with the filings
required under the H-S-R Act.
12.2 BENEFIT AND ASSIGNMENT. This Agreement binds and
inures to the benefit of each party hereto and its successors and proper
assigns. This Agreement and the rights and obligations hereunder may not be
assigned without the consent of the remaining parties hereto. At the Closing,
Buyer may designate one or more wholly owned subsidiaries to which the Assets
are
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to be assigned or transferred hereunder, and Sellers may designate one or more
wholly owned subsidiaries of IHS to which the Buyer Stock is to be issued.
12.3 EFFECT AND CONSTRUCTION OF THIS AGREEMENT. This
Agreement and the Exhibits, Schedules and the Transaction Documents embody the
entire agreement and understanding of the parties and supersede any and all
prior agreements, arrangements and understandings relating to matters provided
for herein. The captions used herein do not constitute part of this Agreement,
are for convenience only and shall not control or affect the meaning or
construction of the provisions of this Agreement. This Agreement may be
executed in one or more counterparts, and all such counterparts shall
constitute one and the same instrument.
12.4 NOTICES. All notices and demands required or
permitted hereunder shall be in writing and shall be deemed to be properly
given or made when personally delivered to the party or parties entitled to
receive the notice or two (2) business days after being sent by certified or
registered mail, postage prepaid, or the on the next business day if sent for
next day delivery by a nationally recognized overnight courier, in either case,
properly addressed to the party or parties entitled to receive such notice at
the address stated below:
If to Buyer: Capstone Pharmacy Services, Inc.
2930 Washington Boulevard
Baltimore, MD 21230
Attention: Dirk Allison
With a copy to: Harwell Howard Hyne Gabbert &
Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, TN 37238
Attention: Mark Manner, Esq.
If to any Seller or IHS: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Marshall A. Elkins, General
Counsel
and
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Brian Davidson, Executive
Vice President
With a copy to: Blass & Driggs, Esqs.
461 Fifth Avenue, 19th Floor
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New York, NY 10017
Attn: Michael S. Blass, Esq.
Such addresses may be changed by providing written notice as provided in this
Section 13.4.
12.5 WAIVER, DISCHARGE, ETC. This Agreement shall not be
released, discharged, abandoned, changed or modified in any manner, except by
an instrument in writing executed by IHS on behalf of itself and Sellers and by
Buyer. The failure of any party to enforce at any time any of the provisions
of this Agreement shall in no way be construed to be a waiver of any such
provision, nor in any way to affect the validity of this Agreement or any part
hereof or the right of any party thereafter to enforce each and every such
provision. No waiver of any breach of this Agreement shall be held to be a
waiver of any other or subsequent breach.
12.6 RIGHTS OF PERSONS NOT PARTIES. Nothing contained in
this Agreement shall be deemed to create rights in persons not parties hereto,
other than the successors and proper assigns of the parties hereto.
12.7 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of Delaware
applicable to contracts executed, delivered and to be fully performed in such
State, disregarding any contrary rules relating to the choice or conflict of
laws.
12.8 PUBLIC ANNOUNCEMENTS. Any general public
announcements or similar media publicity with respect to this Agreement or the
transactions contemplated herein shall be at such time and in such manner as
IHS and Buyer shall determine; provided that nothing herein shall prevent such
party, upon as much prior notice to, and opportunity to comment by, the other
party as shall be reasonably practicable under the circumstances, from making
such written announcements as such party's counsel may consider advisable in
order to satisfy the party's legal and contractual obligations in such regard.
[SIGNATURES ON THE FOLLOWING PAGE]
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IN WITNESS WHEREOF, each of the parties hereto and in the
capacity indicated below has executed this Agreement as of the day and year
first above written.
CAPSTONE PHARMACY SERVICES, INC.
By:
----------------------------------
Its:
---------------------------------
INTEGRATED HEALTH SERVICES, INC.
By:
----------------------------------
Its:
---------------------------------
SYMPHONY PHARMACY SERVICES, INC.
By:
----------------------------------
Its:
---------------------------------
PATIENT CARE PHARMACY, INC.
By:
----------------------------------
Its:
---------------------------------
AMCARE, INC.
By:
----------------------------------
Its:
---------------------------------
AMCARE SANTA BARBARA, INC.
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By:
----------------------------------
Its:
---------------------------------
AMCARE HEALTH SERVICES, INC.
By:
----------------------------------
Its:
---------------------------------
PATIENT CARE PHARMACY-COLORADO SPRINGS, INC.
By:
----------------------------------
Its:
---------------------------------
PHARMACEUTICAL DOSE SERVICES, INC.
By:
----------------------------------
Its:
---------------------------------
HEALTHCARE PHARMACY SERVICES OF FLORIDA, INC.
By:
----------------------------------
Its:
---------------------------------
HEALTHCARE PHARMACY SERVICES OF PENNSYLVANIA, INC.
By:
----------------------------------
Its:
---------------------------------
HEALTHCARE PHARMACY SERVICES OF TEXAS, INC.
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<PAGE> 49
By:
----------------------------------
Its:
---------------------------------
SUNCOAST PHARMACY SERVICES, INC.
By:
----------------------------------
Its:
---------------------------------
SYMPHONY HEALTH SERVICES, INC.
By:
----------------------------------
Its:
---------------------------------
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