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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of
the SECURITIES EXCHANGE ACT OF 1934
For the transition period from March 1, 1996 to December 31, 1996
Commission file number 0-19294
RehabCare Group, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 51-0265872
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7733 Forsyth Boulevard, 17th Floor, St. Louis, Missouri 63105
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (314) 863-7422
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share Preferred Stock Purchase Rights
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (x)
The aggregate market value of voting stock held by non-affiliates of
Registrant at March 12, 1997, was $88,880,985. At March 12, 1997, the Registrant
had 3,768,172 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by reference
information contained in the Registrant's Proxy Statement for its annual meeting
of stockholders to be held April 30, 1997.
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PART I
ITEM 1. BUSINESS
RehabCare Group, Inc. (the "Company" or the "Registrant") was incorporated
under the laws of Delaware in 1982. The Company develops, markets and manages
comprehensive medical rehabilitation programs, subacute (skilled nursing)
programs and therapy services in acute-care hospitals, skilled nursing units and
outpatient facilities. The Company also is a contract provider of therapists to
hospitals and long-term care and rehabilitation facilities. Since opening its
first contract unit in 1984, the Company has expanded its business to become a
national provider with programs in 26 states and, as of December 31, 1996,
managed 1,979 beds on a contract basis in 86 dedicated acute rehabilitation
units and 16 dedicated subacute units within acute-care hospitals, and operated
19 dedicated outpatient programs within facilities owned by acute-care
hospitals.
On March 1, 1996, the Company acquired Healthcare Staffing Solutions,
Inc., and HCH, Inc., d/b/a Health Tour ("HSSI"), a contract provider of
therapists on a temporary basis to hospitals, long-term care and rehabilitation
facilities. On January 28, 1997, the Company acquired TeamRehab, Inc. and Moore
Rehabilitation Services, Inc. ("Team and Moore"), providers of contract therapy
services to long-term care facilities and outpatient clinics.
Program Management Contracts. The Company's physical medicine and
rehabilitation programs are directed toward individuals who have severe physical
impairments that prevent them from engaging in normal daily activities, but who
have the potential for functional improvement. Patients treated in the Company's
acute rehabilitation programs have diagnoses that include stroke, orthopedic
conditions, arthritis, amputation, spinal cord and traumatic brain injuries,
and/or disease disorders such as cerebral palsy, multiple sclerosis, muscular
dystrophy and Parkinson's disease. The Company's subacute units offer skilled
nursing care and moderate rehabilitation therapies and have diagnoses that
include stroke, orthopedic conditions, post-surgical conditions, pulmonary
disease, congestive heart failure, cancer, and patients requiring intravenous
antibiotic therapy or nutritional support. Patients treated in the Company's
outpatient programs include patients continuing rehabilitation after discharge
from the hospital, plus rehabilitation services for patients with sports or
workrelated injuries that do not require hospitalization.
The Company administers all of its acute and subacute programs on the
premises of host facilities under management contracts. Outpatient programs are
operated primarily on the hospital's premises or at separate sites leased or
owned by the hospital. Under the inpatient management contracts, the host
facilities typically furnish all services necessary for the patients'
generalized medical care, including nursing, dietary and housekeeping services,
while the Company typically markets and administers the program services and
provides the clinical teams. The Company operates inpatient units on a fee basis
that is computed in most cases on patient days at the unit. Since fixed costs of
unoccupied beds in a unit are the responsibility of the client hospital,
occupancy rates are not necessarily indicative of the Company's results of
operations. The most relevant statistics to gauge the expansion of the Company's
inpatient and subacute contract management business are number of units and
average occupied beds per unit. The relevant statistics to gauge the Company's
outpatient business are number of locations and patient visits.
At its inpatient units, the Company furnishes personnel generally
consisting of a program director and a physician (who serves as the medical
director for the program), plus additional staff tailored to meet the needs of
the program and hospital, which may include: a psychologist, physical and
occupational therapists, a speech pathologist, a social worker, a nurse manager,
a case manager and other appropriate supporting personnel. At its outpatient
locations, the Company furnishes primarily therapy, program development and
administrative personnel. In addition, the Company provides program
implementation and management, treatment team training, staff recruiting,
continuing education, insurance, community education, referral development,
therapy equipment, public relations, ongoing quality assurance, consultation and
case management.
Upon approval by the medical director or other physician, patients are
admitted to the Company's inpatient
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units under the host facility's standard admission policies and procedures and
in adherence to Medicare guidelines. Following treatment, the host facility is
responsible for submitting a bill for services and obtaining payment from the
patient, commercial payors, Medicare or Medicaid. Generally, the host facility
pays the Company a negotiated fee for each patient day of service provided in an
inpatient unit without reference to the hospital's source of payment. Fees paid
to the Company are subject to annual adjustment to reflect increases in various
indices of inflation. The Company and the host facility share the risk of
nonpayment by patients and other payors based on collection experience at the
facility. The Company participates in this risk by allowing a predetermined
contractual discount to the facility, which generally ranges from two percent to
five percent. The Company is typically compensated at its outpatient locations
based upon a fee for service, or a percentage of charges or net contribution.
The Company may also participate with a host facility in charity care.
Generally, the Company's management contracts provide for initial terms of
three to five years and are renewable for successive terms of one to three
years. Typically, these contracts are automatically renewed unless notice of
termination is given at least 90 days prior to the end of the initial or renewal
term. Contracts are also terminable for material defaults or, in some cases,
upon the occurrence of certain other designated events, including shortfalls in
census, changes in reimbursement practices or union organization activities.
Many of the current contracts limit the opening of a competing unit by the
Company within a defined geographic area.
Therapy Staffing Contracts. HSSI provides physical, occupational and
speech therapy professionals to hospitals and long-term care and rehabilitation
facilities nationally on assignments lasting initially 13 weeks as well as daily
assignments in several major metropolitan areas and fee based permanent
placement services. HSSI charges a fee for each placement plus charges the
contracting facility with the cost of housing, licensure and travel for the
placed therapist. The therapist is compensated by either the contracting
facility or by HSSI. In the latter case, the compensation cost is also charged
to the contracting facility. For daily assignments, HSSI charges fees based on
hours worked or units of service delivered. Historically, HSSI has placed
therapists in all 50 states. Team and Moore provide outpatient physical,
occupational and speech therapy services on a continuing contract basis at
approximately 30 facilities in the St. Louis, Missouri metropolitan area. Team
and Moore receive reimbursement from their client facilities based on hours
worked or units of service delivered, as well as directly from Medicare based on
actual costs.
Business Expansion Strategy
The Company's expertise is in delivering quality acute, subacute and
outpatient rehabilitation and therapy programs, services and professional
personnel. Drawing on this expertise, the thrust of its expansion strategy will
be to develop and expand contract relationships with host facilities to
establish and manage acute, subacute and outpatient physical medicine and
rehabilitation programs as well as provide therapy staffing services. The
following is a more detailed description of these and other expansion strategies
of the Company:
Acute-Care Hospital Contracts. The Company believes that there will
continue to be a strong demand for the development and management of acute
rehabilitation, subacute and outpatient services in hospitals in the United
States. Acute-care hospitals have traditionally been the focus of health care
delivery in the community, and as such, have controlled a substantial amount of
the expenditures for health care services. As health care reform evolves, the
Company believes that hospitals will continue to play a central role in the
delivery of health care services providing that they can achieve cost
efficiencies and provide a complete range of services required within their
communities. To this end, the Company has positioned itself to assist hospitals
in providing the full continuum of physical medicine and rehabilitation services
within acute, subacute and outpatient settings controlled by the hospital. The
economies of scale offered by the hospital's existing plant and equipment,
coupled with the Company's expertise in delivering these services, offers the
opportunity for a community hospital to be a full service provider in the area
of physical medicine and rehabilitation on a cost-effective basis in the
following settings:
Acute Rehabilitation Units. Patients treated in acute
rehabilitation units typically have diagnoses
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within one or more of ten diagnostic categories. Further, these patients must be
strong enough to endure and be reasonably expected to benefit from a minimum of
three hours of therapy per day. Historically, approximately 75% of the patients
treated in acute units managed by the Company have been admitted with a
diagnosis of either stroke or orthopedic impairment.
Subacute Units. Patients treated in subacute units typically are at
the low end of need for medical or rehabilitative care, with greater need for
nursing care. Patients in subacute units have a much wider range of diagnostic
conditions than those in acute rehabilitation units, with a lesser concentration
of stroke and orthopedic and greater concentration of pulmonary, cardiac,
post-surgical, cancer, and patients requiring intravenous antibiotic therapy or
nutritional support.
Outpatient Programs. Pressure from payors to move inpatients to the
lower cost settings has helped fuel the growth in outpatient services. The
outpatient therapy market is dominated by sports and workrelated injuries. The
Company's diversification into this product line allows it access to patients
who, in general, have not been admitted to a hospital. In addition, it allows
diversification away from the Medicare dominant payor mix of the inpatient
setting.
The Company believes that a substantial number of its relationships with
acute-care hospitals present opportunities to manage more than one of the above
services, and has pursued development of these opportunities as a primary part
of its growth strategy. As of December 31, 1996, the Company managed two or more
of the above services at 21 of its client hospitals.
Therapy Staffing. Critical shortages of licensed therapists in many
communities across the country have made it difficult for facility-based therapy
providers to maintain continuity of therapy services due to a high rate of
turnover and periodic extended absences related to vacations and maternity
leave. Further, since 1989, when the implementation of the Omnibus Budget
Reconciliation Act of 1987 mandated the delivery of therapy services in extended
care facilities, these facilities have found it increasingly difficult to
recruit and retain an appropriate complement of qualified therapists to deliver
these services. HSSI specializes in recruiting and placing therapists on a
temporary basis in such facilities, and, with approximately 650 therapists on
assignment at any time, is believed to be the leading provider of such services.
Projected growth in demand for therapists is expected to continue to outpace
projected growth in supply for at least the next ten years, creating additional
opportunities for HSSI. Team and Moore specialize in providing therapists on a
continuing contract basis primarily to nursing facilities. The Company believes
the fragmentation of providers provides opportunity for growth through
consolidation.
Acquisitions. The Company believes that the acquisition of therapy based
contract management companies, established outpatient operations and other
therapy providers within the rehabilitation industry is an appropriate strategy
for growth. In fiscal 1994, the Company acquired Advanced Rehabilitation
Resources, Inc., thereby increasing the number of managed acute units by nearly
50% and the number of managed outpatient programs by 10%. In fiscal 1995, the
Company acquired Physical Therapy Resources, Inc., changing the name to
RehabCare Outpatient Services, Inc. ("ROSI"), thereby increasing the number of
outpatient programs initially by 39%. In March 1996, the Company acquired HSSI,
thereby expanding the scope of its business geographically to all 50 states and
adding a new line of business for the Company. In January 1997, the Company
acquired Team and Moore. Additional acquisition opportunities are regularly
reviewed by the Company.
Patient Referral Strategy
Historically, the physician maintained total control over patient referral
decisions. At present, however, insurance, health maintenance, preferred
provider and case management organizations and employers participate in making
such referral decisions. These organizations are sensitive to both cost and
quality of care issues. Accordingly, health care providers must continually
develop and offer cost-effective alternatives to traditional care. In response,
the Company is directing its marketing to managed care case managers and
industry as well
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as to physicians. The Company continues to approach national and regional payors
to develop contractual relationships that may be advantageous for the Company,
the host facility and the payor.
The Company's presence in the host facilities encourages patient referrals
into its programs. Additionally, the Company encourages the referral of patients
from outside the host facilities.
Competition
The Company competes with other contract management and therapy companies
for agreements with acute- care hospitals and extended care facilities. The
Company's programs in acute care hospitals also compete for patients with the
programs of other acute-care hospitals and freestanding rehabilitation and
outpatient facilities. The continued success of the Company is dependent on its
ability to establish and maintain relationships with hospitals and extended care
facilities and with sources of patient referrals. The Company believes that the
principal competitive factors in each case are reputation for quality, cost
effectiveness, program support services, innovation and price. Although many of
the Company's competitors have greater financial and personnel resources than
the Company, the Company believes that it competes, and can continue to compete,
successfully based on its ability to develop new programs for existing and
potential host facilities and cost-effective programs for commercial payors.
The Company also competes with hospitals, nursing homes, clinics,
physicians' offices and contract therapy companies for the services of physical,
occupational and speech therapists. These specialists are in short supply and
there can be no assurance that the Company will be able to attract a sufficient
number of therapists for its growing needs. The Company has an active therapist
recruitment operation based at its corporate headquarters and at HSSI's offices
and is developing other means of recruiting and retaining these specialists.
Regulation
The health care industry is regulated by Federal, state and local
governmental agencies. These regulations attempt to control the growth of health
care facilities through certificate of need laws, licensure or certification of
health care facilities and the reimbursement for health care services.
In many states, acute-care hospitals contracting with the Company
generally are not required to obtain a certificate of need prior to opening an
inpatient unit. If a certificate of need is required, it may take up to 18
months to obtain, and in some instances longer, depending upon the state
involved and whether the application is contested by a competitor or the state
agency. Certificates of need are usually issued for a specified maximum
expenditure and require implementation of the proposed improvement within a
specified period of time.
Licensure is a state or local requirement, while Medicare certification is
a Federal requirement. Generally, licensure and Medicare certification follow
specific standards and requirements. Compliance is monitored by annual on-site
inspections by representatives of relevant government agencies. Loss of
licensure or Medicare certification by a hospital with which the Company has a
management contract would likely result in the termination of that contract.
Prior to 1983, Medicare provided for reimbursement of reasonable direct
and indirect costs of the services furnished by hospitals to patients. As a
result of the Social Security Amendments Act of 1983, Congress adopted the
Prospective Payment System ("PPS") as a means to control costs of most Medicare
inpatient hospital services. Under this system, the Secretary of the Department
of Health and Human Services established fixed payment amounts per discharge
based on Diagnosis-Related Groups ("DRG"). In general, a hospital's payment for
Medicare inpatients is limited to the DRG rate, regardless of the amount of
services provided to the patient or the length of the patient's hospital stay.
Under PPS, a hospital may keep any difference between its DRG payment and its
operating costs incurred in furnishing inpatient services, but is at risk for
any operating costs that exceed its payment rate. As a result, hospitals have an
incentive to discharge Medicare patients as soon as is clinically appropriate.
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Freestanding inpatient rehabilitation facilities, skilled nursing
facilities and units and outpatient rehabilitation services are exempt from PPS.
Acute rehabilitation units within acute-care hospitals are eligible to obtain an
exemption from PPS, generally after the first year of operation, upon
satisfaction of specified Federal criteria. Such criteria include the operation
for a full 12 months under PPS and the completion of an initial exemption
survey. The exemption survey measures compliance with certain criteria
applicable to exempt units generally, including approval to participate as a
Medicare provider, admission standards, record keeping, compliance with state
licensure laws, segregation of beds, accounting standards and certain specific
standards applicable to rehabilitation units, including staffing, medical care
and patient mix. Skilled nursing units may be surveyed shortly after admitting
their first patient. Upon successful completion of the survey, Medicare payments
for rehabilitation and skilled nursing services provided in inpatient units are
made under a cost-based reimbursement system. As of December 31, 1996, 91 of the
Company's hospital-based units were exempt from PPS. The remaining 11 units will
apply for exemption as soon as they are eligible.
Various Federal and state laws regulate the relationship between providers
of health care services and physicians. These laws include the "fraud and abuse"
provisions of the Social Security Act, under which civil and criminal penalties
can be imposed upon persons who pay or receive remuneration in return for
referrals of patients who are eligible for reimbursement under the Medicare or
Medicaid programs. The Company does not believe its business arrangements with
physicians who admit patients to the Company's units are out of compliance with
these provisions. The provisions are broadly written and the full extent of
their application is not currently known. The Inspector General of the
Department of Health and Human Services has issued "safe harbor" regulations
specifying certain forms of relationships that will not be deemed violations of
these provisions. The Company believes that its business arrangements with its
medical directors are in compliance with any definitive regulations.
In 1987, Congress enacted nursing home reform provisions in response to
widespread concern that nursing homes were not providing patients with adequate
care. These provisions were implemented in 1990 and included the requirement
that the status of every resident be evaluated and appropriate services be
provided, including rehabilitative services. As a result, the demand for
physical, occupational and speech therapy services and professionals in nursing
homes has risen sharply since 1990.
Any legislative or regulatory changes in the future will almost certainly
favor low-cost, efficient providers. The Company believes that its strategy of
administering programs on the premises of host facilities positions it well to
adapt to any changes in the health care industry.
Employees
As of December 31, 1996, the Company had approximately 1,770 employees.
The physicians who are the medical directors of the contract units and the
psychologists serving on program treatment teams are independent contractors and
not employees of the Company. None of the Company's employees are subject to a
collective bargaining agreement. Management considers the relationship with its
employees to be good.
ITEM 2. PROPERTIES
The Company leases 15,000 square feet of executive office space in
Clayton, Missouri, under a lease that expires in the year 2003, assuming all
options to renew are exercised. In addition to the monthly rental cost, the
Company is also responsible for specified increases in operating costs. HSSI
leases 31,000 square feet of executive office space in Lowell, Massachusetts,
under a lease that expires in the year 2005, assuming all options to renew are
exercised, plus leases various properties throughout the country used as
temporary housing for therapists. Team and Moore leases 3,000 square feet of
executive office space in Clayton, Missouri under a lease that expires in March
1997.
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ITEM 3. LEGAL PROCEEDINGS
The Company has undergone a Federal payroll tax audit for the years 1989
through 1993. The Internal Revenue Service ("IRS") has asserted that certain
medical professionals and others engaged as independent contractors should have
been treated as employees for payroll tax purposes. The IRS, in May 1996, issued
a proposed assessment against the Company of $1,935,455 for years 1989 through
1993. The Company subsequently received from the IRS separate proposed Closing
Agreements for these same independent contractors under the IRS's new
"Classification Settlement Program" with an alternate aggregate assessment of
$253,426 covering the 1989 through 1993 audit, including any additional
potential liability through December 31, 1996. In October 1996, the Company
accepted a settlement offer for one of the classes of medical professionals,
paying $11,613 as settlement, and agreed to prospectively treat this class of
professionals as employees. The Company is currently continuing to defend its
classification of the remaining classes which represent a total proposed
assessment of $1,364,000. The Company will continue to evaluate whether to
accept any of the additional settlement offers and, as a result, change its
classification policy as required by the Closing Agreements. While the Company
believes it has arguments to support its current position, there can be no
assurance that the Company will prevail in whole or in part. In December 1996,
the Company and Comprehensive Care Corporation ("CompCare"), the Company's
former parent, entered into an agreement and release whereby CompCare paid the
Company $154,000 resulting in discharge of CompCare's obligations for employment
taxes and costs under Section 4 of the Tax Sharing Agreement entered into in
conjunction with the Company's initial public offering in 1991.
On October 30, 1992, CompCare filed an action against the Company with the
Federal District Court for the Eastern District of Missouri alleging fraud by
the Company under the common law and the Federal securities laws in the
negotiation of the Stock Redemption Agreement dated September 1, 1992, by and
between CompCare and the Company. The action sought both actual and punitive
monetary damages from the Company. On March 8, 1995, a Federal court jury
returned a verdict against the Company on three of the six counts of the
lawsuit. The Company appealed the adverse judgment and on October 22, 1996 a
three judge panel on the Federal Court of Appeals for the Eighth Circuit
reversed all such judgments against the Company. On November 21, 1996,
CompCare's motion for rehearing was denied. The Company has terminated the
$3,000,000 supersedeas bond purchased to obtain a stay of execution pending the
conclusion of its appeal, and has cancelled the $3,000,000 bank letter of credit
that had been issued to secure the bond. The Company is seeking to recover
$120,083 in court related costs from CompCare pursuant to the favorable appeal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
Information concerning the Common Stock of the Registrant is included on
page 44 in this Annual Report of the Registrant.
ITEM 6. SELECTED FINANCIAL DATA
Six-Year Financial Summary is included on page 44 in this Annual Report of
the Registrant for the ten months ended December 31, 1996.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company changed its fiscal year end from the last day of February to
December 31, effective as of December 31, 1996. The change resulted in a short
period of ten months that began March 1, 1996, and ended December 31, 1996.
Information for calendar 1996 refers to the ten months ended December 31, 1996,
and fiscal 1996 and fiscal 1995 refers to the twelve months ended the last day
of February for the respective years.
The growth in the Company's operating revenues and net earnings during
calendar 1996 was the result of an increase in the number of subacute units and
results from HSSI. Calendar 1996 reflects an increase in the average number of
subacute units managed by the Company from 4.1 to 11.5. Outpatient revenue
decreased 8.1% in calendar 1996, reflecting the closure of three locations. The
growth for fiscal 1996 was primarily attributable to the increase in the number
of subacute units, increased outpatient locations and an increase in the
percentage of acute rehabilitation units exempt from PPS. Outpatient revenue
increased 56.2% in fiscal 1996, reflecting the acquisition on October 12, 1994
of ROSI, which initially added seven outpatient locations.
In the normal course of business, new units are opened and some existing
units are closed each year. During the first year of operation, a new acute
rehabilitation unit will typically be subject to limitations in reimbursement
from Medicare considerably below the hospital's operating cost. As a
consequence, during this period the Company agrees with the client hospital to
bear certain start-up costs on the hospital's behalf and to waive a portion of
its fees until the unit qualifies for an exemption from Medicare limitations.
The Company assists the hospital in qualifying the unit for the exemption and in
minimizing the unreimbursed costs during this non-exempt period. The Company's
average operating losses during the qualifying period can range to as high as
$150,000 to $200,000 per unit. If the Company does not obtain an exemption for
the unit, the contract may be terminated and, in the event of termination,
start-up losses would generally not be recoverable. Upon completion of the
qualifying year and obtaining the exemption, the hospital is eligible to recover
all of its costs related to the operation of the unit, including the Company's
fees under the management contract. Once a unit becomes exempt, the unit
experiences accelerated growth in operating revenues and profitability as the
patient population is expanded in response to the more favorable reimbursement
terms.
In addition to growing its acute rehabilitation units, the Company expects
significant future growth to take place through opening subacute units and
outpatient programs under contracts with acute-care hospitals. These units and
programs are not subject to the same limitations in reimbursement from Medicare
as acute rehabilitation units and, therefore, should result in significantly
reduced start-up losses per unit.
In the third quarter of fiscal 1995, the Company issued a $3,200,000
three-year subordinated promissory note and $3,000,000 in cash to acquire ROSI.
On March 1, 1996 the Company acquired HSSI. The aggregate purchase price of
$21,450,000 paid at closing included $13,258,000 in cash, a $6,000,000 ten-year
convertible subordinated promissory note and 123,530 shares of the Company's
common stock. Additional consideration will be paid to the HSSI stockholders
contingent upon the attainment of certain target cumulative earnings before
interest and income taxes up to a maximum of $8,650,000 in additional
consideration over six years. The transactions were accounted for as purchases
and, as such, the Company's consolidated financial statements reflect the
results of operations of ROSI and HSSI commencing with the consummation date of
each acquisition.
On January 28, 1997, the Company acquired Team and Moore. The transaction
was accounted for as a purchase and, as such, the Company's consolidated
financial statements as of and for the ten months ended December 31, 1996, do
not reflect the financial condition and results of operations of Team and Moore.
The Company's future consolidated financial statements will reflect their
financial condition as of such reporting dates, and the results of operations
commencing on the consummation date of the acquisition.
On January 31, 1997, the Company made a tender offer to purchase up to
925,000 shares of its common
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stock at a single purchase price, not less than $20.00 nor in excess of $22.50
per share, the purchase price to be selected by the Company based on prices
specified by tendering stockholders at the lowest single purchase price
sufficient to purchase 925,000 shares. As of February 28, 1997, the closing
date, shares totaling greater than 925,000 were tendered, resulting in the
Company's repurchase on March 12, 1997 of a total of 1,000,000 shares at single
per share price of $22.50 per share. To finance the repurchase and restructure
its current debt, the Company obtained financing from a syndicate of financial
institutions totaling $45 million in senior secured debt, comprising a $25
million term loan and $20 million revolving credit facility.
As of December 31, 1996, a change in method of recording accounts
receivable and accrued expenses at HSSI was implemented which resulted in a
decrease in the related balance sheet accounts. Operating results were not
materially affected.
RESULTS OF OPERATIONS
The following table sets forth for calendar 1996, fiscal 1996 and fiscal
1995, the percentage that certain items in the consolidated statements of
earnings bear to operating revenues:
<TABLE>
<CAPTION>
Ten Months Ended Year Ended
December 31, February 29, February 28,
1996 1996 1995
- --------------------------------------- ------------------------ -----------------------------------------------
<S> <C> <C> <C>
Operating revenues 100.0% 100.0% 100.0%
Cost and expenses:
Operating expenses 71.1 73.3 75.6
General and administrative 16.1 12.5 11.6
Depreciation and amortization 2.6 2.7 2.6
Operating earnings 10.2 11.5 10.2
Other expense, net (1.0) (0.4) (0.7)
Earnings before income taxes 9.2 11.1 9.5
Income taxes 3.7 4.5 3.8
Net earnings 5.5% 6.6% 5.7%
======================================= ======================== ======================== =======================
</TABLE>
Management believes that a comparison of the ten months ended December 31,
1996 to the twelve months ended February 29, 1996 is not meaningful because of
the difference in length of reporting periods. Therefore, this discussion and
analysis of results of operations compares the audited ten-month period ended
December 31, 1996, to the unaudited ten-month period ended December 31, 1995.
Ten Months Ended December 31, 1996 Compared to Ten Months Ended December
31, 1995
Operating revenues during the ten months ended December 31, 1996 increased
by $30,476,000, or 41.1%, to $104,611,000 as compared to the same period in
1995. The acquisition of HSSI accounted for 94.7% of the net increase. A 9.6%
increase in the average number of inpatient units from 83.7 to 91.7 units,
offset by a decrease in the average daily billable census per inpatient unit of
3.8% from 13.3 to 12.8, generated a 5.5% increase in billable patient days to
357,780. The decrease in billable census per unit for inpatient units is
primarily attributable to a 9.7% decline in average billable length of stay on a
6.6% increase in admissions per unit. The decline in average length of stay
reflects both the continued trend of reduced rehabilitation lengths of stay and
the increase in subacute units operational for the ten months ended December 31,
1996, which carry a shorter length of stay than acute rehabilitation units. The
increase in billable patient days was offset by a .9% decrease in average per
diem billing rates, reflecting a greater mix of subacute units which carry lower
average per diem rates than acute units. The $2,960,000 increase in inpatient
unit revenue was offset by a 8.1% decrease in outpatient revenue to $8,495,000,
reflecting the loss of one unit each in February, March and April 1996.
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Operating expenses for the ten-month periods compared increased by
$19,933,000, or 36.6%, to $74,326,000. The acquisition of HSSI accounted for
substantially all of this increase.
The excess of operating expenses over operating revenues associated with
non-exempt units increased from $193,000 to $749,000, attributable to the
increase in the average number of non-exempt units from 1.5 to 5.5. Average
start-up losses for units during their non-exempt year can range to as high as
$150,000 to $200,000.
General and administrative expenses increased $7,369,000, or 77.8%, to
$16,844,000, reflecting increases in professional services, business
development, general office, outpatient services, and legal compared to the
previous year, plus the addition of HSSI's corporate staff.
Depreciation and amortization increased $737,000 reflecting the
amortization of goodwill from the purchase of HSSI and depreciation of HSSI
fixed assets.
Interest income decreased $71,000 as a result of reductions in investment
balances, as cash was used to acquire HSSI and make payments on the Company's
debt. Interest expense increased $560,000 reflecting new debt issued in the
acquisition of HSSI.
Earnings before income taxes increased by $1,802,000, or 23.0%, to
$9,654,000. The provision for income taxes for the ten month periods compared
was $3,886,000 compared to $3,197,000, reflecting effective income tax rates of
40.3% and 40.7% for the respective periods. Net earnings increased by
$1,113,000, or 23.9%, to $5,768,000. Earnings per share increased 15.8% to $1.17
from $1.01 on a 6.9% increase in the weighted average shares outstanding. The
increase in shares outstanding is attributable primarily to the shares issued in
the acquisition of HSSI and an increase in common stock equivalents resulting
from an increase in the market price of the Company's stock relative to the
underlying exercise prices of outstanding stock options.
Fiscal Year Ended February 29, 1996 Compared to Fiscal Year Ended
February 28, 1995
Operating revenues increased by $6,167,000, or 7.4%, in fiscal 1996 to
$89,377,000. An increase in operating revenue per billable patient day of 1.7%,
an increase in billable patient days of 1.1%, and an increase of $4,030,000, or
56.2%, in outpatient revenue to $11,197,000, accounted for substantially all of
the increase in operating revenues. The acquisition of ROSI accounted for all of
the increase in outpatient revenue. A 6.7% increase in admissions per unit,
offset by a 6.0% decrease in average billable length of stay, generated a 1.1%
increase in billable patient days to 408,385 on approximately the same average
number of inpatient units in both years. The increase in billable patient days
coupled with a 1.7% increase in revenue per billable day generated a 2.8%
increase in revenue from inpatient units. The decline in average length of stay
reflects both the continued trend of reduced rehabilitation lengths of stay and
an increase in subacute units, which carry a shorter length of stay than acute
rehabilitation units.
Operating expenses increased by $2,575,000, or 4.1%, to $65,487,000, with
the acquisition of ROSI accounting for substantially all of this increase.
The excess of operating expenses over operating revenues associated with
non-exempt units decreased from $1,662,000 to $356,000, attributable to the
decrease in the average number of non-exempt units from 9.6 to 2.0. Average
start-up losses for units during their non-exempt year can range to as high as
$150,000 to $200,000.
General and administrative expenses increased $1,601,000, or 16.7%, to
$11,202,000, with the acquisition of ROSI accounting for $977,000, or 61.0%, of
the increase. The remainder was attributable to increases in business
development, subacute operations, and recruiting compared to the previous year.
Interest income increased $232,000 as a result of higher investment
balances during fiscal 1996. During fiscal 1995 cash was used to acquire ROSI
and make payments on the Company's debt. Interest expense increased $60,000
reflecting a full year of interest expense on the debt issued in the acquisition
of ROSI.
10
<PAGE> 11
Earnings before income taxes increased by $1,968,000, or 24.9%, to
$9,887,000. The provision for income taxes was $4,009,000 compared to
$3,184,000, reflecting effective income tax rates of 40.5% and 40.2% for the
respective years. The increase in the effective tax rate was attributable
primarily to the nondeductibility for income tax purposes of amortization of
goodwill from the purchase of ROSI. Net earnings increased by $1,143,000, or
24.1%, to $5,878,000. Earnings per share increased 20.0% to $1.26 from $1.05 on
a 4.2% increase in the weighted average shares outstanding. The increase in
shares outstanding is attributable primary to an increase in common stock
equivalents resulting from an increase in the market price of the Company's
stock relative to the underlying exercise prices of outstanding stock options.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had $7,438,000 in cash and current
marketable securities and a current ratio of 1.6:1. Working capital as of
December 31, 1996, decreased from February 29, 1996, by $2,564,000 as a result
of cash paid and the current portion of debt incurred in the acquisition of
HSSI.
Net accounts receivable were $15,546,000 at December 31, 1996 compared to
$10,847,000 at February 29, 1996. The number of days average net revenues in net
receivable was 45.5 days and 43.9 days as of December 31, 1996 and February 29,
1996, respectively. As of December 31, 1996, a change in method of recording
accounts receivable and accrued expenses at HSSI was implemented that resulted
in a downward adjustment in net accounts receivable and days average net revenue
in net receivable.
During the ten months ended December 31, 1996, the Company incurred
capital expenditures of $732,000 as compared to $476,000 for the fiscal year
ended February 29, 1996, for additions to equipment in connection with the
opening of new contract units. At December 31, 1996, the Company had no material
commitments for capital expenditures.
In connection with the development and implementation of additional units,
the Company may incur capital expenditures for equipment and deferred costs
arising from payments made to hospitals for a portion of capital improvements
needed to begin a unit's operation. For the ten months ended December 31, 1996,
the Company made deferred cost payments to four client hospitals totaling
$300,000 for capital improvements, while in fiscal 1996 payments were made to
six client hospitals totaling $265,000. At December 31, 1996, the Company had
one commitment totaling $125,000 to make additional capital improvement payments
to client hospitals.
The Company's operating cash flows constitute its primary source of
liquidity and historically have been sufficient to fund its working capital
requirements. The Company expects to meet its future working capital, capital
expenditure, business expansion and debt service requirements from a combination
of internal sources and outside financing. As of December 31, 1996, the Company
had $12,000,000 of unused available bank line of credit.
On January 10, 1997, the Company sold 165,000 shares of its investment in
Intensiva HealthCare Corporation in a market transaction for $1,485,000.
On January 31, 1997, the Company made a tender offer to purchase up to
925,000 shares of its common stock. To finance the repurchase and restructure
its current debt, the Company issued $45 million in senior secured debt.
INFLATION
Although inflation has abated during the last several years, the rate of
inflation in health care related services continues to exceed the rate
experienced by the economy as a whole. The Company's management contracts
typically provide for an annual increase in the fees paid to the Company by its
client hospitals based upon increases in various inflation indices. These
increases generally offset increases in costs incurred by the Company.
11
<PAGE> 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
To the Board of Directors
RehabCare Group, Inc.:
We have audited the accompanying consolidated balance sheets of RehabCare Group,
Inc. and subsidiaries (the Company) as of December 31, 1996 and February 29,
1996, and the related consolidated statements of earnings, stockholders' equity,
and cash flows for the ten months ended December 31, 1996 and for each of the
years in the two-year period ended February 29, 1996. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 audits provide 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 RehabCare Group,
Inc. and subsidiaries as of December 31, 1996 and February 29, 1996, and the
results of their operations and their cash flows for the ten months ended
December 31, 1996 and for each of the years in the two-year period ended
February 29, 1996, in conformity with generally accepted accounting principles.
St. Louis, Missouri
February 5, 1997
12
<PAGE> 13
<TABLE>
REHABCARE GROUP, INC.
Consolidated Balance Sheets
(dollars in thousands)
<CAPTION>
December 31, February 29,
Assets 1996 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 772 6,174
Marketable securities 6,666 4,495
Accounts receivable, net of allowance for doubtful accounts
of $1,386 and $822, respectively 15,546 10,847
Deferred tax assets 921 1,596
Prepaid expenses and other current assets 525 473
Total current assets 24,430 23,585
Marketable securities, noncurrent 1,310 497
Equipment and leasehold improvements, net 2,935 1,601
Other assets:
Excess of cost over net assets acquired, net 47,119 27,085
Deferred contract costs, net 1,302 1,661
Pre-opening costs, net 2,295 1,765
Deferred tax assets 424 577
Other 987 295
Total other assets 52,127 31,383
$ 80,802 57,066
Liabilities and Stockholders' Equity
Current liabilities:
Revolving credit facility $ 500 --
Current portion of long-term debt 2,967 2,093
Accounts payable 1,083 1,788
Accrued salaries and wages 6,969 5,326
Accrued expenses 2,026 1,123
Income taxes payable 1,631 1,437
Total current liabilities 15,176 11,767
Deferred compensation 1,956 1,370
Long-term debt, less current portion 8,000 5,032
Notes payable, related parties 6,000 --
Stockholders' equity:
Preferred stock, $.10 par value; authorized 10,000,000 shares, none
issued and outstanding -- --
Common stock, $.01 par value; authorized 20,000,000 shares, issued
4,693,362 shares as of December 31, 1996 (4,517,816 shares as of
February 29, 1996) 47 45
Additional paid-in capital 22,816 20,043
Retained earnings 24,577 18,809
Unrealized gain on marketable securities, net of tax 2,230 --
Total stockholders' equity 49,670 38,897
$ 80,802 57,066
See accompanying notes to consolidated financial statements.
13
</TABLE>
<PAGE> 14
<TABLE>
REHABCARE GROUP, INC.
Consolidated Statements of Earnings
(dollars in thousands, except per share data)
<CAPTION>
Ten Months Ended Year Ended
December 31, February 29, February 28,
1996 1996 1995
<S> <C> <C> <C>
Operating revenue $ 104,611 89,377 83,210
Cost and expenses:
Operating expenses 74,326 65,487 62,912
General and administrative 16,844 11,202 9,601
Depreciation and amortization 2,743 2,412 2,166
Total costs and expenses 93,913 79,101 74,679
Operating earnings 10,698 10,276 8,531
Interest income 152 344 112
Interest expense (1,211) (759) (699)
Other income (expense), net 15 26 (25)
Earnings before income taxes 9,654 9,887 7,919
Income taxes 3,886 4,009 3,184
Net earnings 5,768 5,878 4,735
Net earnings per common and common equivalent share:
Primary $ 1.17 1.26 1.05
Assuming full dilution $ 1.11 1.23 1.05
See accompanying notes to consolidated financial statements.
14
</TABLE>
<PAGE> 15
<TABLE>
REHABCARE GROUP, INC.
Consolidated Statements of Stockholders' Equity
(amounts in thousands)
<CAPTION>
Additional Total
Common Stock paid-in Retained Unrealized stockholders'
Shares Amount capital earnings gain equity
<S> <C> <C> <C> <C> <C> <C>
Balance, February 28, 1994 4,037 $ 40 15,843 8,249 -- 24,132
Net earnings -- -- -- 4,735 -- 4,735
Dividends on redeemable preferred stock -- -- -- (42) -- (42)
Redeemable preferred stock accretion -- -- -- (11) -- (11)
Conversion of preferred stock 425 4 3,576 -- -- 3,580
Exercise of stock options 8 1 36 -- -- 37
Balance, February 28, 1995 4,470 45 19,455 12,931 -- 32,431
Net earnings -- -- -- 5,878 -- 5,878
Exercise of stock options (including
tax benefit) 48 -- 588 -- -- 588
Balance, February 29, 1996 4,518 45 20,043 18,809 -- 38,897
Net earnings -- -- -- 5,768 -- 5,768
Issuance of common stock
in connection with acquisition 124 1 2,191 -- -- 2,192
Exercise of stock options (including
tax benefit) 51 1 582 -- -- 583
Unrealized gain on marketable securities,
net of tax -- -- -- -- 2,230 2,230
Balance, December 31, 1996 4,693 $ 47 22,816 24,577 2,230 49,670
See accompanying notes to consolidated financial statements.
15
</TABLE>
<PAGE> 16
<TABLE>
REHABCARE GROUP, INC.
Consolidated Statements of Cash Flows
(dollars in thousands)
<CAPTION>
Ten Months Ended Year ended
December 31, February 29, February 28,
1996 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 5,768 5,878 4,735
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 2,743 2,412 2,166
Provision for losses on accounts receivable 549 348 384
Equity in losses of affiliates -- -- 56
Deferred compensation 586 560 544
Decrease (increase) in accounts receivable, net (4,586) 1,721 (2,699)
Decrease in prepaid expenses and other current assets 259 31 276
Decrease (increase) in other assets 122 236 (92)
Increase (decrease) in accounts payable and accrued expenses (1,915) 111 282
Increase (decrease) in accrued salaries and wages 1,390 485 (353)
Increase (decrease) in income taxes payable and deferred (498) (99) 836
(1,350) 5,805 1,400
Net cash provided by operating activities 4,418 11,683 6,135
Cash flows from investing activities:
Additions to equipment and leasehold improvements, net (732) (402) (494)
Purchase of investments (1,128) (5,245) (258)
Proceeds from sale/maturities of investments 1,815 510 2,925
Acquisition of businesses, net of cash received (19,258) (195) (2,969)
Deferred contract costs, net (160) (265) (35)
Pre-opening costs, net (1,047) (651) (598)
Other, net (235) -- (395)
Net cash used in investing activities (20,745) (6,248) (1,824)
Cash flows from financing activities:
Proceeds from (payments on) revolving credit facility 2,000 (1,000) 1,000
Payments on long-term debt (2,408) (2,075) (3,595)
Proceeds on issuance long-term debt 4,750 -- --
Proceeds on issuance of notes payable 6,000 -- --
Dividends paid on redeemable preferred stock -- -- (93)
Exercise of stock options (including tax benefit) 583 588 37
Net cash provided by (used in) financing activities 10,925 ( 2,487) (2,651)
Net increase (decrease) in cash and cash
equivalents (5,402) 2,948 1,660
Cash and cash equivalents at beginning of year 6,174 3,226 1,566
Cash and cash equivalents at end of year $ 772 6,174 3,226
See accompanying notes to consolidated financial statements.
16
</TABLE>
<PAGE> 17
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements
(1)Summary of Significant Accounting Policies
(a) Business and Principles of Consolidation
RehabCare Group, Inc. and subsidiaries (the "Company") develop,
market, and manage programs for the delivery of comprehensive
medical rehabilitation and therapy services in acute-care
hospitals, skilled nursing units, and outpatient facilities. The
Company also is a contract provider of therapists to hospitals
and long-term care and rehabilitation facilities. The
consolidated financial statements include the accounts of the
parent company and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation. On March 1, 1996, the Company
acquired Healthcare Staffing Solutions, Inc. ("HSSI"). See note
2.
(b) Change in Fiscal Year
The Company changed its fiscal year end from the last day of
February to December 31, effective as of December 31, 1996. The
change resulted in a short period of ten months that began March
1, 1996, and ended December 31, 1996. Information included in
the footnotes to the financial statements for calendar 1996
refers to the ten months ended December 31, 1996, and fiscal
1996 and fiscal 1995 refers to the twelve months ended the last
day of February for the respective year. For the ten months
ended December 31, 1995, operating revenues, earnings before
income taxes, income taxes and net earnings were $74,135,000,
$7,852,000, $3,197,000 and $4,655,000, respectively.
(c) Cash Equivalents and Marketable Securities
Cash in excess of daily requirements is invested in short-term
investments with original maturities of three months or less.
Such investments are deemed to be cash equivalents for purposes
of the consolidated statements of cash flows.
The Company classifies its debt and equity securities into one
of three categories: held-to-maturity, trading, or
available-for-sale. Management determines the appropriate
classification of its investments at the time of purchase and
reevaluates such determination at each balance sheet date.
Investments at December 31, 1996 consist of marketable equity
securities, variable rate municipal bonds, and money market
securities. All marketable securities are classified as
available-for-sale and as such the difference between cost and
market , net of estimated taxes, at December 31, 1996 is
recorded as an adjustment to stockholders' equity. Gain (or
loss) is not recognized in the Statement of Earnings until the
securities are sold. The difference between cost and market at
February 29, 1996 was not material.
(d) Credit Risk
The Company primarily provides services to a geographically diverse
clientele of health care providers throughout the United States.
The Company performs ongoing credit evaluations of its clientele
and does not require collateral. An allowance for doubtful
accounts is maintained at a level which management believes is
sufficient to cover potential credit losses. The Company invests
its excess cash in short-term investments and has not
experienced any losses on those investments.
17
<PAGE> 18
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements
(e) Equipment and Leasehold Improvements
Depreciation and amortization of equipment and leasehold
improvements are computed on the straight-line method over the
estimated useful lives of the related assets, principally:
equipment - five to seven years; leasehold improvements - life
of lease or life of asset, whichever is less.
(f) Intangible Assets
Substantially all the excess of cost over net assets acquired
(goodwill) relates to acquisitions and is amortized on a
straight-line basis over 40 years. Accumulated amortization of
goodwill was $4,284,000 and $3,264,000 as of December 31, 1996
and February 29, 1996, respectively. The Company evaluates the
realizability of goodwill based upon expectations of
nondiscounted cash flows and operating income. Based upon its
most recent analysis, the Company believes that no impairment of
goodwill exists at December 31, 1996.
(g) Deferred Contract Costs and Pre-Opening Costs
Deferred costs represent payments made to hospitals for a portion
of capital improvements needed to begin a unit's operation and
certain pre-opening costs. In substantially all contracts, the
Company is entitled to a pro rata refund of deferred capital
improvement costs in the event that the hospital terminates the
contract before its scheduled termination date. Pre-opening
costs include payments made primarily for architectural, legal,
and consulting services expended to begin a unit's operations.
These costs are capitalized until the unit begins operations.
Deferred contract costs and pre-opening costs are charged to
expense over the initial term of the contracts. Accumulated
amortization of deferred contract costs was $1,336,000 and
$1,300,000 as of December 31, 1996 and February 29, 1996,
respectively. Accumulated amortization of pre-opening costs was
$1,183,000 and $996,000 as of December 31, 1996 and February 29,
1996, respectively.
(h) Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of
The Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, on March 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this
Statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
(i) Disclosure About Fair Value of Financial Instruments
The estimated fair-market value of the revolving credit facility
and long-term debt (including current portions thereof),
approximates carrying value due to the variable rate features of
the instruments. The Company believes it is not practical to
estimate a fair value different from the carrying value of the
note payable to related parties as the instrument has numerous
features unique to the security including but not limited to,
the convertible feature discussed in note 7.
18
<PAGE> 19
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements
(j) Revenues and Costs
The Company recognizes revenue as services are provided or when the
revenue is earned. The Company has adopted the accounting and
reporting methods approved by the American Institute of
Certified Public Accountants in its healthcare industry audit
guide. Accordingly, the Company's provision for doubtful
accounts is recorded as an expense of operations for all periods
presented. Costs related to marketing and development of new
contracts at the corporate level are expensed as incurred.
(k) Income Taxes
Deferred tax assets and liabilities are recognized for temporary
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates in
effect for the year in which those differences are expected to
be recovered or settled.
(l) Earnings Per Share
Net earnings per common and common equivalent share have been
computed based on the weighted average number of outstanding
common shares during the period plus, when their effect is
dilutive, common stock equivalents consisting of certain shares
subject to stock options and shares related to convertible debt.
Net earnings used in the computation of primary earnings per
share are reduced by preferred stock dividends ($42,000 in
fiscal 1995) and accretion of preferred stock ($11,000 in fiscal
1995). The primary weighted average number of common and common
equivalent shares outstanding totaled 4,926,000, 4,650,000 and
4,464,000 in calender 1996, fiscal 1996 and fiscal 1995,
respectively. The fully diluted weighted average number of
common and common equivalent shares outstanding totaled
5,343,000, 4,775,000 and 4,521,000 in calendar 1996, fiscal 1996
and fiscal 1995, respectively. Net earnings used in the
computation of fully diluted earnings per share is increased by
the after tax interest charge of $184,000 in calendar 1996
related to subordinated convertible debt.
(m) Stock Option Plan
Prior to March 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. As such, compensation
expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the
exercise price. On March 1, 1996, the Company adopted SFAS No.
123, Accounting for Stock-Based Compensation, which permits
entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma
net income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and future years as if
the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the
provisions of APB Opinion No 25 and provide the pro forma
disclosure provisions of SFAS No. 123. See note 9.
(n) 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.
Estimates also affect the reported amounts of revenues and
expenses during the period. Actual results may differ from those
estimates.
19
<PAGE> 20
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements
(2) Acquisitions
On March 1, 1996, the Company purchased 100% of the capital stock of HSSI.
The aggregate purchase price of $21,450,000 paid at closing included
$13,258,000 in cash, a $6,000,000 ten-year convertible subordinated
promissory note, and 123,530 shares of the Company's common stock. Of
the $13,258,000 of cash paid, $8,750,000 was borrowed under the
Company's term loan and revolving credit facility. Additional
consideration will be paid to the former HSSI stockholders contingent
upon the attainment of certain target cumulative earnings before
interest and income taxes up to a maximum of $8,650,000 in additional
consideration over six years. The purchase cost was allocated to the
net assets acquired as follows:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable, net $ 3,003,000
Prepaid expenses and other current assets 576,000
Equipment and leasehold improvements 1,295,000
Other assets 388,000
Excess of cost over net assets acquired 21,250,000
26,512,000
Accounts payable 1,992,000
Accrued salaries and wages 1,423,000
Accrued expenses 1,647,000
5,062,000
Net purchase cost $21,450,000
</TABLE>
The following unaudited pro forma financial information assumes the
acquisition of HSSI occurred at the beginning of the fiscal year
ended February 29, 1996. This information is not necessarily
indicative of results of operations that would have occurred had the
purchase been made at the beginning of the fiscal year.
<TABLE>
<CAPTION>
Year Ended
February 29,
1996
<S> <C>
Operating revenues $ 115,401,000
Net earnings 6,443,000
Net earnings per common and
common equivalent share:
Primary $ 1.35
Assuming full dilution $ 1.27
</TABLE>
On October 12, 1994, the Company purchased 100% of the capital stock of
RehabCare Outpatient Services, Inc. ("ROSI"), formerly known as
Physical Therapy Resources, Inc. The aggregate purchase price of
$6,200,000 included $3,000,000 in cash and a $3,200,000 three-year
subordinated promissory note.
The above acquisitions have been accounted for by the purchase method of
accounting, whereby the operating results of HSSI and ROSI are
included in the Company's results of operations commencing on the
respective dates of acquisition.
20
<PAGE> 21
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements
(3) Marketable Securities
Current marketable securities at December 31, 1996 consist of $2,995,000
in variable rate municipal bonds and an equity investment of
$3,671,000 representing 326,297 shares of common stock of Intensiva
HealthCare Corporation, which completed an initial public offering
("IPO") of stock in September 1996. Effective with the date of the
IPO, the Company classified the investment as "available-for-sale,"
and as such has recorded the investment at market value with a
corresponding credit net of taxes to stockholders' equity. The market
value of this investment at December 31, 1996 of $3,671,000 exceeded
the cost basis by $3,597,000. On January 10, 1997, 165,000 of these
shares were sold. See note 15. Noncurrent marketable securities
consist of marketable equity securities ($1,121,000 and $422,000 at
December 31, 1996 and February 29, 1996, respectively) and money
market securities ($189,000 and $75,000 at December 31, 1996 and
February 29, 1996, respectively) held in trust under the Company's
deferred compensation plan.
(4) Allowance for Doubtful Accounts
Activity in the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
Ten Months Ended Year Ended
December 31, February 29, February 28,
1996 1996 1995
<S> <C> <C> <C>
Balance at beginning of period $ 822,000 1,043,000 727,000
Provisions for doubtful accounts 549,000 348,000 384,000
Allowance related to HSSI acquisition 387,000 -- --
Accounts written off (375,000) (569,000) (68,000)
Recoveries 3,000 -- --
Balance at end of period $ 1,386,000 822,000 1,043,000
</TABLE>
(5) Equipment and Leasehold Improvements
Equipment and leasehold improvements, at cost, consist of the following:
<TABLE>
<CAPTION>
December 31, February 29,
1996 1996
<S> <C> <C>
Equipment $ 4,615,000 3,276,000
Leasehold improvements 126,000 27,000
4,741,000 3,303,000
Less accumulated depreciation and amortization 1,806,000 1,702,000
Equipment and leasehold improvements, net $ 2,935,000 1,601,000
</TABLE>
(6) Revolving Credit Facility
The Company maintains a revolving line of credit agreement which expires
in April 1998 and allows the Company to borrow up to the lesser of
$14,000,000 or 85% of eligible accounts receivable as defined by the
agreement, reduced by amounts outstanding under any bank letter of
credit. On April 15, 1995, the Company obtained a bank letter of
credit totaling $3,000,000 which reduced the amount the Company could
borrow under the revolving credit facility. In December 1996, the
bank letter of credit was canceled. See note 13. Advances under the
agreement bear interest at the Company's option of either the London
Interbank Offered
21
<PAGE> 22
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements
Rates ("LIBOR") plus 1.125% to 1.625%, or the bank's Corporate Base
Rate ("CBR") as of the date of advance, with such rates being
dependent on the ratio of the Company's available credit to cash
flow. The Company pays a fee on the unused portion of the commitment
from .25% to .45% per annum, with such rate being dependent on the
ratio of the Company's available credit to cash flow. As of December
31, 1996, the Company's short-term borrowings under the revolving
line of credit facility totaled $2,000,000 of which $1,500,000 is
classified as long term. Interest rates under the revolving line of
credit ranged from 7% to 8% per annum at December 31, 1996. The
average outstanding borrowings for calendar 1996 and fiscal 1996 were
$3,000,000 and $301,000, at a weighted average interest rate of 7.5%
and 7.2% per annum, respectively. There were no monies advanced or
repaid on the revolving line of credit agreement in fiscal 1996
except for the repayment of the February 28, 1995 advance in March
1995.
On March 5, 1997, the Company restructured its revolving credit facility.
See note 15.
(7) Long-Term Debt
On September 30, 1992, the Company entered into a $12,000,000 bank term
loan which was restructured and refinanced in fiscal 1995 and calendar
1996. Under the terms of the restated loan agreement as amended, the
Company entered into a five-year, $10,000,000 bank term loan which
bears interest, at the Company's option, at the LIBOR plus from 1.375%
to 1.875%, or at the bank's CBR , or a combination of the two, such
rates being dependent on the ratio of the Company's available credit
to cash flow. The balance outstanding was $8,500,000 and $5,250,000 at
December 31, 1996 and February 29, 1996, respectively. The effective
rates of interest on the bank term loan were approximately 7.1% in
calendar 1996 and 8.2% in fiscal 1996. The principal is payable at the
rate of $500,000 per quarter with the balance due April 30, 2001.
Borrowings under the agreement including the revolving credit facility
are secured primarily by the Company's accounts receivable, equipment
and leasehold improvements, and future income and profits. The loan
agreement requires the Company to meet certain financial covenants
including maintaining minimum net worth and fixed charges coverage
ratios. The loan agreement also restricts the Company's ability to pay
dividends to its stockholders.
In March 1996, the Company signed $6,000,000 in ten-year convertible
subordinated promissory notes payable to the former owners of HSSI
which bear interest at 6.25% and are payable at maturity on March 1,
2006. At any time after March 1, 2000, the Company may redeem some or
all of the notes at from 100% to 104% of the principal balance. The
notes are convertible into the Company's common stock prior to March
1, 2006, subject to earlier redemption by the Company, at the option
of the former shareholders, at a conversion price of $21.25 per
share. Of the $6,000,000 balance outstanding on the convertible
subordinated promissory notes, $4,500,000 is payable to a director of
the Company who is president of HSSI, and $1,500,000 is payable to an
officer of HSSI.
In October 1994, the Company signed a $3,200,000 three-year subordinated
promissory note payable to the former owner of ROSI which is payable
in monthly installments of principal and interest of approximately
$100,000 through October 1997 and bears interest at 8.0% per annum.
The balances outstanding at December 31, 1996 and February 29, 1996
were $967,000 and $1,875,000, respectively.
Annual maturities of long-term debt for the next five years and
thereafter are as follows: $2,967,000, $2,000,000, $2,000,000,
$2,000,000, $500,000 and $6,000,000 in years 1997, 1998, 1999, 2000,
2001, and thereafter, respectively. Interest paid for calendar 1996,
fiscal 1996 and fiscal 1995 was $1,053,000, $763,000, and $693,000,
respectively.
22
<PAGE> 23
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements
On March 5, 1997, the Company restructured its long-term debt. See note
15.
(8) Redeemable Preferred Stock
In fiscal 1993, the Company issued 425,000 shares of Series B Cumulative
Convertible Redeemable Preferred Stock ("Series B preferred stock")
at $9 per share. The Series B preferred stock carried an 8% annual
dividend and was convertible at any time at the option of the holder
thereof into the Company's common stock at a rate of one-for-one. In
March 1994, the Company exercised its right to call for redemption
all of the Series B preferred stock at a price of $9 plus accrued
dividends. Holders of 425,000 shares exercised their right to convert
into 425,000 shares of the Company's common stock in April 1994.
(9) Stockholders' Equity
On April 23, 1996 the Company adopted the 1996 Long-Term Performance
Plan pursuant to which stock appreciation rights, restricted stock,
performance awards, incentive stock options or nonqualified stock
options, may be granted to employees. Under the plan, 700,000 shares
may be granted within 10 years of the date of adoption of the plan.
The Company also has a 1987 Incentive Stock Option Plan, a 1987
Nonstatutory Stock Option Plan, and a Directors' Stock Option Plan
(together with the 1996 Long-Term Performance Plan, the "Plans")
pursuant to which incentive stock options may be granted to employees
and nonstatutory stock options may be granted to employees or
directors. Under the Incentive Stock Option and Nonstatutory Stock
Option Plans, options to purchase 1,000,000 shares may be granted, of
which 550,000 shares may be incentive stock options. Under the
Directors' Stock Option Plan (the "Directors' Plan"), options to
purchase 350,000 shares of stock may be granted. Stock options may be
granted for a term not to exceed 10 years (five years with respect to
a person receiving an incentive stock option who owns more than 10%
of the capital stock of the Company) and must be granted within 10
years from the date of adoption of the Plans. The exercise price of
all stock options must be at least equal to the fair market value
(110% of fair market value for a person receiving an incentive stock
option who owns more than 10% of the capital stock of the Company) of
the shares on the date granted. Under the Directors' Plan, each
director who is not otherwise an officer or employee of the Company,
shall receive an option to acquire 10,000 shares of stock, or such
lesser amount as provided in the Directors' Plan, at the fair market
value on the respective option grant date. All stock options become
fully exercisable after four years from date of grant, except for
options granted under the Directors Plan which become fully
exercisable after six months.
The per share weighted-average fair value of stock options granted during
calendar 1996 and fiscal 1996 was $6.78 and $6.83 on the dates of
grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: calendar 1996 - expected dividend yield
0%, volatility of 30%, risk-free interest rate of 6.25%, and an
expected life of 4 to 7 years; fiscal 1996 - expected dividend yield
0%, volatility of 30%, risk-free interest rate of 6.25%, and an
expected life of 5 to 7 years.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its Plans. Accordingly, no compensation cost has been
recognized for its long-term performance and stock option plans. Had
compensation cost for the Company's stock-based compensation plans
been determined based on the fair value at the grant dates for awards
under those plans consistent with the method of SFAS No. 123, the
Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated below:
23
<PAGE> 24
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Ten Months Ended Year Ended
December 31, 1996 February 29, 1996
<S> <C> <C>
Net Income As reported $ 5,768,000 $ 5,878,000
Pro forma 5,350,000 5,747,000
Primary earnings per share As reported 1.17 1.26
Pro forma 1.09 1.24
Fully diluted earnings per share As reported 1.11 1.23
Pro forma 1.04 1.20
</TABLE>
In accordance with SFAS No. 123, the pro forma net income reflects only
options granted in calendar 1996 and fiscal 1996. Therefore, the full
impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro forma net income amounts presented
above because compensation cost does not reflect options granted prior
to March 1995, that vested in calendar 1996 and fiscal 1996.
A summary of the status of the Company's stock option plans as of
December 31, 1996 , February 29, 1996, and February 28, 1995, and
changes during the periods ending on those dates is presented below:
<TABLE>
<CAPTION>
Ten Months Ended Year Ended Year Ended
December 31, 1996 February 29, 1996 February 28, 1995
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 1,083,825 $ 12.96 994,500 $ 12.47 774,400 $ 12.32
Granted 304,266 16.17 170,000 14.98 356,050 13.12
Exercised (52,019) 9.97 (47,500) 10.29 (8,460) 4.61
Forfeited (93,625) 15.64 (33,175) 12.46 (127,490) 13.87
Outstanding at
end of year 1,242,447 13.67 1,083,825 12.96 994,500 12.47
Options exercisable
at year-end 773,306 698,340 522,400
</TABLE>
24
<PAGE> 25
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements
The following table summarizes information about stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at Dec. 31, 1996 Contractual Life Exercise Price at Dec. 31, 1996 Exercise Price
<S> <C> <C> <C> <C> <C>
$ 7.250-10.375 63,181 5.2 $ 8.69 62,556 $ 8.67
11.562-13.750 843,700 6.2 13.02 660,750 13.03
16.000-18.875 335,566 9.4 16.23 50,000 16.63
$ 7.250-18.875 1,242,447 7.0 13.67 773,306 12.91
</TABLE>
On September 21, 1992, the Board of Directors of the Company declared a
dividend distribution of one preferred stock purchase right (the
Rights) for each share of the Company's common stock owned as of
October 1, 1992, and for each share of the Company's common stock
issued until the Rights become exercisable. Each Right, when
exercisable, will entitle the registered holder to purchase from the
Company one one-hundredth of a share of the Company's Series A junior
participating preferred stock, $.10 par value (the Series A preferred
stock), at a price of $35 per one one-hundredth of a share. The
Rights are not exercisable and are transferable only with the
Company's common stock until the earlier of 10 days following a
public announcement that a person has acquired ownership of 15% or
more of the Company's outstanding common stock, or the commencement
or announcement of a tender offer or exchange offer, the consummation
of which would result in the ownership by a person of 15% or more of
the Company's outstanding common stock. The Series A preferred stock
will be nonredeemable and junior to any other series of preferred
stock that the Company may issue in the future. Each share of Series
A preferred stock, upon issuance, will have a preferential dividend
in an amount equal to the greater of $1.00 per share or 100 times the
dividend declared per share of the Company's common stock. In the
event of the liquidation of the Company, the Series A preferred stock
will receive a preferred liquidation payment equal to the greater of
$100 or 100 times the payment made on each share of the Company's
common stock. Each one one-hundredth of a share of Series A preferred
stock outstanding will have one vote on all matters submitted to the
stockholders of the Company and will vote together as one class with
the holders of the Company's common stock.
In the event that a person acquires beneficial ownership of 15% or more
of the Company's common stock, holders of Rights (other than the
acquiring person or group) may purchase, at the Rights' then current
purchase price, shares of the Company's common stock having a value at
that time equal to twice such exercise price. In the event that the
Company merges into or otherwise transfers 50% or more of its assets
or earnings power to any person after the Rights become exercisable,
holders of Rights (other than the acquiring person or group) may
purchase, at the then current exercise price, common stock of the
acquiring entity having a value at that time equal to twice such
exercise price.
(10) Employee Benefits
The Company has an Employee Savings Plan, which is a defined contribution
plan qualified under Section 401(k) of the Internal Revenue Code, for
the benefit of its eligible employees. Employees who attain the age
of 21 and complete twelve consecutive months of employment with a
minimum of 1,000 hours worked are eligible to participate in the
plan. Each participant may contribute from 2% to 15% of his or her
compensation to the plan subject to limitations on the highly
compensated employees to ensure the
25
<PAGE> 26
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements
plan is nondiscriminatory. Contributions made by the Company to the
Employee Savings Plan were at rates of up to 50% of the first 4% of
employee contributions. Expense in connection with the Employee
Savings Plan for calendar 1996, fiscal 1996 and fiscal 1995 totaled
$329,000, $313,000 and $228,000, respectively.
In October 1992, the Company entered into a supplemental bonus plan
which, as of December 31, 1996 included six key members of
management. Participants began vesting in the supplemental bonus on a
pro rata basis beginning March 1, 1993 and became fully vested on
February 1, 1997. The total cost of the supplemental bonus plan is
being charged to earnings as deferred compensation over the service
period of the participants. Compensation expense related to the
supplemental bonus plan for calendar 1996, fiscal 1996 and fiscal
1995 totaled $309,000, $321,000 and $282,000, respectively. In
November 1996, the supplemented bonus plan was amended allowing
participants to invest up to 50% of their vested balances in the
Company's common stock as part of the Company's nonqualified deferred
compensation plan. As of December 31, 1996, 32,173 shares of the
Company's stock are held in trust under the plan.
Effective May 1, 1994, the Company established a nonqualified deferred
compensation plan for certain employees. Under the plan, participants
may defer up to 100% of their yearly compensation. The amounts
deferred are held in trust but remain the property of the Company. At
December 31, 1996 and February 29, 1996, $778,000 and $501,000,
respectively, was payable under the plan and approximated the value of
the trust assets owned by the Company. See note 3.
(11) Lease Commitments
The Company leases office space and certain office equipment under
noncancellable operating leases. Future minimum lease payments under
noncancellable operating leases, as of December 31, 1996, that have
initial or remaining lease terms in excess of one year total
approximately $666,000 for 1997, $577,000 for 1998, $326,000 for 1999,
$291,000 for 2000 and $31,000 for 2001. Rent expense for calendar
1996, fiscal 1996 and fiscal 1995 was approximately $605,000, $393,000
and $335,000, respectively.
(12) Income Taxes
Income taxes consist of the following:
<TABLE>
<CAPTION>
Ten Months Ended Year Ended
December 31, February 29, February 28,
1996 1996 1995
<S> <C> <C>
Federal - current $ 3,787,000 3,156,000 2,661,000
Federal - deferred (539,000) 213,000 20,000
State 638,000 640,000 503,000
Income taxes $ 3,886,000 4,009,000 3,184,000
Deferred tax liability recorded
in stockholders' equity $1,367,000 -- --
</TABLE>
26
<PAGE> 27
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements
A reconciliation between expected income taxes, computed by applying
the statutory Federal income tax rates of 34% to earnings before
income taxes, and actual income tax is as follows:
<TABLE>
<CAPTION>
Ten Months Ended Year Ended
December 31, February 29, February 28,
1996 1996 1995
<S> <C> <C> <C>
Expected income taxes $ 3,282,000 3,362,000 2,692,000
Tax effect of interest income from
municipal bond obligations exempt
from Federal taxation (43,000) (74,000) (34,000)
State income taxes, net of Federal
income tax benefit 386,000 422,000 332,000
Tax effect of amortization expense
not deductible for tax purposes 211,000 254,000 213,000
Other, net 50,000 45,000 (19,000)
Income taxes $ 3,886,000 4,009,000 3,184,000
</TABLE>
The tax effects of temporary differences that give rise to the deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31, February 29,
1996 1996
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 889,000 1,227,000
Provision for doubtful accounts 397,000 312,000
Accrued insurance, bonus and
vacation expense 2,036,000 1,303,000
Other 289,000 167,000
3,611,000 3,009,000
Deferred tax liabilities:
Prepaid expenses 96,000 70,000
Unrealized gain 1,367,000 --
Goodwill amortization 253,000 --
Depreciation 157,000 130,000
Pre-opening costs 393,000 636,000
2,266,000 836,000
Net deferred tax asset $ 1,345,000 2,173,000
</TABLE>
The Company is required to establish a valuation allowance for deferred
tax assets if, based on the weight of available evidence, it is more
likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income of
the periods which the deferred tax assets are deductible, management
believes that a valuation allowance is not required as it is more
likely than not that the results of future operations will generate
sufficient taxable income to realize the deferred tax assets.
27
<PAGE> 28
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements
As a result of the acquisition of Advanced Rehabilitation Resources, Inc.
in 1993, the Company, as of December 31, 1996, has approximately
$2,615,000 of net operating loss carryforwards for income tax
purposes, which will expire in years 2005 through 2008. The Tax Reform
Act of 1986 imposes an annual limitation on the amount of any
preacquisition loss carryforwards that can be used to offset Company
Federal taxable income generated after the acquisition date.
Generally, this annual limitation will approximate $1,200,000.
Income taxes paid by the Company for calendar 1996, fiscal 1996 and
fiscal 1995 were $4,234,000, $4,010,000 and $2,356,000, respectively.
(13) Contingencies The Company has undergone a Federal payroll
tax audit for the years 1989 through 1993. The Internal Revenue
Service ("IRS") has asserted that certain medical professionals and
others engaged as independent contractors should have been treated as
employees for payroll tax purposes. The IRS, in May 1996, issued a
proposed assessment against the Company of $1,935,455 for years 1989
through 1993. The Company subsequently received from the IRS separate
proposed Closing Agreements for these same independent contractors
under the IRS's new "Classification Settlement Program" with an
alternate aggregate assessment of $253,426 covering the 1989 through
1993 audit, including any additional potential liability through
December 31, 1996. In October 1996, the Company accepted a settlement
offer for one of the classes of medical professionals, paid $11,613 as
settlement and agreed to prospectively treat this class of
professionals as employees. The Company is currently continuing to
defend its classification of the remaining classes which represent a
total proposed assessment of $1,364,000 ($242,000 under the
classification settlement program.) The Company will continue to
evaluate whether to accept any of the additional settlement offers
and, as a result, change its classification policy as required by the
Closing Agreements. While the Company believes it has arguments to
support its current position, there can be no assurance that the
Company will prevail in whole or in part. In December 1996, the
Company and Comprehensive Care Corporation ("CompCare"), the Company's
former parent, entered into an agreement and release whereby CompCare
paid the Company $154,000 resulting in discharge of CompCare's
obligations for employment taxes and costs under section 4 of the Tax
Sharing Agreement entered into in conjunction with the Company's
initial public offering in 1991. In the opinion of management, the
ultimate disposition of this matter will not have a material adverse
effect on the Company's consolidated financial position, results of
operations or liquidity.
On October 30, 1992, CompCare filed an action against the Company with
the Federal District Court for the Eastern District of Missouri
alleging fraud by the Company under the common law and the Federal
securities laws in the negotiation of the Stock Redemption Agreement
dated September 1, 1992, by and between CompCare and the Company. The
action sought both actual and punitive monetary damages from the
Company. On March 8, 1995, a Federal court jury returned a verdict
against the Company on three of the six counts of the lawsuit. The
Company appealed the judgements and on October 22, 1996 a three-judge
panel of the Federal Court of Appeals for the Eighth Circuit reversed
all such judgements against the Company. On November 21, 1996,
CompCare's motion for rehearing was denied. The Company has
terminated the $3,000,000 supersedeas bond purchased to obtain a stay
of execution pending the conclusion of its appeal, and has cancelled
the $3,000,000 bank letter of credit that had been issued to secure
the bond. The Company is seeking to recover $120,083 in court related
costs from CompCare pursuant to the favorable appeal.
28
<PAGE> 29
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements
(14) Quarterly Financial Information (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
One Month Ended Quarter Ended
Calendar 1996 Dec. 31 Nov. 30 Aug. 31 May 31
<S> <C> <C> <C> <C>
Operating revenues $ 11,204 31,519 30,888 31,000
Operating earnings 1,244 3,422 3,096 2,936
Earnings before income taxes 1,153 3,108 2,770 2,623
Net earnings 689 1,864 1,653 1,562
Net earnings per common and
common equivalent share:
Primary $ .14 .37 .34 .32
Assuming full dilution $ .13 .36 .33 .31
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
Fiscal 1996 Feb. 29 Nov. 30 Aug. 31 May 31
<S> <C> <C> <C> <C>
Operating revenues $ 22,494 22,430 22,470 21,983
Operating earnings 2,886 2,480 2,456 2,454
Earnings before income taxes 2,883 2,375 2,322 2,307
Net earnings 1,731 1,414 1,374 1,359
Net earnings per common and
common equivalent share:
Primary $ .36 .31 .30 .30
Assuming full dilution $ .36 .30 .30 .30
</TABLE>
The sum of the quarterly earnings per common and common
equivalent share may not equal the full year earnings per
common and common equivalent share due to rounding and
computational differences.
(15) Events Subsequent to Balance Sheet Date
On January 10, 1997, the Company sold 165,000 shares of its investment in
Intensiva HealthCare Corporation in a market transaction for
$1,485,000.
On January 28, 1997, the Company purchased 100% of the capital stock of
TeamRehab, Inc. and Moore Rehabilitation Services, Inc. ("Team and
Moore"). The aggregate purchase price of $5,600,000 paid at closing
included $3,600,000 in cash, a $1,500,000 subordinated promissory
note, and 25,365 shares of the Company's common stock. Additional
consideration will be paid to the former Team and Moore stockholders
contingent upon the attainment of certain target cumulative earnings
before interest and income taxes up to a maximum of $2,400,000 in
additional consideration over four years. The acquisition has been
accounted for by the purchase method of accounting, whereby the
operating results of Team and Moore will be included in the Company's
results of operations commencing on the date of acquisition. Goodwill
related to the acquisition totaling $5,600,000 is being amortized over
40 years.
The following unaudited pro forma financial information assumes the
acquisition of Team and Moore occurred at the beginning of the
ten-month period ended December 31, 1996. This information is not
necessarily
29
<PAGE> 30
indicative of results of operations that would have occurred had the
purchase been made at the beginning of such periods presented.
<TABLE>
<CAPTION>
Ten Months Ended
December 31, 1996
<S> <C>
Operating revenues $ 109,291,000
Net earnings 5,986,000
Net earnings per common and
common equivalent share:
Primary $ 1.21
Assuming full dilution $ 1.15
</TABLE>
On January 31, 1997 the Company made a tender offer to purchase up to
925,000 shares of its common stock at a single purchase price, not
less than $20.00 nor in excess of $22.50 per share, the purchase price
to be selected by the Company based on prices specified by tendering
stockholders at the lowest single purchase price sufficient to
purchase 925,000 shares. As of February 28, 1997, the closing date,
shares totaling greater than 925,000 were tendered, resulting in the
Company's repurchase on March 12, 1997 of a total of 1,000,000 shares
at the single purchase price of $22.50 per share. To finance the
repurchase, on March 5, 1997 the Company's bank term loan and
revolving credit facility were restructured. Under the terms of the
restructured loan agreement, the Company entered into a five-year,
$25,000,000 bank term loan and a $20,000,000 revolving credit
facility. The amount that may be borrowed under the revolving credit
facility was increased to the lesser of $20,000,000 or 85% of eligible
accounts receivable. Amounts borrowed under the revised term loan and
revolving credit facility will bear interest at the Company's option,
at the banks CBR, or LIBOR plus from 1.25% to 2.00%, or a combination
of the two, such rates being dependent on the ratio of the Company's
indebtedness, net of cash and marketable securities, to cash flow. As
of the date of the stock repurchase, the Company's borrowings under
the revolving credit facility totaled $10,500,000
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information regarding directors and executive offices of the
Company is contained under the caption "Election of Directors" and "Section
16(a) Compliance with Section 16(a) of the Securities Exchange Act of 1934"
included in the Proxy Statement for the 1997 Annual Meeting of Stockholders,
which information is incorporated herein by reference.
30
<PAGE> 31
The following is a list as of March 12, 1997, of the names and ages of the
executive officers of the Company and positions with the Company. The employment
history of each of the executive officers for the past five years follows the
list. There is no family relationship between any of the named persons.
Name Age Position
James M. Usdan 47 President and Chief Executive Officer
Keith L. Goding 46 Executive Vice President and Chief Development
Officer
Alan C. Henderson 51 Executive Vice President, Chief Financial Officer
and Secretary
Hickley M. Waguespack 53 Executive Vice President and Chief Operating
Officer
JAMES M. USDAN has been President of the Company since April 1990 and
Chief Executive Officer since June 1991.
KEITH L. GODING has been Executive Vice President and Chief Development
Officer of the Company since February 1995. Prior to joining the Company, Mr.
Goding was Vice President for Corporate Alliances and Vice President of Sales,
Marketing and Product Development for Spectrum Healthcare Services, a division
of ARAMARK, where he was employed since 1974.
ALAN C. HENDERSON has been Executive Vice President and Chief Financial
Officer of the Company since March 1991 and was Treasurer of the Company from
March 1990 through June 1991. In June 1991, Mr. Henderson was elected Secretary
of the Company.
HICKLEY M. WAGUESPACK has been Executive Vice President and Chief
Operating Officer of the Company since March 1995, was a Senior Vice President -
Operations from June 1991 until February 1995 and held other positions with the
Company since 1985.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is contained under the
caption "Compensation of Executive Officers," included in the Proxy Statement
for the 1997 Annual Meeting of Stockholders, which is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is contained under the captions "Voting Securities and Principal
Holders Thereof" and "Security Ownership by Management," included in the Proxy
Statement for the 1997 Annual Meeting of Stockholders, which is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this report:
31
<PAGE> 32
(1) Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1996,
February 29, 1996 and February 28, 1995
Consolidated Statements of Earnings for the ten months ended
December 31, 1996 and for each of the years in the two-
year period ended February 29, 1996
Consolidated Statements of Stockholders' Equity for the ten
months ended December 31, 1996 and for each of the
years in the two-year period ended February 29, 1996
Consolidated Statements of Cash Flows for the ten months
ended December 31, 1996 and for each of the years in
the two-year period ended February 29, 1996
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
None
(3) Exhibits:
3.1 Restated Certificate of Incorporation (filed as Exhibit
3.1 to the Registrant's Registration Statement on Form
S-1, dated May 9, 1991 [Registration No. 33-40467] and
incorporated herein by reference)
3.2 Certificate of Amendment of Certificate of Incorporation
(filed as Exhibit 3.1 to the Registrant's Report on Form
10-Q for the quarter ended May 31, 1995 and incorporated
herein by reference)
3.3 Bylaws (filed as Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1, dated May 9, 1991
[Registration No. 33-40467] and incorporated herein by
reference)
4.1 Rights Agreement, dated September 21, 1992, by and
between the Company and Boatmen's Trust Company (filed
as Exhibit 1 to the Company's Registration Statement on
Form 8-A filed September 24, 1992 and incorporated
herein by reference)
10.1 1987 Incentive Stock Option and 1987 Nonstatutory Stock
Option Plans (filed as Exhibit 10.1 to the Registrant's
Registration Statement on Form S-1, dated May 9, 1991
[Registration No. 33-40467] and incorporated herein by
reference)
10.2 Form of Stock Option Agreement (filed as Exhibit 10.2 to
the Registrant's Registration Statement on Form S-1,
dated May 9, 1991 [Registration No. 33-40467] and
incorporated herein by reference)
10.3 Employment Agreement with James M. Usdan, dated May 1,
1991 (filed as Exhibit 10.3 to Amendment No. 1 to the
Registrant's Registration Statement on Form S-1, dated
June 19, 1991 [Registration No. 33-40467] and
incorporated herein by reference)
10.4 Employment Agreement with Alan C. Henderson, dated
May 1, 1991 (filed as Exhibit 10.4 to Amendment No. 1 to
the Registrant's Registration Statement on Form S-1,
dated June 19, 1991 [Registration No. 33-40467] and
incorporated herein by reference)
10.5 Employment Agreement with Richard C. Stoddard, dated
March 1, 1996 by and between Registrant, Healthcare
Staffing Solutions, Inc. d/b/a Health Tour, and Richard
C.Stoddard (filed as Exhibit 10.1 to the Registrant's
Current Report on Form 8-K, dated March 1, 1996 and
incorporated herein by reference)
32
<PAGE> 33
10.6 Form of Termination Compensation Agreement for James M.
Usdan and Alan C.Henderson (filed as Exhibit 10.6 to the
Registrant's Registration Statement on Form S-1,dated
February 18, 1993 [Registration No. 33-58490] and
incorporated herein by reference)
10.7 Form of Termination Compensation Agreement for other
executive officers (filed as Exhibit 10.7 to the
Registrant's Registration Statement on Form S-1, dated
February 18, 1993 [Registration No. 33-58490] and
incorporated herein by reference)
10.8 Supplemental Bonus Plan (filed as Exhibit 10.8 to the
Registrant's Registration Statement on Form S-1, dated
February 18, 1993 [Registration No. 33-58490] and
incorporated herein by reference)
10.9 Settlement Memorandum with CompCare, dated February 16,
1996 regarding the Tax Sharing Agreement with CompCare,
dated May 8, 1991(filed as Exhibit 10.9 to the
Registrant's Report on Form 10-K, dated May 3, 1996 and
incorporated herein by reference)
10.10 Settlement Agreement and Release dated December 1996 and
Settlement Agreement and Mutual Release dated September
17, 1996 with CompCare regarding the Tax Sharing
Agreement with CompCare dated May 8, 1991(filed as
Exhibit 10.1 to the Registrant's Report on Form 10-Q
dated January 14, 1997 and incorporated herein by
reference)
10.11 Deferred Profit Sharing Plan (filed as Exhibit 10.15 to
the Registrant's Registration Statement on Form S-1,
dated February 18, 1993 [Registration No. 33-58490] and
incorporated herein by reference)
10.12 RehabCare Executive Deferred Compensation Plan (filed as
Exhibit 10.12 to the Registrant's Report on Form 10-K,
dated May 27, 1994 and incorporated herein by reference)
10.13 RehabCare Directors' Stock Option Plan (filed as
Appendix A to Registrant's Proxy Statement for the 1994
Annual Meeting of Stockholders and incorporated herein
by reference)
10.14 RehabCare Group, Inc. 1996 Long-Term Performance Plan
(filed as Appendix A to the Registrant's Proxy Statement
for the 1996 Annual Meeting of Stockholders and
incorporated herein by reference)
10.15 Stock Purchase Agreement, dated February 8, 1996, by and
between Registrant and the Stockholders of Healthcare
Staffing Solutions, Inc. d/b/a Health Tour and joined in
by Healthcare Staffing Solutions, Inc. d/b/a Health Tour
(filed as Exhibit 2.1 to the Registrant's Current Report
on Form 8-K, dated March 1, 1996 and incorporated herein
by reference)
10.16 Agreement and Plan of Merger dated February 8, 1996, by
and between Registrant, Healthcare Staffing Solutions,
Inc. d/b/a Health Tour, HCH, Inc. and the stockholders
of HCH, Inc. (filed as Exhibit 2.2 to the Registrant's
Current Report on Form 8-K, dated March 1, 1996 and
incorporated herein by reference)
33
<PAGE> 34
10.17 Registration Rights Agreement, dated March 1, 1996, by
and between the Registrant and the stockholders of
Healthcare Staffing Solutions, Inc. (filed as Exhibit
2.3 to the Registrant's Current Report on Form 8-K,
dated March 1, 1996 and incorporated herein by
reference)
10.18 Form of Subordinated Convertible Promissory Note of
Registrant issued to stockholders of Healthcare Staffing
Solutions, Inc. d/b/a Health Tour (filed as Exhibit 2.4
to the Registrant's Current Report on Form 8-K, dated
March 1, 1996 and incorporated herein by reference)
10.19 Stock Purchase Agreement, dated January 27, 1997 by and
among Registrant and the stockholders of TeamRehab,
Inc., Moore Rehabilitation Services, Incorporated and
Moore Rehabilitation Services, PC.
10.20 Form of Subordinated Promissory Note of Registrant
issued to the stockholders of TeamRehab, Inc., Moore
Rehabilitation Services, Incorporated and Moore
Rehabilitation Services, PC.
11.1 Computation of Per Share Earnings
13.1 Those portions of the Annual Report for the ten months
ended December 31, 1996 of the Registrant included in
response to Items 5 and 6 of Form 10-K
21.1 Subsidiaries of the Registrant
24.1 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the fiscal month
ended December 31, 1996.
34
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 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.
Dated: March 12, 1997
REHABCARE GROUP, INC.
(Registrant)
By: /s/ JAMES M. USDAN
(James M. Usdan)
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Dated
/s/ JAMES M. USDAN President, Chief Executive March 12, 1997
(James M. Usdan) Officer and Director
Principal Executive Officer
/s/ ALAN C. HENDERSON Executive Vice President March 12, 1997
(Alan C. Henderson) and Chief Financial Officer
Principal Financial Officer
/s/ JOHN R. FINKENKELLER Senior Vice President March 12, 1997
(John R. Finkenkeller) and Treasurer
Principal Accounting Officer
/s/ WILLIAM G. ANDERSON Director March 12, 1997
(William G. Anderson)
/s/ RICHARD E. RAGSDALE Director March 12, 1997
(Richard E. Ragsdale)
/s/ JOHN H. SHORT Director March 12, 1997
(John H. Short)
/s/ RICHARD C. STODDARD Director March 12, 1997
(Richard C. Stoddard)
/s/ H. EDWIN TRUSHEIM Director March 12, 1997
(H. Edwin Trusheim)
/s/ THEODORE M. WIGHT Director March 12, 1997
(Theodore M. Wight)
35
<PAGE> 36
EXHIBIT INDEX
Exhibit Page
Number Description Number
3.1 Restated Certificate of Incorporation (filed as Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1, dated May 9, 1991
[Registration No. 33-40467] and incorporated herein by reference)
3.2 Certificate of Amendment of Certificate of Incorporation (filed
as Exhibit 3.1 to the Registrant's Report on Form 10-Q for the
quarter ended May 31, 1995 and incorporated herein by reference)
3.3 Bylaws (filed as Exhibit 3.2 to the Registrant's Registration
Statement on Form S-1, dated May 9, 1991 [Registration No.
33-40467] and incorporated herein by reference)
4.1 Rights Agreement, dated September 21, 1992, by and between the
Company and Boatmen's Trust Company (filed as Exhibit 1 to the
Company's Registration Statement on Form 8-A filed September 24,
1992 and incorporated herein by reference)
10.1 1987 Incentive Stock Option and 1987 Nonstatutory Stock Option
Plans (filed as Exhibit 10.1 to the Registrant's Registration
Statement on Form S-1, dated May 9, 1991[Registration No.
33-40467] and incorporated herein by reference)
10.2 Form of Stock Option Agreement (filed as Exhibit 10.2 to the
Registrant's Registration Statement on Form S-1, dated May 9,
1991 [Registration No. 33-40467] and incorporated herein by
reference)
10.3 Employment Agreement with James M. Usdan, dated May 1, 1991
(filed as Exhibit 10.3 to Amendment No. 1 to the Registrant's
Registration Statement on Form S-1, dated June 19, 1991
[Registration No. 33-40467] and incorporated herein by reference)
10.4 Employment Agreement with Alan C. Henderson, dated May 1, 1991
(filed as Exhibit 10.4 to Amendment No. 1 to the Registrant's
Registration Statement on Form S-1, dated June 19, 1991
[Registration No. 33-40467] and incorporated herein by reference)
10.5 Employment Agreement with Richard C. Stoddard, dated March 1, 1996
by and between Registrant, Healthcare Staffing Solutions, Inc.
d/b/a Health Tour, and Richard C. Stoddard (filed as Exhibit 10.1
to the Registrant's Current Report on Form 8-K, dated March 1,1996
and incorporated herein by reference)
10.6 Form of Termination Compensation Agreement for James M. Usdan and
Alan C. Henderson (filed as Exhibit 10.6 to the Registrant's
Registration Statement on Form S-1, dated February 18, 1993
[Registration No. 33-58490] and incorporated herein by reference)
10.7 Form of Termination Compensation Agreement for other executive
officers (filed as Exhibit 10.7 to the Registrant's Registration
Statement on Form S-1, dated February 18, 1993 [Registration No.
33-58490] and incorporated herein by reference)
10.8 Supplemental Bonus Plan (filed as Exhibit 10.8 to the Registrant's
Registration Statement on Form S-1, dated February 18, 1993
[Registration No. 33-58490] and incorporated herein by reference)
<PAGE> 37
10.9 Settlement Memorandum with CompCare, dated February 16, 1996
regarding the Tax Sharing Agreement with CompCare, dated May 8,
1991(filed as Exhibit 10.9 to the Registrant's Report on Form
10-K, dated May 3, 1996 and incorporated herein by reference)
10.10 Settlement Agreement and Release dated December 1996 and
Settlement Agreement and Mutual Release dated September 17, 1996
with CompCare regarding the Tax Sharing Agreement with CompCare
dated May 8, 1991(filed as Exhibit 10.1 to the Registrant's Report
on Form 10-Q dated January 14, 1997 and incorporated herein by
reference)
10.11 Deferred Profit Sharing Plan (filed as Exhibit 10.15 to the
Registrant's Registration Statement on Form S-1, dated February
18, 1993 [Registration No. 33-58490] and incorporated herein by
reference)
10.12 RehabCare Executive Deferred Compensation Plan (filed as Exhibit
10.12 to the Registrant's Report on Form 10-K, dated May 27, 1994
and incorporated herein by reference)
10.13 RehabCare Directors' Stock Option Plan (filed as Appendix A to
Registrant's Proxy Statement for the 1994 Annual Meeting of
Stockholders and incorporated herein by reference)
10.14 RehabCare Group, Inc. 1996 Long-Term Performance Plan (filed as
Appendix A to the Registrant's Proxy Statement for the 1996 Annual
Meeting of Stockholders and incorporated herein by reference)
10.15 Stock Purchase Agreement, dated February 8, 1996, by and between
Registrant and the Stockholders of Healthcare Staffing Solutions,
Inc. d/b/a Health Tour and joined in by Healthcare Staffing
Solutions, Inc. d/b/a Health Tour (filed as Exhibit 2.1 to the
Registrant's Current Report on Form 8-K, dated March 1, 1996 and
incorporated herein by reference)
10.16 Agreement and Plan of Merger dated February 8, 1996, by and
between Registrant, Healthcare Staffing Solutions, Inc. d/b/a
Health Tour, HCH, Inc. and the stockholders of HCH, Inc. (filed as
Exhibit 2.2 to the Registrant's Current Report on Form 8-K, dated
March 1, 1996 and incorporated herein by reference)
10.17 Registration Rights Agreement, dated March 1, 1996, by and between
the Registrant and the stockholders of Healthcare Staffing
Solutions, Inc. (filed as Exhibit 2.3 to the Registrant's Current
Report on Form 8-K, dated March 1, 1996 and incorporated herein by
reference)
10.18 Form of Subordinated Convertible Promissory Note of Registrant
issued to stockholders of Healthcare Staffing Solutions, Inc.
d/b/a Health Tour (filed as Exhibit 2.4 to the Registrant's
Current Report on Form 8-K, dated March 1, 1996 and incorporated
herein by reference)
10.19 Stock Purchase Agreement, dated January 27, 1997 by and among
Registrant and the stockholders of TeamRehab, Inc., Moore
Rehabilitation Services, Incorporated and Moore Rehabilitation
Services, PC. Page 39
10.20 Form of Subordinated Promissory Note of Registrant issued to the
stockholders of Team Rehab, Inc., Moore Rehabilitation Services,
Incorporated and Moore Rehabilitation Services, PC. Page 87
11.1 Computation of Per Share Earnings Page 92
<PAGE> 38
13.1 Those portions of the Annual Report for the ten months ended
December 31, 1996 of the Registrant included in response to Items
5 and 6 of Form 10-K Page 93
21.1 Subsidiaries of the Registrant Page 97
24.1 Consent of KPMG Peat Marwick LLP Page 98
27 Financial Data Schedule
<PAGE> 39
Exhibit 10.19
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into
this 27th day of January, 1997, by and among REHABCARE GROUP, INC., a Delaware
corporation (the "Acquiror"), TEAMREHAB, INC., a Missouri corporation ("Team"),
MOORE REHABILITATION SERVICES, INCORPORATED, a Missouri corporation ("Moore
Co."), MOORE REHABILITATION SERVICES, P.C., an Illinois professional corporation
("Moore P.C."), and the holders of all of the outstanding capital stock of the
Companies, as identified in Exhibit A to this Agreement (the "Selling
Shareholders"). Team and Moore Co. are collectively referred to herein as the
"Companies."
RECITALS
WHEREAS, the Selling Shareholders are the owners of one hundred
percent (100%) of the issued and outstanding shares of common stock, $1.00 par
value, of Team (the "Team Shares"), one hundred percent (100%) of the issued and
outstanding shares of common stock, $1.00 par value, of Moore Co. (the "Moore
Co. Shares") (the Team Shares and the Moore Co. Shares are collectively referred
to herein as the "Shares"), such Shares being the only shares of the capital
stock of the Companies that are issued and outstanding; and
WHEREAS, the Companies and Moore P.C. provide physical,
occupational and speech therapy staffing and management services to nursing
home, long-term care and outpatient facilities; and
WHEREAS, prior to the Closing Date (as defined herein), Moore P.C.
intends to assign all of its assets to Moore Co. (the "Moore P.C. Asset
Assignment"); and
WHEREAS, the Selling Shareholders desire to sell, assign, convey
and transfer to the Acquiror, and the Acquiror desires to acquire from the
Selling Shareholders, all of the Shares; and
WHEREAS, each of the parties hereto desires to set forth certain
representations, warranties, covenants and indemnity obligations, and to
establish certain closing conditions, made to induce the others to execute and
deliver this Agreement and to consummate the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises, the covenants
and agreements herein contained, and other good and valuable consideration, the
receipt and sufficiency of which hereby are acknowledged, the parties hereto
agree as follows:
ARTICLE 1
SALE AND PURCHASE OF SHARES
1.1 Method of Effecting the Purchase and Sale of Shares; Closing.
The purchase and sale of the Shares shall be effected as follows:
(a) At the Closing (as defined in Section 1.1(b) hereof), the
Selling Shareholders shall sell to the Acquiror, and the Acquiror shall purchase
from the Selling Shareholders, the Shares, as described above, such Shares being
all of the shares of capital stock of the Companies that are issued and
outstanding, in consideration of the Purchase Price (as
1
<PAGE> 40
defined in Section 1.2 hereof).
(b) The closing (the "Closing") of the transactions contemplated
hereby shall take place at the offices of the Acquiror, 7733 Forsyth Boulevard,
Suite 1700, St. Louis, Missouri 63101, commencing at 3:30 p.m. on a date (the
"Closing Date") agreed upon by the Acquiror and the Selling Shareholders which
is not earlier than January 28, 1997, or such other date or time as may be
mutually agreed upon by the parties.
1.2 Purchase Price for the Shares. The aggregate consideration to
be paid by the Acquiror to the Selling Shareholders in connection with the sale
of the Shares (the "Purchase Price") shall be the amount of Five Million Six
Hundred Thousand Dollars ($5,600,000.00) (the "Base Price"), as adjusted
pursuant to Section 1.4 of this Agreement, plus any additional Contingent
Consideration and Tail Contingent Consideration (as defined in Section 1.5
herein).
1.3 Payment of Base Price. At the Closing, the Acquiror shall pay
to each of the Selling Shareholders a pro rata portion of the Base Price,
determined in accordance with each such Selling Shareholder's percentage
ownership of the Shares as set forth beside each such Selling Shareholder's name
on Exhibit A to this Agreement, as follows:
(a) The Acquiror shall deliver to the Selling Shareholders an
amount in cash (the "Closing Cash Payment") equal to Three Million Six Hundred
Thousand Dollars ($3,600,000.00), such Closing Cash Payment being subject to
adjustment as set forth in Section 1.4 hereof and to be paid as follows: (i) at
least three business days prior to the Closing Date, the Selling Shareholders
shall designate an account or accounts (each, a "Designated Account") to which
the Closing Cash Payment shall be delivered; and (ii) on the Closing Date, the
Acquiror shall deliver by wire transfer the Closing Cash Payment to the
Designated Account(s);
(b) The Acquiror shall deliver to the Selling Shareholders a
subordinated promissory note of the Acquiror substantially in the form attached
hereto as Exhibit B (the "Note"), in the original principal amount (the "Closing
Principal Amount") of One Million Five Hundred Thousand Dollars ($1,500,000.00),
such Closing Principal Amount being subject to adjustment as set forth in
Section 1.4 hereof and being subject to offset as set forth in Section 10.4
hereof; and
(c) The Acquiror shall deliver to the Selling Shareholders 25,365
shares of the Acquiror's common stock, $.01 par value (the "Acquiror Common
Stock") (the "Closing Stock Payment").
1.4 Purchase Price Adjustment.
(a) At the Closing Date, the Companies shall have Combined
Earnings (as defined in this Section 1.4(a)) for the fiscal year ended December
31, 1996 of $1,270,000.00 (the "Agreed 1996 Combined Earnings"). If the
Companies are unable to convert any or all of the contracts set forth in
Schedule 1.4(P) within 45 days after the Closing Date, the Combined Earnings
shall be recalculated within ten business days after the end of such 45-day
period to deduct from the calculation of Combined Earnings the dollar amount of
the adjustment set forth in Schedule 1.4(P) for each such contract not so
converted. The Combined Earnings, as recalculated pursuant to the immediately
preceding sentence, shall be referred to herein as the "Recalculated 1996
Combined Earnings." For purposes of this Section 1.4(a), "Combined Earnings"
shall mean the net income of the Companies for the fiscal year ended December
31, 1996 determined on a combined basis in accordance with GAAP, subject to
certain adjustments
2
<PAGE> 41
as more fully set forth on Schedule 1.4 to this Agreement.
(b) In the event that the Agreed 1996 Combined Earnings exceed
the Recalculated 1996 Combined Earnings by a factor of more than 10%, the Base
Price shall be decreased by an amount equal to the product of 4.41 and the
difference between the Agreed 1996 Combined Earnings and the Actual 1996
Combined Earnings (the "Base Price Decrease"). The Selling Shareholders shall
pay any such Base Price Decrease to the Acquiror as follows: Within five
business days after receipt of the Recalculated 1996 Combined Earnings, each of
the Selling Shareholders shall (A) deliver to the Acquiror a check in an amount
equal to such Selling Shareholder's pro rata portion of an amount equal to fifty
percent (50%) of the Base Price Decrease, determined in accordance with each
such Selling Shareholder's percentage ownership in the Shares as set forth
beside such Selling Shareholder's name on Exhibit A to this Agreement, and (B)
surrender to the Acquiror the Note received by the Selling Shareholders at
Closing in exchange for the delivery by the Acquiror to the Selling Shareholders
of a Note in the original principal amount the Closing Principal Amount less an
amount equal to fifty percent (50%) of the Base Price Decrease. Such Note shall
be payable ratably commencing May 1, 1997 in sixteen (16) consecutive quarterly
installments.
1.5 Payment and Form of Contingent Consideration and Tail Contingent
Consideration.
(a) In addition to the payment of the Base Price at Closing, the
Acquiror has agreed to pay the Selling Shareholders on a contingent, "as-earned"
basis, additional amounts of consideration as set forth in Schedule 1.5 to this
Agreement (collectively, such additional amounts are hereinafter referred to as
the "Contingent Consideration") upon the attainment of certain "Target Minimum
Cumulative EBIT" (as defined in Schedule 1.5) during certain designated periods.
The Contingent Consideration, as and if earned, will be payable within the time
periods and in accordance with the procedures set forth in Section 1.5(b).
Schedule 1.5 to this Agreement sets forth the definitions of "Base EBIT,"
"Cumulative EBIT," "Excess EBIT Multiplier," "Maximum Cumulative Contingent
Consideration" and "Target Minimum Cumulative EBIT," which defined terms shall
be utilized in determining whether a payment of Contingent Consideration for a
given fiscal year is required to be made, and, if such payment is required, the
amount of the required payment for such fiscal year.
(b) If the Cumulative EBIT for any of the fiscal years ending on
December 31, 1997, 1998, 1999 or 2000 is greater than the Target Minimum
Cumulative EBIT shown for such fiscal year in Schedule 1.5, the Acquiror shall
deliver to each of the Selling Shareholders a check in the amount of such
Selling Shareholder's pro rata portion, determined in accordance with each such
Selling Shareholder's percentage ownership interest in each of Team's and Moore
Co.'s Shares as set forth beside each such Selling Shareholder's name as set
forth in Exhibit A to this Agreement, of the Contingent Consideration applicable
to such fiscal year, determined in the manner set forth in Schedule 1.5, as soon
as practicable after the completion of such fiscal year (but not later than 30
days after the receipt of audited financial statements of the Acquiror or, in
the event of a dispute as described in Section 1.5(g) of this Agreement, within
five business days after the resolution of such dispute). Notwithstanding the
immediately preceding sentence, at the Acquiror's sole election, the Acquiror
may pay any portion of the Contingent Consideration payable to the Selling
Shareholders with respect to any fiscal year in shares of Acquiror Common Stock,
the number of shares of such Acquiror Common Stock to be determined by dividing
the value of such Contingent Consideration by the average of the last
transaction prices as reported by the Nasdaq National Market and published in
The Wall Street Journal (the "Average Market Price") of Acquiror Common Stock
for the twenty consecutive trading days ending on the fourth business day prior
to the date of such payment. Shares of Acquiror Common Stock issued pursuant to
this Section 1.5 shall be subject to
3
<PAGE> 42
registration rights as set forth in the Registration Rights Agreement described
in Section 9.2(f) of this Agreement.
(c) The Contingent Consideration for any given fiscal year shall
be an amount equal to the Cumulative EBIT for such fiscal year less the Target
Minimum Cumulative EBIT for such fiscal year, multiplied by the Excess EBIT
Multiplier for such fiscal year; provided, however, that in no event shall the
Contingent Consideration payable for any fiscal year exceed an amount equal to
(i) the Maximum Cumulative Contingent Consideration for such fiscal year less
(ii) the sum of all Contingent Consideration payments for all prior fiscal years
(all as shown on Schedule 1.5 to this Agreement).
(d) Notwithstanding anything contained in this Agreement to the
contrary, in no event will the Selling Shareholders be obligated to refund to
the Acquiror in a subsequent fiscal year any of the Contingent Consideration
paid or distributed to the Selling Shareholders for a prior fiscal year. In
addition, the failure by the Companies to achieve the Target Minimum Cumulative
EBIT for a given fiscal year shall not constitute a breach of any
representation, warranty or covenant of the Selling Shareholders or the
Companies under this Agreement or entitle the Acquiror to any rights of
indemnification or offset pursuant to this Agreement.
(e) In addition to the payment of the Base Price at Closing and
the Contingent Consideration described in this Section 1.5, the Acquiror has
agreed to pay the Selling Shareholders upon the attainment of certain goals an
additional amount of consideration (the "Tail Contingent Consideration")
following the fiscal year ended December 31, 2000. The Tail Contingent
Consideration shall be equal to twice an amount equal to (A) the Cumulative EBIT
for the fiscal year ended December 31, 2000 less (B) the sum of the Target
Minimum Cumulative EBIT for the fiscal year ended December 31, 2000 and the
quotient obtained by dividing the Maximum Cumulative Contingent Consideration
for the fiscal year ended December 31, 2000 by the Excess EBIT Multiplier for
such fiscal year (the "Excess Cumulative Contingent Consideration"). The Tail
Contingent Consideration, if any, shall be payable by the Acquiror by delivery
to each of the Selling Shareholders of a check in the amount of such Selling
Shareholder's pro rata portion of the Tail Contingent Consideration, determined
in accordance with each such Selling Shareholder's percentage ownership interest
in each of Team's and Moore Co.'s Shares as set forth beside each such Selling
Shareholder's name as set forth in Exhibit A to this Agreement, as soon as
practicable after the completion of the fiscal year ended December 31, 2000 (but
not later than 30 days after the receipt of audited financial statements of the
Acquiror for the fiscal year ended December 31, 2000, or, in the event of a
dispute described in Section 1.5(g) of this Agreement, within five business days
after the resolution of such dispute). Notwithstanding the immediately preceding
sentence, at the Acquiror's sole election, the Acquiror may pay any portion of
the Tail Contingent Consideration payable to the Selling Shareholders in shares
of Acquiror Common Stock, the number of shares of such Acquiror Common Stock to
be determined in the same manner and such shares to be subject to the same
registration rights as the payment of Contingent Consideration in Acquiror
Common Stock described in Section 1.5(b).
(f) The right to receive the Contingent Consideration and the Tail
Contingent Consideration shall be a personal right of each of the Selling
Shareholders and shall not be extinguished upon the death of one or more of the
Selling Shareholders. Such right shall not be transferable by the Selling
Shareholders other than pursuant to the laws of descent and distribution. Such
right shall terminate for all future fiscal years upon the failure of the
Companies to attain at least 80% of the Target Cumulative EBIT as of the end of
the fiscal year ending December 31, 1998 and thereafter through the fiscal year
ending December 31, 2000.
4
<PAGE> 43
(g) The Acquiror shall provide to the Selling Shareholders the
Companies' financial statements within five business days after such financial
statements are finalized, accompanied by the Acquiror's determination of the
Contingent Consideration or the Tail Contingent Consideration, as the case may
be, including the calculations utilized by the Acquiror in reaching such
determination. The Selling Shareholders and their auditors, accountants and
other authorized representatives shall, upon prior agreement of the Acquiror,
which agreement shall not be unreasonably withheld, be given free and full
access during the Companies' normal business hours to the financial records of
the Companies in order for the Selling Shareholders to have a full opportunity
to make such investigation as the Selling Shareholders may require to
independently calculate the Cumulative EBIT, the Contingent Consideration, if
any, payable for a given year or the Tail Contingent Consideration, as the case
may be. If there is a discrepancy between the parties as to the calculation of
the Cumulative EBIT, the Contingent Consideration or the Tail Contingent
Consideration payable by the Acquiror, the parties shall, in good faith, attempt
to resolve such discrepancies. Should the parties be unable to agree within 60
days after receipt by the Selling Shareholders of the audited financial
statements of the Acquiror, then such dispute shall be submitted for resolution
to the St. Louis office of a nationally recognized public accounting firm
mutually acceptable to the parties, and the determination of such firm shall be
binding upon the parties. The Acquiror and the Selling Shareholders shall each
pay one-half of such firm's fees and expenses in connection with such services.
1.6 Fractional Shares. Notwithstanding any other provision of this
Agreement, neither certificates nor scrip for fractional shares of the Acquiror
Common Stock shall be issued either in the Closing Stock Payment or in the
payment of the Contingent Consideration or Tail Contingent Consideration with
shares of Acquiror Common Stock. If the Selling Shareholders are otherwise
entitled to a fraction of a share of Acquiror Common Stock, the Selling
Shareholders shall receive in lieu thereof cash (without interest) in an amount
determined by multiplying the fractional interest to which such holder would
otherwise have been entitled by the Average Market Price of Acquiror Common
Stock for the 20 consecutive trading days ending on the fourth business day
prior to the Closing Date or the date of the payment of the Contingent
Consideration or Tail Contingent Consideration, as the case may be, to which the
fractional share relates. The Selling Shareholders shall not be entitled to
dividends, voting rights or any other rights in respect of any fractional
shares.
1.7 Closing of Stock Transfer Books. The stock transfer books of
each of Team and Moore Co. shall be closed at the end of business on the
business day immediately preceding the Closing Date. In the event of a transfer
of ownership of the Shares which is not registered in the transfer records prior
to the closing of such record books, the payment of the Base Price and the
Contingent Consideration and Tail Contingent Consideration, if any, may be
delivered to the transferee of the Shares if the certificate or certificates
evidencing such Shares is presented to the Acquiror at the Closing accompanied
by all documents required to evidence and effect such transfer and all
applicable stock transfer taxes have been paid.
1.8 Anti-Dilution Adjustments. If, during any period used to
determine the Average Market Price of Acquiror Common Stock, the Acquiror shall
declare a stock dividend, or make a distribution in stock upon, or subdivide,
split up, reclassify or combine the Acquiror Common Stock or declare a dividend
or make a distribution on the Acquiror Common Stock in any security convertible
into Acquiror Common Stock (each, an "Extraordinary Corporate Transaction"),
appropriate and proportional adjustment or adjustments will be made to the
Average Market Price for the trading days prior to the effective date of the
Extraordinary Corporate Transaction to equitably reflect such dividend or
distribution. If the Extraordinary Corporate Transaction is effected after the
period used to determine the Average Market Price of Acquiror Common Stock but
prior to the Closing Date or the payment date of the Contingent
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Consideration or Tail Contingent Consideration, as the case may be, appropriate
and proportional adjustment or adjustments will be made to the Closing Stock
Payment, Contingent Consideration payment or Tail Contingent Consideration
payment, as the case may be, such that such payment shall result in the issuance
of that number of shares of Acquiror Common Stock as if the Extraordinary
Corporate Transaction had a record or payment date therefor immediately after
the Closing Date or the payment date of the Contingent Consideration or Tail
Contingent Consideration, as the case may be. Except as provided above, no
adjustment shall be made to the Closing Cash Payment or the Closing Principal
Amount or to any future Contingent Consideration payments as a result of any
such Extraordinary Corporate Transaction.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE
COMPANIES, MOORE P.C. AND THE SELLING SHAREHOLDERS
Each of Team, Moore Co., Moore P.C. and the Selling Shareholders
hereby represent and warrant to the Acquiror on the date of this Agreement, and
again on and as of the Closing Date, as follows:
2.1 Status of the Companies.
(a) Corporate Existence and Status. Each of Team and Moore
Co. is duly incorporated, organized, entitled to conduct business and validly
existing in good standing under the laws of the State of Missouri. Moore P.C.
is duly incorporated, organized, entitled to conduct business and validly
existing in good standing under the laws of the State of Illinois.
(b) Charter and By-laws. Attached to this Agreement as Exhibit
C and Exhibit D, respectively, are copies of: (i) the original articles of
incorporation of each of Team, Moore Co. and Moore P.C. and all amendments,
restatements, articles of merger, articles of designation respecting preferred
stock, or other filings with respect thereto, and (ii) the currently effective
By-laws of each of Team, Moore Co. and Moore P.C. All amendments to, and
articles of merger, certificates of designation and other filings with respect
to, the articles of incorporation of each of Team, Moore Co. and Moore P.C. were
made in accordance with the articles of incorporation (as in effect before the
amendment of the articles or filings with respect thereto), and the By-laws and
applicable law (including the giving of proper notice of dissenter's and/or
appraisal rights in connection with any such amendment or other actions
requiring such notice) of each of Team, Moore Co. and Moore P.C., respectively,
without violation of any preemptive rights, and each of Team, Moore Co. and
Moore P.C. has otherwise complied with its articles of incorporation and By-laws
as in effect at the applicable time.
(c) Corporate Power. Each of Team, Moore Co. and Moore P.C.
has the corporate power to own and lease its properties and otherwise to conduct
its business.
(d) Capitalization; Shareholders. The authorized and issued
Shares of the Companies are as set forth in Schedule 2.1(d). All of the issued
and outstanding Shares of the Companies are owned of record by the Selling
Shareholders. Except as set forth in Schedule 2.1(d): (i) none of the Shares of
Team or Moore are held in treasury; (ii) all of the Shares were legally and
validly issued, fully paid and nonassessable, without violation of any
preemptive or dissenters' or similar rights (and no preemptive or other
subscriptive rights have ever existed with respect to the Shares) and in full
compliance with all applicable securities laws; (iii) the Selling Shareholders
are the only record owners of the Shares or other securities of any kind or
class of Team or Moore Co.; (iv) no option, warrant, subscription, put, call or
other right,
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commitment, undertaking or understanding to acquire, or restrict the transfer
(other than those imposed by applicable securities regulation laws) of, any of
the Shares or other securities of any kind or class of Team or Moore Co. rights,
obligations or undertakings convertible into securities of any kind or class of
Team or Moore Co. are authorized or outstanding; and (v) since December 31,
1996, no dividends or other distributions of any kind have been declared or paid
on or in respect of the Shares of Team or Moore Co., except as set forth in
Schedule 2.1(d).
(e) Qualification. Schedule 2.1(e) lists the jurisdictions in which
each of Team, Moore Co. and Moore P.C. is qualified to do business as a foreign
corporation, and nothing (including the nature of or the manner in which each of
Team, Moore Co. and Moore P.C.conducts its respective business, the character or
location of the respective properties which each of Team, Moore Co. and Moore
P.C. own, lease or use or the actions or location of Team's Moore Co.'s or Moore
P.C.'s respective employees or agents) either requires Team, Moore Co.or Moore
P.C. to be qualified in any other jurisdiction or subjects Team, Moore Co. or
Moore P.C.to any cost, restriction or penalty for failing to qualify (including
assessment of taxes, fees or penalties for prior periods).
(f) Combinations. All mergers, consolidations, liquidations,
purchases or other transactions by which each of Team, Moore Co. and Moore P.C.
acquired its business and property were conducted in accordance with each of
Team's and Moore's respective articles of incorporation, By-laws, any other
applicable agreements, instruments or documents (in each case as amended) to
which Team, Moore Co. or Moore P.C. is a party and applicable law (including the
giving of proper notice of dissenter's and/or appraisal rights) without
violation of any preemptive rights.
(g) Ownership Interests. Except as reflected in Schedule 2.1(g), none of
Team, Moore Co. or Moore P.C. has any subsidiaries or any equity securities
of, investment in or loans or advances to any business enterprise or person
or any agreements or commitments for such (other than trade terms extended
to customers in the ordinary course of business), and none of Team, Moore
Co. or Moore P.C. is subject to any arrangement that could be treated as a
partnership for federal income tax purposes.
(h) Corporate Records. The corporate record books (including the stock
records) of each of Team and Moore Co. are complete, accurate and up
to date in all material respects with all necessary signatures and set
forth all meetings and actions taken by the respective shareholders
and directors of each of Team and Moore Co. as required by law or the
respective By-laws of each of Team and Moore Co. and all transactions
involving the Shares of each of Team and Moore Co.
(i) Authorization.
(i) Each of Team, Moore Co. and Moore P.C. and the
Selling Shareholders have the right, power and authority to
enter into this Agreement and the related agreements referred
to herein to which they are a party, including, without
limitation, the Registration Rights Agreement (as described in
Section 9.2 of this Agreement) and the Employment Agreement
(as described in Section 7.6 of this Agreement), and to
consummate the transactions contemplated by, and otherwise to
comply with and perform their respective obligations under,
this Agreement and the related agreements referred to herein,
including, without limitation, the Registration Rights
Agreement and the Employment Agreement;
(ii) The execution and delivery by each of Team, Moore
Co. and Moore P.C. of this Agreement and the related
agreements referred to
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<PAGE> 46
herein to which Team, Moore Co. and Moore P.C. are parties,
and the consummation by each of Team, Moore Co. and Moore P.C. of
the transactions contemplated by, and other compliance with and
performance of its obligations under, this Agreement and the
related agreements referred to herein, including, without
limitation, the Registration Rights Agreement and the Employment
Agreement, have been duly authorized by all necessary corporate
action (subject only to shareholder approval) on the part of each
of Team, Moore Co. and Moore P.C. in compliance with governing or
applicable agreements, instruments or other documents (including
its articles of incorporation and By-laws (as amended)) and
applicable law;
(iii) This Agreement and the related agreements referred to
herein to which each of Team, Moore Co. and Moore P.C. and the
Selling Shareholders are parties, including, without limitation,
the Registration Rights Agreement and the Employment Agreement,
constitute the valid and binding agreement of each of Team, Moore
and the Selling Shareholders, as the case may be, that is
enforceable against each of Team, Moore Co. and Moore P.C. and
the Selling Shareholders, as the case may be, in accordance with
its terms; and
(iv) The Selling Shareholders have good and marketable title
to the Shares, free and clear of all liens, encumbrances, charges
or other restrictions on title, either contractual or otherwise,
except those restrictions imposed by applicable securities laws.
(j) Absence of Violations or Conflicts. Except as disclosed in
Schedule 2.1(j), the execution and delivery of this Agreement by each of Team,
Moore Co. and Moore P.C. and the Selling Shareholders and the consummation of
the transactions contemplated by, or other compliance with or performance under,
this Agreement and the related agreements referred to herein, including, without
limitation, the Registration Rights Agreement and the Employment Agreement, do
not and will not with the passage of time or giving of notice or both:
(i) constitute a violation of, be in conflict with,
constitute a default or require any payment under, permit a
termination of, require any consent under, or result in the
creation or imposition of any lien, encumbrance or other adverse
claim or interest upon any of the respective properties of any of
Team, Moore Co. or Moore P.C. under (A) any contract, agreement,
commitment, undertaking or understanding to which any of Team,
Moore Co. or Moore P.C. is a party or to which any of Team, Moore
Co. or Moore P.C. or any of their respective assets or properties
are subject or bound, (B) any judgment, decree or order of any
governmental authority to which any of Team, Moore Co. or Moore
P.C. or any of their respective properties are subject or bound,
(c) any applicable law, or (D) any governing or applicable
agreements, instruments or other documents to which any of Team,
Moore Co. or Moore P.C. is a party (including articles of
incorporation and By-laws (as amended)); or
(ii) create, or cause the acceleration of the maturity of,
any debt, obligation or liability of any of Team, Moore Co. or
Moore P.C.
(k) No Governmental Consents Required. Except as set forth in
Schedule 2.1(k) and in reliance upon Section 3.4 with respect to the filing
requirements of the Hart-Scott Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), no consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental authority on the part
of any of Team, Moore Co. or Moore P.C. or the Selling
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<PAGE> 47
Shareholders is required in connection with the execution or delivery of this
Agreement or the consummation of the transactions contemplated by, or other
compliance with or performance under, this Agreement by Team, Moore Co., Moore
P.C. or the Selling Shareholders.
2.2 Financial Matters.
(a) Team, Moore Co. and Moore P.C. Financial Statements. Copies of (i) the
unaudited financial statements of each of Team and Moore Co. and Moore P.C. as
of and for the fiscal year ended December 31, 1995 and the audited financial
statements of Team and Moore Co. as of and for the fiscal year ended December
31, 1996, audited by Baird, Kurtz & Dobson (all of which, including the notes
thereto, the Schedule 1.4 adjustments and a standard audit opinion of Baird,
Kurtz & Dobson, are collectively referred to in this Agreement as the "Team,
Moore Co. and Moore P.C. Financial Statements," with the balance sheets of each
of Team, Moore Co. and Moore P.C. relating to December 31, 1996 referred to
separately as the "Team, Moore Co. and Moore P.C. Balance Sheets"), are attached
hereto in draft form and shall be delivered to the Acquiror in final form on or
prior to the Closing Date. The Team, Moore Co. and Moore P.C. Financial
Statements are prepared in accordance with the books and records of Team, Moore
Co. and Moore P.C. and, except for the matters set forth on Schedule 2.2(a) to
be delivered by Team, Moore Co. and Moore P.C. with the Team, Moore Co. and
Moore P.C. Financial Statements, are complete and accurate in all material
respects, fairly present the financial condition of Team, Moore Co. and Moore
P.C. as of their respective dates and the results of operations of Team, Moore
Co. and Moore P.C. for the respective periods then ended and have been prepared
in accordance with GAAP applied on a consistent basis throughout the periods
covered by such statements; provided, however, that in no event will the
representations and warranties contained in this Section 2.2(a) be deemed to
relate to the Recalculated 1996 Combined Earnings.
(b) Absence of Undisclosed Liabilities. Except (i) as and to the
extent expressly reflected or specifically reserved against in the Team, Moore
Co. and Moore P.C. Balance Sheets (which reserves are adequate, appropriate and
reasonable and are disclosed in Schedule 2.2(b)), (ii) as disclosed in Schedule
2.2(b) and (iii) for trade payables and similar ordinary and necessary
liabilities (it being agreed without limitation that the phrase "similar
liabilities" does not include liabilities or obligations arising from the
borrowing of money or secured indebtedness, litigation or similar claims, breach
of contract or negligent or unlawful actions of any of Team, Moore Co. or Moore
P.C. or their respective officers, directors, agents or employees) arising in
the ordinary course of business since December 31, 1996, none of Team, Moore Co.
or Moore P.C. has any other liabilities of any nature, whether accrued,
absolute, contingent, changing, known, unknown, determinable, indeterminable,
liquidated, unliquidated or otherwise and whether due or to become due, relating
to any existing or prior act, omission, condition or state of facts.
(c) Capital Leases. Schedule 2.2(c) lists (and designates) all lease
agreements regarding the leasing of assets to each of Team, Moore Co. and Moore
P.C. which are (or should be) recorded on the Team, Moore Co. and Moore P.C.
Financial Statements as capital leases.
(d) Absence of Certain Changes. Except as set forth in
Schedule 2.2(d) except for the Moore P.C. Asset Assignment, since December 31,
1996, there has not been any activity with respect to any of Team, Moore Co. or
Moore P.C. other than in the ordinary course of business and, without limiting
the foregoing, there has not been:
(i) any change in the assets, operations, liabilities,
earnings, relationships with existing clients, business or
condition (financial or
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<PAGE> 48
otherwise) of any of Team, Moore Co. or Moore P.C. which has
been or will be, individually or in the aggregate with other
changes, materially adverse;
(ii) any damage, destruction or casualty loss to the assets
of any of Team, Moore Co. or Moore P.C. or other equipment used
by any of Team, Moore Co. or Moore P.C. in performing their
respective obligations under their respective major contracts
(whether or not owned by Team, Moore Co. or Moore P.C. or covered
by insurance) which has been or will be materially adverse
(individually or in the aggregate) to the respective assets,
operations, liabilities, earnings, business or condition
(financial or otherwise) of any of Team, Moore Co. or Moore P.C.;
(iii) any increase in the compensation payable by any of
Team, Moore Co. or Moore P.C. to any director, officer, employee
or agent of Team, Moore Co. or Moore P.C. (other than routine
increases made in the ordinary course of business consistent with
past practice and as permitted under Section 4.1(e) of this
Agreement) or any bonus, incentive compensation, service award or
other like benefit, granted, made or accrued, contingently or
otherwise, to or to the credit of any of such director, officer,
employee or agent or any employee welfare, pension, retirement or
similar payment or arrangement made or agreed to by any of Team,
Moore Co. or Moore P.C. with respect to any such director,
officer, employee or agent;
(iv) any sale, assignment or transfer (including without
limitation any collateral assignment or the granting or
permitting of any lien, encumbrance or other claim) of any asset,
property or right of any of Team, Moore Co. or Moore P.C. other
than in the ordinary course of business;
(v) any amendment, modification, waiver or cancellation of
any debt owed to, or claim of, either Team, Moore Co. and Moore
P.C., or settlement by any of Team, Moore Co. or Moore P.C. of
any dispute involving any payment or other obligation due to or
owed by any of Team, Moore Co. or Moore P.C., in an amount
greater than $5,000, to be made or performed after the Closing
Date;
(vi) any borrowing of money by any of Team, Moore Co. or
Moore P.C., or the incurrence of any obligation or liability
(whether absolute or contingent), other than current liabilities
incurred in the ordinary course of each of Team, Moore Co. and
Moore P.C.'s respective businesses;
(vii) any payment of any obligation or liability (whether
absolute or contingent), other than current liabilities incurred
in the ordinary course of business;
(viii) any capital expenditure or commitment to make a
capital expenditure (exclusive of expenditures for repair or
maintenance of equipment in the ordinary course of business;
(ix) any incurrence of any extraordinary loss or knowing
waiver of any rights of substantial value by any of Team, Moore
Co. or Moore P.C. in connection with an aspect of its respective
business, whether or not in the
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ordinary course of business;
(x) any cancellation, termination or amendment by any of
Team, Moore Co. or Moore P.C. of any contract, agreement, license
or other instrument to which any of Team, Moore Co. or Moore P.C.
is a party or by which any of Team, Moore Co. or Moore P.C. is
bound;
(xi) any merger or consolidation of any of Team, Moore Co.
or Moore P.C. into or with any other corporation or enterprise,
or any corporate action by any of Team, Moore Co. or Moore P.C.
toward or effecting such a merger or consolidation or a complete
or partial liquidation or dissolution of any of Team, Moore Co.
or Moore P.C. or any material portion of their respective assets
(other than as contemplated by this Agreement);
(xii) any failure on the part of any of Team, Moore Co. or
Moore P.C. to operate their respective businesses in the ordinary
course so as to preserve their respective business organizations
intact, including the services of their respective present
officers and professional staff and the goodwill of their
respective suppliers, customers and others having business
relations with any of Team, Moore Co. or Moore P.C.; or
(xiii) any agreement by or commitment of any of Team, Moore
Co. or Moore P.C. to do or permit any of the foregoing.
2.3 Taxes.
(a) Definitions. For purposes of this Agreement:
(i) the term "Code" shall mean the Internal Revenue Code of
1986, as amended. All citations to the Code or to the regulations
promulgated thereunder shall include any amendments or any
substitute or successor provisions thereto;
(ii) the term "Acquired Assets" shall mean the assets of
each of Team, Moore Co. and Moore P.C. and the stock of each of
Team, Moore Co. and Moore P.C.;
(iii) the term "Returns" shall mean, collectively, (A) all
reports, declarations, estimates, returns, information
statements, and similar documents relating to, or required to be
filed in respect of, any Taxes; and (B) any statements, returns,
reports, or similar documents required to be filed pursuant to
Part III of Subchapter A of Chapter 61 of the Code or pursuant to
any similar income, excise, or other tax provision of federal,
territorial, state, local, or foreign law; and the term "Return"
means any one of the foregoing Returns;
(iv) the term "Tax Asset" shall mean any net operating loss,
net capital loss, investment Tax credit, foreign Tax credit,
charitable deduction or any other credit or Tax attribute
(determined without regard to the Tax period in which such loss,
credit or other attribute arose) which could reduce
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Taxes; and
(v) the term "Taxes" shall mean (A) all net income, gross
income, gross receipts, sales, use, ad valorem, franchise,
profits, license, lease, service, service use, withholding,
employment, payroll, excise, severance, transfer, documentary,
mortgage, registration, stamp, occupation, environmental,
premium, property, windfall, profits, customs, duties, and other
taxes, fees, assessments or charges of any kind whatever,
together with any interest, penalties and other additions with
respect thereto, imposed by any federal, territorial, state,
local or foreign government; and (B) any penalties, interest, or
other additions to tax for the failure to collect, withhold, or
pay over any of the foregoing, or to accurately file any Return;
and the term "Tax" shall mean any one of the foregoing Taxes.
When used with reference to specified persons (for example and
without limitation, "Taxes of the Selling Shareholders"), the
terms "Taxes" and "Tax" shall include only amounts of, or in
respect of, Taxes for which such person is, or could become,
liable in whole or part (including, without limitation, any
obligation in connection with a duty to collect, withhold, or pay
over any Tax, any obligation to contribute to the payment of any
Taxes determined on a consolidated, combined, or unitary basis,
any liability as a transferee, or any liability as a result of
any express or implied obligation to indemnify or pay the Tax
obligations of another person).
(b) Returns Filed and Taxes Paid. Except as set forth in Schedule
2.3(b), (i) each of Team, Moore Co. and Moore P.C. have duly filed or caused to
be filed, on or before the due date thereof (as appropriately extended) with the
appropriate taxing authorities, all Returns that they are required to file; (ii)
each such Return (including any amendment thereto) is true, correct, and
complete in all material respects; (iii) all Taxes of each of Team, Moore Co.
and Moore P.C. due with respect to, or shown to be due on, each such Return (or
amendment) or subsequent assessment with regard thereto, have been timely paid;
(iv) there is no valid basis for the assessment of any deficiency with regard to
any such Return; and (v) there are no extensions of time to file which are
pending. No other Taxes of any of Team, Moore Co. or Moore P.C. are due with
respect to any taxable periods or portions of periods ending on or before the
Closing Date. There are no liens, attachments, or similar encumbrances on any of
the Acquired Assets, or any of the respective assets of any of Team, Moore Co.
or Moore P.C., with respect to any Taxes, other than liens for Taxes that are
not yet due and payable.
(c) Miscellaneous. An election under Code section 1362(a)
has been in effect with respect to each of Team and Moore P.C. since their
respective inceptions and, with respect to Moore Co., an election under Code
section 1362(a) was filed on or prior to December 31, 1988 and has been in
effect since January 1, 1989, and such elections will remain in effect with
regard to the portion of the 1997 taxable year deemed to end on the Closing
Date. For purposes of Subchapter S of the Code, the Selling Shareholders
constitute the only shareholders of each of Team, Moore Co. and Moore P.C. The
Selling Shareholders and each of Team, Moore Co. and Moore P.C. have collected
or withheld all Taxes that they are required to collect or withhold. None of
Team, Moore Co. or Moore P.C. is a party to or bound by any tax indemnity, tax
sharing or tax allocation agreement, or any other contractual obligation to pay
the Tax obligations of another person or to pay Tax obligations relating to
transactions of another person, except as otherwise set forth in Schedule
2.3(c). None of the Acquired Assets (i) is property which is required to be
treated as being owned by any other person pursuant to the so-called "safe
harbor lease" provisions of former section 168(f)(8) of the Code; (ii) directly
or indirectly secures any debt the interest on which is tax exempt under section
103(a) of the Code; (iii) is "tax-exempt use property" within the meaning of
section 168(h) of the Code, or (iv) is stock of a domestic or foreign
corporation (including any entity that properly may be treated as a corporation
for Federal income tax purposes) meeting the requirements of Code section
1504(a)(2). The transactions contemplated by this Agreement are not subject to
the tax withholding provisions of Code section 3406, or of subchapter A of
Chapter 3 of the Code, or of any other comparable provision of law.
(d) Audit History and Other Proceedings. Except as otherwise set
forth in Schedule 2.3(d), (i) there are no pending or, to the best knowledge of
each of Team, Moore Co. and Moore P.C. and the Selling Shareholders, threatened
(either in writing or verbally, formally or informally) audits, investigations,
claims, suits or other proceedings for or relating to any material liability in
respect of Taxes of any of Team, Moore Co. or Moore P.C. or the Selling
Shareholders; (ii) no material deficiencies for Taxes of any of Team, Moore Co.
or Moore P.C. or the Selling Shareholders have been claimed, proposed or
assessed by any taxing or other governmental authority; (iii) there are no
matters under discussion with any governmental authorities with respect to Taxes
that could result in any additional amount of Taxes of any of Team, Moore Co. or
Moore P.C. or the Selling Shareholders; (iv) no extension of a statute of
limitations (whether arising by reason of a waiver, claim for refund, or
otherwise) relating to Taxes of Team, Moore Co. and Moore P.C. or the Selling
Shareholders in respect of such Taxes is in effect; and (v) there are no
requests for rulings or determinations in respect of Taxes of Team, Moore Co.,
Moore P.C. or the Selling Shareholders pending with any governmental authority.
There have been no audits of any of Team, Moore Co. or Moore P.C.'s Federal,
state or local Returns.
2.4 Real and Personal Property.
(a) Real and Personal Property. For purposes of this Agreement,
"Property" or "Properties" means those real and personal properties owned or
used by any of Team, Moore Co. or Moore P.C. or any partnership, joint venture
or similar entity in which any of Team, Moore Co. or Moore P.C. has an ownership
interest. Schedule 2.4(a) lists all of the real and personal properties to which
any of Team, Moore Co. or Moore P.C. holds legal or equitable title (whether or
not of record), as to which it is taking depreciation, or as to which any of
Team, Moore Co. or Moore P.C. has rights as a conditional sales vendor under a
conditional sales contract or other title retention agreement, other than
inventory and other property properly expensed for income tax purposes or
properly disclosed pursuant to Sections 2.5 and 2.6 of this Agreement. Except as
set forth on Schedule 2.4(a): (i) each of Team, Moore Co. and Moore P.C. has
good and marketable title to all of the Properties owned by it as indicated on
Schedule 2.4(a); and (ii) none of the Properties is subject to any lien, claim
or other encumbrance whatsoever, except (A) liens for taxes not yet due and
payable, (B) liens shown and described in the Team, Moore Co. and Moore P.C.
Balance Sheets, and (c) liens imposed by law and incurred in the ordinary course
of business for obligations not yet due and payable to landlords, carriers,
warehousemen, laborers, materialmen and the like. No part of the Properties is
"tax-exempt use property" under Section 168(h) of the Code.
(b) Leases; Subleases. For purposes of this Agreement, "Lease"
means any written or oral lease, sublease or rental agreement (and any related
contract, agreement, commitment, arrangement, undertaking or understanding) and
all amendments,
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modifications and supplements thereof and waivers and consents thereunder
pursuant to which any of Team, Moore Co. or Moore P.C. leases, subleases or
rents any real or personal property, either as lessor, lessee, landlord or
tenant. Schedule 2.4(b) lists all Leases, except those which (i) can be
cancelled by any of Team, Moore Co. or Moore P.C. upon 30 or fewer days' notice
without penalty or the acceleration of rentals, (ii) do not grant an option to
purchase the leased property, and (iii) involve an annual rental of $10,000 or
less. Schedule 2.4(b) describes all oral Leases required to be disclosed in
Schedule 2.4(b), and true and complete copies of all written Leases required to
be disclosed have been heretofore delivered to the Acquiror. With respect to
each of the Leases: (A) none of Team, Moore Co. or Moore P.C. nor, to the best
of Team's, Moore Co.'s, Moore P.C.'s and the Selling Shareholders' knowledge,
any other party is in default in connection with such Lease; (B) no act or event
has occurred which, with notice or lapse of time or both, would constitute a
default under such Lease with respect to Team, Moore Co. or Moore P.C. or, to
the best of Team's, Moore Co.'s, Moore P.C.'s and the Selling Shareholders'
knowledge, any other party; (c) there is no basis for any claim of default under
such Lease with respect to Team, Moore Co. or Moore P.C. or, to the best of
Team's, Moore Co.'s, Moore P.C.'s and the Selling Shareholders' knowledge, any
other party; (D) none of Team, Moore Co. or Moore P.C. has given or received any
notice of cancellation or termination in connection with such Lease; (E) such
Lease is the valid and binding agreement of Team, Moore Co. or Moore P.C., and,
to the best of Team's, Moore Co.'s, Moore P.C.'s and the Selling Shareholders'
knowledge, the other party thereto which is in full force and effect and is
enforceable in accordance with its terms, except, with respect to such other
party, to the extent that such enforceability may be limited by, or subject to:
(i) the effect of any applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws affecting the
enforcement of creditors' rights generally; (ii) the availability of the
remedies of specific performance or injunctive relief, which may be subject to
the discretion of the court before which any proceeding for such remedies may be
brought; and (iii) the exercise by any court of equitable judicial discretion
before which any proceeding may be brought; (F) such Lease will not be affected
by, or require the consent of or payment to any other party to avoid an event of
default, an event of termination or other adverse effect with respect to such by
reason of the transactions contemplated by this Agreement; and (G) such Lease is
a "true" lease for federal income tax purposes.
(c) Adequacy; Condition. Except as set forth in Schedule 2.4(c):
(i) to the best of Team's, Moore Co.'s, Moore P.C.'s and the Selling
Shareholders' knowledge, the Properties and the properties subject to a Lease
are fit for use in the respective businesses of each of Team, Moore Co. and
Moore P.C. as presently conducted; (ii) to the best of Team's, Moore Co.'s,
Moore P.C.'s and the Selling Shareholders' knowledge, the Properties and all of
the properties subject to a Lease are each in good repair and operating
condition, normal wear and tear excepted, and structurally and mechanically
sound, as applicable; (iii) to the best of Team's, Moore Co.'s, Moore P.C.'s and
the Selling Shareholders' knowledge, each of Team, Moore Co. and Moore P.C. is
in compliance with all applicable building, zoning, land use or other similar
statutes, laws, ordinances, regulations, permits, health and safety codes or
other requirements in respect of any of the Properties or any of the properties
subject to a Lease (and any of Team, Moore Co. or Moore P.C.'s current use of
such properties does not constitute a nonconforming use) and none of Team, Moore
Co. or Moore P.C. has received any notice alleging such a violation; (iv) to the
best of Team's, Moore Co.'s, Moore P.C.'s and the Selling Shareholders'
knowledge, none of the properties subject to a Lease has ever been used as a
landfill or otherwise been used for the disposal, storage or treatment of any
waste, trash, garbage, industrial byproduct, chemical or hazardous substance of
any nature; (v) none of Team, Moore Co. or Moore P.C. has not caused the
installation of any of such property with asbestos insulation or any
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electrical equipment containing polychlorinated biphenyls and, to the best of
Team's, Moore Co.'s, Moore P.C.'s and the Selling Shareholders' knowledge, none
of the properties subject to a Lease contains asbestos insulation or electrical
equipment containing polychlorinated biphenyls; and (vi) to the best of Team's,
Moore Co.'s, Moore P.C.'s and the Selling Shareholders' knowledge, there are no
outstanding requirements or recommendations by fire underwriters or rating
boards, any insurance companies or holders of mortgages or other security
interests requiring or recommending any repairs or work to be done with
reference to any of the properties subject to a Lease.
(d) All Necessary Properties. The Properties and the Leases (together with
the intangible properties disclosed, or not required to be disclosed, pursuant
to Sections 2.5 and 2.6 of this Agreement) constitute all of the properties
which any of Team, Moore Co. or Moore P.C. use in connection with the operation
of their respective businesses as presently conducted and the consummation of
the transactions contemplated by this Agreement (provided that all consents
relating to the Properties and the Leases have been obtained) will not alter the
rights or impair the ability of Team, Moore Co. or Moore P.C. to use such
properties in the conduct of the respective businesses of Team, Moore Co. and
Moore P.C. as they are now being conducted.
(e) Accounts Receivable. The accounts receivable of each of Team, Moore Co.
and Moore P.C. as reflected and on the Team, Moore Co. and Moore P.C. Balance
Sheets and the accounts receivable reflected on the books of each of Team, Moore
Co. and Moore P.C.: (i) are valid, existing and, to the extent uncollected,
fully collectible without resort to legal proceedings or the use of collection
agencies, except to the extent of the allowance for doubtful accounts contained
in the Team, Moore Co. and Moore P.C. Balance Sheets; (ii) represent monies due
for goods sold and delivered or services rendered; and (iii) to the best of
Team's, Moore Co.'s, Moore P.C.'s and the Selling Shareholders' knowledge, are
subject to no refunds or other adjustments or to any defenses, rights of
set-off, assignments, restrictions, security interests, encumbrances or
conditions enforceable by third parties on or affecting any thereof.
(f) Inventories. Substantially all of the inventories reflected on the
Team, Moore Co. and Moore P.C. Balance Sheets, and those reflected on the books
of each of Team, Moore Co. and Moore P.C., have been determined and valued in
accordance with generally accepted accounting principles applied on a consistent
basis as reflected in the Team, Moore Co. and Moore P.C. Financial Statements.
The inventories of each of Team, Moore Co. and Moore P.C. consist of items which
are good and merchantable, are of a quality and quantity presently usable or
saleable in the ordinary course of business, and are of a quantity sufficient
for the conduct of the respective businesses of each of Team, Moore Co. and
Moore P.C. in the ordinary course.
2.5 Intellectual Property; Patents; Trademarks, Trade Names. All patents,
trademarks, service marks, trade names or copyrights owned by or used or
proposed to be used by each of Team, Moore Co. and Moore P.C. and all
applications or registrations therefor ("Intellectual Property") and all
contracts, agreements, commitments and understandings relating to the use or
license of technology, know-how or processes by each of Team, Moore Co. and
Moore P.C. (the "Intellectual Property Licenses") are listed in Schedule 2.5.
Except as disclosed in Schedule 2.5; (a) each of Team, Moore Co. and Moore P.C.
owns, or has the sole and exclusive right to use, all Intellectual Property,
whether under Intellectual Property Licenses or
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otherwise, used in or necessary for the ordinary conduct of its respective
business; (b) the consummation of the transactions contemplated by this
Agreement will not alter or impair any such rights; and (C) no Intellectual
Property owned, licensed or used by any of Team, Moore Co. or Moore P.C., or
Intellectual Property License of Team, Moore Co. or Moore P.C. is the subject of
a lawsuit or any other proceeding, nor has any party challenged or, to the best
of Team's, Moore Co.'s, Moore P.C.'s and the Selling Shareholders' knowledge,
threatened to challenge Team's or Moore's respective right to use such
Intellectual Property or Intellectual Property License or application for any of
the foregoing; and, to the best of Team's, Moore Co.'s, Moore P.C.'s and the
Selling Shareholders' knowledge, there is no basis for any such challenge.
2.6 Loans and Contracts.
(a) Indebtedness. Schedule 2.6(a) sets forth (i) a complete and
accurate list or description of all instruments or other documents ("Debt
Instruments") relating to any direct or indirect indebtedness for borrowed money
of each of Team, Moore Co. and Moore P.C., as well as indebtedness by way of
capital leases, lease-purchase arrangements, guarantees, undertakings on which
others rely in extending credit and all conditional sales contracts, chattel
mortgages and other security arrangements with respect to personal property used
or owned by each of Team, Moore Co. and Moore P.C. and (ii) a list of all loans
of money to the respective officers, employees or shareholders of each of Team,
Moore Co. and Moore P.C. (specifically excluding travel and similar advances in
the ordinary course of business). THE SELLING SHAREHOLDERS SHALL ELIMINATE ALL
INDEBTEDNESS FOR BORROWED MONEY ON OR PRIOR TO THE CLOSING DATE.
(b) Other Contracts. Schedule 2.6(b) lists each contract,
agreement, commitment, arrangement, undertaking or understanding of the type
listed below (except where the same does not call for the payment or receipt by
any of Team, Moore Co. or Moore P.C. of cash or other property or services
having a value in excess of $10,000) to which any of Team, Moore Co. or Moore
P.C. is a party or bound or to which any of Team, Moore Co. or Moore P.C. or
their respective properties are subject, whether written or oral ("Contract,"
but such list and the term "Contract" shall not include Leases, Intellectual
Property Licenses, Debt Instruments, Insurance Policies and employee-related
matters disclosed elsewhere in this Agreement):
(i) for the purchase or rental of materials, inventory and
supplies by any of Team, Moore Co. or Moore P.C. entered into in
the ordinary course of business which individually exceed $10,000
and which are not reasonably expected to be fully performed
within 45 days of their respective dates;
(ii) for the purchase of services by any of Team, Moore Co.
or Moore P.C. entered into in the ordinary course of business
which are not reasonably expected to be fully performed within 45
days of their respective dates;
(iii) that were entered into in the ordinary course of
business and involve, or are reasonably expected to involve, an
amount in excess of $10,000 and which are not reasonably expected
to be fully performed within 45 days of their respective dates;
(iv) for matters not in the ordinary course of Team's,
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Moore Co.'s or Moore P.C.'s respective businesses;
(v) making Team, Moore Co. or Moore P.C. liable, by
guaranty, suretyship agreement, indemnification agreement,
contribution agreement or otherwise, upon or with respect to, or
obligating Team, Moore Co. or Moore P.C. in any way to provide
funds in respect of, or obligating Team, Moore Co. or Moore P.C.
to guarantee, serve as surety for or assume, any debt, dividend
or other liability or obligation of any person, corporation,
association, partnership or other entity (except endorsements
made in the ordinary course of business in connection with the
deposit of items for collection and except for immaterial
obligations or liabilities incurred in the ordinary course of
business);
(vi) granting a power of attorney;
(vii) relating to participation in a cooperative,
partnership or joint venture;
(viii) imposing confidentiality requirements (other than
agreements relating to confidentiality requirements between the
Acquiror and the Selling Shareholders and/or Team, Moore Co. or
Moore P.C. and other than any confidentiality agreement between
Team, Moore Co. and Moore P.C. and Richard Kelly, the Selling
Shareholders' financial advisor; and
(ix) restricting or limiting the freedom of Team, Moore Co.
or Moore P.C. to compete in any line of business.
Except for the contracts Set forth on Schedule 2.6(b) (which contracts will be
transferred to Moore Co. pursuant to the Moore P.C. Asset Assignment), Moore
P.C. does not have any other contracts or other assets of any nature whatsoever.
Schedule 2.6(b) describes all oral Contracts required to be disclosed in
Schedule 2.6(b), and true and complete copies of all written Contracts (as
amended) required to be disclosed in Schedule 2.6(b) will be delivered to the
Acquiror not less than 10 business days after the execution hereof. Schedule
2.(b) shall also disclose any and all contracts for physical, occupational and
speech therapy staffing and management services to which Team, Moore Co. or
Moore P.C. was part of and which were cancelled or otherwise terminated during
the period of January 1, 1997 through the date hereof.
(c) Insurance. All insurance policies of each of Team, Moore Co.
and Moore P.C. now in force (including comprehensive general liability, personal
and professional liability, comprehensive general casualty and extended
coverage, automobile, boiler and machinery, fire and lightning, marine,
endowment, life, and worker's compensation) ("Insurance Policies") are listed in
Schedule 2.6(c), together with a listing of the type of policy, the policy
number, the limits of coverage, the carrier, the annual premium and the
expiration date), and true and complete copies of such policies have been
provided or made available to the Acquiror.
(d) Status. Except as disclosed on Schedule 2.6(d): (i) none of
Team, Moore Co. or Moore P.C. has assigned any of its respective rights or
obligations under (and, to the best of Team's, Moore Co.'s, Moore P.C.'s and the
Selling Shareholders' knowledge, is not otherwise restricted for any reason from
enjoying the full benefits under) any Intellectual Property License, Debt
Instrument, Contract or Insurance Policy; (ii) none of Team, Moore Co. or Moore
P.C. nor, to the best of Team's, Moore Co.'s, Moore P.C.'s and the Selling
Shareholders' knowledge, any other party is in default in connection with any
Intellectual Property License, Debt
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Instrument, Contract or Insurance Policy; (iii) to the best of Team's, Moore
Co.'s, Moore P.C.'s and the Selling Shareholders' knowledge, no act or event has
occurred which, with notice or lapse of time or both, would constitute a default
under any Intellectual Property License, Debt Instrument, Contract or Insurance
Policy; (iv) to the best of Team, Moore Co. and Moore P.C.'s and the Selling
Shareholders' knowledge, there is no basis for any claim of default under any
Intellectual Property License, Debt Instrument, Contract or Insurance Policy;
(v) there is no outstanding notice of cancellation or termination received by
Team, Moore Co. or Moore P.C. in connection with any Intellectual Property
License, Debt Instrument, Contract or Insurance Policy; (vi) each Intellectual
Property License, Debt Instrument, Contract and Insurance Policy is the valid
and binding agreement of the parties thereto which is in full force and effect
and is enforceable in accordance with its terms, except, with respect to such
other party, to the extent that such enforceability may be limited by, or
subject to: (A) the effect of any applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
affecting the enforceability of creditors' rights generally, (B) the
availability of specific performance or injunctive relief, which may be subject
to the discretion of the court before which any proceeding for such remedies may
be brought, and (C) the exercise by any court of equitable judicial discretion
before which any proceeding may be brought; (vii) no Intellectual Property
License, Debt Instrument, Contract or Insurance Policy will require the consent
of or payment to any other party to avoid an event of default, an event of
termination or other adverse effect with respect to such Intellectual Property
License, Debt Instrument, Contract or Insurance Policy (assuming that any
required notice of default or termination has been given and any periods for
cure have expired) by reason of the transactions contemplated by this Agreement;
and (viii) none of Team, Moore Co. or Moore P.C. has received any communication
proposing any termination, amendment or change to any Intellectual Property
License, Debt Instrument, Contract or Insurance Policy.
2.7 Officers and Directors; Employment Relationships. Each of Team,
Moore Co. and Moore P.C. has delivered to the Acquiror a true and complete list
of all of the officers, senior managers and directors of each of Team, Moore Co.
and Moore P.C., specifying their office and annual rate of compensation, and a
true and complete list of the respective employees of Team, Moore Co. and Moore
P.C. as of December 31, 1996, setting forth each such employee's compensation
and date of hire. Except as disclosed in Schedule 2.7, none of Team, Moore Co.
or Moore P.C. has any obligations, contingent or otherwise: (i) under any
employment contract, agreement, commitment, undertaking, understanding, plan,
program, policy or arrangement; (ii) under any bonus, incentive or deferred
compensation contract, agreement, commitment, undertaking, understanding, plan,
program, policy or arrangement (including one for severance or other payments
conditioned upon a change of control of any of Team, Moore Co. or Moore P.C.);
(iii) under any pension, profit-sharing, stock purchase or any other such plan,
program or arrangement; or (iv) under any arrangement that has resulted or could
result in the payment of any "excess parachute payment" as defined in Section
280G of the Code (without regard to subsection (b)(4) thereof.
2.8 Employee and Fringe Benefit Plans. Except as set forth in Schedule
2.8, each of Team, Moore Co. and Moore P.C. does not maintain, is not required
to contribute to and does not otherwise participate in (and has not since its
inception maintained, contributed to or otherwise participated in) either: (i)
any employee pension benefit plan ("Pension/Profit Sharing Plan"), any employee
welfare benefit plan ("Welfare Plan") or any multi-employer plan
("Multi-Employer Plan") (as such terms are defined in the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), including any pension,
profit sharing, retirement, thrift, stock purchase or stock option plan: or (ii)
any other compensation, welfare, fringe benefit or retirement plan, program,
policy, understanding or arrangement of any kind whatsoever, whether
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formal or informal, providing for benefits for or the welfare of any or all
of the current or former respective employees or agents of Team, Moore Co. or
Moore P.C. or their beneficiaries or dependents.
2.9 Labor Relations. Except as described in Schedule 2.9: (a) each of
Team, Moore Co. and Moore P.C. is (and, since December 31, 1996, has been) in
material compliance with all federal, state, local and other applicable law
respecting employment and employment practices, terms and conditions of
employment and wages and hours; (b) there is (and, since December 31, 1996, has
been) no unfair labor practice, complaint, charge or other matter against or
involving Team, Moore Co. or Moore P.C. pending or threatened before any
Governmental Authority; (c) there is no (and, since December 31, 1996 has not
been) labor strike, dispute, organizing effort, slow down, stoppage or other
labor difficulty pending, involving or, to the best of Team's, Moore Co.'s,
Moore P.C.'s and the Selling Shareholders' knowledge, threatened, against or
affecting any of Team, Moore Co. or Moore P.C.; (d) no representation question
exists, or has existed since December 31, 1996, with respect to the respective
employees of any of Team, Moore Co. or Moore P.C.; (e) no grievance which might
have an adverse effect on any of Team, Moore Co. or Moore P.C. or on the conduct
of their respective businesses nor any arbitration proceeding arising out of or
under collective bargaining agreements is pending, and no claim therefor exists;
and (f) there is (and, since December 31, 1996, has been) no collective
bargaining agreement which is binding on any of Team, Moore Co. or Moore P.C.
2.10 Litigation. Except as disclosed in Schedule 2.10, none of Team,
Moore Co. or Moore P.C. is, (and, since December 31, 1996, has been), (i)
engaged in, a party to, subject to or threatened with any claim, legal or
equitable action, or other proceeding (whether as plaintiff, defendant or
otherwise and regardless of the forum or the nature of the opposing party) which
seeks damages, an injunction or other relief against any of Team, Moore Co. or
Moore P.C., which action, individually or collectively with such other actions,
would have a material adverse effect on Team, Moore Co. and Moore P.C. taken
together in the aggregate; (ii) subject to any unasserted claim, the assertion
of which is likely and which, if asserted, will seek damages, an injunction or
other relief against any of Team, Moore Co. or Moore P.C. which claim
individually or collectively with such other unasserted claims if made would
have a material adverse effect on Team, Moore Co. and Moore P.C., taken together
in the aggregate; or (iii) a party to or subject to any judgment, order or
decree against it or its assets. There has been no reservation of rights by any
insurance carrier, and, to the best of Team's, Moore Co.'s, Moore P.C.'s and the
Selling Shareholders' knowledge, no such reservation is threatened, concerning
the coverage of any of Team, Moore Co. or Moore P.C. with respect to any matter
required to be disclosed pursuant to this Section 2.10.
2.11 Compliance with Laws. Except as set forth in Schedule 2.11:
(a) Generally. Each of Team, Moore Co. and Moore P.C. is (and during the
preceding five years has been) in compliance with all applicable law (including
those involving antitrust, unfair competition, trade regulation, antipollution,
environmental, employment, safety, health and food and drug matters). Without
limiting the foregoing, none of Team, Moore Co. or Moore P.C. has at any time
made any illegal payments for political contributions, any bribes or illegal
kickback payments, or any practice or procedure which results or will result in
the illegal payment by or on behalf of any of Team, Moore Co. or Moore P.C. to a
person in connection with a referral to any of Team, Moore Co. or Moore P.C. by
such person.
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(b) Charges or Violations. None of Team, Moore Co. or Moore P.C.
is (and during the preceding five years has not been) either charged with, in
receipt of any notice or warning of, or under investigation with respect to, any
failure or alleged failure to materially comply with any provision of any
applicable law.
(c) Permits. Without limiting the foregoing: (i) each of Team,
Moore Co. and Moore P.C. has all material occupancy certificates and other
licenses, permits and certificates ("Permits") required in connection with its
ownership, possession, use, occupancy or operation of any of the Properties
owned, leased or used by it; (ii) all of the Permits are in full force and
effect; (iii) each of Team, Moore Co. and Moore P.C. is (and has been) in
material compliance with the Permits; and (iv) none of the Permits will be
affected by, or require the consent of any party by reason of, the transactions
contemplated by this Agreement where such effect or failure to obtain such
consent would materially restrict or hamper the operation of any operating
facility owned, leased or used by Team, Moore Co. or Moore P.C. or would
otherwise have a materially adverse effect on Team, Moore Co. and Moore P.C.,
taken together in the aggregate.
(d) Environmental.
(i) No person or party (including, but not limited to, any
Governmental Authority) has asserted any claim or, to the best
of Team's, Moore Co.'s, Moore P.C.'s and the Selling
Shareholders' knowledge, has any basis for any action or
proceeding against Team, Moore Co. or Moore P.C. relating to
any Environmental Matter (as defined below), relating to any
existing or prior act, omission, condition or state of facts.
None of Team, Moore Co. or Moore P.C. has received oral or
written notice of, nor do Team, Moore Co. or Moore P.C. have
reason to believe there is, any existing or pending violation,
citation, claim or complaint relating to the business of any
of Team, Moore Co. or Moore P.C. or any facility now or
previously owned or operated by Team, Moore Co. or Moore P.C.
arising under the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response Compensation and
Liability Act, the Superfund Amendments and Reauthorization
Act, the Toxic Substances Control Act, the Safe Drinking Water
Act, the federal Water Pollution Control Act (Clean Water
Act), the Clean Air Act, the Powerplant and Industrial Fuel
Use Act of 1978, the National Environmental Policy Act
(Environmental Impact Statement) and antipollution, waste
control and disposal and environmental "cleanup" provisions of
similar statutes of any Governmental Authority, and all
regulations and standards enacted pursuant thereto and all
permits and authorizations issued in connection therewith
(collectively, "Environmental Matters"). Schedule 2.11(d)(i)
sets forth all Environmental Matters and all such violations,
citations, claims and complaints.
(ii) No underground tanks are now or have been located
at any facility now or previously owned or operated by Team,
Moore Co. or Moore P.C., and no toxic or hazardous substances
have been generated, transported, treated, stored, disposed of
on or from or otherwise deposited in or on or allowed to
emanate from any such facility (irrespective of whether such
substances remain at the facility or were transferred to or
otherwise disposed of off-site), including the surface waters
and subsurface waters thereof, which may support a claim or
cause of action under any federal, state or local
environmental statutes, ordinances, regulations or guidelines.
To the best of Team's, Moore Co.'s, Moore
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P.C.'s and the Selling Shareholders' knowledge, there are no
underground tanks at any facility now or previously owned or
operated by any of Team, Moore Co. or Moore P.C.
2.12 Bank Accounts. Schedule 2.12 lists all bank, money market, savings
and similar accounts and safe deposit boxes of each of Team, Moore Co. and Moore
P.C., specifying the account numbers and the authorized signatories or persons
having access to them.
2.13 Transactions with Affiliates. Except as disclosed in Schedule 2.13, no
shareholder of any of Team, Moore Co. or Moore P.C. nor any person controlled by
some combination of them, no officer or director of any of Team, Moore Co. or
Moore P.C., nor any "affiliate" or "associate" (as such terms are defined in the
rules and regulations of the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "1933 Act")) of any of the foregoing:
(a) has been a party to any lease, sublease, contract, agreement,
commitment, understanding or other arrangement of any kind whatsoever, involving
any such person and any of Team, Moore Co. or Moore P.C. which is not disclosed
in Schedule 2.13;
(b) owns directly or indirectly, in whole or in part, any property that any
of Team, Moore Co. or Moore P.C. uses or otherwise has rights in respect of; or
(c) has any cause of action or other claim whatsoever against, or owes any
amount to, any of Team, Moore Co. or Moore P.C. other than (i) for compensation
(including fringe benefits) to officers and employees disclosed pursuant to
Section 2.7 and for reimbursement of ordinary and necessary expenses incurred in
connection with employment by any of Team, Moore Co. or Moore P.C. and (ii) as
otherwise disclosed pursuant to this Agreement.
2.14 Commissions. Except for fees to be paid to Richard Kelly, the Selling
Shareholders' financial advisor, no person, firm or corporation is entitled to
any commission or broker's or finder's fee in connection with the transactions
contemplated by this Agreement by reason of any act or omission of Team, Moore
Co. or Moore P.C. or the Selling Shareholders.
2.15 Generally. No representation or warranty by Team, Moore Co. or
Moore P.C. or the Selling Shareholders in this Agreement or in any Exhibit,
Schedule or closing certificate furnished or to be furnished to the Acquiror
pursuant to this Agreement or in connection with the transactions contemplated
by this Agreement contains or will contain any untrue statement of a material
fact, or omits or will omit to state a material fact, necessary to make the
statements herein or therein not misleading.
2.16 Salary Equivalency Conversion. The salary equivalency revenue
conversion information provided by Moore Co. and attached as Schedule 2.16
accurately represents the effect on the 1996 revenues of Moore Co. of a
conversion in reimbursement for occupational therapy and speech therapy to
salary equivalency consistent with current methodology for physical therapy and
restating the average hourly rate at $45.00. All the assumptions and other data
used in connection with such information reflects in all material respects the
actual operations of Moore Co. for the periods set forth therein. The Acquiror
acknowledges that such conversion is not a projection for future revenue.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR
The Acquiror hereby represents and warrants to the Selling Shareholders on
the date of this Agreement and again on and as of the Closing Date as follows:
3.1 Existence. The Acquiror is a corporation duly incorporated,
organized, entitled to conduct business and validly existing in good standing
under the laws of the State of Delaware.
3.2 Authorization.
(a) The Acquiror has the right, power and authority to enter into
this Agreement and the related agreements referred to herein, including, but not
limited to, the Note, the Registration Rights Agreement and the Employment
Agreement, and to consummate the transactions contemplated by, and otherwise to
comply with and to perform under, this Agreement and the related agreements
referred to herein, including, but not limited to, the Note, the Registration
Rights Agreement and the Employment Agreement;
(b) The execution and delivery by the Acquiror of this Agreement
and the related agreements referred to herein, including, but not limited to,
the Note, the Registration Rights Agreement and the Employment Agreement, and
the consummation by the Acquiror of the transactions contemplated by, and other
compliance with or performance under, them, have been duly authorized by all
necessary corporate action on the part of the Acquiror in compliance with
governing or applicable agreements, instruments or other documents to which the
Acquiror is a party (including the certificate of incorporation and By-laws (as
amended)) and applicable law; and
(c) This Agreement and the related agreements referred to herein,
including, but not limited to, the Note, the Registration Rights Agreement and
the Employment Agreement, constitute the valid and binding agreements of the
Acquiror that are enforceable against the Acquiror in accordance with their
terms.
3.3 Absence of Violations or Conflicts. The execution and delivery by
the Acquiror of this Agreement and the related agreements referred to herein,
including, but not limited to, the Note, the Registration Rights Agreement and
the Employment Agreement, and the consummation by the Acquiror of the
transactions contemplated by, and other compliance with or performance under,
them, do not (and will not with the passage of time or the giving of notice or
both) constitute a violation of, be in conflict with, or constitute a default
under (a) any term or provision of the certificate of incorporation or By-laws
(as amended) of the Acquiror, (b) any contract, agreement, commitment,
undertaking or understanding to which the Acquiror is a party or by which it or
any of its properties are subject or bound, (c) any judgment, decree or order of
any governmental authority to which the Acquiror or any of its properties are
subject or bound, or (d) any applicable law.
3.4 No Governmental Consents Required. No consent, approval, order
or authorization of, or registration, declaration or filing with, any
governmental authority on the part of the Acquiror is required in connection
with its execution or delivery of, or its performance under, this Agreement or
its consummation of the transactions contemplated by this Agreement.
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No notification or other filing is required pursuant to the HSR Act in
connection with the transactions contemplated by this Agreement.
3.5 Commissions. No person, firm or corporation is entitled to any
commission or broker's or finder's fee in connection with the transactions
contemplated by this Agreement by reason of any act or omission of the Acquiror.
3.6 Financial Statements of the Acquiror. Attached as Schedule 3.6 are
copies of: (i) the consolidated financial statements of the Acquiror as of the
last day of February of 1996 and 1995 and for the fiscal years ended the last
day of February, 1996, 1995 and 1994, all of which have been audited by KPMG
Peat Marwick LLP; and (ii) the unaudited consolidated financial statements of
the Acquiror as of August 31, 1996 and 1995 and for the six months then ended
(all of which, including in each case the notes thereto, are collectively
referred to in this Agreement as the "the Acquiror Financial Statements"). The
Acquiror Financial Statements are prepared in accordance with the books and
records of the Acquiror, are complete and accurate in all material respects,
fairly present the financial condition of the Acquiror as of their respective
dates and the results of operations of the Acquiror for the respective periods
then ended, and have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered by such statements.
3.7 SEC Filings Complete. The Acquiror's most recent Form 10-K, all
intervening Form 8-Ks and Form 10-Qs, the Acquiror's most recent annual meeting
proxy statement and most recent registration statement filed under the 1933 Act,
all as filed with the Securities and Exchange Commission ("SEC"), do not contain
a misstatement of a material fact or an omission of a material fact required to
be stated therein or necessary to make the statements therein not misleading as
of the time such document was filed or (if filed under the 1933 Act) became
effective. Since the filing of the most recent Form 10-K, no other document has
been required to be filed by the Acquiror with the SEC which has not been filed.
3.8 Litigation. Except as disclosed in Schedule 3.8 or in the Acquiror
Financial Statements, there is no litigation pending or, to the knowledge of the
Acquiror, threatened against the Acquiror which would have a material adverse
affect on its properties, assets or business or which would prevent or hinder
the consummation of the transactions contemplated by this Agreement or its
obligations thereunder.
3.9 Shares Validly Issued. All of the Shares to be issued to the Selling
Shareholders pursuant to the terms of this Agreement, when issued pursuant to
the terms of this Agreement, shall be duly and validly issued, fully paid and
non-assessable, without violation of any preemptive or dissenters' or similar
rights and in full compliance with all applicable securities laws.
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3.10 Certain Indebtedness. No action or event has occurred which, with
notice or lapse of time, or both, would constitute a material default under the
Acquiror's senior bank indebtedness or any other material obligations of the
Acquiror for borrowed money.
ARTICLE 4
COVENANTS OF THE COMPANIES, MOORE P.C. AND THE SELLING SHAREHOLDERS
4.1 Conduct of Business by the Companies and Moore P.C. From
December 31, 1996 to the Closing Date, except for the Moore P.C. Asset
Assignment and transactions which are expressly approved in writing by the
Acquiror, which the Acquiror agrees will not be unreasonably withheld or delayed
more than five days after the Acquiror's receipt of notice thereof, each of
Team, Moore Co. and Moore P.C. shall refrain from and the Selling Shareholders
shall use their respective best efforts to ensure that each of Team, Moore Co.
and Moore P.C. refrain from:
(a) subjecting any of Team's, Moore Co.'s or Moore P.C.'s
respective assets and properties, tangible or intangible, to any lien,
encumbrance or other claim of any kind, exclusive of liens arising as a matter
of law in the ordinary course of business as to which there is no known default;
(b) except for sales of inventory in the ordinary course of business,
selling, assigning, transferring or otherwise disposing of any of Team's, Moore
Co.'s or Moore P.C.'s respective assets or properties;
(c) modifying, amending, altering or terminating (whether by
written or oral agreement, or any manner of action or inaction) any of the Debt
Instruments, Leases, Intellectual Property Licenses, Contracts (including
employment contracts) or Insurance Policies;
(d) declaring, setting aside or paying any dividends or other
distributions, directly or indirectly, to the Selling Shareholders;
(e) increasing in any amount the benefits or compensation of the
Selling Shareholders or paying or agreeing to pay any bonus or commission to the
Selling Shareholders; provided, however, that the annual salary payable by Team
to Marilyn A. Moore may be increased to $120,000 from $80,000; and
(f) taking or permitting any other action that, if taken or permitted
immediately prior to the execution of this Agreement, would constitute a breach
of or an exception to the representations and warranties in Section 2.2(d)
hereof.
4.2 Affirmative Covenants Relating to the Companies, Moore, P.C. and the
Selling Shareholders. From December 31,1996 to the Closing Date, except as
required to complete the Moore P.C. Asset Assignment each of Team, Moore Co. and
Moore P.C. and the Selling Shareholders shall use its or their respective best
efforts to assure that each of Team, Moore Co. and Moore P.C. shall:
(a) maintain each of Team's, Moore Co.'s and Moore P.C.'s
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respective property and professional insurance in amounts and with coverage at
least as great as the amounts and coverage in effect on the date of this
Agreement;
(b) maintain, consistent with past practice, each of Team's, Moore
Co.'s and Moore P.C.'s respective properties in good repair, order and
condition, reasonable wear and tear excepted, and use their respective best
efforts to preserve the Team's, Moore Co.'s or Moore P.C.'s possession and
control of all of its assets and properties;
(c) use their respective best efforts to keep in each of Team's, Moore
Co.'s and Moore P.C.'s employ the present officers and key employees, including
the professional staff, of each of Team, Moore Co. and Moore P.C. to preserve
the goodwill of those having business relations with Team, Moore Co. or Moore
P.C.;
(d) maintain the books, accounts and records of each of Team, Moore Co. and
Moore P.C. in a manner consistent with past practice;
(e) allow, upon prior notice to Team, Moore Co. or Moore P.C., as the case
may be, the Acquiror's employees, attorneys, auditors, accountants and other
authorized representatives, free and full access during Team's, Moore Co.'s or
Moore P.C.'s normal business hours to the facilities, plants, properties, books,
records, documents and correspondence of each of Team, Moore Co. and Moore P.C.,
including, but not limited to, historical financial information with respect to
each of Team's, Moore Co.'s and Moore P.C.'s major contracts, in order that the
Acquiror may have full opportunity to make such investigation as the Acquiror
may desire of the respective businesses of each of Team, Moore Co. and Moore
P.C.; provided, however, that such access shall not unreasonably interfere with
the operations of Team, Moore Co. or Moore P.C., and any contractual
confidentiality requirements between the Acquiror and Team, Moore Co., Moore
P.C. or the Selling Shareholders existing prior to this Agreement shall remain
in full force and effect, as supplemented hereby, except as otherwise required
by law (including any required disclosure of the execution of this Agreement);
(f) materially comply with all applicable law relating to Team, Moore Co.
or Moore P.C., as the case may be, or to the conduct of their respective
businesses, and conduct such respective businesses in such a manner so that on
the Closing Date the representations and warranties contained in this Agreement
shall be materially true as though such representations and warranties were made
on and as of such date, except for changes permitted or contemplated by the
terms of this Agreement;
(g) provide the Acquiror with prompt written notice of any adverse change
in the assets, operations, liabilities, earnings, business or condition
(financial or otherwise) of any of Team, Moore Co. or Moore P.C.;
(h) maintain in inventory quantities of goods, supplies and materials
sufficient to allow each of Team, Moore Co. and Moore P.C. to continue to
operate after the Closing Date free of any shortage of such items; and
(i) operate their respective businesses only in the ordinary course with
the objective of preserving each of Team's, Moore Co.'s and Moore P.C.'s
business organizations intact, including using their respective best efforts to
retain the services of each of Team's, Moore Co.'s and Moore P.C.'s present
officers and the goodwill of its suppliers, customers and others having business
relations with each of Team, Moore Co. and Moore P.C.
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4.3 Consents and Closing Conditions. Each of Team, Moore Co. and Moore P.C.
and the Selling Shareholders shall use their respective best efforts (a) to
obtain such consents from third parties and to take other actions as may be
appropriate in order to fulfill the closing conditions contained in Section 7.4
hereof, and (b) to cause the representations and warranties of the Companies in
Article 2 to be true and correct on and as of the Closing Date.
4.4 Cooperation. Each of Team, Moore Co. and Moore P.C. and the Selling
Shareholders shall furnish to the Acquiror such information regarding the
Companies and the Selling Shareholders as the Acquiror may reasonably request.
4.5 Waiver of "Parachute" Payments. Each of Team, Moore Co. and Moore P.C.
and the Selling Shareholders shall deliver to the Acquiror written waivers of
each bonus, incentive or deferred compensation contract, agreement, commitment,
undertaking, understanding, plan, program, policy or arrangement regarding
senior management of each of Team, Moore Co. and Moore P.C. for severance or
other payments conditioned upon a change of control of Team, Moore Co. or Moore
P.C., as the case may be.
4.6 Repayment of Indebtedness. On or prior to the Closing Date, each of
Team, Moore Co. and Moore P.C. shall repay to the Selling Shareholders or to
persons or entities owned or controlled by the Selling Shareholders or convert
to equity securities all amounts of indebtedness owed to the Selling
Shareholders or to persons or entities owned or controlled by the Selling
Shareholders.
4.7 Moore P.C. Asset Assignment. Prior to the Closing Date, Moore P.C. and
Moore Co. shall have completed the assignment of all of the assets of Moore P.C.
to Moore Co.
ARTICLE 5
COVENANTS REGARDING TAX MATTERS
5.1 Returns and Payment of Taxes. Each of Team, Moore Co. and Moore P.C.
shall prepare and timely file all Returns and amendments thereto required to be
filed (except for such Returns for which extensions shall be timely filed) by
Team, Moore Co. or Moore P.C., as the case may be, on or before the Closing
Date; such Returns and amendments shall be true, correct and complete in all
material respects. Each of Team, Moore Co. and Moore P.C. timely pay and
discharge on or before the Closing Date and before the same shall become
delinquent and before penalties accrue thereon, (i) all Taxes shown to be due
from Team, Moore Co. or Moore P.C., as the case may be, on such Returns and
amendments thereto, and (ii) any other Taxes payable by Team, Moore Co. or Moore
P.C., as the case may be, that become due before the Closing Date.
5.2 Elections and Settlements. Without the prior written consent of the
Acquiror, none of Team, Moore Co. or Moore P.C. shall make or change any
election, change an annual tax accounting period, adopt or change any tax
accounting method, file any amended Return, enter into any closing agreement,
settle any Tax claim or assessment, surrender any right to claim a refund of
Taxes, consent to any extension or waiver of the limitation period applicable to
any Tax claim or assessment, or take any other action or omit to take any
action, if any such election, adoption, change, amendment, agreement,
settlement, surrender, consent or other action or omission may have the effect
of increasing the Tax liability or decreasing any Tax Asset
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of Team, Moore Co., Moore P.C., the Acquiror, or any affiliate of the Acquiror.
5.3 Cooperation and Records Retention. The Selling Shareholders shall
provide, and shall cause their accountants and other representatives to provide,
to the Acquiror on a timely basis, the information (including but not limited to
all work papers and records relating to Team, Moore Co. and Moore P.C.) that
they or their accountants or other representatives have within their control and
that may be reasonably necessary in connection with the preparation of any and
all Returns required to be filed by the Acquiror, Team, Moore Co. or Moore P.C.
or any other examination by any taxing authority or administrative proceeding
relating to Taxes. The Selling Shareholders agree that they will cooperate with
the Acquiror, Team, Moore Co. and Moore P.C. and their respective
representatives, in a prompt and timely manner, in connection with the
preparation and filing of any and all Returns required to be filed by the
Acquiror, Team, Moore Co. or Moore P.C. or any other examination by any taxing
authority or administrative proceeding relating to Taxes.
5.4 Post-Closing Audits and Other Proceedings. Each of Team, Moore Co. and
Moore P.C., the Selling Shareholders and the Acquiror shall give prompt notice
to one another of any audits of Taxes of Team, Moore Co., Moore P.C. or the
Selling Shareholders in respect of such Taxes of Team, Moore Co. and Moore P.C.
for periods that end prior to the Closing Date or that include the Closing Date.
The Selling Shareholders shall cooperate with the Acquiror in the conduct of any
audit or other proceeding which relates to any actual or potential liability of
Acquiror, Team, Moore Co. or Moore P.C., and may participate at their own
expense, provided that the Selling Shareholders shall have the right to control
the conduct of any such audit or proceeding for which the Selling Shareholders
(a) agree that any resulting Tax is covered by the indemnity in Section 10.1 of
this Agreement, and (b) demonstrate to the Acquiror their ability to make such
indemnity payment. Notwithstanding the foregoing, the Selling Shareholders shall
not settle or otherwise resolve any such claim, suit or proceeding without the
consent of the Acquiror, which shall not be unreasonably withheld.
5.5 Clearance Certificates. On or prior to the Closing Date, the Selling
Shareholders shall, at their sole cost and expense, deliver to the Acquiror
clearance certificates or similar document(s) that may be required by any state
taxing authority in order to relieve the Acquiror of any duty to withhold any
portion of the consideration payable pursuant to this Agreement.
5.6 Section 338(h)(10) Elections; Purchase Price Allocations. The Acquiror
and the Selling Shareholders shall in a timely manner take any and all actions
necessary to make an election with respect to each of Team, Moore Co. and Moore
P.C. under Code section 338(h)(10) (and the Treasury Regulations promulgated
thereunder) and any comparable provisions of state, local or foreign Tax law
(the "338(h)(10) Election"). The allocation of the "modified adjusted deemed
sale price" (within the meaning of Income Tax Regulation ss.1.338(h)(10)-1(f))
among the assets of Team, Moore Co. or Moore P.C., as the case may be, shall be
made in accordance with the fair market values of such assets as shall be agreed
to by the Acquiror and the Selling Shareholders no later than thirty days
following the Closing Date in a manner consistent with section 338 of the Code.
The Acquiror and the Selling Shareholders acknowledge that such allocation has
been arrived at by arm's length negotiation. None of the Selling Shareholders,
Team, Moore Co., Moore P.C. or the Acquiror shall take a position in any Return
or examination or other administrative or judicial proceeding (including any
ruling request) relating to any Tax that is inconsistent with such allocation.
The Acquiror shall be responsible for and control the preparation and filing of
the 338(h)(10) Election. The Selling Shareholders shall
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prepare, execute and deliver to the Acquiror such documents or forms (including
Section 338 Forms, as defined below) as the Acquiror shall request or as are
required by applicable law for an effective 338(h)(10) Election. "Section 338
Forms" shall mean all returns, documents, statements, schedules and other forms
that are required to be submitted in connection with a 338(h)(10) Election,
including, without limitation, U. S. Treasury Department Form 8023-A (together
with any schedules or attachments thereto). Any Taxes imposed on Team, Moore Co.
or Moore P.C. or the Selling Shareholders as a result of the deemed transfer of
the assets of the Companies pursuant to the 338(h)(10) Election shall be borne
solely by the Selling Shareholders. It is understood that the Companies and the
Selling Shareholders are making no representations to the Acquiror with respect
to the effects of the 338(h)(10) Election for Tax purposes, and neither this
Section nor any provision of Article 10 hereof shall be construed as an
undertaking by Team, Moore Co. or Moore P.C. or the Selling Shareholders to
indemnify the Acquiror for any failure of the Acquiror to receive any Tax
benefits which it anticipates receiving as a result of the 338(h)(10) Election.
Nothing in the immediately preceding sentence, however, shall modify or limit
the obligation of the Selling Shareholders for any failure to take the actions
described in the first sentence of this Section 5.6.
ARTICLE 6
COVENANTS OF THE ACQUIROR
6.1 Confidentiality of Information. Prior to the Closing Date (and if the
Closing does not occur, indefinitely), the Acquiror and its employees, agents,
auditors, attorneys and other authorized representatives shall not, without the
Selling Shareholders' prior written consent, communicate or divulge to any
person or entity or use for their benefit any information, other than
information which is otherwise available to the Acquiror or which becomes public
other than as a result of their action, concerning either Team's, Moore Co.'s or
Moore P.C.'s financial conditions or business, or concerning any marketing
information, equipment, methods, research, clients, contracts, suppliers,
customers, contracts or other data of or related to Team, Moore Co. or Moore
P.C. or other confidential matters possessed, owned or used by Team, Moore Co.
or Moore P.C. that may be communicated to, acquired by or learned by them. All
correspondence, records, files, tax returns, financial statements and other data
relating to Team, Moore Co. or Moore P.C. which shall come into the possession
of the Acquiror shall remain and be deemed to be the sole property of Team,
Moore Co. or Moore P.C., as the case may be, until consummation of the
transactions contemplated hereby. If the transactions contemplated hereby are
not consummated for any reason, then the Acquiror shall return any and all of
the foregoing material to Team, Moore Co. or Moore P.C., as the case may be,
together with any and all copies thereof made. The confidentiality provisions of
this Agreement shall supplement, and not supersede, any contractual
confidentiality requirements between the Acquiror, Team, Moore Co. or Moore P.C.
or the Selling Shareholders and such existing contractual confidentiality
requirements shall remain in full force and effect, as supplemented hereby,
except as otherwise required by law (including any required disclosure of the
execution of this Agreement).
6.2 Receipt of Consents and Satisfaction of Closing Conditions. The
Acquiror shall use its best efforts (a) to obtain such consents from third
parties and to take other actions as may be required in order to fulfill the
closing condition contained in Section 7.4 hereof and (b) to cause the
representations and warranties of the Acquiror in Article 3 to be true and
correct on and as of the Closing Date.
6.3 Approval of Future Business Opportunities; EBIT Credit or Adjustment
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in Certain Instances.
(a) From the Closing Date until December 31, 2000, the Acquiror shall allow
Team and Moore Co. to continue to conduct the operations of Team and Moore Co.
as such operations are currently being conducted as of the Closing Date in all
material respects. Any new business opportunities that the Acquiror wishes to
have Marilyn A. Moore manage within the operations of Team and Moore Co.,
including but not limited to acquisitions and new lines of business, will be
subject to the approval of the Selling Shareholders, on the one hand, and the
Board of Directors and the President and Chief Executive Officer of the
Acquiror, on the other hand.
(b) To the extent that the Acquiror and the Selling Shareholders agree that
Marilyn A. Moore will manage an entity or business to be acquired within the
operations of Team and Moore Co., the Acquiror and the Selling Shareholders
shall negotiate in good faith to determine the appropriate incentives for
Marilyn A. Moore and/or the Selling Shareholders, including, but not limited to,
(i) bonuses, (ii) inclusion of all or a portion of the earnings of such acquired
entity, less the costs of capital and the amortization of goodwill and other
intangible assets related to the acquisition, in the Cumulative EBIT (as defined
and determined pursuant to Schedule 1.5 hereof) of the Companies for the purpose
of calculating the amount of Contingent Consideration to which the Selling
Shareholders are entitled with respect to the fiscal year(s) during which
Marilyn A. Moore manages such acquired entity, or (iii) adjustment of the
computation of Cumulative EBIT (as defined and determined pursuant to Schedule
1.5 hereof).
(c) Notwithstanding any of the foregoing subsections of this Section 6.3,
in the event of the consummation by the Companies of the proposed outpatient
therapy clinic arrangement with Premier South, and/or the potential acquisition
identified by Marilyn A. Moore to the Acquiror of a contract therapy company
based in Jefferson City, Missouri, all of the earnings of such operations or
acquired entities, less the costs of capital and the amortization of goodwill
and other intangible assets related to the acquisition, shall be included in the
Cumulative EBIT (as defined and determined pursuant to Schedule 1.5 hereof) of
the Companies for the purpose of calculating the amount of Contingent
Consideration to which the Selling Shareholders are entitled with respect to the
fiscal year(s) during which Marilyn A. Moore manages such acquired entity.
(d) If, subsequent to the Closing Date, the Acquiror (i) (A) consummates
the acquisition of an entity that provides physical, occupational and speech
therapy staffing and management services to nursing homes, long-term care and
outpatient facilities and (B) such entity has a facility or business location
within a 50-mile radius of any facility or business location being managed by
Marilyn A. Moore, and (ii) determines that the competing facility will not be
managed by Marilyn A. Moore, then the Acquiror and the Selling Shareholders
shall determine the appropriate adjustment of the computation of Cumulative EBIT
(as defined and determined pursuant to Schedule 1.5 hereof) to take into account
any negative effect on the revenues and EBIT of the Companies directly resulting
from the competition between the entity to be acquired and the Companies
existing facilities.
6.4 Release from Guarantees. Following the Closing Date, the Acquiror shall
cooperate with the Selling Shareholders and use reasonable efforts to obtain
release of the guarantees by the Selling Shareholders identified on Schedule 6.4
hereto (the "Guarantees"). To the extent that Acquiror is unable to negotiate
the full release of the Selling Shareholders from
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such Guarantees upon terms satisfactory to the Acquiror, the Acquiror shall
indemnify the Selling Shareholders from any and all liability for their
respective obligations under the Guarantees.
ARTICLE 7
THE ACQUIROR'S CONDITIONS TO CLOSING
The obligation of the Acquiror to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment to the Acquiror's
reasonable satisfaction of each of the following conditions on or prior to the
Closing Date:
7.1 Continued Truth of Warranties. The representations and warranties of
each of Team, Moore Co. and Moore P.C. and the Selling Shareholders contained
herein shall be true in all material respects on and as of the Closing Date with
the same force and effect as though made as of such date, except for any
variations permitted by this Agreement.
7.2 Performance of Covenants. Each of Team, Moore Co. and Moore P.C. and
the Selling Shareholders shall have performed in all material respects all
covenants and obligations and complied in all material respects with all
conditions required by this Agreement to be performed or complied with by it on
or prior to the Closing Date.
7.3 No Material Adverse Change. There shall have been no material adverse
change to the properties, operations, liabilities, earnings, business or
condition (financial or otherwise) of Team, Moore Co. or Moore P.C. since
December 31, 1996.
7.4 Permits and Consents. The parties hereto shall have secured all
appropriate orders, consents, approvals and clearances, in form and substance
satisfactory to the Acquiror, by and from all third parties reasonably requested
by the Acquiror, including but not limited to governmental authorities, whose
order, consent and approval or clearance is required by contract or applicable
law for the consummation of the transactions herein contemplated, and the
consent of the Acquiror's senior lender with regard to the documents and
transactions contemplated by this Agreement.
7.5 Closing Documents. The Companies and the Selling Shareholders shall
have delivered all documents required to be delivered by it at the Closing, as
more specifically set forth in Article 9, in each case in form and substance
satisfactory to the Acquiror.
7.6 Employment Agreement. Marilyn A. Moore shall have entered into an
employment agreement with the Acquiror, Team and Moore Co. superseding any
respective current employment agreement with Team and Moore Co. in substantially
the form attached hereto as Exhibit E (the "Employment Agreement").
7.7 Moore P.C. Asset Assignment. Moore P.C. and Moore Co. shall have
consummated the Moore P.C. Asset Assignment.
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7.8 Release of Moore Co. from Lease. On or prior to the Closing Date, Moore
Co. and the Selling Shareholders shall obtain the release of Moore Co. from the
automobile lease set forth on Schedule 2.4(b) to this Agreement, without any
continuing liability of the Companies thereunder.
7.9 Certain Employees of the Companies. On or prior to the Closing Date,
except with respect to Kass Woodliff, an employee of Team, the Companies shall
remove from the payroll of the Companies the employees listed in Section II(c)
of Schedule 1.4, without any continuing liability of the Companies with respect
to such employees.
7.10 Disability Policy. On or prior to the Closing Date, Moore Co. and the
Selling Shareholders shall terminate any obligations of the Companies under the
disability policy listed in Section II(E) of Schedule 1.4, without any
continuing liability of the Companies thereunder.
7.11 Extinguishment of Indebtedness. On or prior to the Closing Date, the
Companies and the Selling Shareholders shall extinguish all indebtedness owed by
the Companies to the Selling Shareholders (as reflected in the Team, Moore Co.
and Moore P.C. Financial Statements).
ARTICLE 8
THE SELLING SHAREHOLDERS' CONDITIONS TO CLOSING
The obligation of the Selling Shareholders to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment to the
Selling Shareholders' reasonable satisfaction of the following conditions on or
prior to the Closing Date:
8.1 Continued Truth of Warranties. The representations and warranties of
the Acquiror herein contained shall be true in all material respects on and as
of the Closing Date with the same force and effect as though made as of such
date, except for any variations permitted by this Agreement.
8.2 Performance of Covenants. The Acquiror shall have performed in all
material respects all covenants and obligations and complied in all material
respects with all conditions required by this Agreement to be performed or
complied with by it on or prior to the Closing Date.
8.3 Permits and Consents. The parties hereto shall have secured all
appropriate orders, consents, approvals and clearances, in form and substance
reasonably satisfactory to the Companies, by and from all third parties,
including but not limited to governmental authorities, whose order, consent,
approval or clearance is required by contract or applicable law for the
consummation of the transactions herein contemplated.
8.4 Closing Documents. The Acquiror shall have delivered the Base Price and
all documents required to be delivered by it at the Closing, as more
specifically set forth in Article 9, in form and substance satisfactory to each
of Team, Moore Co., Moore P.C. and the Selling Shareholders.
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8.5 No Material Adverse Change. There shall have been no material adverse
change to the properties, operations, liabilities, earnings, business condition
(financial or otherwise) of the Acquiror since December 31, 1996.
ARTICLE 9
DOCUMENTS TO BE DELIVERED AT CLOSING
9.1 Documents to be Delivered by the Companies and the Selling
Shareholders. At the Closing, the Companies and the Selling Shareholders shall:
(a) Deliver to the Acquiror a certificate of incumbency and copies of the
resolutions adopted by the respective Boards of Directors of each of Team and
Moore Co., authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, duly certified as of the
Closing Date by the Secretary or an Assistant Secretary of each of Team and
Moore Co.;
(b) Deliver to the Acquiror, a certificate of each of Team, Moore Co. and
Moore P.C. and the Selling Shareholders, dated as of the Closing Date, to the
effect that the representations and warranties of the Companies and the Selling
Shareholders as contained in Article 2 of this Agreement are true and correct as
of such Closing Date, and that the covenants of each of Team, Moore Co. and
Moore P.C. and the Selling Shareholders as contained in Articles 4 and 5 of this
Agreement required to be performed or complied with on or prior to the Closing
Date have been so performed or complied with;
(c) Deliver to the Acquiror certificates of good standing or their
equivalent, dated not more than thirty days prior to the Closing Date, attesting
to the good standing of each of Team and Moore Co. as a corporation under the
laws of the State of Missouri and each other jurisdiction listed on Schedule
2.1(e);
(d) To the extent any consents or approvals shall be necessary to any of
the transactions herein contemplated, deliver to the Acquiror copies of all such
consents or approvals;
(e) Deliver to the Acquiror (i) the articles of incorporation, as amended,
of each of Team and Moore Co., certified by the Secretary of State of the State
of Missouri as of a date not more than ten days prior to the Closing Date, and
(ii) the By-laws, as amended, of each of Team and Moore Co., certified as of the
Closing Date by the Secretary or an Assistant Secretary of each of Team and
Moore Co., respectively;
(f) Deliver to the Acquiror an opinion of Menees, Whitney & Burnet, counsel
for the Selling Shareholders and the Companies and Moore P.C., as to the matters
set forth in Exhibit F;
(g) Deliver to the Acquiror the original corporate minute books, stock
transfer books and corporate seal of each of Team and Moore Co.; and
(h) Deliver to the Acquiror certificate(s) representing the Shares with
duly executed and valid stock powers attached in form for transfer to the
Acquiror and otherwise acceptable in form and substance to the Acquiror; and
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(i) Deliver to the Acquiror documentation evidencing the consummation of
the Moore P.C. Asset Assignment, in form and substance reasonably satisfactory
to the Acquiror.
(j) Deliver to the Acquiror the Team, Moore Co. and Moore P.C. Financial
Statements in accordance with Section 2.2(a) of this Agreement.
(k) Deliver to the Acquiror evidence that all indebtedness owed by the
Companies to the Selling Shareholders (as reflected in the Team, Moore Co. and
Moore P.C. Financial Statements), has been extinguished or converted to equity.
9.2 Documents to be Delivered by the Acquiror. At the Closing, the Acquiror
shall:
(a) Deliver to the Companies and the Selling Shareholders a certificate of
incumbency and copies of the resolutions adopted by the Board of Directors of
the Acquiror, authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, duly certified as of the
Closing Date by the Secretary or an Assistant Secretary of the Acquiror;
(b) Deliver to the Companies and the Selling Shareholders a certificate of
the Acquiror, dated as of the Closing Date, to the effect that the
representations and warranties of the Acquiror as contained in Article 3 of this
Agreement are true and correct as of such Closing Date, and that the covenants
of the Acquiror as contained in Articles 5 and 6 of this Agreement required to
be performed or complied with on or prior to the Closing Date have been so
performed or complied with;
(c) To the extent any consents or approvals shall be necessary to any of
the transactions herein contemplated, the Acquiror shall deliver to the
Companies and the Selling Shareholders upon request copies of all such consents
or approvals as obtained by the Acquiror;
(d) Deliver to the Companies and the Selling Shareholders an opinion of
Thompson Coburn, counsel for the Acquiror, as to the matters set forth in
Exhibit G;
(e) Deliver to the Selling Shareholders the Base Price as set forth in
Sections 1.2 and 1.3 of this Agreement; and
(f) Execute and deliver to the Selling Shareholders a Registration Rights
Agreement substantially in the form of Exhibit H attached hereto and made a part
hereof (the "Registration Rights Agreement").
ARTICLE 10
INDEMNIFICATION
10.1 Indemnification of the Acquiror. By execution of this Agreement, the
Selling Shareholders hereby acknowledge that the Acquiror shall be entitled to
full indemnification by the Selling Shareholders of the following:
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(a) any and all loss, liability or damage (including judgments and
settlement payments) incurred by Team, Moore Co., Moore P.C. or the Acquiror
incident to, arising in connection with or resulting from any misrepresentation,
breach, nonperformance or inaccuracy of any representation, warranty or covenant
(to the extent such covenant, other than any covenant set forth in Section 5, is
to be performed prior to the Closing Date) by the Selling Shareholders made or
contained in this Agreement or in any Exhibit, Schedule, certificate or other
document executed and delivered to the Acquiror by the Selling Shareholders or
by or on behalf of Team, Moore Co. or Moore P.C. under or pursuant to this
Agreement or the transactions contemplated herein;
(b) any and all loss, liability or damage relating to Environmental Matters
which arise from or relate to either Team's, Moore Co.'s or Moore P.C.'s
operations prior to, or the condition of facilities owned or operated by Team,
Moore Co. or Moore P.C. as of, the Closing Date;
(c) any and all loss, liability or damage relating to Taxes which arise
from or relate to (i) Team's, Moore Co.'s or Moore P.C.'s activities prior to
the Closing Date; (ii) Tax periods ending on or prior to the Closing Date; or
(iii) the transactions contemplated by this Agreement and the 338(h)(10)
Election, in each case except to the extent that any specific amount for any
such Tax was recorded on Team's, Moore Co.'s or Moore P.C.'s books and reduced
Team's, Moore Co.'s and Moore P.C.'s Combined Net Book Value or Combined Working
Capital for the purposes of Section 1.4;
(d) each of Team's, Moore Co.'s and Moore P.C.'s obligations with respect
to any of the respective employees of any of Team, Moore Co. or Moore P.C. under
any pension, profit sharing or retirement plan, collective bargaining agreement,
consulting agreement, life insurance or other employee welfare benefit plan or
vacation policy relating to any time prior to the Closing Date, and in
particular, obligations for medical or life insurance benefits of any former or
retired employees of any of Team, Moore Co. or Moore P.C. or their dependents;
(e) except to the extent of payments actually received by the Acquiror
pursuant to any insurance policies under which any of Team, Moore Co. or Moore
P.C. is insured, any and all loss, liability or damage (including judgments and
settlement payments) incurred by them incident to, arising in connection with or
resulting from any act or failure to act by the Selling Shareholders or by any
of Team, Moore Co. or Moore P.C. or their respective employees, including
professional malpractice liability, prior to the Closing Date; and
(f) any and all costs, expenses and all other actual damages incurred in
claiming, contesting or remedying any breach, misrepresentation, nonperformance
or inaccuracy described above, or in enforcing their rights to indemnification
hereunder, including, by way of illustration and not limitation, all legal and
accounting fees, other professional expenses and all filing fees and collection
costs incident thereto and all such fees, costs and expenses incurred in
defending claims which, if successfully prosecuted, would have resulted in loss,
liability, costs, expense or other damage.
(g) In the event that the Selling Shareholders reimburse the Acquiror for
any Account Receivable which is uncollectible, the Acquiror shall immediately
assign all rights in and to such Account Receivable to the Selling Shareholders.
The Selling Shareholders thereafter shall have the right to pursue the
collection of such receivables and to utilize the employees, resources, books
and records of Team, Moore Co. or Moore P.C., as the case may
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be, in such collection process; provided that such efforts are in the ordinary
course of business.
(h) In the event that Medicare or Medicaid regulatory authorities assert a
claim for adjustment to the cost reimbursement items of Team for a period or
periods prior to the Closing Date, the Selling Shareholders shall determine if a
reasonable basis for the adjustment exists. If the Selling Shareholders believe,
in their reasonable judgment, that there is no reasonable basis for the
adjustment asserted by the Medicare or Medicaid authorities, Team shall appeal
such adjustment at the request of the Selling Shareholders. To the extent that
Team is reimbursed in the then-current year for the costs of appealing the
disallowance, Acquiror shall make no claim pursuant to this Article 10 against
the Selling Shareholders for indemnification of the cost of such appeal. If,
however, the Acquiror incurs out-of-pocket costs or other expenses that are not
reimbursable or if the Acquiror is obligated to make any non-reimbursed cash
payments while the appeal is pending or if the Acquiror is subject to a final
judgment by the Medicare or Medicaid regulatory authorities, the indemnification
obligations as set forth in this Article 10 of the Selling Shareholders to the
Acquiror with respect to such costs and expenses shall remain in full force and
effect. If the Acquiror is reimbursed for any out-of-pocket costs or expenses
after payment by the Selling Shareholders pursuant to the indemnification
provisions of this Article 10, Acquiror shall promptly pay to the Selling
Shareholders for which the Acquiror has received reimbursement.
10.2 Indemnification of the Selling Shareholders. By execution of this
Agreement, the Acquiror hereby acknowledges that the Selling Shareholders shall
be entitled to full indemnification by the Acquiror of the following:
(a) any and all loss, liability or damage (including judgments and
settlement payments) incurred by the Selling Shareholders incident to, arising
in connection with or resulting from any misrepresentation, breach,
nonperformance or inaccuracy of any representation, warranty or covenant (to the
extent such covenant is to be performed prior to the Closing Date) by the
Acquiror made or contained in this Agreement or in any Exhibit, Schedule,
certificate or other document executed and delivered to the Selling Shareholders
by the Acquiror; and
(b) any and all costs, expenses and all other actual damages incurred in
claiming, contesting or remedying any breach, misrepresentation, nonperformance
or inaccuracy described above, or in enforcing its rights to indemnification
hereunder, including, by way of illustration and not limitation, all legal and
accounting fees, other professional expenses and all filing fees and collection
costs incident thereto and all such fees, costs and expenses incurred in
defending claims which, if successfully prosecuted, would have resulted in loss,
liability, cost, expense or other damages.
(c) In case a claim shall be made or any action shall be brought in respect
of which recovery through indemnity will lie against the Acquiror pursuant to
any provision of this Agreement, the Selling Shareholders shall promptly notify
the Acquiror in writing, and the Acquiror shall promptly assume the defense
thereof, including, with the consent of the Selling Shareholders, which consent
shall not be unreasonably withheld, the employment of counsel, the payment of
all expenses and the right to negotiate and consent to settlement. The Selling
Shareholders shall have the right to employ separate counsel with respect to any
such claim or in any such action and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the Selling
Shareholders unless the employment of such counsel has been specifically
authorized in writing by the Acquiror or there is a conflict of
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interest that would prevent counsel for the Acquiror from adequately
representing both Team, Moore Co. or Moore P.C. and the Acquiror, on the one
hand, and the Selling Shareholders, on the other. The Acquiror shall not be
liable for any settlement of any such action effected without its written
consent, but if settled with the written consent of the Acquiror or if there be
a final judgment for the plaintiff in any such action for which the Acquiror is
required hereunder to assume the defense, the Acquiror agrees to indemnify and
hold harmless the Selling Shareholders from and against any loss or liability by
reason of such settlement or judgment.
10.3 Notice of and Procedures for Collecting Indemnification.
(a) Initial Claim Notice. When either the Acquiror, on the one hand, or the
Selling Shareholders, on the other hand, become aware of a situation which may
result in damages for which it or they would be entitled to be indemnified
hereunder, such party (the "Indemnitee") shall submit a written notice (the
"Initial Claim Notice") to the other party from which indemnification may be
forthcoming pursuant to Section 10.1 or 10.2 (the "Indemnitor") to such effect
with reasonable promptness after it first becomes aware of such matter and shall
furnish the Indemnitor with such information as it has available demonstrating
its right or possible right to receive indemnity. If the potential claim is
predicated on, or later results in, the filing by a third party of any action at
law or in equity (a "Third Party Claim"), the Indemnitee shall provide the
Indemnitor with a supplemental Initial Claim Notice not later than ten (10)
calendar days prior to the date on which a responsive pleading must be filed,
and shall also furnish a copy of such claim (if made in writing) and of all
documents received from the third party in support of such claim. In addition,
each Initial Claim Notice shall name, when known, the person or persons making
the assertions which are the basis for such claim. Failure by the Indemnitee to
deliver an Initial Claim Notice or an update thereof in a timely manner shall
not relieve the Indemnitor of any of its obligations under this Agreement except
to the extent that actual monetary prejudice to the Indemnitor can be
demonstrated.
(b) Rights of Indemnitor. If, prior to the expiration of 30 calendar days
from the mailing of an Initial Claim Notice (the "Claim Answer Period"), the
Indemnitor shall request in writing that such claim not be paid, the same shall
not be paid, and the Indemnitor shall settle, compromise or litigate in good
faith such claim, and employ attorneys of its choice to do so; provided,
however, that Indemnitee shall not be required to refrain from paying any claim
which has matured by court judgment or decree, unless appeal is taken therefrom
and proper appeal bond posted by the Indemnitor, nor shall it be required to
refrain from paying any claim where such action would result in the foreclosure
of a lien upon any of its assets or a default in a lease or other contract
except a lease or other contract which is the subject of the dispute. The
Indemnitee shall cooperate fully to make available to the Indemnitor and its
attorneys, representatives and agents, all pertinent information under its
control. The Indemnitee shall have the right to elect to settle or compromise
all other contested claims with respect to which the Indemnitor has not, within
the Claim Answer Period, acknowledged in writing (i) liability therefor, and
(ii) its election to assume full responsibility for the settlement, compromise,
litigation and payment of such claim.
(c) Final Claims Statement. At such time as damages for which the
Indemnitor is liable hereunder are incurred by Indemnitee by actual payment
thereof or by entry of a final judgment, the Indemnitee shall forward a Final
Claims Statement to the Indemnitor setting forth the amount of such damages in
reasonable detail on an itemized basis. The Indemnitee shall supplement the
Final Claims Statement with such supporting proof of loss (e.g.
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vouchers, canceled checks, accounting summaries, judgments, settlement
agreement, etc.) as the Indemnitor may reasonably request in writing within
thirty (30) calendar days after receipt by Indemnitor of a Final Claims
Statement. All amounts reflected on Final Claims Statements shall be paid
promptly by the Indemnitor to the Indemnitee and the Indemnitee shall have the
right to immediate payment of proceeds from insurance policies paid to
Indemnitor in connection with the claim for which the indemnification right
arose.
(d) Survival of Indemnification. Any other provision hereof to the contrary
notwithstanding, the parties agree that the representations and warranties of
the parties contained in this Agreement and any certificates delivered pursuant
to this Agreement shall survive for a period of forty-eight (48) months after
the Closing Date for purposes of this Article 10, regardless of any
investigation made by either party prior to the date hereof or prior to the
Closing Date. The Acquiror, on the one hand, and the Selling Shareholders, on
the other hand, shall only be entitled to indemnification under this Article 10
for breaches of representations and warranties if an Initial Claim Notice
describing the claim for which indemnification is sought is signed by an
executive officer of the Acquiror or by the Selling Shareholders, as the case
may be, and is submitted to the Acquiror or the Selling Shareholders, not later
than forty-eight (48) months following the Closing Date. Any claim for
indemnification pursuant to this Article 10 for breaches of representations and
warranties not made prior to the expiration of such forty-eightmonth period
shall be extinguished, and all representations and warranties with respect to
which no claim is made prior to the expiration of such forty-eight-month period
shall expire and be of no further force and effect.
(e) Impact of Insurance Proceeds. The gross amount which an Indemnitor is
liable to, for, or on behalf of the Indemnitee pursuant to this Article 10 (the
"Indemnifiable Loss") shall be reduced (including, without limitation,
retroactively) by any insurance proceeds actually recovered by or on behalf of
such Indemnitee related to the Indemnifiable Loss, and shall be further reduced
to take account of any tax benefit to the Indemnitee arising from the
Indemnifiable Loss. Each Indemnitee hereunder agrees to diligently pursue claims
for insurance covering an Indemnifiable Loss hereunder prior to attempting to
collect for such Indemnifiable Loss from an Indemnitor; provided, however, that
the foregoing shall not prevent the Indemnitee from providing the Indemnitor
with an Initial Claim Notice with respect to such Indemnifiable Loss. If an
Indemnitee shall have received or shall have had paid on its behalf an indemnity
payment in respect of an Indemnifiable Loss and shall subsequently receive
directly or indirectly insurance proceeds or tax benefits in respect of such
Indemnifiable Loss, then such Indemnitee shall pay to such Indemnitor the amount
of such insurance proceeds and tax benefits or, if less, the amount of such
indemnity payment. For purposes of this Section, tax benefits arising from an
Indemnifiable Loss shall be determined after taking into account the tax
detriment, if any, arising from the receipt of insurance proceeds or
indemnification payments by or on behalf of the Indemnitee and the tax benefit,
if any, to the Indemnitee arising from any payments to the Indemnitor.
10.4 Payment of Claims for Indemnification. Any amounts payable to the
Acquiror pursuant to the provisions of Section 10.1 shall be the responsibility
of the Selling Shareholders in accordance with Section 10.3 of this Agreement.
Such amounts shall first be payable by offsetting all or a portion of the
payments, if any, to be paid to the Selling Shareholders subsequent to the
Closing Date pursuant to the Note or as Contingent Consideration. Any amounts in
excess of the amount offset pursuant to the Note or as Contingent Consideration
shall be paid promptly upon notice of the Acquiror to the Selling
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Shareholders. Any amounts payable to the Selling Shareholders pursuant to the
provisions of Section 10.2 of this Agreement shall be the responsibility of the
Acquiror and shall be paid promptly upon notice of the Selling Shareholders to
the Acquiror in accordance with Section 10.3 of this Agreement.
10.5 Minimum and Maximum Dollar Limit on Indemnification. The parties
hereto agree that no violations or breaches under any one or more of the
representations and warranties of the Companies, the Selling Shareholders and
the Acquiror set forth in this Agreement shall support a claim for losses,
liabilities, costs, expenses or other damages unless and until such losses,
liabilities, costs, expenses or other damages attributable to all violations and
breaches exceed on a cumulative and aggregate basis the sum of Fifteen Thousand
Dollars ($15,000); provided, however, that if such losses, liabilities, costs,
expenses or other damages exceed the sum of $15,000, the Selling Shareholders
shall be obligated to indemnify the party entitled to indemnification under this
Article 10 for cumulative and aggregate losses, liabilities, costs, expenses or
other damages in the amount of such initial sum of $15,000 and thereafter in
amounts equal to or in excess of $5,000; provided further, however, that the
Acquiror shall be entitled to indemnification hereunder only to the maximum
aggregate amount of One Million Five Hundred Thousand Dollars ($1,500,000.00),
and the Selling Shareholders shall be entitled to indemnification hereunder only
to the maximum aggregate amount of $1,500,000. The $1,500,000 limitation
provided for in this Section 10.5 shall not apply with respect to claims for
indemnification by the Acquiror for losses, liabilities, costs, expenses or
other damages for Taxes pursuant to Section 10.1(c).
10.6 Dispute Resolution. All disputes under this Article 10 shall be
settled by arbitration in St. Louis, Missouri before a single arbitrator
pursuant to the rules of the American Arbitration Association (the "AAA").
Arbitration may be commenced at any time by any party hereto giving written
notice to each other party to a dispute that such dispute has been referred to
arbitration under this Section 10.6. The arbitrator shall be selected by the
joint agreement of the Acquiror and the Selling Shareholders, but if they do not
so agree within twenty (20) calendar days after the date of the notice referred
to above, the selection shall be made pursuant to the rules from the panels of
arbitrators maintained by the AAA. Any award rendered by the arbitrator shall be
conclusive and binding upon the parties hereto; provided, however, that any such
award shall be accompanied by a written opinion of the arbitrator giving the
reasons for the award. This provision for arbitration shall be specifically
enforceable by the parties, and the decision of the arbitrator in accordance
herewith shall be final and binding and there shall be no right of appeal
therefrom. Each party shall pay its own expenses of arbitration and the expenses
of the arbitrator shall be paid one-half by the Acquiror and one-half by the
Selling Shareholders; provided, however, that if in the opinion of the
arbitrator any claim for indemnification or any defense or objection thereto was
unreasonable, the arbitrator may assess, as part of his or her award, all or any
part of the expenses of the arbitrator against the party raising such
unreasonable claim, defense or objections.
ARTICLE 11
FEDERAL AND OTHER SECURITIES LAWS
11.1 Investment Representations.
(a) This Agreement is made with the Selling Shareholders in
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reliance upon the Selling Shareholders representations to the Acquiror, which by
their execution hereof the Selling Shareholders hereby confirm, that the
Acquiror Common Stock issued as the Closing Stock Payment or as any portion of
any payment of the Contingent Consideration or Tail Contingent Consideration
(all such securities are referred to as the "Securities" for purposes of this
Article 11) to be received by them will be acquired for investment for their own
accounts, not as a nominee or agent, and not with a view to the sale or
distribution of any part thereof, and that they have no present intention of
selling, granting participation in, or otherwise distributing the same. By
executing this Agreement, the Selling Shareholders further represent that they
do not have any contract, undertaking, agreement or arrangement with any person
to sell, transfer, or grant participations to such person or to any third
person, with respect to any of the Securities.
(b) The Selling Shareholders understand that the Securities are not
registered under the 1933 Act, on the ground that the sale provided for in this
Agreement and the issuance of Securities hereunder should be exempt from
registration under the 1933 Act and that the Acquiror's reliance on such
exemption is predicated on the Selling Shareholders' representations set forth
herein. The Selling Shareholders realize that the basis for the exemption may
not be present if, notwithstanding such representations, the Selling
Shareholders have in mind merely acquiring the Securities for a fixed or
determinable period in the future, or for a market rise or for sale if the
market does not rise. The Selling Shareholders confirm that they have no such
intention.
(c) The Selling Shareholders represent that they are "accredited investors"
within the meaning of Rule 501 under the 1933 Act and that they are experienced
in evaluating and investing in companies such as the Acquiror, are able to fend
for themselves in the transactions contemplated by this Agreement, have such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of their investment and have the ability to bear
the economic risks of their investment. The Selling Shareholders further
represent that they have had access, during the course of the transaction and
prior to their purchase of the Securities, to the information filed by the
Acquiror with the Securities and Exchange Commission and that they have had,
during the course of the transaction and prior to her execution hereof, the
opportunity to ask questions of, and to receive answers from, the Acquiror
concerning the terms and conditions of the offering of the Securities and to
obtain additional information necessary to verify the accuracy of any
information furnished to them or to which they have had access.
(d) The Selling Shareholders understand that the Securities may not be
sold, transferred or otherwise disposed of without registration under the 1933
Act or an exemption therefrom, and that in the absence of an effective
registration statement covering the Securities or an available exemption from
registration under the 1933 Act, the Securities must be held indefinitely. In
particular, the Selling Shareholders are aware that the Securities may not be
sold pursuant to Rule 144 promulgated under the 1933 Act unless all of the
conditions of that Rule are met. The Selling Shareholders represent that, in the
absence of an effective registration statement covering the Securities, they
will sell, transfer or otherwise dispose of the Securities only in a manner
consistent with their representations set forth herein and then only in
accordance with the provisions of Section 11.1(e) hereof.
(e) The Selling Shareholders agree that in no event will they make a
transfer or disposition of any of the Securities (other than in accordance with
the terms of conversion thereof or pursuant to an effective registration
statement under the 1933 Act), unless
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and until (i) the Selling Shareholders shall have notified the Acquiror of the
proposed disposition and shall have furnished the Acquiror with a statement of
the circumstances surrounding the disposition and assurance that the proposed
disposition is in compliance with all applicable laws and (ii) if reasonably
requested by the Acquiror, at the expense of the Selling Shareholders or the
transferee, they shall have furnished to the Acquiror an opinion of counsel,
reasonably satisfactory to the Acquiror, to the effect that such transfer may be
made without registration under the 1933 Act.
11.2 Legends; Stop Transfer.
(a) All certificates for the Securities may bear the following or a
substantially similar legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT
PURSUANT TO (i) A REGISTRATION STATEMENT RELATING TO THE
SECURITIES WHICH IS EFFECTIVE UNDER THE SECURITIES ACT OF
1933, (ii) RULE 144 UNDER SUCH ACT, OR (iii) AN OPINION OF
COUNSEL OR OTHER EVIDENCE SATISFACTORY TO REHABCARE GROUP,
INC., THAT ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT IS AVAILABLE.
(b) The certificates for the Securities may also bear any legend required
by any applicable state securities or other law.
(c) In addition, the Companies shall make a notation regarding the
restrictions on transfer of the Securities in their respective records and the
Securities shall be transferred on the books of the Acquiror only if transferred
or sold pursuant to an effective registration statement under the 1933 Act
covering such shares or pursuant to and in compliance with the provisions of
Section 11.1(e) hereof.
ARTICLE 12
MISCELLANEOUS
12.1 Notices. Any notices or other communications required or permitted
hereunder to any party hereto shall be sufficiently given if delivered in person
or sent by certified or registered mail, postage prepaid, addressed as follows:
In the case of the Acquiror or the Companies (following the Closing Date):
RehabCare Group, Inc.
7733 Forsyth Boulevard, Suite 1700
St. Louis, Missouri 63105
Attn: James M. Usdan, President and Chief Executive Officer
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With a copy to:
Thompson Coburn
One Mercantile Center, Suite 3400
St. Louis, Missouri 63101
Attn: Robert M. LaRose, Esq.
In the case of the Selling Shareholders or the Companies (prior to the Closing
Date):
Team Rehab
141 N. Meramec, Suite 103
Clayton, Missouri 63105
Attn: Ms. Marilyn Moore, RPT, President
With a copy to:
Menees, Whitney & Burnet
8000 Bonhomme, Suite 207
Clayton, Missouri 63105
Attn: Terry Burnet, Esq.
or such substituted address as any party shall have given notice to the others
in writing in the manner set forth in this Section 12.1.
12.2 Amendment. This Agreement may be amended or modified in whole or in
part only by an agreement in writing executed by all parties hereto and making
specific reference to this Agreement.
12.3 Waiver. The parties hereto may, by written agreement: (a) extend the
time for the performance of any of the obligations or other acts of the parties
hereto; (b) waive any inaccuracies in the representations contained in this
Agreement; (c) waive compliance with, or modify, any of the covenants or
conditions contained in this Agreement; and (d) waive or modify performance of
any of the obligations of any of the parties hereto; provided, however, that no
such waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall operate as a waiver of, or an estoppel
with respect to, any subsequent insistence upon such strict compliance other
than with respect to the matter so waived or modified.
12.4 Termination. This Agreement may be terminated by the parties hereto
prior to Closing as follows:
(a) by mutual written consent of the Acquiror and the Selling Shareholders;
(b) upon written notice from the Acquiror to the Selling Shareholders if
any of the conditions precedent to the Acquiror's obligations hereunder shall
have become incapable of fulfillment through no fault of the Acquiror;
40
<PAGE> 79
(c) upon written notice from the Selling Shareholders to the Acquiror if
any of the conditions precedent to the Selling Shareholders' obligations
hereunder shall have become incapable of fulfillment through no fault of the
Selling Shareholders;
(d) by the Acquiror, on the one hand, or the Selling Shareholders, on the
other hand, in the event of a breach by the other party to this Agreement of any
representation, warranty or agreement contained herein, which breach is not
cured within 30 days after written notice thereof is given to the breaching
party by the non-breaching party or is not waived by the non-breaching party
during such period; or
(e) at the election of the Acquiror or the Selling Shareholders if the
Closing has not occurred on or prior to February 28, 1997.
12.5 Indebtedness of Future Acquisitions. The Acquiror agrees that, in any
subsequent stock purchase, merger, consolidation, asset acquisition or other
business combination in which the Acquiror is the surviving or acquiring entity,
any indebtedness issued by the Acquiror to any shareholders or owners of such
acquired company or entity, or to such acquired company or entity itself, shall
not be senior by its terms to the principal and interest payments under the
Note.
12.6 Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one instrument.
12.7 Binding on Successors and Assigns. This Agreement shall be binding
upon, inure to the benefit of and be enforceable by and against the parties
hereto and their respective successors and assigns in accordance with the terms
hereof. No party hereto may assign its interest under this Agreement without the
prior written consent of the other parties hereto.
12.8 Severability. In the event that any one or more of the provisions
contained in this Agreement or any application thereof shall be invalid, illegal
or unenforceable in any respect, the validity, legality or enforceability of the
remaining provisions of this Agreement and any other application thereof shall
not in any way be affected or impaired thereby; provided, however, that to the
extent permitted by applicable law, any invalid, illegal, or unenforceable
provision may be considered for the purpose of determining the intent of the
parties in connection with the other provisions of this Agreement.
12.9 Headings. The headings in the sections and subsections of this
Agreement and in the Schedules are inserted for convenience only and in no way
alter, amend, modify, limit or restrict the contractual obligations of the
parties.
12.10 Expenses of Litigation. In the event of any litigation arising from
the breach of this Agreement, the Note, the Employment Agreement or the
Registration Rights Agreement, the prevailing party in such litigation shall be
entitled to recover reasonable attorneys' fees and costs, including appeals.
12.11 Press Releases. Except as may be required by law or as provided in
this Section 12.11, none of the Acquiror, the Companies or the Selling
Shareholders shall engage in, encourage, or support any publicity or disclosure
of any kind or form in connection with this
41
<PAGE> 80
Agreement or the transactions contemplated hereby unless the Acquiror, the
Companies and the Selling Shareholders mutually agree in advance on the form,
timing and contents of any such publicity, announcement or disclosure, whether
to the financial community, government agencies or the public generally.
Notwithstanding the foregoing, nothing in this Section 12.11 shall prohibit the
Acquiror or the Companies from disclosing the transactions contemplated pursuant
to this Agreement to their respective parent or affiliate companies, whether
direct or indirect.
12.12 List of Exhibits and Schedules. As mentioned in this Agreement, there
are attached hereto or delivered herewith (except for Schedule 2.2(a) which
shall be delivered with the Team, Moore Co. and Moore P.C. Financial
Statements), the following Exhibits and Schedules:
EXHIBITS
Section
Exhibit Document Reference
A Shareholders' Equity Ownership Intro.
B Subordinated Promissory Note 1.3(b)
C Articles of Incorporation 2.1(b)
D By-laws 2.1(b)
E Employment Agreement 7.7
F Opinion of Menees, Whitney & Burne 9.1(f)
G Opinion of Thompson Coburn 9.2(d)
H Registration Rights Agreement 9.2(f)
SCHEDULES
Schedule
No. Schedule Caption
1.5 Contingent Consideration
2.1(d) Capitalization and Shareholders
2.1(e) Foreign Qualifications
2.1(g) Ownership Interests
2.1(j) Violations or Conflicts
2.1(k) Government Consents
2.2(a) Exceptions to the Team, Moore Co. and Moore P.C.
Financial Statement Presentation
2.2(b) Undisclosed Liabilities
2.2(c) Capital Leases
2.2(d) Certain Changes
2.3(b) Returns Filed and Taxes Paid Exceptions
2.3(c) Miscellaneous Tax Matters
2.3(d) Audit History and Other Proceedings
2.4(a) Properties and Title Exceptions
2.4(b) Leases
2.4(c) Condition of Assets
2.5 Intellectual Property
42
<PAGE> 81
2.6(a) Debt Instruments
2.6(b) Contracts
2.6(c) Insurance
2.6(d) Assignments and Defaults
2.7 Employment Relationships
2.8 Employee and Fringe Benefit Plans
2.9 Labor Relations
2.10 Litigation
2.11 Compliance With Laws
2.11(d)(i) Environmental Matters
2.12 Bank Accounts
2.13 Transactions with Affiliates
2.16 Salary Equivalency Conversion
3.6 Acquiror Financial Statements
6.4 Guarantees
Each of the foregoing Exhibits and Schedules is incorporated herein by this
reference and expressly made a part hereof.
12.13 Expenses. Except to the extent otherwise provided in this Agreement,
each of the parties hereto shall bear its own expenses incurred in connection
with this Agreement and the transactions herein contemplated, including, but not
limited to, legal and accounting fees and expenses.
12.14 Entire Agreement. All prior negotiations and agreements among the
parties hereto are superseded by this Agreement, and there are no
representations, warranties, understandings or agreements other than those
expressly set forth herein or in an Exhibit or Schedule delivered pursuant
hereto, except as modified in writing concurrently herewith or subsequent
hereto.
12.15 Governing Law. This Agreement shall be governed by and construed and
interpreted according to the laws of the State of Missouri, determined without
reference to conflicts of law principles.
[the remainder of this page is left intentionally blank]
43
<PAGE> 82
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives on the day and year first
above written.
The Acquiror:
REHABCARE GROUP, INC.
By /s/ James M. Usdan
James M. Usdan, President and Chief Executive
Officer
The Companies:
TEAMREHAB, INC.
By /s/ Marilyn A. Moore
Marilyn A. Moore, President
MOORE REHABILITATION SERVICES,
INCORPORATED
By /s/ Marilyn A. Moore
Marilyn A. Moore, President
MOORE REHABILITATION SERVICES,
P.C.
By /s/ Marilyn A. Moore
Marilyn A. Moore, President
44
<PAGE> 83
The Selling Shareholders:
/s/ Marilyn A. Moore
Marilyn A. Moore
THE MARILYN A. MOORE REVOCABLE TRUST U/T/A
FEBRUARY 23, 1990
By/s/ Marilyn A. Moore
Marilyn A. Moore, Trustee
/s/ Marilyn A. Moore
Marilyn A. Moore, as Custodian for
Christopher S.Moore under the Missouri
Transfers to Minors Law
/s/ Marilyn A Moore
Marilyn A. Moore, as Custodian for Preston J.
Moore under the Missouri Transfers to
Minors Law
/s/ Marilyn A. Moore
Marilyn A. Moore, as Custodian for Joan L.
Moore under the Missouri Transfers to
Minors Law
45
<PAGE> 84
SCHEDULE 1.5
CONTINGENT CONSIDERATION DEFINITIONS AND CALCULATIONS
Definitions
"Base EBIT" shall mean the Target Minimum Cumulative EBIT for the fiscal
year ending December 31, 1997.
"Cumulative EBIT" for a given fiscal year shall mean an amount equal to the
sum of:
(a) the combined aggregate net income of the Companies during
such fiscal year, determined in accordance with GAAP consistently applied, but
specifically (i) including, as if they were earnings, the amount of earnings of
any entity acquired by the Acquiror as shall have been agreed upon by the
Acquiror and the Selling Shareholder pursuant to Section 6.3 hereof, (ii)
including, as if they were earnings, any of the Acquiror's overhead, as it
exists prior to the consummation of the stock purchases of the Companies set
forth in the Agreement, that the Acquiror is able to allocate to the Medicare
portion of the Companies' operations and that is passed through to and accepted
by Medicare under cost reimbursement, and (iii) excluding, in the event that the
Acquiror and the Companies consolidate certain of administrative functions in an
effort to realize savings to the Acquiror on a consolidated basis, any amounts
of administrative overhead costs allocated by the Acquiror to the Companies that
are in excess of the costs which the Companies would have incurred had the
consolidated administrative functions remained distinct; plus
(b) the combined aggregate net interest expense (as reduced by
any interest income), amortization of goodwill associated with the acquisition
of the Companies by Acquiror, and the combined aggregate tax expense of the
Companies for such fiscal year; plus
(c) beginning in the fiscal year ended December 31, 1998, the
Cumulative EBIT of the Companies for the preceding fiscal year.
For purposes of determining the Target Minimum Cumulative EBIT for the fiscal
year ended December 31, 1997 pursuant to this Schedule 1.5 (including the tables
set forth herein), the Cumulative EBIT of the Companies for the fiscal year
ended December 31, 1996 shall be deemed to equal to One Million Two Hundred
Seventy Thousand Dollars ($1,270,000.00) (the "the Agreed 1996 Combined
Earnings"), unless, based on the calculation pursuant to Section 1.4 of the
attached Agreement, the Recalculated 1996 Combined Earnings of the Companies for
the fiscal year ended December 31, 1996 are less than the Agreed 1996 Combined
Earnings of the Companies by a factor of more than 10%. In such case the
Cumulative EBIT of the Companies for the fiscal year ended December 31, 1996
shall be deemed to equal the Recalculated 1996 Combined Earnings.
"Excess EBIT Multiplier" shall mean the factor for a given fiscal year
as set forth in the Excess EBIT Multiplier column of the table in this Schedule
1.5 by which the excess of Cumulative EBIT over the Target Minimum Cumulative
EBIT, each determined for such fiscal year, shall be multiplied to determine the
Contingent Consideration to be paid to the Selling Shareholders for such fiscal
year.
1
<PAGE> 85
"Maximum Cumulative Contingent Consideration" shall mean the maximum
amount of aggregate Contingent Consideration that is payable through a given
fiscal year as set forth in the Maximum Cumulative Contingent Consideration
table in this Schedule 1.5 below.
"Target Minimum Cumulative EBIT" shall mean the minimum amount of
Cumulative EBIT that the Companies must have through a given fiscal year to
require a payment of Contingent Consideration for such fiscal year.
Calculations
Subsequent to the consummation of the stock acquisitions contemplated in
the attached Agreement, the fiscal year used to measure Cumulative EBIT (and to
which the EBIT Multiplier, Target Minimum Cumulative EBIT and Maximum Cumulative
Contingent Consideration set forth on the table below relate) will end on the
31st day of December in the year indicated on the table below. The Contingent
Consideration payable to the Selling Shareholders for a given fiscal year will
be determined pursuant to the formula set forth in Section 1.5(c) of the
attached Agreement.
1. Agreed 1996 Combined Earnings. Table 1, below, assumes that the
Recalculated 1996 Combined Earnings do not vary from the Agreed 1996 Combined
Earnings by a factor of more than 10%. In such case, the Cumulative EBIT for the
fiscal year ending December 31, 1996 would be deemed to be equal to the Agreed
1996 Combined Earnings of $1,270,000. The Target Minimum Cumulative EBIT for the
fiscal year ending December 31, 1997, $1,524,000, which is also the Base EBIT
for purposes of calculating the Target Minimum Cumulative EBIT for all
subsequent years, would be determined by multiplying the Agreed 1996 Combined
Earnings, $1,270,000, by 1.20. For all subsequent fiscal years, the Target
Minimum Cumulative EBIT for a given year was determined by multiplying the
immediately prior fiscal year's Target Minimum Cumulative EBIT by 1.20 and
adding to such product the Base EBIT ($1,524,000).
<TABLE>
<CAPTION>
Table 1
Target Maximum
Fiscal Year Excess Minimum Cumulative
Ending EBIT Cumulative Contingent
December 31 Multiplier EBIT Consideration
<S> <C> <C> <C>
1997 4.19 $1,524,000 $ 600,000
1998 4.19 3,352,800 1,200,000
1999 4.19 5,547,360 1,800,000
2000 4.19 8,180,832 2,400,000
</TABLE>
2
<PAGE> 86
2. Actual 1996 Combined Earnings In the event that the Cumulative EBIT
for the year ended December 31, 1996 is deemed pursuant to this Schedule 1.5 to
be equal to the Recalculated 1996 Combined Earnings rather than the Agreed 1996
Combined Earnings, the calculations shown in Table 1 would be adjusted such that
the Target Minimum Cumulative EBIT for the fiscal year ended December 31, 1997
(which would also be the Base EBIT for purposes of calculating the Target
Minimum Cumulative EBIT in subsequent years) would be the product of the
Recalculated 1996 Combined Earnings and 1.20. The Target Minimum Cumulative EBIT
for all subsequent years would be recalculated accordingly using such adjusted
Base EBIT. Accordingly, the Maximum Cumulative Contingent Consideration for each
fiscal year would also be adjusted by multiplying the Maximum Cumulative
Contingent Consideration for each fiscal year shown in Table 1 by the percentage
by which the Recalculated 1996 Combined Earnings varies from the Agreed 1996
Combined Earnings.
Table 2, below, assumes that the Recalculated 1996 Combined Earnings of the
Companies are $1,117,600, reflecting a downward variance from the Agreed 1996
Combined Earnings ($1,270,000) of $152,400, or 12%, and resulting in the use of
the Recalculated 1996 Combined Earnings as the Cumulative EBIT for the year
ended December 31, 1996. In such case, the Target Minimum Cumulative EBIT for
the fiscal year ended December 31, 1997 (which also serves as the Base EBIT)
would be calculated by multiplying the Recalculated 1996 Combined Earnings,
$1,117,600, by 1.20. The adjusted Target Minimum Cumulative EBIT for the year
ended December 31, 1997 ($1,341,120) would then be used as the Base EBIT for
purposes of calculating the Target Minimum Cumulative EBIT for subsequent years,
and the Maximum Cumulative Contingent Consideration for each fiscal year would
be equal to the product of the Maximum Cumulative Contingent Consideration for
such fiscal year shown in Table 2 and 0.88.
<TABLE>
<CAPTION>
Table 2
Target Maximum
Fiscal Year Excess Minimum Cumulative
Ending EBIT Cumulative Contingent
December 31 Multiplier EBIT Consideration
<S> <C> <C> <C>
1997 4.19 $ 1,341,120 $ 528,000
1998 4.19 2,950,464 1,056,000
1999 4.19 4,881,677 1,584,000
2000 4.19 7,199,132 2,112,000
</TABLE>
3
<PAGE> 87
Exhibit 10.20
Exhibit B
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID
ACT OR AN OPINION OF COUNSEL SATISFACTORY TO REHABCARE GROUP, INC., THAT SUCH
REGISTRATION IS NOT REQUIRED.
SUBORDINATED PROMISSORY NOTE
$1,500,000.00 January 28, 1997
St. Louis, Missouri
FOR VALUE RECEIVED, the undersigned, REHABCARE GROUP, INC., a
Delaware corporation (hereinafter "Maker"), promises to pay to the order of
MARILYN A. MOORE (hereinafter "Holder"), at such place as Holder may from time
to time designate in writing, the principal sum of One Million Five Hundred
Thousand and 00/100 Dollars ($1,500,000.00). Interest shall accrue on the unpaid
principal balance from the date hereof at the lower of the maximum rate
permitted by law or eight percent (8%) per annum.
Principal and interest payable under this Note shall be
payable ratably commencing May 1, 1997 in sixteen (16) consecutive quarterly
installments in the amount of Ninety-Three Thousand, Seven Hundred Fifty Dollars
($93,750.00) each.
In the event any payment falls due on a Saturday, Sunday or
legal holiday, the payment shall instead be due on the next business day with
the same effect as if such payment had been paid on the due date thereof.
Interest shall be calculated on the basis of the actual days elapsed and a year
of 365 or 366 days, as applicable.
Should default be made in payment of any installment of
principal or interest when due, the whole sum of unpaid principal and interest
shall immediately become due and payable at the option of Holder upon the
expiration of ten (10) days following written demand for payment to Maker or any
third party, as appropriate, unless default is cured within such ten (10) day
period.
Maker waives presentment, protest and notice of dishonor or
nonpayment.
Maker shall pay to Holder reasonable attorneys' fees and all
costs and other expenses reasonably incurred by Holder in enforcing payment and
in connection with collection of any amount due under this Note; provided,
however, that Holder must first provide Maker written notice that it will take
action to enforce payment.
This Note is given pursuant to the terms of the Stock Purchase
Agreement, dated as of January 27, 1997 (the "Stock Purchase Agreement"), among
Maker, Holder, Team Rehab, Inc., a Missouri corporation, Moore Rehabilitation
Services, Incorporated, a Missouri corporation and Moore Rehabilitation
Services, P.C., an Illinois professional corporation. The principal sum of this
Note is subject to reduction upon the terms and in the manner set forth in
Article 10 of the Stock Purchase Agreement, in which case, this Note shall be
deemed to evidence a promise to pay such reduced principal amount. If such a
reduction in the
<PAGE> 88
principal amount is effected, this Note shall be marked to show the reduced
principal amount or shall be exchanged for a new Subordinated Promissory Note
reflecting the reduced principal amount, but being otherwise in form and
substance substantially identical to this Note.
Maker may, at its option, at any time on or after January ,
1998, redeem this Note at 100% of the then outstanding principal amount of the
Note) plus accrued interest to the Redemption Date (as defined below).
Notice of redemption at the option of Maker will be mailed at
least 30 days but not more than 60 days before the Redemption Date to Holder of
this Note to be redeemed at his registered address as set forth in the Note
register. On and after the date set forth in the notice as the date upon which
Maker will redeem this Note called for redemption (the "Redemption Date")
interest shall cease to accrue on this Note or portions thereof called for
redemption by Maker provided that there is no default in the payment of the
redemption price by Maker on the Redemption Date.
For the purposes of this Note, the following terms shall have the
respective meanings ascribed to them:
"Indebtedness" of Maker as of any determination date shall mean:
(i) any debt of Maker (A) for borrowed
money, (B) evidenced by a note, debenture or similar
instrument (including a purchase money obligation)
given in connection with the acquisition of any
property or assets (other than inventory, goods,
materials and services or similar property acquired
in the ordinary course of business), including
securities, (c) representing payment obligations of
Maker arising out of interest swap arrangements of
Maker relating to debt referenced in clause (A) or
(B) above or reimbursement obligations with respect
to letters of credit, or (D) for the payment of money
relating to the lease of any property which lease is
capitalized on the balance sheet of Maker
(consolidated if Maker shall have any subsidiary) in
accordance with generally accepted accounting
principles, consistently applied; and
(ii) any debt of others described in the
preceding clause (i) which Maker has guaranteed or
for which it is otherwise liable or for which assets
of Maker serve as collateral (in which case the
amount of such debt shall be equal to the fair market
value of such collateral as determined in good faith
by the Board of Directors of Maker).
"Senior Debt" of Maker as of the date of any determination thereof shall
mean all Indebtedness of Maker which is not expressed to be subordinated or
junior to any other Indebtedness of Maker, including without limitation all
present and future obligations and Indebtedness of Maker to The Boatmen's
National Bank of St. Louis, whether or not contingent, consisting of principal,
interest, fees, charges and other obligations and sums.
This Note is subordinate and junior in right of payment and
performance, to the extent and in the manner hereinafter set forth, to the
Senior Debt of Maker. The Senior Debt shall continue to be Senior Debt and
entitled to the benefits of these subordination provisions irrespective of any
amendment, modification or waiver of any term of the Senior Debt (including but
not limited to modifications to interest rates and payment terms) or extension,
renewal or refinancing of the Senior Debt, or the creation of any new Senior
Debt, whether or not presently contemplated by Maker. If any Senior Lender (as
hereinafter defined) gives Maker and Holder a written notice (a "Default
Notice") which (i) states that one or more Events of Default (as hereinafter
defined) has occurred and is continuing, and (ii) instructs Maker to cease
making payments and Holder to cease accepting and receiving payments, of amounts
due under this Note, then, unless and until such Event of Default shall have
been cured or waived or shall have ceased to exist, Maker will not make and
2
<PAGE> 89
Holder will not ask for, demand, sue for, take or receive from Maker, any direct
or indirect payment (in cash, property or otherwise) on account of the principal
of, or premium, if any, or interest on this Note, during any period after
written notice of such default shall have been given to Maker by a holder of any
Senior Debt. In the event of: (i) any insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to Maker, or to its property, (ii) any proceedings for the
liquidation, dissolution or other winding-up of Maker, voluntary or involuntary,
whether or not involving insolvency or bankruptcy proceedings, (iii) any
assignment by Maker for the benefit of its creditors, or (iv) any other
marshalling of the assets of Maker, all Senior Debt (including any interest
thereon accruing after the commencement of any such proceedings and any
additional interest that would have accrued thereon but for the commencement of
such proceedings) shall first be paid in full before any payment or
distribution, whether in cash or other property, shall be made to Holder on
account of this Note. Notwithstanding any provision contained in this Note, so
long as a Senior Lender has not sent Maker and Holder a Default Notice, Maker
shall pay to Holder and Holder may receive, accept and apply, the regularly
scheduled interest and principal payments provided for herein on this Note as
and when the same become due. For purposes hereof, the term "Event of Default"
shall mean any Event of Default, as defined in any loan document, lease, note,
guaranty or any other agreement, instrument or document under which the same is
now or hereafter outstanding (each hereinafter referred to as a "Senior Loan
Document," which term shall include any modifications, amendments, extensions,
renewals or replacements thereof), such that the holders thereof accelerate the
maturity thereof. The term "Senior Lender" shall mean and include each obligee
or other holder of any of the obligations included in the meaning of "Senior
Debt," including but not limited to The Boatmen's National Bank of St. Louis and
its successors and assigns. If any payment or distribution, whether in cash,
securities or other property, shall be received by Holder in contravention of
any of the terms hereof and before all the Senior Debt shall have been paid in
full, and a Default Notice shall have preceded such payment or distribution,
such payment or distribution shall be received in trust for the benefit of, and
shall be paid over or delivered and transferred to, the holders of the Senior
Debt for application to the payment of all Senior Debt remaining unpaid, to the
extent necessary to pay all such Senior Debt in full and, thereupon, such
payment shall not be deemed to have been received by Holder as a payment or
payments under this Note. In the event of the failure of Holder to endorse or
assign any such payment or distribution, the holder of the Senior Debt is hereby
irrevocably authorized to endorse or assign the same. No present or future
holder of the Senior Debt shall be prejudiced in the right to enforce
subordination of this Note by any act or failure to act on the part of Maker.
The foregoing provisions as to subordination are solely for
the purpose of defining the relative rights of the holders of the Senior Debt,
on the one hand, and Holder, on the other hand. Nothing contained herein shall
impair, as between Maker and Holder, the obligation of Maker, which is
unconditional and absolute, to pay to Holder the principal hereof and interest
hereon as and when the same shall become due and payable in accordance with the
terms hereof, or prevent Holder from exercising all rights, powers and remedies
otherwise permitted by applicable law or hereunder upon a default hereunder, all
subject to the rights of the holders of the Senior Debt to receive cash or other
property otherwise payable or deliverable to Holder. Holder will take such
action (including, without limitation, consent to the filing of a financing
statement with respect thereto) as may, in the opinion of any holder of Senior
Debt at the time outstanding, be necessary or appropriate to assure the
effectiveness of the subordination effected by these provisions.
Subject to the foregoing provisions as to subordination, the
Maker agrees that, in any stock purchase, merger, consolidation, asset
acquisition or other business combination consummated by the Maker after the
date hereof in which the Maker is the surviving or acquiring entity, any
indebtedness issued by the Maker to any shareholders or owners of such acquired
company or entity, or to such acquired company or entity itself, shall not be
senior by its terms to the principal and interest payments under this Note.
Notwithstanding anything herein to the contrary, Holder may
accelerate this Note and commence enforcement actions with respect thereto, or
otherwise receive and accept payments under this Note, if a Default Notice has
been given to Maker or Holder by a Senior Lender and (i) within 180 days from
3
<PAGE> 90
the date of such Default Notice, the Event or Events of Default described
therein are not waived by the Senior Lender, eliminated as a result of an
amendment or modification of the Senior Loan Documents or cured, or (ii) the
Senior Lender accelerates its Senior Debt and commences enforcement actions with
respect thereto or the collateral therefor. In the event that the Senior Lender
has sent Maker and Holder a Default Notice, Holder shall have no right to
accelerate, enforce any claim with respect to this Note, or otherwise take any
action against Maker or Maker's property without the prior written consent of
Senior Lenders, until such time as the Senior Debt has been paid in full and
Senior Lenders have no obligation to make further advances to Maker.
Maker hereby covenants and agrees to send to Holder,
immediately upon receipt by Maker, any notice of acceleration or commencement of
enforcement actions received by Maker from the Senior Lender.
Each Default Notice shall be deemed to have been given by a
Senior Lender to Maker or Holder when delivered in person to such party at
Holder's address listed in the Stock Purchase Agreement or when deposited in the
United States mail, first class postage prepaid, or, in the case of telegraphic
notice or overnight courier services, one business day after delivered to the
telegraphic company or overnight courier service with payment provided for, or
in the case of telex or telecopy notice, when sent, verification received, in
each case addressed to Maker and Holder at their respective addresses listed in
the Stock Purchase Agreement or at such other address as either party may
designate by notice to the other in accordance with this paragraph.
This Note and each of the terms hereof shall be binding upon
Maker's successors and assigns. No failure on the part of Holder hereunder to
exercise, and no delay in exercising any right, power or remedy hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or remedy hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, power or remedy hereunder preclude
any other or further exercise of any other right, power or remedy.
Holder may not assign this Note without the prior written
consent of Maker, except that Holder may collaterally assign Holder's interests
in this Note without such written consent. Any prohibited assignment will be
null and void.
This Note may not be changed, modified or terminated orally,
but may be changed, modified or terminated only by an agreement in writing
signed by Holder hereof and only with the prior written consent of the holders
of Senior Debt or others who are committed to make future advances to Maker that
would constitute Senior Debt if and when the same are made.
Principal and interest payable hereunder shall be paid in
lawful money of the United States. The terms and provisions hereof shall be
governed by the laws of the State of Delaware.
Executed as an instrument under seal as of the date first
above written.
MAKER:
REHABCARE GROUP, INC.
Witnessed:
By:
James M. Usdan, President and Chief
Executive Officer
4
<PAGE> 91
ASSIGNMENT FORM
I/We assign and transfer this Note
(insert name address and zip code of assignee)[ ] (insert assignee's social
security number or taxpayer identification number) and irrevocably appoint
_____________________________________ as agent to transfer this Note on the
books and records of Maker. The agent may substitute another to act for it.
Date: _______________
Signature(s) of Holder(s)
(Sign exactly as your name
appears on the face of the
Note. Joint owners must
both sign.)
5
<PAGE> 92
Exhibit 11.1
<TABLE>
REHABCARE GROUP, INC.
Computation of Per Share Earnings
(Amounts in thousands, except per share data)
<CAPTION>
Ten Months Ended
December 31, February 29, February 28,
1996 1996 1995
Primary Earnings Per Share
<S> <C> <C> <C>
Net earnings $ 5,768 5,878 4,735
Less dividends on redeemable preferred stock -- -- 42
Less accretion of redeemable preferred stock -- -- 11
$ 5,768 5,878 4,682
Average number of shares of common stock and
common stock equivalents outstanding 4,667 4,483 4,409
Dilutive effect of stock options after
application of treasury stock method 259 167 55
Average number of shares of common stock and
common stock equivalents for computation
of primary earnings per share 4,926 4,650 4,464
Primary earnings per share $ 1.17 1.26 1.05
Fully Diluted Earnings Per Share
Net earnings $5,768 5,878 4,735
Plus after tax interest on convertible subordinated
promissory notes 184 -- --
$5,952 5,878 4,735
Average number of shares of common stock and
common stock equivalents outstanding 4,667 4,483 4,409
Dilutive effect of stock options after
application of treasury stock method 394 292 55
Convertible subordinated promissory notes 282 -- --
Convertible redeemable preferred stock -- -- 57
Average number of shares of common stock and
common stock equivalents for computation
of fully diluted earnings per share 5,343 4,775 4,521
Fully diluted earnings per share $ 1.11 1.23 1.05
</TABLE>
<PAGE> 93
Exhibit 13.1
<TABLE>
SIX - YEAR FINANCIAL SUMMARY
(Dollar amounts in thousands, except per share data)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
(Year ended the last day of February, unless noted)
1996<F1> 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statement of earnings data:
Operating revenues $104,611 $89,377 $83,210 $61,740 $48,419 $44,546
Operating earnings 10,698 10,276 8,531 5,533 5,026 3,907
Net earnings 5,768 5,878 4,735 3,070 2,948 2,714
Net earnings per share (EPS):
Primary $ 1.17 $ 1.26 $ 1.05 $ 0.88 $ 0.73 $ 0.60
Fully diluted $ 1.11 $ 1.23 $ 1.05 $ 0.88 $ 0.73 $ 0.60
Weighted average shares outstanding:
Primary 4,926,000 4,650,000 4,464,000 3,050,000 3,912,000 4,553,000
Fully diluted 5,343,000 4,775,000 4,521,000 3,475,000 4,058,000 4,553,000
- ------------------------------------------------------------------------------------------------------------
Balance sheet data:
Working capital $ 9,254 $11,818 $ 5,460 $ 6,271 $ 7,798 $12,566
Total assets 80,802 57,066 52,833 45,445 20,124 20,318
Long-term debt 14,000 5,032 7,122 7,500 9,500 --
Redeemable preferred stock -- -- -- 3,568 3,499 --
Stockholders' equity 49,670 38,897 32,431 24,132 (291) 16,254
- -------------------------------------------------------------------------------------------------------------
Financial statistics:
Operating margin 10.2% 11.5% 10.2% 9.0% 10.4% 8.8%
Net margin 5.5% 6.6% 5.7% 5.0% 6.1% 6.1%
Current ratio 1.6:1 2.0:1 1.4:1 1.6:1 2.1:1 4.1:1
Primary EPS growth rate 15.8% 20.0% 19.3% 20.5% 21.7% (9.1%)
Return on equity <F2> 13.0% 16.5% 16.7% 25.8% 36.9% 24.6%
- --------------------------------------------------------------------------------------------------------------
Operating statistics:
Inpatient (acute rehab and subacute)
Average number of units 91.7 84.7 84.1 64.4 49.3 50.8
Average occupied beds per unit 12.8 13.2 13.2 13.8 14.5 13.3
Average admissions per unit 247 279 261 264 266 230
Average length of stay (billable) 15.8 17.3 18.4 19.0 19.8 21.2
Patient days (billable) 357,780 408,385 403,784 323,040 260,134 247,534
Outpatient:
Average number of locations 19.3 21.2 13.6 7.6 5.1 3.1
Patient visits 176,062 278,970 135,064 N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------
<FN>
<F1> Ten month period ended December 31, 1996 reflects the change to a calendar
year-end from the last day of February previously.
<F2> Average of beginning and ending equity.
N/A - Not available
</FN>
</TABLE>
- -----------------------------------------------------------------------------
Stock Data
The Company's common stock is listed and traded on the NASDAQ National Market
System under the symbol "RHBC". The stock prices below are the high and low sale
prices as reported on NASDAQ.
<TABLE>
<CAPTION>
Calendar
Quarter 1st 2nd 3rd 4th
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996: High 19 3/4 18 3/8 19 5/8 20 5/8
Low 15 14 3/4 14 3/4 16 3/4
- -------------------------------------------------------------------------------------------------------------------
1995: High 14 1/2 15 15 3/4 20
Low 11 1/4 11 7/8 13 1/2 12 1/2
</TABLE>
The Company has not paid dividends on its common stock during the two most
recently completed fiscal periods and has not declared any dividends during the
current fiscal period. The Company does not anticipate paying cash dividends in
the foreseeable future. The number of holders of the Company's common stock as
of March 7, 1997 was approximately 3,250 including 157 shareholders of record
and an estimated 3,093 persons or entities holding common stock in nominee name.
In our ongoing efforts to control costs, we have eliminated production of our
quarterly reports, an action taken by many other publicly held companies.
Instead, shareholders may receive earnings news releases, which provide timely
financial information, by notifying our investor relations department
<PAGE> 94
Board of Directors
William G. Anderson <F1>
Retired Vice Chairman
Ernst & Young
St. Louis, Missouri
Richard E. Ragsdale <F2>
Chairman
Community Health
Systems, Inc.
Brentwood, Tenessee
John H. Short, Ph.D.<F1>
Managing Partner
Phase II Consulting
Salt Lake City, Utah
Richard C. Stoddard
Executive Vice President
RehabCare Group, Inc.
President, Healthcare
Staffing Solutions, Inc.
H. Edwin Trusheim <F2>
Retired Chairman
General American
Life Insurance Company
St. Louis, Missouri
James M. Usdan
President &
Chief Executive Officer
RehabCare Group, Inc.
Theodore M. Wight <F2>
A General Partner of the
General Partners of Walden
Investors & Pacific Northwest
Partners SBIC, L.P.
Bellevue, Washington
<F1> Audit Committee
<F2> Compensation Committee
<PAGE> 95
Corporate Officers
RehabCare Group, Inc.
James M. Usdan
President &
Chief Executive Officer
Keith L. Goding
Executive Vice President & Chief Development Officer
Alan C. Henderson
Executive Vice President,
Chief Financial Officer
& Secretary
Richard C. Stoddard
Executive Vice President
Hickley M. Waguespack
Executive Vice President &
Chief Operating Officer
Maurice Arbelaez
Senior Vice President,
Operations
Robert S. Bianchi
Senior Vice President,
Program Services
Lisa C. Butlak
Senior Vice President,
Marketing &
Network Relations
Katherine J. Corrigan
Sr. Vice President, Operations
Tom E. Davis
Sr. Vice President, Operations
C. Christopher Eaton
Senior Vice President,
Business Development
John R. Finkenkeller
Senior Vice President
& Treasurer
Mary C. Geary
Sr. Vice President, Operations
Keith F. Petti
Senior Vice President,
Business Development
Gerald M. Scrivener
Senior Vice President,
Business Development
Margaret E. Taylor
Senior Vice President,
Business Development
Stephen J. Toth
Senior Vice President,
Human Resources
Michael J. Dixon
Vice President, Operations
Karen L. Doerr
Vice President,
Program Services
Robert B. Duncan
Vice President,
Business Development
Gregory J. Eisenhauer
Vice President, Acquisitions
Kendra P. Grant
Vice President,
Business Development
<PAGE> 96
Deborah D. Keeton
Vice President, Operations
Jerome M. Lengel
Vice President,
Operations
Dominic D. MacCormac
Vice President,
Business Development
Sean E. Maloney
Vice President,
Recruiting
Andrew J. Rosen
Vice President,
Business Development
Brian P. Samberg
Vice President,
Research and
Development
C. Richard Shelton
Vice President,
Operations
James D. Shelton
Vice President,
Business Development
M. Claire Willman
Vice President,
Subacute Services
RehabCare Outpatient
Services, Inc.
Alfred J. Howard
President
Bekki Roe
Vice President,
Operations
Healthcare Staffing
Solutions, Inc.
Richard C. Stoddard
President
Michael A. Cikacz
Vice President &
Chief Operating
Officer
Paul D. Ranelli
Chief Financial
Officer
TeamRehab, Inc./Moore
Rehabilitation
Services, Inc.
Marilyn A. Moore
President
William C. Gielow, Jr.
Vice President,
Program Development
Judith Mange
Vice President,
Operations
Douglas C. Morris
Vice President, Finance
Medical Advisory Board
Donald S. Adams, M.D.
Medical Director,
Rehabilitation
Programs,
East Jefferson General
Hospital
Metairie, Louisiana
John "A" Burkhart, M.D.
Medical Director,
Rehabilitation
Programs,
Columbus Community
Hospital
Columbus, Ohio
Mark A. Kozinn, M.D.
Medical Director,
Rehabilitation
Programs,
South Fulton Med Ctr
East Point, Georgia
Shelly E. Liss, M.D.
Physical Medicine
& Rehabilitation
Houston, Texas
Paul B. Nemrow, M.D.
Medical Director,
Rehabilitation
Programs,
Saint Francis Memorial
Hospital
San Francisco, Ca
Cynthia K. Taylor, D.O.
Medical Director
Rehabilitation
Programs,
Parma Community General
Hospital
Parma, Ohio
Austin R. Tinsley, M.D.
Medical Director,
Rehabilitation
Programs,
Lucy Lee Hospital
Poplar Bluff, Missouri
Shareholder Information
Stock Transfer Agent &
Registrar
Boatmen's Trust Company
St. Louis, Missouri
Accountants
KPMG Peat Marwick LLP
St. Louis, Missouri
Annual Meeting
April 30, 1997, 8:00 A.M.
Pierre Laclede Ctr,
Second Floor
7733 Forsyth Blvd.
St. Louis, MO 63105
<PAGE> 97
Exhibit 21.1
REHABCARE GROUP, INC.
Subsidiaries of Registrant
RehabCare Outpatient Services, Inc. Incorporated in the State of Florida
Healthcare Staffing Solutions, Inc. Incorporated in the Commonwealth
d/b/a Health Tour of Massachusetts
TeamRehab, Inc. Incorporated in the State of Missouri
Moore Rehabilitation Services, Inc. Incorporated in the State of Missouri
<PAGE> 98
Exhibit 24.1
Independent Auditors' Consent
The Board of Directors
RehabCare Group, Inc.:
We consent to the incorporation by reference in the registration statement (No.
33-58490) on Form S-3; registration statement (No. 33-82106) on Form S-8;
registration statement (No. 33-82048) on Form S-8 and registration statement
(No. 333-11311) on Form S-8 of RehabCare Group, Inc. of our report dated
February 5, 1997, with respect to the consolidated balance sheets of RehabCare
Group, Inc. and subsidiaries as of December 31, 1996 and February 29, 1996, and
the related consolidated statement of earnings, stockholders' equity, and cash
flows for the ten months ended December 31, 1996 and for each of the years in
the two-year period ended February 29, 1996, which report is included in the
December 31, 1996 annual report on Form 10-K of RehabCare Group, Inc.
St. Louis, Missouri
March 24, 1997
