<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 4, 1998
Healthcare Recoveries, Inc.
----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
----------------------------------------------
(State or other jurisdiction of incorporation)
0-22585
------------------------
(Commission File Number)
61-1141758
------------------------------------
(IRS Employer Identification Number)
1400 Watterson Tower, Louisville, Kentucky 40218
------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (502) 454-1340
--------------
Not applicable
-------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
Exhibit Index Located on Page: 5
Total Number of Pages: 64
<PAGE> 2
Item 5. Other Events
On December 4, 1998, Healthcare Recoveries, Inc. a Delaware corporation
("HRI"), MedCap Medical Cost Management, Inc., a California corporation
("MedCap") and Marcia Deutsch, an individual resident of the State of
California, entered into an Asset Purchase Agreement (the "Asset Purchase
Agreement"). Pursuant to the Asset Purchase Agreement, HRI will purchase (the
"Asset Purchase") substantially all of the assets and assume certain of the
liabilities of MedCap. HRI will pay $10,000,000 in cash at closing and
additional amounts over two years pursuant to an earn-out arrangement.
MedCap provides a variety of medical cost management services to health
insurers and HMOs. These products focus on reducing the costs of hospital-based
treatments and include bill auditing, contract compliance review and
identification of other erroneous payments. For the year ended December 31,
1997, MedCap had revenues of approximately $4.7 million and net income of
approximately $380,000. For the nine month period ended September 30, 1998,
MedCap had revenues of approximately $3.5 million and net income of
approximately $380,000.
Consummation of the Asset Purchase is subject to customary terms and
conditions.
<PAGE> 3
Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits
(c) Exhibits
2.1 Asset Purchase Agreement by and among Healthcare Recoveries, Inc.,
MedCap Medical Cost Management, Inc. and Marcia Deutsch, dated as of
December 4, 1998. The Exhibits and Disclosure Letters which are
referenced in the table of contents and elsewhere in the Asset
Purchase Agreement are hereby incorporated by reference. Such
Exhibits and Disclosure Letters have been omitted for purposes of this
filing, but will be furnished supplementally to the Commission upon
request.
99.1 Text of Press Release of Healthcare Recoveries, Inc., dated December 7,
1998.
<PAGE> 4
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: December 11, 1998
HEALTHCARE RECOVERIES, INC.
By: /s/ DOUGLAS R. SHARPS
-------------------------------
Douglas R. Sharps
Executive Vice President -- Finance and
Administration, and Chief Financial Officer
<PAGE> 5
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page No.
- -------- --------
<S> <C> <C>
2.1 Asset Purchase Agreement by and among Healthcare
Recoveries, Inc., MedCap Medical Cost Management,
Inc. and Marcia Deutsch, dated as of December 4,
1998. The Exhibits and Disclosure Letters which
are referenced in the table of contents and
elsewhere in the Asset Purchase Agreement are
hereby incorporated by reference. Such Exhibits
and Disclosure Letters have been omitted for
purposes of this filing, but will be furnished
supplementally to the Commission upon request.
99.1 Text of Press Release of Healthcare Recoveries, Inc.,
dated December 7, 1998.
</TABLE>
<PAGE> 1
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
among
HEALTHCARE RECOVERIES, INC.,
MEDCAP MEDICAL COST MANAGEMENT, INC.,
and
MARCIA DEUTSCH.
As of December 4, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C> <C>
ARTICLE 1.
ASSET PURCHASE AND SALE.......................................................................2
Section 1.1. Agreement to Sell..................................................2
Section 1.2. Included Assets....................................................2
Section 1.3. Excluded Assets....................................................3
Section 1.4. Agreement to Purchase..............................................3
Section 1.5. The Purchase Price.................................................3
Section 1.6. Preliminary Closing Payment; Net Working Capital
Adjustment; Initial Installment Payment; Final
Installment Payment................................................4
Section 1.7. Valuation For Tax Reporting Purposes...............................7
Section 1.8. Assumption of Assumed Obligations..................................7
Section 1.9. Excluded Liabilities...............................................8
Section 1.10. Prorations.........................................................9
ARTICLE 2.
CLOSING; ITEMS TO BE DELIVERED; FURTHER ASSURANCES............................................9
Section 2.1. Closing............................................................9
Section 2.2. Items to be Delivered at Closing..................................10
Section 2.3. Further Assurances................................................11
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER.....................................11
Section 3.1. Organization......................................................11
Section 3.2. Authorization.....................................................11
Section 3.3. No Interest in Other Entities.....................................12
Section 3.4. Absence of Restrictions and Conflicts.............................12
Section 3.5. Ownership of Assets and Related Matters...........................12
Section 3.6. Financial Statements..............................................14
Section 3.7. No Undisclosed Liabilities........................................14
Section 3.8. Absence of Certain Changes........................................14
Section 3.9. Legal Proceedings.................................................15
Section 3.10. Compliance with Law...............................................15
Section 3.11. Audit and Business Practices......................................16
Section 3.12. Seller Material Contracts.........................................16
Section 3.13. Seller Client Contracts...........................................17
Section 3.14. Tax Returns; Taxes................................................17
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C> <C>
Section 3.15. Officers, Directors and Employees.................................18
Section 3.16. Employee Benefit Plans............................................18
Section 3.17. Labor Relations...................................................19
Section 3.18. Insurance.........................................................20
Section 3.19. Environmental Matters.............................................20
Section 3.20. Patents, Trademarks, Trade Names..................................20
Section 3.21. Seller Computer Software and Hardware.............................21
Section 3.22. Transactions with Affiliates......................................22
Section 3.23. Accounts Receivable...............................................23
Section 3.24. Brokers, Finders and Investment Bankers...........................23
Section 3.25. Disclosure........................................................23
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF PURCHASER..................................................23
Section 4.1. Organization......................................................23
Section 4.2. Authorization.....................................................23
Section 4.3. Absence of Restrictions and Conflicts.............................24
Section 4.4. Brokers, Finders and Investment Bankers...........................24
Section 4.5. Disclosure........................................................24
Section 4.6. Business Operations...............................................24
ARTICLE 5.
CERTAIN COVENANTS AND AGREEMENTS.............................................................25
Section 5.1. Conduct of Business by Seller.....................................25
Section 5.2. Inspection and Access to Information..............................26
Section 5.3. No Solicitation; Acquisition Proposals............................27
Section 5.4. Best Efforts; Further Assurances; Cooperation.....................27
Section 5.5. Public Announcements..............................................28
Section 5.6. Financial Statements..............................................28
Section 5.7. Supplements to Disclosure Letters.................................28
Section 5.8. Liability for Benefits/Withdrawal from Plans......................29
Section 5.9. Employment Matters................................................30
Section 5.10. Noncompetition and Nonsolicitation Agreements.....................31
Section 5.11. Shareholder Employment Agreement..................................31
Section 5.12. Books and Records.................................................31
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C> <C>
ARTICLE 6.
CONDITIONS...................................................................................32
Section 6.1. Conditions to Each Party's Obligations............................32
Section 6.2. Conditions to Obligations of Purchaser............................32
Section 6.3. Conditions to Obligations of Seller...............................33
ARTICLE 7.
TERMINATION..................................................................................34
Section 7.1. Termination and Abandonment.......................................34
Section 7.2. Specific Performance and Other Remedies...........................34
Section 7.3. Effect of Termination.............................................34
ARTICLE 8.
INDEMNIFICATION..............................................................................35
Section 8.1. Indemnification Obligations of the Shareholder and Seller.........35
Section 8.2. Indemnification Obligations of Purchaser..........................36
Section 8.3. Indemnification Procedure.........................................36
Section 8.4. Claims Period.....................................................38
Section 8.5. Liability Limits..................................................39
Section 8.6. Jurisdiction, Forum and Arbitration...............................40
Section 8.7. Compliance with Bulk Sales Laws...................................43
Section 8.8. Sole Remedy; Waiver...............................................43
ARTICLE 9.
MISCELLANEOUS PROVISIONS.....................................................................43
Section 9.1. Notices...........................................................43
Section 9.2. Disclosure Letters and Exhibits...................................45
Section 9.3. Time of the Essence; Computation of Time..........................45
Section 9.4. Assignment; Successors in Interest................................45
Section 9.5. Investigations; Representations and Warranties....................45
Section 9.6. Number; Gender....................................................45
Section 9.7. Captions..........................................................45
Section 9.8. Seller's Executives; Knowledge....................................46
Section 9.9. Controlling Law; Integration; Amendment...........................46
Section 9.10. Severability......................................................46
Section 9.11. Counterparts......................................................46
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 9.12. Enforcement of Certain Rights.....................................46
Section 9.13. Waiver............................................................47
Section 9.14. Fees and Expenses.................................................47
</TABLE>
iv
<PAGE> 6
DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
Acquisition Proposal................................................. 5.3
Agreement............................................................ Page 1
Assets............................................................... 1.1
Assumed Obligations.................................................. 1.8
Business............................................................. Page 1
California Corporations Code......................................... 3.2
Change in Control.................................................... 5.4(f)
Claims Period........................................................ 8.4
Clients.............................................................. 3.13
Closing.............................................................. 2.1
Closing Date......................................................... 2.1
Code................................................................. 1.7
Direct Cost of Providing Services.................................... 1.6(i)
DRG.................................................................. Page 1
Employee Benefit Plans............................................... 3.16(a)
Employees ........................................................... 5.9(a)
Employment Agreements................................................ 5.9(b)
ERISA................................................................ 3.16(a)
Excluded Assets...................................................... 1.3
Excluded Liabilities................................................. 1.9
Final Claim.......................................................... 8.3
Final Closing Date Balance Sheet..................................... 1.6(f)
Final Gross Profits Amount........................................... 1.6(h)
Final Installment Date............................................... 1.6(i)
Final Installment Payment............................................ 1.6(i)
Final Working Capital Amount......................................... 1.6(i)
GAAP................................................................. 1.6(e)
Gross Profits of the Business ....................................... 1.6(i)
HSR Act.............................................................. 3.4
Indemnified Party.................................................... 8.3(a)
Indemnifying Party................................................... 8.3(a)
Independent Accountants.............................................. 1.6(f)
Initial Gross Profits Amount......................................... 1.6(g)
Initial Installment Date............................................. 1.6(i)
Initial Installment Payment.......................................... 1.6(i)
Interest............................................................. 8.3(e)
Key Employees of the Business ....................................... 5.9(b)
Known to the Seller's Executives..................................... 9.8
Material Licenses.................................................... 3.10
</TABLE>
v
<PAGE> 7
<TABLE>
<S> <C>
NASDAQ/NMS........................................................... 4.3
Negative Working Capital Balance..................................... 1.6(i)
NLRB................................................................. 3.17
OFCCP................................................................ 3.17(a)
OSHA................................................................. 3.17(a)
Positive Working Capital Balance..................................... 1.6(i)
Preliminary Closing Date Balance Sheet............................... 1.6(e)
Preliminary Closing Payment.......................................... 1.6(a)
Preliminary Working Capital Amount................................... 1.6(i)
Premises............................................................. 3.19
Purchase Price....................................................... 1.5
Purchaser............................................................ Page 1
Purchaser Ancillary Documents........................................ 8.2(b)
Purchaser Disclosure Letter.......................................... Page 24
Purchaser Indemnified Parties........................................ 8.1
Purchaser Losses..................................................... 8.1
Real Property Leases................................................. 3.5(a)
Real Property........................................................ 3.5(a)
Remaining Seller Employees .......................................... 5.9(a)
Rules for Arbitration................................................ 8.6(d)
Scheduled Leases..................................................... 3.5(b)
Seller............................................................... Page 1
Seller Ancillary Documents........................................... 8.1(c)
Seller Basket Amount................................................. 8.5(a)
Seller Business Practices............................................ 3.11
Seller Client Contracts.............................................. 3.13
Seller Hardware...................................................... 3.21(g)
Seller Indemnified Parties........................................... 8.2
Seller License Agreements............................................ 3.21(b)
Seller Licensed Software ............................................ 3.21(a)
Seller Losses........................................................ 8.2
Seller Material Contracts............................................ 3.12
Seller Proprietary Software.......................................... 3.21(a)
Seller Software ..................................................... 3.21(a)
Seller Disclosure Letter............................................. Page 11
Seller's Cap Amount.................................................. 8.5(b)
Seller's Executives.................................................. 9.8
Seller's Financial Statements........................................ 3.6
Service Revenues Earned.............................................. 1.6(i)
Shareholder.......................................................... Page 1
The best knowledge of the Seller's Executives........................ 9.8
WARN Act............................................................. 3.17(b)
Working Capital Settlement Date...................................... 1.6(i)
</TABLE>
vi
<PAGE> 8
<TABLE>
<S> <C>
Year 2000 Correspondence............................................. 3.21(h)
Year One ............................................................ 8.3(e)
Year Two............................................................. 8.3(e)
</TABLE>
vii
<PAGE> 9
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER
- ------- ------
<S> <C>
Excluded Assets......................................................... 1.3
Form of Employment Agreement............................................ 5.9(b)
Form of Opinion of Sanders, Barnet, Goldman, Simons & Mosk, A PC ....... 6.2(c)
Form of Opinion of King & Spalding...................................... 6.3(c)
Liabilities Undertaking ................................................ 2.2(b)
Noncompetition and Nonsolicitation Agreement............................ 5.10
Seller Client Contracts................................................. 6.2(i)
Shareholder Employment Agreement........................................ 5.11
Valuation for Tax Reporting Purposes.................................... 1.7
</TABLE>
viii
<PAGE> 10
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of December 4, 1998 (the "Agreement"), by and
among, HEALTHCARE RECOVERIES, INC., a Delaware corporation ("Purchaser"), MEDCAP
MEDICAL COST MANAGEMENT, INC., a California corporation ("Seller"), and MARCIA
DEUTSCH, a resident of the State of California and the sole shareholder of
Seller (the "Shareholder").
W I T N E S S E T H:
WHEREAS, Marcia Deutsch owns all of the outstanding capital stock of
Seller;
WHEREAS, Seller operates a business which provides cost management
services to third party payors and others within the health care industry,
including, but not limited to, hospital bill audit, diagnosis-related group
("DRG") audit, credit balance recovery, cost management and other consulting
services (collectively, the "Business");
WHEREAS, Purchaser is engaged in the business of, among other things,
subrogation and related recovery services for healthcare payors; and
WHEREAS, the Shareholder, Seller and Purchaser desire to enter into
this Agreement pursuant to which Seller agrees to sell to Purchaser and
Purchaser agrees to purchase from Seller substantially all of the assets and
properties of the Business, Purchaser agrees to assume certain of the
liabilities of the Business and the Shareholder desires to provide certain
representations, warranties, covenants and agreements relating thereto, all in
accordance with the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
<PAGE> 11
ARTICLE 1.
ASSET PURCHASE AND SALE
Section 1.1. Agreement to Sell. At the Closing (as hereinafter
defined) and except as otherwise specifically provided in this Article 1, Seller
shall grant, sell, convey, assign, transfer and deliver to Purchaser, upon and
subject to the terms and conditions of this Agreement and in reliance on the
representations, warranties and covenants of Purchaser contained herein, all
right, title and interest of Seller in and to (a) the Business as a going
concern and (b) all of the assets, properties and rights of Seller constituting
the Business or used therein, of every kind and description, real, personal and
mixed, tangible and intangible, wherever situated (which Business, assets,
properties and rights are hereinafter collectively referred to as the "Assets"),
free and clear of all mortgages, liens, pledges, security interests, charges,
claims, restrictions and encumbrances of any nature whatsoever except Assumed
Obligations (as hereinafter defined).
Section 1.2. Included Assets. Except as otherwise expressly set
forth in Section 1.3 hereof, the Assets shall include without limitation the
following assets, properties and rights of Seller used in the conduct of, or
generated by, or constituting a part of, the Business:
(a) All rights under any written or oral contract,
agreement, lease, plan, instrument, registration, license, certificate
of occupancy, order, permit or approval of any nature, or other
document, commitment, arrangement, undertaking, practice or
authorization;
(b) All machinery, equipment, tools, vehicles, furniture,
furnishings, leasehold improvements, goods and other tangible personal
property;
(c) All technologies, methods, formulations, databases,
trade secrets, know-how, inventions and other intellectual property and
intangible personal property;
(d) All computer software (including documentation and
related object and source codes) developed or under development;
(e) All prepaid items, unbilled costs and fees, accounts,
notes and other receivables;
(f) All cash or cash equivalents in transit, in hand or
in bank accounts relating to Clients (as hereinafter defined), trust or
petty cash accounts maintained by Seller in connection with the
Business;
(g) All supplies and inventories and office and other
supplies;
(h) All rights under any patent, trademark, service mark,
trade name or
2
<PAGE> 12
copyright, whether registered or unregistered, and any applications
therefor;
(i) All rights or choses in action arising out of
occurrences before or after the Closing, including without limitation,
all rights to recovery claims and to claims pending completion of
audit, and all rights under express or implied warranties relating to
the Assets;
(j) All assets and properties reflected on the Final
Closing Date Balance Sheet (as hereinafter defined); and
(k) All information, files, records, data, plans,
contracts and recorded knowledge, including Client and vendor lists,
related to the foregoing.
Section 1.3. Excluded Assets. Notwithstanding anything to the
contrary set forth herein, the Assets shall not include any of the following
(hereinafter collectively referred to as "Excluded Assets"):
(a) The corporate seal, certificate of incorporation,
minute book, stock book, tax returns, tax records or other constituent
records relating to Seller; or
(b) The rights which accrue to Seller and the Shareholder
under this Agreement; or
(c) Tax refunds for periods prior to the Closing Date,
except to the extent any such tax refund is reflected on the Final
Closing Date Balance Sheet.
Section 1.4. Agreement to Purchase. At the Closing, Purchaser
shall purchase the Assets from Seller, upon and subject to the terms and
conditions of this Agreement and in reliance on the representations, warranties
and covenants of Seller and Shareholder contained herein, in exchange for the
Purchase Price (as hereinafter defined) and the assumption by Purchaser of the
Assumed Obligations (as hereinafter defined) as provided in Section 1.8 hereof.
Section 1.5. The Purchase Price. The purchase price for the Assets
shall be an amount equal to (i) Ten Million Dollars ($10,000,000.00), plus (ii)
the Initial Installment Payment (as hereinafter defined), plus (iii) the Final
Installment Payment (as hereinafter defined) (collectively, the "Purchase
Price"); provided, however, that the amount of the Purchase Price shall be
subject to adjustment pursuant to Section 1.6 hereof based upon the Final
Closing Date Balance Sheet (as hereinafter defined).
3
<PAGE> 13
Section 1.6. Preliminary Closing Payment; Net Working Capital
Adjustment; Initial Installment Payment; Final
Installment Payment.
(a) On the Closing Date, Purchaser shall deliver to the
Seller an amount equal to the sum of: (i) Ten Million Dollars
($10,000,000); and (ii) the Preliminary Working Capital Amount (as
hereinafter defined); which sum shall be hereinafter referred to as the
"Preliminary Closing Payment."
(b) On the Working Capital Settlement Date (as
hereinafter defined), Purchaser shall deliver to Seller an amount equal
to any Positive Working Capital Balance (as hereinafter defined) or
Seller shall deliver to Purchaser an amount equal to any Negative
Working Capital Balance (as hereinafter defined), as the case may be.
(c) On the Initial Installment Date (as hereinafter
defined), Purchaser shall deliver to Seller an amount equal to the
Initial Installment Payment, if any.
(d) On the Final Installment Date (as hereinafter
defined), Purchaser shall deliver to Seller an amount equal to the
Final Installment Payment, if any.
(e) On or prior to the Closing Date, Seller shall prepare
and deliver to Purchaser a balance sheet of the Business as of the
Closing Date (or as close thereto as is reasonably practicable), which
balance sheet shall be prepared in accordance with Generally Accepted
Accounting Principles ("GAAP") consistently applied (the "Preliminary
Closing Date Balance Sheet"), together with a certificate executed by
Shareholder attesting that the Preliminary Closing Date Balance Sheet
has been prepared in accordance with the requirements of this Section
1.6(e).
(f) On the Closing Date, Purchaser and Seller shall
instruct the Independent Accountants (as hereinafter defined) to audit
the Preliminary Closing Date Balance Sheet and deliver to Purchaser and
Seller not later than forty-five (45) days following the Closing Date a
preliminary draft of such audited balance sheet of the Business as of
the Closing Date, which preliminary draft shall be prepared in
accordance with GAAP consistently applied. Purchaser and Seller shall
have fifteen (15) days following receipt of such preliminary draft of
the audited balance sheet of the Business to provide the Independent
Accountants with any comments, input and supporting documentation they
may consider relevant with respect to the preparation of such
preliminary draft of the audited balance sheet of the Business. In
order to facilitate such review, Purchaser and Seller shall have access
to all work papers and calculations the Independent Accountants used in
preparing the preliminary draft of the audited balance sheet of the
Business. The Independent Accountants thereafter shall finalize such
preliminary draft of the audited balance sheet of the Business no later
than sixty five (65) days from the Closing Date and shall deliver the
same to Purchaser and Seller (the "Final Closing Date Balance Sheet").
Purchaser and Seller agree to reasonably cooperate with the Independent
Accountants and
4
<PAGE> 14
each other to facilitate the preparation of the Final Closing Date
Balance Sheet. As used herein, the term "Independent Accountants" shall
mean the Louisville, Kentucky office of PricewaterhouseCoopers, LLP or
such other nationally recognized accounting firm as Purchaser and
Seller shall mutually agree to designate as such for purposes of this
Section 1.6.
(g) On or prior to February 15, 2000, Purchaser and
Seller shall instruct the Independent Accountants in writing to
calculate the Gross Profits of the Business (as hereinafter defined)
for the twelve (12) month period ending December 31, 1999, which
calculation shall be made in accordance with GAAP. No later than
forty-five (45) days following the Independent Accountants receipt of
such written instructions, the Independent Accountants shall deliver to
Purchaser and Seller a preliminary calculation of the Gross Profits of
the Business for the relevant period, together with the underlying work
papers and records utilized to calculate such amount. Purchaser and
Seller shall have fifteen (15) days from receipt of such preliminary
Gross Profits of the Business calculation to provide the Independent
Accountants with any comments, input and supporting documentation they
consider relevant with respect to the calculation of the Gross Profits
of the Business for such period of time. In order to facilitate such
review, Purchaser and Seller shall have access to all work papers and
calculations the Independent Accountants used in preparing such
preliminary calculation of the Gross Profits of the Business. The
Independent Accountants thereafter shall finalize such Gross Profits of
the Business calculation no later than fifteen (15) days after the
termination of the fifteen (15) day review period noted in the
immediately preceding sentence and shall deliver a certificate to
Purchaser and Seller confirming the amount of such Gross Profits of the
Business as calculated by the Independent Accountants pursuant to this
Section 1.6(g) (the "Initial Gross Profits Amount").
(h) On or prior to February 15, 2001, Purchaser and
Seller shall instruct the Independent Accountants in writing to
calculate the Gross Profits of the Business for the twelve (12) month
period ending December 31, 2000, which calculation shall be made in
accordance with GAAP. No later than forty-five (45) days following the
Independent Accountants receipt of such written instructions, the
Independent Accountants shall deliver to Purchaser and Seller a
preliminary calculation of the Gross Profits of the Business for the
relevant period, together with the underlying work papers and records
utilized to calculate such amount. Purchaser and Seller shall have
fifteen (15) days from receipt of such preliminary Gross Profits of the
Business calculation to provide the Independent Accountants with any
comments, input and supporting documentation they consider relevant
with respect to the calculation of the Gross Profits of the Business
for such period of time. In order to facilitate such review, Purchaser
and Seller shall have access to all work papers and calculations the
Independent Accountants used in preparing such preliminary calculation
of the Gross Profits of the Business. The Independent Accountants
thereafter shall finalize such Gross Profits of the Business
calculation no later than fifteen (15) days after the termination of
the fifteen (15) day review period
5
<PAGE> 15
noted in the immediately preceding sentence and shall deliver a
certificate to Purchaser and Seller confirming the amount of such Gross
Profits of the Business as calculated by the Independent Accountants
pursuant to this Section 1.6(h) (the "Final Gross Profits Amount").
(i) For purposes hereof, the (i) "Preliminary Working
Capital Amount" shall mean an amount equal to the difference between
the current assets and the current liabilities of the Business as of
the Closing Date, each as set forth on the Preliminary Closing Date
Balance Sheet; (ii) "Positive Working Capital Balance" shall mean the
amount, if any, by which the Final Working Capital Amount (as
hereinafter defined) shall exceed the Preliminary Working Capital
Amount; (iii) "Negative Working Capital Balance" shall mean the amount,
if any, by which the Preliminary Working Capital Amount shall exceed
the Final Working Capital Amount; (iv) "Final Working Capital Amount"
shall mean an amount equal to the difference between the current assets
and the current liabilities of the Business as of the Closing Date,
each as set forth on the Final Closing Date Balance Sheet; (v) "Working
Capital Settlement Date" shall mean the fifth (5th) business day
following the date of receipt by Purchaser and Seller of the Final
Closing Date Balance Sheet; (vi) "Gross Profits of the Business" shall
mean Service Revenues Earned less the Direct Cost of Providing
Services, which amount shall be calculated in accordance with GAAP
consistently applied and verified by the Independent Accountants; (vii)
"Initial Installment Date" shall mean the fifth (5th) business day
following the date of receipt by Purchaser and Seller of the
Independent Accountant's certificate confirming the Initial Gross
Profits Amount pursuant to Section 1.6(g) hereof; (viii) "Final
Installment Date" shall mean the fifth (5th) business day following the
date of receipt by Purchaser and Seller of the Independent Accountant's
certificate confirming the Final Gross Profits Amount pursuant to
Section 1.6(h) hereof; (ix) "Initial Installment Payment" shall mean an
amount equal to fifty percent (50%) of the Initial Gross Profits
Amount; (x) "Final Installment Payment" shall mean an amount equal to
fifty percent (50%) of the Final Gross Profits Amount; (xi) "Service
Revenues Earned" shall mean the fees earned for provision of the
following services ("Services"): bill audit, DRG audit, credit balance
review, outpatient review, trauma review, infusion therapy audit, focus
audit, consulting services and new services for which Shareholder has
direct management responsibility during the term of her employment with
Purchaser in accordance with the agreement attached hereto as Exhibit
5.11, net of any write-offs required due to client adjustment to billed
amounts; and (xii) "Direct Cost of Providing Services" shall mean
salaries, benefits and payroll taxes related to the auditors and
preppers employed by Purchaser, fees paid to contract auditors or
preppers in connection with Services, travel and automobile allowances
for all auditors and preppers and any other cost of supplies, or copies
directly relating to the provision of Services.
(j) All amounts to be delivered to a party pursuant to
this Section 1.6 hereof shall be delivered by wire transfer of
immediately available funds in accordance with written wire transfer
instructions to be provided by the party entitled to such payment.
6
<PAGE> 16
(k) All fees and expenses of the Independent Accountants
incurred in connection with the preparation of the Final Closing Date
Balance Sheet and the calculation of the Initial Gross Profits Amount
and the Final Gross Profits Amount shall be paid by the Purchaser.
(l) Any party challenging the calculation by the
Independent Accountant of the Initial Gross Profits Amount or the Final
Gross Profits Amount shall provide the other party with written notice
of such challenge, in accordance with Section 9.1 of this Agreement,
which notice shall state the basis for such challenge. In the case of a
challenge, the parties agree mutually to designate, within seven (7)
days of receipt of such written notice, a nationally recognized
accounting firm, other than PricewaterhouseCoopers LLP, to resolve such
dispute and such firm shall finally and conclusively resolve such
dispute. Notwithstanding any provision herein to the contrary, the
costs and expenses of the services of such nationally recognized
accounting firm shall be paid by the non-prevailing party. The
nationally recognized accounting firm shall determine whether the
Purchaser, on the one hand, or the Seller and Shareholder, on the other
hand, is the non-prevailing party or parties for purposes of paying
costs and expenses. Each of the parties hereto agrees to execute such
documents requested by such nationally recognized accounting firm
relating to such firm's resolution of the dispute.
Section 1.7. Valuation For Tax Reporting Purposes. The parties
agree that the schedule attached hereto as Exhibit 1.7, indicates the respective
fair market value of the Assets, Assumed Obligations and other items acquired
hereunder and has been prepared by Purchaser and approved by Seller. Purchaser
and Seller shall use such fair market values contained in Exhibit 1.7 in
preparing and filing their respective Forms 8594 with the Internal Revenue
Service, as required by Section 1060 of the Internal Revenue Code of 1986, as
amended (the "Code"), determining Purchaser's cost basis and Seller's amount
realized, and for all other relevant federal and state income tax purposes.
Section 1.8. Assumption of Assumed Obligations. At the Closing and
except as otherwise specifically provided in Section 1.9 hereof, Purchaser shall
assume and agree to pay, discharge or perform, as appropriate, the following
liabilities and obligations of Seller (hereinafter collectively referred to as
the "Assumed Obligations"):
(a) All liabilities and obligations of Seller in respect
of the Business existing as of the Closing Date, but only if and to the
extent that the same (i) are accrued or reserved for on the Preliminary
Closing Date Balance Sheet or the Final Closing Date Balance Sheet and
(ii) remain unpaid and undischarged on the Closing Date; and
(b) All liabilities and obligations of Seller in respect
of the Business arising under agreements, contracts, commitments and
leases which are specifically described on the Seller Disclosure Letter
(as hereinafter defined) or not required to be identified on the Seller
Disclosure Letter in accordance with the provisions of this Agreement,
except that
7
<PAGE> 17
Purchaser shall not assume or agree to pay, discharge or perform or be
responsible for any:
(i) Liabilities or obligations of the aforesaid
character existing as of the Closing Date,
and which under GAAP should have been
accrued or reserved for on a balance sheet
or notes thereto as a liability or
obligation, if and to the extent that the
same were not accrued or reserved for on the
Final Closing Date Balance Sheet or the
notes thereto; or
(ii) Liabilities or obligations arising out of
any breach by Seller of any provision of any
agreement, contract, commitment or lease
referred to in this Section 1.8(b),
including, but not limited to, liabilities
or obligations arising out of any failure by
Seller to perform any agreement, contract,
commitment or lease in accordance with its
terms prior to the Closing.
Section 1.9. Excluded Liabilities. Notwithstanding anything to the
contrary set forth herein, in no event shall Purchaser assume or incur any
liability or obligation under this Agreement or otherwise become responsible in
respect of the following (hereinafter collectively referred to as the "Excluded
Liabilities"):
(a) Any liability or obligation of any nature whatsoever
which arises out of or relates to the litigation identified in Section
1.9(a) of the Seller Disclosure Letter or with respect to any other
action, suit, claim or legal, administrative, arbitration, governmental
or other proceeding or investigation now pending or hereafter
instituted relating to the Business to the extent the principal event
giving rise thereto occurred prior to the Closing Date or which results
from or arises out of any action or omission prior to the Closing Date
of the Seller, or any affiliate, officer, director, employee, agent,
representative or subcontractor of the Seller;
(b) Any liability or claim which arises out of or is
based upon any express or implied representation, warranty, agreement
or guaranty made by the Seller, or alleged to have been made by the
Seller, or which is imposed or asserted to be imposed by operation of
law, in connection with any service performed or product sold or leased
by or on behalf of the Seller, on or prior to the Closing, including
without limitation any claim seeking recovery for consequential
damages, lost revenue or income;
(c) Any federal, state or local income, sales, use,
excise, ad valorem, intangibles or other tax and any and all penalties
and interest relating thereto (i) payable with respect to the business,
assets, properties or operations (including, but not limited to, the
Business) of the Seller, any member of any affiliated group of which
the Seller is a member or any other person for whose taxes the Seller
may be liable for any period prior
8
<PAGE> 18
to Closing, or (ii) incident to or arising as a consequence of the
negotiation or consummation by the Seller or any member of any
affiliated group of which the Seller is a member of this Agreement and
the transactions contemplated hereby, other than any such taxes,
penalties or interest covered by a reserve or accrual set forth on the
Final Closing Date Balance Sheet;
(d) Any liability or obligation arising under or relating
to any of the Excluded Assets;
(e) Any liability or obligation of any nature whatsoever
arising prior to or as a result of the Closing to any employees, agents
or independent contractors of Seller, whether or not employed by
Purchaser after the Closing, or under any benefit plan or arrangement
with respect thereto; or
(f) Any liability or obligation of the Seller arising or
incurred in connection with the negotiation, preparation and execution
of this Agreement and the transactions contemplated hereby and any fees
and expenses of counsel, accountants or other experts of Seller or the
Shareholder.
Section 1.10. Prorations. All property and ad valorem taxes,
business licenses, permits, leasehold rentals, utilities and other customarily
proratable expenses of Seller relating to the Assets payable prior to or
subsequent to the Closing Date and relating to the period of time both prior to
and subsequent to the Closing Date will be prorated between Purchaser and Seller
as of the Closing Date (as hereinafter defined), except to the extent such items
are covered by a reserve or accrual set forth on the Final Closing Date Balance
Sheet. If the actual amount of any proratable item is not known as of the
Closing Date, such proration will be based on the previous year's assessment of
such item or such other reasonable basis for estimating such amount as the
parties may select, and the parties agree to adjust such proration and pay any
underpayment or reimburse any overpayment promptly after the actual amount
becomes known.
ARTICLE 2.
CLOSING; ITEMS TO BE DELIVERED;
FURTHER ASSURANCES
Section 2.1. Closing. The consummation of the transactions
contemplated by this Agreement is herein referred to as the "Closing." The
"Closing Date" shall be the date on which the Closing occurs. The Closing shall
occur and the parties shall make the payments and deliveries contemplated by
this Agreement (other than post closing payments or deliveries contemplated by
this Agreement) on or before January 31, 1999 at a mutually agreeable hour at
the offices of King & Spalding in Atlanta, Georgia, or at such other place as
the Purchaser and Seller shall mutually agree upon. From and after the Closing
Date, Purchaser shall have absolute
9
<PAGE> 19
and total control over the business and operations of the Business, including,
but not limited to, complete and total control over the management of the
Business.
Section 2.2. Items to be Delivered at Closing. At the Closing and
subject to the terms and conditions herein contained:
(a) Seller shall deliver to Purchaser the following:
(i) Such bills of sale with assignments,
endorsements, and other good and sufficient
instruments and documents of conveyance and
transfer, in form reasonably satisfactory to
Purchaser and its counsel, as shall be
necessary and effective to transfer and
assign to, and vest in Purchaser all of
Seller's right, title and interest in and to
the Assets, including without limitation,
(A) good and valid title in and to all of
the Assets owned by Seller, (B) good and
valid leasehold interest in and to all of
the Assets leased by Seller as lessee, and
(C) all of Seller's rights under all
agreements, contracts, commitments, leases,
plans, bids, quotations, proposals,
instruments and other documents included in
the Assets to which Seller is a party or by
which Seller has rights on the Closing Date;
and
(ii) All of the agreements, contracts,
commitments, leases, plans, bids,
quotations, proposals, instruments, computer
programs and software, data bases whether in
the form of computer tapes or otherwise,
related object and source codes, manuals and
guidebooks, price books and price lists,
customer and subscriber lists, supplier
lists, sales records, files, correspondence,
legal opinions, rulings issued by
governmental entities, and other documents,
books, records, papers, files, office
supplies and data belonging to the Seller
which are part of the Assets;
and simultaneously with such delivery, all such reasonable steps will be taken
as may be required to place Purchaser in actual possession and operating control
of the Assets.
(b) Purchaser shall deliver to Seller the following:
(i) The Preliminary Closing Payment; and
(ii) A Liabilities Undertaking in the form
attached hereto as Exhibit 2.2(b).
(c) The parties hereto also shall deliver to each other
the documents and
10
<PAGE> 20
instruments referred to in Article 6 hereof.
Section 2.3. Further Assurances. Seller from time to time after
the Closing, at Purchaser's request, will execute, acknowledge and deliver to
Purchaser such other instruments of conveyance and transfer and will take such
other actions and execute and deliver such other documents, certifications and
further assurances as Purchaser may reasonably request in order to vest more
effectively in Purchaser, or to put Purchaser more fully in possession of, any
of the Assets. Each of the parties hereto will reasonably cooperate with the
other and execute and deliver to the other such other instruments and documents
and take such other actions as may be reasonably requested from time to time by
any party hereto as necessary to carry out, evidence and confirm the intended
purposes of this Agreement.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER
With such exceptions as are set forth in a letter (the "Seller
Disclosure Letter") delivered by Seller to Purchaser prior to the execution
hereof, Seller and the Shareholder hereby represent and warrant to Purchaser as
follows:
Section 3.1. Organization. Seller is a corporation duly organized
and validly existing under the laws of the State of California and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as is now being conducted. Seller is duly qualified
to transact business, and is in good standing, as a foreign corporation in each
jurisdiction where the character of its activities requires such qualification,
except where the failure to so qualify would not have a material adverse effect
on the assets, liabilities, results of operations, financial condition, business
or prospects of the Business. Seller has heretofore made available to Purchaser
accurate and complete copies of the Articles of Incorporation and Bylaws of
Seller as currently in effect, and has made available to Purchaser the minute
books and stock transfer records of Seller. The Seller Disclosure Letter
contains a true and complete list of the jurisdictions in which Seller is
qualified to transact business as a foreign corporation.
Section 3.2. Authorization. Seller has full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
under this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by Seller and the performance by Seller
of its obligations hereunder and the consummation of the transactions provided
for herein have been duly and validly authorized by all necessary corporate
action on the part of Seller. The Board of Directors of Seller and the
Shareholder have approved the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby in
accordance with the requirements of the California Corporations Code and the
Articles of Incorporation and Bylaws of Seller. Shareholder has full power and
capacity to execute and deliver this Agreement and perform her
11
<PAGE> 21
obligations hereunder and to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Seller and the
Shareholder and constitutes the valid and binding agreement of Seller and
Shareholder, enforceable against Seller and Shareholder in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance and
other similar laws affecting the enforcement of creditors' rights generally,
general equitable principles and the discretion of courts in granting equitable
remedies.
Section 3.3. No Interest in Other Entities. The Assets do not
include any shares of capital stock or any other ownership interests or
securities of any corporation, association, partnership, joint venture or other
legal entity.
Section 3.4. Absence of Restrictions and Conflicts. The execution,
delivery and performance of this Agreement, the consummation of the transactions
contemplated by this Agreement and the fulfillment of and compliance with the
terms and conditions of this Agreement do not and will not, with the passing of
time or the giving of notice or both, violate or conflict with, constitute a
breach of or default under, result in the loss of any material benefit under, or
permit the acceleration of any obligation under, (i) any term or provision of
the Articles of Incorporation or Bylaws of Seller, (ii) any Seller Material
Contract (as hereinafter defined), Real Property Lease (as hereinafter defined)
or Scheduled Lease (as hereinafter defined), (iii) any judgment, decree or order
of any court or governmental authority or agency to which Seller or Shareholder
is a party or by which Seller or Shareholder or any of their respective
properties is bound, or (iv) to the best knowledge of Seller's Executives (as
hereinafter defined), any statute, law, regulation or rule applicable to any of
the Seller or Shareholder, so to have in the case of subsections (ii) through
(iv) of this Section 3.4, a material adverse effect on the assets, liabilities,
results of operations, financial condition, business or prospects of the
Business. To the best knowledge of Seller's Executives, no consent, approval,
order or authorization of, or registration, declaration or filing with, any
governmental agency or public or regulatory unit, agency, body or authority with
respect to the Seller or Shareholder is required in connection with the
execution, delivery or performance of this Agreement by the Seller and the
Shareholder or the consummation of the transactions contemplated by this
Agreement by the Seller and the Shareholder, the failure of which to obtain
would have a material adverse effect on the assets, liabilities, results of
operations, financial condition, business or prospects of the Business. Within
the meaning of the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended (the "HSR Act"), and the rules promulgated thereunder, Shareholder is
the only ultimate parent entity of Seller, the total assets of Shareholder are
less than One Hundred Million Dollars ($100,000,000), and the annual net sales
of Shareholder are less than One Hundred Million Dollars ($100,000,000).
Section 3.5. Ownership of Assets and Related Matters.
(a) Real Property. The Seller Disclosure Letter sets
forth a true and complete list and description of all real property
included in the Assets (the "Real Property") and any and all lease
agreements relating thereto. Seller does not own any Real Property. All
12
<PAGE> 22
leases relating to the Real Property in which Seller is either a lessee
or lessor (the "Real Property Leases") are in full force and effect and
constitute the legal, valid, binding and enforceable obligations of
Seller, and are to the best knowledge of the Seller's Executives legal,
valid, binding and enforceable in accordance with their respective
terms with respect to each other party thereto, in each case to the
extent material to the business and operations of the Business. There
are no existing defaults of Seller with respect to any Real Property
Leases or to the best knowledge of the Seller's Executives of any of
the other parties thereto (or events or conditions which, with notice
or lapse of time, or both, would constitute a default).
(b) Personal Property Leases. The Seller Disclosure
Letter sets forth a true and complete list of all leases and agreements
of Seller granting possession of or rights to any item of personal
property included in the Assets having a fair market value of more than
Ten Thousand Dollars ($10,000.00) as of the date hereof (the "Scheduled
Leases"). All such Scheduled Leases are in full force and effect and
constitute the legal, valid, binding and enforceable obligations of
Seller, and are, to the knowledge of Seller's Executives legal, valid,
binding and enforceable in accordance with their respective terms with
respect to each other party thereto, in each case to the extent
material to the business and operations of the Business. There are no
existing material defaults of Seller with respect to such Scheduled
Leases or, to the knowledge of Seller's Executives, of any of the other
parties thereto (or events or conditions which, with notice or lapse of
time, or both, would constitute a default).
(c) Personal Property. The Seller Disclosure Letter sets
forth a true and complete list and general description of each item of
personal property included in the Assets having a fair market value of
more than Ten Thousand Dollars ($10,000.00) as of the date hereof.
Seller has good and marketable title to all of the items of personal
property owned by Seller and included in the Assets, and Seller owns
such assets free and clear of all liens, pledges, security interests,
charges, claims, restrictions and encumbrances of any nature
whatsoever, except such defects in title which in the aggregate are not
substantial in amount and do not materially detract from the value of
the Assets subject thereto or materially interfere with the present use
thereof.
(d) Necessary Assets. The Assets constitute all of the
assets presently used in conducting the operations of the Business as
presently conducted. All buildings, structures, facilities, equipment
and other material items of tangible property and assets which would be
included in the Assets if the Closing took place on the date hereof are
in good operating condition and repair subject to normal wear and
maintenance and are usable in the regular and ordinary course of the
Business as operated by Seller. No person other than Seller owns any
equipment or other tangible assets or properties situated on the
premises of Seller which are necessary to the operation of the
Business, except for leased items disclosed in the Seller Disclosure
Letter and for items of immaterial value.
13
<PAGE> 23
(e) No Third Party Options. There is no existing
agreement, option, commitment or right with, of or to any person to
acquire any of assets, properties or rights included in the Assets or
any interest therein.
Section 3.6. Financial Statements. Seller has delivered to
Purchaser: unaudited Income Statements for the periods ending, and Balance
Sheets dated as of, October 31, 1998 and December 31, 1997. All of the foregoing
financial statements are hereinafter collectively referred to as the "Seller's
Financial Statements." The Seller's Financial Statements have been prepared
from, and are in accordance with, the books and records of the Seller and
present fairly the financial position and results of operations of Seller and
the Business, as the case may be, as of the dates and for the periods indicated,
in each case in conformity with GAAP consistently applied, except as otherwise
stated in the Seller's Financial Statements or the Seller Disclosure Letter.
Section 3.7. No Undisclosed Liabilities. Neither the Seller, nor
any of its affiliates has any liabilities or obligations relating to, involving
or affecting the Business or the Assets which are not adequately reflected or
provided for in the Seller's Financial Statements, except for liabilities and
obligations incurred since October 31, 1998 in the ordinary course of business
and consistent with past practices of the Business and which in the aggregate
will not have a material adverse effect upon the assets, liabilities, results of
operations, financial condition, business or prospects of the Business.
Section 3.8. Absence of Certain Changes.
(a) Since October 31, 1998, there has not been (i) any
material adverse change in the assets, liabilities, results of
operations, financial condition, business or prospects of the Business,
or (ii) any damage, destruction, loss or casualty to property or assets
of the Business, whether or not covered by insurance, which property or
assets are material to the Business.
(b) Since October 31, 1998, there have not been with
respect to the Business (i) any extraordinary losses suffered, (ii) any
material assets mortgaged, pledged or made subject to any lien, charge
or other encumbrance, (iii) any liability or obligation (absolute,
accrued or contingent) incurred or any material bad debt, contingency
or other reserve increase suffered, except, in each such case, in the
ordinary course of business and consistent with past practice, (iv) any
claims, liabilities or obligations (absolute, accrued or contingent)
paid, discharged or satisfied, other than the payment, discharge or
satisfaction, in the ordinary course of business and consistent with
past practice of claims, liabilities and obligations reflected or
reserved against in the Seller's Financial Statements or, incurred in
the ordinary course of business and consistent with past practice since
the date of the Seller's Financial Statements, (v) any guaranteed
checks, notes, accounts receivable or inventory of recoverable claims
which have been written off as
14
<PAGE> 24
uncollectible, except write-offs in the ordinary course of business and
consistent with past practice, (vi) any write down of the value of any
asset or investment on books or records of Seller, except for
depreciation and amortization taken in the ordinary course of business
and consistent with past practice, (vii) any cancellation of any debts
or waiver of any claims or rights of substantial value, or sale,
transfer or other disposition of any properties or assets (real,
personal or mixed, tangible or intangible) of substantial value,
except, in each such case, in transactions in the ordinary course of
business and consistent with past practice and which in any event do
not exceed Twenty-Five Thousand Dollars ($25,000) in the aggregate,
(viii) any single capital expenditure or commitment in excess of
Twenty-Five Thousand Dollars ($25,000) for additions to property or
equipment, or aggregate capital expenditures and commitments in excess
of One Hundred Thousand Dollars ($100,000) for additions to property or
equipment, (ix) any transactions entered into other than in the
ordinary course of business, (x) any agreements to do any of the
foregoing or (xi) any other events, developments or conditions of any
character that have had or are reasonably likely to have a material
adverse effect on the assets, liabilities, results of operations,
financial condition, business or prospects of the Business; except
those events, developments or conditions attributable to or as a
consequence of conditions, events or circumstances generally affecting
the healthcare industry or the overall economy.
Section 3.9. Legal Proceedings. There are no suits, actions,
claims, proceedings or investigations pending or, to the best knowledge of the
Seller's Executives, threatened against, relating to or involving the Seller,
the Business, or the Assets before any court, arbitrator or administrative or
governmental body, which, if finally determined adversely, are reasonably
likely, individually or in the aggregate, to have a material adverse effect on
the assets, liabilities, results of operations, financial condition, business or
prospects of the Business. To the knowledge of Seller's Executives, the Business
is not subject to any judgment, decree, injunction, rule or order of any court,
nor is the Business subject to any governmental restriction, which is reasonably
likely (i) to have a material adverse effect on the assets, liabilities, results
of operations, financial condition, business or prospects of the Business or
(ii) to cause a material limitation on Purchaser's ability to operate the
Business after the Closing.
Section 3.10. Compliance with Law. Seller has all authorizations,
approvals, licenses and orders of and from all governmental and regulatory
offices and bodies necessary to carry on the Business (collectively, the
"Material Licenses") as it is currently being conducted, to own or hold under
lease the properties and assets it owns or holds under lease and to perform all
of its obligations under all agreements to which it is a party the absence of
which would have a material adverse effect on the Business. Seller has been and
is in compliance with all applicable laws, regulations and administrative orders
of any country, state or municipality or of any subdivision thereof to which its
business and its employment of labor or its use or occupancy of properties or
any part thereof are subject, the failure to obtain or the violation of which
would have a material adverse effect on the assets, liabilities, results of
operations, financial condition, business or prospects of the Business. The
Seller Disclosure Letter sets forth a true and complete
15
<PAGE> 25
list of all Material Licenses. Seller will have delivered to Purchaser by
Closing all reports and filings made or filed by Seller pursuant to the
Occupational Safety and Health Act and related to the Business.
Section 3.11. Audit and Business Practices. The practices and
procedures of Seller with respect to its audit and other services it provides
its Clients (the "Seller Business Practices") comply with all applicable
federal, state and local laws, statutes, rules and regulations relating to the
provision of such Seller Business Practices, except such failures to comply as
would not in the aggregate have a material adverse effect on the assets,
liabilities, results of operations, financial condition, business or prospects
of the Business. Seller has not received written notice from any governmental
body or regulatory authority that any of the Seller Business Practices violates
or conflicts with any applicable federal, state or local law, statute, rule or
regulation relating to or governing such Seller Business Practices.
Section 3.12. Seller Material Contracts. The Seller Disclosure
Letter contains a true and complete list of the following (hereinafter referred
to as the "Seller Material Contracts"):
(a) all bonds, debentures, notes, mortgages, indentures
or guarantees to which Seller is a party and which relate to the
Business or by which any of the Assets is bound;
(b) all loans and credit commitments to Seller which
relate to the Business and which are outstanding, together with a brief
description of such commitments and the name of each financial
institution granting the same;
(c) all contracts or agreements which limit or restrict
the Seller, any of its affiliates or the Business from engaging in any
business in any jurisdiction or that limit any third party from
engaging in competition with Seller, or the Business; and
(d) all existing contracts and commitments (other than
those described in subparagraphs (a), (b), or (c) of this Section 3.12,
and any Seller Client Contracts (as hereinafter defined), Scheduled
Leases or Real Property Leases) which relate to the Business or by
which any of the Assets may be bound involving an annual commitment or
annual payment by any party thereto of more than Ten Thousand Dollars
($10,000) individually.
True and complete copies of all Seller Material Contracts, including
all amendments thereto, have been made available to Purchaser. The Seller
Material Contracts are valid and enforceable in accordance with their respective
terms with respect to Seller, and to the best knowledge of the Seller's
Executives, are valid and enforceable in accordance with their respective terms
with respect to each other party thereto, in each case to the extent material to
the business and operations of the Business. Except for events or occurrences,
the consequences of which, individually or in the aggregate, would not have a
material adverse effect on the assets, liabilities, results of operations,
financial condition, business or prospects of the Business, there
16
<PAGE> 26
is not under any of the Seller Material Contracts any existing breach, default
or event of default by Seller, or event that with notice or lapse of time or
both would constitute a breach, default or event of default by Seller, nor do
the Seller's Executives know of, and Seller has not received notice of, or made
a claim with respect to, any breach or default by any other party thereto.
Section 3.13. Seller Client Contracts. The Seller Disclosure Letter
sets forth a true and complete list of all clients of the Business as of the
date hereof (the "Clients") together with all agreements, contracts and
commitments, whether written or oral (with a brief description of such oral
agreements), pursuant to which Seller provides services or goods to the Clients
(the "Seller Client Contracts"). The Seller Disclosure Letter contains an
accurate description of any and all disagreements, complaints, disputes or
defaults arising under or with respect to the Seller Client Contracts or with
respect to Clients who do not have written contracts, and which to the best
knowledge of the Seller's Executives could reasonably be expected to result in a
Client's termination of its contract or relationship with the Business or claim
for damages against the Business. The Seller Disclosure Letter contains a true
and complete list of all Seller Client Contracts which contain performance
guarantees or similar obligations of Seller. Seller is in compliance with the
terms and conditions of each Seller Client Contract and there is not under any
of the Seller Client Contracts any existing breach, default or event of default
by Seller, or event that with notice or lapse of time or both would constitute a
breach, default or event of default by Seller, nor do the Seller's Executives
know of, and Seller has not received written notice of, or made a claim with
respect to, any breach or default by any other party thereto. To the best
knowledge of the Seller's Executives, there are no events or circumstances
(other than events or circumstances within Purchaser's control) relating to the
Business which would impair Purchaser's ability to operate the Business after
Closing or otherwise impact Purchaser's ability to serve Clients or generate
revenues relating thereto. The execution, delivery and performance of this
Agreement by Seller and the consummation of the transactions contemplated hereby
will not, with the passing of time or giving of notice or both, violate or
conflict with or constitute a breach of or default under any Seller Client
Contract, except such violations, conflicts, breaches, defaults and losses which
in the aggregate would not have a material adverse effect on the assets,
liabilities, results of operations, financial condition, business or prospects
of the Business.
Section 3.14. Tax Returns; Taxes. Seller is a "small business
corporation" and has maintained a valid election to be a "S Corporation" under
Subchapter S of the Code since its inception; and no other corporation has been
merged into or otherwise transferred assets to Seller or any "Qualified
Subchapter S Subsidiaries" of Seller having a carryover tax basis in such
party's hands. Accordingly, the tax imposed on certain built-in gains by Section
1374 of the Code does not apply to Seller or any "Qualified Subchapter S
Subsidiaries" of Seller. Seller has duly filed all federal, state, local and
foreign tax returns required to be filed by Seller, all such returns are
accurate in all material respects, and Seller has duly paid or made adequate
provision for the payment of all taxes (including any interest, penalties and
additions to tax) which are due or payable pursuant to such returns or which
otherwise are due and payable in any jurisdiction, whether or not in connection
with such returns. The liability for taxes reflected in the Seller's Financial
Statements is sufficient for the payment of all unpaid taxes, whether or not
disputed,
17
<PAGE> 27
that are accrued or applicable for the period ended October 31, 1998, and for
all years and periods ended prior thereto. All deficiencies asserted as a result
of any examinations by the Internal Revenue Service or any other taxing
authority have been paid, fully settled or adequately provided for in the
Seller's Financial Statements. There are no pending claims asserted for taxes
owed by Seller or outstanding agreements or waivers extending the statutory
period of limitation applicable to any tax return of Seller for any period.
Seller has made all estimated tax deposits and all other required tax payments
or deposits and has complied for all prior periods in all material respects with
the tax withholding provisions of all applicable federal, state, local and other
laws. From and after the date hereof and prior to Closing, Seller shall make
available to Purchaser true, complete and correct copies of such federal income
tax returns, state and local income tax returns and sales tax returns and such
other tax returns concerning the Business or the Assets as Purchaser shall
reasonably request.
Section 3.15. Officers, Directors and Employees. The Seller
Disclosure Letter contains a true and complete list of all of the current
officers, directors and key employees of Seller involved in the operation of the
Business specifying their office and annual rate of compensation, and a true and
complete list of all of the employees of Seller involved in the operation of the
Business as of the date hereof together with an appropriate notation next to the
name of any employee on such list with whom Seller has a written employment
agreement or to whom Seller has made verbal commitments which are binding on
Seller.
Section 3.16. Employee Benefit Plans.
(a) Except as set forth on the Seller Disclosure Letter,
there are no plans, programs, policies or arrangements (whether written
or oral) providing compensation or benefits of any kind or description
whatsoever (whether current or deferred and whether paid in cash or in
kind) to, or on behalf of, any current or former officer, employee or
director of the Seller or any of their dependents, including but not
limited to, any "employee benefit plan" as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended,
("ERISA") (collectively the "Employee Benefit Plans");
(b) Seller has made all contributions to the Employee
Benefit Plans that are required under the terms of such plans and under
all applicable laws.
(c) Seller has delivered to the Purchaser (a) correct,
complete and current copies of each written Employee Benefit Plan and
any amendments thereto together with any trust agreements or other
contracts or agreements that are a part of such plan, (b) a correct,
complete and current written description of each unwritten Employee
Benefit Plan, (c) the most recent determination letter received from
the Internal Revenue Service and the most recent Form 5500 Annual
Report for the MEDCAP 401(k) Profit Sharing Plan, and (d) such other
documentation with respect to any Employee Benefit Plan as is
reasonably requested by Purchaser.
18
<PAGE> 28
(d) No action, suit, proceeding, hearing or investigation
with respect to the administration or the investment of assets of any
Employee Benefit Plan is pending or, to the knowledge of Seller's
Executives, threatened, and to the knowledge of Seller's Executives no
audit or investigation by any domestic or foreign governmental or other
law enforcement agency is pending or has been proposed with respect to
any Employee Benefit Plan.
Section 3.17. Labor Relations.
(a) Within three (3) years of the date of execution of
this Agreement, (1) employees of Seller have not been and are not
represented by a labor organization which was either National Labor
Relations Board ("NLRB") certified or voluntarily recognized or
recognized under foreign law; (2) Seller has not been and is not a
signatory to a collective bargaining agreement with any labor
organization; (3) no representation election petition has been filed by
employees of Seller or is pending with the NLRB and no union organizing
campaign involving employees of Seller has occurred or is in progress;
(4) no NLRB unfair labor practice claims have been filed and/or are
presently pending against Seller or any labor organization representing
its employees; (5) no grievance or arbitration demand, whether or not
filed pursuant to a collective bargaining agreement, has been filed or
is pending against Seller; (6) no handbilling, picketing, work stoppage
(sympathetic or otherwise), or other "concerted action" involving the
employees of Seller has occurred or is in progress; (7) no breach of
contract and/or denial of fair representation claim has been filed or
is pending against Seller and/or any labor organization representing
its employees; (8) no claim for unpaid wages or overtime or for child
labor or recordkeeping violations has been filed or is pending under
the Fair Labor Standards Act, Davis-Bacon Act, Walsh-Healey Act, or
Service Contract Act or any other Federal, state, local or foreign law,
regulation, or ordinance; (9) no discrimination and/or retaliation
claim has been filed or is pending against Seller under the 1866 or
1964 Civil Rights Acts, the Equal Pay Act, the Age Discrimination in
Employment Act, as amended, the Americans with Disabilities Act, the
Family and Medical Leave Act, the Fair Labor Standards Act, the
Employee Retirement Security Act or any other Federal law or any
comparable state fair employment practices act or foreign law
regulating discrimination in the workplace; (10) no citation has been
issued by the Occupational Safety and Health Administrative ("OSHA")
against Seller and no notice of contest or OSHA administrative
enforcement proceeding involving Seller has been filed or is pending;
(11) no workers' compensation or retaliation claim has been filed or is
pending against Seller; and/or (12) no citation of Seller has occurred
and no enforcement proceeding has been initiated or is pending under
Federal or foreign immigration law. Seller represents and warrants that
Seller is not a Federal or State contractor obligated to develop and
maintain an affirmative action plan and that no discrimination claim,
show cause notice, conciliation proceeding, sanctions or debarment
proceeding has been filed or is pending with the Office of Federal
Contract Compliance Programs ("OFCCP") or any other Federal agency or
any comparable State or foreign agency or court and no desk audit or
on-site
19
<PAGE> 29
review is in progress.
(b) Seller has not taken any action which would
constitute a "Mass Layoff" or "Plant Closing" within the meaning of the
Worker Adjustment and Retraining Notification Act of 1988, as amended
("WARN") or otherwise trigger notice requirements or liability under
any local or state plant closing notice law; and, to the extent any
liability should arise between the date of this Agreement and the
Closing as a result of employment actions by Seller, then Seller will
be solely responsible financially therefor.
Section 3.18. Insurance. Seller has heretofore provided to
Purchaser a true and complete list of its current insurance policies and
coverages relating to the Assets and/or the Business, including names of
carriers, amounts of coverage and premiums therefor. Seller will use its
reasonable efforts to maintain such insurance at least through the Closing Date.
Seller has made available to Purchaser true and complete copies of all insurance
policies covering the Assets and/or the Business.
Section 3.19. Environmental Matters. To the knowledge of the
Seller's Executives, the operations of the Business are in compliance in all
material respects with all statutes, regulations and ordinances relating to the
protection of human health and the environment including, without limitation,
the Clean Water Act 33 U.S.C. ss. 1251 et seq., the Resource Conservation and
Recovery Act 42 U.S.C. ss. 6901 et seq., the Clean Air Act 42 U.S.C. ss. 7401 et
seq., the Toxic Substances Control Act 15 U.S.C. ss. 2601 et seq., the Emergency
Planning Community Right-to-Know Act 42 U.S.C. ss. 11,001 et seq., the
regulations developed pursuant to these statutes and the corresponding state and
local statutes, ordinances and regulations. To the knowledge of the Seller's
Executives, there has been no release of a hazardous substance as that term is
defined in the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, 42 U.S.C. ss. 9601(14) into the environment at any property owned,
leased or used in connection with the Business (the "Premises") including,
without limitation, any such release in the soil or groundwater underlying the
Premises. To the knowledge of the Seller's Executives, there is no asbestos,
polychlorinated biphenyls or underground storage tanks located on the Premises
and there have been no releases of asbestos, polychlorinated biphenyls or
materials stored in underground storage tanks, including, without limitation,
petroleum or petroleum-based materials. Seller has not received written notice
of any violation of any environmental statute or regulation nor have they been
advised in writing of any claim or liability pursuant to any environmental
statute or regulation brought by any governmental agency or private party with
respect to the Assets or the operation of the Business.
Section 3.20. Patents, Trademarks, Trade Names. There are no
patents, trademarks, trade names or registered copyrights owned by Seller and
used in connection with the Business.
20
<PAGE> 30
Section 3.21. Seller's Computer Software and Hardware.
(a) The Seller Disclosure Letter sets forth a true and
complete list of: (i) all software which is part of the Assets and
which is owned by Seller and used in connection with the Business (the
"Seller Proprietary Software"); and (ii) all software which is part of
the Assets (other than the Seller Proprietary Software) and used in
connection with the Business (the "Seller Licensed Software," and
together with the Seller Proprietary Software, the "Seller Software").
The Seller Software consists of: (i) source and object code embodied in
magnetic media and (ii) all development and procedural tools necessary
to maintain the Seller Software, including licenses to use compilers,
assemblers, libraries and other aids.
(b) Seller has all right, title and interest in and to
all intellectual property rights on the Seller Proprietary Software.
Seller has developed the Seller Proprietary Software entirely through
its own efforts for its own account and the Seller Proprietary Software
is free and clear of all liens, claims, charges and encumbrances of any
nature whatsoever. The use of the Seller Licensed Software and the use
and distribution of the Seller Proprietary Software does not breach any
material terms of any contract between the Seller and any third party.
The Seller Disclosure Letter sets forth a true and complete list of all
license agreements in favor of Seller relating to the Seller Licensed
Software (the "Seller License Agreements"). Seller has been granted
under the Seller License Agreements valid and subsisting license rights
with respect to all software comprising the Seller Licensed Software.
Seller will secure, on or prior to the Closing Date, a sufficient
number of copies of Seller Licensed Software such that Seller is in
compliance in all respects with each of the terms and conditions of
each of the Seller License Agreements. In the case of any commercially
available "shrink-wrap" software programs (such as Lotus 1-2-3) to the
best knowledge of the Seller's Executives, neither Seller nor any of
its respective employees, agents, or representatives has made or is
using any unauthorized copies of any such software programs.
(c) To the best knowledge of the Seller's Executives, the
Seller Proprietary Software and the Seller Licensed Software do not
infringe any United States patent, copyright, trade secret or other
intellectual property right of any third party and (ii) the source code
for the Seller Proprietary Software has been maintained in confidence.
(d) All personnel, including employees, agents,
consultants and contractors, who have contributed to or participated in
the conception and development of the Seller Proprietary Software
either (i) have been employees of Seller performing work within the
scope of their employment, or (ii) have executed appropriate
instruments of assignment in favor of Seller as assignee that have
conveyed to Seller ownership of all of their intellectual property
rights in the Seller Proprietary Software.
(e) There are no agreements or arrangements in effect
with respect to the
21
<PAGE> 31
marketing, distribution, licensing or promotion of the Seller
Proprietary Software by any independent sales persons, distributor,
sublicensee or other remarketer or sales organization.
(f) The Seller has not granted rights in the Seller
Software to any third party.
(g) Seller possesses the computer hardware and components
necessary to operate the Business in accordance with historical
practices (the "Seller Hardware") and such Seller Hardware constitutes
part of the Assets;
(h) Seller has provided Purchaser with complete and
accurate copies of all correspondence, documents or materials (the
"Year 2000 Correspondence") generated by Seller, its employees or
agents or received from external sources, including manufacturers,
relating to the Seller Software and Seller Hardware and any of the
following matters pertaining thereto: (i) processing, sequencing,
calculating, providing and receiving data from, into and between the
twentieth and twenty-first centuries and the years 1999 and 2000; (ii)
performance of leap year calculations; (iii) use of a four (4) digit
year in all applicable data fields; or (iv) information technology
failure or errors related to any such dates described above in this
Section 3.21(h). All matters contained within the Year 2000
Correspondence originated by Seller are true, accurate and complete in
all material respects.
(i) The Seller Software and the Seller Hardware are
adequate in all material respects with the other assets of the Business
to run the Business in the same manner as presently conducted. The
Seller Disclosure Letter contains a summary description of any material
problems experienced by the Business in the past twelve (12) months
with respect to the Seller Software or Seller Hardware and the
provision of services to Clients which resulted, or reasonably could be
expected to result, in a material adverse effect on the assets,
liabilities, results of operations, financial condition, business or
prospects of the Business.
Section 3.22. Transactions with Affiliates. No shareholder,
officer, director or significant employee of Seller or any person with whom any
such shareholder, officer, director or significant employee has any direct or
indirect relation by blood, marriage or adoption, or any entity in which any
such person, owns any beneficial interest (other than a publicly held
corporation whose stock is traded on a national securities exchange or in the
over-the-counter market and less than 5% of the stock of which is beneficially
owned by all such persons) has any interest in: (i) any contract, arrangement or
understanding with, or relating to, the Business, the Assets or the Assumed
Obligations; (ii) any loan, arrangement, understanding, agreement or contract
for or relating to the Business, the Assets or the Assumed Obligations; or (iii)
any property (real, personal or mixed), tangible or intangible, used or
currently intended to be used in the Business.
22
<PAGE> 32
Section 3.23. Accounts Receivable. The accounts receivable of
Seller arising from the Business as set forth on the Seller's Financial
Statements and arising since the date thereof are valid; have arisen solely out
of bona fide sales and performance of services and other business transactions
in the ordinary course of business consistent with past practices of the
Business and are not subject to valid defenses, set-offs or counterclaims.
Section 3.24. Brokers, Finders and Investment Bankers. The Seller
and the Shareholder have employed the investment banking firm of Barrington
Associates and incurred liabilities and expenses for such investment banking
fees, financial advisory fees, brokerage fees or finders' fees in connection
with the transactions contemplated hereby. Seller and Shareholder shall
indemnify Purchaser and hold it harmless from any liability or expense arising
from any claim for fees and expenses of Barrington Associates or its assigns
related to the transactions contemplated hereby. With the exception of the
employment of Barrington Associates, neither Seller nor Shareholder have engaged
any investment banking firm, broker or finder in connection with the transaction
contemplated hereby.
Section 3.25. Disclosure. To the knowledge of Seller's Executives,
no representation, warranty or covenant made by Seller or the Shareholder in
this Agreement, the Seller Disclosure Letter or the Exhibits attached hereto
contains an untrue statement of a material fact or omits to state a material
fact required to be stated herein or therein or necessary to make the statements
contained herein or therein not misleading.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
With such exceptions as are set forth in a letter (the "Purchaser
Disclosure Letter") delivered by Purchaser to the Seller prior to the execution
hereof, Purchaser hereby represents and warrants to Seller as follows:
Section 4.1. Organization. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Purchaser is duly qualified to transact business and is in good standing as a
foreign corporation in the State of California.
Section 4.2. Authorization. Purchaser has full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
under this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by Purchaser, the performance by
Purchaser of its obligations hereunder and the consummation of the transactions
provided for herein have been duly and validly authorized by all necessary
corporate action on the part of Purchaser. The Board of Directors of Purchaser
has
23
<PAGE> 33
approved the execution, delivery and performance of this Agreement and the
consummation of the transactions provided for herein. This Agreement has been
duly executed and delivered by Purchaser and constitutes the valid and binding
agreement of Purchaser, enforceable against Purchaser in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance and
other similar laws affecting the enforcement of creditors' rights generally,
general equitable principles and the discretion of courts in granting equitable
remedies.
Section 4.3. Absence of Restrictions and Conflicts. The execution,
delivery and performance of this Agreement, the consummation of the transactions
contemplated by this Agreement, and the fulfillment of and compliance with the
terms and conditions of this Agreement do not and will not, with the passing of
time or the giving of notice or both, violate or conflict with, constitute a
breach of or default under, result in the loss of any material benefit under, or
permit the acceleration of any obligation under, (i) any term or provision of
the Certificate of Incorporation or Bylaws of Purchaser, (ii) any contract,
agreement, commitment or understanding to which Purchaser is a party or to which
any of Purchaser's properties is subject, (iii) any judgment, decree or order of
any court or governmental authority or agency to which Purchaser is a party or
by which Purchaser's properties is bound, or (iv) to the knowledge of Purchaser,
any statute, law, regulation or rule applicable to Purchaser so as to have, in
the case of subsections (ii) through (iv) above, a material adverse effect on
the Purchaser. Except for compliance with the applicable requirements of the
Exchange Act and filings under the rules of the NASDAQ/NMS, to the knowledge of
Purchaser, no consent, approval, order or authorization of, or registration,
declaration or filing with, any government agency or public or regulatory unit,
agency, body or authority with respect to Purchaser is required in connection
with the execution, delivery or performance of this Agreement by Purchaser or
the consummation of the transactions contemplated by this Agreement by
Purchaser, the failure to obtain which would have a material adverse effect upon
Purchaser. Within the meaning of the HSR Act and the rules promulgated
thereunder, Purchaser is the only ultimate parent entity of Purchaser, the total
assets of Purchaser are less than One Hundred Million Dollars ($100,000,000),
and the annual net sales of Purchaser are less than One Hundred Million Dollars
($100,000,000).
Section 4.4. Brokers, Finders, Investment Bankers. Purchaser has
not engaged any investment banking firm, broker or finder in connection with the
transaction contemplated hereby.
Section 4.5. Disclosure. No representation, warranty or covenant
made by Purchaser in this Agreement, the Purchaser Disclosure Letter or the
Exhibits hereto contains an untrue statement of a material fact or omits to
state a material fact required to be stated herein or therein or necessary to
make the statements contained herein or therein not misleading.
Section 4.6. Business Operations. To Purchaser's actual knowledge,
there are no events or circumstances (other than events or circumstances within
Seller's or Shareholder's control or items disclosed in the Seller Disclosure
Letter) relating to the Business which would impair Purchaser's ability to
operate the Business after Closing or otherwise adversely impact
24
<PAGE> 34
Purchaser's ability to serve Clients or generate revenues relating thereto.
ARTICLE 5.
CERTAIN COVENANTS AND AGREEMENTS
Section 5.1. Conduct of Business by Seller. From the date hereof
to the Closing Date, the Seller will, except as required in connection with the
transactions contemplated by this Agreement and except as otherwise disclosed in
the Seller Disclosure Letter or consented to in writing by Purchaser:
(a) Carry on the Business in the ordinary and regular
course in substantially the same manner as heretofore conducted and not
engage in any new line of business or enter into any agreement,
transaction or activity or make any commitment with respect to the
Business except those in the ordinary and regular course of business
and not otherwise prohibited under this Section 5.1;
(b) Use reasonable efforts to preserve intact the
goodwill and business organization of the Business, to keep the
officers and employees of the Business available to Purchaser and to
preserve the relationships of the Business with customers, suppliers
and others having business relations with the Business;
(c) Not (i) sell any of the Assets, (ii) create, incur or
assume any indebtedness secured by the Assets, (iii) grant, create,
incur, or suffer to exist any liens or encumbrances on the Assets which
did not exist on the date hereof or (iv) make any capital expenditure
involving the Business in excess of Twenty-Five Thousand Dollars
($25,000) in the case of any single expenditure or One Hundred Thousand
Dollars ($100,000) in the case of all capital expenditures;
(d) Not enter into, modify or extend in any manner the
terms of any employment, severance or similar agreements with officers,
directors or employees associated with the Business nor grant any
increase in the compensation of officers, directors or employees
involved in the Business, whether now or hereafter payable, including
any such increase pursuant to any option, bonus, stock purchase,
pension, profit-sharing, deferred compensation, retirement or other
plan, arrangement, contract or commitment;
(e) Perform in all material respects all of its
obligations under all Seller Material Contracts, Seller Client
Contracts, Real Property Leases and Scheduled Leases (except those
being contested in good faith) and not enter into, assume or amend any
contract or commitment that would be a Seller Material Contract, Seller
Client Contract, Real Property Lease or Scheduled Lease;
25
<PAGE> 35
(f) Use reasonable efforts to maintain in full force and
effect and in the same amounts policies of insurance comparable in
amount and scope of coverage to that now maintained by Seller with
respect to the Business and the Assets;
(g) Use reasonable efforts to continue to collect its
accounts receivable and pay its accounts payable and similar
obligations in the ordinary course of business and consistent with past
practices of the Business;
(h) Prepare and file all federal, state, local and
foreign returns for taxes and other tax reports, filings and amendments
thereto required to be filed by Seller, and allow Purchaser, at its
request, to review all such returns, reports, filings and amendments at
Seller's offices prior to the filing thereof, which review shall not
interfere with the timely filing of such returns;
(i) Not amend any Seller benefit plan, nor commit to make
any amendment to any Seller benefit plan or commit to continue any
Seller benefit plan or adopt any new Seller benefit plan for the
benefit of any employees of the Business;
(j) Maintain cash balances in all cash accounts
maintained in connection with the Business in accordance with past
practices of the Business provided, however, that Seller shall be
entitled to make such distributions and dividends to Shareholder as set
forth in the Seller Disclosure Letter; and
(k) Use reasonable efforts to continue to maintain and
service the Assets used in the conduct of the Business in the same
manner as has been its consistent past practice.
In connection with the continued operation of the Business between the
date of this Agreement and the Closing Date, Seller shall confer in good faith
on a regular and frequent basis with one or more designated representatives of
Purchaser with respect to material matters affecting or impacting the operations
of the Business and consult generally with such representatives with respect to
the ongoing operations of the Business. Seller acknowledges that Purchaser does
not and will not waive any rights it may have under this Agreement as a result
of such consultations nor shall Purchaser be responsible for any decisions made
by the officers, directors or employees of Seller with respect to matters which
are the subject of such consultation.
Section 5.2. Inspection and Access to Information. Between the
date of this Agreement and the Closing Date, Seller will provide Purchaser and
its accountants, counsel and other authorized representatives full access,
during reasonable business hours and under reasonable circumstances to any and
all of its premises, properties, contracts, commitments, books, records and
other information (including tax returns filed and those in preparation)
relating to the Business and will cause its officers to furnish to Purchaser and
its authorized representatives any and all financial, technical and operating
data and other information
26
<PAGE> 36
pertaining to the Business, as Purchaser shall from time to time reasonably
request.
Section 5.3. No Solicitation; Acquisition Proposals. From the date
hereof until the Closing or until this Agreement is terminated or abandoned as
provided in Article 7, neither the Seller nor the Shareholder shall directly or
indirectly (i) solicit or initiate (including by way of furnishing any
information) discussions with or (ii) enter into negotiations or agreements
with, or furnish any information to, any corporation, partnership, person or
other entity or group (other than Purchaser, or its authorized representatives
pursuant to this Agreement) concerning any proposal for a merger, sale of
substantial assets, sale of shares of stock or securities or other takeover or
business combination transaction involving the Business or the Assets (the
"Acquisition Proposal"), and each of the Seller and Shareholder will instruct
its respective officers, directors, advisors and other financial and legal
representatives and consultants as applicable, not to take any action contrary
to the foregoing provisions of this sentence. Seller and Shareholder will notify
Purchaser promptly in writing if any of them become aware that any inquiries or
proposals are received by, any information is requested from, or any
negotiations or discussions are sought to be initiated with the Seller or
Shareholder or their representatives with respect to an Acquisition Proposal.
Section 5.4. Best Efforts; Further Assurances; Cooperation.
Subject to the other provisions of this Agreement, the parties hereto shall each
use their reasonable, good faith efforts to perform their obligations herein and
to take, or cause to be taken or do, or cause to be done, all things necessary,
proper or advisable under applicable law to obtain all regulatory approvals and
satisfy all conditions to the obligations of the parties under this Agreement
and to cause the transactions contemplated herein to be effected on or prior to
January 31, 1999, in accordance with the terms hereof and shall cooperate fully
with each other and their respective officers, directors, employees, agents,
counsel, accountants and other designees in connection with any steps required
to be taken as a part of their respective obligations under this Agreement,
including without limitation:
(a) Seller and Purchaser shall promptly make their
respective filings and submissions and shall take, or cause to be
taken, all actions and do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to obtain any
required approval of any federal, state, or local governmental agency
or regulatory body with jurisdiction over the transactions contemplated
by this Agreement.
(b) In the event any claim, action, suit, investigation
or other proceeding by any governmental body or other person is
commenced which questions the validity or legality of any of the
transactions contemplated hereby or seeks damages in connection
therewith, the parties agree to cooperate and use all reasonable
efforts to defend against such claim, action, suit, investigation or
other proceeding and, if an injunction or other order is issued in any
such action, suit or other proceeding, to use all reasonable efforts to
have such injunction or other order lifted, and to cooperate reasonably
regarding any other impediment to the consummation of the transactions
contemplated by this Agreement.
27
<PAGE> 37
(c) Each party shall give prompt written notice to the
other parties hereto of (i) the occurrence, or failure to occur, of any
event which occurrence or failure would be likely to cause any
representation or warranty of such party contained in this Agreement to
be untrue or inaccurate in any material respect at any time from the
date hereof to the Closing Date or that will or may result in the
failure to satisfy any of the conditions specified in Article 6 hereof
and (ii) any failure of such party, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder.
(d) Seller and Shareholder will exercise reasonable best
efforts and shall cooperate in good faith with Purchaser to secure on
or prior to the Closing Date all necessary consents of third parties to
the assignment to Purchaser of all Seller Material Contracts, Real
Property Leases, Scheduled Leases, Seller Client Contracts and Seller
License Agreements included in the Assets as set forth in the Seller
Disclosure Letter.
(e) Each of the parties hereto agree that with respect to
each item appearing on the Seller Disclosure Letter and the Purchaser
Disclosure Letter, the Seller or the Purchaser, as the case may be,
shall specifically reference the Section or Sections of this Agreement
as to which such item relates.
(f) Without the prior written consent of Purchaser,
Seller will not terminate any employee involved in the operations of
the Business if such termination would result in the payment of any
amounts pursuant to "change in control" provisions of any employment
agreement or arrangement.
Section 5.5. Public Announcements. The timing and content of all
announcements regarding any aspect of this Agreement or the transactions
contemplated hereby to the financial community, government agencies, employees
or the general public shall be mutually agreed upon in advance (unless Seller or
Purchaser is advised by counsel that any such announcement or other disclosure
not mutually agreed upon in advance is required to be made by law or applicable
rule of the NASDAQ/NMS and then only after making a reasonable attempt to comply
with the provisions of this Section).
Section 5.6. Financial Statements. Prior to the Closing Date,
Seller shall deliver to Purchaser, as soon as available but in no event later
than thirty (30) days after the end of each month, a balance sheet as of the
last day of such month and the related statements of income, for the applicable
year to date period then ended prepared in accordance with GAAP consistently
applied.
Section 5.7. Supplements to Disclosure Letters. From time to time
up to the Closing Date, the Seller and Purchaser will promptly supplement or
amend their respective disclosure letters which they have delivered pursuant to
this Agreement with respect to any matter hereafter
28
<PAGE> 38
arising which, if existing or occurring at the date of this Agreement, would
have been required to be set forth or described in any such disclosure letter or
which is necessary to correct any information in any such disclosure letter
which has been rendered inaccurate thereby. No supplement or amendment to any
such disclosure letter shall have any effect for the purpose of determining
satisfaction of the conditions set forth in Sections 6.2 or 6.3 of this
Agreement unless such supplement or amendment is accepted by Purchaser in its
absolute and sole discretion in the case of any supplement or amendment to the
Seller Disclosure Letter, and by Seller in its absolute and sole discretion in
the case of any supplement or amendment to the Purchaser Disclosure Letter.
Section 5.8. Liability for Benefits/Withdrawal from Plans.
(a) On the Closing Date, Seller shall pay to all of the
employees employed in connection with the Business, or to Purchaser on
behalf of such employees, all accrued and earned wages, salaries and
other compensation and all accrued, earned and unused vacation, sick
leave and personal days. In addition, on the Closing Date, Seller shall
pay to all of the employees employed in connection with the Business,
or to Purchaser on behalf of such employees, the pro rata amount of any
commissions or bonuses earned by such employees for the period
beginning January 1, 1998 and ending on the Closing Date (such pro rata
amount shall include year-end bonuses). Seller shall be responsible for
paying all claims of any kind or description whatsoever arising under
the Employee Benefit Plans or relating to employment, prior to the
Closing Date, of employees employed in connection with the Business.
(b) Seller agrees to fully vest all of the employees
employed in connection with the Business in their benefits accrued
under the MEDCAP 401(k) Profit Sharing Plan and to take appropriate
corporate action to terminate such plan prior to or on the Closing Date
subject to receipt of a favorable determination letter in connection
with such termination. Seller shall request a favorable determination
letter from the Internal Revenue Service in connection with such
termination and use its reasonable best efforts to obtain the favorable
determination letter as soon as practicable after the Closing.
Purchaser shall take no role (either before or after the Closing Date)
in the plan termination and favorable determination letter request.
Purchaser shall offer a 401(k) retirement plan to employees employed in
connection with the Business who are offered employment with Purchaser
and who satisfy the eligibility requirements under such 401(k)
retirement plan, which plan shall recognize employment with the
Business as employment with Purchaser for purposes of eligibility and
vesting service and shall accept rollover contributions made by or on
behalf of such employees attributable to distributions from the MEDCAP
401(k) Profit Sharing Plan; provided, however, that such rollover
contributions are made in cash or cash equivalents and do not include
loans and that prior to any such rollover contributions, Seller
provides to Purchaser an Internal Revenue Service favorable
determination letter for the plan in connection with its termination.
In addition, Purchaser shall make available to employees employed in
29
<PAGE> 39
connection with the Business who are offered employment with Purchaser
those benefits available to similarly situated employees of Purchaser
and shall recognize, for eligibility purposes (other than for purposes
of Purchaser's employee stock purchase plan), employment with the
Business as employment with Purchaser; provided, however, in lieu of
Purchaser's welfare benefits, Purchaser and Seller may arrange
temporarily for continued coverage of such employees under
corresponding welfare plans of Seller, with Purchaser paying the
employer's share of premiums under such plans, until such employees are
transitioned into applicable Purchaser welfare plans.
(c) Seller shall assume full responsibility and liability
for offering and providing "continuation coverage" to any "qualified
beneficiary" who is covered by a "group health plan" sponsored or
contributed by Seller and who has experienced a "qualifying event" or
is receiving "continuation coverage" on or prior to the Closing Date.
"Continuation coverage," "qualified beneficiary," "qualifying event"
and "group health plan" shall have the meanings given such terms under
Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA.
Section 5.9. Employment Matters.
(a) It is Purchaser's current intention to extend offers
of employment to substantially all of the employees employed in
connection with the Business. As promptly as practicable following the
date hereof, Seller shall provide Purchaser with a list setting forth
the names, addresses and such other information as Purchaser shall
reasonably request concerning the employees of Seller employed in
connection with the Business (the "Employees"). Purchaser will consider
for employment those Employees who apply for employment with Purchaser
and Purchaser will inform Seller no later than five (5) days prior to
the Closing of the names of any Employees who will not be offered
employment with Purchaser (the "Remaining Seller Employees") and such
other infor mation concerning the terms of employment to be offered by
Purchaser to the other Employees as Seller shall reasonably request.
Any offer of employment pursuant to this Section 5.9(a) shall be within
the sole discretion of Purchaser and shall be on such terms and
conditions as Purchaser, in its sole discretion, may determine. Nothing
herein contained shall obligate Purchaser to employ or offer to employ
any current or former employee of Seller, or to employ or offer to
employ any such individual at any specific wage or benefit level.
(b) Shareholder will use her reasonable best efforts to
assist Purchaser in entering into employment agreements in the form
attached hereto as Exhibit 5.9(b) (the "Employment Agreements") with
the key employees of the Business set forth in the Purchaser Disclosure
Letter (the "Key Employees of the Business") on or prior to the Closing
Date.
(c) No later than one (1) day prior to the Closing,
Seller shall notify all
30
<PAGE> 40
Employees that their employment with Seller shall terminate at the
Closing and Seller shall validly terminate such Employees as of the
Closing Date.
(d) At the Closing, Seller shall deliver to Purchaser as
part of the Assets conveyed hereunder the applicable personnel file for
each Employee who Purchaser hires.
(e) Purchaser and the Seller agree that Seller shall be
responsible for providing any notice required by the Worker Adjustment
and Retraining Notification Act of 1988, as amended (the "WARN Act") or
any comparable state or local statutes, rules or regulations as a
result of the transactions contemplated hereunder. Purchaser and the
Seller do not currently anticipate that any WARN Act notification will
be required as a result of the transactions contemplated hereby.
Section 5.10. Noncompetition and Nonsolicitation Agreement. Seller
and the Shareholder agree to execute and deliver to Purchaser the Noncompetition
and Nonsolicitation Agreement in the form attached hereto as Exhibit 5.10 on or
prior to Closing.
Section 5.11. Shareholder Employment Agreement. Shareholder and
Purchaser agree to execute and deliver the Shareholder Employment Agreement in
the form attached hereto as Exhibit 5.11 on or prior to Closing.
Section 5.12. Books and Records. Purchaser agrees to exercise
reasonable efforts to maintain and not to destroy the various books and records
associated with the operation of the Business prior to Closing which are
delivered by Seller to Purchaser at Closing as part of the Assets for such
period of time as is reasonably consistent with Purchaser's record retention
policies or as may be required by applicable governmental rules, regulations or
directives (but in any event for a period of at least seven (7) years subsequent
to the Closing) and to grant the Seller and its agents and representatives
reasonable access to such books and records on or after the Closing Date as they
shall reasonably request for bona fide purposes and for so long as such books
and records are maintained pursuant to the provisions hereof; provided; however,
that Purchaser shall be entitled to receive a confidentiality and use agreement
from Seller in a form and substance reasonably satisfactory to Purchaser prior
to providing Seller with access to such books and records.
ARTICLE 6.
CONDITIONS
Section 6.1. Conditions to Each Party's Obligations. The
respective obligations of each party to effect the transactions contemplated
hereby shall be subject to the absence at the Closing of any (i) effective
injunction, writ or preliminary restraining order or any order of any nature
31
<PAGE> 41
issued by a court or governmental agency of competent jurisdiction to the effect
that the purchase and sale of the Business and the Assets may not be consummated
as herein provided; or (ii) proceeding or lawsuit commenced by any governmental
or regulatory agency for the purpose of obtaining any such injunction, writ or
preliminary restraining order and written notice from any such agency indicating
an intent to restrain, prevent, materially delay or restructure the transactions
contemplated by this Agreement.
Section 6.2. Conditions to Obligations of Purchaser. The
obligations of Purchaser to effect the acquisition of the Business and the
Assets and to assume the Assumed Obligations shall be subject to the fulfillment
at or prior to the Closing of each of the following additional conditions:
(a) Representations and Warranties. The representations
and warranties of Seller and Shareholder set forth in Article 3 of this
Agreement shall be true and correct as of the date of this Agreement
and as of the Closing Date as though made on and as of the Closing
Date.
(b) Performance of Obligations of Seller. Seller and
Shareholder shall have performed in all material respects all covenants
and agreements required to be performed by them under this Agreement.
(c) Opinion of Seller's Counsel. Purchaser shall have
received an opinion of Sanders, Barnet, Goldman, Simons & Mosk, A
Professional Corporation dated the Closing Date, substantially in the
form attached hereto as Exhibit 6.2(c).
(d) Authorization of Transaction. All corporate action
necessary by Seller to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby shall have been duly and validly taken.
(e) Consents. All consents, authorizations, orders and
approvals of (or filings or registrations with) any governmental
commission, board or other regulatory body, including expiration or
termination of the waiting period under the Hart-Scott-Rodino Act, if
applicable, required in connection with the execution, delivery and
performance of this Agreement, shall have been obtained or made. Seller
shall have obtained all necessary consents to assignment, in favor of
Purchaser, of all Real Property Leases.
(f) Certificates. Seller shall furnish Purchaser with a
certificate as to compliance with the conditions set forth in Sections
6.2(a), (b) and (d).
(g) Noncompetition and Nonsolicitation Agreement. Each of
the Seller and the Shareholder shall have executed and delivered the
Noncompetition and Nonsolicitation Agreement in the form attached
hereto as Exhibit 5.10.
32
<PAGE> 42
(h) Shareholder Employment Agreement. The Shareholder
shall have executed and delivered the Shareholder Employment Agreement.
(i) Client Contracts. Seller shall have obtained consents
to the assignment of those Seller Client Contracts listed on Exhibit
6.2(i).
Section 6.3. Conditions to Obligations of Seller. The obligations
of Seller to effect the sale of the Business and the Assets and the assignment
of the Assumed Obligations shall be subject to the fulfillment at or prior to
the Closing of each of the following additional conditions:
(a) Representations and Warranties. The representations
and warranties of Purchaser set forth in Article 4 of this Agreement
shall be true and correct as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date.
(b) Performance of Obligations of Purchaser. The
Purchaser shall have performed in all material respects all covenants
and agreements required to be performed by it under this Agreement.
(c) Opinion of Purchaser's Counsel. The Seller shall have
received an opinion of King & Spalding, dated the Closing Date,
substantially in the form attached hereto as Exhibit 6.3(c).
(d) Authorization of Transaction. All corporate action
necessary by Purchaser to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby shall have been duly and validly taken.
(e) Consents. All consents, authorizations, orders and
approvals of (or filings or registrations with) any governmental
commission, board or other regulatory body, including expiration or
termination of the waiting period under the Hart-Scott-Rodino Act, if
applicable, required in connection with the execution, delivery and
performance of this Agreement, shall have been obtained or made.
(f) Certificates. Purchaser shall furnish Seller with a
certificate as to compliance with the conditions set forth in Sections
6.3(a), (b) and (d).
(g) Shareholder Employment Agreement. Purchaser shall
have executed and delivered the Shareholder Employment Agreement.
33
<PAGE> 43
ARTICLE 7.
TERMINATION
Section 7.1. Termination and Abandonment. This Agreement may be
terminated at any time prior to the Closing:
(a) by mutual agreement of the Boards of Directors of the
Purchaser and Seller;
(b) by Seller, if the conditions set forth in Sections
6.1 and 6.3 hereof shall not have been complied with or performed and
such noncompliance or nonperformance shall not have been cured or
eliminated (or by its nature cannot be cured or eliminated) by
Purchaser on or before February 15, 1999; and
(c) by Purchaser, if the conditions set forth in Sections
6.1 and 6.2 hereof shall not have been complied with or performed and
such noncompliance or nonperformance shall not have been cured or
eliminated (or by its nature cannot be cured or eliminated) by the
Seller on or before February 15, 1999.
Section 7.2. Specific Performance and Other Remedies. The parties
hereto each acknowledge that the rights of each party to consummate the
transactions contemplated hereby are special, unique and of extraordinary
character, and that, in the event that any party violates or fails or refuses to
perform any covenant or agreement made by it herein, the non-breaching party may
be without an adequate remedy at law. The parties each agree, therefore, that in
the event that either party violates or fails or refuses to perform any covenant
or agreement made by such party herein, the non-breaching party or parties may,
subject to the terms of this Agreement and in addition to any remedies at law
for damages or other relief, institute and prosecute an action in any court of
competent jurisdiction to enforce specific performance of such covenant or
agreement or seek any other equitable relief.
Section 7.3. Effect of Termination. In the event of termination of
this Agreement pursuant to this Article 7, this Agreement shall forthwith become
void and there shall be no liability on the part of any party or its respective
officers, directors, or stockholders, except for obligations under Section 5.5,
Section 9.14 and this Section, all of which shall survive the termination.
Notwithstanding the foregoing, nothing contained herein shall relieve any party
from liability for any breach of any covenant or agreement in this Agreement.
34
<PAGE> 44
ARTICLE 8.
INDEMNIFICATION
Section 8.1. Indemnification Obligations of the Shareholder and
Seller. From and after the Closing, each of the Shareholder and Seller, jointly
and severally, shall, subject to the limitations set forth in this Article 8 and
in accordance with the procedures of Section 8.3, indemnify and hold harmless
Purchaser and its subsidiaries and affiliates, each of their respective
officers, directors, employees, agents and representatives and each of the
heirs, executors, successors and assigns of any of the foregoing (collectively,
the "Purchaser Indemnified Parties") from, against and in respect of any and all
claims, liabilities, obligations, losses, costs, expenses, penalties, fines and
other judgments (at equity or at law) and damages whenever arising or incurred
(including, without limitation, amounts paid in settlement, costs of
investigation and reasonable attorneys' fees and expenses) arising out of or
relating to:
(a) Any and all liabilities and obligations of the Seller
of any nature whatsoever, except the Assumed Obligations;
(b) Any and all actions, suits, claims, or legal,
administrative, arbitration, governmental or other proceedings or
investigations against any Purchaser Indemnified Party that relate to
Seller or the Business to the extent the principal event giving rise
thereto occurred prior to the Closing Date or which result from or
arise out of any action or inaction prior to the Closing Date of Seller
or any affiliate, officer, director, employee, agent, representative or
subcontractor of Seller;
(c) Any breach of any representation, warranty, covenant,
agreement or undertaking made by the Seller or Shareholder in this
Agreement or in any certificate, agreement, exhibit or schedule
delivered by Seller or Shareholder in connection with the matters
contemplated hereby or pursuant to the provisions hereof (collectively,
the "Seller Ancillary Documents"); or
(d) Any fraud or any knowing and intentional breach of
any representation, warranty, covenant, agreement or undertaking made
by Seller or Shareholder in this Agreement or the Seller Ancillary
Documents.
The claims, liabilities, obligations, losses, costs, expenses,
penalties, fines and damages of the Purchaser Indemnified Parties described in
this Section 8.1 as to which the Purchaser Indemnified Parties are entitled to
indemnification are hereinafter collectively referred to as "Purchaser Losses."
Section 8.2. Indemnification Obligations of Purchaser. From and
after the Closing, Purchaser shall, subject to the limitations set forth in this
Article 8 and in accordance with the procedures set forth in Section 8.3,
indemnify and hold harmless the Seller and Shareholder and
35
<PAGE> 45
each of their affiliates, officers, directors, shareholders, employees, agents
and representatives and each of the heirs, executors, successors and assigns of
any of the foregoing (collectively, the "Seller Indemnified Parties") from,
against and in respect of any and all claims, liabilities, obligations, losses,
costs, expenses, penalties, fines and other judgments (at equity or at law) and
damages whenever arising or incurred (including, without limitation, amounts
paid in settlement, costs of investigation and reasonable attorneys' fees and
expenses) arising out of or relating to:
(a) The Assumed Obligations;
(b) Any breach of any representation, warranty, covenant,
agreement or undertaking made by Purchaser in this Agreement or in any
certificate, agreement, exhibit or schedule delivered by Purchaser in
connection with the matters contemplated hereby or pursuant to the
provisions hereof (the "Purchaser Ancillary Documents");
(c) Any obligation or liability in respect of the
Business arising after the Closing but only to the extent such
liability arises out of or relates to any (i) principal event or
circumstances which occurs subsequent to the Closing Date or (ii) any
action or inaction subsequent to the Closing Date of Purchaser or any
affiliate, officer, director, employee, agent, representative or
subcontractor of Purchaser; or
(d) Any fraud or any knowing and intentional breach of
any representation, warranty, covenant, agreement or undertaking made
by Purchaser in this Agreement or the Purchaser Ancillary Documents.
The claims, liabilities, obligations, losses, costs, expenses,
penalties, fines and damages of the Seller Indemnified Parties described in this
Section 8.2 as to which the Seller Indemnified Parties are entitled to
indemnification are hereinafter collectively referred to as "Seller Losses."
Section 8.3. Indemnification Procedure.
(a) Promptly after receipt by a Purchaser Indemnified
Party or a Seller Indemnified Party (hereinafter collectively referred
to as an "Indemnified Party") of notice by a third party of any
complaint or the commencement of any action or proceeding with respect
to which indemnification is being sought hereunder, such Indemnified
Party shall notify Purchaser or Seller, whoever is the appropriate
indemnifying party hereunder (the "Indemnifying Party"), of such
complaint or of the commencement of such action or proceeding;
provided, however, that the failure to so notify the Indemnifying Party
shall not relieve the Indemnifying Party from liability for such claim
arising otherwise than under this Agreement and such failure to so
notify the Indemnifying Party shall relieve the Indemnifying Party from
liability which the Indemnifying Party may have hereunder with respect
to such claim if, but only if, and only to the extent that, such
failure to notify the Indemnifying Party prejudices the Indemnifying
Party with respect to such claim. The Indemnifying Party shall have the
36
<PAGE> 46
right, upon written notice to the Indemnified Party, to assume the
defense of such action or proceeding, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the
payment of the fees and disbursements of such counsel. In the event,
however, that the Indemnifying Party declines or fails to assume the
defense of the action or proceeding or to employ counsel reasonably
satisfactory to the Indemnified Party, in either case in a timely
manner, then such Indemnified Party may employ counsel to represent or
defend it in any such action or proceeding and the Indemnifying Party
shall pay the reasonable fees and disbursements of such counsel as
incurred; provided, however, that the Indemnifying Party shall not be
required to pay the fees and disbursements of more than one counsel for
all Indemnified Parties in any jurisdiction in any single action or
proceeding. In any action or proceeding with respect to which
indemnification is being sought hereunder, the Indemnified Party or the
Indemnifying Party, whichever is not assuming the defense of such
action, shall have the right to participate in such litigation and to
retain its own counsel at such party's own expense. The Indemnifying
Party or the Indemnified Party, as the case may be, shall at all times
use reasonable efforts to keep the Indemnifying Party or the
Indemnified Party, as the case may be, reasonably apprised of the
status of the defense of any action the defense of which they are
maintaining and to cooperate in good faith with each other with respect
to the defense of any such action.
(b) No Indemnified Party may settle or compromise any
claim or consent to the entry of any judgment with respect to which
indemnification is being sought hereunder without the prior written
consent of the Indemnifying Party, unless such settlement, compromise
or consent includes an unconditional release of the Indemnifying Party
from all liability arising out of such claim. An Indemnifying Party may
not, without the prior written consent of the Indemnified Party, settle
or compromise any claim or consent to the entry of any judgment with
respect to which indemnification is being sought hereunder unless such
settlement, compromise or consent includes an unconditional release of
the Indemnified Party from all liability arising out of such claim and
does not contain any equitable order, judgment or term which in any
manner affects, restrains or interferes with the business of the
Indemnified Party or any of the Indemnified Party's respective
affiliates.
(c) In the event an Indemnified Party shall claim a right
to payment pursuant to this Agreement, such Indemnified Party shall
send written notice of such claim to the appropriate Indemnifying
Party. Such notice shall specify the basis for such claim. As promptly
as possible after the Indemnified Party has given such notice, such
Indemnified Party and the appropriate Indemnifying Party shall
establish the merits and amount of such claim (by mutual agreement or
arbitration in accordance with Section 8.6(c)) and, within five (5)
business days of the final determination of the merits and amount of
such claim (a "Final Claim"), the Indemnifying Party shall deliver to
the Indemnified Party immediately available funds in an amount equal to
such Final Claim as determined hereunder.
37
<PAGE> 47
(d) Purchaser shall be entitled to offset the amount of
any Final Claim amount due Purchaser or any Purchaser Indemnified Party
from Seller or Shareholder under this Article 8 against any and all
amounts that Purchaser may owe Seller pursuant to Article 1 hereof,
including, but not limited to, any Positive Working Capital Balance,
Initial Installment Payment and/or Final Installment Payment.
(e) Notwithstanding Section 8.3(d) of this Agreement
pertaining to the right of offset against the Initial Installment
Payment and/or Final Installment Payment, in the event there is a Final
Claim amount due Purchaser or any Purchaser Indemnified Party, Seller
and Shareholder may, at their option, defer payment of such Final Claim
to Purchaser or the applicable Purchaser Indemnified Party and request
that such payment be deducted from the Initial Installment Payment, if
such request is made during the twelve month period preceding December
31, 1999 ("Year One"), or from the Final Installment Payment, if such
request is made during the twelve month period preceding December 31,
2000 ("Year Two"). To exercise the deferment option, Seller and
Shareholder must provide Purchaser with written notice of such
intention within two (2) days after determination of the particular
Final Claim. Purchaser, on behalf of Purchaser or a Purchaser
Indemnified Party, shall acknowledge receipt of the written request of
Seller and Shareholder upon receipt of same. The amount of the Final
Claim will accrue interest at the rate of Citibank Prime Rate plus one
percent (1%) from the date of the request for deferment through the
Initial Installment Date, in the case of a request for deferment made
during Year One, or through the Final Installment Date, in the case of
a request for deferment made during Year Two ("Interest"). On the
Initial Installment Date, in the case of a request for deferment
occurring in Year One, Purchaser shall deduct the Final Claim amount,
plus Interest from any Initial Installment Payment due Seller. If the
amount of the Initial Installment Payment is zero, Seller and
Shareholder shall immediately remit the amount of the Final Claim plus
Interest to Purchaser or the Purchaser Indemnified Party, as the case
may be. On the Final Installment Date, in the case of a request for
deferment occurring in Year Two, Purchaser shall deduct the Final Claim
amount, plus Interest from any Final Installment Payment due Seller. If
the amount of the Final Installment Payment is zero, Seller and
Shareholder shall immediately remit the amount of the Final Claim plus
Interest to Purchaser or the Purchaser Indemnified Party, as the case
may be.
Section 8.4. Claims Period. Except as provided in this Section
8.4, no claim for indemnification under this Agreement may be asserted by an
Indemnified Party after the expiration of the appropriate claims period (the
"Claims Period") which shall commence on the Closing Date and shall terminate
thirty six (36) months after the Closing Date; provided, however, that the
Claims Period with respect to: (a) Purchaser Losses arising under Section 8.1(d)
shall commence on the date hereof and shall survive and remain in effect until
the fifth (5th) anniversary of the Closing Date; and (b) Seller Losses arising
under Section 8.2(d) shall commence on the date hereof and shall survive and
remain in effect until the fifth anniversary of
38
<PAGE> 48
the Closing Date. No Indemnified Party shall be entitled to make any claim for
indemnification hereunder after the appropriate Claims Period; provided,
however, that if prior to the close of business on the last day of the Claims
Period, an Indemnifying Party shall have been properly notified of a claim for
indemnity hereunder and such claim shall not have been finally resolved or
disposed of at such date, the basis of such claim shall continue to survive with
respect to such claim and shall remain a basis for indemnity hereunder with
respect to such claim until such claim is finally resolved or disposed of in
accordance with the terms hereof.
Section 8.5. Liability Limits. Notwithstanding anything to the
contrary set forth herein:
(a) Seller and Shareholder shall only be liable for
Purchaser Losses arising hereunder solely to the extent that any such
Purchaser Losses exceed, in the aggregate, One Hundred Seventy-Five
Thousand Dollars ($175,000.00) (the "Seller Basket Amount"); provided,
however, that Purchaser Losses arising under or pursuant to Section
8.1(d) of this Agreement shall not be subject to the Seller Basket
Amount, nor shall the amount of any such Purchaser Losses be included
with other Purchaser Losses in determining whether such Seller Basket
Amount has been reached.
(b) The indemnification obligations of the Seller and
Shareholder hereunder shall not exceed in the aggregate Five Million
Dollars ($5,000,000) (the "Seller's Cap Amount"); provided, however,
that Purchaser Losses arising under or pursuant to Section 8.1(d) of
this Agreement shall not be subject to the Seller's Cap Amount and
there shall be no limitation on the indemnification obligations of the
Seller with respect to Purchaser Losses arising under or pursuant to
such provisions.
(c) For purposes of the indemnification obligations of
the Seller under this Article 8 and the applicable representations and
warranties of the Seller and Shareholder set forth in Article 3 hereof
(but not for purposes of determining the satisfaction of the conditions
set forth in Section 6.2(a) and (b) hereof), a Purchaser Loss or series
of related Purchaser Losses shall be deemed to have a material adverse
effect on the assets, liabilities, results of operations, financial
condition, business or prospects of the Business, if such Purchaser
Loss or series of related Purchaser Losses exceeds Five Thousand
Dollars ($5,000); provided, however, that for purposes of determining
the satisfaction of the Seller Basket Amount under Section 8.5(a), all
representations, warranties, covenants, agreements or undertakings
referred to in Section 8.1(c) and (d) hereof shall be read so as to
exclude therefrom the term "material" (or similar words of like import)
and the effect thereof under this Article 8.
Section 8.6. Jurisdiction, Forum and Arbitration.
(a) By the execution and delivery of this Agreement, each
Indemnifying Party irrevocably designates and appoints each of the
parties set forth under its name below as
39
<PAGE> 49
its authorized agent upon which process may be served in any suit or
proceeding arising out of or relating to this Agreement that may be
instituted in any state or federal court in the State of California.
SHAREHOLDER AND SELLER:
Marcia Deutsch
1301 Beverly Green Drive
Los Angeles, California 90035
PURCHASER:
Patrick B. McGinnis
Chairman, President and Chief Executive Officer
Healthcare Recoveries, Inc.
1400 Watterson Tower
Louisville, Kentucky 40218
In addition, each party agrees that service of process upon
the above-designated individuals shall be deemed in every respect
effective service of process upon such Indemnifying Party in any such
suit or proceeding. Each such Indemnifying Party further agrees to take
any and all action reasonably requested by an Indemnified Party,
including the execution and filing of any and all such documents and
instruments, as may be necessary to continue such designation and
appointment of the above-designated individuals in full force and
effect so long as this Agreement shall be in effect. The foregoing
shall not limit the rights of any party to serve process in any other
matter permitted by law.
(b) To the extent that any Indemnifying Party has or
hereafter may acquire any immunity from jurisdiction of any court or
from any legal process (whether through service or notice, attachment
prior to judgment, attachment in aid of execution, execution or
otherwise) with respect to itself or its property, each Indemnifying
Party hereby irrevocably waives such immunity in respect of its
obligations with respect to this Agreement.
(c) With the exception of the provisions of Section
8.6(d) of this Agreement, the parties hereto hereby agree that the only
appropriate forum and venue for any disputes between any of the parties
hereto arising out of this Agreement shall be any state or federal
court in the State of California and each of the parties hereto hereby
submits to the personal jurisdiction of any such court. The foregoing
shall not limit the rights of any party to obtain execution of judgment
in any other jurisdiction. The parties further agree, to the extent
permitted by law, that a final and unappealable judgment against any of
them in any action or proceeding contemplated above shall be conclusive
and may be
40
<PAGE> 50
enforced in any other jurisdiction within or outside the United States
by suit on the judgment, a certified or exemplified copy of which shall
be conclusive evidence of the fact and amount of such judgment.
(d) Arbitration. Notwithstanding any provision herein to
the contrary, with the exception of disputes regarding the Initial
Installment Payment or the Final Installment Payment which shall be
resolved pursuant to Section 1.6(l) of this Agreement, each of Seller,
Shareholder and Purchaser agrees to resolve all disputes, controversies
or claims under or in connection with this Article 8 or any provisions
contained in this Agreement as follows:
(i) Seller, Shareholder and Purchaser shall
attempt in good faith to resolve promptly
any dispute, controversy or claim under or
in connection with this Article 8 or any
provisions contained in this Agreement by
negotiations. If any such dispute,
controversy or claim should arise,
representatives of each such party shall
meet at least once to attempt to resolve the
matter. Any such representative may request
the other representatives to meet within
fourteen (14) days after delivery of written
notice to the others of any such dispute,
controversy, or claim, at a mutually agreed
time and place.
(ii) If the matter has not been resolved pursuant
to negotiations within sixty (60) days after
the first meeting of the representatives
(which period may be extended by mutual
agreement), the matter shall be settled
exclusively by arbitration (except as
provided in Section 1.6(l)) conducted by a
sole arbitrator in accordance with the
provisions of the Federal Arbitration Act (9
U.S.C. Sections 1-16), and in accordance
with the Center for Public Resources, Inc.'s
Rules (the "Rules for Arbitration") for
Non-Administered Arbitration of Business
Disputes. The arbitrator shall be selected
as soon as possible after the delivery of
the notice of defense (as defined in the
Rules for Arbitration) and in any event,
within twenty (20) days thereafter, the
parties' representatives shall discuss
potential candidates for the arbitrator and
shall attempt to select the arbitrator
within twenty (20) days of their initial
discussion, but may extend the selection
process until any party concludes that a
deadlock has been reached. In this event,
the arbitrator shall be selected by the
Center for Public Resources, Inc., in
accordance with Rule 6 of the Rules for
Arbitration. The arbitrator shall be an
individual: (i) who meets the qualifications
set forth in Rule 7 of the Rules of
Arbitration, (ii) who is an
41
<PAGE> 51
attorney or retired judge and (iii) who has
past experience in settling complex
litigation involving claims relating to
acquisitions, mergers and securities. The
arbitration of such matters in controversy,
including the determination of any amount of
damages, shall be final and binding upon
Seller, Shareholder and Purchaser to the
maximum extent permitted by law. Each of
Seller, Shareholder and Purchaser shall not
seek, and no arbitrator shall be authorized
to award, any punitive damages relating to
any matter arbitrated. This Agreement to
arbitrate is irrevocable. The parties agree
that this Agreement involves interstate
commerce and that this arbitration provision
is therefore subject to and governed by the
Federal Arbitration Act.
(iii) Any arbitration proceedings shall be
conducted in the State of California or at
such other location as Seller, Shareholder
and Purchaser may agree.
(iv) Any arbitration award under this Section 8.6
shall be final and binding, and judgment may
be entered on such award by any court having
jurisdiction upon application of Seller,
Shareholder or Purchaser.
(v) Any party to an arbitration proceeding under
this Section 8.6 shall be entitled to be
reimbursed by the other parties for its
costs and expenses incurred in connection
with the arbitration proceeding, including
reasonable attorneys' fees, to the extent
determined by the arbitrators. The
arbitrator shall assess the costs of the
arbitration proceeding, including its fees,
to the parties to the proceeding in such
proportions as the arbitrator considers
reasonable under the circumstances.
(vi) Notwithstanding anything else in this
Section 8.6 to the contrary, Seller,
Shareholder and Purchaser shall be entitled
to seek any equitable remedies available
under the governing law from any court of
competent jurisdiction, and the order or
judgment of any such court shall be binding
in any arbitration proceeding pursuant to
this Section 8.6.
Section 8.7. Compliance with Bulk Sales Laws. Purchaser and Seller
hereby waive compliance by Purchaser and Seller with the bulk sales law and any
other similar laws in any applicable jurisdiction in respect of the transactions
contemplated by this Agreement. Subject to the limitations set forth in Section
8.5 and except for any of the Assumed Obligations the Seller shall indemnify
Purchaser from, and hold Purchaser harmless against, any liabilities, damages,
42
<PAGE> 52
costs and expense resulting from or arising out of (a) the parties failure to
comply with any such laws in respect of the transactions contemplated by this
Agreement and (b) any action brought or levy made as a result thereof.
Section 8.8. Sole Remedy; Waiver.
(a) Notwithstanding anything herein to the contrary, from
and after the Closing Date, the indemnification obligations of Seller
and/or Shareholder under this Article 8 shall constitute the sole and
exclusive remedy of Purchaser Indemnified Parties against Seller and/or
Shareholder for any and all claims, liabilities, obligations, losses,
costs, expenses, penalties, fines and other judgments (at equity or at
law) and damages (including, without limitation, amounts paid in
settlement, costs of investigation and reasonable attorneys' fees and
expenses) arising out of or relating to this Agreement from and after
the Closing Date; provided, however, the provisions of this Section
8.8(a) shall not limit the rights of the parties hereto to seek
specific performance or other equitable remedies pursuant to Section
7.2 of this Agreement.
(b) Notwithstanding anything herein to the contrary, from
and after the Closing Date, the indemnification obligations of
Purchaser under this Article 8 shall constitute the sole and exclusive
remedy of Seller Indemnified Parties against Purchaser for any and all
claims, liabilities, obligations, losses, costs, expenses, penalties,
fines and other judgments (at equity or at law) and damages (including,
without limitation, amounts paid in settlement, costs of investigation
and reasonable attorneys' fees and expenses) arising out of or relating
to this Agreement from and after the Closing Date; provided, however,
the provisions of this Section 8.8(b) shall not limit the rights of the
parties hereto to seek specific performance or other equitable remedies
pursuant to Section 7.2 of this Agreement.
ARTICLE 9.
MISCELLANEOUS PROVISIONS
Section 9.1. Notices. All notices, communications and deliveries
hereunder shall be made in writing signed by the party making the same, shall
specify the Section hereunder pursuant to which it is given or being made, and
shall be deemed given or made on the date delivered if delivered in person, on
the date initially received if delivered by telecopy transmission followed by
registered or certified mail confirmation, on the date delivered if delivered by
a nationally recognized overnight courier service or on the third (3rd) business
day after it is mailed if mailed by registered or certified mail (return receipt
requested) (with postage and other fees prepaid) as follows:
43
<PAGE> 53
TO PURCHASER:
Healthcare Recoveries, Inc.
1400 Watterson Tower
Louisville, Kentucky 40218
Attn: Patrick B. McGinnis
Telecopy No.: (502) 454-1065
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: William R. Spalding, Esq.
Telecopy No.: (404) 572-5145
TO THE SELLER OR THE SHAREHOLDER:
Marcia Deutsch
1301 Beverly Green Drive
Los Angeles, California 90035
with copies to:
Sanders, Barnet, Goldman, Simons & Mosk, A
Professional Corporation
1901 Avenue of the Stars
Suite 850
Los Angeles, California 90067
Telecopy No.: (310) 553-2435
and
Kopple and Klinger, LLP
2029 Century Park East
Suite 2390
Los Angeles, California 90067
Telecopy No.: (310) 553-7335
or to such other representative or at such other address of a
party as such party hereto may furnish to the other parties in
writing.
Section 9.2. Disclosure Letters and Exhibits. The Seller
Disclosure Letter, the Purchaser Disclosure Letter and all Exhibits hereto are
hereby incorporated into this Agreement
44
<PAGE> 54
and are hereby made a part hereof as if set out in full in this Agreement.
Section 9.3. Time of the Essence; Computation of Time. Time is of
the essence for each and every provision of this Agreement. Whenever the last
day for the exercise of any privilege or the discharge of any duty hereunder
shall fall upon a Saturday, Sunday, or any date on which banks in Atlanta,
Georgia are closed, the party having such privilege or duty may exercise such
privilege or discharge such duty on the next succeeding day which is a regular
business day.
Section 9.4. Assignment; Successors in Interest. No assignment or
transfer by Purchaser or Seller of their respective rights and obligations
hereunder prior to the Closing shall be made except with the prior written
consent of the other parties hereto. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their permitted successors
and assigns, and any reference to a party hereto shall also be a reference to a
permitted successor or assign.
Section 9.5. Investigations; Representations and Warranties. The
representations and warranties of Seller, Shareholder and Purchaser set forth in
this Agreement shall not be extinguished by the Closing and shall survive the
Closing Date for a period of thirty-six (36) months. Notwithstanding anything to
the contrary set forth in this Section 9.5, the covenants and agreements of
Seller, Shareholder and Purchaser set forth herein shall survive the Closing and
shall remain in full force and effect until duly satisfied or performed by the
appropriate party hereto. The respective representations and warranties of
Purchaser, Seller and Shareholder contained herein or in any certificate, or
other document delivered by any party prior to Closing shall not be deemed
waived or otherwise affected by any investigation made by a party hereto.
Section 9.6. Number; Gender. Whenever the context so requires, the
singular number shall include the plural and the plural shall include the
singular, and the gender of any pronoun shall include the other genders.
Section 9.7. Captions. The titles, captions and table of contents
contained in this Agreement are inserted herein only as a matter of convenience
and for reference and in no way define, limit, extend or describe the scope of
this Agreement or the intent of any provision hereof. Unless otherwise specified
to the contrary, all references to Articles and Sections are references to
Articles and Sections of this Agreement and all references to Exhibits are
references to Exhibits to this Agreement and the Seller Disclosure Letter.
Section 9.8. Seller's Executives; Knowledge. As used in this
Agreement, the terms "the best knowledge of the Seller's Executives," "known to
the Seller's Executives" or words of similar import used herein with respect to
the Seller, the Business or the Assets shall mean the actual knowledge of the
Seller's Executives after making reasonable inquiry of the employees or other
agents of Seller with knowledge of the subject matter addressed by the statement
in which such terms are used. The "Seller's Executives" shall consist of Marcia
Deutsch and Gabe Deutsch.
45
<PAGE> 55
Section 9.9. Controlling Law; Integration; Amendment.
(a) This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Delaware
without reference to Delaware's choice of law rules. This Agreement
supersedes all negotiations, agreements and understandings among the
parties with respect to the subject matter hereof and constitutes the
entire agreement among the parties hereto; provided, however, that
nothing herein shall affect the validity of the Confidentiality
Agreement dated August 31, 1998 by and between Purchaser, Seller and
Shareholder which shall remain in full force and effect.
(b) This Agreement may be amended by the parties hereto
by or pursuant to action taken by their respective Boards of Directors
at any time. Without limiting the foregoing, this Agreement may not be
amended, modified or supplemented except by written agreement executed
by each of the parties hereto.
Section 9.10. Severability. Any provision hereof which is
prohibited or unenforceable in any jurisdiction will, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction will not invalidate or render unenforceable
such provision in any other jurisdiction. To the extent permitted by law, the
parties hereto waive any provision of law which renders any such provision
prohibited or unenforceable in any respect.
Section 9.11. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, and it shall
not be necessary in making proof of this Agreement or the terms hereof to
produce or account for more than one of such counterparts.
Section 9.12. Enforcement of Certain Rights. Nothing expressed or
implied in this Agreement is intended, or shall be construed, to confer upon or
give any person, firm or corporation other than the parties hereto, and their
successors or assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement, or result in such person, firm or corporation being
deemed a third party beneficiary of this Agreement.
Section 9.13. Waiver. At any time prior to the Closing, the parties
hereto, by or pursuant to action taken by their respective Boards of Directors,
may, to the extent legally permitted: (i) extend the time for the performance of
any of the obligations or other acts of any other party; (ii) waive any
inaccuracies in the representations or warranties of any other party contained
in this Agreement or in any document or certificate delivered pursuant hereto;
(iii) waive compliance or performance by any other party with any of the
covenants, agreements or obligations of such party contained herein; and (iv)
waive the satisfaction of any condition that is
46
<PAGE> 56
precedent to the performance by the party so waiving of any of its obligations
hereunder. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. A waiver by one party of the performance of any covenant,
agreement, obligation, condition, representation or warranty shall not be
construed as a waiver of any other covenant, agreement, obligation, condition,
representation or warranty. A waiver by any party of the performance of any act
shall not constitute a waiver of the performance of any other act or an
identical act required to be performed at a later time.
Section 9.14. Fees and Expenses. Except as provided in Section 1.6
hereof, each of Purchaser, Seller and Shareholder shall pay its own fees, costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby, including, but not limited to, the fees, costs and expenses
of its accountants and counsel.
47
<PAGE> 57
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the date first above written.
HEALTHCARE RECOVERIES, INC.
Attest: By: /s/ Patrick B. McGinnis
-------------------------------
Title: Chairman and Chief
-----------------------------
Executive Officer
-----------------
By: /s/ Robert G. Bader
-----------------------------------
Title: Senior Vice President - Development
-----------------------------------
MEDCAP MEDICAL COST
MANAGEMENT, INC.
Attest: By: /s/ Marcia Deutsch
-------------------------------
Title: President
-------------------------------
By: Gabriel Deutsch
-------------------------------
Title: Spouse
-------------------------------
SHAREHOLDER
/s/ Marcia Deutsch
--------------------------------------
Marcia Deutsch
<PAGE> 1
EXHIBIT 99.1
[HRI Logo]
NEWS RELEASE
Contact: Douglas R. Sharps
Chief Financial Officer
(502) 454-1365
HEALTHCARE RECOVERIES, INC. ANNOUNCES PROPOSED ACQUISITION
Louisville, Kentucky - December 7, 1998. Healthcare Recoveries, Inc. (NASDAQ:
HCRI) has signed a definitive agreement to purchase the assets and assume
certain liabilities of MedCap Medical Cost Management, Inc. ("MedCap"),
headquartered in Encino, California. Pursuant to the agreement, HCRI will pay
$10,000,000 in cash at closing and additional amounts over two years pursuant to
an earn-out arrangement.
MedCap provides a variety of medical cost management services to health insurers
and HMOs. These products focus on reducing the costs of hospital-based
treatments and include bill auditing, contract compliance review, and
identification of other erroneous payments. Medcap can reduce hospital costs
under both traditional fee-for-service encounters and under a variety of
prospective payment methods used in the managed care industry. The company
currently employs 65 persons, including 32 registered nurse/auditors. Its
service area is primarily on the West Coast, and MedCap's current customer base
makes up over 8 million installed lives. Its 1998 revenues are projected to be
$5.3 million.
The transaction will allow HCRI to expand the types of claims recovery services
it provides to its healthcare payor clients. HCRI currently provides subrogation
recovery services for 39 million lives covered by health insurers, HMOs, and
employer-funded health plans throughout the United States.
Patrick B. McGinnis, Chairman and CEO of HCRI, said: "We are tremendously
excited about the opportunity to expand HCRI's claims recovery services. Joining
forces with MedCap will provide us with an important new product platform. Our
customers are telling us that they want to buy more types of claims recovery
services from fewer vendors. MedCap represents precisely the type of opportunity
we have been seeking, combining a knowledge-based work force with proprietary
computer applications and a business model which can support expansion. HCRI's
ability to bring MedCap to its customers and MedCap's demonstrated ability to
reduce hospital costs should benefit all of our stakeholders -- customers,
shareholders, and employees."
Marcia Deutsch, MedCap's President and founder, will continue in her leadership
role and join the HCRI Management Group. Ms. Deutsch stated: "We have been
seeking a partnership that will enable MedCap to become a national player in
medical cost containment services. In addition to HCRI's ability to sell our
services, we are looking forward to having access to HCRI's technology
resources, as well. The use of technology, the culture, and commitment to the
highest quality are remarkably similar at MedCap and HCRI. Our customers and
employees will benefit dramatically from this alliance."
Page 1 of 2
* HEALTHCARE RECOVERIES, INC. * 1400 Watterson Tower *
Louisville, Kentucky 40218 *
* 502/454-1340 * www.hcrec.com *
<PAGE> 2
[HRI Logo]
The transaction is subject to customary terms and conditions and is expected to
close in January 1999.
HCRI is the leading provider of health insurance subrogation and related
recovery services for healthcare payors.
This press release contains forward-looking information regarding HCRI. The
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
may be significantly affected by certain risks and uncertainties, including the
ability of HCRI to integrate acquisitions. Other risk factors are described in
HCRI's Annual Report on Form 10-K for the year ended December 31, 1997, 1st
Quarter Report on Form 10-Q, 2nd Quarter Report on Form 10-Q and 3rd Quarter
Report on Form 10-Q, all on file with the Securities and Exchange Commission.
Page 2 of 2
* HEALTHCARE RECOVERIES, INC. * 1400 Watterson Tower *
Louisville, Kentucky 40218 *
* 502/454-1340 * www.hcrec.com *
