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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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): January 3, 1999
Healthcare Recoveries, Inc.
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
0-22585
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(Commission File Number)
61-1141758
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(IRS Employer Identification Number)
1400 Watterson Tower, Louisville, Kentucky 40218
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(Address of principal executive offices)
Registrant's telephone number, including area code: (502) 454-1340
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Not applicable
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(Former Name or Former Address, if Changed Since Last Report)
Exhibit Index Located on Page: 5
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Total Number of Pages: 70
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Item 5. Other Events
On January 4, 1999, Healthcare Recoveries, Inc., a Delaware
corporation ("HRI"), issued a press release (the "Press Release") announcing
that, on January 3, 1999, HRI, Subro-Audit, Inc., a Wisconsin corporation,
("SAI"), O'Donnell Leasing Company, a Wisconsin limited liability partnership
("ODL") and Kevin M. O'Donnell and Leah Lampone, individual residents of the
State of Wisconsin, 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 SAI and ODL. HRI will pay $24,400,000 in cash at
closing and up to an additional $8,500,000 over two years pursuant to an
earn-out arrangement.
SAI provides recovery services to an installed base of approximately 8
million lives who are covered by insurers, HMOs and employer-funded plans
throughout the U.S.
Consummation of the Asset Purchase is subject to the satisfaction of
certain closing conditions.
The Press Release is filed herewith as Exhibit 99.1 and is
incorporated herein by reference thereto.
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Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits
(c) Exhibits
2.1 Asset Purchase Agreement by and among Healthcare Recoveries, Inc.,
Subro-Audit, Inc., O'Donnell Leasing Company, Kevin M. O'Donnell and
Leah Lampone, dated as of January 3, 1999. 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 January 4,
1999.
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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: January 11, 1999
HEALTHCARE RECOVERIES, INC.
By: /s/ DOUGLAS R. SHARPS
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Douglas R. Sharps
Executive Vice President -- Finance and
Administration, and Chief Financial Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page No.
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2.1 Asset Purchase Agreement by and among Healthcare
Recoveries, Inc., Subro-Audit, Inc., O'Donnell
Leasing Company, Kevin M. O'Donnell and Leah
Lampone, dated as of January 3, 1999. 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 January 4, 1999.
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Exhibit 2.1
ASSET PURCHASE AGREEMENT
among
HEALTHCARE RECOVERIES, INC.,
SUBRO-AUDIT, INC.,
O'DONNELL LEASING COMPANY,
KEVIN M. O'DONNELL,
and
LEAH LAMPONE.
As of January 3, 1999
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TABLE OF CONTENTS
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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.......................................................................4
Section 1.5 The Purchase Price..........................................................................4
Section 1.6 Payment of Purchase Price; Closing; Subsequent Closing......................................4
Section 1.7 Additional Closing Dates; Earn-out Payments.................................................6
Section 1.8 Valuation For Tax Reporting Purposes.......................................................15
Section 1.9 Assumption of Assumed Obligations..........................................................15
Section 1.10 Excluded Liabilities.......................................................................15
Section 1.11 Prorations.................................................................................17
ARTICLE 2
CLOSING; SUBSEQUENT CLOSING; ITEMS TO BE DELIVERED;
FURTHER ASSURANCES
Section 2.1 Closing....................................................................................17
Section 2.2 Items to be Delivered at Closing...........................................................17
Section 2.3 Items to be Delivered at Subsequent Closing................................................18
Section 2.4 Further Assurances.........................................................................18
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS AND SHAREHOLDERS.......................................................19
Section 3.1 Organization...............................................................................19
Section 3.2 Authorization..............................................................................19
Section 3.3 No Interest in Other Entities..............................................................20
Section 3.4 Absence of Restrictions and Conflicts......................................................20
Section 3.5 Ownership of Assets and Related Matters....................................................21
Section 3.6 Financial Statements.......................................................................22
Section 3.7 No Undisclosed Liabilities.................................................................23
Section 3.8 Absence of Certain Changes.................................................................23
Section 3.9 Legal Proceedings..........................................................................24
Section 3.10 Compliance with Law........................................................................24
Section 3.11 Subrogation, Reimbursement and Legal Matters...............................................24
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Section 3.12 SAI Material Contracts.....................................................................25
Section 3.13 SAI Client Contracts.......................................................................26
Section 3.14 Tax Returns; Taxes.........................................................................26
Section 3.15 Officers, Directors and Employees..........................................................27
Section 3.16 Employee Benefit Plans.....................................................................27
Section 3.17 Labor Relations............................................................................28
Section 3.18 Insurance..................................................................................28
Section 3.19 Environmental Matters......................................................................28
Section 3.20 Patents, Trademarks, Trade Names...........................................................29
Section 3.21 SAI Computer Software and Hardware.........................................................29
Section 3.22 Billing and Collection Practices...........................................................31
Section 3.23 Transactions with Affiliates...............................................................32
Section 3.24 Accounts Receivable........................................................................32
Section 3.25 Brokers, Finders and Investment Bankers....................................................32
Section 3.26 Disclosure.................................................................................33
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER......................................................................33
Section 4.1 Organization...............................................................................33
Section 4.2 Authorization..............................................................................33
Section 4.3 Absence of Restrictions and Conflicts......................................................33
Section 4.4 Disclosure.................................................................................34
Section 4.5 Sellers Representations and Warranties.....................................................34
ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS.................................................................................34
Section 5.1 Conduct of Business by Sellers.............................................................34
Section 5.2 Inspection and Access to Information.......................................................36
Section 5.3 No Solicitation; Acquisition Proposals.....................................................36
Section 5.4 Best Efforts; Further Assurances; Cooperation..............................................36
Section 5.5 Public Announcements.......................................................................38
Section 5.6 Financial Statements.......................................................................38
Section 5.7 Supplements to Disclosure Letters..........................................................38
Section 5.8 Liability for Benefits/Withdrawal from Plans...............................................39
Section 5.9 Employment Matters.........................................................................40
Section 5.10 Noncompetition and Nonsolicitation Agreements..............................................41
Section 5.11 Books and Records..........................................................................41
Section 5.12 Substitution of Counsel; Attorney's Liens..................................................41
Section 5.13 Notice to Lenders..........................................................................41
</TABLE>
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ARTICLE 6
CONDITIONS.......................................................................................................42
Section 6.1 Conditions to Each Party's Obligations.....................................................42
Section 6.2 Conditions to Obligations of Purchaser.....................................................42
Section 6.3 Conditions to Obligations of Sellers.......................................................43
ARTICLE 7
TERMINATION......................................................................................................44
Section 7.1 Termination and Abandonment................................................................44
Section 7.2 Specific Performance and Other Remedies....................................................44
Section 7.3 Effect of Termination......................................................................45
ARTICLE 8
INDEMNIFICATION..................................................................................................45
Section 8.1 Indemnification Obligations of the Shareholders and Sellers................................45
Section 8.2 Indemnification Obligations of Purchaser...................................................46
Section 8.3 Indemnification Procedure..................................................................46
Section 8.4 Claims Period..............................................................................48
Section 8.5 Liability Limits...........................................................................49
Section 8.6 Jurisdiction and Forum.....................................................................50
Section 8.7 Compliance with Bulk Sales Laws............................................................51
Section 8.8 Sole Remedy................................................................................51
ARTICLE 9
MISCELLANEOUS PROVISIONS.........................................................................................51
Section 9.1 Notices....................................................................................51
Section 9.2 Disclosure Letters and Exhibits............................................................52
Section 9.3 Time of the Essence; Computation of Time...................................................52
Section 9.4 Assignment; Successors in Interest.........................................................53
Section 9.5 Investigations; Representations and Warranties.............................................53
Section 9.6 Number; Gender.............................................................................53
Section 9.7 Captions...................................................................................53
Section 9.8 Sellers' Executives, Knowledge.............................................................53
Section 9.9 Controlling Law; Integration, Amendment....................................................53
Section 9.10 Severability...............................................................................54
Section 9.11 Counterparts...............................................................................54
Section 9.12 Enforcement of Certain Rights..............................................................54
Section 9.13 Waiver.....................................................................................54
Section 9.14 Fees and Expenses..........................................................................55
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DEFINED TERMS
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TERM SECTION
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Active Client.......................................................................................... 1.7(c)
Acquisition Proposal................................................................................... 5.3
Agreement.............................................................................................. Page 1
Andersen............................................................................................... 1.6(f)
Annualized Stub Period Revenue......................................................................... 1.7(c)
Assets................................................................................................. 1.1
Assumed Obligations.................................................................................... 1.9
Business............................................................................................... Page 1
Business Employees..................................................................................... 1.7(c)
Change in Control...................................................................................... 5.4(f)
Claims Period.......................................................................................... 8.4
Closing................................................................................................ 2.1
Closing Consents....................................................................................... 2.2(a)
Closing Date........................................................................................... 2.1
Closing Date Balance Sheet............................................................................. 1.6(e)
Closing Payment.................................................................................... 1.6(c)
Code................................................................................................... 1.8
Earn-Out Interest Date................................................................................. 1.7(i)
EEOC................................................................................................... 3.17
Electronic Interfaces.................................................................................. 3.21(i)
Employee Benefit Plans................................................................................. 3.16
Employee Production Target............................................................................. 1.7(c)
Employees.............................................................................................. 5.9(a)
ERISA.................................................................................................. 3.16
Escrow Account......................................................................................... 1.7(a)
Escrow Agent........................................................................................... 1.6(a)
Escrow Agreement....................................................................................... 1.6(a)
Excluded Assets........................................................................................ 1.3
Excluded Liabilities................................................................................... 1.10
Existing Customers..................................................................................... 1.7(c)
Final Claim............................................................................................ 8.3(c)
Final Closing Date Balance Sheet....................................................................... 1.6(f)
Final Working Capital Amount........................................................................... 1.6(c)
First Additional Closing Date.......................................................................... 1.7(c)
First Anniversary Date................................................................................. 1.7(c)
First Earn-Out Payment................................................................................. 1.7(c)
First Residual......................................................................................... 1.7(c)
First Year Employee Production Amount.................................................................. 1.7(c)
First Year Georgia Blue Amount......................................................................... 1.7(c)
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First Year Key Client Amount........................................................................... 1.7(c)
First Year New Lives Amount............................................................................ 1.7(c)
First Year Period...................................................................................... 1.7(d)
First Year Provident Amount............................................................................ 1.7(c)
First Year Revenue Factor.............................................................................. 1.7(c)
First Year Revenue Maintenance Amount.................................................................. 1.7(c)
First Year Revenue of the Business..................................................................... 1.7(c)
First Year Statement of Operations..................................................................... 1.7(d)
Full Electronic Service................................................................................ 1.7(c)
GAAP................................................................................................... 1.6(d)
HRI Employees.......................................................................................... 1.7(c)
HRI Subrogation Recoveries............................................................................. 1.7(c)
Indemnified Party...................................................................................... 8.3(a)
Indemnifying Party..................................................................................... 8.3(a)
Independent Accountants................................................................................ 1.6(e)
Intellectual Property.................................................................................. 3.20
Kevin O'Donnell........................................................................................ Page 1
Key Employees of the Business.......................................................................... 5.9(b)
Known to the Sellers' Executives....................................................................... 9.8
Leah Lampone........................................................................................... Page 1
Licensed Intellectual Property......................................................................... 3.20
List of Minimum Data Elements.......................................................................... 3.21(i)
Material Adverse Effect on the Business................................................................ 3.1
Material Licenses...................................................................................... 3.10
NASDAQ/NMS............................................................................................. 4.3
Negative Working Capital Balance....................................................................... 1.6(c)
New Covered Lives...................................................................................... 1.7(c)
New Lives.............................................................................................. 1.7(c)
NLRB................................................................................................... 3.17
O'Donnell Law Offices.................................................................................. 1.3(e)
O'Donnell Law Practice................................................................................. 3.11(b)
ODL.................................................................................................... Page 1
Partnership Agreement.................................................................................. 3.1
Permitted Liens........................................................................................ 3.5(a)
Positive Working Capital Balance....................................................................... 1.6(c)
Preliminary Closing Date Balance Sheet................................................................. 1.6(d)
Preliminary Closing Payment............................................................................ 1.6(a)
Preliminary Working Capital Amount..................................................................... 1.6(c)
Premises............................................................................................... 3.19
Proprietary Intellectual Property...................................................................... 3.20
Purchase Price......................................................................................... 1.5
Purchaser.............................................................................................. Page 1
Purchaser Ancillary Documents.......................................................................... 8.2(b)
</TABLE>
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<TABLE>
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Purchaser Disclosure Letter............................................................................ Page 33
Purchaser Indemnified Parties.......................................................................... 8.1
Purchaser Losses....................................................................................... 8.1
Real Property Leases................................................................................... 3.5(a)
Real Property.......................................................................................... 3.5(a)
Recoveries Per Business Employee....................................................................... 1.7(c)
Recoveries Per HRI Employee............................................................................ 1.7(c)
Referral Agency........................................................................................ 3.17
Related Party Agreement................................................................................ 3.23
Remaining SAI Employees................................................................................ 5.9(a)
Retained Records....................................................................................... 1.3(b)
Revenue of the Business................................................................................ 1.7(c)
Rules for Arbitration.................................................................................. 1.7(g)
SAI.................................................................................................... Page 1
SAI Ancillary Documents................................................................................ 8.1(b)
SAI Basket Amount...................................................................................... 8.5(a)
SAI Business Practices................................................................................. 3.11(a)
SAI Client Contracts................................................................................... 3.13
SAI Hardware........................................................................................... 3.21(g)
SAI Indemnified Parties................................................................................ 8.2
SAI License Agreements................................................................................. 3.21(b)
SAI Licensed Software.................................................................................. 3.21(a)
SAI Losses............................................................................................. 8.2
SAI Material Contracts................................................................................. 3.12
SAI Proprietary Software............................................................................... 3.21(a)
SAI Software........................................................................................... 3.21(a)
Scheduled Leases....................................................................................... 3.5(b)
Second Additional Closing Date......................................................................... 1.7(c)
Second Anniversary Date................................................................................ 1.7(e)
Second Earn-Out Payment................................................................................ 1.7(e)
Second Residual........................................................................................ 1.7(e)
Second Year Employee Production Amount................................................................. 1.7(e)
Second Year Georgia Blue Amount........................................................................ 1.7(e)
Second Year Key Client Amount.......................................................................... 1.7(e)
Second Year New Lives Amount........................................................................... 1.7(e)
Second Year Period..................................................................................... 1.7(f)
Second Year Provident Amount........................................................................... 1.7(e)
Second Year Revenue Factor............................................................................. 1.7(e)
Second Year Revenue of the Business.................................................................... 1.7(e)
Second Year Revenue Maintenance Amount................................................................. 1.7(e)
Second Year Statement of Operations.................................................................... 1.7(f)
Sellers................................................................................................ Page 1
Sellers Disclosure Letter.............................................................................. Page 19
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Sellers' Cap Amount.................................................................................... 8.5(b)
Sellers' Executives.................................................................................... 9.8
Sellers' Financial Statements.......................................................................... 3.6
Shareholders........................................................................................... Page 1
Stub Period............................................................................................ 1.7(c)
Stub Period Revenue.................................................................................... 1.7(c)
Subsequent Closing..................................................................................... 1.6(f)
The best knowledge of the Sellers' Executives.......................................................... 9.8
WARN Act............................................................................................... 5.9(e)
Wisconsin Business Corporation Law..................................................................... 3.2
</TABLE>
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EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER
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Closing Consent........................................................................................ 6.2
Escrow Agreement....................................................................................... 1.6(a)
Excluded Assets........................................................................................ 1.3
Excluded Liabilities................................................................................... 1.10(g)
Form of Employment Agreement for Key Employees......................................................... 5.9(b)(ii)
Form of Employment Agreement for Kevin O'Donnell....................................................... 6.2(j)
Form of Employment Agreement for Margaret O'Donnell.................................................... 5.9(b)(iii)
Form of Opinion of Godfrey & Kahn...................................................................... 6.2(c)
Form of Opinion of King & Spalding..................................................................... 6.3(c)
Liabilities Undertaking................................................................................ 2.2(b)
List of Key Employees of the Business.................................................................. 5.9(b)(i)
List of Minimum Data Elements.......................................................................... 3.21(i)
Long-Term SAI Client Contracts......................................................................... 6.2(f)
Noncompetition and Nonsolicitation Agreement........................................................... 5.10
Operational Guidelines................................................................................. 1.7(h)
Purchaser Letter..................................................................................... 6.2(i)
Schedule of Liabilities and Obligations Relating to Employee
Benefit Plans and Arrangements......................................................................... 1.10(e)
</TABLE>
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ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of January 3, 1999 (the "Agreement"), by and
among, HEALTHCARE RECOVERIES, INC., a Delaware corporation ("Purchaser"),
SUBRO-AUDIT, INC. a Wisconsin corporation ("SAI"), O'DONNELL LEASING COMPANY, a
Wisconsin general partnership ("ODL"), (SAI and ODL shall collectively be
referred to as the "Sellers"), KEVIN M. O'DONNELL, a resident of the State of
Wisconsin ("Kevin O'Donnell") and LEAH LAMPONE, a resident of the State of
Wisconsin ("Leah Lampone" and together with Kevin O'Donnell, hereinafter
collectively referred to as the "Shareholders").
W I T N E S S E T H:
WHEREAS, Kevin O'Donnell and Leah Lampone own all of the outstanding
capital stock of SAI;
WHEREAS, Kevin O'Donnell and Leah Lampone are the sole general
partners of ODL;
WHEREAS, SAI and ODL operate a subrogation and related recovery
services business which provides, among other things, subrogation and related
recovery services for healthcare payors (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 Shareholders, Sellers and Purchaser desire to enter into
this Agreement pursuant to which Sellers propose to sell to Purchaser and
Purchaser proposes to purchase from Sellers substantially all of the assets and
properties of the Business, and Purchaser proposes to assume certain of the
liabilities of the Business, and the Shareholders desire to provide certain
representations, warranties, covenants and agreements relating thereto.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
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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,
Sellers shall grant, sell, convey, assign, transfer and deliver to Purchaser,
upon and subject to the terms and conditions of this Agreement, all right,
title and interest of Sellers in and to (a) the Business as a going concern and
(b) except for Excluded Assets (as hereinafter defined) all of the assets,
properties and rights of Sellers 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 being
purchased hereunder 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 Permitted
Liens (as hereinafter defined) and 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 Sellers 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, other 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, knowhow, 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, to
the extent that Sellers have the right to transfer such software to
Purchaser;
(e) All land, structures, improvements and fixtures,
and all water lines, rights of way, uses, licenses, easements,
hereditaments, tenements and appurtenances belonging or appertaining
thereto;
(f) All prepaid items, unbilled costs and fees,
accounts, notes and other receivables;
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(g) All cash or cash equivalents in transit, in hand or
in bank accounts relating to client, trust or petty cash accounts
maintained by Sellers in connection with the Business;
(h) All supplies and inventories and office and other
supplies;
(i) All rights under any patent, trademark, service
mark, trade name or copyright, whether registered or unregistered, and
any applications therefor;
(j) All rights or choices in action arising out of
occurrences before or after the Closing, including without limitation,
all rights to recovery claims and all rights under express or implied
warranties relating to the Assets;
(k) All assets and properties reflected on the Final
Closing Date Balance Sheet (as hereinafter defined); and
(l) Except for the Retained Records (as hereinafter
defined), 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) Certain personal assets of Shareholders listed on
Exhibit 1.3 hereto;
(b) The corporate seal, certificate of incorporation,
partnership agreement, minute book, stock book, partnership records,
tax returns, tax records or other constituent records relating to SAI
or ODL (collectively, the "Retained Records");
(c) The rights which accrue to Sellers and the
Shareholders under this Agreement;
(d) Any deposit, claim, right of offset, refund or
claim against clients of the Business arising prior to the Closing,
except to the extent any such deposit, claim, right of offset, refund
or claim against clients of the Business is reflected as an asset on
the Final Closing Date Balance Sheet or arises in connection with the
operation of the Business following the Closing; and
(e) Rights in and to the name "O'Donnell Law Offices"
and variations and deviations thereof.
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Section 1.4 Agreement to Purchase. At the Closing, Purchaser
shall purchase the Assets from Sellers, upon and subject to the terms and
conditions of this Agreement and in reliance on the representations, warranties
and covenants of Sellers and Shareholders 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 1.9 hereof.
Section 1.5 The Purchase Price. The purchase price (the
"Purchase Price") for the Assets shall be an amount equal to the sum of: (a)
Twenty-Four Million Four Hundred Thousand Dollars ($24,400,000); (b) the Final
Working Capital Amount (as hereinafter defined); (c) the First Earn-Out Payment
(as hereinafter defined), if any; and (d) the Second Earn-Out Payment (as
hereinafter defined), if any.
Section 1.6 Payment of Purchase Price; Closing; Subsequent
Closing.
(a) At the Closing, Purchaser shall deliver to: (i)
Sellers an amount equal to the sum of the Closing Payment (as
hereinafter defined) and the Preliminary Working Capital Amount (as
hereinafter defined), such amount to be hereinafter referred to as the
"Preliminary Closing Payment"; and (ii) the escrow agent (the "Escrow
Agent") under that certain Escrow Agreement in the form attached
hereto as Exhibit 1.6(a) (the "Escrow Agreement") an amount equal to
Eight Million Nine Hundred Thousand Dollars ($8,900,000.00), which
funds shall be held and disbursed by the Escrow Agent in accordance
with the terms of the Escrow Agreement. All amounts to be delivered by
Purchaser at Closing shall be made by wire transfer of immediately
available funds in accordance with written wire transfer instructions
to be provided by Sellers in the case of payments contemplated by
Section 1.6(a) (i) above and the Escrow Agent in the case of the
payments contemplated by Section 1.6(a) (ii) above.
(b) At the Subsequent Closing (as hereinafter defined),
Purchaser shall pay to Sellers an amount equal to any Positive Working
Capital Balance (as hereinafter defined) or Sellers shall pay to
Purchaser an amount equal to any Negative Working Capital Balance (as
hereinafter defined). Purchaser and Sellers agree to instruct the
Escrow Agent in writing to disburse at the Subsequent Closing funds
held under the Escrow Agreement to satisfy any Positive Working
Capital Balance due Sellers and any Negative Working Capital Balance
due Purchaser hereunder. Purchaser and Sellers agree that to the
extent the funds held under the Escrow Agreement are insufficient to
satisfy any Positive Working Capital Balance due Sellers or any
Negative Working Capital Balance due Purchaser, Purchaser or Sellers,
as the case may be, shall deliver to the other at the Subsequent
Closing by wire transfer of immediately available funds an amount
equal to any such shortfall.
(c) For purposes hereof, the: (i) "Preliminary Working
Capital Amount" shall mean an amount equal to the difference between
the current assets and the Assumed Obligations which are reflected as
liabilities of the Sellers, each as set forth on the
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Preliminary Closing Date Balance Sheet (as hereinafter defined); (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 current assets of the Sellers, less the Assumed
Obligations which are reflected as liabilities of Sellers, each as set
forth on the Final Closing Date Balance Sheet (as hereinafter
defined); and (v) "Closing Payment" shall mean an amount equal to
Twenty Four Million Two Hundred Thousand Dollars ($24,200,000.00).
(d) On or prior to the Closing Date, Sellers shall
deliver to Purchaser a balance sheet of Sellers 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
each of the Shareholders attesting that such accompanying balance
sheet has been prepared in accordance with the requirements of this
Section 1.6(d).
(e) On the Closing Date, Purchaser and Sellers shall
cause to have prepared and delivered to Purchaser, Sellers and the
Independent Accountants (as hereinafter defined) not later than forty
five (45) days following the Closing Date a draft balance sheet of the
Sellers as of the Closing Date, which balance sheet shall be prepared
in accordance with GAAP and Sellers' standard accounting policies and
practices consistently applied and will be audited by the Independent
Accountants. Purchaser and Sellers shall have twenty (20) days from
receipt of such draft balance sheet to provide to the Independent
Accountants any comments, input and supporting documentation they
consider relevant with respect to the preparation of such balance
sheet. In order to facilitate such review, each of Purchaser and
Sellers shall have access to all work papers and calculations of the
Independent Accountants used in preparing the draft balance sheet. The
Independent Accountants shall thereafter finalize such balance sheet
no later than seventy-five (75) days from the Closing Date and deliver
the same to Purchaser and Sellers (the "Closing Date Balance Sheet").
The fees and expenses of the Independent Accountants shall be shared
equally by the Purchaser, on the one hand, and the Sellers, on the
other. Purchaser and Sellers agree to reasonably cooperate with the
Independent Accountants and each other to facilitate the preparation
of the Closing Date Balance Sheet. As used herein, the term
"Independent Accountants" shall mean Pricewaterhouse Coopers L.L.P. or
such other independent accounting firms as Purchaser and Sellers shall
agree upon.
(f) Purchaser and Sellers shall have a period of
fifteen (15) days from receipt of the Closing Date Balance Sheet to
elect to dispute all or any part of such Closing Date Balance Sheet.
To the extent that neither Purchaser nor Sellers shall have elected to
dispute all or any part of such Closing Date Balance Sheet during such
fifteen (15) day period, then
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<PAGE> 15
the Closing Date Balance Sheet shall constitute the Final Closing Date
Balance Sheet hereunder. To the extent that either Purchaser or
Sellers shall have elected to dispute all or any part of such Closing
Date Balance Sheet during such fifteen (15) day period, then the party
or parties disputing such Closing Date Balance Sheet shall submit such
dispute to Arthur Andersen, L.L.P. ("Andersen") to review and resolve
such dispute and finalize the Closing Date Balance Sheet, and such
review and resolution shall be final and conclusive. In order to
facilitate such review, Andersen shall have access to all work papers
and calculations of the Independent Accountants used in preparing the
Closing Date Balance Sheet and shall have access to the
representatives of the Independent Accountants who prepared the
Closing Date Balance Sheet. Andersen shall thereafter resolve such
disputed items and finalize such Closing Date Balance Sheet no later
than twenty (20) days from the date of Andersen's retention hereunder
and shall deliver such final balance sheet to Purchaser and Sellers.
The final balance sheet delivered to Purchaser and Sellers by Andersen
hereunder shall constitute the Final Closing Date Balance Sheet
hereunder. The fees and expenses of Andersen shall be shared equally
by the Purchaser, on the one hand, and the Sellers, on the other. The
subsequent closing (the "Subsequent Closing") shall take place within
five (5) business days of the receipt by Purchaser and Sellers of the
Final Closing Balance Sheet at such time and location as Purchaser and
Sellers shall agree.
Section 1.7 Additional Closing Dates; Earn-out Payments.
(a) On the First Additional Closing Date (as
hereinafter defined), Purchaser and Sellers shall jointly instruct the
Escrow Agent in writing to disburse from the escrow account
established under the Escrow Agreement (the "Escrow Account") the
following amounts to the following parties: (i) the First Earn-Out
Payment to the Sellers together with interest earned on the First Earn
Out Payment from the First Anniversary Date (as hereinafter defined)
to the date of payment; and (ii) the First Residual (as hereinafter
defined) to the Purchaser. All disbursements from the Escrow Account
pursuant to this Section 1.7(a) shall be made by wire transfer of
immediately available funds in accordance with written wire transfer
instructions to be provided to the Escrow Agent by Sellers and
Purchaser.
(b) On the Second Additional Closing Date (as
hereinafter defined), Purchaser and Sellers shall jointly instruct the
Escrow Agent in writing to disburse from the Escrow Account the
following amounts to the following parties: (i) the Second Earn-Out
Payment to the Sellers together with interest earned on the Second
Earn Out Payment from the Second Anniversary Date (as hereinafter
defined) to the date of payment; and (ii) the Second Residual (as
hereinafter defined) to the Purchaser. All disbursements from the
Escrow Account pursuant to this Section 1.7(b) shall be made by wire
transfer of immediately available funds in accordance with written
wire transfer instructions to be provided to the Escrow Agent by
Sellers and Purchaser.
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<PAGE> 16
(c) For purposes hereof, the: (i) "First Earn-Out
Payment" shall mean the sum of the following amounts (A) the First
Year Revenue Maintenance Amount (as hereinafter defined), (B) the
First Year New Lives Amount (as hereinafter defined), (C) the First
Year Key Client Amount (as hereinafter defined), and (D) the First
Year Employee Production Amount (as hereinafter defined); (ii) "First
Year Revenue Maintenance Amount" shall mean an amount equal to the
product obtained by multiplying One Million Five Hundred Thousand
Dollars ($1,500,000.00) by the First Year Revenue Factor (as
hereinafter defined), provided, however, that the First Year Revenue
Maintenance Amount shall not be greater than One Million Five Hundred
Thousand Dollars ($1,500,000.00) and shall not be less than Zero
Dollars ($0.00); (iii) "First Year Revenue Factor" shall mean a
fraction, the numerator of which shall be equal to the First Year
Revenue of the Business (as hereinafter defined) and the denominator
of which shall be equal to the Annualized Stub Period Revenue (as
hereinafter defined); (iv) "First Year Revenue of the Business" shall
mean an amount equal to the Revenue of the Business (as hereinafter
defined) as set forth on the First Year Statement of Operations (as
hereinafter defined), provided, however, that if the Revenue of the
Business as set forth on the First Year Statement of Operations is
equal to or less than an amount equal to eighty percent (80%) of the
Annualized Stub Period Revenue, then the First Year Revenue of the
Business shall mean an amount equal to Zero Dollars ($0.00); (v)
"Revenue of the Business" shall mean, with respect to a particular
period of time, the revenues of the Business for such period
determined in accordance with GAAP and arising solely from (A)
subrogation and recovery services provided to customers of the
Business who were customers of the Business as of the Closing Date
("Existing Customers"), (B) subrogation and recovery services provided
by the Business with respect to New Lives (as hereinafter defined),
(C) new recovery services (e.g., overpayments, COB, fraud and abuse,
bill audit services or similar new services) which are provided by the
Business or a Purchaser related entity to customers of the Business
and (D) legal services provided by the Business to customers of the
Business; (vi) "Annualized Stub Period Revenue" shall mean an amount
equal to the annualized revenue of the Business resulting from
subrogation, related claims recovery services and related legal
services provided to customers of the Business (but specifically
excluding revenue resulting from third-party rental arrangements
unrelated to the operations of the Business, interest income and other
similar matters) during the twelve month period ending December 31,
1998, which amount shall be calculated by (A) determining the amount
of such revenue for the stub-period commencing January 1, 1998 and
ending on the last day of the calendar month immediately preceding the
calendar month in which the Closing occurs (the "Stub Period") in
accordance with GAAP, which stub period revenue shall be derived from
the audited financial statements of the Business filed by Purchaser
with the Securities and Exchange Commission (the "Stub-Period
Revenue"), and (B) annualizing the Stub Period Revenue by multiplying
such amount by a fraction, the numerator of which shall be twelve (12)
and the denominator of which shall be the number of calendar months
included in the Stub Period; (vii) "New Lives" shall mean lives that
are covered by a contract between the customer and the Business and
that are subject to Full Electronic Service (as hereinafter defined)
and which arise solely from (A) Existing Customers that were "manual"
or "referral" customers
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<PAGE> 17
of the Business as of September 1, 1998 and who are converted to Full
Electronic Service during the applicable period in question, (B) new
covered lives arising during the applicable period in question from
the extension by the Business of services to new lives of an Existing
Customer, other than new lives arising after September 1, 1998 as a
result of the provision by customers of the Business of insurance,
claims administration or other services to new clients of such
customers; and (C) New Covered Lives (as hereinafter defined),
provided, however, that any lives lost by the Business after September
1, 1998 and before the Closing Date shall be subtracted from New
Lives; (viii) "New Covered Lives" shall mean new lives secured by the
Business following September 1, 1998 from a new customer of the
Business other than a new customer who was under contract with the
Purchaser as of September 1, 1998, provided, however, that New Covered
Lives shall not include (A) any lives which are residents of Virginia,
Missouri, Kansas, Arizona or Nevada unless such lives are governed by
ERISA (as hereinafter defined) provisions which exempt them from
state-specific legal restrictions on subrogation and TPL recoveries,
(B) fifty percent (50%) of any new lives which are residents of
Connecticut, New York, New Jersey, and Michigan and which are not
governed by ERISA provisions which exempt them from state-specific
legal restrictions on subrogation and TPL recoveries; and (C) any new
lives sold by the Business on terms and conditions that are less
favorable to the Business than the customary terms and conditions in
effect for clients of the Business as of the Closing Date, it being
understood and agreed that new customer contracts with pricing at 30%
inclusive of plaintiff's attorneys fees or 25% exclusive of
plaintiff's attorney fees will be deemed customary and acceptable for
purposes of this definition; (ix) "Full Electronic Service" shall mean
customer relationships that provide sufficient data, including, but
not limited to those data elements listed on Exhibit 3.21(i) attached
hereto, in machine-readable format to allow the Business to use its
current proprietary processes for: (A) identification of injured
persons; (B) acquisition of data regarding medical treatment of
injured persons, treating providers and costs incurred for such
treatments; and (C) contact of injured persons to determine causes of
injuries; (x) "First Year New Lives Amount" shall mean an amount equal
to the product obtained by multiplying the number of New Lives as set
forth on the First Year Statement of Operations by One Dollar ($1.00);
provided, however, that the First Year New Lives Amount shall not be
greater than Two Million Dollars ($2,000,000.00) and shall not be less
than Zero Dollars ($0.00); (xi) "First Year Key Client Amount" shall
mean an amount equal to the sum of the First Year Georgia Blue Amount
(as hereinafter defined) and the First Year Provident Amount (as
hereinafter defined); (xii) "First Year Georgia Blue Amount" shall
mean an amount equal to Seven Hundred Fifty Thousand Dollars
($750,000.00) if, and only if, Blue Cross/Blue Shield of Georgia is an
Active Client (as hereinafter defined) of the Business as of the First
Anniversary Date (as hereinafter defined) and shall mean an amount
equal to Zero Dollars ($0.00) if Blue Cross/Blue Shield of Georgia is
not an Active Client of the Business as of the First Anniversary Date;
(xiii) "First Anniversary Date" shall mean December 31, 1999; (xiv)
"First Year Provident Amount" shall mean an amount equal to Seven
Hundred Fifty Thousand Dollars ($750,000.00) if, and only if,
Provident is an Active Client of the Business as of the First
Anniversary Date and shall mean an amount equal to Zero Dollars
($0.00) if Provident is
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<PAGE> 18
not an Active Client of the Business as of the First Anniversary Date;
(xv) "Active Client" shall mean (A) the particular client in question
has not terminated its contract with the Business (or to the extent
there is not a written contract with the Business as of the Closing
Date, then the principal terms of the relationship between the
Business and the customer in effect as of the Closing Date), has
continued the contract (or to the extent there is not a written
contract with the Business as of the Closing Date, then the principal
terms of the relationship between the Business and the customer in
effect as of the Closing Date) on substantially the same terms as
those existing between the Business and such client as of the date
hereof and has not reduced the scope of services provided by the
Business to such client as of the date hereof, other than such
reduction in scope of services which arises in the ordinary course of
business as a result of the termination by customers of such client of
their relationship with such client or by the decision of the customer
to reduce the scope of such services, (B) the terms of the contract
between the particular client in question and the Business have not
been changed with respect to fees by the client and the Business, in
any manner that would reduce the annual revenue percentage potential
for such client below ninety percent (90%) of the aggregate revenue
received from the particular client in question as reflected in the
Annualized Stub Period Revenue, and (C) there has been no material
increase in service levels provided to the particular client in
question which have not been off-set by commensurate increases in the
fees charged such client for such services; (xvi) "First Year Employee
Production Amount" shall mean an amount equal to Five Hundred Thousand
Dollars ($500,000.00) if, and only if, the Employee Production Target
(as hereinafter defined) as set forth on the First Year Statement of
Operations is equal to or greater than seventy five percent (75%) and
shall be equal to Zero Dollars ($0.00) if the Employee Production
Target as set forth on the First Year Statement of Operations is less
than seventy five percent (75%); (xvii) "Employee Production Target"
shall mean, for the applicable period in question, the percentage
obtained by dividing Recoveries Per Business Employee (as hereinafter
defined) by the Recoveries Per HRI Employee (as hereinafter defined),
each as calculated for the particular period in question and as set
forth on the First Year Statement of Operations, in the case of the
First Year Period (as hereinafter defined), and the Second Year
Statement of Operations, in the case of the Second Year Period (as
hereinafter defined); (xviii) "Recoveries Per Business Employee" shall
mean, with respect to any applicable period in question, the product
obtained by dividing (A) the amount of subrogation and other
recoveries which constitute Revenue of the Business, as set forth on
the First Year Statement of Operations in the case of the First Year
Period and as set forth on the Second Year Statement of Operations in
the case of the Second Year Period by (B) the number of Business
Employees (as hereinafter defined) as set forth on the First Year
Statement of Operations in the case of the First Year Period and as
set forth on the Second Year Statement of Operations in the case of
the Second Year Period; (xix) "Business Employees" shall mean, with
respect to any applicable period in question, all employees of the
Business whose principal work location is the Atlanta or the Milwaukee
offices of the Business regardless of such employees job
responsibilities, and such number of employees shall be determined for
the applicable period in question on an average equivalent basis
taking into account employees of the
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<PAGE> 19
Business whose service is not for a full year or who are permanent
part-time employees; (xx) "Recoveries Per HRI Employee" shall mean,
with respect to any applicable period in question, the product
obtained by dividing (A) the amount of HRI Subrogation Recoveries (as
hereinafter defined) for such period, by (B) the number of HRI
Employees (as hereinafter defined) for the such period; (xxi) "HRI
Subrogation Recoveries" shall mean, with respect to any applicable
period in question, the amount of subrogation recoveries reported in
Purchaser's financial statements for such period, excluding (A)
recoveries of the Business for such period, (B) recoveries from any
other acquired subrogation company or operation for such period, and
(C) recoveries arising from services provided by Purchaser other than
subrogation/TPL claims services; (xxii) "HRI Employees" shall mean all
employees of Purchaser whose compensation expenses are recorded in the
financial statements of Purchaser for the applicable period, excluding
(A) Business Employees for such period, (B) employees acquired in any
acquisition, merger or business combination transaction unless those
employees are also performing work for Purchaser, and (C) employees of
Purchaser whose full time responsibilities are in operations or
customer services other than claims recovery services; provided,
however, such number of employees shall be determined for the
applicable period in question on an average equivalent basis taking
into account employees of Purchaser whose service is not for a full
year or who are permanent part-time employees; (xxiii) "First
Additional Closing Date" shall mean the fifth business day following
the delivery by the Independent Accountants of the First Year
Statement of Operations to Purchaser and Sellers; (xxiv) "Second
Additional Closing Date" shall mean the fifth business day following
the delivery by the Independent Accountants of the Second Year
Statement of Operations to Purchaser and Sellers; and (xxv) "First
Residual" shall mean an amount if any, by which (A) the amount of (x)
Five Million Five Hundred Thousand Dollars ($5,500,000) minus (y) the
difference, if any, between Two Million Dollars ($2,000,000) and the
First Year New Lives Amount exceeds (B) the First Earn-Out Payment.
(d) On the First Anniversary Date, Purchaser and
Sellers shall cause to be prepared and delivered to Purchaser, Sellers
and the Independent Accountants (as hereinafter defined) not later
than fifty (50) days following the First Anniversary Date a draft
statement of operations of the Business and Purchaser for the
twelve-month period ending on the First Anniversary Date, which
statement of operations shall be prepared in accordance with the
directions set forth herein and shall include (A) Revenue of the
Business for the twelve month period ending on the First Anniversary
Date (the "First Year Period") and a calculation of the First Year
Revenue Maintenance Amount, (B) New Lives for the First Year Period
and a calculation of the First Year New Lives Amount, (C) the Employee
Production Target for the First Year Period, (D) the Recoveries Per
Business Employee for the First Year Period, (E) the Recoveries Per
HRI Employees for the First Year Period, (F) the Business Employees
for the First Year Period, (G) the HRI Subrogation Recoveries for the
First Year Period, (H) the HRI Employees for the First Year Period,
(I) the First Year Employee Production Amount and (J) reasonable
confirmation that the matters set forth on such draft statement of
operations have been calculated in
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<PAGE> 20
accordance with the provisions of this Agreement and the books and
records of Purchaser and the Business. Within sixty (60) days of the
First Anniversary Date, the Independent Accountants shall deliver to
Purchaser and Sellers a draft of their report on the application of
the agreed upon procedures to the draft statement of operations and
the preparation of the draft statement of operations in accordance
with the terms of the Agreement. Purchaser and Sellers shall have
forty-five (45) days from receipt of such draft report to provide to
the Independent Accountants any comments, input and supporting
documentation they consider relevant with respect to the preparation
of such report and statement of operations. In order to facilitate
such review, each of Purchaser and Sellers shall have access to all
work papers and calculations used by the Independent Accountants in
preparing the draft statement of operations. The Independent
Accountants shall thereafter finalize such statement of operations no
later than one hundred ten (110) days from the First Anniversary Date
and deliver the same to Purchaser and Sellers (for purposes hereof,
the statement so delivered, subject to the procedures of Section
1.7(g), below, the "First Year Statement of Operations"). The fees and
expenses of the Independent Accountants in preparing the First Year
Statement of Operations shall be paid by the Purchaser. Purchaser and
Sellers agree to reasonably cooperate with the Independent Accountants
and each other to facilitate the preparation of the First Year
Statement of Operations.
(e) For purposes hereof, the: (i) "Second Earn-Out
Payment" shall mean the sum of the following amounts (A) the Second
Year Revenue Maintenance Amount (as hereinafter defined), (B) the
Second Year New Lives Amount (as hereinafter defined), (C) the Second
Year Key Client Amount (as hereinafter defined), and (D) the Second
Year Employee Production Amount (as hereinafter defined); (ii) "Second
Year Revenue Maintenance Amount" shall mean an amount equal to the
product obtained by multiplying One Million Dollars ($1,000,000.00) by
the Second Year Revenue Factor (as hereinafter defined), provided,
however, that the Second Year Revenue Maintenance Amount shall not be
greater than One Million Dollars ($1,000,000.00) and shall not be less
than Zero Dollars ($0.00); (iii) "Second Year Revenue Factor" shall
mean a fraction, the numerator which shall be equal to the Second Year
Revenue of the Business (as hereinafter defined) and the denominator
which shall be equal to the Annualized Stub Period Revenue; (iv)
"Second Year Revenue of the Business" shall mean an amount equal to
the Revenue of the Business as set forth on the Second Year Statement
of Operations (as hereinafter defined), provided, however, that if the
Revenue of the Business as set forth on the Second Year Statement of
Operations is equal to or less than an amount equal to eighty percent
(80%) of the Annualized Stub Period Revenue, then the Second Year
Revenue of the Business shall mean an amount equal to Zero Dollars
($0.00); (v) "Second Year New Lives Amount" shall mean an amount equal
to the product obtained by multiplying the number of New Lives as set
forth on the Second Year Statement of Operations by One Dollar
($1.00), provided, however, that the Second Year New Lives Amount
shall not be greater than Two Million Dollars ($2,000,000.00) less the
First Year New Lives Amount and shall not be less than Zero Dollars
($0.00); (vi) "Second Year Key Client Amount" shall mean an amount
equal to the sum of the Second Year Georgia Blue Amount (as
hereinafter defined) and the
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<PAGE> 21
Second Year Provident Amount (as hereinafter defined); (vii) "Second
Year Georgia Blue Amount" shall mean an amount equal to Seven Hundred
Fifty Thousand Dollars ($750,000.00) if, and only if, Blue Cross/Blue
Shield of Georgia is an Active Client of the Business as of the Second
Anniversary Date (as hereinafter defined) and shall mean an amount
equal to Zero Dollars ($0.00) if Blue Cross/Blue Shield of Georgia is
not an Active Client of the Business as of the Second Anniversary
Date; (viii) "Second Anniversary Date" shall mean December 31, 2000;
(ix) "Second Year Provident Amount" shall mean an amount equal to
Seven Hundred Fifty Thousand Dollars ($750,000.00) if, and only if,
Provident is an Active Client of the Business as of the Second
Anniversary Date and shall mean an amount equal to Zero Dollars
($0.00) if Provident is not an Active Client of the Business as of the
Second Anniversary Date; (x) "Second Year Employee Production Amount"
shall be equal to Five Hundred Thousand Dollars ($500,000.00) if, and
only if, the Employee Production Target as set forth in the Second
Year Statement of Operations is equal to or greater than ninety
percent (90%) and shall mean an amount equal to Zero Dollars ($0.00)
if the Employee Production Target as set forth on the Second Year
Statement of Operations is less than ninety percent (90%); and (xi)
"Second Residual" shall mean an amount equal to (A) Eight Million Five
Hundred Thousand Dollars ($8,500,000.00), less (B) the First Earn-Out
Payment, less (C) the First Residual; less (D) the Second Earn-Out
Payment.
(f) On the Second Anniversary Date, Purchaser and
Sellers shall cause to be prepared and delivered to Purchaser, Sellers
and the Independent Accountants not later than fifty (50) days
following the Second Anniversary Date a draft statement of operations
of the Business and Purchaser for the twelve-month period ending on
the Second Anniversary Date, which statement of operations shall be
prepared in accordance with the directions set forth herein and shall
include (A) Revenue of the Business for the twelve-month period ending
on the Second Anniversary Date (the "Second Year Period") and a
calculation of the Second Year Revenue Maintenance Amount, (B) New
Lives for the Second Year Period and a calculation of the Second Year
New Lives Amount, (C) the Employee Production Target for the Second
Year Period, (D) the Recoveries Per Business Employee for the Second
Year Period, (E) the Recoveries Per HRI Employee for the Second Year
Period, (F) the Business Employees for the Second Year Period, (G) the
HRI Subrogation Recoveries for the Second Year Period, (H) the HRI
Employees for the Second Year Period, (I) the Second Year Employee
Production Amount, and (J) reasonable confirmation that the matters
set forth on such draft statement of operations have been calculated
in accordance with the provisions of this Agreement and the books and
records of Purchaser and the Business. Within sixty (60) days of the
Second Anniversary Date, the Independent Accountants shall deliver to
Purchaser and Sellers a draft of their report on the application of
the agreed upon procedures to the draft statement of operations and
the preparation of the draft statement of operations in accordance
with the terms of this Agreement. Purchaser and Sellers shall have
forty-five (45) days from receipt of such report to provide the
Independent Accountants any comments, input and supporting
documentation they consider relevant with respect to the preparation
of such report and statement of operations.
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<PAGE> 22
In order to facilitate such review, each of Purchaser and Sellers
shall have access to all work papers and calculations used by the
Independent Accountants in preparing the draft statement of
operations. The Independent Accountants shall thereafter finalize such
statement of operations no later than one hundred ten (110) days from
the Second Anniversary Date and shall deliver the same to Purchaser
and Sellers (for purposes hereof, the statement so delivered, subject
to the procedures of Section 1.7(g), below, the "Second Year Statement
of Operations"). The fees and expenses of the Independent Accountants
in preparing the Second Year Statement of Operations shall be paid by
the Purchaser. Purchaser and Sellers agree to reasonably cooperate
with the Independent Accountants and each other to facilitate the
preparation of the Second Year Statement of Operations.
(g) Arbitration. Notwithstanding any provision herein
to the contrary each of Sellers and Purchaser agree as follows:
(i) Sellers and Purchaser shall attempt in
good faith to resolve promptly any dispute, controversy or
claim under or in connection with this Section 1.7 or any
provisions contained in this Agreement which relate to the
First Earn-Out Payment or the Second Earn-Out Payment 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 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 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 1.7(g)(vi))
conducted by three arbitrators 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 three
arbitrators shall be selected as follows: one arbitrator
shall be selected by Sellers, one arbitrator shall be
selected by Purchaser and one arbitrator shall be selected by
the other two arbitrators. All arbitrators shall be
individuals: (i) who meet the qualifications set forth in
Rule 7 of the Rules of Arbitration, (ii) who are attorneys or
retired judges and (iii) who have past experience in settling
complex litigation involving claims relating to acquisitions,
mergers and securities; provided, however, that in the case
of a dispute, claim or controversy pertaining to this Section
1.7 regarding accounting issues, the parties agree that the
arbitrators shall retain a certified public accountant from a
Big Five accounting firm to consult with the arbitrators on
accounting issues. The arbitration of such matters in
controversy, including the determination of any amount of
damages, shall be final and binding upon Sellers and
Purchaser to the maximum extent permitted by law. Neither
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<PAGE> 23
Sellers nor Purchaser shall 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 Chicago, Illinois or at such other location as
Sellers and Purchaser may agree.
(iv) Any arbitration award under this Section
1.7 shall be final and binding, and judgment may be entered
on such award by any court having jurisdiction upon
application of Sellers or Purchaser.
(v) Any party to an arbitration proceeding
under this Section 1.7 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 arbitrators shall assess the costs of the
arbitration proceeding, including their fees, to the parties
to the proceeding in such proportions as the arbitrators
consider reasonable under the circumstances.
(vi) Notwithstanding anything else in this
Section 1.7 to the contrary, Sellers and Purchaser shall be
entitled to seek any equitable remedies available under
governing law from any court of competent jurisdiction, and
the order or judgment of any such court shall be binding in
any arbitration proceeding initiated pursuant to this Section
1.7.
(h) During the First Year Period and the Second Year
Period, the parties agree that the provisions set forth on Exhibit
1.7(h) attached to this Agreement will apply with respect to the
operation and management of the Business. To the extent there is a
conflict between the terms and provisions of Exhibit 1.7(h) and the
terms and provisions of this Agreement, the terms and provisions of
this Agreement shall prevail.
(i) Purchaser shall pay Sellers interest on the First
Earn-Out Payment and Second Earn-Out Payment to the extent such
amounts are not paid on or before the date (each such date an
"Earn-Out Interest Date") which is thirty (30) days after the date on
which the First Year Statement of Operations or the Second Year
Statement of Operations, as applicable, is delivered to the Purchaser
and Sellers. Interest payable pursuant to this paragraph shall begin
accruing on the applicable Earn-Out Interest Date and shall be paid at
a rate equal to (i) the prime rate as reported in the Wall Street
Journal on the applicable Earn-Out Interest Date (or, if such date is
not a business day, as reported on the immediately preceding business
day) less (ii) the effective interest rate earned on amounts in the
Escrow Account on such date, and shall accrue until any unpaid amount
is paid to Sellers. Notwithstanding the foregoing, Purchaser shall pay
interest attributable to the First
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Earn-Out Payment and the Second Earn-Out Payment, as applicable, and
shall not pay interest on any amounts of interest earned on such
amounts in the Escrow Account and otherwise payable to Sellers.
Section 1.8 Valuation For Tax Reporting Purposes. Within sixty
(60) days after the Closing Date, Purchaser shall provide Sellers with a
written schedule indicating the respective fair market values of the Assets,
Assumed Obligations and other items acquired hereunder as determined in good
faith by Purchaser and approved by the Shareholders, which approval will not be
unreasonably withheld. Purchaser and Sellers shall use such fair market values
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 Sellers' amount
realized, and for all other relevant federal and state income tax purposes.
Section 1.9 Assumption of Assumed Obligations. At the Closing
and except as otherwise specifically provided in Section 1.10 hereof, Purchaser
shall assume and agree to pay, discharge or perform, as appropriate, the
following liabilities and obligations of Sellers (hereinafter collectively
referred to as the "Assumed Obligations"):
(a) All liabilities and obligations of Sellers 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
Final Closing Date Balance Sheet and (ii) remain unpaid and
undischarged on the Closing Date; and
(b) All liabilities and obligations of Sellers in
respect of the Business arising under agreements, contracts,
commitments and leases which are specifically identified on the
Sellers Disclosure Letter (as hereinafter defined) or not required to
be identified on the Sellers Disclosure Letter in accordance with the
provisions of this Agreement, except that 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
(ii) Liabilities or obligations arising out of
any breach by any of the Sellers of any provision of any
agreement, contract, commitment or lease referred to in this
Section 1.9(b), including, but not limited to, liabilities or
obligations arising out of any of the Seller's failure to
perform any agreement, contract, commitment or lease in
accordance with its terms prior to the Closing.
Section 1.10 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
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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 any of the pending,
threatened or other claims identified on Annex 3.9 to the Sellers
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 inaction prior to the Closing Date of either of the
Sellers, or any affiliate, officer, director, partner, employee,
agent, representative or subcontractor of either of the Sellers;
(b) Any liability or claim which arises out of or is
based upon any express or implied representation, warranty, agreement
or guaranty made by either of the Sellers, or alleged to have been
made by either of the Sellers, 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 either of the Sellers, 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 Sellers, any member of any affiliated group
of which the Sellers are members or any other person for whose taxes
the Sellers may be liable for any period prior to Closing, or (ii)
incident to or arising as a consequence of the negotiation or
consummation by the Sellers or any member of any affiliated group of
which the Sellers are members of this Agreement and the transactions
contemplated hereby;
(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 Sellers, whether or
not employed by Purchaser after the Closing, or under any benefit plan
or arrangement with respect thereto, other than (i) any such liability
or obligation which is covered by a reserve or accrual set forth on
the Final Closing Date Balance Sheet and (ii) liabilities and
obligations relating to the employee benefit plans and arrangements
set forth on Exhibit 1.10(e) hereto;
(f) Any liability or obligation of the Sellers 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
Sellers or the Shareholders; or
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(g) Any liability or obligation arising under or
incurred in connection with any of the agreements, documents or
matters listed on Exhibit 1.10(g) hereto;
provided, however, that items described in the foregoing paragraphs (a)-(g)
shall not constitute Excluded Liabilities to the extent such items are reserved
for or accrued on the Final Closing Date Balance Sheet, arise under contracts,
agreements and arrangements identified on the Sellers Disclosure Letter or not
required to be identified on the Sellers Disclosure Letter in accordance with
the provisions of this Agreement.
Section 1.11 Prorations. All property and ad valorem taxes,
business licenses, permits, leasehold rentals, utilities and other customarily
proratable expenses of Sellers 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
Sellers 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; SUBSEQUENT 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 18, 1999 at a mutually agreeable hour at
the offices of King & Spalding in Atlanta, Georgia, or at such other place as
the Purchaser and Sellers shall mutually agree upon.
Section 2.2 Items to be Delivered at Closing. At the Closing
and subject to the terms and conditions herein contained:
(a) Sellers shall deliver to Purchaser the following:
(i) Such bills of sale with covenants of
warranty, assignments, endorsements, and other good and
sufficient instruments and documents of conveyance and
transfer, in form reasonably satisfactory to Purchaser and
its
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counsel, as shall be necessary and effective to transfer and
assign to, and vest in Purchaser all of Sellers' 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 each of Sellers, (B) good and valid leasehold
interest in and to all of the Assets leased by each of
Sellers as lessee, and (C) all of Sellers' rights under all
agreements, contracts, commitments, leases, plans, bids,
quotations, proposals, instruments and other documents
included in the Assets to which either of the Sellers is a
party or by which either of them 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 either of the Sellers which are part of the
Assets, but specifically excluding any of the Excluded
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, it being understood that the only consents which Sellers
will be required to deliver are those consents referenced in Section 6.2 hereof
(the "Closing Consents").
(b) Purchaser shall deliver to Sellers 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 instruments referred to in Article 6 hereof.
Section 2.3 Items to be Delivered at Subsequent Closing. At
the Subsequent Closing and subject to the terms and conditions herein
contained:
(a) Purchaser shall deliver to Sellers any Positive
Working Capital Balance; or
(b) Sellers shall deliver to Purchaser any Negative
Working Capital Balance.
Section 2.4 Further Assurances. Sellers from time to time after
the Closing, at Purchaser's request and expense, will execute, acknowledge and
deliver to Purchaser such other instruments of conveyance and transfer and will
take such other actions and execute and deliver
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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, or to better enable
Purchaser to complete, perform or discharge any of the Assumed Obligations.
Each of the parties hereto will reasonably cooperate with the other at the
other's expense 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 SELLERS AND SHAREHOLDERS
With such exceptions as are set forth in a letter (the "Sellers
Disclosure Letter") delivered by Sellers to Purchaser prior to the execution
hereof, Sellers and the Shareholders hereby represent and warrant to Purchaser
as follows:
Section 3.1 Organization. SAI is a corporation duly organized
and validly existing under the laws of the State of Wisconsin 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. Included
with Sellers Disclosure Letter are accurate and complete copies of the Articles
of Incorporation and Bylaws, as currently in effect, of SAI, and the
partnership agreement, as currently in effect, of ODL (the "Partnership
Agreement"). SAI has made available to Purchaser the minute books and stock
transfer records of SAI. The Sellers Disclosure Letter contains a true and
correct list of the jurisdictions in which SAI is qualified to transact
business as a foreign corporation and ODL is qualified to do business as a
foreign partnership. ODL is a limited liability partnership and is duly
organized and validly existing under the laws of the State of Wisconsin and has
full partnership power and authority to own, lease and operate its properties
and to carry on its business as is now being conducted. For purposes hereof, a
"Material Adverse Effect on the Business" shall mean a material adverse effect
on the assets, liabilities, result of operations, financial condition, business
or, to the knowledge of Sellers' Executives (as hereinafter defined), prospects
of the Business; provided, however, that any adverse consequences (actual or
potential) that arise or result primarily from (i) the public announcement or
public awareness of the matters contemplated hereby (including any
cancellations or objections of clients of the Business arising from such public
announcement or awareness) or (ii) events or matters generally known in the
healthcare or subrogation industries shall be excluded and not taken into
consideration for purposes of determining whether an event or circumstance
constitutes or will constitute a Material Adverse Effect on the Business.
Section 3.2 Authorization. SAI 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 SAI and the performance by SAI
of its obligations hereunder and the consummation of the transactions
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provided for herein have been duly and validly authorized by all necessary
corporate action on the part of SAI. The Board of Directors of SAI and the
Shareholders 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 Wisconsin Business Corporation Law and
the Articles of Incorporation and Bylaws of SAI. ODL has full partnership 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 ODL and
the performance by ODL of its obligations hereunder and the consummation of the
transactions provided for herein by the partnership have been duly and validly
authorized by all necessary partnership action on the part of ODL by the
Shareholders in their capacity as the sole general partners of ODL. Each of
Kevin O'Donnell and Leah Lampone has full power and capacity to execute and
deliver this Agreement and perform his or her obligations hereunder and to
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by each of the Sellers and the Shareholders and
constitutes the valid and binding agreement of each such Seller and
Shareholder, enforceable against each such 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 SAI, (ii)
any term or provision of the Partnership Agreement of ODL, (iii) any SAI
Material Contract (as hereinafter defined), Real Property Lease (as hereinafter
defined) or Scheduled Lease (as hereinafter defined), (iv) any judgment, decree
or order of any court or governmental authority or agency to which any of the
Sellers or Shareholders is a party or by which any of the Sellers or
Shareholders or any of their respective properties is bound, or (v) to the best
knowledge of Sellers' Executives, any statute, law, regulation or rule
applicable to any of the Sellers or Shareholders, so to have in the case of
subsections (iii) through (v) above, a Material Adverse Effect on the Business.
To the best knowledge of Sellers' 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
any of the Sellers or Shareholders is required in connection with the
execution, delivery or performance of this Agreement by the Sellers and the
Shareholders or the consummation of the transactions contemplated by this
Agreement by the Sellers and the Shareholders, the failure of which to obtain
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would have a Material Adverse Effect on the Business. Within the meaning of the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, and the rules
promulgated thereunder, Shareholders are the only ultimate parent entities of
Sellers, the total assets of Shareholders are less than One Hundred Million
Dollars ($100,000,000), and the annual net sales of Shareholders are less than
One Hundred Million Dollars ($100,000,000).
Section 3.5 Ownership of Assets and Related Matters.
(a) Real Property. The Sellers 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. SAI or ODL (as applicable) has good and
marketable title in fee simple or leasehold, as the case may be and as
described in the Sellers Disclosure Letter, to all of the Real
Property, free and clear of all mortgages, liens, pledges, security
interests, charges, claims, restrictions and encumbrances of any
nature whatsoever, except (i) mortgages and liens securing debt
reflected as a liability on the Final Closing Date Balance Sheet and
(ii) (A) liens for current taxes and assessments not yet due and
payable, (B) mechanics', carriers', workmen's, repairmen's, statutory
or capital law liens either not delinquent or being contested in good
faith and (C) liens, encumbrances, covenants, rights of way, building
or use restrictions, easements, exceptions, variances, reservations
and other similar matters or limitations which, in the aggregate, do
not have a material adverse effect on the value or use of the Real
Property affected. The title defects, liens, encumbrances and
restrictions described in this Section 3.5(a) (ii) and any other
similar defects noted as such in Sellers Disclosure Letter are
hereinafter collectively referred to as "Permitted Liens." All leases
relating to the Real Property in which SAI or ODL 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 SAI or ODL, and are to the best knowledge of the Sellers'
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 SAI or ODL with respect to
any Real Property Leases or to the best knowledge of the Sellers'
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 Sellers Disclosure
Letter sets forth a true and complete list of all leases and
agreements of Sellers 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 SAI or ODL, and are, to the knowledge of Sellers'
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 Sellers with respect to
such Scheduled Leases or, to the knowledge of Sellers' Executives, of
any of the other parties thereto (or
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events or conditions which, with notice or lapse of time, or both,
would constitute a default).
(c) Personal Property. The Sellers 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 $10,000.00 as of the date hereof. SAI or ODL, as
the case may be, has good and marketable title to all of the items of
personal property owned by SAI or ODL and included in the Assets, and
SAI or ODL own 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 necessary to conduct the operations of the Business in
accordance with Sellers' past practices. 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 Sellers. No person
other than SAI and ODL 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 Sellers Disclosure Letter and for items of immaterial value.
(e) No Third Party Options. There are no existing
agreements, options, commitments or rights with, of or to any person
to acquire any assets, properties or rights included in the Assets or
any interest therein.
Section 3.6 Financial Statements. Sellers have delivered to
Purchaser: (a) Balance Sheet of Subro-Audit, Inc. as of December 31, 1997;
Profit and Loss Statement of Subro-Audit, Inc. for the period of January 1,
1997 to December 31, 1997; Balance Sheet of O'Donnell Leasing Company as of
December 31, 1997; Profit and Loss Statement of O'Donnell Leasing Company
(Greendale Building) for the period January 1, 1997 to December 31, 1997;
Profit and Loss Statement of O'Donnell Leasing Company (Atlanta Building) for
the period January 1, 1997 to December 31, 1997; Profit and Loss Statement of
O'Donnell Leasing Company (New Berlin Building) for the period January 1, 1997
to December 31, 1997 and Profit and Loss Statement of O'Donnell Leasing Company
for the period January 1, 1997 to December 31, 1997. All of the foregoing
financial statements are hereinafter collectively referred to as the "Sellers'
Financial Statements." The Sellers' Financial Statements have been prepared
from, and are in accordance with, the books and records of the Sellers and
present fairly the financial position and results of operations of each 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 Sellers' Financial Statements or the Sellers Disclosure
Letter. Section 3.6 to the Sellers Disclosure Letter sets forth information as
of November 20, 1998 regarding the aggregate medical
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expenses associated with claims identified as potentially recoverable through
investigation in connection with the Business, as reflected in the books and
records maintained by the Sellers in the ordinary course of business.
Section 3.7 No Undisclosed Liabilities. Neither the Sellers,
nor any of their respective 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 Sellers' Financial Statements,
except (a) for liabilities and obligations incurred since December 31, 1997 in
the ordinary course of business and consistent with past practices of the
Business and (b) liabilities and obligations disclosed in the Sellers
Disclosure Letter or not required to be disclosed in the Sellers Disclosure
Letter.
Section 3.8 Absence of Certain Changes.
(a) Since December 31, 1997, there has not been (i)
any Material Adverse Effect on 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 December 31, 1997, 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 Sellers' Financial
Statements or incurred in the ordinary course of business and
consistent with past practice since the date of the Sellers' Financial
Statements, (v) any guaranteed checks, notes, accounts receivable or
inventory of recoverable claims which have been written off as
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 SAI or ODL, 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 $25,000 in the aggregate, (viii) any single capital
expenditure or commitment in excess of $25,000 for additions to
property or equipment, or aggregate capital expenditures and
commitments in excess of $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
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conditions of any character that have had or are reasonably likely to
have a Material Adverse Effect on the Business.
Section 3.9 Legal Proceedings. There are no suits, actions,
claims, proceedings or investigations pending or, to the best knowledge of the
Sellers' Executives, threatened against, relating to or involving the Sellers,
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 Business. 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 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. To the best knowledge of
Sellers' Executives, each of the Sellers has all material 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. To the best
knowledge of the Sellers' Executives, each of the Sellers 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 Business. The Sellers Disclosure
Letter sets forth a true and complete list of all Material Licenses. Sellers
will have delivered to Purchaser by Closing all reports and filings made or
filed by Sellers pursuant to the Occupational Safety and Health Act and related
to the Business.
Section 3.11 Subrogation, Reimbursement and Legal Matters.
(a) To the best knowledge of the Sellers' Executives,
the practices and procedures of SAI with respect to its subrogation,
reimbursement, collection and other services it provides its clients
(the "SAI Business Practices") comply with all applicable federal,
state and local laws, statutes, rules and regulations relating to the
provision of such SAI Business Practices, except such failures to
comply as would not in the aggregate have a Material Adverse Effect on
the Business. SAI has not received notice from any governmental body
or regulatory authority that any of the SAI Business Practices
violates or conflicts with any applicable federal, state or local law,
statute, rule or regulation relating to or governing such SAI Business
Practices.
(b) Kevin O'Donnell operates a legal practice under the
name "O'Donnell Law Offices" (the "O'Donnell Law Practice") in
connection with the Business. Kevin O'Donnell is duly licensed to
practice law and is a member in good standing of the Bar of the State
of Wisconsin. All employees of the Business who practice law in the
O'Donnell Law Practice
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are duly licensed to practice law and are members in good standing of
the bar associations of the various jurisdictions in which they
practice law. No non-lawyer possesses the right to direct or control
the professional judgment of any lawyer employed in connection with
the Business. To the best knowledge of the Sellers' Executives, the
practices and procedures of the O'Donnell Law Practice with respect to
the practice of law and the services being provided by the O'Donnell
Law Practice to SAI and its clients comply in all respects with all
applicable federal, state and local laws, statutes, rules and
regulations, including, but not limited to, applicable state and local
Bar canons, standards, rules and regulations governing the practice of
law. The O'Donnell Law Practice maintains insurance with the carriers
and in the amounts set forth in the Sellers Disclosure Letter and
copies of all such insurance policies have been provided to Purchaser.
(c) There are no suits, actions, claims, proceedings or
investigations pending, or to the best knowledge of the Sellers'
Executives, threatened against, relating to or involving the O'Donnell
Law Practice (or any of its employees or independent contractors)
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 Business. The O'Donnell Law Practice is not subject to any
judgment, decree, injunction, rule or order of any court, and to the
best knowledge of the Sellers' Executives, the O'Donnell Law Practice
is not subject to any governmental or other restriction applicable to
the O'Donnell Law Practice which is reasonably likely (i) to have a
Material Adverse Effect on the Business or (ii) to cause a material
limitation on Purchaser's ability to operate the Business after the
Closing.
(d) The Sellers Disclosure Letter sets forth a true and
complete list of all agreements, arrangements or understandings
(whether written or oral) relating to the legal representation of SAI
or its clients in the various subrogation recoveries or claims which
are currently in process in connection with the Business, which list
includes the parties to each such agreement, arrangement or
understanding and the principal terms thereof.
Section 3.12 SAI Material Contracts. Except for SAI Client
Contracts (as hereinafter defined) to which Section 3.13 applies, the Sellers
Disclosure Letter contains a true and complete list of the following
(hereinafter referred to as the "SAI Material Contracts"):
(a) all bonds, debentures, notes, mortgages, indentures
or guarantees to which either of the Sellers is a party and which
relate to the Business or by which any of the Assets are bound;
(b) all loans and credit commitments to either of the
Sellers 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;
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(c) all contracts or agreements which limit or restrict
either of the Sellers, any of their affiliates or the Business from
engaging in any business in any jurisdiction or that limit any third
party from engaging in competition with either of the Sellers, 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 SAI 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 $10,000 individually.
True and complete copies of all SAI Material Contracts, including all
amendments thereto, have been made available to Purchaser. The SAI Material
Contracts are valid and enforceable in accordance with their respective terms
with respect to the applicable Seller, and to the best knowledge of Sellers'
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. SAI or ODL has physical
possession of all equipment and other assets which are covered by Scheduled
Leases. Except for events or occurrences, the consequences of which,
individually or in the aggregate, would not have a Material Adverse Effect on
the Business, there is not under any of the SAI Material Contracts any existing
breach, default or event of default by SAI or ODL, or event that with notice or
lapse of time or both would constitute a breach, default or event of default by
SAI or ODL, nor do the Sellers' Executives know of, and SAI or ODL have not
received notice of, or made a claim with respect to, any breach or default by
any other party thereto.
Section 3.13 SAI Client Contracts. The Sellers Disclosure Letter
sets forth a true and complete list of all agreements, contracts and
commitments pursuant to which either of the Sellers provides services or goods
to the clients of the Business (the "SAI Client Contracts"). The SAI Disclosure
Letter contains an accurate description of any and all existing disagreements,
complaints, disputes or defaults arising under or with respect to the SAI
Client Contracts or with respect to clients of the Business who do not have
written contracts, which are known to the Sellers' Executives and which 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
Sellers Disclosure Letter contains a true and complete list of all SAI Client
Contracts which contain performance guarantees or similar obligations of
Sellers.
Section 3.14 Tax Returns; Taxes. SAI is a "small business
corporation" and has maintained a valid election to be a "S Corporation" under
Subchapter S of the Internal Revenue Code of 1986, as amended, since its
inception; and no other corporation has been merged into SAI or otherwise has
transferred assets to SAI having a carryover tax basis in SAI's hands.
Accordingly, the tax imposed on certain built-in gains by Section 1374 of the
Code does not apply to SAI. Sellers have duly filed all federal, state, local
and foreign tax returns required to be filed by them, all such returns are
accurate in all material respects, and Sellers have duly paid or made
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adequate provisions 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. Except for liabilities for income taxes
payable by the Shareholders, the liability for taxes reflected in the Sellers'
Financial Statements is sufficient for the payment of all unpaid taxes, whether
or not disputed, that are accrued or applicable for the period ended December
31, 1997, 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 Sellers Financial Statements. There are no pending claims asserted for
taxes for either of the Sellers or outstanding agreements or waivers extending
the statutory period of limitation applicable to any tax return of either of
the Sellers for any period. Sellers have made all estimated tax deposits and
all other required tax payments or deposits and have 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, Sellers 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 (other than income
tax returns of the Shareholders) concerning the Business or the Assets as
Purchaser shall reasonably request.
Section 3.15 Officers, Directors and Employees. The Sellers
Disclosure Letter contains a true and complete list of all of the officers,
directors and key employees of SAI and ODL 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 SAI or ODL 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 SAI or ODL has
a written employment agreement or to whom Seller has made verbal commitments
which are binding on SAI or ODL.
Section 3.16 Employee Benefit Plans.
(a) Except as set forth in the Sellers 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
Sellers 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) Sellers have made all contributions to the Employee
Benefit Plans that are required under the terms of such plans and under all
applicable laws.
(c) Sellers have 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
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determination letter received from the Internal Revenue Service and the most
recent Form 5500 Annual Report for the Subro-Audit, Inc. Employees' Retirement
Plan, and (d) such other documentation with respect to any Employee Benefit
Plan as is reasonably requested by Purchaser.
(d) No action, suit, proceeding, hearing or
investigation with respect to the administration or the investment of assets of
any Employee Benefit Plan (other than routine claims for benefits) is pending
or, to the knowledge of Sellers' Executives, threatened, and no audit or
investigation by any domestic or foreign governmental or other law enforcement
agency is pending or, to the knowledge of Sellers' Executives, has been
proposed with respect to any Employee Benefit Plan.
Section 3.17 Labor Relations. To the best knowledge of Sellers'
Executives, (i) the Business is in compliance in all material respects with all
federal and state laws respecting employment and employment practices, terms
and conditions of employment, wages and hours, and (ii) neither of the Sellers
is engaged in any unfair labor or unlawful employment practice involving the
Business. There is no unlawful employment practice or discrimination charge
involving the Business pending before the Equal Employment Opportunity
Commission ("EEOC"), EEOC recognized state "referral agency" or any other
governmental agency. There is no unfair labor practice charge or complaint
against either of the Sellers involving the Business pending before the
National Labor Relations Board ("NLRB"). There is no labor strike, dispute,
slowdown or stoppage actually pending or, to the best knowledge of the Sellers'
Executives, threatened against or involving or affecting the Business, and no
NLRB representation question exists respecting the employees of the Business.
No grievance or arbitration proceeding relating to the employees of the
Business is pending, and no written claim therefor exists with respect to any
such employees. There is no collective bargaining agreement that is binding on
either of the Sellers and relates to the Business.
Section 3.18 Insurance. SAI and ODL have heretofore provided to
Purchaser a true and complete list of their current insurance policies and
coverages relating to the Assets and/or the Business, including names of
carriers, amounts of coverage and premiums therefor. Each of SAI and ODL will
use its reasonable efforts to maintain such insurance at least through the
Closing Date. SAI and ODL have 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 Sellers'
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
Sellers' Executives, there has been no release of a hazardous substance as that
term is defined in the Comprehensive
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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 Sellers' 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. The Sellers have not received notice of any
violation of any environmental statute or regulation nor have they been advised
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. The Sellers
Disclosure Letter sets forth a true and complete list of (i) all patents,
trademarks, trade names and registered copyrights owned by Sellers and used in
connection with the Business (collectively, the "Proprietary Intellectual
Property") and (ii) except for the SAI Software (as hereinafter defined), all
patents, trademarks, trade names, copyrights, technology and processes used by
Sellers in connection with the Business which are material to the Business and
are used pursuant to a license or other right granted by a third party
(collectively, the "Licensed Intellectual Property", and together with the
Proprietary Intellectual Property herein referred to as "Intellectual
Property"). Each of SAI and ODL, as applicable, owns, or has the right to use
pursuant to valid and effective agreements set forth in the Sellers Disclosure
Letter, all Intellectual Property, and all such rights shall be assigned and
transferred to Purchaser in connection with the consummation of the
transactions contemplated hereby. No claims are pending against SAI or ODL by
any person with respect to the use of any Intellectual Property or challenging
or questioning the validity or effectiveness of any license or agreement
relating to the same, and to the best knowledge of Sellers' Executives, the
current use by SAI and ODL of the Intellectual Property does not infringe on
the rights of any third party. The Sellers Disclosure Letter sets forth a list
of all jurisdictions in which the Business is operating under a trade name, and
each jurisdiction in which any such trade name is registered.
Section 3.21 SAI Computer Software and Hardware.
(a) The Sellers Disclosure Letter sets forth a true and
complete list of (i) all software which is part of the Assets and
which is owned by either of the Sellers and used in connection with
the Business (the "SAI Proprietary Software"); and (ii) all software
which is part of the Assets (other than the SAI Proprietary Software)
and used in connection with the Business (the "SAI Licensed Software,"
and together with the SAI Proprietary Software, the "SAI Software").
The SAI Software consists of (i) source and object code embodied in
magnetic media and (ii) all development and procedural tools necessary
to maintain the SAI Software, including licenses to use compilers,
assemblers, libraries and other aids.
(b) SAI or ODL, as applicable, has all right, title and
interest in and to all intellectual property rights on the SAI
Proprietary Software. Sellers have developed the
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SAI Proprietary Software entirely through their own efforts for their
own account and the SAI Proprietary Software is free and clear of all
liens, claims, charges and encumbrances of any nature whatsoever. The
use of the SAI Licensed Software and the use and distribution of the
SAI Proprietary Software does not breach any material terms of any
contract between the Sellers and any third party. The Sellers
Disclosure Letter sets forth a true and complete list of all license
agreements in favor of SAI or ODL relating to the SAI Licensed
Software (the "SAI License Agreements"). To the best knowledge of the
Sellers' Executives, SAI or ODL, as the case may be, has been granted
under the SAI License Agreements valid and subsisting license rights
with respect to all software comprising the SAI Licensed Software.
Sellers are in compliance in all respects with each of the terms and
conditions of each of the SAI License Agreements. In the case of any
commercially available "shrink-wrap" software programs (such as Lotus
1-2-3), neither SAI, ODL, nor to the best knowledge of Sellers'
Executives, any of their respective employees, agents, or
representatives has made or is using any unauthorized copies of any
such software programs.
(c) To the best knowledge of Sellers' Executives, (i)
the SAI Proprietary Software and the SAI Licensed Software does 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 SAI 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 SAI Proprietary Software either
(i) have been employees of SAI or ODL performing work within the scope
of their employment, or (ii) have executed appropriate instruments of
assignment in favor of SAI or ODL as assignee that have conveyed to
SAI or ODL ownership of all of their intellectual property rights in
the SAI Proprietary Software.
(e) There are no agreements or arrangements in effect
with respect to the marketing, distribution, licensing or promotion of
the SAI Proprietary Software by any independent sales persons,
distributor, sublicensee or other remarketer or sales organization.
(f) The Sellers have not granted rights in the SAI
Software to any third party.
(g) Sellers possess the computer hardware and
components necessary to operate the Business in accordance with
historical practices (the "SAI Hardware") and such SAI Hardware
constitutes part of the Assets;
(h) The SAI Software and SAI Hardware (i) are capable
of correctly processing, sequencing, calculating, providing and
receiving data from, into and between the twentieth and twenty-first
centuries and the years 1999 and 2000; (ii) accurately perform leap
year calculations; (iii) use a four (4) digit year in all applicable
date fields; and (iv) will not cause any other information technology
to fail or generate errors related to any such dates.
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Sellers Disclosure Letter will set forth the date on which the SAI
Software and SAI Hardware will first confront the year 2000 data
element.
(i) Sellers possess electronic data interfaces with
those clients of the Business listed on the Sellers Disclosure Letter
("Electronic Interfaces") and the Electronic Interfaces facilitate the
transmission of data electronically from such clients to Sellers,
including but not limited to those elements listed on Exhibit 3.21(i)
attached hereto (the "List of Minimum Data Elements"). Sellers own all
right, title and interest in and to the Electronic Interfaces free and
clear of all claims, restrictions and encumbrances, except such
claims, restrictions and encumbrances which do not interfere with the
use or operation of the Electronic Interfaces and except to the extent
that the clients have the right to use such Electronic Interfaces in
connection with their businesses. The Electronic Interfaces constitute
all of the electronic data interfaces used in connection with the
historical operation of the Business and shall constitute part of the
Assets.
(j) The SAI Software and the SAI Hardware are adequate
in all material respects with the other assets of the Business to run
the Business in the same manner as such business has operated since
January 1, 1997. The Sellers Disclosure Letter contains a summary
description of any material problems experienced by the Business in
the past twelve (12) months with respect to the SAI Software or SAI
Hardware and the provision of services to clients of the Business
which resulted, or reasonably could be expected to result, in any
Material Adverse Effect on the Business.
Section 3.22 Billing and Collection Practices.
(a) The current practice and procedures of SAI and ODL
with respect to the Business regarding (i) billing on behalf of
clients, (ii) receiving and processing Medicare and Medicaid payments
due to clients, (iii) holding and transfer of such payments and (iv)
the method of determining and collecting the fees received by the
Business for services provided by providers and physicians
participating in the Medicare or Medicaid programs are not in
violation of the restriction on assignment as set forth in 42 U.S.C.
ss. 1395g(c), 42 U.S.C. ss. 1395u(b)(6) and 42 U.S.C. ss. 1396(a)(32),
and the regulations promulgated thereunder or similar provisions of
any state Medicaid program, except for such violations which in the
aggregate would not have a Material Adverse Effect on the Business.
(b) To the best knowledge of Sellers' Executives,
neither SAI nor ODL is engaged in any activity relating to the
Business, whether alone or in concert with one of its clients, which
would constitute a violation of any federal laws or the laws of any
state (including but not limited to (i) federal antifraud and abuse or
similar laws pertaining to Medicare, Medicaid, or any other federal
health or insurance program; (ii) state law pertaining to Medicaid or
any other state health or insurance program; (iii) state or federal
laws pertaining to billings to insurance companies, health maintenance
organizations, and other managed care plans or to insurance fraud; and
(iv) federal and state laws relating to
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collection agencies and the performance of collection services)
prohibiting fraudulent, abusive or unlawful practices connected in any
way with the provision of health care services, the billing for such
services provided to a beneficiary of any state, federal or private
health or insurance program or credit collection services except for
such violations which in the aggregate would not have a Material
Adverse Effect on the Business. Without limiting the generality of the
foregoing, neither SAI nor ODL has, directly or indirectly, paid,
offered to pay or agreed to pay, or solicited or received, any fee,
commission, sum of money, property or other remuneration to or from
any person which the Sellers' Executives know or have reason to
believe to have been illegal under (i) 42 U.S.C. ss. 1320a-7b(b) or
(ii) any similar state law.
(c) To the best knowledge of Sellers' Executives, SAI
and ODL are in compliance in all material respects with the applicable
trust accounting statutes, rules and regulations of the various states
and has sufficient funds deposited in such trust accounts to cover all
trust liabilities to clients of the Business.
Section 3.23 Transactions with Affiliates. Neither of the
Shareholders, nor any person with whom any such Shareholder 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; each such item noted in clauses
(i), (ii) and (iii) of this Section 3.23 is hereinafter referred to as a
"Related Party Agreement." To the best knowledge of the Sellers' Executives, no
officer, director or significant employee of the Business or any person with
whom any such 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 in (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 any Related Party Agreement.
Section 3.24 Accounts Receivable. The accounts receivable of SAI
and ODL arising from the Business as set forth on the Sellers Disclosure Letter
or arising since the date thereof are valid and genuine; 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 3.25 Brokers, Finders and Investment Bankers. Neither
the Sellers, the Shareholders, nor to the best knowledge of Sellers' Executives
any of their respective officers, directors, partners or employees has employed
any broker, finder or investment banker or incurred
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any liability for any investment banking fees, financial advisory fees,
brokerage fees or finders' fees in connection with the transactions
contemplated hereby.
Section 3.26 Disclosure. No representation, warranty or covenant
made by SAI, ODL or any Shareholder in this Agreement, the Sellers 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 Sellers prior to the
execution hereof, Purchaser hereby represents and warrants to Sellers 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.
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 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 or any of Purchaser's properties is subject,
(iii) any
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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. 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.
Section 4.4 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 4.5 Sellers Representations and Warranties. Purchaser
has no actual knowledge of any fact which would cause any of the
representations or warranties of the Shareholders and Sellers contained in
Article 3 hereof to be untrue or incorrect in any material respect.
ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS
Section 5.1 Conduct of Business by Sellers. From the date
hereof to the Closing Date, the Sellers will, except as required in connection
with the transactions contemplated by this Agreement and except as otherwise
disclosed in the Sellers 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
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on the Assets which did not exist on the date hereof or (iv) make any
capital expenditure involving the Business in excess of $5,000 in the
case of any single expenditure or $50,000 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 SAI Material Contracts, SAI 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 SAI Material Contract, SAI
Client Contract, Real Property Lease or Scheduled Lease, other than
any contract that would be a SAI Material Contract, SAI Client
Contract, Real Property Lease or Scheduled Lease entered into in the
ordinary course of business and consistent with the past practices of
the Business;
(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 SAI and/or ODL
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) Continue to work its inventory of recoverable
claims in the ordinary course of business consistent with past
practices of the Business and not alter the settlement ratio on claims
in process in a manner inconsistent with the historical operation of
the Business;
(i) 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 SAI and ODL, and allow
Purchaser, at its request, to review all such returns, reports,
filings and amendments at Sellers' offices prior to the filing
thereof, which review shall not interfere with the timely filing of
such returns;
(j) Not amend any SAI Benefit Plan, nor commit to make
any amendment to any SAI Benefit Plan (other than routine amendments
required by law) or commit to continue any SAI Benefit Plan or adopt
any new SAI Benefit Plan for the benefit of any employees of the
Business;
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(k) Maintain cash balances in all cash accounts
maintained in connection with the Business in accordance with past
practices of the Business; and
(l) 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, Sellers 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. Sellers acknowledge 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 partners or employees of
SAI or ODL 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, the Sellers 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 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 Sellers nor the Shareholders
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 Sellers and
Shareholders will instruct their respective officers, directors, advisors and
other financial and legal representatives and consultants not to take any
action contrary to the foregoing provisions of this sentence. The Sellers and
Shareholders 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 any of the Sellers or Shareholders 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
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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 18, 1999, in accordance with the terms
hereof and shall cooperate fully with each other and their respective officers,
directors, partners, 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) Each of the Sellers, 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.
(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) The Sellers and Shareholders will exercise
reasonable best efforts and shall cooperate in good faith with
Purchaser to secure on or prior to the Closing Date all Closing
Consents. In addition, the Sellers and Shareholders further agree to
use their reasonable best efforts to assist Purchaser, at Purchaser's
expense, in obtaining consents to assignment of all material SAI
Client Contracts that were not secured on or prior to the Closing Date
for a period of ninety (90) days from the Closing Date.
(e) Each of the parties hereto agree that with respect
to each item appearing on the Sellers Disclosure Letter and the
Purchaser Disclosure Letter, the Sellers or the Purchaser, as the case
may be, shall specifically reference the Section or Sections of this
Agreement as to which such item relates, but that all information
disclosed in the Sellers Disclosure Letter or Purchaser Disclosure
Letter shall be deemed disclosed for purposes of
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any other Section or Sections of the Agreement for which such item is
responsive or applicable.
(f) Without the prior written consent of Purchaser,
neither SAI nor ODL will 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 SAI, ODL
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,
SAI and ODL shall deliver to Purchaser, as soon as available but in no event
later than 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 Sellers 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 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
Sellers Disclosure Letter, and by Sellers in their absolute and sole discretion
in the case of any supplement or amendment to the Purchaser Disclosure Letter
or unless the failure to disclose any information set forth in any such
supplement or amendment would not have resulted in a breach of a representation
or warranty made by the Sellers and the Shareholders under Article 3, in the
case of any supplement or amendment to the Sellers Disclosure Letter, or of a
representation or warranty made by Purchaser in Article 4, in the case of any
supplement or amendment to the Purchaser Disclosure Letter. To the extent that
the transactions contemplated hereby are consummated, the warranties and
representations of the Sellers and the Shareholders made in Article 3 shall be
deemed amended and supplemented by all information set forth in each disclosure
supplement or amendment delivered by the Sellers and the warranties and
representations made by Purchaser in Article 4 shall be deemed amended and
supplemented by all information set forth in each disclosure supplement
delivered by Purchaser, in each case as if amended on the date of execution of
this Agreement.
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Section 5.8 Liability for Benefits/Withdrawal from Plans.
(a) On the Closing Date, Sellers 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, except to the extent such amounts are accrued for or reserved on
the Final Closing Date Balance Sheet. In addition, on the Closing Date, Sellers
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). Sellers 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) Sellers agree to fully vest all of the employees
employed in connection with the Business in their benefits accrued under the
Subro-Audit, Inc. Employees' Retirement 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 from the Internal Revenue Service
in connection with such termination. Sellers shall request a favorable
determination letter from the Internal Revenue Service in connection with such
termination and use their 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 Subro-Audit, Inc.
Employees' Retirement 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, Sellers provide 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 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 Sellers may arrange temporarily for continued coverage
of such employees under corresponding welfare plans of Sellers, with Purchaser
paying the employer's share of premiums under such plans, until such employees
are transitioned into applicable Purchaser welfare plans.
(c) Purchaser shall assume full responsibility for
offering and for providing "continuation coverage" to any "qualified
beneficiary" who is covered by a "group health plan"
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sponsored or contributed by Sellers 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" all shall have the meanings given such terms under Section 4980B
of the Code and Part 6 of Subtitle B of Title I of ERISA. Sellers shall
reimburse Purchaser for all out-of-pocket costs incurred by Purchaser in
providing such coverage with respect to any qualified beneficiary who has
experienced a qualifying event on or prior to the Closing Date, and indemnify
Purchaser for any liability incurred by Purchaser as a result of any failure to
provide such coverage (or any failure to provide notice of eligibility for
COBRA coverage) prior to the Closing or any failure to provide such coverage
(or any failure to provide notice of eligibility for COBRA coverage) to any
person not disclosed to Purchaser as provided in (i) through (iv) of the
following sentence. At Closing, Seller shall provide Purchaser a list of (i)
all persons who have elected continuation coverage prior to the Closing Date,
(ii) all persons who are eligible to elect such coverage as of Closing but who
have not done so (and the date of the COBRA notice provided to such persons),
(iii) all persons who prior to or as of the Closing Date are entitled to
receive a COBRA notice as a result of a qualifying event but who have not yet
received such notice, and (iv) the date of the qualifying event for all such
persons listed in (i) through (iii).
Section 5.9 Employment Matters.
(a) Subject to Section 5.9(b) hereof, it is Purchaser's
current intention to extend offers of at-will employment to
substantially all of the employees employed in connection with the
Business. As promptly as practicable following the date hereof, SAI
shall provide Purchaser with a list setting forth the names, addresses
and such other information as Purchaser shall reasonably request and
to the maximum extent permitted by applicable law concerning the
employees of SAI and ODL 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 SAI
no later than two (2) days prior to the Closing of the names of any
Employees who will not be offered employment with Purchaser (the
"Remaining SAI Employees") and such other information concerning the
terms of employment to be offered by Purchaser to the other Employees
as SAI 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 SAI or ODL, or to employ or offer to employ any such individual at
any specific wage or benefit level.
(b) Shareholders will assist Purchaser in entering into
employment agreements with the key employees of the Business set forth
on Exhibit 5.9(b)(i) (the "Key Employees of the Business") on or prior
to the Closing Date, which employment agreements will be in the form
attached hereto as Exhibit 5.9(b)(ii). Notwithstanding the foregoing,
Purchaser agrees that Purchaser shall offer Margaret O'Donnell an
employment agreement in the form of Exhibit 5.9(b)(iii) attached
hereto.
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(c) No later than one day prior to the Closing, SAI and
ODL shall notify all Employees other than the Remaining SAI Employees
that their employment with SAI and/or ODL shall terminate at the
Closing and SAI and ODL shall validly terminate such Employees as of
the Closing Date.
(d) At the Closing, SAI and ODL 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 Sellers agree that Sellers 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 Sellers 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 Agreements. SAI,
ODL and the Shareholders 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 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 Sellers 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 each of the Sellers and the
Shareholders and their 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 any such Seller in
a form and substance reasonably satisfactory to Purchaser prior to providing
any such Seller with access to such books and records.
Section 5.12 Substitution of Counsel; Attorney's Liens. From and
after the Closing Date, Kevin O'Donnell and the Sellers shall cooperate in good
faith with Purchaser and shall take all such actions as Purchaser shall
reasonably request in order to facilitate the continued prosecution of all
subrogation claims and recoveries constituting part of the Assets, including,
but not limited to, any motion necessary to substitute counsel in any such
cases. Kevin O'Donnell and Sellers agree not to assert or attempt to perfect
any attorneys liens with respect to subrogation claims or recovery constituting
part of the Assets, nor shall they assist any third party in asserting or
attempting to perfect any such lien.
Section 5.13 Notices to Lenders. Promptly after the execution of
this Agreement, Sellers shall provide to lenders any notice necessary to
facilitate the prepayment of any debt reflected on
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the Sellers' December 31, 1997 balance sheet that remains unpaid as of the date
hereof. Sellers shall use their reasonable best efforts to have any such
prepayment notices waived prior to the Closing Date.
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
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 Sellers and Shareholders 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 Sellers. Sellers and
Shareholders shall have performed in all material respects all
covenants and agreements required to be performed by them under this
Agreement.
(c) Opinion of SAI's Counsel. Purchaser shall have
received an opinion of Godfrey & Kahn, S. C. dated the Closing Date,
substantially in the form attached hereto as Exhibit 6.2(c).
(d) Consents. Purchaser shall have received the Closing
Consents listed on Exhibit 6.2 attached hereto.
(e) Certificates. Sellers shall furnish Purchaser with
a certificate as to compliance with the conditions set forth in
Sections 6.2(a) and (b).
(f) Material Contracts. Purchaser shall have received
consents to assignment of all Real Property Leases, Scheduled Leases
and SAI Client Contracts identified as long-term contracts on Exhibit
6.2(f) and identified as requiring the consents of third parties as
set forth in the Sellers Disclosure Letter.
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(g) Title Insurance. Purchaser shall have received, at
Purchaser's cost and expense, a binding commitment to issue an ALTA
owner's policy of title insurance (Form 10-17-92) covering the Real
Property in an amount equal to Five Million Dollars ($5,000,000)
naming Purchaser as proposed insured. Such commitment shall be written
by a title insurance company reasonably acceptable to Purchaser and
licensed in the States of Wisconsin and Georgia, shall show title to
such Real Property to be vested in the applicable Seller free and
clear of all liens and encumbrances, except Permitted Liens and other
matters approved in writing by Purchaser, shall commit to issue such
endorsements as Purchaser shall reasonably require, and shall
otherwise be in form and content acceptable to Purchaser. At the
Closing, the title insurer or its authorized agent shall either issue
the policy of title insurance contemplated by the aforesaid commitment
or "mark" the commitment to reflect satisfaction of the requirements
therein and effectively convert the commitment to a policy of title
insurance.
(h) Noncompetition and Nonsolicitation Agreement. Each
of the Sellers and the Shareholders shall have executed and delivered
the Noncompetition and Nonsolicitation Agreement in the form attached
hereto as Exhibit 5.10.
(i) Escrow Agreement. Sellers and Shareholders shall
have executed the Escrow Agreement.
(j) Kevin O'Donnell Employment Agreement. Kevin
O'Donnell shall have executed and delivered an employment agreement in
the form of Exhibit 6.2(j) attached hereto.
Section 6.3 Conditions to Obligations of Sellers. The
obligations of Sellers 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 Sellers shall
have received an opinion of King & Spalding, dated the Closing Date,
substantially in the form attached hereto as Exhibit 6.3(c).
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(d) Certificates. Purchaser shall furnish Sellers with
a certificate as to compliance with the conditions set forth in
Sections 6.3(a) and (b).
(e) Escrow Agreement. Purchaser shall have executed the
Escrow Agreement, defined above, and funded the escrow account as per
the terms of the Escrow Agreement.
(f) Employment Agreement. Purchaser shall have executed
the Agreement referenced in Section 5.9(b) with Margaret O'Donnell.
(g) Key Employee Employment Agreements. Purchaser shall
have offered the Key Employees of the Business employment agreements
in the form of Exhibit 5.9(b)(ii) attached hereto.
(h) Kevin O'Donnell Employment Agreement. Purchaser
shall have executed an employment agreement in the form of Exhibit
6.2(j) attached hereto.
(i) Purchaser Letter. Purchaser shall have executed the
letter in the form of Exhibit 6.3(i) attached hereto.
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 SAI;
(b) by SAI, 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 January 31, 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 Sellers on or before January 31, 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
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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, partners 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.
ARTICLE 8
INDEMNIFICATION
Section 8.1 Indemnification Obligations of the Shareholders and
Sellers. From and after the Closing, each of the Shareholders and Sellers,
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 any of
the Sellers of any nature whatsoever, except the Assumed Obligations;
(b) Any breach of any representation or warranty made
by any of the Sellers or Shareholders in this Agreement or in any
certificate, agreement, exhibit or schedule in connection with the
matters contemplated hereby or pursuant to the provisions hereof
(collectively, the "SAI Ancillary Documents");
(c) Any fraud or any knowing and intentional breach of
any representation, warranty, covenant, agreement or undertaking made
by any of the Sellers in this Agreement or the SAI Ancillary
Documents; or
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(d) Any breach of any covenant, agreement or
undertaking made by any of the Sellers or Shareholders in this
Agreement or in the SAI 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 Sellers and Shareholders and each of their
subsidiaries and affiliates, each of their respective officers, directors,
shareholders, partners, employees, agents and representatives and each of the
heirs, executors, successors and assigns of any of the foregoing (collectively,
the "SAI 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 or warranty made
by Purchaser in this Agreement or in any certificate, agreement,
exhibit or schedule in connection with the matters contemplated hereby
or pursuant to the provisions hereof (the "Purchaser Ancillary
Documents");
(c) 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;
or
(d) Any breach of any covenant, agreement or
undertaking made by the Purchaser in this Agreement or in the
Purchaser Ancillary Documents.
The claims, liabilities obligations, losses, costs, expenses,
penalties, fines and damages of the SAI Indemnified Parties described in this
Section 8.2 as to which the SAI Indemnified Parties are entitled to
indemnification are hereinafter collectively referred to as " SAI Losses."
Section 8.3 Indemnification Procedure.
(a) Promptly after receipt by a Purchaser Indemnified
Party or a SAI 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
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notify Purchaser or Sellers, 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 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 which consent may not be
unreasonably withheld, 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
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<PAGE> 57
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, litigation, arbitration or otherwise) 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.
(d) Notwithstanding anything to the contrary set forth
herein, to the extent that Purchaser shall have in place errors and
omissions or other insurance covering a Purchaser Loss hereunder, then
Purchaser hereby agrees to first seek recovery of such Purchaser Loss
under such Purchaser Insurance before seeking indemnification from the
Sellers for such Purchaser Loss hereunder. To the extent that such
Purchaser Insurance shall cover such Purchaser Loss, Purchaser hereby
agrees not to seek indemnification from the Sellers hereunder for such
Purchaser Loss; provided, however, that any deductible paid by
Purchaser in connection with such Purchaser Loss covered by such
Purchaser Insurance shall constitute a Purchaser Loss hereunder and
shall be subject to the indemnification obligation of the Sellers set
forth in Section 8.1 hereof.
(e) Notwithstanding any provision to the contrary set
forth herein, Purchaser shall be entitled to off-set the amount of any
Final Claim amount due Purchaser or any Purchaser Indemnified Party
from Sellers or Shareholders under this Article 8 against any and all
amounts that Purchaser may owe Sellers or Shareholders pursuant to
Article 1 hereof, including but not limited to any Positive Working
Capital Balance, First Earn-Out Payment and/or Second Earn-Out
Payment.
The determination of the amount of any Purchaser Loss or SAI Loss for which
indemnification may be claimed under this Article 8 shall be net of any tax
benefit derived and net of any tax incurred as a result of the receipt of such
indemnification payment by the party bearing such Purchaser Loss or SAI Loss.
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
eighteen months after the Closing Date; provided, however, that the Claims
Period with respect to: (a) Purchaser Losses arising under Sections 5.8(c) or
8.1(a), (c) and (d) of this Agreement, arising under or incurred in connection
with any of the matters listed on Exhibit 1.10(g) hereto, or arising out of or
relating to any of the pending, threatened or other claims identified on Annex
3.9 to the Sellers Disclosure Letter shall commence on the date hereof and
shall survive and remain in effect until the fifth anniversary of the Closing;
and (b) SAI Losses arising under Section 8.2(a), (c) and (d) shall commence on
the date hereof and shall survive and remain in effect until the fifth
anniversary of the Closing. No Indemnified Party shall be entitled to make any
claim for indemnification hereunder after the appropriate Claims Period;
provided,
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<PAGE> 58
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) The Sellers and Shareholders shall only be liable
for Purchaser Losses arising hereunder solely to the extent that any
such Purchaser Losses exceed, in the aggregate, One Hundred Thousand
Dollars ($100,000) (the "SAI Basket Amount"); provided, however, that
Purchaser Losses arising under or pursuant to Sections 5.8(c) or 8.1
(a), (c) and (d) of this Agreement, arising under or incurred in
connection with any of the matters listed on Exhibit 1.10(g) hereto,
or arising out of or relating to any of the pending, threatened or
other claims identified on Annex 3.9 to the Sellers Disclosure Letter
shall not be subject to the SAI Basket Amount, nor shall the amount of
any such Purchaser Losses be included with other Purchaser Losses in
determining whether such SAI Basket Amount has been reached.
(b) The indemnification obligations of the Sellers and
Shareholders hereunder shall not exceed in the aggregate Three Million
Dollars ($3,000,000) (the "Sellers' Cap Amount"); provided, however,
that Purchaser Losses arising under or pursuant to Sections 5.8(c) or
8.1 (a), (c) and (d) of this Agreement, arising under or incurred in
connection with any of the matters listed on Exhibit 1.10(g) hereto,
or arising out of or relating to any of the pending, threatened or
other claims identified on Annex 3.9 to the Sellers Disclosure Letter
shall not be subject to the Sellers' Cap Amount and there shall be no
limitation on the indemnification obligations of the Sellers with
respect to Purchaser Losses arising under or pursuant to such
provisions.
(c) For purposes of the indemnification obligations of
the Sellers under this Article 8 and the applicable representations
and warranties of the Sellers and Shareholders 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 Business if such Purchaser Loss or
series of related Purchaser Losses exceeds Twenty Thousand Dollars
($20,000); provided, however, that for purposes of determining the
satisfaction of the SAI Basket Amount under Section 8.5(a), all
representations, warranties, covenants, agreements or undertakings
referred to in Section 8.1 (b) and (c) hereof shall be read so as to
exclude therefrom the term "material" (or similar works of like
import) and the effect thereof under this Article 8.
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Section 8.6 Jurisdiction and Forum.
(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 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 Delaware.
SAI, ODL AND SELLERS:
Mr. Kevin M. O'Donnell;
Ms. Leah Lampone and
Subro-Audit, Inc.
9516 West Brookside Drive
Greenfield, Wisconsin 53228
Attn: Leah Lampone
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 resolution of claims,
disputes, controversies or claims specifically addressed above in
Section 1.7(g) of this Agreement or claims related to the
determination of the Final Working Capital Amount which will be
resolved under Section
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1.6 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 Delaware 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 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.
Section 8.7 Compliance with Bulk Sales Laws. Purchaser and
Sellers hereby waive compliance by Purchaser and Sellers with the bulk sales
law and any other similar laws in any applicable jurisdiction in respect of the
transactions contemplated by this Agreement.
Section 8.8 Sole Remedy. The sole remedy of any party for any
and all claims arising from and after the Closing Date with respect to the
transactions contemplated herein, whether under or as a result of this
Agreement or otherwise, shall be the indemnity set forth in this Article 8, as
limited by the provisions set forth in this Article 8; provided, however, that
any dispute relating to the Final Working Capital Amount shall be resolved in
accordance with Section 1.6 of this Agreement and any dispute relating to the
First Earn-Out Payment or the Second Earn-Out Payment shall be resolved in
accordance with Section 1.7(g) of this Agreement; provided further, that
nothing herein shall limit the parties rights to seek and obtain specific
performance and 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:
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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 SELLERS OR THE SHAREHOLDERS:
c/o Mr. Kevin M. O'Donnell
Ms. Leah Lampone
9516 West Brookside Drive
Greenfield, Wisconsin 53228
with a copy to:
Godfrey & Kahn
780 North Water Street
Milwaukee, Wisconsin 53202-3590
Attn: Peter M. Sommerhauser, Esq.
Telecopy No.: (414) 273-5198
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 Sellers
Disclosure Letter, the Purchaser Disclosure Letter and all Exhibits hereto are
hereby incorporated into this Agreement 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.
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Section 9.4 Assignment; Successors in Interest. No assignment
or transfer by Purchaser or SAI, ODL or the Sellers 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 Sellers, Shareholders and Purchaser set forth
in this Agreement shall not be extinguished by the Closing and shall survive
until expiration of the applicable Claims Period. Notwithstanding anything to
the contrary set forth in this Section 9.5, the covenants and agreements of
Sellers, Shareholders 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 or until expiration of the applicable claims
period. The respective representations and warranties of Purchaser, Sellers and
Shareholders 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 Sellers
Disclosure Letter.
Section 9.8 Sellers' Executives, Knowledge. As used in this
Agreement, the terms "the best knowledge of the Sellers' Executives," "known to
the Sellers' 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
Sellers' Executives together with the knowledge a reasonable business person
would have obtained after making reasonable inquiry and after exercising
reasonable diligence with respect to the matters at hand. The "Sellers'
Executives" shall consist of Kevin M. O'Donnell, Leah Lampone, Mark Tojek, Mary
Jo Liegler, Al Vergolina, Gene Silverman, Robert Diehl and Nancy Schliesmann.
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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 October 23, 1997 by and between
Purchaser and Sellers 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 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
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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. Each of Purchaser, Sellers and
Shareholders 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.
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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, President & CEO
---------------------------
By: /s/ Douglas R. Sharps
------------------------------------
Title: Executive Vice President, CFO &
--------------------------------
Secretary
---------
SUBRO-AUDIT, INC.
Attest: By: /s/ Kevin M. O'Donnell
-------------------------------
Title: President
---------------------------
By: /s/ Leah M. Lampone
------------------------------------
Title: Assistant Secretary
--------------------------------
O'DONNELL LEASING CO.
By: /s/ Kevin M. O'Donnell
-----------------------------------
General Partner
/s/ Leah M. Lampone
-----------------------------------
General Partner
SHAREHOLDERS
/s/ Kevin M. O'Donnell
-----------------------------------
Kevin M. O'Donnell
/s/ Leah M. Lampone
-----------------------------------
Leah M. Lampone
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[HRI Logo] EXHIBIT 99.1
NEWS RELEASE
Contact: Douglas R. Sharps
Chief Financial Officer
(502) 454-1365
HEALTHCARE RECOVERIES, INC. ANNOUNCES PROPOSED ACQUISITION OF
SUBRO-AUDIT, INC.
LOUISVILLE, Ky.--(BUSINESS WIRE)--Jan. 4, 1999--Healthcare Recoveries, Inc.
(NASDAQ: HCRI - news) has signed a definitive agreement to purchase the assets
and assume certain liabilities of Subro-Audit, Inc. ("SAI") and a related real
estate partnership. Pursuant to the agreement, HCRI will pay $24,400,000 in
cash at closing and up to $8,500,000 over two years pursuant to an earn-out
arrangement. The transaction is subject to satisfaction of certain closing
conditions and is currently expected to close by the end of January.
Based in Milwaukee, SAI provides recovery services to an installed base of
approximately 8 million lives, who are covered by insurers, HMOs and
employer-funded plans throughout the U.S. The company has approximately 150
full- and part-time employees at its locations in Milwaukee and Atlanta. SAI's
revenue for 1997 was approximately $6.7 million, and in 1998 revenue is
expected to be approximately $7.2 million.
Starting in 1999 and continuing into 2000, HCRI expects to obtain significant
improvements in productivity at SAI as a result of deploying its systems, work
processes and standards throughout the SAI organization. These improvements
should appear as increases in both the recoveries per installed life and the
recoveries per SAI employee.
Patrick B. McGinnis, Chairman and CEO of HCRI, said: "We are delighted at the
opportunity to join forces with Subro-Audit, Inc. Kevin M. O'Donnell, founder
of SAI, and his team have created an organization that leads the industry in
customer service. HCRI's recovery processes and automation, combined with SAI's
commitment to service, will be formidable one-two punch in the claims recovery
market."
Kevin O'Donnell stated: "SAI looks forward to the opportunity to keep our
recovery processes on the cutting edge and results at the highest levels. Our
customers are finding themselves in an unprecedented competitive environment
which shows no signs of abating. Teaming up with HCRI enables us to leapfrog
the competition in technology and automation.
Page 1 of 2
*HEALTHCARE RECOVERIES, INC. * 1400 Watterson Tower
Louisville, Kentucky 40218 *
* 502/454-1340 * www.hcrec.com *
<PAGE> 2
[HRI Logo]
The combination also gives our customers access to other recovery services that
HCRI can bring to bear. HCRI's proposed combination with MedCap and its efforts
to develop additional recovery services will be very attractive to our
customers." Mr. O'Donnell will serve as President of the SAI Marketing
Division, leading SAI's efforts in customer service and retention, as well as
acquiring new accounts.
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 1998 Report on Form 10-Q, 2nd Quarter 1998 Report on Form
10-Q, and 3rd Quarter 1998 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 *
