SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [x]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Materials Pursuant to SS.240.14a-11(c) or SS.240.14a-12
CONTINENTAL CHOICE CARE, INC.
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N.A.
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[_] No fee required
[x] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
(1) Title of each class of securities to which transaction applies:
N.A.
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(2) Aggregate number of securities to which transaction applies:
N.A.
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
N.A.
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(4) Proposed maximum aggregate value of transaction:
$13,120,000
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(5) Total fee paid:
$2,624.00
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration number, or the
Form or Schedule and the date of its filing.
<PAGE>
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
N.A.
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(3) Filing party:
N.A.
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(4) Date filed:
N.A.
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CONTINENTAL CHOICE CARE, INC.
25-B VREELAND ROAD
FLORHAM PARK, NEW JERSEY 07932
March __, 1997
To the Shareholders of Continental Choice Care, Inc.:
You are cordially invited to attend the 1997 Annual Meeting of
Shareholders (the "Annual Meeting") of Continental Choice Care, Inc., a New
Jersey corporation (the "Company"), to be held at the Hamilton Park Conference
Center at 175 Park Avenue, Florham Park, New Jersey 07932 on April 8, 1997 at
4:00 p.m., New York City time. We have enclosed the (i) Notice of Annual
Meeting, (ii) Proxy Statement and (iii) Proxy for the Annual Meeting. We have
also enclosed the Company's 1996 Annual Report.
At this meeting, you will be asked to approve the sale of substantially
all of the assets of the Company and certain of its subsidiaries to IHS of New
York, Inc., a New York corporation ("IHS"), pursuant to an Asset Purchase
Agreement dated February 12, 1997. The Board of Directors of the Company has
unanimously approved the sale of assets and believes it is in the best interests
of the Company and its shareholders, and unanimously recommends that the
shareholders vote "FOR" approval of the transaction. The Proxy Statement
describes in more detail the terms of the transaction with IHS and provides
certain financial and other information pertaining to the Company and IHS.
Please give this information your careful attention.
We urge you to complete, sign and date the enclosed Proxy and return it
promptly in the enclosed envelope, whether or not you plan to attend the Annual
Meeting. If you attend the Annual Meeting, you may vote in person, even if you
previously returned your Proxy. At the meeting you will also be asked to elect
Directors to the Board of Directors, approve the Company's 1995 Equity Incentive
Plan and ratify the appointment of Arthur Andersen LLP, as the Company's
independent public accountants.
We look forward to seeing you at the Annual Meeting.
Sincerely yours,
Steven L. Trenk, President
<PAGE>
Continental Choice Care, Inc.
25-B VREELAND ROAD
FLORHAM PARK, NEW JERSEY 07932
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 28, 1997
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The 1997 Annual Meeting of the Shareholders of Continental Choice Care,
Inc. (the "Company") will be held at the Hamilton Park Conference Center at 175
Park Avenue, Florham Park, New Jersey 07932 on April 28, 1997 at 4:00 p.m., New
York City time for the following purposes:
(1) To approve the sale of substantially all of the
assets of the Company and certain of its
subsidiaries to IHS, Inc. pursuant to the terms of
an Asset Purchase Agreement dated February 12,
1997.
(2) To elect two Class I directors to hold office for a
term of one year or until their successors have
been duly elected and qualified, to elect one Class
II director to hold office for a term of two years
or until his successor has been duly elected and
qualified and to elect two Class III directors to
hold office for a term of three years or until
their successors have been duly elected and
qualified.
(3) To approve the Company's 1997 Equity Incentive
Plan.
(4) To ratify the appointment of Arthur Andersen
LLP as the Company's independent public accountants
for the fiscal year ending December 31, 1997.
(5) To transact such other business as may properly
come before the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 30,
1997, as the record date for determining the shareholders entitled to notice of
and to vote at the meeting and any adjournment thereof.
Your attention is directed to the accompanying Proxy Statement for
further information regarding each proposal to be made.
ALL SHAREHOLDERS ARE ASKED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY
AND RETURN IT PROMPTLY BY MAIL IN THE ENCLOSED SELF-ADDRESSED ENVELOPE, WHICH
DOES NOT REQUIRE POSTAGE IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors
Steven L. Trenk
President
March __, 1997
Florham Park, New Jersey
<PAGE>
CONTINENTAL CHOICE CARE, INC.
25-B Vreeland Road
Florham Park, New Jersey 07932
201-593-0500
PROXY STATEMENT FOR ANNUAL MEETING
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This Proxy Statement is furnished by the Board of Directors (the "Board
of Directors") of Continental Choice Care, Inc., a New Jersey corporation (the
"Company"), in connection with the solicitation of proxies to be used at the
Annual Meeting of Shareholders (the "Meeting") to be held at the Hamilton Park
Conference Center, 175 Park Avenue, Florham Park, New Jersey 07932 on April 28,
1997 at 4:00 p.m., New York City time, and at any adjournment thereof. This
Proxy Statement and the accompanying Annual Report, Notice and Proxy are being
mailed to shareholders on or about March __, 1997. The enclosed proxy is being
solicited by the Company. The principal executive offices of the Company are
located at Suite 201, 25-B Vreeland Road, Florham Park, New Jersey 07932.
Only shareholders of record at the close of business on the record
date, March 30, 1997, will be entitled to vote at the Meeting and at all
adjournments thereof.
A copy of the Company's Annual Report on Form 10-K for its fiscal year
ended December 31, 1996, as filed with the Securities and Exchange Commission,
is being mailed with this Proxy Statement to stockholders entitled to vote at
the meeting. The information contained therein is incorporated by reference into
this Proxy Statement.
On January 31, 1997, there were outstanding and entitled to vote
3,237,500 shares of the Company's common stock, no par value per share (the
"Common Stock"). Each outstanding share of Common Stock is entitled to one vote
on each matter to be voted upon. A majority of the shares of Common Stock
entitled to vote at the Meeting will constitute a quorum for the transaction of
business. Holders of Common Stock have no cumulative voting rights.
Certain statements in this Proxy Statement constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause actual
results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed
or implied by such forward-looking statements. Certain known factors are
noted in this Proxy Statement, including, without limitation, those set
forth under the headings "Approval of the Transaction" and "Certain
Relationships and Related Transactions," as well as in the Company's Annual
Report on Form 10-KSB which is being mailed with this Proxy Statement.
VOTING OF PROXIES
If a proxy is properly signed by a shareholder and is not revoked, the
shares represented thereby will be voted at the Meeting in the manner specified
on the proxy, or if no manner is specified with respect to any matter therein,
such shares will be voted by the persons designated therein (with respect to the
matters as to which the shareholder is entitled to vote) (a) "FOR" approval of
the sale of substantially all of the assets of the Company and certain of its
subsidiaries to IHS of New York, Inc. ("IHS") pursuant to the terms of an Asset
Purchase Agreement (the "Purchase Agreement") dated February 12, 1997 ("Proposal
1"), (b) "FOR" the election of each of Martin G. Jacobs, M.D. and Jeffrey Claman
as Class I directors, Steven L. Trenk as a Class II director and Alvin S. Trenk
and Jeffrey B. Mendell as Class III directors ("Proposal 2"), (c) "FOR" the
approval of the 1997 Equity Incentive Plan ("Proposal 3"), (d) "FOR" the
ratification of the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending December 31, 1997
("Proposal 4"), and (e) in connection with the transaction of such other
business as may properly be brought before the Meeting, in accordance with the
judgment of the person or persons voting the proxy. If any of the nominees for
director is unable to serve or for good cause will not serve, an event that is
not anticipated by the Company, the shares represented by the accompanying proxy
will be voted for a substitute nominee designated by the Board of Directors or
the Board of Directors may determine to reduce the size of the Board of
Directors.
<PAGE>
A proxy may be revoked by a shareholder at any time prior to the voting
thereof by giving notice of revocation in writing to the Secretary of the
Company, by duly executing and delivering to the Secretary of the Company a
proxy bearing a later date or by voting in person at the Meeting.
Directors of the Company will be elected by a plurality of the vote of
the outstanding shares of Common Stock present, in person or by proxy, and
entitled to vote at the Meeting. The affirmative vote of the holders of at least
a majority of the outstanding shares of Common Stock present, in person or by
proxy, and entitled to vote at the Meeting is required for approval of the sale
of substantially all of the assets of the Company and certain of its
subsidiaries to IHS pursuant to the terms of an Asset Purchase Agreement dated
February 12, 1997, the ratification and approval of the Company's 1997 Equity
Incentive Plan (the "1997 Plan"), the appointment of Arthur Andersen LLP and any
other matter which may be put to a shareholder vote at the Meeting. As to any
particular proposal, abstentions will have the same effect as a vote against
that proposal, and broker non-votes will not be counted as votes for or against
the proposal, and will not be included in counting the number of votes necessary
for approval of the proposal. Votes cast, either in person or by proxy, will be
tabulated by First City Transfer Company, the Company's transfer agent.
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information, as of March 3, 1997
regarding the beneficial ownership of the Company's Common Stock by each
director and named executive officer (see "Compensation of Directors and
Executive Officers") of the Company and by all directors and executive officers
as a group and each person known to be the beneficial owner of more than five
percent of the outstanding shares of the Common Stock. The Company has been
advised that each shareholder listed below has sole voting and dispositive power
with respect to such shares unless otherwise noted in the footnotes below.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF OUTSTANDING
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP COMMON STOCK
COMPANY TECHTRON COMPANY TECHTRON
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
<S> <C> <C> <C> <C>
TechTron, Inc. (1) 1,527,500 0 47.18% 0.0%
Alvin S. Trenk(1) 3,000 (2) 4,841,666 47.27%(3) 80.69%
Steven L. Trenk(1) 1,000 (4) 4,841,666 47.21%(3) 80.69%
Martin G. Jacobs, M.D. (1) 0 (5) 4,841,666 47.18%(3) 80.69%
Jeff Ellentuck(1) 0 (6) 0 *
Ronald A. Lefkon(1) 0 (7) 0 *
Jeffrey A. Claman(1) 30,000 (8) 0 *
Jeffrey B. Mendell(1) 30,000 (8) 0 *
Americorp Securities, Inc.(9) 296,233(10) 8.62%
Americorp. Financial (9) 296,233(10) 8.62%
Drew Schaefer (9) 296,233(10) 0 8.62%
All Directors and Officers
as a Group (7 persons) 1,582,500 4,841,666 48.26 80.69%
</TABLE>
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*Comprises less than one percent of the outstanding Common Stock of the Company.
(1) The address of each named person and entity is 25-B Vreeland Road, Florham
Park, New Jersey 07932.
(2) Does not include 150,000 shares underlying options issued to Mr. A. Trenk
under the 1997 Plan which are not currently exercisable. The 1997 Plan is
subject to approval of the shareholders of the Company at the Meeting.
(3) Includes 1,527,500 shares held by TechTron. Alvin S. Trenk, Steven L. Trenk
and Martin G. Jacobs, M.D. are each officers, directors and principal
shareholders of TechTron and directly own in the aggregate approximately
80.69% of the outstanding stock of TechTron. These individuals may also be
considered to beneficially own, and to have shared investment and voting
power with respect to, all shares of common stock owned by TechTron. Alvin
S. Trenk, Steven L. Trenk and Martin G. Jacobs, M.D. are treated as a group
herein for purposes of determining beneficial ownership.
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<PAGE>
(4) Includes 1,000 shares held in the name of Mr. S. Trenk's children. Does not
include 25,000 and 104,000 shares of Common Stock underlying options issued
to Mr. S. Trenk under the Company's 1994 Long Term Incentive Award Plan
(the "1994 Plan") and the 1997 Plan, respectively, which are not currently
exercisable.
(5) Does not include 25,000 and 101,000 shares of Common Stock underlying
options issued to Dr. Jacobs under the 1994 Plan and the 1997 Plan,
respectively, which are not currently exercisable.
(6) Does not include 35,000 and 15,000 shares of Common Stock underlying
options issued to Mr. Ellentuck under the 1994 Plan and the 1997 Plan,
respectively, which are not currently exercisable.
(7) Does not include 35,000 and 15,000 shares of Common Stock underlying
options issued to Mr. Lefkon under the 1994 Plan and the 1997 Plan,
respectively, which are not currently exercisable.
(8) Includes 30,000 shares of Common Stock underlying currently exercisable
options granted under the Director's Stock Option Plan. Does not include
40,000 shares subject to options under the 1997 Plan which are not
currently exercisable.
(9) Mr. Schaefer is the principal shareholder of Americorp Financial Services,
Inc. which is the holding company of Americorp. Securities, Inc. The
address of each is 1 New York Plaza, 40th Floor, New York, New York 10004.
Each of Mr. Schaefer, Americorp Financial Services, Inc. and Americorp
Securities, Inc. disclaims sole voting and dispositive power with respect
to the securities.
(10) Includes 96,067 shares of common stock and 200,166 warrants, each to
purchase one share of common stock.
Stock options were granted in 1995 to officers of the Company and in
1996 to a broad group of employees, directors and officers of the Company. In
February 1997, all outstanding options, under the 1994 Plan were adjusted to
have an exercise price of $1.87 per share and the Company adopted the 1997 Plan
and issued options to substantially all employees of the Company under the 1997
Plan. The 1997 Plan is subject to approval of the shareholders of the Company at
the Meeting. All options granted under the 1994 Plan were originally granted at
the fair market value on the date of grant. All options granted under the 1997
Plan have an exercise price of $1.875 or $2.0625, 100% and 110%, respectively,
of the fair market value of the Common Stock on the date of the grant.
PROPOSAL 1. APPROVAL OF THE TRANSACTION
GENERAL
The Company is engaged primarily in the dialysis treatment business
(the "Treatment Business"). The Company and its subsidiaries, other than
Continental Dialysis of Linden, Inc. ("Linden"), provide equipment, services and
supplies to individuals in their homes and other residential alternative sites,
including prisons and nursing homes. Linden owns and operates a free-standing
center to train individual patients in the self-administration of peritoneal
dialysis treatments in Linden, New Jersey. The Company is also engaged in the
provision of consulting and administrative services to certain consulting
customers located in New York ("Consulting Customers") and in the provision of
acute care dialysis nursing placement services ("Acute Care
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<PAGE>
Services"). The Consulting Customers provide dialysis treatments to patients at
and from in-center facilities owned and operated by the Consulting Customers.
The Treatment Business, Linden, the Acute Care Services and the provision of
services to Consulting Customers are referred to collectively as the "Dialysis
Business."
The Company also established an 80% owned subsidiary, Renal Management,
Inc. ("RMI"), to expand the scope of the Company's services and enable it to be
more directly involved in renal disease state management and nephrology practice
management. From inception, RMI has been engaged primarily in forming a network
of healthcare providers, exploring financing alternatives and marketing its
business. To date, RMI has not conducted any substantive business nor entered
into any agreements with customers.
The shareholders of the Company are being asked to approve the sale
(the "Transaction") of substantially all of the assets of the Company and its
subsidiaries, other than Renal Management, Inc. ("RMI") (collectively, the
"Selling Subsidiaries") relating to the Dialysis Business, to IHS pursuant to
the terms of an Asset Purchase Agreement dated February 12, 1997 (the "Purchase
Agreement") and certain related agreements, among the Company, each of the
Selling Subsidiaries, each of the Consulting Customers and IHS, subject to the
execution of the Purchase Agreement by Upper Manhattan Dialysis Center, Inc.
("UMDC") or the exercise by IHS of the UMDC Option, as hereinafter defined.
The following is a summary of information relating to the Transaction.
This summary is not intended to be a complete description of the Transaction and
is subject to and qualified in its entirety by reference to the more detailed
information contained in the Purchase Agreement and related documents. A copy of
the Purchase Agreement is attached to this Proxy Statement as Appendix A. Copies
of each of the Escrow Agreement, the Voting Trust, the Consulting Agreement and
the Non- Competition Agreement will be provided without charge to each
stockholder upon written request to Investor Relations, Continental Choice Care,
Inc. 25-B Vreeland Road, Suite 201, Florham Park, New Jersey 07932.
REASONS FOR THE SALE AND CONTACTS BETWEEN THE PARTIES
For the fiscal years ended December 31, 1996 and December 31, 1995,
revenues of the Company were approximately $5,800,000 and $8,200,000,
respectively, while the Company reported after-tax losses of $282,000 and
$1,274,000 for the same periods. Substantially all of the Company's revenues
were derived from the Dialysis Business for these years. The Company attributes
the decline in revenues primarily to a decline in the number of patients treated
by the Company. The Company's patient base declined from approximately 200
patients to approximately 141 patients to approximately 109 patients as of
January 1995, 1996 and 1997, respectively. The monthly total of treatments
provided to hospital patients pursuant to agreements between the Company and
hospitals varied substantially month to month, ranging from a low of
approximately 2 patient equivalents to a high of approximately 9 patient
equivalents during 1995 and 1996. Patient equivalents are computed by dividing
the aggregate number of monthly acute treatments provided by the Company by 13,
the average number of treatments per month generally administered to a patient
receiving hemodialysis. The Company transferred the right to provide services to
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<PAGE>
approximately 15 patients as a result of its sale of certain southern New Jersey
based assets to RTC Supply, Inc. and approximately 35 patients in connection
with the sale of its Cape May Courthouse facility to Renal Treatment Centers of
New Jersey, Inc. ("RTC-NJ") in March 1996. However, the Company believes that
the initial decline in its patient base was, and the Company's current inability
to increase its patient base is, attributable primarily to changes in
governmental regulation of Company-physician relationships which restrict
certain referral arrangements with physicians, as well as the on-going
consolidation occurring in the dialysis treatment business among competitors of
the Company, most of whom have substantially greater financial resources than
the Company. In addition, the failure of the Company's Consulting Customers to
become profitable as quickly as initially expected by the Company has had an
adverse affect on the Company.
In early 1995, the Company decided to expand its business through one
or more mergers with competitors of the Company and with companies engaged in
businesses complimentary to that conducted by the Company. In April 1995, the
Company entered into a merger agreement with International Nursing Services,
Inc. in Denver, Colorado which was terminated by the Company in June 1995.
Thereafter, during 1995 and 1996, the Company actively sought merger partners
engaged in the dialysis business. The discussions led to the sale to RTC-NJ of
the Company's in-center dialysis facility in Cape May Court House, New Jersey
and the Company's rights to service certain patients in the southern New Jersey
area in March, 1996. Although the Company engaged in preliminary discussions
with a variety of dialysis-based companies and entered into substantive
negotiations with other dialysis-based companies, none of the discussions or
negotiations resulted in the execution of a merger or other agreement.
In February 1995, Mr. S. Trenk approached Nelson Shaller, the holder of
all of the outstanding common stock of IHS in order to determine if Mr. Shaller
was interested in merging his affiliated health care companies with and into the
Company. Although Mr. Shaller was not then interested in such a transaction, in
April 1996, IHS approached the Company to discuss buying certain specified
assets of the Company's Consulting Customers. The Company declined to enter into
an agreement with IHS at that time. Management of the Company later contacted
Mr. Shaller and proposed a merger between the Company and International Health
Specialists, Inc., a healthcare company affiliated with IHS. The parties
commenced preliminary negotiations which resulted in the execution of a letter
of intent in January 1997. Thereafter, the parties continued negotiations
culminating in the execution of the Purchase Agreement on February 12, 1997.
SUMMARY OF THE AGREEMENTS
THE PARTIES
The Company and its subsidiaries Continental Dialysis, Inc., Choice Care,
Inc., Choice Staffing, Inc., Choice Care Infusion Services, Inc. (Delaware),
Continental Dialysis of Linden, Inc. and Choice Care Infusion Services, Inc.
(New York) and Dialysis Staffing, Inc. (collectively, "Company Sellers") are
parties to the Purchase Agreement as sellers. Continental Dialysis Center of the
Bronx, Inc. ("CDBI") and Alpha Administration Corp. ("Alpha"), each of which are
Consulting Customers and each of which are wholly-owned by some or all of Alvin
S. Trenk, Steven L. Trenk and Martin G. Jacobs, M.D., the Company's Chairman and
Chief Executive Officer,
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<PAGE>
President and Chief Operating Officer and Corporate Medical Director,
respectively (collectively, "Certain Executive Officers") are also parties to
the Purchase Agreement as sellers. In addition, Certain Executive Officers who,
in the aggregate own 50% of the outstanding common stock of the Upper Manhattan
Dialysis Center, Inc. ("UMDC") have agreed to use their respective reasonable
best efforts to obtain the approval of the Purchase Agreement by UMDC's board of
directors and shareholders and to vote the shares of UMDC common stock held by
them in favor of such approval. The Certain Executive Officers have also granted
an option to IHS, subject to the terms of a shareholders agreement among UMDC
and its shareholders, to acquire all of the shares held by them for a price of
$1,000,000 (the "UMDC Option"). The UMDC Option may be exercised only upon the
purchase of all amounts due to the Company and its subsidiaries from UMDC and
the remaining physician shareholders, together with the payment in full of
existing bank loans to UMDC which is guaranteed by the Company and certain
officers of the Company or the release of the guarantees and of security
deposits previously made by the Company in respect of the UMDC bank loans. No
assurance can be given that the shareholders of UMDC who are not affiliated with
the Company will vote in favor of the Transaction or consent to the exercise of
the UMDC Option. The failure of such unaffiliated shareholders to approve the
Transaction and/or the exercise of the UMDC Option could cause IHS to terminate
the Agreement. The Company Sellers, CDBI, Alpha and UMDC are referred to
collectively in the Purchase Agreement and in this Proxy Statement as the
"Sellers".
The Purchase Agreement was executed by IHS as the Buyer. In addition,
International Health Specialists, Inc., an affiliate of IHS, executed a guaranty
of all obligations of IHS to close the transactions contemplated by the Purchase
Agreement and to pay the purchase price.
TERMS OF THE PURCHASE AGREEMENT
Under the terms of the Purchase Agreement, the Sellers have jointly and
severally agreed to sell to IHS all of the tangible and intangible assets,
business and properties owned by the Sellers, and/or utilized or otherwise
connected with the operation of the "Facilities" and the "Business." As used in
the Purchase Agreement and in this Proxy Statement, the term "Facilities"
includes the hemodialysis, peritoneal dialysis and acute care dialysis
facilities operated by the Sellers and identified in the Agreement and the term
"Business" includes the operation of the Facilities, and other fee-based
dialysis nursing services and equipment services provided to the Facilities and
other third parties, including all nursing services, employment agencies and
other programs and activities relating to the provision of dialysis services. As
used in the Purchase Agreement, the term "Assets" includes, without limitation,
all right, title and interest in and to furniture, fixtures, equipment,
vehicles, real and personal property, inventories, disposables, medical
supplies, warranties and service contracts relating to the transferred assets,
contracts for services and products, goodwill, prepaid expenses, transferrable
licenses, deposits, and all other tangible and intangible property used by any
Seller in or otherwise directly connected with providing services in connection
with the Business.
Certain assets are excluded from the Transaction. These assets include
cash, cash equivalents, accounts receivable, and other related assets, as well
as executory contracts and other agreements which are not specifically assumed
by IHS. In addition, the names "Continental Choice
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<PAGE>
Care, Inc.," "Renal Management, Inc." and substantially similar names, as well
as the assets of the Company used in administration, collections, accounting and
legal functions and the assets of RMI are excluded from the assets being
transferred to IHS. The Sellers will retain all liabilities not specifically
assumed by IHS other than executory contracts relating to the provision of
dialysis services.
PURCHASE PRICE
The purchase price for the assets, including the assets of the
Consulting Customers, is $13,120,000. The purchase price may be reduced by the
amount of liabilities assumed by IHS or encumbering Assets acquired by IHS. In
addition, in the event IHS exercises the UMDC Option, the Purchase Price shall
be reduced by $5,750,000. In the event IHS agrees to waive its condition
precedent that the assets of UMDC be included in the Assets, as to which no
assurance can be given, the Company may determine to proceed with the
Transaction at a reduced Purchase Price. $1,000,000 of the Purchase Price will
be placed in escrow pursuant to an escrow agreement to secure the indemnity
obligations of the Sellers to IHS under the terms of the Purchase Agreement.
The Purchase Price will be adjusted dollar for dollar for any
liabilities which are assumed by IHS other than real estate lease obligations.
Certain liabilities of the Sellers which remain outstanding as of the closing of
the Transaction may be placed in escrow by the Sellers or paid as of the
closing. See "The Transaction-Related Agreements."
ADDITIONAL AGREEMENTS
The Purchase Agreement contains certain additional agreements to be
performed by the Sellers and IHS, the additional agreements include, without
limitation, the following:
The Sellers have agreed that, until the earlier of the Closing or the
termination of the Purchase Agreement, no Seller shall, directly or indirectly
(i) solicit or encourage submissions of proposals or offers to acquire any of
the Facilities or (ii) unless advised in writing by outside legal counsel that
failure to do so would constitute a breach of a fiduciary duty, participate in
any discussion or negotiations regarding any proposal or offer to acquire the
Facilities, furnish information with respect to the acquisition of the
Facilities to any person other than IHS or cooperate in any way with, or assist
or participate in any proposal or offer from any person to acquire the
Facilities. The Purchase Agreement also requires the Company to prepare, file
and deliver this proxy statement and to promptly hold the Meeting for the
purpose of voting on the Purchase Agreement. The Purchase Agreement also
requires the Board of Directors to recommend that the shareholders adopt and
approve the Purchase Agreement unless the Board receives an opinion of legal
counsel that to do so would constitute a breach of the Board's fiduciary duties.
REPRESENTATIONS AND WARRANTIES
The Purchase Agreement contains various representations and warrantees
of IHS and each of the Sellers. The representations and warrantees of IHS relate
to: (i) IHS's corporate organization existence and good standing, authorization
of the Purchase Agreement, the Transaction and the
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<PAGE>
related agreements in the Purchase Agreement; (ii) the financial resources of
IHS necessary to consummate the Transaction and the obligation of IHS to deliver
to the Sellers a letter from International Health Specialists, Inc. confirming
the representation of IHS; and (iii) IHS's ability to secure governmental
authorizations, permits and licenses required in connection with the
Transaction.
The representations and warrantees of the Sellers relate to, among other
things, the following: (i) the Sellers's corporate organization, existence, good
standing, ownership of other business entities, the due authorization of the
Purchase Agreement, related agreements referred to in the Purchase Agreement and
the Transactions and matters relating to consents; (ii) accuracy and
completeness of various financial reports of the Sellers; (iii) confirmation of
the existence of the Assets being transferred, and lack of liens and
encumbrances thereon, except for permitted liens and those being assumed by IHS,
and the condition and use of the Assets; (iv) the identity of and information
concerning employees; (v) the condition and quantity of inventory; (vi) the
agreement of the Sellers to conduct business only in the ordinary course through
the date of Closing, and to refrain from selling Assets or incurring liens or
obligations; (vii) the Sellers' operation of the business in compliance with
applicable laws, lack of governmental proceedings against the Business,
existence of all appropriate permits, licenses and approvals necessary to
operate the Business, and lack of any activity, action or proceeding which would
cause revocation or suspension of any license of IHS following the Closing;
(viii) disclosures relating to actions, suits, proceedings or investigations
with respect to any Seller or the Transaction; (ix) the absence of certain
undisclosed disputes, losses of contract rights or events resulting in material
adverse changes in the Businesses or condition of the Sellers and lack of loss
of customers, suppliers or employees of the Sellers, in each case having a
material adverse effect on the Business or its future; (x) the filing of all tax
returns and lack of pending tax auditor controversies; (xi) the identification
and status of material agreements; (xii) Medicaid and Medicare certifications,
deficiencies identified by certain governmental agencies and lack of violation
of conditions and standards required for Medicaid and Medicare reimbursement
which would adversely affect the Assets or the Business following the Closing;
(xiii) the lack of misleading statements by the Sellers; (xiv) the existence and
status of insurance coverage; (xv) the identification of patients served by the
Sellers; and (xvi) the identification of physicians attending or admitting
patients to the Facilities.
BUYER'S CONDITIONS
The obligations of IHS to consummate the closing of the Transaction are
subject to certain conditions including, but not limited to, (i) performance by
the Sellers of the terms, covenants and conditions of the Purchase Agreement and
the truthfulness of all representations and warrantees of the Sellers when made
and as of Closing; (ii) assignment of all contracts assumed by IHS; (iii)
receipt of all requisite consents and approvals from creditors, lessors and
other persons with respect to contracts being assigned to IHS; (iv) receipt of
an opinion of Sellers' legal counsel; (v) completion of the acquisition of the
assets of the South Bronx Kidney Center by Alpha; (vi) receipt of all
governmental approvals; (vii) ratification of Purchase Agreement and the
Transaction by the Board of Directors and shareholders of the Company at the
Meeting; (viii) execution and delivery by the Company of the Consulting
Agreement, as hereinafter defined, and execution and delivery of the
Non-Competition Agreement, as hereinafter defined; (ix) provision by the Sellers
for continued
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coverage under the Sellers' current policies of liability insurance for five
years; (x) termination of all Sellers' employees at the Facilities and retention
of those employees by IHS, payment of all accrued salaries and other benefits to
terminated employees and partial termination of employee benefit plans; (xi)
licensure of IHS to operate the Facilities and the Business in the States of New
York, New Jersey and Connecticut and receipt by IHS of all other necessary
accreditations, authorizations, consents and approvals; and (xii) IHS shall have
entered into agreements with nephrologists to act as medical directors of each
of the Facilities.
Similarly, the obligations of the Sellers to close the Transactions are
subject to certain conditions including, without limitation, the following: (i)
performance by IHS of the terms, covenants and conditions of the Purchase
Agreement and the truthfulness of all representations and warrantees of IHS when
made and as of Closing; (ii) assumption by IHS of all obligations under all
contracts IHS agrees to assume under the Purchase Agreement; (iii) delivery of
an opinion of IHS's legal counsel; (iv) ratification of the Purchase Agreement
and the Transaction by the Board of Directors and shareholders of Company at the
Meeting; (v) execution and delivery by IHS of the Consulting Agreement, as
hereinafter defined; (vi) execution and delivery by UMDC of the Purchase
Agreement or execution of the UMDC Option; and (vii) receipt of all applicable
governmental approvals.
INDEMNIFICATIONS
The Sellers indemnify IHS and IHS indemnifies the Sellers for losses,
liabilities or expenses, including reasonable attorney's fees, resulting from
any material misrepresentations made in the Purchase Agreement or any related
agreements, any related schedules, exhibits and other documents and for material
breaches of warrantees or covenants. In addition, the Company indemnifies IHS
for expenses, costs and liabilities that may arise under the Bulk Sales Acts of
New York, New Jersey or Connecticut, if applicable. The indemnification
obligations of the Sellers are secured pursuant to the terms of the Escrow
Agreement. See "The Transaction-The Related Agreements."
TERMINATION; BREAK-UP FEE
The Agreement may be terminated at any time prior to the Closing by the
mutual written consent of each of the parties and may be terminated by either
party if all governmental consents to the Transaction have not been obtained on
or before August 31, 1997 if the terminating party has used its reasonable best
efforts to obtain the requisite approvals and licences, provided that the
parties may mutually agree to extend such date.
IHS may terminate the Agreement prior to the Closing date if (i) any
Seller has breached any representation, warrantee or covenant in the Purchase
Agreement in any material respect, (ii) if IHS shall determine that the
Transaction has become inadvisable or impracticable by reason of the institution
or threat by governmental authorities or private persons of material litigation
or proceedings against any of the parties to the Purchase Agreement or any
entities affiliated with such parties which pertains to or affects the
Transaction or the business, assets or financial condition of any Seller,
individually or in the aggregate, has been materially and adversely affected,
whether by reason of changes or developments or operations in the ordinary
course of business since December
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31, 1996 or (iii) if the Closing does not occur on or before September 30, 1997
and the failure to close relates to conditions not met by the Sellers.
The Sellers may terminate the Purchase Agreement at any time prior to
or at the Closing if (i) IHS has breached any representation, warrantee or
covenant contained in the Purchase Agreement in any material respect, (ii) the
Transactions become inadvisable or impracticable by reason of the institution or
threat by any governmental authority or any private person or entity of material
litigation or proceedings against any of the parties of the Purchase Agreement
or any entities affiliated with such parties pertaining to or affecting the
Transaction, or (iii) if the Closing shall not have occured on or before
September 30, 1997 and the failure to close relates to conditions not met by
IHS. In the event an act, omission or breach giving rise to a right to teminate
may be cured, the breaching party will be given thirty days to cure the breach
and the Closing of the Transaction will be extended during the thirty day cure
period.
If IHS is not in material breach of its obligation under the Purchase
Agreement, and IHS terminates the Agreement as a result of a breach of the
Sellers, of their representations, warrantees or covenants or if any party
terminates the Purchase Agreement because the Purchase Agreement is not adopted
by the shareholders at the Meeting or the Meeting does not occur, and, within
eighteen months following termination of the Agreement the Sellers enter into a
definitive agreement for the acquisition of all or substantially all of the
equity or assets of the Sellers, other than with IHS or its affiliates, at a
purchase price in excess of the Purchase Price, the Company is obligated to pay
a "break-up" fee of $500,000 to IHS.
RELATED AGREEMENTS
In addition to the Purchase Agreements, certain of the parties have
entered into four additional agreements (the "Related Agreements"). The Related
Agreements include the Non- Competition Agreement, the Consulting Agreement, the
Escrow Agreement and the Obligation Escrow Agreement. The Non-Competition
Agreement is to be entered into among IHS, the Sellers and Certain Executive
Officers. Under the terms of the Non-Competition Agreement, each of the Sellers
has agreed not to compete with any dialysis or nursing - related business of IHS
within fifty miles of any such business conducted by IHS in the states of New
Jersey, New York or Connecticut for a period of five years following the
closing. The Disease State Management and Physiscian Practice Management
businesses proposed to be conducted by RMI are excluded from the provisions of
the Non-Competition Agreement, as is the private practice of medicine, and
certain other businsesses currently practiced or conducted by Martin G. Jacobs,
MD, a director and the Corporate Medical Director of the Company. Under the
terms of the Consulting Agreement, the Company has agreed to provide the
consulting services of Certain Executive Officers to IHS for a period of three
years in exchange for aggregate payments of $1,000,000 from IHS to the Company
payable over the three year term of the Consulting Agreement. The Consulting
Agreement may be terminated by IHS in the event the Company is unable to provide
the services of two or more of the Certain Executive Officers or upon a breach
of the Company or the Certain Executive Officers of the terms of the Consulting
Agreement. The Company is entitled to terminate the Consulting Agreement and IHS
is thereafter relieved of its obligation to make payments under the Consulting
Agreement. IHS may terminate the Consulting Agreement at any time on 90 days'
notice, provided that thereafter IHS is required to continue making payments to
the Company in accordance with the Agreement. The
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Consulting Agreement also contains a covenant not to compete, which is
substantially identical to that which is contained in the Non-Competition
Agreement.
The Escrow Agreement and the Obligation Escrow Agreement will be
entered into among the Sellers, IHS and Crummy, Del Deo, Dolan, Griffinger &
Vecchione, an outside legal counsel to the Company, as escrow agent. Under the
terms of the Escrow agreement, $1,000,000 of the Purchase Price will be placed
into an escrow fund to provide security for the Sellers' potential obligations
to IHS under the indemnification provisions of the Purchase Agreement. The
portion of the Purchase Price remaining in escrow shall be reduced to a balance
of $500,000 plus the amount of pending claims made by IHS as of the sixth month
following the date of the closing and a balance of $250,000 plus the amount of
pending claims made by IHS as of the twelfth month following the date of the
escrow. Any amount remaining in the escrow fund in excess of claims made by
IHS will, eighteen months following the closing, be released to the Company.
Under the terms of the Obligation Escrow Agreement, as of the date of Closing,
the Company is entitled to place into escrow an amount equal to all
capitalized lease and other obligations constituting a lien against
the Assets which the Company chooses not to satisfy at or before Closing.
Following the Closing, the Company is required to pay or settle the outstanding
obligations, for which it will use the escrowed funds. To the extent that the
Company settles the outstanding obligations for an amount less than the face
value of the obligations, and money remains in the escrow at the end of the
sixth month following the Closing, the Company shall be entitled to the amount
remaining in the escrow.
CONDUCT OF THE COMPANY'S BUSINESS FOLLOWING THE CLOSING.
The Company currently intends to continue and may expand the operations
of RMI. However, from inception, RMI has been engaged primarily in forming a
network of providers, exploring financing alternatives and marketing its
business. To date, RMI has not entered into any agreements with customers or
recognized any income from providing management services to any third parties.
The Company does not intend to use any substantial portion of the proceeds from
the Transaction to provide funding for RMI. The Company currently intends to
rely substantially on third party financing to operate RMI. No assurance can be
given that any such financing will be available or, if available, will be
available on terms acceptable to the Company or RMI. Although the Board of
Directors of the Company is currently investigating prospective merger and
acquisition candidates, the Board has not determined the specific application of
the proceeds from the Transaction and does not intend to do so until after the
Transaction has been consummated. The Board does not currently intend to
distribute the proceeds of the Transaction to the Company's shareholders.
However, the uses of the proceeds from the Transaction, if consummated, that may
be considered by the Board include the development, acquisition and/or
investment in or merger with new or existing businesses, distributions to the
Company's shareholders, repurchases of the Company's securities and general
business purposes. Such activities could include the acquisition of an entire
company or companies, or divisions thereof, either through a merger or a
purchase of assets, as well as an investment in the securities of a company or
companies or, alternatively, a combination with another business in which the
Company would not be the surviving corporation. The Company has not entered into
any substantive negotiations concerning such acquisitions or investments. There
can be no assurance that the Company will be successful in such efforts, and
redeployment of the Company's assets into new investments and businesses entails
risk to the shareholders. Although the Company does not presently intend to
spend in excess of the net cash
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proceeds of the Transaction, if any, available to it for such acquisitions or
investments, it is possible that future transactions could require additional
funds. Sources of such funds could include bank and other third party borrowings
or the sale of debt or equity securities. There can be no assurance that the
Company would be successful in obtaining any required additional funds.
FEDERAL INCOME TAX CONSEQUENCES
The Transaction will result in a taxable disposition of the assets of
the Sellers for federal income tax purposes. The Company will recognize gain
measured by the difference, if any, between the amount of Purchase Price
allocated to those Assets sold by the Company and its subsidiaries and
the Company's or subsidiaries' adjusted tax basis in such Assets. In addition,
the Company and its subsidiaries will recognize income to the extent prior
period consulting and administrative fees are paid by the Consulting
Customers.The Company currently estimates that, for federal tax purposes,
approximately $1,250,000 of taxable gain will be offset by the net operating
loss carried forward from the operations of the Company and its subsidiaries
from prior years. However, the amount of such gain has not yet been fully
determined. The amount of gain may vary based upon whether the portion of the
Transaction relating to UMDC is consummated as a sale of the assets of UMDC or
as a sale of 50% of the shares of UMDC from Certain Executive Officers to IHS.
The consummation of the Transaction is not expected to have any tax effect on
the shareholders of the Company.
Section 541 of the Internal Revenue Code of 1986, as amended (the
"IRC") subjects a corporation which is a "personal holding company," as defined
in the IRC, to a 39.6% penalty tax on undistributed personal holding company
income in addition to the corporation's normal income tax. In order to be deemed
a "personal holding company" under the IRC, a corporation must have personal
holding company income of at least 60% of its adjusted ordinary gross income and
more than 50% of its stock must be owned, directly or indirectly by five or
fewer individuals. Personal holding company income is composed primarily of
passive investment income plus, in certain events, personal service income. Due
to the fact that more than 50% of the stock of the Company, as computed in
accordance with the IRC, may be held by fewer than five individuals, and due to
the fact that more than 60% of the Company's adjusted ordinary gross income may
be composed primarily of passive investment income and personal service income
for some period of time following the Closing, the Company may be subject to the
penalty tax imposed by Section 541 of the IRC with respect to any net income it
may have following the Closing. The Company does not expect to have a
substantial net income during the fiscal year ended December 31, 1997. Further,
the penalty tax does not apply to dividends or interest derived from certain
tax-free securities in which the Company may invest, nor does it apply to net
income distributed by the Company to its shareholders. However, the Company may
nonetheless be subject to the penalty tax. The Company does not currently intend
to distribute its net income to the shareholders of the Company, nor does it
currently intend to limit its investments to tax free securities. No assurance
can be given that the net income, if any, of the Company following the Closing
of the Transaction will not be subject to the penalty imposed by Section 541 of
the IRC.
OPINION OF INVESTMENT BANKERS
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The terms of the Transaction were determined as a result of
arm's-length negotiations between the Company and IHS. During the course of such
negotiations, the Company retained Josephthal Lyon & Ross, Incorporated
("Josephthal") to consider the fairness of the Transaction from a financial
point of view. Josephthal did not participate in such negotiations or make
specific recommendations as to the consideration to be paid by IHS. Josephthal
and the employees of Josephthal involved in the analysis of the Transaction are
regularly engaged in the valuation of companies at a stage of development
similar to the Company's in connection with mergers and acquisitions, negotiated
underwritings and valuations for corporate and other purposes. The Company
retained Josephthal, based, in part, on this expertise and upon its knowledge of
health care businesses and the participants in such businesses.
Josephthal has delivered to the Board of Directors of the Company an
opinion stating that the consideration to be paid in the Transaction is fair to
the current holders of the Company's common stock from a financial point of
view. Such opinion is based on a review and analysis by Josephthal of material
bearing upon the financial and operating conditions of the Company and the
assets being sold and material prepared in connection with the Transaction. In
addition, Josephthal met with certain senior officers of the Company to discuss
the prospects for the Company's business, their estimates of the Company's
future financial performance and other matters that Josephthal believed
relevant. A copy of Josephthal's opinion is attached to this proxy statement as
Appendix B.
As compensation for the preparation and delivery of its opinion,
Josephthal will receive an aggregate fee of $125,000. In connection with its
prior representation of the Company, Josephthal and its affiliates were granted
warrants to purchase up to 100,000 shares of the Company's common stock at an
exercise price of $3.00 per share.
RECOMMENDATION OF THE BOARD OF DIRECTORS.
The Board of Directors of the Company has unanimously approved the
Transaction and believes that the consummation of the Transaction is in the best
interests of the Company and the shareholders of the Company. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY VOTE IN
FAVOR OF APPROVAL OF THE PURCHASE AGREEMENT AND THE TRANSACTION. The
recommendation of the Board of Directors is based on a variety of factors,
including those discussed in the section of this Proxy Statement entitled "The
Transaction-Reasons for the Sale and Contacts between the Parties."
DISSENTER'S RIGHTS
Shareholders of the Company have the right to dissent from the
Transaction pursuant to the provisions of Section 14A:11-1 et seq. ("Chapter
11") of the New Jersey Business Corporation Act ("NJBCA").
Chapter 11 of the NJBCA sets forth the procedures to be followed by a
shareholder in order to exercise his dissenter's rights. The following brief
summary does not purport to be a
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complete statement of the provisions of Chapter 11 and is qualified in its
entirety by reference to the text of Chapter 11 of the NJBCA.
A shareholder who intends to exercise dissenters' rights under New
Jersey law must file a written notice of dissent with the Company at Suite 201,
25-B Vreeland Road, Florham Park, N.J. 07932, Attention: President, stating that
the shareholder intends to demand payment for his or her shares if the
Transaction is approved. Neither an abstention nor a vote against the proposed
sale of the Property will constitute such a notice. However, if the required
written notice is properly filed, failure to vote against the proposed sale of
the Property will not constitute a waiver of dissenter's rights. It is
recommended that any written objection which is mailed be sent by registered or
certified mail, "Return Receipt Requested." A STOCKHOLDER WILL LOSE HIS OR HER
RIGHT TO DISSENT IF HE OR SHE VOTES FOR THE PROPOSED SALE OF THE PROPERTY OR
CONSENTS IN WRITING TO THE PROPOSED SALE OF THE PROPERTY.
Within 10 days after the approval of the sale of the Property by the
stockholders of the Company, the Company will give written notice of such
favorable vote, by certified mail, to each stockholder who has duly filed a
written objection, at such holder's address as it appears on the books of the
Company, except any holder who voted "FOR" the sale of the Property or consented
in writing to the proposed sale of the Property.
Within 20 days after mailing such notice, any stockholder who filed a
written objection and who elects to dissent must file with the Company a written
demand for the payment of the fair value of his or her shares. For the
convenience of the Company, such demand should be filed at 25-B Vreeland Road,
Suite 201, Florham Park, New Jersey, 07932, Attention: President, and should
state the holder's name and residence address and the number of shares as to
which he or she holds and a demand for payment of the fair value of his or her
shares. It is recommended that any such demand for payment which is mailed be
sent by registered or certified mail, "Return Receipt Requested".
A stockholder may not dissent as to less than all of the shares that he
or she owns beneficially, and with respect to which he or she has a right to
dissent. A nominee or fiduciary may not dissent on behalf of any beneficial
owner as to less than all of the shares of such beneficial owner, as to which
such nominee or fiduciary has a right to dissent, held of record by such nominee
or fiduciary.
Not later than 10 days after the expiration of the period within which
stockholders may make written demand to be paid the fair value of their shares
(the "10 Day Deadline"), the Company will mail to each dissenting stockholder
its most recent financial statements and may offer, but is not required, to pay
all dissenting stockholders a specified price per share. If the fair value of
the shares is not agreed upon within 30 days, a stockholder may make written
demand on the Company that it commence an action in the Superior Court of New
Jersey for a determination of the fair value of the shares. Such demand must be
made within 60 days after the 10 Day Deadline and such action will be commenced
by the Company within 30 days after receipt by the Company of such demand. If
the Company fails to commence an action, any dissenting stockholder may do so in
the name of the Company provided such action is brought
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not later than 60 days after the expiration of the time in which the Company was
to commence such proceeding. The court shall thereupon determine the fair value
of the shares and in connection therewith, may allow such interest on such
amount from the date demand was made until the date of payment as it finds to be
equitable. The court may also apportion and assess against dissenting
stockholders or the Company the costs and expenses of such proceeding.
ANY STOCKHOLDER WHO FAILS TO PROPERLY FILE A WRITTEN NOTICE OF DISSENT
OR WHO VOTES FOR THE PROPOSED SALE OF THE PROPERTY OR WHO FAILS TO PROPERLY MAKE
DEMAND FOR PAYMENT FROM THE PROPOSED SALE OF THE PROPERTY WILL LOSE HIS OR HER
RIGHT TO DISSENT. Furthermore, if no court petition demanding determination of
the fair value of the shares of dissenting holders is filed within the time
limits described above, all dissenting holders will lose their right to dissent
under Chapter 11. However, if any stockholder properly files such a petition,
the proceeding will be for the benefit of all stockholders who had duly elected
to dissent.
At the time of the filing of the demand for payment or within 20 days
thereafter, a dissenting stockholder must submit the certificate representing
his or her shares of common stock to the Company in order that there may be
conspicuously noted thereon that a demand for payment has been filed. After
notation, such certificates shall be returned to the stockholder or other person
who submitted them on his behalf. Any stockholder who fails to submit his or her
certificate for such notation may lose his or her right to dissent. A dissenting
stockholder may withdraw his election to dissent with the consent of the
Company. The right of a dissenting stockholder who has complied with the
required procedures to receive payment of the fair value of his or her shares is
exclusive of any other right which he may have as a stockholder, except as
otherwise provided by New Jersey common law.
CERTAIN POST CLOSING RISKS
POTENTIAL DELISTING OF SECURITIES
The Nasdaq Stock Market, Inc. ("Nasdaq") has advised the Company that
Nasdaq is likely to seek a delisting of the Company's securities from trading in
the event the Company is a "public shell" following the closing of the
Transaction. The term public "shell generally" includes a company whose
securities are publicly traded but which conducts no substantial operating
business. No assurance can be given that Nasdaq will not determine that the
Company constitutes a "public shell" following the closing of the Transaction.
In the event the Company's securities are delisted and the Company thereafter
ceases to be a "blind pool," the Company may reapply to have its securities
relisted for trading. However, it is the position of Nasdaq that the Company
will have to meet the original listing requirements for trading, as opposed to
the continuing listing requirements for trading, under which the Company's
securities currently trade. The original listing requirements are more stringent
than those for continued listing under both current and proposed Nasdaq listing
requirements. No assurance can be given that the Company will cease to meet the
definition of a "public shell" following the Closing of the Transaction, that
the Company will apply for the relisting of its securities for trading on or
that, if the Company does so apply, that it will be able to meet the original
listing requirements.
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INVESTMENT COMPANY ACT CONSIDERATIONS
The Investment Company act of 1940, as amended ("1940 Act"), requires
the registration of, and imposes various substantive restrictions on, certain
companies that engage primarily, or propose to engage primarily, in the business
of investing, reinvesting, or trading in securities, or that fail certain
statistical tests regarding the composition of assets and sources of income, and
are not primarily engaged in businesses other than investing, holding, owning or
trading securities. The Company intends to engage in businesses other than
investing, reinvesting, owning, holding or trading in securities within one year
following the closing of the Transaction. The Company will seek to invest
temporarily the proceeds of the Transaction and to utilize the proceeds in a
manner so as to avoid becoming subject to the registration requirements of the
1940 Act. Such investment is likely to result in the Company obtaining lower
yields on the funds invested than might be available in the securtites market
generally. There can be no assurance that such investments and utilization can
be made. If the Company were required to register as an investment company under
the 1940 Act, it would become subject to substantial regulation with
respect to its capital structure, management, operations, transactions with
affiliates, and other matters.
MARKET FOR COMPANY COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The Company's common stock (CCCI) and the Company's Common Stock
Purchase Warrants (CCCIW) and the Company's units, each comprised of one share
of Common Stock and one Common Stock Purchase Warrant, (CCCIU) are traded in the
NASDAQ national market system. There are approximately 19 holders of record of
the Company's common stock as of February 25, 1997. The following table sets
forth the closing high and low bids for each of the securities for each quarter
since following the quarter ended June 30, 1995. The figures set forth below
were obtained from the National Association of Securities Dealers (NASD)
"Monthly Statistical Report".
COMMON STOCK WARRANTS UNITS
THREE MONTHS ENDED (CCCI) (CCCIW) (CCCIU)
High Low High Low High Low
December 31, 1996 3-3/8 1-7/16 11/32 3/16 3-3/8 1-3/8
September 30, 1996 4 2 1/2 1/4 4-1/8 2-1/16
June 30, 1996 4-1/8 3-7/8 1/2 3/8 4-1/2 4-1/8
March 31, 1996 4-1/8 3-1/4 1/2 1/4 4-1/2 3-1/2
December 31, 1995 5 3-1/4 3/4 1/4 5-3/4 3-1/2
September 30, 1995 5-1/2 4-1/2 1 3/8 6 5
As of February 12, 1997, the date immediately prior to the public
announcement of the execution of the Purchase Agreement, the average of the high
and low bid prices for the Company's common stock, common stock purchase
warrants and units were $1.38, $0.14 and $1.31 respectively. As of February 26,
1997, the average of the high and low bid prices of the Company's common stock,
common stock purchase warrants and units were $1.50, $0.12 and
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$1.62 respectively. The prices shown reflect interdealer quotations without
adjustment for retail mark-up, mark-down or commission and may not represent
actual transactions. The Company has paid no cash or stock dividends since its
inception. The Company's securities are subject to delisting from trading by
NASDAQ in the event the Transaction is consummated. See "The Transaction -
Certain Post - Closing Risks".
As of October 3, 1996, the Company issued warrants (the "Josephthal
Warrant") to purchase up to 100,000 shares of Common Stock to Josephthal and to
certain of its officers. The Josephthal Warrants are exercisable during the
period ending September 30, 2001 at a price of $3.00 per share of Common Stock.
Holders of the Josephthal Warrants are entitled to certain "piggy back"
registration rights with respect to the Common Stock underlying the Josephthal
Warrant.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 1996 and the Unaudited Pro Forma Condensed
Consolidated Balance Sheet as of December 31, 1996 have been prepared to
illustrate the estimated effects of the sale of substantially all of the assets
of the Company and certain of its subsidiaries to IHS pursuant to the Purchase
Agreement. The Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1996 was prepared as if the
Transaction was effective as of January 1, 1996. The Unaudited Pro Forma
Condensed Consolidated Balance Sheet was prepared as if the Transaction was
effective December 31, 1996. The Unaudited Pro Forma Financial Statements do not
purport to represent what the Company's financial position or results of
operations would actually have been if such Transaction had in fact occurred on
such dates. The Unaudited Pro Forma Condensed Consolidated Financial Statements
also do not purport to project the financial position or results of operations
of the Company as of any future date or for any future period.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations
includes the historical sales and costs of the Company adjusted for the effects
of the Transaction.
The pro forma financial information should be read in conjunction with
the Company's consolidated financial statements and the related notes appearing
in the Company's Annual Report accompanying this Proxy.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS TOTAL
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash, including restricted cash of
$200,000...................................... $1,418,054 $8,126,722 (1) $9,544,776
Accounts receivable, net........................... 989,363 1,000,000 (1) 1,989,363
Supplies inventories............................... 52,028 (52,028) (2) 0
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PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS TOTAL
Deferred tax asset................................. 125,000 (125,000) (3) 0
Other current assets............................... 129,163 129,163
----------- ------------------- --------------
Total current assets.......................... 2,713,608 8,949,694 11,663,302
Amounts due from affiliates........................ 779,273 (622,405) (1) 156,868
Amounts due from consulting customers.............. 2,872,468 (2,872,468) (1) 0
Property and equipment, net........................ 691,237 (574,486) (2) 116,751
Other assets....................................... 57,907 (6,906) (2) 51,001
-------------- -------------- ----------------
$7,114,493 $4,873,429 $11,987,922
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................... $1,408,939 ($265,900) (2) $1,143,039
Accrued expenses................................... 611,344 611,344
Current portion of notes payable and
capital lease obligations..................... 57,643 (39,974) (2) 17,669
Income taxes payable............................... 48,939 2,100,000 (3) 2,148,939
-------------- ---------- --------------
Total current liabilities..................... 2,126,865 1,794,126 3,920,991
Notes payable and capital lease
obligations, less current portion............. 64,319 (64,319) (2) 0
-------------- ----------- -------------
2,191,184 1,729,807 3,920,991
------------- ------------ --------------
Stockholders' Equity:
Common stock....................................... 5,464,061 5,464,061
Paid-in capital.................................... 500 500
Retained earnings (accumulated deficit)............ (541,252) 3,143,622 (4) 2,602,370
----------- ------------ --------------
Total stockholders' equity......................... 4,923,309 3,143,622 8,066,931
------------ ----------- --------------
$7,114,493 $4,873,429 $11,987,922
</TABLE>
The accompanying Notes to Unaudited Pro Forma Condensed Consolidated
Balance Sheet are an integral part of this statement.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The Unaudited Pro Forma Condensed Consolidated Balance Sheet gives
effect to the sale of substantially all assets as if the Transaction had been
consummated on December 31, 1996. The following is a summary of adjustments
reflected in the Unaudited Pro Forma Condensed Consolidated Balance Sheet.
1. Represents cash to be received from sale of substantially all
Company-owned assets to IHS and repayments of amounts due from
affiliates and consulting customers from their share of the share of
the proceeds. Payments from affiliates and Consulting Customers are to
be made simultaneously with the closing of the Transaction. The pro
forma adjustment to Cash in the Pro Foma Condensed Consolidated Balance
Sheet reflects the balance of the $13,120,000 to be received in the
transaction after repayment of outstanding bank loans, equipment
leases, estimated costs of the transaction, and distrubutions primarliy
to the non-related owners of 50% of UMDC. The $1,000,000 of cash to be
placed in escrow at the closing is presented as an account receivable.
2. Represents assets sold to IHS and repayment of amounts owing on such
assets at time of closing.
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<PAGE>
3. Represents the estimated income tax liability arising from the sale of
assets at the statutory tax rate of 40%.
4. Represents the anticipated gain from the sale of assets to IHS and the
consulting fees due from Consulting Customers related to prior periods
to be paid at closing, net of income taxes.
-20-
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS TOTAL
<S> <C> <C> <C>
Net Patient Revenues............................... $5,751,896 $(5,415,292) (1) $336,604
Consulting fees.................................... 0 333,333 (2) 333,333
--------------- --------------- ---------
Total revenues and fees............................ 5,751,896 (5,081,959) 669,937
------------ -------------- ---------
Costs and Expenses:
Cost of sales................................. 2,181,807 (2,181,807) (1) 0
Provision for doubtful accounts............... 379,672 (379,672) (1) 0
Selling, general and administrative........... 5,183,414 (3,237,768) (1) 1,945,646
Depreciation and amortization................. 177,353 (160,553) (1) 16,800
Interest income, net.......................... (68,981) (68,981)
Total costs and expenses........................... 7,853,265 (5,959,800) 1,893,465
Loss from operations............................... (2,101,369) 877,841 (1,223,528)
Gain on sale of former New Jersey in-center
facility and certain other assets............. 1,749,080 (1,749,080) (3) 0
Loss before income taxes........................... (352,289) (871,239) (1,223,528)
Benefit for income taxes........................... (20,415) 20,415 (4) 0
--------------- --------------- --------------
Net loss........................................... ($331,874) ($ 891,654) ($1,223,528)
============= ============ ============
Net loss per share ($0.10) ($0.38)
======= =======
</TABLE>
The accompanying Notes to Unaudited Pro Forma Condensed Consolidated
Statement of Operations are an integral part of this statement.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
The Unaudited Pro Forma Condensed Consolidated Statement of Operations
has been prepared to reflect the sale of substantially all assets of the Company
as if the Transaction occurred on January 1, 1996. The following is a summary of
adjustments reflected in the Unaudited Pro Forma Condensed Consolidated
Statement of Operations.
1. Represents elimination of all revenues, costs and expenses related to
sold operations.
2. Represents first year consulting fee to be received from purchase
under contractual obligation.
3. Represents elimination of one-time gain on sale of certain assets in
March 1996.
4. Represents elimination of the tax benefit.
No effect has been given in the Unaudited Pro Forma Condensed
Consolidated Statement of Operations to interest income from investing of net
cash proceeds from the sale of assets. The
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<PAGE>
pro forma financial information presented above is presented to reflect the
Transaction as described herein. In the event that UMDC does not elect to sell
its assets, and IHS elects to exercise the UMDC Option whereby Certain Executive
Officers sell their 50% interest in UMDC to IHS, the pro forma operating results
would not change; however, the pro forma balance sheet would reflect
approximately $1,000,000 of additional cash and approximately $500,000 of
additional income taxes payable. Further, although not presently contemplated,
should the Company and IHS agree to complete the sale of assets by excluding
UMDC from the Transaction, the pro forma operating results would not change;
however, assuming a price reduction of $5,750,000, the pro forma balance sheet
would reflect approximately $2,700,000 less cash, amounts due from consulting
customers would increase approximately $1,500,000 and income taxes payable would
decrease by approximately $500,000.
PROPOSAL 2. ELECTION OF DIRECTORS.
The Company's Certificate of Incorporation requires that the Board of
Directors be divided into three classes. The members of each class of directors
serve for staggered three-year terms, including two Class I directors (Martin G.
Jacobs, M.D. and Jeffrey A. Claman), one Class II director (Steven L. Trenk) and
two Class III directors (Alvin S. Trenk and Jeffrey B. Mendell), each of whose
terms will expire upon the election of directors at the annual meeting of
shareholders to be held in 1997. If elected by a plurality vote of the holders
of the shares of Common Stock of the Company, the nominees for Class I
directors, Martin Jacobs, M.D. and Jeffrey A. Claman, will serve for a one year
term expiring in 1998 or until their respective successors are elected and
qualified, or until death, resignation or removal. The nominee for Class II
director, Steven L. Trenk, if elected by a plurality vote of the shareholders of
the Company, will serve for a two year term expiring in 1999 or until his
successor is elected and qualified, or until death, resignation or removal. The
nominees for Class III directors, Alvin S. Trenk and Jeffrey B. Mendell, will
serve for three year terms expiring in 2000 or until their respective successors
are elected and qualified, or until death, resignation or removal. Each of the
current directors holds office until the expiration of their respective terms
and until their respective successors are elected and qualified, or until death,
resignation or removal. Officers serve at the discretion of the Board of
Directors. Messrs. Alvin and Steven Trenk and Dr. Jacobs were elected as
directors in December 1993 and Messrs. Claman and Mendell were elected as
directors in June 1994.
Americorp Securities, Inc. and Royce Investment Group, Inc., the
underwriters in the Company's initial public offering of securities, are
entitled to appoint one individual to be nominated as a director of the Company.
To date, no such person has been appointed. At each annual meeting subsequent to
the Meeting, directors will be elected for a term of three years so that the
term of office of one class of directors shall expire each year.
The affirmative vote of the holders of a plurality of the shares of
Common Stock voted in person or by proxy at the Meeting is required for the
election of each director. Unless otherwise directed, each proxy executed and
returned by a shareholder will be voted for the election of Martin G. Jacobs,
M.D., Jeffrey A. Claman, Steven L. Trenk, Alvin S. Trenk and Jeffrey B. Mendell.
If Dr. Jacobs, Mr. Claman, Mr. S. Trenk, Mr. A. Trenk or Mr. Mendell becomes
unable
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<PAGE>
to serve or for good cause will not serve, an event that is not anticipated by
the Company, (i) the shares represented by the proxies will be voted for a
substitute nominee or substitute nominees designated by the Board of Directors
or (ii) the Board of Directors may determine to reduce the size of the Board of
Directors. At this time, the Board of Directors knows of no reason why Dr.
Jacobs, Mr. Claman or Mr. S. Trenk may not be able to serve as directors if
elected.
THE BOARD OF DIRECTORS RECOMMENDS THAT EACH OF THE ABOVE NOMINEES BE ELECTED AS
A DIRECTOR.
The name and age of each of the nominees and each of the incumbent
directors whose term will continue following the Meeting, the executive officers
and significant employees of the Company their respective positions with the
Company and, to the extent applicable, the period during which each such
individual has served as a director are set forth below. Additional biographical
information concerning each of the nominees, the incumbent directors, executive
officers and significant employees of the Company follows the table.
-23-
<PAGE>
NAME Age Position with the Company Director Since
Class I Directors
Martin G. Jacobs, M.D. 67 Director, Corporate Medical 1993
Director
Jeffrey A. Claman 55 Director 1994
CLASS II DIRECTORS
Steven L. Trenk 43 Director, President and Chief 1993
Operating Officer
CLASS III DIRECTORS
Alvin S. Trenk 67 Director, Chairman, Chief 1993
Executive Officer
Jeffrey B. Mendell 43 Director 1994
EXECUTIVE OFFICERS AND
SIGNIFICANT EMPLOYEES
Jeff Ellentuck 43 Executive VP and General
Counsel, Asst. Secretary
Ronald A. Lefkon 56 Chief Financial Officer and
Treasurer
CERTAIN BIOGRAPHICAL INFORMATION CONCERNING
INCUMBENT DIRECTORS AND EXECUTIVE OFFICERS
Alvin S. Trenk, a founder of TechTron and of the Company, has served as
Chairman of the Board of Directors of TechTron since prior to 1989. Mr. Trenk
has served as the Chairman, Chief Executive Officer and a director of each of
the Company's subsidiaries, other than LDL, since the formation of each
subsidiary and as Chairman, Chief Executive Officer and a Director of CDBI since
its formation. Since December 1993 he has served as Chairman and Chief Executive
Officer of Alpha. Mr. Trenk is also Chairman of the Board of UMDC. See "Certain
Transactions." Mr. Trenk has served as Chairman and Chief Executive Officer of
LDL since March 1994. Mr. Trenk also serves as Chairman, Chief Executive Officer
and a director of Trenk Enterprises, Inc. ("TEI"), which is wholly- owned by Mr.
Trenk and pursuant to which Mr. Trenk provides services to the Company. See
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<PAGE>
"Compensation Arrangements - Employment Agreements." In addition, Mr. Trenk is
an officer and director of various corporations engaged in the ownership and
development of real property and the operation of helicopter landing facilities,
helicopter charter, air taxi, sight seeing and tour operations, as well as other
activities.
Steven L. Trenk, a founder of the Company, served as Vice President for
Business Development of TechTron from 1987 through October 1991. Since October
1991, Mr. Trenk has served as the President of each of the Company's
subsidiaries, other than LDL and Renal Management, Inc., a newly formed
subsidiary, and, since December 1993, has served as the President of Alpha. Mr.
Trenk has served as the President of LDL since March 1994 and as the Vice
Chairman of RMI since its inception. Mr. Trenk is the Treasurer of UMDC. Mr.
Trenk also serves as the Vice President of Orange Y Associates, Inc., a real
estate development company.
Martin G. Jacobs, M.D., a founder of the Company, is a physician engaged in
the treatment of renal disease and hypertension. Dr. Jacobs has served as
President of Nephrological Associates, P.A., which he founded in 1964. Dr.
Jacobs has served as the Corporate Medical Director for TechTron since its
formation and for the Company since its formation.
Ronald A. Lefkon joined the Company as Chief Financial Officer in August
1994 and was appointed Treasurer of the Company in 1996. For eight years, prior
to joining the Company, Mr. Lefkon was an independent business consultant. Mr.
Lefkon is a certified public accountant and holds a Masters of Business
Administration from Columbia University.
Jeff Ellentuck joined the Company as Executive Vice President and General
Counsel in October 1994. Prior to joining the Company, Mr. Ellentuck was an
attorney with Crummy, Del Deo, Dolan, Griffinger & Vecchione, a law firm in
Newark, New Jersey, with whom he was associated from 1987. Mr. Ellentuck is
Executive Vice President, General Counsel and Secretary of Renal Management,
Inc., a subsidiary of the Company. Mr. Ellentuck also provides services to
certain businesses in which Alvin S. Trenk, Steven L. Trenk, Martin C. Jacobs,
M.D. and their families have interests. Prior to 1987, Mr. Ellentuck was
associated with other New Jersey based law firms.
Jeffrey A. Claman has been a managing partner of Cross Mill Associates, a
general partnership which owns and operates a shopping center/office complex
since 1985. Mr. Claman is also the President of Jacon, Inc., a privately wholly
owned corporation which manages real estate and provides consulting services.
Mr. Claman is also engaged in various other private investment and money
management activities. Mr. Claman holds a Masters of Business Administration
degree from New York University.
Jeffrey B. Mendell is an owner and Managing Director of G.S. Wilcox &
Co., LLC, a commercial mortgage banking company based in White Plains, New York,
a position he has held since September, 1996. In addition, Mr. Mendell is the
Chairman and Chief Executive Officer of JBM Realty Capital Corp. through which
he acts as principal in the acquisition and development of commercial real
estate. He was the president of National Realty & Development Corp., a privately
held corporation which owns and manages commercial real estate, from May 1992 to
August, 1996.
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<PAGE>
From June 1991 to April 1992, Mr. Mendell served as a Vice-President of Citicorp
Real Estate, a banking and real estate company. Mr. Mendell also participates in
various other business ventures.
Alvin S. Trenk is the father of Steven L. Trenk and the brother-in-law of
Martin G. Jacobs, M.D. Martin G. Jacobs, M.D. is the uncle of Steven L. Trenk.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who
beneficially own more than ten percent of a registered class of the Company's
equity securities, to file reports of ownership and changes in ownership with
the Securities and Exchange Commission and the Nasdaq. The Company is not aware
that any director, officer or 10% beneficial owner of the Company's Common Stock
failed to file reports during the year ended December 31, 1996.
MEETINGS OF THE BOARD AND COMMITTEES
During fiscal year 1996, the Board of Directors held three meetings and
acted by unanimous written consent on three other occasions. Each of the
directors attended all meetings of the Board of Directors and meetings held by
all committees of the Board of Directors of which each respective director was a
member during the time he was serving as such during the fiscal year ended
December 31, 1996.
The Board of Directors appointed a Compensation Committee and an Audit
Committee, both of which are comprised of Mr. Claman and Mr. Mendell. The
Compensation Committee provides recommendations concerning salaries and
incentive compensation for executive officers and key personnel, and administers
the Incentive Plan and will administer the 1997 Plan. The Compensation Committee
held one meeting during the fiscal year ended December 31, 1996. The Audit
Committee is responsible for recommending to the Board of Directors the
appointment of the Company's outside auditors, examining the results of audits
and reviewing internal accounting controls. The Audit Committee held two
meetings during the fiscal year ended December 31, 1996. The Board of Directors
has no nominating committee or any committee performing the functions of such a
committee.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company and its
subsidiaries for each of the fiscal years ended December 31, 1996, 1995, and
1994 of those persons who were, at December 31, 1996, (i) the chief executive
officer and (ii) the other two most highly compensated executive officers of the
Company for the fiscal year ended December 31, 1996 (the "named executive
officers"):
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<PAGE>
EXECUTIVE COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
Common
Name and Principal Position Stock
Other Annual Underlying All Other
Fiscal Year Salary Bonus Compensation Options(2) Compensation
<S> <C> <C> <C> <C> <C> <C>
Alvin S. Trenk (1) 1996 $241,800 0 0 0 0
Chairman of the Board and 1995 $230,000 0 0 0 0
Chief Executive Officer 1994 $321,817 0 0 0 0
Steven L. Trenk 1996 $120,000 0 0 25,000 0
President and Chief 1995 $133,846 0 0 0 0
Operating Officer 1994 $180,770 0 (3) 0 0
Jeff Ellentuck 1996 $117,385 0 0 25,000 0
Executive Vice President 1995 $104,077 0 0 10,000 0
and General Counsel 1994 $23,692 0 0 0 0
</TABLE>
- ----------------------
(1) Paid to TEI, a corporation wholly-owned by Alvin S. Trenk which provides
consulting services to the Company. See "Compensation Arrangements -
Employment Agreements."
(2) Does not include options granted in February 1997 pursuant to the 1997 Plan
which is subject to approval of the shareholders of the Company at the
Meeting. All listed options were repriced to $1.875 in February, 1997.
(3) In February 1994, TechTron, which holds approximately 47.5% of the
outstanding common stock of the Company, issued 529,291 of TechTron's
common stock to Steven L. Trenk to reflect the contribution of Mr. Trenk to
the business of TechTron and in consideration of services to TechTron. See
"Certain Transactions".
No named executive officer received personal benefits or perquisites during the
fiscal year ended December 31, 1996 in excess of the lesser of $50,000 or 10% of
his aggregate salary and bonus. See "Certain Transactions" for additional
information with respect to benefits received by certain members of management
of the Company.
DIRECTOR COMPENSATION
The non-employee directors of the Company receive compensation of
$1,000 per meeting of the Board of Directors attended and $500 for each meeting
of a committee of the Board of Directors which they attend as a committee
member. Directors are entitled to participate in the Companys' Director's Stock
Option Plan, described below, and received options to acquire an aggregate of
40,000 shares of Common Stock pursuant to the 1997 Plan.
COMPENSATION ARRANGEMENTS
EMPLOYMENT AGREEMENTS
The Company entered into a consulting agreement (the "TEI Agreement")
with TEI dated as of April 1, 1994. TEI is wholly-owned by Alvin S. Trenk. Under
the terms of the TEI Agreement, TEI agreed to make Mr. A. Trenk available to
serve as the Chairman of the Board and Chief Executive Officer of the Company,
to serve as Chairman of the Board, Chief Executive
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<PAGE>
Officer and director of any of the Company's subsidiaries and to serve as a
shareholder, officer and director of any entity to which the Company provides
services, equipment and supplies. Mr. A. Trenk is required to perform up to 750
hours of service per year. The TEI Agreement provides for payments by the
Company to TEI of a fee of $300,000 per year plus such cash bonuses as may be
determined by the Board of Directors.
The TEI Agreement has an initial term of five years which automatically
renews for an additional year on every anniversary date unless such renewal is
terminated by the Board of Directors in writing not less than 90 days prior to
the anniversary date or unless the TEI Agreement is otherwise terminated
pursuant to its terms. The Company has agreed to permit the employees of TEI to
participate in employee benefit plans established for senior management of the
Company. The Company has also agreed to make payments, not in excess of $1,500
per month, for an automobile for Mr. A. Trenk's use, to pay for $1,000,000 of
term life insurance for Mr. A. Trenk, the beneficiary of which will be the
Company, to pay for disability insurance for Mr. A. Trenk and to permit Mr. A.
Trenk to participate in stock option plans consistent with other members of
senior management of the Company. The TEI Agreement terminates upon the death of
Mr. A. Trenk and may be terminated by the Company upon his disability (as
defined in the TEI Agreement).
Steven L. Trenk entered into an employment agreement with the Company
dated as of April 1, 1994 providing for an annual base salary of $150,000 for
serving as President of the Company and its subsidiaries on an essentially
full-time basis. In addition, Mr. S. Trenk is entitled to receive an annual
bonus equal to 10% of the Company's pre-tax income in excess of the prior year's
pre-tax income, up to a maximum of $100,000 per annum. The agreement has an
initial term of five years and renews for an additional one year term on every
anniversary date, unless terminated by the Board of Directors in writing no
later than 90 days preceding the end of the initial or any renewal term unless
sooner terminated upon the death or disability of Mr. S. Trenk. The Company has
also agreed to permit Mr. S. Trenk to participate in any employee benefit plans
established for senior management employees of the Company, to make payments not
in excess of $1,000 per month on an automobile for his use, to pay for
$1,000,000 term life insurance for Mr. S. Trenk, the beneficiary of which will
be the Company, to pay for disability insurance for Mr. S. Trenk and to permit
Mr. S. Trenk to participate in stock option plans consistent with other members
of senior management of the Company.
Martin G. Jacobs, M.D. entered into a medical director agreement dated
as of April 1, 1994 (the "Medical Director Agreement") providing for an annual
base salary of $100,000 for serving as Corporate Medical Director and agreeing
to devote not less than 500 hours per year to the Company's business. The
Medical Director Agreement has an initial one year term and renews every
anniversary thereafter, unless terminated by the Board of Directors in writing
no later than ninety (90) days preceding the anniversary date. The Medical
Director Agreement also provides that Dr. Jacobs shall participate in any
employee benefit plans established for senior management employees of the
Company. The Company has also agreed to make payments not in excess of $500 per
month for an automobile for Dr. Jacob's use, to pay for disability insurance for
Dr. Jacobs and to permit Dr. Jacobs to participate in stock option plans
consistent with other members of senior management of the Company. The Medical
Director Agreement terminates
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<PAGE>
upon the death of Dr. Jacobs and may be terminated by the Company upon his
disability (as defined in the Medical Director Agreement).
Jeff Ellentuck entered into an Employment Agreement with the Company in
September 1994, which agreement was amended in 1996 to provide for an annual
base salary of $130,000 for serving as Executive Vice President and General
Counsel of the Company on a substantially full-time basis. Mr. Ellentuck is
entitled to receive an annual bonus based on his personal performance and the
Company's performance as determined by the Board of Directors of the Company.
The Agreement has an initial term ending September 30, 1999 and renews for
additional two-year terms on every anniversary date, unless terminated by the
Board of Directors in writing no later than one year preceding the end of the
initial or any renewal term. The Company has also agreed to permit Mr. Ellentuck
to participate in employee benefit plans established for senior management of
the Company, to make payments of $7,800 per annum on an automobile for his use
and to pay the balance on the same in the event of a termination prior to
September 2000 and to pay for not less than $250,000 of assumable life
insurance.
During the fiscal year ended December 31, 1995 each of TEI, Mr. S.
Trenk, Dr. Jacobs and Mr. Ellentuck voluntarily agreed to a ten percent to fifty
percent reduction in the compensation paid to them under their respective
various agreements.
Each of Alvin and Steven Trenk and Dr. Jacobs has agreed that during
the term of his employment or medical director agreement, he will not, directly
or indirectly, engage in business activities that are competitive with the
Company's activities in any county of any state in the United States, or any
country outside of the United States, in which, during his employment, the
Company conducted any material business or in which its customers were located.
In addition, each employee has agreed that he will not solicit or accept
business from any customers of the Company or hire any employees of the Company
and shall maintain the Company's proprietary information during the term of his
agreement and for at least one year after the expiration of his or her
agreement.
DIRECTORS' STOCK OPTION PLAN
In April 1994, the Board of Directors of the Company adopted the
Continental Choice Care, Inc. Directors' Stock Option Plan ("Director Plan")
covering 200,000 shares of Common Stock. The Director Plan is intended as an
incentive to encourage directors who are not on the active salaried payroll of
the Company (a "non-employee director"), to invest in the Common Stock of the
Company in order to promote long-term shareholder value and increase the
non-employee directors' personal interest in the continued success and progress
of the Company.
The Director Plan provides that on July 1 of every year, commencing on
July 1, 1994, each non-employee director shall, automatically and without
necessity of any action by the Board of Directors, receive a nonstatutory option
for 10,000 shares of Common Stock with an exercise price per share equal to the
fair market value of a share as of the date of grant of the option. The option
is exercisable upon payment of the exercise price in cash at any time during the
period commencing one year after the date the option is granted and ten years
after the date the option is
-29-
<PAGE>
granted, provided that the person exercising the option has been at all relevant
times a member of the Board of Directors, except that a director must exercise
his or her option (to the extent it is then exercisable) prior to the earlier of
three years after leaving the Board of Directors or the expiration date of the
option. Upon the death of a director, the option must be exercised prior to the
earlier of one year after such death or the expiration date of the option.
The Board of Directors may amend or terminate the Director Plan at any
time, except that shareholder approval would be required to change in material
respect the persons authorized to receive options, to increase the aggregate
number of shares of Common Stock that may be issued under the Director Plan
except as provided below, to change the number of shares subject to option each
year to each non-employee director, to decrease the option price or to extend
the maximum option period or period during which options may be granted under
the Director Plan. The Director Plan, unless sooner terminated by the Board of
Directors, terminates ten years from the date the Director Plan was approved by
the shareholders or April 24, 2004.
The number or kind of shares that may be issued under the Director
Plan, the number and kind of shares subject thereto, and the exercise price per
share of outstanding options are automatically adjusted to reflect certain
changes in the capital of the Company and corporate reorganizations.
1994 LONG-TERM INCENTIVE AWARD PLAN
In April 1994, the Company adopted the Continental Choice Care, Inc.
1994 Long-Term Incentive Award Plan (the "Incentive Plan") covering 300,000
shares of common Stock pursuant to which officers and key employees of the
Company designated as senior executives are eligible to receive incentive and/or
non-statutory stock options, awards of shares of Common Stock and stock
appreciation rights (a "Right"). The Incentive Plan, which expires in April
2804, will be administered by a committee designated by the Board of Directors
(the "Committee"), provided, however, the Committee shall consist of two or more
"disinterested" directors as defined in Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "1934 Act"). The Board of Directors may also
administer the Incentive Plan. The purposes of the Incentive Plan are to assist
in attracting, retaining, and motivating senior executives and to promote the
identification of their interests with those of the shareholders of the Company.
Incentive stock options granted under the Incentive Plan will be
exercisable during the period commencing six months from the date of grant of
the option and terminating ten years from the date of grant at an exercise price
which is not less than the fair market value of the Common Stock on the date of
the grant. To the extent that the aggregate fair market value, as of the date of
grant, of the shares into which incentive stock options become exercisable for
the first time by an optionee during the calendar year exceeds $100,000, the
portion of such option which is in excess of the $100,000 limitation will be
treated as a non-statutory stock option.
Rights granted under the Incentive Plan are exercisable during the
period commencing six months from the date of the grant of the Right (except in
event of death or disability of the holder) and terminating ten years from the
date of the grant of the Right, or in the case of a Right related
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<PAGE>
to an option, the expiration of the related option. In addition, a Right may be
exercised only when the fair market value of a share exceeds either the fair
market value per share on the date of grant of the Right or the base price of
the Right (which is determined by the Committee) if it is not a Right related to
an option. A Right related to an option may be exercised only when and to the
extent the option is able to be exercised.
Upon the exercise of an option or Right, payment must be made in full
together with payment for any withholding taxes then required to be paid. The
receipt of incentive shares is subject to full payment by the recipient of any
withholding taxes required to be paid.
Incentive shares may be issued as provided in the agreement with the
recipient, based upon the achievement of the performance standards set forth in
the agreement. The Committee must certify in writing prior to the issuance of
the incentive stock that the standards set forth in the agreement were
satisfied. The standards may be based on earnings or earnings growth, return on
assets, equity or investment, specified financial ratings, achievement of
specified balance sheet or income statement objectives, or stock price, sales or
market share and may be based on changes in such factors or measured against or
in relationship to the same objective factors of other companies comparably or
similarly situated. No options, Rights or incentive shares may be granted under
the Incentive Plan after April 23, 2004. The options and Rights are
nontransferable during the life of the grantee. No participant in the Incentive
Plan is entitled to receive grants of options, Rights and awards of incentive
shares in the aggregate exceeding 25,000 shares per year.
The Committee has the authority to interpret the provisions of the
Incentive Plan, to prescribe, amend and rescind rules and regulations relating
to it and to make all determinations deemed necessary or advisable for its
administration, including the individuals to whom grants are made and the type,
vesting, timing, amount, exercise price and other terms of such grants.
The Board of Directors may amend or terminate the Incentive Plan except
that shareholder approval is required to effect a change so as to increase
materially the aggregate number of shares that may be issued under the Incentive
Plan (unless adjusted to reflect such changes as a stock dividend, stock split,
recapitalization, merger or consolidation of the Company), to modify materially
the requirements as to eligibility to receive options, Rights or incentive
shares or to increase materially the benefits accruing to participants. No
action taken by the Board may materially and adversely affect any outstanding
grant or award without the consent of the holder.
The Committee may also modify, extend or renew outstanding options,
Rights or accept the surrender of outstanding options or Rights granted under
the Incentive Plan and authorize the granting of new options and Rights pursuant
to the Incentive Plan in substitution therefor, including specifying a longer
term than the surrendered options or Rights, provided that the Committee may not
specify or lower the exercise price further than the surrendered option or
Right. Further, the Committee may modify the terms of any outstanding agreement
providing for the award of incentive shares. In no event, however, may
modifications adversely affect the grantee of the grant of incentive stock
without the grantee's consent.
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<PAGE>
In April 1995, Jeff Ellentuck and Ronald A. Lefkon, each an executive
officer of the Company, received options to acquire 10,000 shares of Common
Stock for $5.25 per share pursuant to the 1994 Plan. In February 1996, Mr.
Ellentuck and Mr. Lefkon were granted options to purchase 25,000 shares of
Common Stock for $4.00 per share. In addition, Steven L. Trenk, the Company's
President, Chief Operating Officer and a Director and Martin G. Jacobs, M.D., a
Director and the Corporate Medical Director of the Company, were each granted
options to acquire 25,000 shares of Common Stock for $4.40 per share. Each of
the foregoing options were repriced by the Board of Directors of the Company in
February, 1997 to $1.875 per share or 100% of the fair market value of the
Common Stock as of the date of the repricing.
1997 EQUITY INCENTIVE PLAN
In February 1997, the Board of Directors approved the 1997 Plan subject
to the approval of the shareholders of the Company. The 1997 Plan covers
1,250,000 shares of Common Stock. Pursuant to the 1997 Plan, employees of the
Company and its subsidiaries and other persons who are in a position to make a
significant contribution to the Company and its subsidiaries are eligible to
receive incentive and/or non-qualified options, awards of shares of Common Stock
and Rights. See "Proposal 2" for a brief description of the 1997 Plan. In
February 1997, options to acquire shares of Common Stock were granted to
substantially all employees, officers and directors of the Company under the
1997 Plan at an exercise price of $1.875 (or $2.0625 for beneficial owners of
10% or more of the Common Stock), 100% (or 110%) of the fair market value of the
Common Stock as of the date of grant. The grant of options under the 1997 Plan
included 150,000 to Alvin S. Trenk, 104,000 to Steven L. Trenk, 101,000 to Dr.
Jacobs, 40,000 to Mr. Claman, 40,000 to Mr. Mendell and 15,000 to each of Mr.
Ellentuck and Mr. Lefkon.
401(K) PLAN
In January 1994, the Company adopted a salary deferral and savings plan
(the "Savings Plan") which is qualified under section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code") and includes a qualified cash or
deferred arrangement under Section 401(k) of the Code. Subject to limits set
forth in the Code, an employee who meets certain age and service requirements
may participate in the Savings Plan by contributing through payroll deductions
up to 15% of compensation into an account established for the participating
employee and may allocate amounts in such account among a variety of investment
vehicles. The Company makes matching contributions to an employee's account in
an amount of up to and including 10% of the first 6% of the compensation
contributed by each employee. The Savings Plan also provides for loans to, and
withdrawals by, participating employees, subject to certain limitations. The
Company made matching contributions in the aggregate amount of $3,465 during the
fiscal year ended December 31, 1996, $455 and $666 of which was contributed to
the accounts of Steven L. Trenk and Jeff Ellentuck, respectively.
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<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
Shown below is information with respect to the exercise of options to
purchase Common Stock by the named executive officers and unexercised options to
purchase shares of Common Stock for the named executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR,
AND DECEMBER 31, 1996 OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT IN-THE-MONEY OPTIONS
SHARES ACQUIRED VALUE FISCAL YEAR-END AT FISCAL YEAR-END(1)
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
ALVIN S. TRENK 0 (1) $ 0 0 0(1) $0 $ 0
STEVEN L. TRENK 0 (1) $ 0 25,000(1) 0(1) $0 $0
JEFF ELLENTUCK 0(1) $ 0 35,000(1) 0(1) $0 $0
</TABLE>
- ----------------------
(1) NOT EXERCISABLE DURING THE SIX MONTHS FOLLOWING FEBRUARY 21, 1997.
OPTION GRANTS DURING LAST FISCAL YEAR
Shown below is information with respect to the number of options to
purchase Common Stock granted to the named executive officers.
OPTION GRANTS DURING THE FISCAL YEAR
ENDED DECEMBER 31, 1996
% OF TOTAL
NUMBER OF OPTIONS
SHARES GRANTED TO
UNDERLYING EMPLOYEES IN EXERCISE EXPIRATION
NAME OPTIONS FISCAL YEAR PRICE ($/SH) DATE
GRANTED
ALVIN S. TRENK 0 --- --- ---
STEVEN L. TRENK 25,000 20.97% $4.40 (1) 3/30/2006
JEFF ELLENTUCK 25,000 8.31% $4.00 (1) 3/30/2006
- ---------------------
(1) REPRICED IN FEBRUARY 1997 TO AN EXERCISE PRICE OF $1.875 PER SHARE.
REPORT ON REPRICING OF OPTIONS
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<PAGE>
In February 1996, the Board of Directors of the Company, on the
recommendation of the Compensation Committee, adopted a stock option plan (the
"Contingent Plan") substantially similar to the 1997 Plan and granted certain
options thereunder. The Board of Directors conditioned the effectiveness of the
Contingent Plan on approval by the shareholders of the Company within twelve
months after adoption. At the time of the adoption of the Contingent
Plan, the Board granted options under the 1994 Plan to officers of the Company
and granted options, subject to shareholder approval, to officer, directors and
substantially all employees of the Company under the Plan. Options were granted
to employees generally to reward them for the services they had performed for
the Company in connection with the prior operations of the Company, the efforts
they expended at the time of the Company's reorganization and initial public
offering and as a future incentive to the employees. Options were granted under
the 1994 Plan and the Plan to officers and directors of the Company for
substantially the same reasons that options were granted to employees generally
and, in addition, to reward certain of those officers and directors for
voluntarily decreasing their pay for the benefit of the Company and for
undertaking obligations under various guarantees on behalf of the Company. The
Contingent Plan was not approved by the shareholders within twelve months of
approval by the Board of Directors. Accordingly, in February 1997, the Board of
Directors adopted the 1997 Plan. At the time of adoption of the 1997 Plan, the
Board of Directors granted options to substantially all officers, directors and
employees to whom options were granted under the Contingent Plan at the then
current fair market value for substantially the same reasons for which the
grants were originally made under the Contingent Plan. In addition, the Board of
Directors believed that those officers who had received grants in 1996 under the
1994 Plan should be accorded the same reduction in exercise price as those
officers, directors and employees who were conditionally granted options under
the Contingent Plan. As a result, at the time of the adoption of the 1997 Plan,
the Board of Directors also repriced all options previously granted under the
1994 Plan, which options are not exercisable on or before the sixth month
following the repricing.
BOARD OF DIRECTORS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into or assumed certain rights and obligations
pursuant to consulting and service agreements with Alpha Administration Corp.
("Alpha"), Upper Manhattan Dialysis Center, Inc. ("UMDC"), the National
Nephrology Foundation ("NNF") and Continental Dialysis of the Bronx, Inc.
("CDBI"), pursuant to which the Company agreed to provide consulting,
administrative and other services to or on behalf of each of such corporations
in exchange for payments of $240,000 to $400,000 per annum to the Company. Alpha
has obtained substantially all requisite governmental consents necessary to
acquire the assets of the South Bronx Kidney Center from NNF and expects to
close that acquisition during the first quarter of 1997. In view of the New York
State prohibition on the corporate ownership or control of stock of an In-
Center Facility, all of the outstanding common stock of each of Alpha and CDBI
is held by and 50% of the outstanding common stock of UMDC is held by, Certain
Executive Officers who, collectively, are the holders of approximately 80.69% of
the outstanding common stock of TechTron, the Company's parent and principal
shareholder.
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<PAGE>
The Company and Certain Executive Officers have jointly and severally
guaranteed the repayment by UMDC and Drs. Lorch and Cortell of loans from the
Bank, which loans had an outstanding balance of approximately $1,220,000 at
February 28, 1997. The Company made additional loans to UMDC for working
capital. Certain Executive Officers have acquired 50% of the common stock of
UMDC and entered into a shareholders' agreement in connection with the ownership
and operations of UMDC. A third party hospital with whom UMDC has an affiliation
agreement has asserted that the transfer of UMDC shares to Certain Executive
Officers may have been in violation of the agreement. The Company disagrees with
the hospital's position and is currently engaged in discussions concerning the
matter. No assurance can be given that the Company will be successful in its
discussions with the hospital or that the Company will not be required to engage
in litigation over the matter. The Company is also the guarantor of a lease for
UMDC.
During 1995 and 1996, the Company loaned approximately $1,177,000 to
CDBI for lease obligations, leasehold improvements and for working capital. The
loans are represented by promissory notes with terms of five years and bearing
interest at the rate of 8% per annum. CDBI commenced business in January 1997.
The Company is the guarantor of a lease for CDBI.
To the extent that the income of any Consulting Customer exceeds the
sum of its expenses and reserves in any year, including amounts payable to the
Company, the amount of such excess will be available for distribution to the
shareholders of the Consulting Customer. Alvin S. Trenk, Steven L. Trenk and
Martin G. Jacobs, M.D. are shareholders of each of the Consulting Customers. In
the event the Transaction is consummated, assets of Alpha and CDBI will be
acquired by IHS. Further, the assets of UMDC may be acquired or IHS may exercise
the UMDC Option. No assurance can be given that Certain Executive Officers will
not, in their capacities as shareholders of the Consulting Customers, receive a
portion of the purchase price payable by IHS for the assets of the Consulting
Customers or a portion of the exercise price payable by IHS upon exercise of the
UMDC Option. Similarly, if the parties determine to proceed with the closing of
the Transaction notwithstanding the failure of UMDC to transfer its assets and
the failure of IHS to exercise the UMDC Option, as to which no assurance can be
given, Certain Executive Officers may remain as shareholders and officers of
UMDC. Under New York law, the Company is prohibited from entering into
agreements with the Consulting Customers, the Messrs. Trenk or Dr. Jacobs to
provide for the payment of such distributions to the Company. As a result, the
Messrs. Trenk and Dr. Jacobs are entitled to retain any dividends derived by
them as shareholders of Consulting Customers. Accordingly, it may be in the
personal interests of the Messrs. Trenk and Dr. Jacobs to cause the Company to
treat patients through, or at facilities operated by, the Consulting Customers
rather than through or at facilities operated by the Company. Further, the
Messrs. Trenk and Dr. Jacobs have personally guaranteed certain debts and
obligations of Alpha to the Company aggregating approzimately $1,177,000 as of
February 28, 1997 and obligations of UMDC and Drs. Lorch and Cortell aggregating
approximately $1,220,000 as of February 28, 1997. No assurance can be given that
the Messrs. Trenk and Dr. Jacobs will not (i) cause the Company to permit
patients who would otherwise be serviced by the Company to be serviced by
Consulting Customers, (ii) cause Consulting Customers to undertake business
opportunities which might otherwise be undertaken by the Company, (iii) cause
the Company to take actions, including causing Alpha to maintain or exercise its
option to acquire the dialysis business of the
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<PAGE>
NNF Consulting Customer at the expense of the Company, which the Company might
not otherwise undertake or (iv) cause the Company to undertake obligations which
might otherwise constitute obligations of the Consulting Customers, including
loaning funds, guarantying loans by third parties and granting indemnities to
the Consulting Customers or their respective officers, directors or
shareholders. While the agreements with the Consulting Customers other than the
NNF Consulting Customer and UMDC were not negotiated in arms-length
transactions, the Company believes the terms of its agreements with the
Consulting Customers are the same or better than those which the Company could
have obtained in arms-length transactions.
Martin G. Jacobs, M.D., the Corporate Medical Director and a director
of the Company is also in private practice with Nephrological Associates, P.A.
which provides services to the Company as a Medical Director and which currently
generates, together with Dr. Jacobs individually, approximately 10% of the
Company's clients.
In February 1996, the Board of Directors authorized the formation of
Renal Management, Inc. ("RMI"), a subsidiary of the Company, to engage in the
physician's practice and disease management business. In connection therewith,
400 shares of Common Stock of RMI were issued to the Company, 21 shares of
Common Stock of RMI were issued to each of Alvin S. Trenk, Steven L. Trenk and
Martin G. Jacobs, eight shares of Common Stock of RMI to each of Jeff Ellentuck
and Ronald A. Lefkon and five shares of Common Stock of RMI to each of Jeffrey
B. Mendell and Jeffrey A. Claman. In addition, 11 shares were reserved for
furtive issuance to management.
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation limits the personal
liability of directors and officers to the Company or its shareholders for
monetary damages to the full extent from time to time permitted by law. Under
the Certificate of Incorporation and existing law, a shareholder of the Company
will be able to prosecute an action against a director or officer for monetary
damages only if he can show an act or omission (i) in breach of the duty of
loyalty, (ii) not in good faith or involving a knowing violation of law, or
(iii) resulting in receipt of an improper personal benefit. A shareholder will
not be able to prosecute such an action (including an action relating to an
attempted takeover of the Company) based on "negligence" or "gross negligence"
of a director or officer in the performance of his duties. However, such
provision does not limit or eliminate the right of the Company or any of its
shareholders to seek an injunction, rescission or other form of non-monetary
relief in the event of a breach of the duty of care by a director or officer. In
addition, such provision applies only to claims against a director or officer
arising out of his service in such capacity and, depending upon judicial
interpretation, it may not be effective to relieve a director or officer from
liability under the laws of jurisdictions other than New Jersey. Such provision
does not affect a director's or officer's liabilities based upon violations of
the federal securities laws and has no effect on tort or other claims by third
parties against directors or officers.
Accordingly, indemnification may be sought for liabilities arising
under the Securities Act of 1933, as amended (the "Securities Act"). The
Underwriting Agreement also contains
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<PAGE>
provisions under which the Company and the Underwriter have agreed to indemnify
each other (including officers and directors) for certain liabilities, including
liabilities under the Securities Act. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
The Company has obtained a Directors and Officers Liability Insurance
Policy.
PROPOSAL 3. APPROVAL OF 1997 EQUITY INCENTIVE PLAN
Pursuant to the terms of the 1997 Plan, it is to be administered by a
committee designated by the Board of Directors (the "Committee") or by the Board
of Directors. Although the terms of the Plan provide that the Committee shall
comply with the requirements of Section 162(m) of the Code, the current
Compensation Committee will not qualify under either of these provisions. It is
believed that the Committee is not currently comprised solely of two or more
"outside" directors as required under Section 162(m) of the Code, because of
remuneration that was paid to an entity in which one of the two directors has a
beneficial ownership interest. Section 162(m) of the Code limits the tax
deductions of publicly traded corporations (such as the Company) for
compensation in excess of $1 million per annum paid to the chief executive
officer and any of the four highest compensated officers. Because the Committee
is not currently comprised solely of two or more "outside" directors,
compensation income eventually recognized by employees because of awards
currently made under the 1997 Plan will count as compensation in determining
whether compensation of the chief executive officer and any of the four other
highest compensation officers is in excess of $1 million per annum. Because the
Company does not expect any executive officer to earn more than $1,000,000 from
the Company during the next few years, it is the Company's present intention not
to attempt to meet the requirements of Section 162(m).
In addition, since both of the members of the Compensation Committee
have been granted options under the 1997 Plan, subject to shareholder approval,
the members of the Compensation Committee would not qualify as "disinterested"
under Rule 16b-3 of the 1934 Act. Thus, a purchase or sale by an officer or
director of the Company of any of the securities granted under the 1997 Plan to
an officer or director will not be exempt under Section 16(b) of the Exchange
Act.
The purposes of the 1997 Plan are to assist in attracting, retaining,
and motivating persons who can make a significant contribution to the Company
and to promote the identification of their interests with those of the
shareholders of the Company. Pursuant to the terms of the 1997 Plan, the Company
may grant awards in the form of Options (both incentive stock options, as
defined under Section 422 of the Code ("ISO") and nonstatutory stock options
("NSO"), Stock Appreciation Rights ("SARs"), an award of shares for no cash
consideration subject to certain restricts (a "Restricted Stock Award") or the
award of shares to be delivered in the future ("Deferred Stock Award") to
employees of the Company and others which or who may be in a
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<PAGE>
position to make a significant contribution to the Company. ISOs, however, may
only be issued to employees of the Company.
Incentive stock options granted under the 1997 Plan will be exercisable
during the period commencing on the date of grant of the option and terminating
ten (10) years from the date of grant (five (5) years in the case of an ISO
granted to a holder of 10% of the Company's issued and outstanding shares) at an
exercise price which is not less than one hundred (100%) percent of the fair
market value of the Common Stock on the date of the grant (110% in the case of
an ISO granted to a holder of 10% of the Company's issued and outstanding
shares). NSOs will be exercisable during the period commencing on the date of
the grant of the option and terminating ten (10) years from the date of grant at
an exercise price which is not less than fifty (50%) percent of the fair market
value of the Common Stock on the date of grant.
SARs granted under the 1997 Plan are exercisable during the period
established by the Committee (except in the event of death or disability of the
holder), or in the case of a SAR related to an option, the expiration of the
related option. In addition, a SAR may be exercised only when the fair market
value of a share exceeds either the fair market value per share on the date of
grant of the SAR or the base price of the SAR (which is determined by the
Committee) if it is not a SAR related to an option. A SAR related to an option
may be exercised only when and to the extent the option is able to be exercised.
Upon the exercise of an Option, payment must be made in full together
with payment for any withholding taxes then required to be paid. The receipt of
incentive shares is subject to full payment by the recipient of any withholding
taxes required to be paid.
Incentive shares, either in the form of Restricted Stock or Deferred
Stock, may be issued as provided in the agreement with the recipient, based upon
such standards as may be established by the Committee, including but not limited
to the achievement of the performance standards set forth in the agreement.
The Committee will have the authority to interpret the provisions of
the 1997 Plan, to prescribe, amend and rescind rules and regulations relating to
it and to make all determinations deemed necessary or advisable for its
administration, including the individuals to whom grants are made and the type,
vesting, timing, amount, exercise price and other terms of such grants.
The Board of Directors may amend or terminate the 1997 Plan except that
shareholder approval is required to effect any change which would require
shareholder approval pursuant to Section 16 under the Exchange Act, such as to
increase materially the aggregate number of shares that may be issued under the
Incentive Plan (unless the change is merely an adjustment to reflect such
changes as a stock dividend, stock split, recapitalization, merger or
consolidation of the Company), to modify materially the requirements as to
eligibility to receive options, SARs or incentive shares or to increase
materially the benefits accruing to participants. No action taken by the Board
may materially and adversely affect any outstanding grant or award without the
consent of the holder.
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<PAGE>
The Committee may also modify, extend or renew outstanding options,
SARs or accept the surrender of outstanding options or rights granted under the
1997 Plan and authorize the granting of new options and SARs pursuant to the
1997 Plan in substitution therefor, including specifying a longer term than the
surrendered options or rights, provided that the Committee may not specify or
lower the exercise price further than the surrendered option or right. Further,
the Committee may modify the terms of any outstanding agreement providing for
the award of incentive shares. In no event, however, may modifications adversely
affect the grantee of the grant of incentive stock without the grantee's
consent.
The Board of Directors granted options to acquire an aggregate of
471,550 shares of Common Stock under the 1997 Plan in February 1997 subject to
the approval of the 1997 Plan by the shareholders of the Company at the 1997
Annual Meeting. The foregoing grants included grants to the following executive
officers and directors:
New Plan Benefits
1997 Plan
Name and Position Dollar Value ($) Number of Units
-----------------
Alvin S. Trenk, (1) 150,000
Chairman and Chief Executive Officer
Steven L. Trenk, (1) 104,000
President, Director and
Chief Operating Officer
Jeff Ellentuck (1) 15,000
Executive VP and General Counsel
Executive Group (1) 385,000
Non-Executive Director Group (1) 80,000
Non-Executive Officer Employee Group (1) 21,550
- ----------------------
(1) Granted at an exercise price of $1.875 per share of Common Stock. As of
March 3, 1997, the closing per share price for the Common Stock was
$1.50.
Income Tax Consequences. Under present law the federal income tax
treatment of stock options and SARs issued under the 1997 Plan is generally as
follows:
Incentive Stock Options. For regular income tax purposes, an optionee
will not realize taxable income upon either the grant of an ISO or its exercise
if the optionee has been an employee of the Company or a subsidiary at all times
from the date of grant to a date not more than three months before the date of
exercise. The difference between the fair market value of the stock at the date
of exercise and the exercise price of an ISO, however, will be treated as an
item of tax preference in the year of exercise for purposes of the alternative
minimum tax.
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<PAGE>
If the shares acquired upon an exercise of an ISO are not disposed of
by the optionee within two years from the date of grant or within one year from
the date of exercise, any gain realized upon a subsequent sale of the shares
will be taxable as a capital gain. In that case, the Company will not be
entitled to a deduction in connection with the grant or the exercise of the ISO
or the subsequent disposition of the shares by the optionee. The amount of gain
or loss realized upon such a sale or other disposition will be measured by the
difference between the amount realized and the earlier exercise price of the ISO
(the optionee's basis in the stock).
If the optionee disposes of the shares within two years from the date
of grant of the ISO or within one year from the date of exercise of the ISO, the
optionee will realize ordinary income in an amount equal to the excess of the
fair market value of the shares at the date of exercise (or the amount realized
on disposition, if less) over the option price, and the Company will be allowed
a corresponding deduction. If the amount realized on the disposition exceeds the
fair market value of the shares at the date of exercise the gain on disposition
in excess of the amount treated as ordinary income will be treated as a capital
gain. Any such capital gain will be a long-term capital gain if the optionee
holds the shares for more than one year from the date of exercise.
Nonstatutory Stock Options. An optionee will not realize income upon
the grant of a NSO unless the NSO has a readily ascertainable value, which is
believed to be unlikely. Upon the exercise of a NSO, an optionee will be
required to recognize ordinary compensation income in an amount equal to the
excess of the fair market value at the date of exercise of the NSO over the
option price. Any such compensation includable in the gross income of an
employee with respect to a NSO will be subject to appropriate federal income and
employment taxes. The Company will be entitled to a business expense deduction
in the same amount and at the same time as when the optionee recognizes the
compensation income. Upon a subsequent sale of the stock, any amount realized in
excess of such fair market value will constitute a capital gain. Any such
capital gain will be a long-term capital gain if the optionee holds the shares
for more than one year from the date of exercise.
If an optionee exercises an option by tendering Company stock in
payment of the option price the optionee will be deemed to exchange the number
of previously owned shares (e.g. 50 shares) for an identical number of new
shares (e.g. 50 shares). This deemed exchange of previously owned Company stock
for new Company stock should be eligible for nonrecognition treatment under IRC
Section 1036 as an exchange of common stock for common stock in the same
corporation. With regard to the additional number of new Company shares (e.g.,
the excess over 50 shares) that an optionee receives pursuant to the exercise of
the option, an optionee will be deemed to have acquired them without paying
consideration. If such extra shares are issued pursuant to a NSO, the fair
market value of such extra shares will be included in the optionees' income as
compensation income and the Company will be allowed a corresponding deduction.
If such extra shares are issued pursuant to an ISO, no income on the exercise of
such options will be recognized by the optionee, and the Company will not be
allowed a compensation deduction. The optionee's basis in the new shares deemed
exchanged for old shares will be equal to the optionee's basis in the
surrendered old shares, and the optionee's holding period in such new shares
will include his or her holding period in the old shares. The optionee's basis
in the additional (or excess) new shares received will equal the amount that the
optionee included in
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<PAGE>
income with respect to those shares (their fair market value for stock issued
pursuant to a NSO; zero for stock issued pursuant to an ISO), and the optionee's
holding period in such additional shares will start as of the date of
acquisition.
In the limited circumstances in which an officer who is subject to
Section 16(b) of the 1934 Act exercises a NSO, which exercise is not exempt
under Section 16(b), no income is recognized for federal income tax purposes at
the time of exercise unless the optionee makes an election under Section 83(b)
of the Code within 30 days after the date of exercise, in which case the rules
described in the second preceding paragraph would apply. Where such an election
is not made, the optionee will recognize ordinary income on the first date that
sale of such shares would not create liability under Section 16(b) of the 1934
Act (this is generally, but not necessarily, six months after the date of
exercise). The ordinary income recognized to such an optionee will be the
excess, if any, of the fair market value of shares on such later date over the
option exercise price.
Stock Appreciation Rights. SAR's will not result in taxable income upon
grant. Upon exercise, the optionee will realize ordinary income in an amount
equal to the cash and/or the fair market value of any shares received which
amount will be subject to appropriate income and employment taxes. The Company
will be entitled to a corresponding compensation deduction.
The foregoing discussion does not purport to be a complete analysis of
all the potential tax consequences relevant to recipients of options or SAR's or
to the Company or its subsidiaries. The above discussion does not take into
account the effect of state and local tax laws. Moreover, no assurance can be
given that legislative, administrative, regulatory or judicial changes or
interpretations will not occur which could modify such analysis. In addition, an
individual's particular tax status and his other tax attributes may result in
different tax consequences from those described above. Therefore, any
participant in the 1997 Plan should consult with his own tax adviser concerning
the tax consequences of the grant, exercise and surrender of such options or
SARs and the disposition of any stock acquired pursuant to the exercise of such
options or SARs.
Termination. The Plan will terminate ten years after the date of its
approval by the Shareholders.
The Board of Directors recommends the approval of the 1997 Plan.
PROPOSAL 3. RATIFICATION AND APPROVAL OF THE APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Company, subject to shareholder ratification, has selected Arthur
Andersen LLP, to serve as its independent public accountants for the fiscal year
ending December 31, 1997. If the shareholders do not ratify the appointment of
Arthur Andersen LLP, the Company may reconsider its selection.
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A representative of Arthur Andersen LLP is expected to be present at the
Meeting to respond to appropriate questions and will be given the opportunity to
make a statement if he desires to do so.
The affirmative vote of the holders of a majority of the shares of
Common Stock of the Company present, in person or by proxy, and entitled to vote
at the Meeting is required for the ratification and approval of the appointment
of auditors.
The Board of Directors recommends ratification and approval of the
appointment of Arthur Andersen, LLP as independent auditors.
Shareholder Proposals For Next Annual Meeting
Any shareholder proposals intended to be presented at the Company's next
annual meeting of shareholders must be received by the Company at its offices at
25-B Vreeland Road, Florham Park, New Jersey 07932, on or before November 2,
1997 for consideration for inclusion in the proxy material for such annual
meeting of shareholders.
Expenses Of Solicitation
The cost of the solicitation of proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by regular employees
of the Company, either personally or by telephone or telegraph. The Company does
not expect to pay any compensation for the solicitation of proxies, but may
reimburse brokers and other persons holding shares in their names or in the
names of nominees for expenses in sending proxy material to beneficial owners
and obtaining proxies of such owners.
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<PAGE>
Other Matters
The Board of Directors does not intend to bring any matters before the
Meeting other than as stated in this Proxy Statement, and is not aware that any
other matters will be presented for action at the Meeting. If any other matters
come before the Meeting, the persons named in the enclosed form of proxy will
vote the proxy with respect thereto in accordance with their best judgment,
pursuant to the discretionary authority granted by the proxy. Whether or not you
plan to attend the Meeting in person, please complete, sign, date and return the
enclosed proxy card promptly.
By Order of the Board of Directors
Steven L. Trenk
President
Dated: March __, 1997
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APPENDIX
CONTINENTAL CHOICE CARE, INC.
The undersigned hereby appoints Steven L. Trenk and Alvin Trenk and each of
them, with full power of substitution, as proxies for the undersigned, to attend
the annual meeting of shareholders of Continental Choice Care, Inc. (the
"Company"), to be held at Hamilton Park Conference Center at 175 Park Avenue,
Florham Park, New Jersey, on April 28, 1997, at 4:00 p.m., New York City time,
or any adjournment thereof, and to vote the number of shares of common stock of
the Company that the undersigned would be entitled to vote, and with all the
power the undersigned would possess, if personally present, as follows:
1. Approval of the sale of substantially all of the assets of the Company to
IHS of NY, Inc. pursuant to the terms of the Asset Purchase Agreement dated
February 12, 1997.
/ / FOR or / / AGAINST, or / / ABSTAIN
2. / / FOR or / / WITHHOLD AUTHORITY to vote for the following nominees for
election as Class I, Class II and Class III directors:
Class I Class II Class III
Martin G. Jacobs, M.D. Steven L. Trenk Alvin S. Trenk
Jeffrey A. Claman Jeffrey B. Mendell
(Instruction: To withhold authority to vote for any individual nominee, write
the nominee's name on the line provided below.)
- -------------------------------------------
- -------------------------------------------
3. Approval of the 1997 Equity Incentive Plan
/ / FOR or / / AGAINST, or / / ABSTAIN
4. Approval of the appointment of Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending December 31, 1997.
/ / FOR or / / AGAINST, or / / ABSTAIN
5. In their discretion, on such other business as may properly come before the
meeting or any adjournment thereof.
THE PROXIES WILL VOTE AS SPECIFIED HEREIN OR, IF A CHOICE IS NOT
SPECIFIED, THEY WILL VOTE "FOR" THE NOMINEES LISTED IN ITEM 2 AND "FOR" THE
PROPOSALS SET FORTH IN ITEMS 1, 3, 4 AND 5.
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<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY.
Receipt of the Notice Annual Meeting of
Shareholders, Proxy Statement
dated , 1997 and Annual Report to
Shareholders is hereby acknowledged:
Date:_____________________________, 1997
=======================================
---------------------------------------
(Signatures)
(Please sign exactly as your names appear
hereon, indicating, where proper official
position or representative capacity.)
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<PAGE>
APPENDIX A
ASSET PURCHASE AGREEMENT
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and entered into this 12th day
of February, 1997, by, among and between CONTINENTAL CHOICE CARE, INC.
("CCC"), a New Jersey corporation, and its subsidiaries and affiliates
identified on Schedule 1 attached hereto (each a "Seller" and collectively,
the "Sellers"), and IHS of New York, Inc., a New York corporation (the
"Buyer").
WITNESSETH:
WHEREAS, Sellers operate certain hemodialysis, peritoneal
dialysis, and acute care dialysis facilities identified on Schedule 2 attached
hereto (collectively, the "Facilities"), and /or provide fee-based dialysis
nursing services, and equipment and services to the Facilities and other third
party care givers and programs (the Sellers' operations of the Facilities,
together with all nursing services, employment agencies, programs and other
activities related to the provision of dialysis services by any of the
Sellers, shall be referred to collectively as the "Business"); and
WHEREAS, each of the Sellers desires to convey, transfer and
assign to Buyer all of its respective assets directly relating to the Business
its respective operations at the Facilities, and Buyer desires to purchase
such assets from the Sellers;
WHEREAS, each of the Sellers desires to sell and transfer to
Buyer and Buyer desires to purchase and receive from the Sellers all of the
assets owned by the Sellers and which are utilized by the Sellers in or are
otherwise connected with the operation of the Facilities (except for certain
excluded assets which are described below), for the consideration and upon the
terms and conditions hereinafter set forth;
NOW, THEREFORE, FOR AND IN CONSIDERATION of the promises and
of the mutual agreements hereinafter set forth, the parties hereto agree as
follows:
SECTION 1. SALE OF THE BUSINESS; ALLOCATION OF PURCHASE
PRICE:
A. Assets. Upon and subject to the terms and conditions set
forth in this Agreement, the Sellers hereby jointly and severally agree to
sell to Buyer on or before the date provided in Section 2 hereof, and Buyer
agrees to purchase from the Sellers, free and clear of all liens and
encumbrances save and except those hereinafter specifically assumed by Buyer
pursuant to Section 1.C. hereof, all of the tangible and intangible assets,
business and properties owned by the Sellers and/or utilized or otherwise
connected with the operation of the Facilities and Business including, without
limitation, all right, title and interest in and to the furniture; fixtures;
equipment; vehicles; real and personal property; inventories; disposables;
medical supplies (including pharmaceuticals and other supplies held for
resale), warranties and service contracts relating to all items transferred to
Buyer pursuant hereto; contracts for services or products, including all acute
dialysis contracts; patient lists; any goodwill associated with the Business;
prepaid expenses; transferable licenses; utility and security deposits; and
all other tangible and intangible property currently being used by any Seller
in or otherwise directly connected with providing services at the Facilities,
or elsewhere in the operation of the Business and any asset located at any
Seller's offices
<PAGE>
which relates to its operations of the Business or at the Facilities including
such assets as are listed in detail on Exhibit 1.1 hereto. All of such assets,
except for those excluded pursuant to Section 1.B hereof, shall be referred to
collectively as the "Assets".
B. Excluded Assets. Notwithstanding the above, excluded from
the sale shall be all: cash; cash equivalents; accounts receivable; insurance
benefit assignments; books of account; Medicare claims receivable for
collection losses owned by each Seller; the executory contracts and other
agreements not specifically assumed by Buyer pursuant to Section 1.C hereof;
the names "Continental Choice Care, Inc.", "Renal Management, Inc.", and any
other name substantially similar thereto; and the assets of CCC used in or
for administration, collections, accounting and legal functions, including,
but not limited to, the assets owned by Renal Management, Inc. (the
"Affiliated Entity"). Such assets so excluded hereunder shall be referred to
herein as the "Excluded Assets", and shall not constitute part of the Assets.
C. No Liabilities. The Assets shall be sold free and clear
of all liabilities, liens, charges and encumbrances, and Buyer shall not
assume any liability of the Sellers, fixed or contingent, disclosed or
undisclosed, at the Closing or otherwise, except those identified on said
Exhibit 1.2 hereto, all of which shall be assumed by Buyer (the "Assumed
Liabilities"). Except as set forth on Exhibit 1.3, each Seller agrees to
satisfy at or before the Closing, all liabilities, indebtedness and
obligations which constitute or may give rise to a lien against the Assets
other than Assumed Liabilities
D. Allocation. The purchase price for the Assets shall be
allocated among the Assets in accordance with Exhibit 1.4attached hereto
and incorporated herein by this reference.
SECTION 2. THE CLOSING:
A. The sale and purchase provided in this Agreement shall be
consummated at a closing to be held at the offices of Lane Altman & Owens LLP,
101 Federal Street, Boston, Massachusetts 02110 at 10:00 o'clock a.m., on the
10th business day, after compliance with all conditions precedent thereto as
specified in Section 7 hereof, whichever shall last occur. The date and event
of the sale and purchase are, respectively, hereinafter referred to as the
"Closing Date" and the "Closing".
B. On the Closing Date, the Sellers shall deliver to Buyer
all instruments and documents reasonably necessary for the transfer to Buyer
of the Assets to be sold hereunder, such documents and instruments to be in
form and substance reasonably satisfactory to counsel to the Buyer and to
include the following:
(i) A general bill of sale containing general
warranties of title and which will convey free and clear from
all claims, liens and encumbrances, the Assets to be sold
pursuant to the terms hereof, except for such liens and
encumbrances to which this transfer may be subject or as may
be specifically assumed by Buyer, as specified pursuant to
Section 1.C of this Agreement.
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(ii) An assignment of all intangibles owned by and
utilized by the Sellers in operation of the Business,
excluding the Excluded Assets.
(iii) Such other instruments of sale and assignment
as may be required to effectuate the sale and transfer
contemplated by this Agreement, including the consents
necessary to effectuate the transfer of any contract, right,
or license, which, by its terms, requires such consent unless
one or more specific consents are waived by Buyer on Exhibit
2.1.
At the Closing, the Sellers shall also deliver unto Buyer any releases,
subordinations or waivers of security interests against the Assets as Buyer
reasonably may require.
SECTION 3. PAYMENT OF CONSIDERATION FOR THE ASSETS:
Subject to reduction for liabilities assumed by Buyer or
encumbering Assets acquired by Buyer as identified pursuant to Section 1.B
hereof, the consideration to be paid by Buyer to the Sellers shall be the sum of
Thirteen Million One Hundred Twenty Thousand Dollars ($13,120,000) subject to a
reduction of $5,750,000 in the event Buyer should exercise the option to acquire
fifty (50%) percent of the shares of Upper Manhattan Dialysis Center, Inc.
("UMDC") as set forth in the Acknowledgment by UMDC Stockholders in this
Agreement (the "Purchase Price"). Such consideration shall be payable at the
Closing as follows: (a) One Million Dollars ($1,000,000) to be placed in escrow
with Crummy, Del Deo, Dolan, Griffinger & Vecchione, P.C., of Newark, New Jersey
(the "Escrow Agent") pursuant to the Escrow Agreement attached as Exhibit 3.1
hereto (the "Escrow Agreement") between Buyer, Sellers and Escrow Agent and
shall be disbursed in accordance with the terms specified in the Escrow
Agreement, and (b) the remainder to be paid in full by wire transfer to an
account designated in writing by CCC.
SECTION 4. ADDITIONAL AGREEMENTS
A. Access to Properties and Records. From the date of
execution of this Agreement to and until the Closing, the Sellers agree to
afford to the authorized representatives of Buyer opportunity to review the
books and records of the Business for the purpose of investigating the affairs
of the Business and the completion of Buyer's due diligence investigation. From
and after the date of execution of this Agreement and until the Closing, the
Sellers shall provide Buyer and its agents and employees with copies of all
medical, supplies, equipment, personnel, accounts receivable and other financial
records relating to patients, equipment, supplies and employees related to the
Business, subject to applicable law relating to maintaining privacy of medical
records. During such time period, Buyer shall be provided with the opportunity
to examine and/or audit the financial statements, books and records of the
Sellers relating to the Business and to investigate all aspects of the Business.
Information so obtained will be kept confidential by Buyer (except for
disclosure to Buyer's accountants, attorneys and other professionals involved in
the transaction whose conduct in complying with the confidentiality provisions
hereof shall be the responsibility of Buyer) prior to Closing.
B. Exclusive Dealings. From the date of execution of this
Agreement to and until the earlier of (i) Closing, or (ii) the Termination of
this Agreement pursuant to Section 14.A hereof,
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<PAGE>
no Seller shall directly or indirectly, nor shall it authorize or permit any of
its directors, officers, employees, affiliates, attorneys, accountants, or other
representatives or agents to (i) solicit or encourage submission of any proposal
or offer to acquire any of the Facilities, or, (ii) unless it is advised in
writing by outside legal counsel experienced in representing public corporations
that failure to do so would constitute a breach of fiduciary duty and such
written advice is delivered to Buyer, (a) participate in any discussion or
negotiations regarding any proposal or offer to acquire the Facilities; (b)
furnish to any person other than Buyer, information with respect to the
acquisition of the Facilities; or (c) cooperate in any way with or assist or
participate in any proposal or offer from any person other than Buyer to acquire
the Facilities; and Seller shall give Buyer prompt written notice of any other
offer or other proposal received regarding any acquisition of the Facilities,
including the terms thereof.
C. Medicare Cost Reports. Each Seller shall promptly prepare,
submit to Buyer for its review and file Medicare cost reports for the Facilities
for all periods up to and including the Closing Date within the time provided by
applicable law and regulations.
D. Proxy Statement. CCC will prepare and file a preliminary
Proxy Statement with the Securities and Exchange Commission ("SEC") as soon as
practicable after the date hereof, and will use its best efforts to respond to
the comments of the SEC in connection therewith. Promptly after receipt of
comments from the SEC, CCC will cause the definitive Proxy Statement to be
mailed to the stockholders of CCC in compliance with SEC Regulations and, if
necessary, after the definitive Proxy Statement shall have been so mailed,
promptly circulate amended, supplemental or supplemented proxy material and, if
required in connection therewith, resolicit proxies. Buyer will furnish CCC with
such information as the parties may agree is necessary or advisable for the
Proxy Statement, and any other statement or applications made by or on behalf of
Buyer or the Sellers to any public, governmental or regulatory body in
connection with the transaction contemplated by this Agreement and the other
transactions contemplated by this Agreement. In connection therewith:
(i) The Sellers' jointly and severally shall, without
limitation as to time, indemnify and hold harmless
the Buyer and its officers, directors, agents and
employees, to the fullest extent lawful, from and
against any and all losses, claims, damages,
liabilities, costs (including, without limitation,
costs of preparation and reasonable attorneys' fees)
and expenses, as incurred, arising out of or based
upon any untrue or alleged untrue statement of a
material fact contained in the Proxy Statement, or
any communication issued or made with respect to the
CCC Stockholder's Meeting (as defined in Section 4.E
below), or in any amendment or supplement thereto, or
arising out of or based upon any omission or alleged
omission of a material fact required to be stated
therein or necessary to make the statements therein
not misleading, except insofar as the same are based
upon information furnished in writing to the Sellers
by the Buyer; and
(ii) The Buyer shall, without limitation as to time,
indemnify and hold harmless CCC and its officers,
directors, agents and employees, to the fullest
extent lawful, from and against any and all losses,
claims, damages, liabilities, costs (including,
without limitation, costs of preparation and
reasonable attorneys'
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<PAGE>
fees) and expenses, as incurred, arising out of or
based upon any untrue or alleged untrue statement of
a material fact contained in the Proxy Statement, or
any communication issued or made with respect to the
CCC Stockholder's Meeting, or in any amendment or
supplement thereto, or arising out of or based upon
any omission or alleged omission of a material fact
required to be stated therein or necessary to make
the statements therein not misleading, insofar as the
same are based upon information furnished in writing
to the Sellers by, and were approved in writing by,
the Buyer.
E. Stockholder Approval. CCC shall promptly call, give notice
of, convene, and hold a meeting of its stockholders (the "CCC Stockholders'
Meeting) for the purpose of voting upon this Agreement, and CCC agrees that this
Agreement and the transactions described herein shall be submitted at the CCC
Stockholders' Meeting. The CCC Stockholders' Meeting shall be held as soon as
permissible and practicable following the date upon which the Proxy Statement is
distributed. CCC agrees that the Board of Directors of CCC will recommend that
its stockholders adopt and approve the execution, delivery and performance of
this Agreement, unless it is advised in writing by outside legal counsel
experienced in representing public corporations that to do so would constitute a
breach of fiduciary duty, and such written advice is delivered to Buyer.
F. Agreement to Vote for Transaction. The Voting Agreement in
form attached hereto as Exhibit 4.1 in favor of Buyer will be executed by all
parties named therein upon execution of this Agreement. CCC further agrees that
it will vote or cause to be voted all shares directly or indirectly owned by CCC
in the other Sellers in favor of the transactions contemplated by this
Agreement.
G. Each of Sellers and Buyer covenant and agree to execute and
deliver any and all documents to be executed and delivered at the Closing, to
satisfy all conditions to Closing which are solely within the power of such
party and to use reasonable best efforts to satisfy all conditions to Closing
which are within the power of any third party.
H. Sellers covenant to complete and deliver to Buyer by
February 23, 1997 all schedules, exhibits and due diligence materials.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE BUYER:
A. Organization/ Authorization. Buyer represents and
warrants unto the Sellers that the Buyer is a corporation
duly organized, validly existing, and in good standing under
the laws of the State of New York, that the purchase of the
Assets pursuant to this Agreement, and the execution,
delivery and performance of any agreements required to be
executed, delivered and performed by the Buyer pursuant to
this Agreement hereunder do not violate any agreement to
which the Buyer is a party, or any law, rule, order, or
judgment by which Buyer is bound, and are enforceable in
accordance with their terms, and that the execution and
delivery of such agreements, and the performance by Buyer of
the remaining transactions specified herein or in the
schedules, exhibits or documents appended hereto have been
duly
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<PAGE>
authorized by the Board of Directors of the Buyer, and the
officers of the Buyer who execute such documents have been
duly authorized to do so.
B. Financial Resources. Buyer has, or will have at
the Closing, sufficient financial resources to close the
transaction described herein on the Closing Date, assuming
that Sellers are not in breach hereunder and all conditions
for Closing have been fulfilled. Buyer will deliver to Seller
on or before February 14, 1997 a letter from International
Health Specialists, Inc. addressed to Seller confirming the
foregoing in a form reasonably satisfactory to Seller.
C. Licensing. Buyer has no knowledge of any fact or
circumstance which would have a material adverse affect on
its ability to secure the state or federal authorizations,
permits or licenses as conditions of Closing.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF SELLERS:
The Sellers, jointly and severally, represent and warrant
unto, and covenant with, Buyer that:
A. Organization\Authorization. Each of the Sellers is
a corporation which is duly organized, validly existing and in
good standing under the laws of the state of its organization,
as specified in Schedule 1. Other than the Affiliated Entity,
none of the Sellers have any direct or indirect interest in
any subsidiary, corporation, partnership, limited liability
company, joint venture, association or business enterprise
otherwise involved with the Business except for that being
transferred hereunder. Except for the vote to be taken at the
meeting of the Board of Directors and the CCC Stockholder's
Meeting, the execution and delivery by the Sellers of this
Agreement, and the execution and delivery by the Sellers of
all agreements required to be executed and delivered by them
pursuant to this Agreement, and the consummation of the
transactions contemplated hereby, have all been duly
authorized by all required or necessary corporate action. The
execution and delivery by the Sellers of all agreements
required to be executed and delivered by them pursuant to this
Agreement and the consummation of the transactions
contemplated hereby do not violate, result in the breach of,
or conflict with any agreement to which the Sellers, or any
one or more of them, is a party or by which the Sellers, or
any one or more of them, is or may be bound (except for
consents or approvals to be delivered at the Closing and
listed on Exhibit 6.0 attached hereto); the terms of any court
judgment, rule or order by which the Sellers, or any one or
more of them, is bound; or any of the Sellers' organizational
documents.
B. Financial Statements. Exhibit 6.1 attached hereto
contains: (i) the audited individual balance sheets of Upper
Manhattan Dialysis Center, Inc. ("UMDC"), National Nephrology
Foundation ("NNF") and CCC and the unaudited balance sheets
of all other Sellers except Alpha Administration Corp. who
are subject to consolidation, each as of December 31, 1994,
and December 31, 1995 and Sellers will further provide the
December 31, 1996 balance sheets of such Sellers as they
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become available; (ii) the audited income statement and
statement of changes in financial position of each of UMDC,
NNF and CCC and the unaudited income statement and statement
of changes in financial position of the other Sellers except
Alpha Administration Corp., for the periods ending on December
31, 1994 and December 31, 1995, and Sellers will further
provide the audited income statements and changes in financial
position of such Sellers as they become available; (iii) the
unaudited individual balance sheets of each of the Sellers and
the unaudited consolidated balance sheets of all the Sellers
who are subject to consolidation as of September 30, 1996, and
(iv) the unaudited income statement and statement of changes
in financial position of each of the Sellers and the unaudited
consolidated income statement and statement of changes in
financial position of the Sellers, for the period ending on
September 30, 1996 (collectively, the "Financial Statements").
Except for the lack of notes to, and year-end adjustments not
reflected in, the unaudited statements, all of the Financial
Statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a basis
consistent with that of the preceding years. Each of the
Financial Statements is in accordance with the books and
records of the applicable Seller, and fairly presents the
financial condition of such Seller at the dates and the
results of its operations for the periods described therein.
Except as and to the extent reflected or reserved against in
the Financial Statements, no Seller has any debts, liabilities
or obligations of any nature, whether accrued, absolute,
contingent, primary or secondary, direct or indirect (by
guaranties, surety contracts, indemnities or otherwise), or
otherwise, and whether due or to become due (including bonds
posted and guaranties given), other than obligations and
liabilities incurred since December 31, 1995 in the ordinary
course of the Seller's business.
C. Assets. Exhibit 1.1 contains a complete and
accurate list, arranged by Seller, identifying and specifying
the location, and the direct owner thereof, of all tangible
Assets of each Seller or used by any Seller in the operation
of the Business, and all warranties related thereto. Each of
the Sellers owns and at the Closing will own its respective
Assets free and clear of all claims, liens, security interests
and encumbrances, except for liens to be discharged or paid
off at or before the Closing, those listed on Exhibit 1.3, or
for those to be specifically assumed by Buyer at the Closing
pursuant to Section 1.C of this Agreement. All of the Assets
are now, and as of the Closing will be: (i) in reasonable
operating condition and repair (except for those assets
designated on Exhibit 1.1 as being retained solely for use as
spare parts), (ii) fit for the purpose for which they are
used, and (iii) where used or retained for purposes other than
spare parts, maintained consistently in accordance with the
manufacturer's recommendations. Except as specifically set
forth in Exhibit 6.2, to best of each and every Sellers
knowledge, the Assets and the use thereof by the Sellers in
the Business complies with all applicable governmental laws or
regulations, and there are no adverse circumstances or
conditions that may interfere with Buyer's use of the Assets
in the conduct of the Business immediately after the Closing.
D. Employees. Attached to this Agreement as Exhibit
6.3 is a list of all employees of each Seller who are
involved with the Business, the current
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<PAGE>
compensation of such employee, and Sellers will supply the
date of hire of each such person on or before February 23,
1997. Except as set forth in such exhibit, no Seller has a
written employment agreement with any employee, and no Seller
is a party to any union contract or any qualified or
nonqualified pension, profit-sharing, or similar retirement or
employee benefit plan, or any other compensation arrangement.
E. Inventory. The inventory of Sellers consists, and
at the Closing will consist, of items of a quality and
quantity useable in the ordinary course of the Business and
is no less inventory than necessary to conduct the Business
for fourteen (14) business days.
F. Conduct in the Ordinary Course of Business.
Between the date of this Agreement and the Closing, each
Seller will operate and maintain the Business in the usual
course, will take no corporate action out of the ordinary, and
will specifically refrain from disposing of any Assets (other
than Excluded Assets); increasing the compensation of any of
its employees who are to be terminated by Sellers pursuant
hereto; creating any liens; incurring any indebtedness for
borrowed money; entering into, amending or renewing any
contracts; entering into any contracts to purchase supplies;
or making any unusual payments or distributions to anyone; or
entering into other transactions, other than such of these
enumerated actions as may arise in the normal and usual course
of business as conducted on a day-to-day basis or as may
otherwise be approved in writing by Buyer. Notwithstanding the
foregoing, Buyer acknowledges and approves the payment for and
financing(if desirable) of the dialysis units obtained since
July 1996 listed on Exhibit 6.9 hereto. The salary and fringe
benefit package of new employees of the Business (if other
than consistent with past practices), and the identity of and
the arrangement with any medical director must be approved in
writing by Buyer.
G. Compliance with Laws. That, except as disclosed on
Exhibit 6.4 hereto, the Sellers' operation of the Business as
of this date is, and as of the Closing Date will be in
compliance with all applicable laws, rules, and regulations of
the city, county, state, and federal governments including
without limitation, all applicable health, safety, pollution,
equal opportunity (including affirmative action compliance),
and ERISA laws or regulations. None of the Sellers is a party
to any administrative proceeding before any state Department
of Public Health Services or any similar agency, or any other
state or federal agency which governs the Business or the
operation and conduct of the Business, nor is any
administrative order pending as to any such agency. All
permits, licenses, accreditations, consents, approvals,
franchises, certificates of need, certifications, and other
authorizations and the like (the "Licenses", including,
without limitation, the licenses to operate the Facilities
issued by the New York Department of Public Health Services or
New Jersey Division of Health Services, and the Medicare
provider numbers issued by the Health Care Financing
Administration) necessary to operate the Business have been
obtained by each Seller, are valid and in full force and
effect, and a list of each is attached as Exhibit 6.5 hereto.
None of the Sellers engages in any activity which would cause
revocation or suspension of any such License or the like, and
no action or proceeding
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<PAGE>
looking to or contemplating the revocation or suspension
thereof is pending or threatened, nor have any of the Sellers
engaged in any activity which would cause revocation or
suspension of any such License of the Buyer following the
Closing.
H. Litigation. Except as set forth on Exhibit 6.6 to
this Agreement: (i) there are no actions, suits, proceedings
or investigations (whether or not purportedly on behalf of any
Seller) at law or in equity before any court or before any
federal, state, municipal or other governmental department,
commission, board, bureau, agency, arbitrator or
instrumentality, domestic or foreign, pending or threatened,
anticipated or contemplated against, by, or affecting any
Seller, or the transactions contemplated by this Agreement,
including, but not limited to, any malpractice claims; any
such claims, actions, suits, proceedings or investigations
which question or challenge the validity of this Agreement or
any action taken or to be taken by Seller pursuant to this
Agreement or in connection with the transactions contemplated
hereby; or which, if valid, would constitute or result in a
breach of any representation, warranty or agreement contained
herein; and (ii) there is no valid basis for the commencement
of any such claims, actions, suits, proceedings or
investigations. Sellers will update Exhibit 6.6 hereto, to the
Closing Date to include any litigation, proceeding, or
material claim of any nature whatsoever pending or threatened
against the Sellers or any one of them, and will as of the
Closing Date represent that none of the Sellers know or have
reasonable grounds to know of any basis for any claim,
proceeding or litigation against the Sellers or any one of
them, other than the claims, proceedings or litigations listed
on Exhibit 6.6, as updated.
I. Absence of Changes. Except as set forth on Exhibit
6.7 to this Agreement and for changes in the ordinary course
of business, since December 31, 1995, there has not been:
(i) any actual, pending, threatened, anticipated or
contemplated:
(a) dispute of any kind with any customer,
client, supplier employee, landlord, subtenant or
licensee of Seller;
(b) loss of contract rights or business
relationships of Seller, or
(c) change, occurrence or situation of any
kind, nature or description;
which, individually or in the aggregate, has resulted
in, or is reasonably likely to result in, a material
adverse change in the business, operations, earnings,
backlog, prospects, properties, assets, liabilities
(absolute, accrued, contingent or otherwise, whether
due or to become due), reserves, or condition,
financial or otherwise, of Seller;
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(ii) any material transfer of, or lien or other
encumbrance of any nature whatsoever placed on or
against any of Seller's property or assets used in
the conduct of the Business; or
(iii) any material change in the business or
commercial practices customarily followed by Seller.
Seller knows of no impending loss of customers, suppliers or
employees of Seller that might have a material adverse effect
on the Business, or which might prevent Buyer from carrying on
such Business in substantially the same manner in which it is
carried on at the date of this Agreement.
J. Taxes. Except as disclosed in Exhibit 6.8 hereto:
(i) all returns for taxes, including but not limited to,
income, sales, use, franchise, excise, property and employment
taxes, whether required by any federal, state, or other
governmental authority, which are due as of the date hereof
for the periods up to and including the date hereof have been,
and those which are due as of the Closing Date for periods up
to and including the Closing Date will be, duly prepared and
filed in good faith by the Sellers, or extensions for filings
have been obtained from the appropriate taxing authorities
within the prescribed time frames for obtaining extensions;
(ii) copies of such returns for the last three completed
fiscal years have been provided to Buyer, and all taxes of any
kind for which the Sellers are liable have been paid or
reserves have been taken and will be preserved therefor; and
(iii) there are no pending tax audits or controversies of the
Sellers before any state or governmental authority. A complete
listing of the tax returns whose filings have been extended is
found on Exhibit 6.8. A copy of any tax return whose filing
has been extended shall be provided to Buyer when such returns
are filed with the appropriate governmental agencies.
K. Material Agreements. Exhibit 6.9 lists (each
identified to an individual Seller) all leases of real and
personal property, employment agreements not specifically
detailed in Exhibit 6.3 hereto, service agreements,
maintenance agreements, medical director agreements,
agreements for acute dialysis, hemodialysis and peritoneal
dialysis services, agreements for the sale or purchase of
supplies, services and other goods, and all other material
contracts relating to the Business to which the Sellers, or
any one or more of them, are a party or by which the Sellers,
or any one or more of them, may be bound in excess of $5,000.
Complete copies of such documents have been delivered to
Buyer. The obligations of the Sellers under each of the
executory contracts relating to the Business to which the
Sellers, or any one or more of them, are a party or may be
bound are current, and none of the Sellers is in default in
performance of the obligations to be performed by Sellers
under such contracts so listed in such exhibit, and none of
the Sellers has received notice of intention to terminate any
such agreement pursuant to the termination rights provided
therein and/or of any alleged default on behalf of Sellers
under any such contract nor are the Sellers aware of any act
or omission on behalf of any of the Sellers or any event which
with the passage of time will entitle any party to any such
contract other
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than the Sellers to declare a default thereunder or to entitle
such party to terminate any such contract.
L. ESRD Programs\Surveys. Each of the Facilities is
certified under the conditions of coverage and participates in
the federal Medicare program as an end- stage renal disease
("ESRD") facility providing ESRD services. Each Seller has
delivered to Buyer complete and correct copies of all surveys,
reports or deficiency notices concerning the Facilities by the
Medicare program, the state survey agency, the Medicaid
program or the Kidney Disease Program; and all corrective
actions set forth in any filing by the Sellers in response to
deficiencies identified by: (i) the New York or New Jersey
Departments of Health, or (ii) the federal Department of
Health and Human Services, in any monitoring survey of any
Seller (all of which have been delivered to Buyer), have been
accepted by such agency and completed by such Seller, and
that, to the best knowledge of Sellers, no further
deficiencies exist. Except as set forth on Exhibit 6.10
hereto, the Medicare certification of each Facility is in full
force and effect and no violation of the conditions and
standards of coverage, participation or certification with
respect to the Facilities exists and, to each Seller's
knowledge, no event or circumstances exist which with the
giving of notice or passage of time, or both, would constitute
a material violation thereof such as to have an adverse effect
upon the use or operation of the Assets or Business by the
Buyer following the Closing.
M. No Falsehoods or Omissions. No statement made by
any Seller in any certificate, document, list or exhibit
furnished to Buyer in connection with this transaction
contains or will contain any untrue statement of a material
fact, or omits to state or will omit to state a material fact
necessary to make the statement contained herein or therein in
light of the circumstances under which it was made not
misleading. True and correct copies of all documents referred
to on the exhibits hereto as currently in effect, have been
delivered to Buyer.
N. Insurances. Exhibit 6.11(a) is a list and brief
description of all policies or binders of fire, liability,
product liability, worker's compensation, health and other
forms of insurance policies or binders currently in force
insuring the Sellers against risks which will remain in full
force and effect (or will be replaced by substantially similar
coverage) at least through the Closing Date. Exhibit 6.11(b)
contains a description of all malpractice liability insurance
policies of the Sellers. Except as set forth on Exhibit
6.11(c), (i) no Seller has ever filed a written application
for any insurance coverage which has been denied by an
insurance agency or carrier and (ii) each Seller has been
continuously insured for professional malpractice claims for
the lesser of (a) the period from the inception of such Seller
until the date hereof or (b) the past seven (7) years. Exhibit
6.11(c) also sets forth a list of all claims for any insured
loss in excess of $5,000 per occurrence, filed by such Seller
during the three (3) year period immediately preceding the
Closing Date, including but not limited to, worker's
compensation, general liability, environmental liability and
professional malpractice liability claims. None of the Sellers
is in material default with respect to any
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provision contained in any such policy and none of the Sellers
has failed to give any notice or present any claim under any
such policy in due and timely fashion.
O. [Reserved]
P. Patient List. Attached Exhibit 6.12 is a complete
and correct list ("Patient List") of all ESRD in center and
home based patients, and all other patients receiving
dialysis services and supplies from the Sellers as of the
date thereon, which date is no earlier than February 1, 1997.
Q. Physician List. Attached Exhibit 6.13 is a
complete and correct list ("Physician List") of all
physicians or groups of physicians ("Physicians") attending
or admitting patients to the Facilities, indicating the
number of patients appearing on the Patient List admitted by
each, and the Facility to which they are admitted.
SECTION 7. CONDITIONS TO OBLIGATIONS OF BUYER:
The obligations of Buyer under this Agreement are subject to
the fulfillment, on or before the Closing Date, of each of the following
conditions, unless such are waived by Buyer in writing:
A. The Sellers shall at Closing on the Closing Date
deliver to Buyer UCC and lien searches dated within five (5)
days of the Closing Date in which all liens against any Seller
or the Business are listed.
B. All of the terms, covenants, and conditions of
this Agreement to be complied with or performed by the Sellers
at or before the Closing Date shall have been duly complied
with and performed by them, and all representations and
warranties of the Sellers made in or pursuant to this
Agreement shall be true, accurate and complete as of the
Closing Date as if made on and as of that date; and each
Seller shall have delivered to Buyer their certificates to the
foregoing effect.
C. All executory contracts being assumed by Buyer
shall have been assigned by the Sellers to Buyer unless
otherwise agreed.
D. Each Seller shall have obtained at its sole
expense such written consents and/or approvals as may be
required by Buyer from all creditors, lessors, or other
persons in form and content reasonably satisfactory to Buyer
that the proposed sale of the Assets, including the assignment
of contracts, will not result in a breach, declaration of
default, or otherwise adversely affect any debt, lease,
agreement or other obligation or contract or liability of such
Seller except as may be waived in writing by Buyer.
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E. That the Sellers shall deliver to the Buyer at
Closing an opinion of counsel to the Sellers in form and
substance satisfactory to counsel for Buyer, to the effect
that, as of the Closing:
(i) Each Seller is a corporation duly
organized, validly existing and in good standing
under the laws of the state of its incorporation;
(ii) Each Seller has full corporate power to
carry out the transactions provided for in this
Agreement; all corporate and other proceedings
required to be taken by or on the part of each Seller
to authorize it to execute and deliver this Agreement
and to consummate the transactions contemplated by
this Agreement have been duly and validly taken; and
this Agreement has been duly and validly authorized,
executed, and delivered by each Seller and is a
legally binding obligation of each Seller enforceable
in accordance with its terms;
(iii) Neither the sale of the Assets nor the
transactions contemplated by this Agreement require
compliance by any Seller with the provisions of any
statutes or regulations applicable to the transaction
contemplated by this Agreement, other than
potentially the New York or Connecticut Bulk Sales
Act; and
(iv) The consummation of this Agreement will
not (a) give rise to or cause any default under any
of the terms, conditions, or provisions of any note,
bond, mortgage, indenture, license, agreement, or any
other instrument or obligation to which any Seller is
a party or by which it or any of its properties or
assets may be bound which are known to counsel after
reasonable inquiry of the Sellers, or (b) violate any
court order, writ, injunction, or decree applicable
to any Seller or any of its properties or assets.
Such opinion of counsel may take exception for or be subject
to matters such as the rights of creditors generally and the
discretion of a court to grant equitable remedies, and once
prepared shall be appended hereto as Exhibit 7.1 to this
Agreement.
F. Alpha Administration Corp. shall have received all
necessary approvals for, and closed its acquisition of, all
of the assets of the South Bronx Kidney Center, on
substantially the terms set forth in the pleadings filed in
the December 1996 action entitled In the Matter of the
Application of National Nephrology Foundation, Inc., in the
Supreme Court of the State of New York; and all assets to be
acquired thereby have been listed on Exhibit 1.1 hereof, and
otherwise comply with all of the representations and
warranties of Sellers herein contained.
G. The transactions contemplated hereby shall have
been approved by all applicable federal, state and other
governmental authorities and agencies which are required to
approve same including, but not limited to, any approvals (or
expiration of applicable waiting periods) required under the
Hart-Scott-Rodino Antitrust
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Improvements Act of 1976. The parties agree to prepare in good
faith and to prosecute with due diligence all applications for
the governmental approvals.
H. The execution and consummation of this Agreement,
the representations, warranties and covenants of Sellers
herein contained, and the transactions described herein shall
have been fully ratified, adopted and approved by the Board of
Directors and the Stockholders of UMDC, and this document
shall have been duly executed on behalf of UMDC by March 31,
1997 or Buyer shall have exercised the option on UMDC shares
set forth at the foot of this Agreement.
I. The execution and consummation of this Agreement,
the representations, warranties and covenants of Sellers
herein contained, and the transactions described herein shall
have been fully ratified, adopted and approved by CCC's Board
of Directors by February 23, 1997 and by the Stockholders of
CCC. By February 24, 1997, CCC shall certify that its Board
has approved the execution and delivery of this Agreement and
all Schedules, Exhibits and due diligence materials required
of Sellers shall have been delivered to Buyer.
J. CCC shall have entered into a Consulting Agreement
with Buyer agreeing to provide the services of certain
officers of Seller identified therein in the form attached
hereto as Exhibit 7.2, and each of the Sellers and the
Affiliated Entity, and the respective executive officers,
directors and affiliates of each, shall have entered into a
Non-Competition Agreement with Buyer in the form attached
hereto as Exhibit 7.3.
K. The Sellers shall have purchased tail insurance
for extension of protection afforded by the current policies
of liability insurance for at least a five year period as
provided in Section 12.C herein, or shall have demonstrated to
Buyer's satisfaction in its sole discretion, that the policies
they have in place will provide coverage in all respects
identical to that which would be provided by such tail
insurance.
L. Effective at Closing, (i) all employees of the
Facilities and the Business designated by Buyer shall have
been terminated by the Sellers and hired by Buyer (with the
exception of the administrative employees of CCC's corporate
office), (ii) all accrued salary, sick leave and vacation time
shall be paid to such employees by the Sellers, and (iii) all
employee benefit plans shall have been treated by Sellers as
partially terminated with respect to such employees, unless
such plans are fully terminated by the Sellers.
M. On or before the Closing Date, the Buyer shall
have been duly licensed in the States of New York, New Jersey
and Connecticut, as applicable, to operate the Facilities and
the Business as it is operated by the Sellers on the date
hereof, and Buyer shall have obtained or applied for a
Medicare provider number for the Facilities and all other
necessary accreditations, authorizations, consents and
approvals
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necessary to operate the Business, the Buyer agreeing to use
reasonable best efforts with respect to obtaining the same.
N. On or before the Closing, Buyer shall have entered
into an agreement with one or more nephrologist(s) to act as
medical director(s) of each of the Facilities; provided
however that this condition shall be deemed to have been met
unless Buyer shall have failed to enter into agreements with
such nephrologists as it, in its sole discretion, has
identified as candidates for such position(s), after having
made offers of compensation and other terms of employment
reasonably similar to those enjoyed by individuals currently
in Buyer's employ in similar positions; and provided further
that if Buyer determines to offer any of Sellers' existing
medical directors a continuing position (and makes no other
offer) the condition will not be deemed to have been met if
Buyer fails to offer such physician compensation at least
equal to that which he has been receiving as of December 31,
1996.
O. Buyer shall have completed its investigation and
examination of the ownership, condition, and nature of the
Assets; the financial condition and operations of each
Facility; and the business, affairs, books and records of each
of the Sellers in a "due diligence investigation"; and the
results thereof shall have been deemed acceptable by Buyer in
its sole discretion with respect to each Seller. Such
condition shall be deemed satisfied unless Buyer shall notify
Sellers in writing on or before March 15, 1997, or such later
date as may be two weeks following the receipt by Buyer of the
December 31, 1996 edition of the Financial Statements, as to
the matters which are not acceptable, or as to which matters
have not been fully disclosed.
SECTION 8. CONDITIONS TO OBLIGATIONS OF SELLERS:
All obligations of the Sellers under this Agreement are
subject to the fulfillment, on or before the Closing Date, of each of the
following conditions, any or all of which may be waived by the Sellers:
A. All the terms, conditions, and covenants of this Agreement to be
complied with and performed by Buyer at or before the Closing Date shall have
been duly complied with and performed.
B. Buyer shall have delivered to the Sellers at Closing an
opinion of its counsel that as of the Closing Date:
(i) The Buyer is a corporation duly
organized, validly existing and in good standing
under the laws of the state of its incorporation;
(ii) The Buyer has full corporate power to
carry out the transactions provided for in this
Agreement; all corporate and other proceedings
required to be taken by or on the part of Buyer to
authorize it to execute and deliver this Agreement
and to consummate the transactions contemplated by
this
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Agreement have been duly and validly taken; and this
Agreement has been duly and validly authorized,
executed, and delivered by Buyer and is a legally
binding obligation of Buyer enforceable in accordance
with its terms; and
(iii) The execution of this Agreement, and
the exhibits thereto, and such additional documents
required to be executed or delivered by the Buyer and
the consummation of the transaction contemplated
hereby do not violate any agreement to which the
Buyer is a party which is known to counsel after
reasonable inquiry of the Buyer, or any court order,
injunction or decree applicable to Buyer, and are
enforceable in accordance with their terms.
Such opinion of counsel may take exception for or be subject
to matters such as the rights of creditors generally and the
discretion of a court to grant equitable remedies, and once
prepared shall be appended hereto as Exhibit 8.1 to this
Agreement.
C. Buyer shall have assumed the obligations of the
Sellers under the contracts it agrees to assume as identified
on Exhibit 1.2 hereof, subject to the required consents and
approvals of third parties disclosed herein.
D. The execution and consummation of this Agreement,
the representations, warranties and covenants of Sellers
herein contained, and the transactions described herein shall
have been fully ratified, adopted and approved by the Board of
Directors and the Stockholders of UMDC, and this document
shall have been duly executed on behalf of UMDC or Buyer shall
have exercised the option on UMDC shares set forth at the foot
of this Agreement.
E. Buyer shall have entered into a Consulting
Agreement with CCC and the individuals named therein, agreeing
to provide the services of certain officers of Seller
identified therein in the form attached hereto as Exhibit 7.2.
F. The execution and consummation of this Agreement,
the representations, warranties and covenants of Sellers
herein contained, and the transactions described herein shall
have been fully ratified, adopted and approved by CCC's Board
of Directors by February 23, 1997 and by the Stockholders of
CCC
G. The transactions contemplated hereby shall have
been approved by all applicable federal, state and other
governmental authorities and agencies which are required to
approve same including, but not limited to, any approvals (or
expiration of applicable waiting periods) required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. The
parties agree to prepare in good faith and to prosecute with
due diligence all applications for the governmental approvals.
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SECTION 9. RISK OF LOSS:
It is understood and agreed that pending the Closing and the
parties' delivery of the instruments of transfer referred to in Section 2
hereof, the Buyer does not assume and shall not in any event be responsible or
liable for, any loss or damage to any of the properties and assets to be
transferred hereunder from any cause whatsoever, whether by fire, casualty or
otherwise. In the event any such loss occurs prior to the Closing, or in the
event any Facility is closed or interrupted by reason of any event not in the
ordinary course of its business, the Buyer shall have the right to terminate
this Agreement on written notice to Sellers, or to make an equitable adjustment
to the Purchase Price reasonably acceptable to Seller with respect to such loss,
damage or action. All risk of loss after the Closing shall be borne by Buyer.
SECTION 10. ADJUSTMENTS; PRORATIONS:
A. The Purchase Price shall be adjusted dollar for dollar for
any Assumed Liabilities, other than (i) real estate leases and (ii) except as
set forth on Exhibit 1.3.
B. Any liability, accrued or unaccrued, for taxes from
operation of the Facilities or the Business prior to Closing shall be discharged
by the Sellers promptly and in their entirety. Any taxes from operation of the
Facilities or the Business after the Closing Date shall be discharged by the
Buyer in their entirety. For this purpose, "taxes" shall include federal income
taxes, and any and all business related taxes including, but not limited to,
franchise and excise taxes, sales and use tax, gross receipt taxes, state and
federal employee income tax withholding, Federal Social Security Tax (FICA)
withholding, employment taxes, ad valorem personal property taxes, and business
or license fees or any other tax applicable to the Facilities or the Business.
In no event shall Buyer be liable for income, transfer, sales, use and other
taxes arising from or in connection with the consummation of the transactions
contemplated hereby.
SECTION 11. INDEMNIFICATION:
A. The Sellers jointly and severally agree to indemnify Buyer
from and with respect to any and all loss, liability, or additional expense,
including reasonable attorney's fees, as Buyer may incur from and with respect
to any material misrepresentation made herein, or in any schedule, exhibit or
other document executed by the Sellers or delivered by them pursuant to this
Agreement, or for any material breach of any Seller's warranties or covenants
imposed herein upon the Sellers or made herein by the Sellers, whether due to an
undisclosed or understated liability of the Sellers, or from any action or
inaction of the Sellers on or prior to the Closing Date, including specifically,
but not limited to, any and all expenses, costs and liabilities that may arise
as a result of the failure of the parties to comply with the Bulk Sales Acts of
the States of New York, New Jersey or Connecticut, if applicable, and to
indemnify and hold harmless Buyer and its affiliates from any and all expenses,
costs and for liabilities associated therewith.
B. The Buyer agrees to indemnify the Sellers from and with
respect to any and all loss, liability, or additional expense, including
reasonable attorney's fees, as any one or more of
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them may incur from and with respect to any material misrepresentation made
herein, or in any schedule, exhibit or other document executed by Buyer or
delivered by it pursuant to this Agreement, or for any material breach of
Buyer's warranties or covenants imposed herein upon the Buyer or made herein by
the Buyer, whether due to the failure of Buyer to perform an executory contract
assumed by the Buyer, or from any action or inaction of the Buyer after the
Closing Date, or otherwise.
C. The rights of any party seeking recourse under the
indemnification provisions of this Agreement must be asserted by filing an
action in a court of appropriate jurisdiction or by delivering a written notice
of the claim for indemnification to the party from whom indemnification is
sought within two (2) years after the Closing Date, unless the claim so asserted
(i) relates to a medical malpractice claim or is attributable to loss,
liability, expenses or claims made by any federal, state or local government,
governmental agency or governmental payor for health services, in which instance
the indemnification claim must be asserted within three (3) years after the
Closing Date; or (ii) relates to the failure to pay the proper amount of taxes
(as such term is used in Section 10(B) hereof) in which instance the
indemnification claim must be asserted within three (3) years from the later of:
(a) the date the tax return for such tax was filed, or (b) the date the tax
payment was due to be paid to an appropriate taxing authority, including any
extensions; or (iii) relates to any loss, liability or cost described in the
last sentence of Section 4.D, in which instance the indemnification claim may be
asserted within two years after the date the party claiming indemnification
receives notice of such loss, cost or liability.
D. In no event shall there be any recourse by Buyer to the
provisions for indemnification under this Agreement unless the amount of loss,
liability, or expense actually incurred by Buyer seeking to exercise the right
to indemnification under this Agreement exceeds $100,000 with all loss,
liability or expense (net of related insurance recovery) associated with this
Agreement. In such event the right of any party to enforce this indemnification
provision shall be all loss, liability, or expense, not just that in excess of
$100,000. Notwithstanding the above, the restrictions set forth in the preceding
two sentences shall not apply with respect to: (i) any loss, liability or
expense actually incurred which relates to: (i) any liability for taxes as such
term is used in Section 10.B. hereof; (ii) any liability or obligation to third
parties which is not specifically assumed by Buyer; or (iii) any liability, cost
or loss described in Section 4.D(i).
E. Notwithstanding the previous provisions of this Section 11,
the covenants, warranties, representations, and obligations of the parties
regarding: (i) Buyer's obligation to indemnify the Seller for the executory
contracts and agreements assumed pursuant to Section 1.B. shall survive for the
life of such contracts and/or agreements; (ii) the parties' obligations and
covenants which by the terms hereof are to be performed hereafter, shall survive
for the periods within which such performance is to occur, plus 180 days; and
(iii) Sellers' warranties and representations of title shall not expire.
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SECTION 12. POST-CLOSING COVENANTS:
A. Cooperation. The Parties agree to cooperate with each other
in the preparation and filing of any federal, state or other governmental
reports or filings required to be filed by any of them as a result of or with
respect to the transactions contemplated hereby. Each such return, report or
filing shall be reviewed by the non-filing parties, and its truth and accuracy
confirmed, to the best of such parties' knowledge, in writing, such that the
return may be timely filed.
B. Discharge of Debts. Sellers jointly and severally agree
promptly and in due course to discharge any and all of the debts, claims, and
expenses of each Seller which relate to the Business or the Facilities and which
are not specifically assumed or agreed to be discharged by Buyer pursuant to
this Agreement. The liabilities to be discharged by the Sellers shall include
without limitation: [i] all short-term or long-term liabilities of the Sellers,
whether or not shown on the books of the Sellers as of the Closing; [ii] any
liabilities whether or not required by GAAP to be recorded on the books of the
Sellers for accrued vacation and sick pay leave, compensatory time medical
insurance benefits, qualified plan benefits and other employee-related
obligations through the Closing; [iii] all taxes which relate to the operation
of the Business by the Sellers through the Closing, including liability of the
Sellers for federal income taxes or New York, New Jersey or Connecticut
franchise and excise taxes, sales, use or other taxes for that portion of 1997
which ends with the Closing Date; [iv] liability for all sums payable to third
parties for goods or services ordered by, shipped to or received by the Sellers
at or prior to the Closing; and [v] within 5 months after the Closing, all other
obligations of the Sellers of any kind whether known or unknown, except for
executory contracts, which exist as of the Closing or which arise after the
Closing and are based on any act, omission, transaction or circumstance
occurring on or before the Closing unless such liability is specifically assumed
or agreed to be discharged by Buyer pursuant to this Agreement, and any other
liability from the provision of services by the Sellers on or prior to the
Closing.
C. Tail Insurance. Each Seller shall maintain in force and
effect for five (5) years from the Closing Date the Tail Insurance Coverage
relating back five (5) years prior to the Closing Date, as defined in this
Section. Each Seller shall deliver to Buyer at the Closing and on each of the
successive anniversaries of the Closing Date a certificate of insurance
evidencing the Tail Insurance Policy. The "Tail Insurance Coverage" shall be
health care services professional liability converge with its current insurers
or a financially sound and reputable insurance company or association selected
by each Seller with limits of liability of $1,000,000 per loss and $3,000,000
annual aggregate, naming each Seller, its individual shareholders or successor
in interest, as may be appropriate, as an insured and covering the health care
services professional liability risk arising out of such Seller's operation of
the Business and the Facilities on or before the Closing Date. In the alternate,
Seller shall have demonstrated to Buyer's satisfaction in its sole discretion,
that the policies they have in place will provide coverage in all respects
identical to that which would be provided by such Tail Insurance.
D. Tax Matters. Each party will provide the other such
assistance as may be reasonably requested in connection with the preparation of
any tax return, any audit or other examination by any taxing authority, or any
judicial or administrative proceedings relating to liability for taxes, and each
will retain and provide the other with any records or information which may be
relevant to such return, audit or examination, proceedings or determination. The
party requesting
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assistance hereunder shall reimburse the other party for reasonable expenses
incurred in providing such assistance. Any information obtained pursuant to this
Section or pursuant to any other Section hereof providing for the sharing of
information or the review of any tax return or other schedule relating to taxes
shall be kept confidential by the parties and shall not be used to the detriment
of the other party or for the benefit of the requesting party.
E. Records and Documents. For seven (7) years following the
Closing Date, Sellers shall grant to Buyer and its representatives, at Buyer's
request, at such reasonable times during regular business hours as may be
requested by Buyer, access to and the right to make copies of those records and
documents related to the operation of the Business, and Facilities or the Assets
prior to the Closing Date, possession of which is retained by each Seller as
Buyer may deem to be reasonably necessary or useful in regard to the Business,
the Facilities or the Assets. If during such period any Seller elects to dispose
of such records, such Seller shall first give Buyer 90 days' written notice
during which period Buyer shall have the right to take such records.
SECTION 13. EXPENSES:
Each party shall bear its own expenses and costs, including,
without limitation, all counsel fees and fees of finders or brokers, and
transfer taxes. Neither party knows of the existence of any person entitled to a
finders or brokers fee as a result of the negotiations relative to or
consummation of this transaction.
SECTION 14. TERMINATION:
A. Any party to this Agreement may terminate this Agreement
with the prior authorization of its board of directors as provided below:
(i) the parties may terminate this Agreement by
mutual written consent at any time prior to the Closing Date;
(ii) the Buyer may terminate this Agreement by giving
written notice to the Sellers at any time prior to or at the
Closing, (a) in the event that any Seller has breached any
representation, warranty, or covenant contained in this
Agreement in any material respect, (b) if Buyer shall
determine that: (I) the transaction has become inadvisable or
impracticable by reason of the institution or threat by any
state, local or federal governmental authorities or by any
other person of material litigation or proceedings against any
of the parties hereto or any of the entities controlled by or
affiliated with such entities pertaining to or affecting the
transaction; or (II) the business or assets or financial
condition of any of the Sellers hereto individually, or in the
aggregate, has been materially and adversely affected, whether
by reason of changes or developments or operations in the
ordinary course of business since December 31, 1996, or (c) if
the Closing shall not have occurred on or before September 30,
1997, and the failure to so close relates to conditions not
met by Sellers;
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<PAGE>
(iii) the Sellers may terminate this Agreement by
giving written notice to the Buyer at any time prior to or at
the Closing: (a) in the event that Buyer has breached any
representation, warranty or covenant contained in this
Agreement in any material respect; (b) the transaction has
become inadvisable or impractical by reason of the institution
or threat by any state, local or federal governmental
authorities or by any other person of material litigation or
proceedings against any of the parties hereto or any of the
entities controlled or affiliated with such entities
pertaining to or affecting the transaction; or (c) if the
Closing shall not have occurred on or before September 30,
1997 and the reason for the failure to so close relates to
conditions not met by Buyer; or
(iv) notwithstanding the provisions of clauses (ii)
or (iii) hereof, either the Sellers or Buyer may terminate
this Agreement by giving written notice to the other party if
the requisite governmental approvals and licenses have not
been obtained by August 31, 1997 but not sooner, despite the
reasonable best efforts of the terminating party, unless
extended by the mutual consent of the parties.
If Buyer or Sellers asserts or assert the existence of a breach
pursuant to clauses (ii) or (iii) of this Section 14.A., the party asserting
such breach shall so notify the other party in writing. Such notice shall
include a specific statement as to the act, omission or breach which
specifically sets forth the corrective action which the party asserting such
breach contends is necessary to cure the breach, or if no such cure is possible,
a statement to that effect. The other party shall be given a period of thirty
(30) days within which to cure such alleged breach, if capable of being cured,
and the closing of the transaction shall be extended during such thirty (30) day
period.
B. If any Party terminates this Agreement pursuant to Section
14.A. above, all rights and obligations of the parties hereunder shall terminate
without any liability of any party to any other party (except for any liability
of any party then in breach); provided, however that the confidentiality
provisions contained in the first sentence of Section 15 below and Section 14.C
shall survive any such termination.
C. If Buyer is not in material breach of its obligations
contained herein and if this Agreement is terminated by Buyer by reason of
Seller's breach of any representation, warranty or covenant contained in this
Agreement, or by Seller or Buyer by reason of the failure of the CCC
stockholders to adopt this Agreement or if the meeting of CCC Stockholders to
approve this Agreement is not held, and at any time on or prior to the
expiration of eighteen 18 months following termination of this Agreement, a
definitive agreement is entered into for the acquisition of all or substantially
all of the Sellers' equity or assets with a person other than Buyer, or any of
its affiliates at an aggregate purchase price in excess of the Purchase Price
contemplated in this Agreement, then CCC shall pay Buyer, upon Buyer's request,
$500,000. The Sellers acknowledge that the agreement contained in this Section
14.C are an integral part of the transactions contemplated by this Agreement and
that, without these agreements, Buyer would not enter into this Agreement.
Accordingly, if CCC fails to pay any amounts pursuant to this Section 14.C, and,
in order to obtain such payment, legal action is commenced which results in a
judgment against CCC therefor, CCC will pay the plaintiff's reasonable costs
(including reasonable attorneys' fees) in connection with such suit, together
with
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<PAGE>
interest computed on any amounts determined pursuant to this Section 14.C
(computed from the date or dates incurred) at the prime rate of interest
announced from time to time by Citibank, N.A. CCC's obligations pursuant to this
Section 14.C will survive any termination of this Agreement.
SECTION 15. CONFIDENTIALITY:
All information and documents relating to the Facilities
obtained pursuant to Buyer's due diligence investigation and not otherwise
publicly available shall at all times be treated as confidential by Buyer, and
shall not be disclosed to or discussed with any third party (except Buyer's
accountants, bankers, counsel, and other advisors) or otherwise utilized for any
purpose unrelated to the transactions contemplated by this Agreement. In the
event this Agreement is terminated for any reason, all documents relating to the
Sellers and the Business obtained by Buyer from Seller in Buyer's due diligence
investigation shall be promptly returned to the Sellers.
SECTION 16. MISCELLANEOUS:
A. The parties agree, after the Closing, to do, execute,
acknowledge, and deliver all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney, and assurances as may be required to consummate
the transactions contemplated hereby.
B. Subject to the terms and conditions hereof, this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective administrators, successors, and assigns.
C. Any notice, request, instruction, or other document to be
given hereunder to any party shall be in writing and delivered personally or
sent by Certified United States Mail, postage prepaid, return receipt requested,
as follows:
If to the Sellers or Continental Choice Care, Inc.
a Seller: 25-B Vreeland Road
P.O. Box 99
Florham Park, NJ 07932
Attn: Steven L. Trenk, President
With copies to Crummy, Del Deo, Dolan, Griffinger &
Vecchione
A Professional Corporation
One Riverfront Plaza
Newark, New Jersey 07102
Attn: David M. Hyman, Esq.
and
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<PAGE>
Continental Choice Care, Inc.
25-B Vreeland Road
P.O. Box 99
Florham Park, NJ 07932
Attn: Jeff Ellentuck, General Counsel
If to the Buyer: IHS of New York, Inc.
c/o International Health Specialists,
Incorporated
288 Walnut Street
Newton, MA 02160
Attn: Nelson Shaller, President
With a Copy to: Lane Altman & Owens LLP
101 Federal Street
Boston, MA 02110
Attn: Robert M. Rosen, Esq.
Any party may change its address for purposes of this
paragraph by giving notice of such change of address to the other party in the
manner herein provided for giving notice.
D. This instrument contains the entire agreement between the
parties hereto with respect to the transaction contemplated hereby and shall not
be changed or terminated except by written amendment signed by the parties
hereto.
E. All exhibits hereto are incorporated herein.
F. This Agreement is declared to have been made under the
laws of the Commonwealth of Massachusetts. Venue for resolution of any dispute
arising out of the provisions of this Agreement shall be Middlesex County,
Massachusetts.
G. This Agreement may be executed in a number of counterparts
and all counterparts executed by Buyer and the Sellers together shall constitute
one and the same Agreement.
H. Buyer may assign its rights and obligations under this
Agreement to a third party subject to Seller's approval, which shall not be
unreasonably withheld, or to an affiliate, but no such assignment shall relieve
Buyer of its liabilities hereunder.
I. This Agreement, including without limitation Section 14C
hereof, shall not be legally binding upon or effective against the parties and
shall be void ab initio unless duly authorized by the Board of Directors of CCC
on or before February 23, 1997. CCC covenants to provide Buyer
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<PAGE>
with written confirmation of such approvals within one business day after action
of the Board of Directors.
IN WITNESS WHEREOF, the parties have hereunto executed this Agreement on the day
and year first above written.
CONTINENTAL CHOICE CARE, INC. CONTINENTAL DIALYSIS, INC.
By: /s/Steven L. Trenk By: /s/Steven L. Trenk
Title: President Title: President
CHOICE CARE, INC. CONTINENTAL DIALYSIS OF THE
BRONX, INC.
By: /s/Steven L. Trenk By: /s/Steven L. Trenk
Title: President Title: President
CHOICE STAFFING, INC. DIALYSIS STAFFING, INC.
By: /s/Steven L. Trenk By: /s/Steven L. Trenk
Title: President Title: President
CHOICE CARE INFUSION CONTINENTAL DIALYSIS
SERVICES, INC (Delaware) OF LINDEN, INC.
By: /s/Steven L. Trenk By: /s/Steven L. Trenk
Title: President Title: President
CHOICE CARE INFUSION ALPHA ADMINISTRATION CORP.
SERVICES, INC (New York)
By: /s/Steven L. Trenk By: /s/Steven L. Trenk
Title: President Title: President
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<PAGE>
UPPER MANHATTAN DIALYSIS
CENTER, INC.
By: ____________________________
Title: ___________________________
IHS OF NEW YORK, INC.
By: /s/Nelson Shaller______
Title: President
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<PAGE>
ACKNOWLEDGMENT BY UMDC STOCKHOLDERS
Each of the undersigned hereby jointly and severally represent and
warrant to, and covenant and agree that with the Buyer named above, that:
(1) in the aggregate, they hold 50% of the issued and outstanding
voting stock ( the "Shares) of Upper Manhattan Dialysis
Center, Inc. ("UMDC");
(2) promptly after the execution of this document, they will
promptly and diligently commence to use their reasonable best
efforts to obtain the ratification and adoption of this
Agreement by the Board of Directors and Stockholders of UMDC;
(3) each will vote in favor of such ratification and adoption at
all meetings at which such issue is presented; and
(4) that, at the request of Buyer, but conditioned upon the
consummation of all transactions contemplated by this
Agreement, each will grant Buyer an option on the shares of
UMDC owned by him at a price of one million dollars
($1,000,000) for all Shares, which option may be exercised
only in whole and not in part, at any time, or from time to
time, through the date of Closing, subject to the terms of
that certain Shareholder's Agreement among Alvin S. Trenk,
Steven L. Trenk, Martin G. Jacobs, Stanley Cortell, Jonathan
Lorch and UMDC, with respect to which the undersigned agree
to submit for a vote and to vote in favor of waiving all
prohibitions against the issuance or exercise of this option
in the UMDC Shareholders Agreement and solely upon (i)
purchase in full by Buyer on or before the Closing of all
sums due to Continental Choice Care, Inc. and its
subsidiaries from UMDC and Drs. Lorch and Cortell (which
shall not exceed $3,100,000), and (ii) payment in full or
release, on or before the Closing, of all guarantees and
security deposits (other than those of Drs. Lorch and
Cortell) under all loans by PNC Bank to UMDC(which shall not
exceed $1,300,000). This option shall not be exercisable in
the event UMDC approves and authorizes a sale of its assets
pursuant to this Agreement.
/s/ Alvin S. Trenk /s/ Martin G. Jacobs, M.D.
Alvin S. Trenk Martin G. Jacobs, M.D.
/s/ Steven L. Trenk
Steven L. Trenk
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<PAGE>
ACKNOWLEDGMENT OF
INTERNATIONAL HEALTH SPECIALISTS, INC.
The undersigned hereby represents and warrants to, and covenants and
agree that it does hereby guarantee all obligations of the Buyer under this
Agreement to close and pay the purchase price.
International Health Specialists, Inc.
By:_/s/Nelson Shaller
Nelson Shaller, President
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<PAGE>
INDEX TO EXHIBITS
Exhibit
1.1 Description of the Assets
1.2 Permitted Liens, Charges and Encumbrances and Contracts Assumed
1.3. Capitalized Leases
1.4 Allocation of Purchase Price Among the Assets
2.1 Waiver of Otherwise Required Consents
3.1 Form of Escrow Agreement
4.1 Voting Trust
6.0 Consents Required to Clear Title and Avoid Breaches of Contract
6.1 Financial Statements of Sellers
6.2 Notice of Noncompliance with Governmental Regulations\Adverse
Circumstances or Conditions
6.3 List of Employees of the Seller, with Compensation and Descriptions of
Benefit Plans
6.4 Pending Violations of Government Regulations
6.5 List of Licenses
6.6 Pending Litigation or Claims
6.7 Unfiled Tax Returns
6.8 Tax Returns on Extension
6.9 Leases, Contracts, Other Agreements
6.10 Exceptions to Medicare Certifications
6.11(a) List of Insurance Policies
6.11(b) Description of Malpractice Insurance
6.11(c) Claims, Adverse Experience
6.12 Patient List
6.13 Physician List
7.1 Opinion of Seller's Counsel
7.2 Consulting Agreement
7.3 Non-Competition Agreement
8.1 Opinion of Buyer's Counsel
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<PAGE>
APPENDIX B
OPINION OF INVESTMENT BANKERS
<PAGE>
JOSEPHTHAL
LYON & ROSS
INCORPORATED
- ------------------------------------------------------------------------------
February 21, 1997
PRIVATE AND CONFIDENTIAL
The Board of Directors
Continental Choice Care, Inc.
25-B Vreeland Road
Florham Park, New Jersey 07932
Gentlemen:
We understand that Continental Choice Care, Inc., a New Jersey
corporation, and its subsidiaries and affiliates ("Continental") and IHS of New
York, Inc. ("IHS") have signed an asset purchase agreement whereby IHS will
acquire substantially all of Continental's assets for consideration of
$13,120,000 cash and a consulting agreement pursuant to which IHS will pay
Continental an aggregate of $1,000,000 over the three year term of such
agreement, contingent upon the satisfaction, by both parties, of certain
obligations (the "Transaction").
You have requested our opinion as to the fairness from a financial point
of view to the current holders of Continental no par common stock, ("Continental
Common Stock") of the consideration to be paid pursuant to the Transaction. We
express no opinion as to the use of proceeds from the Transaction or as to the
viability of Continental as a going concern either currently or following
consummation of the Transaction. As you know, we have not been requested to
explore any alternatives to the Transaction. In addition, we were not requested
to and did not make any recommendation to the Continental Board of Directors
regarding the form or amount of such consideration. Also, we make no
representation as to whether or not IHS will be able to raise the funds
necessary to complete the Transaction.
In conducting our analysis and arriving at the opinion expressed herein,
we have reviewed such materials and considered such financial and other factors
as we deemed relevant under the circumstances, including, among others, the
following; (i) a signed Asset Purchase Agreement dated February 12, 1997 by and
among Continental and IHS; (ii) certain historical financial, operating and
other data that are publicly available or were furnished to us by Continental
regarding Continental including, but not limited to: (a) Form 10-K for the
period ended December 31, 1995 of Continental; (b) Form 10-Q for the period
ended September 30, 1996 of Continental; and (c) internally generated operating
reports of Continental; (iii) publicly available financial, operating and stock
market data for companies engaged in businesses we deemed comparable to
Continental; (iv) publicly available financial, operating and stock market data
for companies we deemed comparable to Continental which had been involved in a
merger or acquisition since January 1, 1994; and (v) such other factors as we
deemed appropriate. We have met with senior officers of Continental to discuss
the prospects for Continental's business and their estimates of such business'
future financial performance, and such other matters as we believed relevant.
Our opinion is solely and necessarily based on economic, financial and market
conditions as they exist and can be evaluated as of the date hereof.
<PAGE>
In connection with our review and analysis and in arriving at our opinion,
we have assumed and relied upon the accuracy and completeness of the financial
and other information provided to us or which is publicly available, and have
not attempted to verify independently any such information. We have relied
solely on the information and estimates provided to us by Continental's
management and have neither made nor obtained any independent appraisals of any
properties, other assets or facilities of Continental. With respect to certain
financial information, including financial analyses and projections, relating to
the business and prospects of Continental, provided to us by Continental's
management, we have assumed that the financial information has been reasonably
prepared and that the financial projections represent Continental management's
best currently available estimates as to the future financial performance of
Continental independently and subsequent to the Transaction. In addition, we
have relied upon Continental management's assessment of the strategic rationale
for entering into the Transaction.
As you know, Josephthal Lyon & Ross Incorporated ("Josephthal") has been
retained by Continental to render this opinion and provide other financial
advisory services, and will receive fees for such services. In addition, in the
ordinary course of business, Josephthal may actively trade the common stock of
Continental for its own account and for the accounts of customers, and,
accordingly, may at any time hold a long or short position in such securities.
Furthermore, Josephthal and its affiliates own warrants to purchase 100,000
shares of Continental Common Stock at an exercise price of $3.00 per share.
This opinion is solely for the use of the Board of Directors of
Continental and is not to be publicly disclosed, used, excerpted, reproduced or
disseminated, quoted or referred to at any time, in any manner or for any
purpose, without the prior written consent of Josephthal other than the
inclusion of this letter as an annex to the proxy statement to be delivered to
the Securities and Exchange Commission and the stockholders of Continental.
Based upon and subject to the foregoing it is our opinion that, as of the
date hereof, the consideration to be paid in the Transaction, is fair to the
current holders of Continental Common Stock from a financial point of view.
Very truly yours,
JOSEPHTHAL LYON & ROSS INCORPORATED
<PAGE>
APPENDIX C
1995 EQUITY INCENTIVE PLAN
<PAGE>
CONTINENTAL CHOICE CARE, INC.
__1997 EQUITY INCENTIVE PLAN__
1. PURPOSE
The purpose of this 1997 Equity Incentive Plan (the "Plan"), is to
advance the interests of Continental Choice Care, Inc. (the "Company") and its
subsidiaries by enhancing the ability of the Company to (i) attract and retain
employees and other persons or entities who are in a position to make
significant contributions to the success of the Company and its subsidiaries;
(ii) reward such persons for such contributions, and (iii) encourage such
persons or entities to take into account the long-term interest of the Company
through ownership of shares ("Shares") of the Company's common stock ("Stock").
The Plan is intended to accomplish these goals by enabling the Company
to grant awards ("Awards") in the form of Options, Stock Appreciation Rights
("SARs"), Restricted Stock or Deferred Stock, all as more fully described below.
2. ADMINISTRATION
The Plan will be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board") and to the
extent deemed necessary or advisable by the Board, will be constituted to permit
the Plan to comply with Rule 16b-3 ("Rule 16b-3") promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor rule and to comply with the requirements for a compensation committee
composed of outside directors under Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"). The Committee will determine the recipients of
Awards, the times to which Awards will be made and the size and type or types of
Awards to be made to each recipient and will set forth in such Awards the terms,
conditions and limitations applicable to it. Awards may be made singly, in
combination or in tandem. The Committee will have full and exclusive power to
interpret the Plan, to adopt rules, regulations and guidelines relating to the
Plan, to grant waivers of Plan restrictions and to make all of the
determinations necessary for its administration. In its discretion, the Board of
Directors may elect to administer all or any aspects of the Plan and to perform
any of the duties or exercise any of the rights delegated or granted to the
Committee under the terms of the Plan and in such event all references to the
Committee contained herein shall mean the Board of Directors; provided, however,
that the Board may not make such election if the election by itself shall result
in the failure of the Plan to comply with Rule 16b-3 or Code Section 162(m).
Such determinations and actions of the Committee (or the Board as the case may
be), and all their determinations and actions of the Committee (or the Board as
the case may be) made or taken under authority granted by any provision of the
Plan, will be conclusive and binding on all parties. Nothing in this paragraph
shall be construed as limiting the power of the Committee or the Board to make
adjustments under Section 12 or to amend or terminate the Plan under Section 18.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan will become effective on the date on which it is approved by
the stockholders of the Company. Grants and Awards under the Plan may be made
prior to that date, subject to such approval of the Plan.
<PAGE>
The Plan will terminate ten years after the effective date of the Plan,
subject to earlier termination of the Plan by the Board pursuant to Section 18.
No Award may be granted under the Plan after the termination date of the Plan,
but Awards previously granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 12 below, (i) the maximum
aggregate number of Shares of Stock that may be delivered for all purposes under
the Plan shall be 1,250,000 and (ii) the maximum number of Shares of Stock
awarded to any Participant (as defined in Section 5 below) in any calendar year
under the Plan shall be (x) 125,000 Shares of Stock in the case of all
participants other than the Chairman and Chief Executive Office of the Company
and (y) 150,000 Shares of Stock in the case of the Chairman and Chief Executive
Officer of the Company. The maximum aggregate number of Shares of Stock which
may be issued under the Plan pursuant to the exercise of ISOs (as defined in
Section 7 below) shall be 1,250,000.
If any Award requiring exercise by the Participant for delivery of
Stock is canceled or terminates without having been exercised in full, or if any
Award payable in Stock or cash is satisfied in cash rather than Stock, the
number of Shares of Stock as to which such Award was not exercised or for which
cash was substituted will be available for future grants of Stock except that
Stock subject to an Option canceled upon the exercise of an SAR shall not again
be available for Awards under the Plan unless, and to the extent that, the SAR
is settled in cash. Likewise, if any Award payable in Stock or cash is satisfied
in Stock rather than cash, the amount of cash for which such Stock was
substituted will be available for future Awards of cash compensation. Shares of
Stock tendered by a Participant or withheld by the Company to pay the exercise
price of an Option or to satisfy the tax withholding obligations of the exercise
or vesting of an Award shall be available again for Awards under the Plan, but
only to Participants who are not subject to Section 16 of the Exchange Act.
Shares of Restricted Stock forfeited to the Company in accordance with the Plan
and the terms of the particular Award shall be available again for Awards under
the Plan unless the Participant has received the benefits of ownership (within
the applicable interpretation under Rule 16b-3), in which case such shares may
only be available for Awards to Participants who are not subject to Section 16
of the Exchange Act.
Stock delivered under the Plan may be either authorized but unissued
Stock or previously issued Stock acquired by the Company and held in treasury.
No fractional Shares of Stock will be delivered under the Plan and the Committee
shall determine the manner in which fractional shares value will be treated.
5. ELIGIBILITY AND PARTICIPATION
Those eligible to receive Awards under the Plan ("Participants"), will
be persons in the employ of the Company or any of its subsidiaries ("Employees")
and other persons or entities who, in the opinion of the Committee, are in a
position to make a significant contribution to the success of the Company or its
subsidiaries, except that members of the Committee may not be a Participant
without ratification by the Board. A "subsidiary" for purposes of the Plan, will
be a corporation in which the Company owns, directly or indirectly, stock
possessing 50% or more of the total combined voting power of all classes of
stock, or any other entity, including partnerships, limited partnerships,
limited liability companies, or limited liability partnerships in which the
Company owns a majority of the equity interest or controls the voting power.
<PAGE>
6. DELEGATION OF AUTHORITY
The Committee may delegate to senior officers of the Company who are
also directors of the Company (including, without limitation, the Chief
Executive Officer and/or President) its duties under the plan subject to such
conditions and limitations as the Committee may prescribe, except that only the
Committee may designate and make grants, including, without limitation,
decisions on timing, amount and pricing of Awards, to Participants (i) who are
subject to Section 16 of the Exchange Act or any successor statute, or (ii)
whose compensation is covered by Section 162(m) of the Code.
7. OPTIONS
(a) Nature of Options. An Option is an Award entitling the Participant
to purchase a specified number of Shares at a specified exercise price.
Both "incentive stock options", as defined in Section 422 of the Code
(referred to herein as an "ISO") and non-incentive stock options may be
granted under the Plan. ISOs may be awarded only to Employees.
(b) Exercise Price. The exercise price of each Option shall be
determined by the Committee, but shall not be less than fifty percent
(50%) of the Fair Market Value of a Share at the time the Option is
granted, and in the case of an ISO shall not be less than 100% (110% in
the case of an ISO granted to a ten-percent shareholder) of the Fair
Market Value of a share at the time the ISO is granted. For purposes of
this Plan, "Fair Market Value" shall mean, except as provided below,
the average of the high and low sale prices or, in case no such sale
takes place on such day, the average of the high bid and low asked
prices, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or
admitted to trading on an exchange or, if the common stock is not then
listed or admitted to trading on an exchange, the average of the high
bid and low asked prices in the over-the-counter market, as reported by
the NASDAQ Stock Market or such other system then in use, or, if on any
such date the common stock is not quoted by any such organization, the
average of the high bid and low asked prices as furnished by a
professional market maker selected by the Board of Directors making a
market in the Stock. In the case of ISOs, the term "Fair Market Value"
shall have the same meaning as it does in the provisions of the Code
and the regulations thereunder applicable to ISOs. In addition, options
will not be exercisable unless the shares subject thereto have been
approved for listing on any exchange or quotation system on which the
common stock is then listed or quoted. Subject to the conditions
described above with respect to the exercise price and listing of the
common stock, the Committee may at any time and from time to time
accelerate the time at which all or any part of the Option may be
exercised. For purposes of this Plan, "ten-percent shareholder" shall
mean any Employee who at the time of grant owns directly, or is deemed
to own by reason of the attribution rules set forth in Section 424(d)
of the Code, Stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of any of its
subsidiaries.
(c) Duration of Options. In no case shall an Option be exercisable more
than ten years (five years, in the case of an ISO granted to a
"ten-percent shareholder" as defined in (b) above) from the date the
Option was granted.
(d) Exercise of Options and Conditions. Options granted under any
single Award will become exercisable at such time or times, and on and
subject to such conditions, as the Committee may specify. The options
may be subject to such restrictions, conditions and forfeiture
provisions as the Committee may determine, including, but not limited
to, restrictions on transfer; continuous service with the Company or
any of its Subsidiaries; achievement of business objectives, and
<PAGE>
individual, unit and Company performance. The Committee may at any time
and from time to time accelerate the time at which all or any part of
the Option may be exercised.
(e) Payment for and Delivery of Stock. Full payment for Shares
purchased will be made at the time of the exercise of the Option, in
whole or in part. Payment of the purchase price will be made in cash or
in such other form as the Committee may approve, including, without
limitation, delivery of Shares of Stock.
8. STOCK APPRECIATION RIGHTS
(a) Nature of Stock Appreciation Rights. A Stock Appreciation Right is
an Award entitling the recipient to receive payment, in cash and/or
Stock, determined in whole or in part by reference to appreciation in
the value of a Share. In general, an SAR entitles the recipient to
receive, with respect to each Share as to which the SAR is exercised,
the excess of the Fair Market Value of a Share on the date of exercise
over the Fair Market Value of a Share on the date the SAR was granted.
However, the Committee may provide at the time of grant that the amount
the recipient is entitled to receive will be adjusted upward or
downward under rules established by the Committee to take into account
the performance of the Shares in comparison with the performance of
other stocks or an index or indices of other stocks.
(b) Grant of SARs. SARs may be granted in tandem with, or independently
of, Options granted under the Plan. An SAR granted in tandem with an
Option which is not an ISO may be granted either at or after the time
the Option is granted. An SAR granted in tandem with an ISO may be
granted only at the time the Option is granted.
(c) Exercise of SARs. An SAR not granted in tandem with an Option will
become exercisable at such time or times, and on such conditions, as
the Committee may specify. An SAR granted in tandem with an Option will
be exercisable only at such times, and to the extent, that the related
Option is exercisable. An SAR granted in tandem with an ISO may be
exercised only when the market price of the Shares subject to the
Option exceeds the exercise price of such Option. The Committee may at
any time and from time to time accelerate the time at which all or part
of the SAR may be exercised. At the option of the Company, upon
exercise an SAR may be settled in cash, Stock or a combination of both.
9. RESTRICTED STOCK
A Restricted Stock Award entitles the recipient to acquire Shares,
subject to certain restrictions or conditions, for no cash consideration, if
permitted by applicable law, or for such other consideration as determined by
the Committee. The Award may be subject to such restrictions, conditions and
forfeiture provisions as the Committee may determine, including, but not limited
to, restrictions on transfer; continuous service with the Company or any of its
Subsidiaries; achievement of business objectives, and individual, unit and
Company performance. Subject to such restrictions, conditions and forfeiture
provisions as may be established by the Committee, any Participant receiving an
Award will have all the rights of a stockholder of the Company with respect to
Shares of Restricted Stock, including the right to vote the Shares and the right
to receive any dividends thereon.
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10. DEFERRED STOCK
A Deferred Stock Award entitles the recipient to receive Shares to be
delivered in the future. Delivery of the Shares will take place at such time or
times, and on such conditions, as the Committee may specify. The Committee may
at any time accelerate the time at which delivery of all or any part of the
Shares will take place. At the time any Deferred Stock Award is granted, the
Committee may provide that the Participant will receive an instrument evidencing
the Participant's right to future delivery of Deferred Stock.
11. TRANSFERS
No Award (other than an outright Award in the form of Stock) may be
assigned, pledged or transferred other than by will or by the laws of descent
and distribution and during a Participant's lifetime will be exercisable only by
the Participant or, in the event of a Participant's incapacity, his or her
guardian or legal representative.
12. ADJUSTMENTS
(a) In the event of a stock dividend, stock split or combination of
Shares, recapitalization or other change in the Company"s
capitalization, or other distribution to common stockholders other than
normal cash dividends, after the effective date of the Plan, the
Committee will make any appropriate adjustments to the maximum number
of Shares that may be delivered under the Plan and to any Participant
under Section 4 above.
(b) In any event referred to in paragraph (a), the Committee will also
make any appropriate adjustments to the number and kind of Shares of
Stock or securities subject to Awards then outstanding or subsequently
granted, any exercise prices relating to Awards and any other provision
of Awards affected by such change. The Committee may also make such
adjustments to take into account material changes in law or in
accounting practices or principles, mergers, consolidations,
acquisitions, dispositions or similar corporate transactions, or any
other event, if it is determined by the Committee that adjustments are
appropriate to avoid distortion in the operation of the Plan.
13. RIGHTS AS A STOCKHOLDER
Except as specifically provided by the Plan, the receipt of an Award
will not give a Participant rights as a stockholder; the Participant will obtain
such rights, subject to any limitations imposed by the Plan or the instrument
evidencing the Award, upon actual receipt of Shares.
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14. CONDITIONS ON DELIVERY OF STOCK
The Company will not be obligated to deliver any Shares pursuant to the
Plan or to remove any restrictions or legends from Shares previously delivered
under the Plan until (a) in the opinion of the Company's counsel, all applicable
federal and state laws and regulations have been complied with, (b) if the
outstanding Shares are at the time listed on any stock exchange, until the
Shares to be delivered have been listed or authorized to be listed on such
exchange upon official notice of notice of issuance, and (c) until all other
legal matters in connection with the issuance and delivery of such Shares have
been approved by the Company's counsel. If the sale of Shares has not been
registered under the Securities Act of 1933, as amended and qualified under the
appropriate "blue sky" laws, the Company may require, as a condition to exercise
of the Award, such representations and agreements as counsel for the Company may
consider appropriate to avoid violation of such Act and laws and may require
that the certificates evidencing such Shares bear an appropriate legend
restricting transfer.
If an Award is exercised by the Participant"s legal representative, the
Company will be under no obligation to deliver shares pursuant to such exercise
until the Company is satisfied as to the authority of such representative.
15. TAX WITHHOLDING
The Company will have the right to deduct from any cash payment under
the Plan taxes that are required to be withheld and further to condition the
obligation to deliver or vest shares under this Plan upon the Participant=s
paying the Company such amount as it may request to satisfy any liability for
applicable withholding taxes. The Committee may in its discretion permit
Participants to satisfy all or part of their withholding liability by delivery
of Shares with a Fair Market Value equal to such liability or by having the
Company withhold from Stock delivered upon exercise of an Award, Shares whose
Fair Market Value is equal to such liability.
16. MERGERS, ETC.
In the event of a proposal, which is approved by the Board of
Directors, of any merger or consolidation involving the Company where the
Company is not the surviving entity, any sale of substantially all of the
Company's assets or any other transaction or series of related transactions as a
result of which a single person or several persons acting in concert own a
majority of the Company's then outstanding Stock (such merger, consolidation,
sale or other transaction being hereinafter referred to as a "Transaction"), all
outstanding Options and SARs shall become exercisable immediately before or
contemporaneously with the consummation of such transaction and each outstanding
share of Restricted Stock and each outstanding Deferred Stock Award shall
immediately become free of all restrictions and conditions upon consummation of
such transaction. Upon consummation of the Transaction, all outstanding Options
and SARs shall terminate and cease to be exercisable. There shall be excluded
from the foregoing any Transaction as a result of which the holders of Stock
prior to the Transaction retain or acquire securities constituting a majority of
the outstanding voting common stock of the acquiring or surviving corporation or
other entity. For purposes of this Section, voting common stock of the acquiring
or surviving corporation or other entity that is issuable upon conversion of
convertible securities or upon exercise of warrants or options shall be
considered outstanding, and all securities that vote in the election of
directors (other than solely as the result of a default in the making of any
dividend or other payment) shall be deemed to constitute that number of shares
of voting common stock which is equivalent to the number of such votes that may
be cast by the holders of such securities.
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In lieu of the foregoing, if the Company will not be the surviving
corporation or entity, the Committee may, by vote of a majority of the members
of the Committee who are Continuing Directors (as defined below), arrange to
have such acquiring or surviving corporation or entity or an Affiliate (as
defined below) thereof grant to participants holding outstanding Awards
replacement Awards which, in the case of ISOs, satisfy, in the determination of
the Committee, the requirements of Section 424(a) of the Code.
The term "Continuing Director" shall mean any director of the Company
who (i) is not an Acquiring person or an Affiliate of an Acquiring Person and
(ii) either was (A) a member of the Board of Directors of the Company on the
date of adoption of this Plan or (B) nominated for his or her initial term of
office by a majority of the Continuing Directors in office at the time of such
nomination. The term "Acquiring Person" shall mean, with respect to any
Transaction, each Person who is a party to or a participant in such Transaction
or who, as a result of such Transaction, would (together with other Persons
acting in concert) own a majority of the Company=s outstanding Common Stock;
provided, however, that none of the Company, any wholly-owned subsidiary of the
Company, any employee benefit plan of the Company or any trustee in respect
thereof acting in such capacity shall, for purposes of this Section, be deemed
an "Acquiring Person." The term "Affiliate" with respect to any Person, shall
mean any other Person who is, or would be deemed to be an "affiliate" or an
"associate" of such Person within the respective meanings ascribed to such terms
in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended. The term "Person" shall mean a corporation,
association, partnership, joint venture, trust, organization, business,
individual or government or any governmental agency or political subdivision
thereof.
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17. TERMINATION OF EMPLOYMENT
Subject to the discretion of the Committee as demonstrated in any written
agreement associated with an Award, the Committee may provide for provisions
similar to the following to be applicable to any Award to an Employee if such
grantee ceases to be an Employee after an Award:
(a) if termination of employment is voluntary or involuntary without cause,
the Participant may exercise each Option or SAR held by the Participant within
three months after such temination (but not after the expiration date of the
Option or SAR) to the extent of the number of Shares subject to the Option or
SAR as of the date of termination;
(b) if termination is for cause, all Options or SARs held by the
Participant shall be cancelled as of the date of termination;
(c) subject to the provisions of Section 17(d), if termination is (i) by
reason of retirement at a time when the Paricipant is entitled to the current
receipt of benefits under any retirement plan maintained by the Company or any
Subsidiary, or (ii) by reason of disablilty, each Option or SAR held by the
Participant may be exercised by the Participant at any time (but not after the
expiration date of the Option or SAR) (within one year of termination in the
case of ISO's) to the extent of the number of Shares subject to the Option or
SAR as of the date of termination;
(d) if termination is by reason of the death of the Participant, or if the
Participant dies after retirement or disability as referred to in Section 17(c),
each Option or SAR held by the Participant may be exercised by the Participant's
estate, or by any person who acquires the right to exercise the Option or SAR by
reason of the Participant's death, at any time within a period of three years
after death (but not after the expiration date of the Option or SAR) to the
extent of the total number of shares subject to the Option or SAR as of the date
of termination; or
(e) if the Participant should die within three months after voluntary
termination of employment or involuntary termination without cause, as
contemplated in Section 17(a), each Option or SAR held by the Participant may be
exercised by the Participant's estate, or by any person who acquires the right
to exercise by reason of the Participant's death, at any time within a period of
one year after death (but not after the expiration date of the Option of SAR) to
the extent of the number of Shares subjecto to each outstanding Option or SAR as
of the date of termination.
18. AMENDMENTS AND TERMINATION
The Committee will have the authority to make such amendments to any
terms and conditions applicable to outstanding Awards as are consistent with
this Plan provided that, except for adjustments under Section 12 hereof, no such
action will modify such Award in a manner adverse to the Participant without the
Participant's consent except as such modification is provided for or
contemplated in the terms of the Award.
The Board may amend, suspend or terminate the Plan except no such
action may be taken, without shareholder approval, which would effectuate any
change for which shareholder approval is required pursuant to Section 16 of the
Exchange Act.
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19. MISCELLANEOUS
Each Award under this Plan shall be evidenced by a written instrument
containing such terms and conditions, not inconsistent with this Plan, as the
Committee shall approve.
The granting of an Award under this Plan in any year shall not give the
Grantee any right to similar grants in future years or any right to be retained
in the employ if the Company or any Subsidiary.
This Plan shall be governed by and construed in accordance with the
laws of the State of New Jersey.
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