SETTLEMENT AGREEMENT
AGREEMENT this 8th day of July, 1998, between Incon Development, Inc., a
New Hampshire corporation with a principal place of business at 5 Flagstone
Drive, Hudson, New Hampshire ("Incon") and Integrated Health Services, Inc., a
Delaware corporation with a principal place of business at 10065 Red Run
Boulevard, Owings Mills, Maryland ("IHS").
WHEREAS, Incon is the plaintiff in an action presently pending in
Hillsborough County Superior Court, Southern District, captioned Incon
Development, Inc. v. Integrated Health Services, Inc., Docket No. 97-C-251 (the
"Litigation"), which alleges breach of contract and other theories of recovery
against IHS arising out of an agreement fully executed on March 27, 1996 between
IHS and Incon, and IHS has defended against the Litigation alleging breach of
contract on the part of Incon; and
WHEREAS, the parties believe that the purchase of certain products by IHS
from Incon and the exchange of other consideration identified below would be
mutually beneficial and an appropriate way to resolve the Litigation.
NOW, THEREFORE, the parties hereto agree as follows:
1. IHS has, on the date hereof, issued 39,012 shares of IHS common stock
(the "Shares") to Incon having a total fair market value of one and one-half
million dollars ($1,500,000). IHS agrees that to the extent Incon receives less
than an average of $38.45 per share (before brokerage commissions) for the
Shares sold by Incon during the two (2) trading days following the date Incon is
notified that the registration statement covering the resale of the shares has
been declared effective under the Securities Act of 1933, it will pay the
difference between the product determined by multiplying $38.45 by the number of
shares sold; provided that IHS shall not be required to pay more than one
hundred thousand dollars ($100,000) in cash, and any excess will be paid through
the issuance of additional unregistered shares of IHS common stock. IHS agrees
to pay Incon interest on a monthly basis on one and one-half million dollars
($1,500,000) accruing from June 10, 1998 at a rate equal to the prime rate plus
one point (as of June 10, 1998) calculated on a per annum basis, payable on the
tenth day of each month beginning July 10, 1998. Should IHS common stock not
become fully registered by September 28, 1998, then Incon shall have the right
to put the Shares to IHS in exchange for one and one-half million dollars
($1,500,000) (plus any outstanding interest) in cash or cash equivalent payable
forthwith in full satisfaction of its obligations enumerated in this paragraph.
In the event that the sale price of the stock exceeds one and one-half million
dollars ($1,500,000) plus any outstanding interest, the excess will serve to
offset any amount of interest IHS might otherwise owe to Incon. Any additional
excess amount will be refunded in cash to IHS forthwith.
2. Incon represents to IHS that:
(a) It is acquiring the Shares for investment purposes only, and not
with the view to, or for resale in connection with, any distribution thereof. It
understands that the Shares have not been registered under the Securities Act of
1933, as amended ("the "Securities Act"), or under the securities laws of the
various states, by reason of a specified exemption from the registration
provisions thereunder which depends upon, among other things, the bona fide
nature of Incon's investment intent as expressed herein.
(b) It acknowledges that the Shares must be held indefinitely unless
they are subsequently registered under the Securities Act and under applicable
state securities laws or an exemption from such registration is available. It
has been advised or is aware that Rule 144 promulgated under the Securities Act,
which permits limited resales of securities purchased in a private placement,
will not be available for a period of one year from the date hereof for resale
of the Shares and, at the end of such one year period, may not be available.
Consequently, Incon acknowledges that the Shares are an illiquid investment.
(c) It has received and carefully reviewed all information which it
deemed relevant in connection with its investment made hereby, including without
limitation IHS' filings with the Securities and Exchange Commission. In
addition, Incon acknowledges that it has had the opportunity to ask questions
of, and receive answers from, IHS' representatives concerning IHS' business,
financial condition and results of operations.
(d) It is aware that no federal or state or other agency has passed
upon or made any finding or determination concerning the fairness of the
transactions contemplated hereby and it must forego the security, if any, that
such a review would provide.
(e) It is an "Accredited Investor" as that term is defined in Rule
501(a) of Regulation D under the Securities Act.
(f) It understands that all certificates for the Shares issues to it
shall bear a legend in substantially the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED
OF WITHOUT SUCH REGISTRATION OR THE DELIVERY TO THE ISSUER OF AN
OPINION OF COUNSEL, SATISFACTORY TO THE ISSUER, THAT SUCH DEPOSITION
WILL NOT REQUIRE REGISTRATION OF
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SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS."
3. IHS has paid Incon two hundred thousand dollars ($200,000) for the
purchase of certain products listed among those identified in the attached
Exhibit A. IHS agrees that in addition to being responsible for all costs of
shipping these products, it is also responsible for nine thousand dollars
($9,000) in handling costs and eighteen thousand dollars ($18,000) in destroyed
or damaged product, and therefore, will receive only one hundred seventy-three
thousand dollars ($173,000) worth of products. Any delay by IHS in taking
possession of the products shall not constitute a waiver of its rights to the
products.
4. Incon represents and warrants that the products identified in Exhibit A
have been warehoused for some time in Nashua, New Hampshire and are in their
original packaging. Incon is not aware of any deterioration of clinical
effectiveness and, following an inspection of those packages, IHS is not aware
of any such deterioration. Beyond that, Incon makes no representation or
warranty that the products are mechantable , fit for a particular purpose, or
otherwise of any particular quality. In addition, apart from the representations
contained herein, IHS agrees to indemnify and hold Incon harmless for any claim
brought against Incon arising out of the quality of the products identified in
Exhibit A.
5. The parties will execute and file with the Hillsborough County Superior
Court, Southern District, the docket markings attached as Exhibit B upon
exchange of the consideration identified herein.
6. The parties have executed the releases attached hereto as Exhibits C and
D. The release running to Incon (Exhibit C) will be delivered to Michael
Pignatelli, counsel for Incon, as Escrow Agent ("Incon Escrow Agent"). Upon
exchange of all other consideration identified herein, Incon Escrow Agent is
authorized to distribute said release to Incon. The release running to IHS
(Exhibit D) will be delivered to Michael Harvell, counsel for IHS, as Escrow
Agent ("IHS Escrow Agent"). Upon exchange of all other consideration identified
herein, IHS Escrow Agent is authorized to distribute said release to IHS.
7. Nothing in this Agreement is to be construed as an admission of
liability on the part of either party.
8. The parties agree that any disputes concerning or arising out of the
terms of this Settlement Agreement are to be governed by the internal law of New
Hampshire.
9. This Agreement and attachments reflect the entire understanding of the
parties and supersedes any and all prior agreements or understandings between
them.
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IN WITNESS WHEREOF, the parties have hereunto set their hands.
Incon Development, Inc.
/s/ BY /s/
- --------------------------------------- -----------------------------
Witness
Integrated Health Services, Inc.
/s/ BY /s/
- --------------------------------------- -----------------------------
Witness
4
EXHIBIT A
IHS
INVENTORY
PRODUCT OWNERSHIP IHS
TRANSFER/WAREHOUSE SEGREGATION UNIT PURCHASE
CATALOG # 7/1/98 COST EXTENSION
--------- ----------- ---- ---------
ADULT DIAPERS:
1000-01 Embrace Ultra Regular Fit w/Polymer, Small 222 33.45 $ 7,425.90
1000-02 Embrace Ultra Regular Fit w/Polymer, Medium 288 30.65 $ 8,152.90
1001-01 Embrace Ultra Full Fit w/Polymer, Small 115 34.28 $ 3,942.20
1001-02 Embrace Ultra Full Fit w/Polymer, Small 341 31.81 $ 10,647.21
LINER SYSTEM:
1200-10 Embrace 10 x 24 Regular Pad 950cc 175 35.65 $ 8,238.75
1200-20 Embrace 10 x 24 Super Absorbent Pad 1250cc 100 43.26 $ 4,326.00
1200-02 Embrace Contour Liner, Regular 242 31.29 $ 7,572.18
1200-04 Embrace Contour Liner Super Absorbent, Overnight 550 47.30 $ 26,016.00
1200-99 Embrace Large Mesh Pants 35 51.51 $ 1,502.85
UROLOGICALS: 01
3000-16 Embrace Urethral Tray 14fr.-16fr. 106 34.32 $ 3,637.92
3000-01 Embrace Urethral Tray with Plastic Cath eter 30 28.64 859.20 Expired
3002-10 Embrace Insert Tray 10cc. BZK 95 26.76 $ 2,542.20
3002-30 Embrace Insert Tray 30cc, PVI 265 28.40 $ 7,524.00 Expired
IRRIGATION
3007-10 Embrace Irrigation Solution Water, 110ml 75 24.50 $ 1,837.50 Expired
UROLOGICALS: 02
3004-60 Embrace Irrigation Syringe, Piston 60cc, Sterile 873 83.90 $ 73,244.70
3009-00 Embrace Drainage Bag w/Anti-Reflux & Sample Port 41 34.00 $ 1,394.00
3009-10 Embrace Leg Bag, 500 ml, Medium 9 53.12 $ 478.08
3009-20 Embrace Leg Bag, 1000ml, Large 13 53.12 $ 690.56
VINVL EXAM GLOVES:
2001-01 Embrace Vinyl Exam, Small 5 35.80 $ 179.00
POWER FREE EXAM GLOVES:
2002-02 Powder Free Exam, Medium 14 55.37 $ 775.18
LATEX EXAM GLOVES:
2000-01 Embrace Latex Exam, Small 100 35.27 $ 3,527.00
----- ------------
Total 3,672 $ 173,014.33
----- ------------
$ 173,000.00
Variance $ 14.33
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EXHIBIT B
THE STATE OF NEW HAMPSHIRE
HILLSBOROUGH, SS SUPERIOR COURT
SOUTHERN DISTRICT
97-C-251
INCON DEVELOPMENT, INC.
v.
INTEGRATED HEALTH SERVICES, INC.
DOCKET MARKINGS
---------------
The parties agree that the docket shall be marked: "Neither Party. No
Interest. No Costs. No further action for the same cause."
Respectfully submitted,
INTEGRATED HEALTH SERVICES, INC.
By Its Attorneys,
SHEEHAN PHINNEY BASS & GREEN,
PROFESSIONAL ASSOCIATION
Date: May ___, 1998 By:
------------------------------
David W. McGrath, Esq.
1000 Elm Street
PO Box 3701
Manchester, NH 03701-3701
(603) 668-0300
INCON DEVELOPMENT, INC.
By Its Attorneys,
RATH, YOUNG & PIGNATELLI,
PROFESSIONAL ASSOCIATION
Date: By:
------------------------ ------------------------
Michael Pignatelli, Esq.
20 Trafalgar Square
Nashua, NH 03063
(603) 889-9952
`
EXHIBIT C
GENERAL RELEASE
---------------
NOW COMES Integrated Health Services, a Delaware corporation with its
principal place of business in Owings Mills, Maryland (hereinafter referred to
as "the Releasor"), for and in consideration of a cross-release of even date and
other good and valuable consideration, the receipt whereof is hereby
acknowledged and hereby remises, releases and forever discharges and by these
presents does for themselves, their employees, directors, shareholders,
affiliates, subsidiaries, successors, heirs and assigns, remise, release and
forever discharge Incon Development, Inc. a New Hampshire corporation with its
principal place of business in Hudson, New Hampshire, its employees, directors,
shareholders, agents, affiliates, successors, heirs and assigns (hereinafter
referred to as "the Releasee") from all manner of action and actions, cause and
causes of action, suits, debts, dues, sums of money, accounts, reckoning, bonds,
bills, specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, extents, executions, claims and
demands whatsoever, in law or in equity, which against the Releasee, the
Releasor ever had, now has or which its successors, heirs or assigns, hereafter
can, shall or may have for, upon or by reason of any matter, cause or thing
whatsoever from the beginning of the world to the day of these presents, with
particular reference, but without any limitation, to all claims and cause of
action made or which could have been made associated with a contract dated March
_____, 1996 between Releasor and Releasee for the purchase and sale of certain
products to be used in Releasor's nursing home business, except that Releasor
does not release any claim it might have against Releasee arising out of the
Settlement Agreement dated ___________________
INTEGRATED HEALTH SERVICES, INC.
Dated: ________________ By:_______________________________
Its ______________, duly authorized
STATE OF MARYLAND
COUNTY OF ________________ SS
On this ___ day of April, 1998, personally appeared ______________ as
________________ of Integrated Health Services, Inc., known to me or
satisfactorily proven to be the person described in the foregoing instrument,
and acknowledged that he/she was duly authorized and that he/she executed the
same on behalf of the Corporation for the purposes therein contained.
Before me,
----------------------------------
Notary Public/Justice of the Peace
My Commission expires:
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EXHIBIT D
GENERAL RELEASE
---------------
NOW COMES Incon Development, Inc., a New Hampshire corporation with its
principal place of business in Hudson, New Hampshire (hereinafter referred to as
"the Releasor"), for and in consideration of a cross-release of even date and
other good and valuable consideration, the receipt whereof is hereby
acknowledged and hereby remises, releases and forever discharges and by these
presents does for themselves, their employees, directors, shareholders,
affiliates, subsidiaries, successors, heirs and assigns, remise, release and
forever discharge Integrated Health Services, Inc., a Delawarecorporation with
its principal place of business in Owings Mills, Maryland, its employees,
directors, shareholders, agents, affiliates, successors, heirs and assigns
(hereinafter referred to as "the Releasee") from all manner of action and
actions, cause and causes of action, suits, debts, dues, sums of money,
accounts, reckoning, bonds, bills, specialties, covenants, contracts,
controversies, agreements, promises, variances, trespasses, damages, judgments,
extents, executions, claims and demands whatsoever, in law or in equity, which
against the Releasee, the Releasor ever had, now has or which its successors,
heirs or assigns, hereafter can, shall or may have for, upon or by reason of any
matter, cause or thing whatsoever from the beginning of the world to the day of
these presents, with particular reference, but without any limitation, to all
claims and cause of action made or which could have been made associated with a
contract dated March _____, 1996 between Releasor and Releasee for the purchase
and sale of certain products to be used in Releasee's nursing home business,
except that Releasor does not release any claim it might have against Releasee
arising out of the Settlement Agreement dated _____________.
INCON DEVELOPMENT, INC.
Dated: ________________ By:_______________________________
Its ______________, duly authorized
STATE OF NEW HAMPSHIRE
COUNTY OF ________________ SS
On this ___ day of April, 1998, personally appeared ______________ as
________________ of Incon Development, Inc., known to me or satisfactorily
proven to be the person described in the foregoing instrument, and acknowledged
that he/she was duly authorized and that he/she executed the same on behalf of
the Corporation for the purposes therein contained.
Before me,
----------------------------------
Notary Public/Justice of the Peace
My Commission expires:
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