-----------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 10, 1998
AMONG
INTEGRATED HEALTH SERVICES, INC.
AND
ROTECH OXYGEN & MEDICAL EQUIPMENT, INC.
AND
PRIME MEDICAL SERVICES, INC.
AND THE SHAREHOLDERS OF THE CONSTITUENT CORPORATIONS
TABLE OF CONTENTS
PAGE
ARTICLE I: MERGER...............................................................2
1.1 Merger..............................................................2
1.2 Merger Time.........................................................2
1.3 Payment of Merger Consideration.....................................2
1.4 Surviving Corporation...............................................2
ARTICLE II: CONVERSION..........................................................3
2.1 Consideration.......................................................3
2.2 Conversion of Common Stock..........................................4
2.3 Manner of Exchange..................................................4
2.4 No Fractional Shares................................................6
2.5 Assets..............................................................6
2.6 Closing Date Liabilities............................................7
2.7 Right of Offset Against the Escrow Fund.............................8
ARTICLE III: IHS STOCK..........................................................9
3.1 IHS Stock...........................................................9
ARTICLE IV: EMPLOYEES...........................................................14
ARTICLE V: CLOSING.............................................................14
5.1 Closing Date.......................................................14
5.2 Deliveries.........................................................14
ARTICLE VI: ASSET CONDITION.....................................................15
ARTICLE VII: SALES AND TRANSFER TAXES; FEES.....................................15
ARTICLE VIII: RESTRICTIONS ON OPERATIONS OF THE COMPANIES.......................15
8.1 Negative Covenants.................................................15
8.2 Conduct of Business Pending Closing................................16
ARTICLE IX: REPRESENTATIONS AND WARRANTIES BY SHAREHOLDERS......................16
9.1 Organization of Companies; Enforceability..........................16
9.2 Consents...........................................................17
9.3 Litigation.........................................................17
9.4 Compliance with Laws and Contracts.................................17
9.5 Corporate Acts and Proceedings.....................................17
9.6 Title to Assets....................................................18
9.7 Contracts..........................................................18
9.8 Brokers............................................................19
(i)
9.9 Employment Contracts; Employees....................................19
9.10 Employee Benefit Plans.............................................20
9.11 Insurance..........................................................20
9.12 Disclosure.........................................................20
9.13 Officers and Directors of Companies................................20
9.14 Inventory and Fixed Assets.........................................21
9.15 Financial Statements...............................................21
9.16 Tax Information....................................................21
9.17 Adverse Business Developments......................................22
9.18 Relationships......................................................22
9.19 Assets Comprising the Business.....................................22
9.20 Questionable Payments..............................................22
9.21 Reimbursement Matters..............................................23
9.22 Environmental Compliance...........................................23
9.23 Capital Stock......................................................23
9.24 Accounts Receivable................................................24
ARTICLE X: REPRESENTATIONS AND WARRANTIES OF IHS AND NEWCO......................24
10.1 Due Organization...................................................24
10.2 Due Authority......................................................24
10.3 Binding Authority..................................................24
10.4 Cash Payment Authority.............................................24
10.5 Brokers............................................................24
ARTICLE XI: SURVIVAL OF REPRESENTATIONS AND WARRANTIES..........................24
ARTICLE XII: RESTRICTIVE COVENANTS..............................................24
12.1 Non-Compete........................................................24
12.2 Confidential Information...........................................25
12.3 Non-Solicitation and Non-Pirating..................................25
12.4 Necessary Restrictions.............................................26
12.5 Remedies for Breach................................................26
ARTICLE XIII: INDEMNIFICATION; REMEDIES.........................................26
13.1 Indemnification by Shareholders....................................26
13.2 Indemnification by IHS.............................................26
13.3 Definition of Damages..............................................26
13.4 Remedies...........................................................27
13.5 Settlement of Disputes.............................................27
ARTICLE XIV: POST-CLOSING REQUIREMENTS OF SHAREHOLDERS..........................29
14.1 Payment Escrow.....................................................29
14.2 Final Financial and Tax Information................................29
(ii)
ARTICLE XV: MISCELLANEOUS.......................................................30
15.1 Group's Representative..............................................30
15.2 Third Party Beneficiaries...........................................31
15.3 Expenses............................................................31
15.4 Notices.............................................................31
15.5 Choice of Law.......................................................31
15.6 Sections and Other Headings.........................................32
15.7 Counterpart Execution...............................................32
15.8 Gender..............................................................32
15.9 Parties in Interest.................................................32
15.10 Entire Agreement....................................................32
15.11 Performance.........................................................32
15.12 Waiver, Discharge, Etc..............................................32
15.13 Cooperation Further Assistance......................................32
15.14 Joint and Several...................................................33
15.15 Independent Legal Counsel...........................................33
(iii)
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AGREEMENT AND PLAN OF MERGER
--------------------------
This Agreement and Plan of Merger (this "AGREEMENT") is made as of the
10th day of February, 1998, among INTEGRATED HEALTH SERVICES, INC., a
Delaware corporation ("IHS"), ROTECH OXYGEN & MEDICAL EQUIPMENT, INC., a Florida
corporation ("NEWCO"), PRIME MEDICAL SERVICES, INC. (the "COMPANY"), ELIZABETH
TEPPER ("TEPPER"), LEE T. MCCARGER ("MCCARGER"), BERNICE BRIERLEY ("BRIERLEY"),
LEANN JARCZYNSKI ("JARCZYNSKI", together with Tepper, McCarger, and Brierley,
the "SHAREHOLDERS" and each a "SHAREHOLDER").
WHEREAS, the Company operates a home respiratory and durable medical
equipment business in the State of Florida (the "BUSINESS"); and
WHEREAS, the Shareholders own all of the issued and outstanding shares
of common stock of the Company, par value $1 per share ("PRIME STOCK" or
"COMPANY SHARES"); and
WHEREAS, concurrently herewith, IHS and Newco are entering into an
Agreement and Plan of Merger (the "MEDAIDS MERGER AGREEMENT") with Medicare
Convalescent Aids of Pinellas, Inc., d/b/a Medaids ("MEDAIDS") and its
stockholders, pursuant to which, among other things, Medaids is being merged
with and into Newco upon the terms and subject to the conditions set forth
therein; and
WHEREAS, Newco is an indirectly wholly owned subsidiary of IHS;
WHEREAS, the Boards of Directors of IHS, Newco, and the Company deem it
advisable to merge the Company and Medaids with and into Newco pursuant to this
Agreement and the Medaids Merger Agreement (the "MERGER");
WHEREAS, pursuant to the Merger each outstanding share of capital stock
of Prime (each a "PRIME SHARE", and collectively, the "PRIME SHARES") shall be
converted into the right to receive the Merger Consideration (as hereinafter
defined); and
WHEREAS, to effectuate the foregoing, the parties desire to adopt a
plan of merger and reorganization; and
WHEREAS, all of the holders of capital stock in the Company have
approved this Agreement and the plan of merger described herein and the
transactions contemplated hereby in accordance with all applicable laws, and the
Company's Certificate of Incorporation and By-laws; and
WHEREAS, the Shareholders have obtained all consents of Governmental
Authorities (as such term is hereinafter defined) and all third parties
necessary to the consummation of the transactions contemplated hereby; and
NOW, THEREFORE, each of the Shareholders, Newco, IHS, and the Company,
intending to be legally bound, agree as follows:
ARTICLE I: MERGER
1.1 MERGER. Upon the terms and subject to the conditions set forth in
this Plan of Merger and in accordance with the General Corporation Law of the
State of Florida (the "FBCA"), at the Merger Time (as defined herein), the
Company and Medaids shall be merged with and into Newco in accordance with the
provisions of Section 607.1101, et al of the FBCA. In furtherance thereof, on
the Closing Date the Company and Newco (together with Medaids), shall execute,
deliver, and cause to be filed with the Secretary of State of the State of
Florida, the Articles and Plan of Merger in the form of Exhibit 1.1 hereto (the
"PLAN OF MERGER" or "ARTICLES OF MERGER"). Following the Merger Time, the
separate existence of the Company and Medaids shall cease, and Newco shall
continue as the surviving corporation in the Merger (hereinafter sometimes
referred to as the "SURVIVING CORPORATION") as a business corporation
incorporated under the laws of the State of Florida under the name "ROTECH
OXYGEN & MEDICAL EQUIPMENT, INC. D/B/A MEDAIDS", and shall succeed to and assume
all the rights and obligations of the Company, Medaids and Newco in accordance
with the FBCA.
1.2 MERGER TIME. The Merger shall become effective at such time (the
"MERGER TIME") as the duly executed Articles of Merger is filed with the
Secretary of State of the State of Florida.
1.3 PAYMENT OF MERGER CONSIDERATION. IHS agrees that following the
Closing (as defined in Section 5.1, below), it will make payment of the Merger
Consideration (as defined in Section 2.1(d)) to the extent set forth in, and in
accordance with the terms of, this Agreement.
1.4 SURVIVING CORPORATION.
(A) CERTIFICATE OF INCORPORATION. The Certificate of Incorporation
of Newco as in effect immediately prior to the Merger Time (as such term is
defined in Section 2.2) shall be the Certificate of Incorporation of the
Surviving Corporation until duly amended in accordance with the terms thereof
and of the FBCA.
(B) BY-LAWS. The By-laws of Newco as in effect immediately prior
to the Merger Time shall be the By-laws of the Surviving Corporation until duly
amended in accordance with their terms and as provided by the Certificate of
Incorporation of the Surviving Corporation and the FBCA.
(C) DIRECTORS. The directors of Newco at the Merger Time shall,
from and after the Merger Time, be the directors of the Surviving Corporation
until their respective successors have been duly elected or appointed and
qualified or until their earlier death, resignation, or removal in accordance
with the Surviving Corporation's Certificate of Incorporation and By-laws.
2
(D) OFFICERS. The officers of Newco at the Merger Time shall, from
and after the Merger Time, be the officers of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation, or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and By-laws.
(E) FURTHER ACTION. If at any time after the Merger Time, IHS
shall consider that any further deeds, assignments, conveyances, agreements,
documents, instruments, or assurances in law or any other things are necessary
or desirable to vest, perfect, confirm, or record in the Surviving Corporation
the title to any property, rights, privileges, powers, and franchises of Newco
by reason of, or as a result of, the merger, or otherwise to carry out the
provisions of this Agreement and the Plan of Merger, the officers of Newco shall
execute and deliver, upon IHS's request, any instruments or assurances, and do
all other things necessary or proper to vest, perfect, confirm, or record title
to such property, rights, privileges, powers, and franchises in the Surviving
Corporation, and otherwise to carry out the provisions of this Agreement and the
Plan of Merger.
(F) The Plan of Merger includes the merger of Medaids with and
into Newco, and the payment of merger consideration to the shareholders of
Medaids. Each Shareholder represents, warrants and agrees that it, he or she has
reviewed the Plan of Merger, and it, he or she hereby approves such Plan of
Merger.
ARTICLE II: CONVERSION
2.1 CONSIDERATION. For purposes of this Agreement the terms:
(A) (I) "MERGER CONSIDERATION" shall mean ONE MILLION FOUR HUNDRED
THOUSAND DOLLARS ($1,400,000) plus the Additional Amount(as defined below).
(II) "PRIME CASH MERGER CONSIDERATION" shall mean $280,000 of
the Merger Consideration, and shall be paid in cash.
(III) "PRIME IHS STOCK MERGER CONSIDERATION" shall mean the
balance of the Merger Consideration, and shall be paid by the delivery of
shares of common stock, par value $.001, of IHS ("IHS SHARES") having a
value equal to such amount as determined in accordance with Section 3.1(a)
below.
(IV) "ADDITIONAL AMOUNT" shall mean the amount of cash plus
cash equivalents included in the Assets as of the Economic Date Date. The
Shareholders represent, warrant and covenant that the Additional Amount is
$54,000 (the "REPRESENTED AMOUNT"). If the actual Additional Amount shall
be less than the Represented Amount, the Shareholders shall cause the
Paying Agent to immediatley pay such deficiency to the Surviving
Corporation. The Additional Amount shall not include any tax refunds for
Federal, State or local income taxes paid by the Company prior to the
Closing in respect of income prior to the Closing ("TAX REFUNDS");
provided, however, that the Surviving Corporation shall pay to the Group's
Representative (for distribution to the Shareholders in accordance with
their respective Proportionate Amounts) an amount equal to any Tax Refunds
actually collected by the Surviving Corporation after the Closing.
3
2.2 CONVERSION OF COMMON STOCK. At the Merger Time:
(A) each Prime Share which is issued and outstanding at the
Merger Time shall by reason of the Merger, without any action by the holder
thereof, be converted into the right to receive, in accordance with the
procedures hereinafter described, a Proportionate Amount (as hereinafter
defined) of the Prime Cash Merger Consideration and of the Prime IHS Stock
Merger Consideration;
(B) each share of capital stock of Medaids which is issued and
outstanding at the Merger Time shall by reason of the Merger, without any action
by the holder thereof, be converted into the right to receive cash and shares of
IHS Stock in the amounts, and in accordance with the procedures, described in
the Plan of Merger; and
(C) each share of Newco common stock outstanding immediately
prior to the Merger Time shall be unaffected by the Merger and shall continue to
be held by a direct or indirect wholly owned subsidiary of IHS.
For purposes of this Agreement: the "PROPORTIONATE AMOUNT" to which any
Prime Share shall be entitled shall be a fraction, the numerator of which shall
be one, and the denominator of which shall be the total number of Prime Shares
issued and outstanding at the Merger Time, other than shares, if any, held in
treasury.
2.3 MANNER OF EXCHANGE. The Merger Consideration shall be paid as
follows:
(A) At Closing, IHS Shares (the "ESCROWED SHARES" or the
"ESCROW FUND") having an aggregate value (determined in accordance with Section
3.1(a) hereof) equal to One Hundred Forty Thousand Dollars ($140,000) shall be
delivered to CoreStates Bank, N.A., as escrow agent ("ESCROW AGENT"), to be held
by Escrow Agent during the Escrow Period (as defined in Section 2.7(d), below),
pursuant to the terms of an Escrow Agreement, in the form attached hereto as
Exhibit 2.3(a) (the "ESCROW AGREEMENT"). The Escrowed Shares shall be subject to
the provisions of Section 2.7 hereof. A Proportionate Amount of the Escrowed
Shares shall be delivered by each Shareholder.
(B) At Closing, one hundred thirty seven thousand eight
hundred fourteen & no/00 ($137,814.00) of the Prime Cash Merger Consideration
shall be paid and delivered to the "PAYING AGENT" designated by the Group's
Representative (as hereinafter defined in Section 15.1) and reasonably
satisfactory to IHS, to be held and administered pursuant to the "PAYMENT ESCROW
AGREEMENT" attached hereto as Exhibit 2.3(b). Attached hereto as Schedule 2.3(b)
are the wire instructions for delivery of such cash to the Paying Agent. Such
cash shall be subject to the provisions of Section 14.1 hereof. A Proportionate
Amount of the amount payable to the Paying Agent shall be delivered on behalf of
each Shareholder.
4
(C) At Closing, Sixty Nine Thousand Seven Hundred ($69,700)
Dollars of the Cash Merger Consideration shall be paid, on behalf of the
Shareholders, to Steven Richards & Associates Inc. (the "BROKER"), in cash in
full satisfaction of all fees and compensation due to the Broker in connection
with the transactions contemplated by this Agreement (the "BROKER'S FEE").
Attached hereto as Schedule 2.3(c) are the wire instructions for delivery of
such cash to the Broker. The Shareholders represent and warrant to IHS that the
Broker has acted as the Shareholders' representative and broker in connection
with the transactions contemplated by this Agreement, and authorizes and directs
IHS to withhold such sum from the Prime Cash Merger Consideration and disburse
such sum directly to the Broker. A Proportionate Amount of the cash payable to
the Broker shall be made on behalf of each Shareholder.
(D) The balance of the Prime Cash Merger Consideration and the
balance of the Prime IHS Stock Merger Consideration shall be payable to the
Shareholders and shall be paid in accordance with the procedure set forth below
in Section 2.3(e). Attached hereto as Schedule 2.3(d) are the wire instructions
for delivery of such cash to the Shareholders. Each Shareholder shall be
entitled to a Proportionate Amount of such cash.
(E) The Shareholders represent and warrant that in accordance
with the provisions of subsection (a) above, the Merger Consideration is
required to be distributed as set forth on Schedule 2.3(e). Upon delivery to IHS
of stock certificates representing any Company Shares, together with a fully
completed and executed letter of transmittal in the form of Exhibit 2.3(e) (a
"LETTER OF TRANSMITTAL"), IHS shall promptly pay to, or on behalf of, each
person entitled thereto the amount of cash and shall deliver certificates
representing the number of shares to which such person is entitled, as provided
on Schedule 2.3(e). No interest will be paid or accrued on any Merger
Consideration payable upon the surrender of any certificate or certificates or
other instruments. If payment is to be made to a person other than the one in
whose name the certificate or other instrument surrendered is registered, it
shall be a condition of payment to such other person that the certificate or
instrument so surrendered shall be properly endorsed or otherwise in proper form
for transfer and that the person requesting such payment shall pay any transfer,
stamp or other taxes required by reason of the payment to a person other than
the registered holder of the certificate or other instrument surrendered or
establish to the satisfaction of IHS that such tax has been paid or is not
applicable. Until surrendered in accordance with the provisions of this Section
2.3(e), the certificate or certificates or instruments which immediately prior
to the Merger Time represented issued and outstanding Company Shares shall
represent for all purposes the right only to receive the Merger Consideration
set forth in this Agreement. After the Merger Time, there shall be no further
registration of transfers on the records of the Company of any Company Shares.
(F) Subject to the terms and conditions of this Agreement,
each party hereto approves and agrees to the Plan of Merger and shall execute,
deliver and file, or shall cause to be executed, delivered and filed, all such
consents, instruments, covenants, agreements, certificates and documents as
shall be necessary to effectuate the Merger on the Closing Date, including
without limitation, one or more Articles of Merger.
2.4 NO FRACTIONAL SHARES. No certificates or scrip
representing fractional shares of IHS Stock shall be issued upon the surrender
for exchange of certificates representing any Company Shares, and such
fractional share interests will not entitle the owner thereof to vote or to
5
any rights of a stockholder of IHS. Notwithstanding any other provision of this
Agreement, each holder of Company Shares exchanged pursuant to the Merger,
(after taking into account all certificates representing Company Shares
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of IHS Stock
multiplied by the value of such share determined in accordance with Section
3.1(a) below.
2.5 ASSETS. As of January 30, 1998 (the "ECONOMIC CHANGE
DATE"), the assets (collectively, the "ASSETS") of each of the Company will
include the following:
(A) INVENTORY; FIXED ASSETS. All inventory and fixed assets
of its Business, including, without limitation, all of the same set forth on the
Schedule of Inventory and Fixed Assets attached hereto as Schedule 2.5(a); and
(B) ACCOUNTS RECEIVABLE. All of the accounts receivable of
its Business including, without limitation those described on Schedule 2.5(b);
and
(C) MOTOR VEHICLES. All motor vehicles of its Business,
including without limitation, all of the same set forth on the Schedule of Motor
Vehicles attached hereto as Schedule 2.5(c); and
(D) PROPERTY RIGHTS. All Leases (as hereinafter defined in
paragraph 9.7(g)), easements and rights of way permitting access to its
Business; and
(E) CASH AND CASH EQUIVALENTS. The amount of cash and the
cash equivalents identified on Schedule 2.5(e) hereto, together with the bank
accounts related thereto.
(F) OTHER ASSETS. All other assets of any kind, tangible or
intangible, real, personal or mixed, owned and used or held for use by the
Company in connection with its Business, including, without limitation, all of
the following: (i) the Patients' List of the Business, as described in Schedule
2.5(f)(i); (ii) the telephone numbers listed on the Schedule of Telephone
Numbers and Licenses attached hereto as Schedule 2.5(f)(ii); (iii) all personal
property, machinery and equipment; (iv) all of the Company's prepaid assets; (v)
all of the Company's rights under contracts, agreements, and instruments; (vi)
any assets of the Company used in the operation of the Business, but not owned
by the Company; (viii) all intangible rights of the Company of every kind and
description used in, or held for use in connection with, the operation of its
Business, including, without limitation, all intangible assets, and to the
extent permitted by applicable law, all licenses, permits and authorizations;
(ix) the security deposits listed on Schedule 2.5(f)(ix), and (x) each of the
Company's Certificate of Incorporation, qualification to do business in any
jurisdiction, taxpayer identification number, minute books, stock transfer
records and other documents related specifically to the Company's corporate
organization and maintenance.
2.6 CLOSING DATE LIABILITIES.
(A) The Shareholders jointly and severally represent and
warrant that, to the best of their knowledge and belief after diligent inquiry,
all liabilities of the Company as of the
6
Economic Change Date are listed on the Schedule of Liabilities attached hereto
as Schedule 2.6 (a). For purposes of this Agreement "LIABILITIES" shall mean and
include all claims, lawsuits, liabilities, obligations or debts of any kind or
nature whatsoever, whether absolute, accrued, due, direct or indirect,
contingent or liquidated, matured or unmatured, joint or several, whether or not
for a sum certain, whether for the payment of money or for the performance or
observance of any obligation or condition, and whether or not of a type which
would be reflected as a liability on a balance sheet (including, without
limitation, federal, state and local taxes of any nature) in accordance with
generally accepted accounting principles, consistently applied ("GAAP"),
including without limitation, the Company, claims for breach of contract, any
claims of any kind asserted by patients, former patients, employees or former
employees of the Company or any other party that are based on acts or omissions
occurring on or before the Closing Date, amounts due or that may become due in
connection with the participation of the Company in the Medicare or Medicaid
programs or due to any other health care reimbursement or payment intermediary,
or that may be due by the Company to any other third party payor, accounts
payable, notes payable, trade payables, lease obligations, indebtedness for
borrowed money, accrued interest, and contractual obligations. The Shareholders
acknowledge that the amount of the Merger Consideration for the Company Shares
is based on the accuracy of the representations and warranties of the
Shareholders contained in this Agreement, including, but not limited to, the
representations and warranties contained in this Section 2.6(a).
(B) At the Closing, pursuant to an assumption agreement in the
form of Schedule 2.6(b) hereto (the "ASSUMPTION AGREEMENT"), the Shareholders
will assume, jointly and severally, each liability of the Company arising out of
facts or circumstances existing as of the Economic Change Date, whether or not
disclosed or known on the Closing Date (the "CLOSING DATE LIABILITIES"), and
will agree to satisfy all of the Closing Date Liabilities that are not satisfied
pursuant to Section 14.1, below, as the same become due.
(C) Without limiting the generality of the provisions of
subsection (b) above, the Closing Date Liabilities shall include all liabilities
under any Contracts (as hereinafter defined) to the extent such liabilities
arise out of facts or circumstances or obligations to be satisfied on or prior
to the Economic Change Date, all Taxes (as such term is defined in Section 9.16)
that arise out of the transactions contemplated hereby or out of any income
earned by the Company on or prior to the Merger Time, and the Broker's Fee.
(D) Newco and IHS agree that the obligations (the "CONTINUING
OBLIGATIONS") arising out of services or products or other benefits to be
provided to the Surviving Corporation after Closing under Contracts that are not
terminated on or prior to Closing shall be the responsibility of the Surviving
Corporation after the Closing, and shall not constitute Closing Date
Liabilities, and Newco and IHS shall indemnify and hold each Shareholder
harmless from and against any Damages (as hereinafter defined in Section 13.3)
arising out of any of such Continuing Obligations.
(E) Additional Assets and Liabilities. (i) The parties agree
that the Assets also shall include all of the assets arising out of the
operation of the Business during the period commencing on the Economic Change
Date and terminating on the Closing Date (the "INTERIM PERIOD"), including
without limitation, any accounts receivable generated (whether or not billed)
7
during the Interim Period (the "INTERIM PERIOD RECEIVABLES"), any cash collected
in respect of any accounts receivable, and any inventory or equipment acquired
by the Company during such Interim Period in connection with the operation of
the Business. Notwithstanding the foregoing, the Assets shall not include any
non-material tangible assets (such as inventory or supplies) used or disposed
of, or any cash expended, in each case for the benefit of the Business in the
ordinary course of business consistent with past practice during the Interim
Period. Any cash collected in respect of accounts receivable of the Company that
were in existence as of the Economic Change Date shall be applied to reduce the
Shareholders obligations under Section 2.7(a)(ii) below.
(ii) The parties further agree that the Closing Date
Liabilities shall not include any accounts payable, payroll expenses or other
expenses incurred by the Company during the Interim Period for the benefit of
the Business in the ordinary course of business consistent with past paractice.
2.7 RIGHT OF OFFSET AGAINST THE ESCROW FUND.
(A) EVENT OF DEFICIENCY. If:
(I) the Surviving Corporation or IHS pays for any Closing
Date Liabilities (a "LIABILITIES DEFICIENCY"); or
(II) the aggregate value of all of the collectible
accounts receivable of the Company as of the Closing Date is determined
to be less than $1, as determined by actual net cash collections of
such receivables during the twelve (12) month period immediately
following the Closing Date (an "ASSET VALUE DEFICIENCY") (it being
understood that until the earlier to occur of (x) the first anniversary
of the Closing Date; and (y) the date on which their is no longer an
Asset Value Deficiency, the Surviving Corporation will use the accounts
receivable computer system currently used by the Company for purposes
of recording, resubmitting and collecting the accounts receivable
included in the Assets, and upon reasonable request of the Group's
Representative, the Surviving Corporation shall provide him with
reasonable information regarding the status of the collection of such
accounts receivable, and will permit the Group's Representative to
pursue the collection of such receivables on behalf of the Surviving
Corporation or, in lieu thereof (in the discretion of the Surviving
Corporation), the Surviving Corporation shall assign, without recourse,
such receivables to the Group's Representative in consideration for
payment to the Surviving Corporation of the face amount thereof in
cash, in each case, unless the Surviving Corporation shall reasonably
determine that the Group's Representative's pursuit of such collection
may have a material adverse effect on the Surviving Corporation); or
(III) any IHS Claimant (as defined in Section 13.1) shall
be entitled to be indemnified for any Damages (as such term is defined
in Section 13.3) pursuant to this Agreement ("INDEMNIFICATION CLAIMS",
and together with any Liabilities Deficiencies, and any Asset Value
Deficiencies, collectively "CLAIMS" and each, a "CLAIM");
8
then, and in any of such events, the applicable IHS Claimant may
provide written notice to the Group's Representative of the Claim, in
which case such IHS Claimant shall be entitled to recover the amount of
such Claim in accordance with the following procedure.
(B) PROCEDURE IF SHAREHOLDERS FAIL TO PAY. If any
Shareholder fails to pay any Claim in full to any applicable IHS
Claimant within twenty (20) days from the date of such written notice
(said twenty (20) day period hereinafter referred to as the "NOTICE
PERIOD"), such IHS Claimant shall have the right to offset against the
Escrow Fund, in accordance with the terms and conditions of the Escrow
Agreement, in amounts from time to time equal to the amount of such
Claim (subject, however, in the case of a "DISPUTE", to the provisions
of Section 13.4 hereof applicable thereto), and each Shareholder agrees
to any such offset. The right of the IHS Claimants to proceed against
the Escrow Fund shall not be exclusive of any other rights or remedies
that they may have under this Agreement, law, equity or otherwise.
(C) ESCROW COSTS. The fees of the Escrow Agent shall be
borne by the IHS.
(D) ESCROW PERIOD.
(I) The "ESCROW PERIOD" shall terminate on the first
anniversary of the Closing Date.
(II) The balance, if any, of the Escrow Fund remaining
(the "REMAINING ESCROW FUNDS") at the close of business on the
last day of the Escrow Period, shall be delivered to Group's
Representative for further distribution to the Shareholders within
fifteen (15) days after the last day of the Escrow Period.
(III) Notwithstanding anything to the contrary
contained in this subsection (d), if any Claim made by any IHS
Claimant is in dispute at the time that any amounts are otherwise
to be delivered to the Shareholders' Representative, then there
shall be withheld from such amount to be delivered and there shall
be retained in the Escrow Fund, a number of IHS Shares such that
there will be remaining in the Escrow Fund a number of IHS Shares
having a value (determined in accordance with Section 3.1(a)
hereto) equal to at least twice the amount of the Claim asserted
by the IHS Claimant until the final settlement of such Claim or
Claims.
(E) VALUE OF ESCROWED SHARES. For purposes of determining
the number of IHS Shares to be delivered to any IHS Claimant in respect of any
Claim, the IHS Shares shall be valued in accordance with Section 3.1(a) hereof.
ARTICLE III: IHS STOCK
3.1 IHS STOCK. A portion of the Merger Consideration equal to ONE
MILLION ONE HUNDRED SEVENTY FOUR THOUSAND DOLLARS ($1,174,000) shall be payable
by means of the delivery of IHS Shares in accordance with the following:
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(A) SHARE VALUE. The number of IHS Shares issuable at
Closing (the "CLOSING DATE SHARE COUNT") or deliverable to any IHS Claimant from
the Escrow Fund shall be calculated based upon a price per share of such stock
equal to $29.859.
(B) REGISTRATION RIGHTS. IHS will prepare and use its
reasonable commercial efforts to cause to be filed within one-hundred and twenty
(120) days following the Closing Date, and will use its reasonable commercial
efforts to have declared effective by the Securities and Exchange Commission
(the "COMMISSION"), a registration statement for the registration of the IHS
Shares issued to the Shareholders in connection with this transaction, including
the shares, if any, issuable under Section 3.1(c) in respect of any
re-calculation of the Closing Date Share Count, under the Securities Act of
1933, as amended (the "SECURITIES ACT"), and IHS shall maintain the
effectiveness of each such registration statement for a period of one (1) year
following the date it became effective (the "REGISTRATION DATE"), except to the
extent that an exemption from registration may be available.
(C) SHARE ADJUSTMENT. Promptly following the Share
Adjustment Date (as hereinafter defined), the number of shares deliverable as
part of the Merger Consideration (and that have not previously been transferred
by any Shareholder) shall be re-calculated based upon the average closing NYSE
price for IHS Shares for the 20-trading day period immediately preceding the
first anniversary of the Closing Date (the "RECALCULATED VALUE"), provided that
such adjustment shall be made only if the result shall be an increase in the
number of shares issuable to the Shareholders. If the number of shares as
re-calculated under this subsection (c) (the "ADJUSTED SHARE COUNT") exceeds the
Closing Date Share Count, IHS promptly shall deliver over to the Group's
Representative an additional number of IHS Shares as shall have a value equal to
the amount of such excess (using the Recalculated Value for determining the
number of such IHS Shares to be delivered), and such additional shares shall be
included in the aforementioned registration statement by means of a
post-effective amendment thereto. In lieu of delivering additional shares as
aforesaid, IHS may, in its sole discretion, elect to deliver cash to the Group's
Representative (for distribution to the Shareholders) in the amount of such
excess. If the Closing Date Share Count exceeds the Adjusted Share Count, no
adjustment shall be made. For purposes hereof, "SHARE ADJUSTMENT DATE" shall
mean the earlier to occur of: (x) the first anniversary of the Closing Date; or
(y) the day preceding the date, if any, on which all issued and outstanding
shares of IHS Stock are to be split, reverse split, exchanged, converted or
otherwise recharacterized pursuant to any plan of merger, consolidation,
reorganization or other corporate restructuring.
(D) REGISTRATION EXPENSES. Shareholders shall not be
responsible for, and IHS shall bear, all of the reasonable expenses of IHS
related to such registration including, without limitation, the fees and
expenses of its counsel and accountants, all of its other costs, fees and
expenses incident to the preparation, printing, registration and filing under
the Securities Act of the registration statement and all amendments and
supplements thereto, the cost of furnishing copies of each preliminary
prospectus, each final prospectus and each amendment or supplement thereto to
underwriters, dealers and other purchasers of IHS Shares and the costs and
expenses (including fees and disbursements of its counsel) incurred in
connection with the qualification of IHS Shares under
10
the Blue Sky laws of various jurisdictions. IHS, however, shall not be required
to pay underwriter's or brokerage discounts, commissions or expenses, or to pay
any costs or expenses arising out of Shareholders' or any transferee's failure
to comply with its obligations under this Article III.
(E) RESALE LIMITATIONS. The Shareholders hereby covenant
with Buyer that, until the second anniversary of the Closing Date, sales by them
and the Shareholders of Medaids of IHS Shares after the Closing Date shall not,
in the aggregate, exceed 30,000 shares during any 30-day period. All sales by
Shareholders during said period shall be effected solely through Smith Barney,
Inc.
(F) REGISTRATION PROCEDURES, ETC. In connection with the
registration rights granted to the Shareholders with respect to the IHS Shares
as provided in this Section 3.1, IHS covenants and agrees as follows:
(I) At IHS's expense, IHS will keep the registration
and qualification under this Section 3.1 effective (and in compliance
with the Securities Act) by such action as may be necessary or
appropriate until the first anniversary of the Closing Date except to
the extent that an exemption from registration may be available. IHS
will promptly notify the Shareholders, at any time when a prospectus
relating to a registration statement under this Section 3.1 is required
to be delivered under the Securities Act, of the happening of any event
known to IHS as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing.
(II) IHS shall furnish the Shareholders with such
number of prospectuses as shall reasonably be requested.
(III) IHS shall take all necessary action which may be
required in qualifying or registering IHS Shares included in a
registration statement for offering and sale under the securities or
Blue Sky laws of such states as reasonably are requested by the
Shareholders, provided that IHS shall not be obligated to qualify as a
foreign corporation or dealer to do business under the laws of any such
jurisdiction.
(IV) The information included or incorporated by
reference in the registration statement filed pursuant to this Section
3.1 will not, at the time any such registration statement becomes
effective, contain any untrue statement of a material fact, or omit to
state any material fact required to be stated therein as necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading or necessary to correct any
statement in any earlier filing of such registration statement or any
amendments thereto. The registration statement will comply in all
material respects with the provisions of the Securities Act and the
rules and regulations thereunder. IHS shall indemnify the Shareholders,
their successors and assigns, and each person, if any, who controls
such Shareholders within the meaning of ss.15 of the Securities Act or
ss.20(a) of the Securities Exchange Act of 1934, as amended ("EXCHANGE
ACT"), against all loss, claim,
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damage, expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the
Securities Act, the Exchange Act or any other statute, common law or
otherwise, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in such registration
statement executed by IHS or based upon written information furnished
by IHS filed in any jurisdiction in order to qualify IHS Shares under
the securities laws thereof or filed with the Commission, any state
securities commission or agency, NYSE or any securities exchange; or
the omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements contained
therein not misleading, unless such statement or omission was made in
reliance upon and in conformity with written information furnished to
IHS by any of the Shareholders expressly for use in such registration
statement, any amendment or supplement thereto or any application, as
the case may be. If any action is brought against the Shareholders or
any controlling person of the Shareholders in respect of which
indemnity may be sought against IHS pursuant to this subsection
3.1(f)(iv), the Shareholders or such controlling person shall within
thirty (30) days after the receipt thereby of a summons or complaint,
notify IHS in writing of the institution of such action and IHS shall
assume the defense of such actions, including the employment and
payment of reasonable fees and expenses of counsel (reasonably
satisfactory to the Shareholder's Representative or such controlling
person). The Shareholders or such controlling person shall have the
right to employ its or their own counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of the
Shareholders or such controlling person unless (A) the employment of
such counsel shall have been authorized in writing by IHS in connection
with the defense of such action, or (B) IHS shall not have employed
counsel to have charge of the defense of such action, or (C) such
indemnified party or parties shall have reasonably concluded (after
notice to IHS) that there may be defenses available to it or them which
are different from or additional to those available to IHS (in which
case, IHS shall not have the right to direct the defense of such action
on behalf of the indemnified party or parties), in any of which events
the fees and expenses of not more than one additional firm of attorneys
for the Shareholders and such controlling persons shall be borne by
IHS. Except as expressly provided in the previous sentence, in the
event that IHS shall not previously have assumed the defenses of any
such action or claim, IHS shall not thereafter be liable to the
Shareholders or such controlling person in investigating, preparing or
defending any such action or claim.
(V) The Shareholders, and their successors and
assigns, shall severally, and not jointly, indemnify IHS, its officers
and directors and each person, if any, who controls IHS within the
meaning of ss.15 of the Securities Act or ss.20(a) of the Exchange Act
against all loss, claim, damage, or expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever) to which they may become subject under
the Securities Act, the Exchange Act or any other statute, common law
or otherwise, arising from information furnished by or on behalf of
such Shareholders, or their successors or assigns for specific
inclusion in such registration statement.
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(G) NOTICE OF SALE. If the Shareholders desire to transfer all
or any IHS Shares, they will deliver prior written notice to IHS, describing in
reasonable detail their intention to effect the transfer and the manner of the
proposed transfer. If the transfer is to be pursuant to an effective
registration statement as provided herein, the Shareholders will sell the IHS
Shares in compliance with the disclosure therein and discontinue any offers and
sales thereunder upon notice from IHS that the registration statement relating
to the IHS Stock being transferred is not "current" until IHS gives further
notice that offers and sales may be recommenced. In the event of any such notice
from IHS, IHS agrees to file expeditiously such amendments to the registration
statement as may be necessary to bring it current during the period specified in
Section 3.1(b) and to give prompt notice to the Shareholders when the
registration statement has again become current. If the Shareholders deliver to
IHS an opinion of counsel reasonably acceptable to IHS and its counsel and to
the effect that the proposed transfer of IHS Shares may be made without
registration under the Securities Act, the Shareholders will be entitled to
transfer IHS Shares in accordance with the terms of the notice and opinion of
their counsel.
(H) FURNISH INFORMATION. It shall be a condition precedent to
the obligations of IHS to take any action pursuant to this Article III that the
Shareholders shall furnish to IHS such information regarding themselves, the IHS
Shares held by them, and the intended method of disposition of such securities
as shall be required to effect the registration of their IHS Shares. In that
connection, each transferee of any Shareholder shall be required to represent to
IHS that all such information which is given is both complete and accurate in
all material respects. Such Shareholders shall deliver to IHS a statement in
writing from the beneficial owners of such securities that they bona fide intend
to sell, transfer or otherwise dispose of such securities. Each transferee will,
severally, promptly notify IHS at any time when a prospectus relating to a
registration statement covering such transferee's shares under this Section 3.1
is required to be delivered under the Securities Act, of the happening of any
event known to such transferee as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the statements as then existing.
(I) INVESTMENT REPRESENTATIONS. All IHS Shares to be issued
hereunder will be newly issued shares of IHS. The Shareholders represent and
warrant to IHS that the IHS Shares being issued hereunder are being acquired,
and will be acquired, by the Shareholders for investment for their own accounts
and not with a view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act or the applicable state securities law;
the Shareholders acknowledge that the IHS Shares constitute restricted
securities under Rule 144 promulgated by the Commission pursuant to the
Securities Act, and may have to be held indefinitely, and the Shareholders agree
that no IHS Shares may be sold, transferred, assigned, pledged or otherwise
disposed of except pursuant to an effective registration statement or an
exemption from registration under the Securities Act, the rules and regulations
thereunder, and under all applicable state securities laws. The Shareholders
have the knowledge and experience in financial and business matters, are capable
of evaluating the merits and risks of the investment, and are able to bear the
economic risk of such investment. The Shareholders have had the opportunity to
make inquiries of and obtain from representatives and employees of IHS such
other information about IHS as they deem necessary in connection with such
investment.
13
(J) LEGEND. It is understood that the certificates evidencing
the IHS Shares shall bear a legend substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THESE SHARES UNDER THE
SECURITIES ACT OF 1933 OR AN OPINION OF THE COMPANY'S
COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
(K) CERTAIN TRANSFEREES. Prior to the effective date of
registration of the IHS Shares, no Shareholder shall transfer any shares of IHS
Shares to any person or entity except as expressly permitted by this Agreement
and unless such transferee shall have agreed in writing to be bound by the
provisions applicable to the Shareholders under this Article III.
ARTICLE IV: EMPLOYEES
It is expressly understood and agreed that although the Surviving
Corporation intends to retain substantially all of the employees of the Company
after the Closing, it may notify the Group's Representative prior to the Closing
that the employment of a limited number of such employees is to be terminated,
in which case, the Company, as the case may be, shall cause such termination,
and all liabilities resulting therefrom that may be due to such terminated
employee shall constitute Closing Date Liabilities. In any event, any benefits,
costs or liabilities incurred or accrued on or prior to Closing with respect to
any employee of the Company shall constitute Closing Date Liabilities.
ARTICLE V: CLOSING
5.1 CLOSING DATE. The consummation of the transactions
contemplated by this Agreement is occurring on the date hereof and is sometimes
referred to as the "CLOSING", and the date on which such consummation occurs,
including, without limitation, the execution and delivery of this Agreement by
each of the parties hereto, is sometimes referred to as the "CLOSING DATE".
5.2 DELIVERIES. At the Closing:
(A) The Company and Newco (together with Medaids) shall
execute, deliver and cause to be filed with the Secretary of State of Florida
and any other appropriate Governmental Authorities (as such term is defined in
Section 9.4), the Certificate of Merger and such other instruments or documents,
if any, as shall be necessary to cause the Company (together with Prime) to be
merged with and into Newco as provided in Section 1.1 above.
14
(B) The Shareholders will deliver to IHS an opinion, dated the
Closing Date, of their counsel, in substantially the form attached hereto as
Exhibit 5.2(b).
(C) The Company will deliver a certificate of its Secretary or
other officer certifying as of the Closing Date a copy of resolutions of its
board of directors and its stockholders, authorizing the execution, delivery and
full performance of this Agreement and the Transaction Documents (as defined in
Section 9.1(a) below), and the incumbency of its officers.
(D) Newco, as the Surviving Corporation of the Merger, will
enter into an employment agreement with McCarger in the form and substance of
Exhibit 5.2(d).
(E) The Shareholders shall execute and deliver the Assumption
Agreement and Transmittal Letters, and deliver to IHS the certificates
representing all of the Company Shares.
(F) Each officer and director of the Company shall resign from
such position as of the Closing Date.
ARTICLE VI: ASSET CONDITION
The Shareholders, jointly and severally, represent, warrant and
covenant that, as of the Closing Date, all physical Assets of the Company are
free of defects except to the extent that such failure will not likely have a
material adverse effect on the assets, liabilities, financial condition or
prospects of the Company, and in good working order, condition and repair,
except for ordinary wear and tear, and conform in all material respects with all
applicable Governmental Requirements (as defined in Section 9.4).
ARTICLE VII: SALES AND TRANSFER TAXES; FEES
All transfer and other taxes and fees, if any, that may be due or
payable as a result of the transactions contemplated by this Agreement, whether
levied on the Shareholders, IHS, Newco or the Company, shall be borne by the
Shareholders and Guarantors.
ARTICLE VIII: RESTRICTIONS ON OPERATIONS OF THE COMPANIES
8.1 NEGATIVE COVENANTS. The Shareholders represent, warrant and
covenant that, except as expressly disclosed on Schedules hereto, since the most
recent Financial Statement Date referred to in Section 9.15 below, there has
been no material adverse change in the assets, liabilities, financial condition,
or prospects of the Company, and the Company has not:
(A) sold, assigned or transferred any Assets, except in the
ordinary course of business, consistent with past practice;
15
(B) subjected any Assets to any liens, claims, security
interests, pledges, mortgages, restrictions on transfer or use and other
encumbrances of any kind or nature whatsoever ("LIENS");
(C) entered into any contract or transaction binding the
Company or Business other than immaterial contracts or transactions entered into
in the ordinary course of business, consistent with past practice;
(D) incurred any liabilities or indebtedness other than in the
ordinary course of business, consistent with past practice;
(E) except in the ordinary course of business, consistent with
past practice, or otherwise to comply with any applicable minimum wage law, paid
any bonuses, increased the salaries or other compensation of any of its
employees, consultants, agents or representatives, or made any increase in, or
any additions to, other benefits to which any of such employees, consultants,
agents or representatives may be entitled;
(F) discharged or satisfied any Lien, or satisfied, paid or
prepaid any material liabilities, other than in the ordinary course of business
consistent with past practice, or failed to pay or discharge when due any
liabilities, the failure to pay or discharge of which has caused or may cause
any actual damage or risk of loss to the Company or Business or Assets;
(G) failed to collect any accounts receivable in the ordinary
course of business, consistent with past practice;
(H) changed any of the accounting principles followed by it or
the methods of applying such principles;
(I) canceled, modified or waived any debts or claims held by
it, other than in the ordinary course of business, consistent with past
practice, or waived any rights of substantial value, whether or not in the
ordinary course of business;
(J) instituted, settled or agreed to settle any litigation,
action or proceeding before any Governmental Authority relating to them or their
property or received any threat thereof; or
(K) entered into any material transaction other than in the
ordinary course of business, consistent with past practice.
8.2 CONDUCT OF BUSINESS PENDING CLOSING. The Shareholders
represent, warrant and covenant that since the most recent Financial Statement
Date referred to in Section 9.15 below, the Company shall maintain its existence
and conduct its business in good faith and in the customary and ordinary course
of business consistent with past practice.
16
ARTICLE IX: REPRESENTATIONS AND WARRANTIES BY SHAREHOLDERS
As a material inducement to IHS and Newco to execute and perform their
obligations under this Agreement, the Shareholders hereby, jointly and
severally, represent and warrant to IHS and Newco as follows as of the Closing
Date:
9.1 ORGANIZATION OF COMPANIES; ENFORCEABILITY.
(A) The Company is a corporation, organized, and in good
standing in the State of Florida, and is qualified to do business and is in good
standing in each other State where the nature of its business or the assets held
by it requires such qualification, and has requisite corporate power and
authority to carry on its Business as presently being conducted, to enter into
this Agreement, and to carry out and perform the terms and provisions of this
Agreement. Each of this Agreement and each agreement, instrument, certificate
and document ("TRANSACTION DOCUMENTS") executed by the Company in connection
with this Agreement or the transactions contemplated hereby constitutes the
legal, valid and binding obligations of the Company, enforceable against it in
accordance with its respective terms.
(B) The Company has no subsidiaries.
(C) This Agreement and each of the Transaction Documents
executed by any Shareholder constitutes the legal, valid and binding obligations
of such Shareholder, enforceable against it, him or her in accordance with its
respective terms.
9.2 CONSENTS. No authorization, consent, approval, license,
exemption by, filing or registration with any Governmental Authority or of any
party to any contract, agreement, instrument, commitment, lease, indenture or
understanding (written, oral or implied) by which the Company or any of the
Assets is bound ("CONTRACTS") or by which any Shareholder or any Shareholder's
assets is bound ("SHAREHOLDER CONTRACTS") is necessary in connection with the
execution, delivery and performance of this Agreement or any of the Transaction
Documents by Company or any Shareholder.
9.3 LITIGATION. Except as set forth on Schedule 9.3, there are no
actions, suits or proceedings affecting the Company or any of the Assets which
are pending or threatened against the Company or affecting any of the Company's
properties or rights, at law or in equity, or before any Governmental Authority,
nor is the Company or any of its officers or directors or any Shareholder aware
of any facts which to their knowledge might reasonably be expected to result in
any such action, suit or proceeding.
9.4 COMPLIANCE WITH LAWS AND CONTRACTS. The Company is not in
violation of, or in default under: any term or provision of its Articles of
Incorporation or By-Laws; or any judgment, order, writ, injunction, decree,
statute, law, rule, regulation, directive, mandate, ordinance or guideline
("GOVERNMENTAL REQUIREMENTS") of any Federal, state, local or other governmental
or quasi-governmental agency, bureau, board, council, administrator, court,
arbitrator, commission, department, instrumentality, body or other authority
("GOVERNMENTAL AUTHORITIES"); or of any Contract. The execution and delivery by
the Company and each Shareholder of, and the
17
performance and compliance by each of them with this Agreement, and the
Transaction Documents and the transactions contemplated hereby and thereby, does
not and will not result in the violation of or conflict with or constitute a
default under any such term or provision or result in the creation of any Lien
on any of the properties or assets of the Company or any Shareholder pursuant to
any such term or provision or any term or provision of any Governmental
Requirement by which any Shareholder is bound or of any Shareholder Contract.
9.5 CORPORATE ACTS AND PROCEEDINGS. The execution, delivery and
performance of this Agreement and each of the Transaction Documents, and the
transactions contemplated hereby and thereby, including the consummation of the
Merger as provided for in this Agreement, have been approved and consented to by
the Board of Directors of the Company and, all holders of outstanding capital
stock of the Company, and all action required by any applicable Governmental
Requirement by the stockholders of the Company with regard thereto have been
appropriately authorized and accomplished. Any rights of appraisal or to dissent
to the Merger have been waived.
9.6 TITLE TO ASSETS. Except for the Assets that are held subject
to Leases (as hereinafter defined) the Company has good and indefeasible title
to all of the Assets, free and clear of all Liens. The Company has good and
valid leasehold interests, subject to no Liens, in each of the Leases.
9.7 CONTRACTS. Set forth on Schedule 9.7 hereto is a list of all
material Contracts of the Company, including, without limitation, each:
(A) contract, agreement or commitment for the employment or
retention of, or collective bargaining, severance or termination of or with, any
director, officer, employee, consultant, sales representative, or agent or group
of employees, or any non-competition, non- solicitation, confidentiality or
similar agreement with any such person or persons;
(B) contract, agreement or arrangement for the acquisition or
disposition of any assets, property or rights outside the ordinary course of
business or requiring the consent of any party to the transfer and assignment of
any such assets, property or rights (by purchase or sale of assets, purchase or
sale of stock, merger or otherwise), that is executory or that was entered into
during the three (3) year period ending on the date hereof;
(C) contract, agreement or commitment which contains any
provisions requiring the Company or Business to indemnify or act for any other
person or entity or to guaranty or act as surety for any other person or entity;
(D) contract, agreement or commitment restricting any Company
or Business from, or in favor of the Company or Business and restricting any
other person or entity from, conducting business anywhere in the world for any
period of time or restricting the use or disclosure of any confidential or
proprietary information or prohibiting the solicitation of business or of
employees, agents or others;
(E) partnership, joint venture or management contract or
similar arrangement, or agreement which involves a right to share profits or
future payments with respect to any Business or any portion thereof or the
business of any other person or entity;
18
(F) licensing, distributor, dealer, franchise, sales or
manufacturer's representative, agency or other similar contract, arrangement or
commitment;
(G) contract, agreement or arrangement granting a leasehold or
other interest in real property or personal property, including without
limitation, subleases, licenses and sublicenses (the "LEASES");
(H) profit sharing, thrift, bonus, incentive, deferred
compensation, stock option, stock purchase, severance pay, pension, retirement,
hospitalization, insurance or other similar plan, agreement or arrangement
applicable to any employee, consultant or agent of the Company or Business not
covered by subsection (a) above;
(I) agreement, consent order, plea bargain, settlement or
stipulation or similar arrangement with any Governmental Authority;
(J) agreement with respect to the settlement of any litigation
or other proceeding with any third person or entity;
(K) agreement relating to the ownership, transfer, voting or
exercise of other rights with respect to any equity in the Company, or any other
entity, including without limitation, registration rights agreements, voting
trust agreements and shareholder and proxy agreements;
(L) contract, agreement or commitment to provide services or
products, or
(M) agreement not made in the ordinary and normal course of
business and consistent with past practice, or involving consideration in excess
of $25,000 in each case, that is not set forth in subsections (a) through (l)
above.
To the best knowledge of the Company and each Shareholder, no party to
any Contract is in default under any Contract. The Shareholders have delivered
to IHS true and complete copies of each written Contract (or a description of
each oral Contract) requested by IHS.
9.8 BROKERS. The Shareholders and the Company have been
represented solely by the Broker, and as a result the Broker's Fee in the amount
of $69,700 is payable by the Shareholders to the Broker at the Closing in
connection with the transactions contemplated by this Agreement, and no broker
or finder is entitled to any additional broker's or finder's fee or other
commission in respect thereof based in any way on agreements, understandings or
arrangements with any Company or Shareholder.
9.9 EMPLOYMENT CONTRACTS; EMPLOYEES. There are no Contracts of
employment between the Company and any of its employees, except as set forth on
Schedule 9.7(a) above. The name, position, current rate of compensation and any
vacation or holiday pay, sick pay, personal leave, severance and any other
compensation arrangements or fringe benefits, of each
19
current employee, sales representative, consultant and agent of the Company,
contained on the Schedule of Personnel Payrates and Advances attached hereto as
Schedule 9.9 is accurate and complete. No employee, consultant or agent of the
Company has any vested or unvested retirement benefits or other termination
benefits, except as described on Schedule 9.9. Since the date that is two (2)
years prior to the Closing Date, there has been no material adverse change in
the relationship between the Company and its employees, nor any strike or labor
disturbance by any of such employees affecting the Business and there is no
indication that such a change, strike or labor disturbance is likely. No
employees of the Company are represented by any labor union or similar
organization in connection with their employment by or relationship with, the
Company, and to the knowledge of the Company, and Shareholders, there are no
pending or threatened activities the purpose of which is to achieve such
representation of all or some of such employees, and there are no threats of
strikes, work stoppages or pending grievances by any such employees. The Company
is not party to any collective bargaining or other labor contracts.
9.10 EMPLOYEE BENEFIT PLANS. The Company does not have any
pension, bonus, profit-sharing, or retirement plans for directors, officers or
employees of the Business or the Company, nor is the Company required to
contribute to any such plan. Without limiting the generality of the foregoing,
the Company does not maintain or make contributions to, and the Company has not
at any time in the past maintained or made contributions to, any employee
benefit plan which is subject to the minimum funding standards of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or to any
multi-employer plan subject to the terms of the Multi-employer Pension Plan
Amendment Act of 1980 (the "MULTI-EMPLOYER ACT"). Prior to the date hereof, the
only pension, bonus, profit-sharing, or retirement plans that have been in
effect for directors, officers or employees of the Business or the Company are
set forth on Schedule 9.10 hereto (the "TERMINATED PLANS"). Each of such
Terminated Plans has been terminated in accordance with the terms of such
Terminated Plans and in accordance with all Governmental Requirements, including
without limitation, ERISA. At the time of termination, each of such Terminated
Plans was fully funded and in compliance with all applicable Governmental
Requirements. The Company has no liability with respect to any Terminated Plan.
9.11 INSURANCE. All inventories, buildings and fixed assets owned
or leased by the Company are and will be adequately insured against fire and
other casualty through the Closing Date. The information contained on the
Schedule of Insurance Policies, attached hereto as Schedule 9.11, is accurate
and complete. Schedule 9.11 also sets forth any claims made under any of the
insurance policies referred to above or increases in premiums therefore during
the past two years. True and complete copies of all policies of fire, liability
and other forms of insurance held or owned by the Company or otherwise in force
and providing coverage for any Business or any of the Assets (including but not
limited to medical malpractice insurance, and any state sponsored plan or
program for worker's compensation) have been delivered to IHS. Such policies are
owned by and payable solely to the Company, and said policies or renewals or
replacements thereof will be outstanding and duly in force at the Closing Date,
and all premiums due on or before the Closing Date in respect thereof have been
paid. The Company has purchased title insurance as set forth on Schedule 9.11.
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9.12 DISCLOSURE. No representation or warranty by any Shareholder
in this Agreement or in any Transaction Document, contains any untrue statement
of material fact or omits to state any material fact, of which the Company, or
any Shareholder or any of their respective officers, directors, trustees or
stockholders has knowledge or notice, required to make the statements herein or
therein contained not misleading.
9.13 OFFICERS AND DIRECTORS OF COMPANIES. As of the Closing Date,
the following individuals are all of the officers and directors of the Company:
Name Office/Position
---- ---------------
Lee T. McCarger Director, President
Leann Jarczynski Director, Vice President
Samuel Jarczynski Director, Treasurer
9.14 INVENTORY AND FIXED ASSETS. The information contained on the
Schedule of Inventory and Fixed Assets, attached hereto as Schedule 2.5(a) is
accurate and complete in all material respects.
9.15 FINANCIAL STATEMENTS. The Shareholders have furnished IHS
with the financial statements of the Company (the "FINANCIAL STATEMENTS") for
the periods ended [9/30/96], [9/30/97] and December 31, 1997 (the "FINANCIAL
STATEMENT DATES"), copies of which are attached hereto as Schedule 9.15. The
Financial Statements: (a) are in accordance with the books and records of the
Company; (b) fairly present the financial condition of the Company on a
consolidated basis at such date and the results of its operations for the
periods specified; (c) were prepared in accordance with all rules, guidelines,
regulations and laws applicable to reporting financial condition for Federal
income tax purposes applied on a basis consistent with prior periods (the "TAX
PRINCIPLES"); (d) with respect to all Contracts of the Company, reflect adequate
reserves for all reasonably anticipated losses and costs in excess of
anticipated income; and (e) with respect to any balance sheets, disclose all of
the liabilities of the Company at the Financial Statement Dates and include the
appropriate reserves for all taxes and other accrued liabilities, except that
certain contingent liabilities, if not disclosed on such balance sheets, shall
be considered to be disclosed pursuant to this subparagraph, if expressly
disclosed on Schedule 9.15 to this Agreement. The income statements included in
the Financial Statements do not contain any items of special or nonrecurring
income or expense or any other income not earned or expense not incurred in the
ordinary course of business, consistent with past practice, except as expressly
specified therein, and such Financial Statements include all adjustments, which
consist only of normal recurring accruals, necessary for such fair presentation.
9.16 TAX INFORMATION. The Company has furnished IHS with its (a)
most recent tax registration certificates, and (b) tax returns for the periods
9/30/96, 9/30/97 and required of it by each state or other locality in which it
conducts business, which tax returns in all instances where applicable include,
but shall not be limited to, income, franchise taxes, state and local tangible
personal property tax returns, and state and local sales tax returns, which
registration certificates and tax returns are set forth, collectively, on the
Schedule of Tax Information, attached hereto as Schedule 9.16. The Balance Sheet
included in the most recent Financial Statements for the Company sufficiently
provides for all accrued, deferred and unpaid
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federal, state, local and foreign net or gross income, profits, property, sales,
use, excise, license, franchise, severance, stamp, occupation, premium, windfall
profits tax, alternative and add-on minimum taxes, customs duty, added value,
payroll, employer's income, withholding and social security taxes, excise or
other taxes ("TAXES") and any penalties, interest, governmental charges,
assessments and deficiencies related thereto, payable by the Company. All Taxes
payable by the Company, and all interest and penalties thereon, whether disputed
or not, have been paid in full when due, all tax returns, declarations of
estimated tax and other reports required to be filed in connection therewith
("TAX RETURNS") have been accurately prepared and completed on an appropriate
basis and duly and timely filed in accordance with all Governmental
Requirements, all computations and taxable income correctly and accurately made
and reported in accordance with all Government Requirements, and all
withholdings and deposits required by Governmental Requirements to be made by
the Company with respect to employee's withholding taxes have been duly made.
The Company has not been delinquent in the payment of any Tax, assessment or
governmental charge or deposit and has no tax deficiency or claim outstanding,
proposed or assessed against it, and there is no basis for any such deficiency
or claim. The federal income tax returns of the Company have been filed with the
Internal Revenue Service for all of the fiscal years though the year ended
9/30/97, and no objections with respect thereto have been received by the
Company or any Shareholder. There is not now in force any extension of time with
respect to the date on which any Tax Return was or is due to be filed by or with
respect to the Company any waiver or agreement by the Company for the extension
of time for assessment of any Tax. The Company is not a party to any pending
action or proceeding, and, to the knowledge of the Company and the Shareholders,
no action or proceeding has been threatened by any Governmental Authority for
assessment or collection of any Taxes, nor has any claim for assessment or
collection of Taxes been asserted against the Company. The Company is not a
party to any tax sharing agreement or arrangement. The Company has not elected
to be taxed in accordance with Subchapter S of the Internal Revenue Code of
1986, as amended.
9.17 ADVERSE BUSINESS DEVELOPMENTS. No notice has been received by
the Company or any Shareholder of any new or substantially expanded firm or
individual engaged in a business directly competitive to the Company in its
primary service area within six (6) months before the date hereof that the
Company, the Subsidiary, any Guarantor or Subsidiary reasonably believes will
have a material adverse effect on the Business. None of the Company and
Shareholders has received, either orally or in writing, any notice specific to
it of pending or threatened adverse action with respect to any Medicare,
Medicaid, private insurance or third party payor reimbursement method, practice
or allowance as to any business activity engaged in by the Company, nor has the
Company or any Shareholder received, or been threatened with, any claim for
refund specific to it in excess of $750 by a Medicare or Medicaid carrier,
except as disclosed in the Schedule of Proceedings attached hereto as Schedule
9.17.
9.18 RELATIONSHIPS. Except as disclosed on Schedule 9.18, none of
the Company and the Shareholders, and none of their respective officers,
trustees, directors, employees, immediate family members, and no person or
entity which is controlled by, under common control with, or controlling any of
them (each, an "AFFILIATE") has, or at any time within the last two (2) years
has had, a material ownership interest in any business, corporate or otherwise,
that is a party to, or in any property that is the subject of, business
relationships or arrangements of any kind relating to the operation of the
Business of the Company. Except as set forth on Schedule 9.18, no Affiliate is
guaranteeing the obligations of the Company.
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9.19 ASSETS COMPRISING THE BUSINESS. The Assets are all of the
tangible and intangible properties (real, personal and mixed), including,
without limitation, all licenses, intellectual property, permits and
authorizations, and contracts that are necessary or material to the operation of
the Businesses as now operated. The quantities of inventory and supply items
included in the Assets are reasonable in light of the present and anticipated
volume of the Businesses of the Company in the ordinary course of the business
of the Company, consistent with past practice, as determined by the Shareholders
in good faith and consistent with past practice.
9.20 QUESTIONABLE PAYMENTS. The Company has not, and to the
knowledge of the Company and Shareholders, none of their Affiliates or employees
have, offered, made or received any illegal or unlawful payment, bribe,
kickback, political contribution or other similar questionable payment for any
referrals or otherwise in connection with the ownership or operation of any of
the Business, including, without limitation, any of the same that would
constitute a violation of the Foreign Corrupt Practices Act of 1977, as amended.
9.21 REIMBURSEMENT MATTERS. The Company to the extent necessary to
conduct its business in a manner consistent with past practice, is qualified for
participation in the Medicare and Medicaid programs. Except as disclosed on
Schedule 9.21, (i) none of the Company, and the Shareholders has received any
notice of denial or recoupment from the Medicare or Medicaid programs, or any
other third party reimbursement source (inclusive of managed care organizations)
with respect to products or services provided by the Company, (ii) to the
knowledge of the Company, and each Shareholder, there is no basis for the
assertion after the Closing Date of any such denial or recoupment claim, and
(iii) none of the Company, and the Shareholders has received notice from any
Medicare or Medicaid program or any other third party reimbursement source
(inclusive of managed care organizations) of any pending or threatened
investigations or surveys with respect to, or arising out of, products or
services provided by the Company or otherwise, and to the knowledge of the
Company, and the Shareholders, no such investigation or survey is pending,
threatened or imminent.
9.22 ENVIRONMENTAL COMPLIANCE. Except as disclosed on Schedule
9.22, at all times during the ownership by the Company of the Business, such
Business has not been, and the Business currently is not, in violation of any
Governmental Requirement relating to environmental matters and no notice has
ever been served upon any Shareholder or the Company, or any of their agents or
representatives or any prior owner of any Business, claiming any violation of
any Governmental Requirement concerning the environmental state, condition or
quality of any real or personal property in any related to the Business, or
requiring or calling attention to the need for any work, repairs or demolition
on or in connection with any of the real property in order to comply with any
governmental requirement concerning the environmental or healthful state,
condition or quality of the real property.
9.23 CAPITAL STOCK. Schedule 9.23 sets forth a complete list and
description of all of the authorized capital stock of the Company, the number of
shares issued and outstanding of such capital stock and the identity of each
holder thereof, in each case indicating the number of shares held. No shares of
capital stock of the Company are held in the treasury or such corporation. The
23
Company has only one class of capital stock. The Shareholders are the lawful
record and beneficial owners of all of the Company Shares as indicated on
Schedule 9.23, free and clear of all Liens, and all of such stock is duly
authorized, validly issued, and fully paid and non-assessable. Each Shareholder
has the full legal power to transfer and deliver the Company Shares listed as
owned by him, her or it on Schedule 9.23. There are not now any and, on the
Closing Date there will be no, subscription, participation, preemptive or first
refusal rights to purchase or otherwise acquire shares of capital stock of the
Company from the Company, or from any Shareholder or from any other person,
pursuant to any provision of law or the Articles of Incorporation or By-Laws of
the Company or by agreement or otherwise. There are not now any and, on the
Closing Date there shall not be, outstanding any warrants, options, or other
rights to subscribe for or purchase from the Company any shares of capital stock
of the Company, nor are there and there shall not be outstanding on the Closing
Date, any securities convertible into or exchangeable for any such shares. There
are no voting agreements, arrangements, trusts or restrictions relating to any
of the Company Shares.
9.24 ACCOUNTS RECEIVABLE. The information contained on the
Schedule of Accounts Receivable Data, attached hereto as Schedule 9.24, is
accurate and complete. $ of the amount set forth thereon is fully collectible
(without further reserve) within twelve (12) months from the Closing Date.
ARTICLE X: REPRESENTATIONS AND WARRANTIES OF IHS AND NEWCO
IHS and Newco represent and warrant to the Shareholders that:
10.1 DUE ORGANIZATION. Each of IHS and Newco is a duly organized,
valid corporation under the laws of the State of Delaware and Florida,
respectively.
10.2 DUE AUTHORITY. Each of IHS and Newco is duly authorized by
law and corporate policy and approval to: (a) enter into this Agreement and each
Transaction Document; (b) make all warranties and representations made by them
herein; and (c) deliver all consideration provided for under the terms hereof.
10.3 BINDING AUTHORITY. All signatories and agents designated as
agents/officers for IHS or Newco for signing purposes have the authority to bind
IHS or Newco, as the case may be, to the terms of this Agreement.
10.4 CASH PAYMENT AUTHORITY. IHS has the authority to cause the
Merger Consideration to be delivered in accordance with the terms of this
Agreement.
10.5 BROKERS. No broker or finder has acted for the IHS or Newco
in connection with the transactions contemplated by this Agreement, and no
broker or finder is entitled to any broker's or finder's fee or other commission
in respect thereof based in any way on agreements, understandings or
arrangements with IHS or Newco.
24
ARTICLE XI: SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of IHS, Newco and each Shareholder
contained or made pursuant to this Agreement shall survive the execution of this
Agreement.
ARTICLE XII: RESTRICTIVE COVENANTS
12.1 NON-COMPETE. Each Shareholder hereby agrees that until the
fifth (5th) anniversary of the Closing Date (the "RESTRICTED PERIOD"), it, he or
she will not, directly or indirectly, own, manage, operate, join, control or
participate, or have a proprietary interest in, the ownership, management,
operation or control, of or be connected with, in any manner, any home health
care business within fifty (50) miles of any location set forth on the Schedule
of Locations attached hereto as Schedule 12.1.
12.2 CONFIDENTIAL INFORMATION. Certain confidential and
proprietary information is included within the Assets ("TRADE SECRETS"),
including, without limitation, with respect to some or all of the following
categories of information: (a) financial information, including but not limited
to information relating to earnings, assets, debts, prices, pricing structure,
reimbursement matters, volume of purchases or sales or other financial data
whether related to the Company or generally, or to particular products,
services, geographic areas, or time periods; (b) supply and service information,
including but not limited to information relating to goods and services,
suppliers' names or addresses, terms of supply or service contracts or of
particular transactions, or related information about potential suppliers to the
extent that such information is not generally known to the public, and to the
extent that the combination of suppliers or use of a particular supplier, though
generally known or available, may yield advantages to IHS or the Surviving
Corporation, details of which are not generally known; (c) marketing
information, including but not limited to information relating to details about
ongoing or proposed marketing programs or agreements by or on behalf of the
Company, sales forecasts, advertising formats and methods or results of
marketing efforts or information about impending transactions; (d) personnel
information, including but not limited to information relating to employees'
personal or medical histories, compensation or other terms of employment, actual
or proposed promotions, hirings, resignations, disciplinary actions,
terminations or reasons therefor, training methods, performance, or other
employee information; (e) customer and patient information, including but not
limited to information relating to names, addresses or backgrounds of past,
existing or prospective clients, customers, payors, referral sources, and
patients, records of agreements and prices, proposals or agreements between any
of them and the Company, status of accounts or credit, patients' medical
histories or related information as well as customer lists; and (f) inventions
and technological information, including but not limited to information related
to proprietary technology, trade secrets, research and development data,
processes, formulae, data and know-how, improvements, inventions, techniques,
and information that has been created, discovered or developed, or has otherwise
become known to the applicable Shareholder, and/or in which property rights have
been assigned or otherwise conveyed to the Company, which information has
commercial value in the business in which the Company is engaged. Each
Shareholder shall hold all Trade Secrets in confidence and will not discuss,
communicate or transmit to others, or make any unauthorized copy of or use any
of the Trade Secrets; and will take all reasonable actions that IHS deems
reasonably necessary or appropriate, to prevent unauthorized use or disclosure
of or to protect
25
the Surviving Corporation's interest in the Trade Secrets. The foregoing does
not apply to information that by means other than deliberate or inadvertent
disclosure by any Shareholder or any of their respective Affiliates, becomes
well known to the public; or disclosure compelled by judicial or administrative
proceedings after the Shareholders diligently try to avoid each disclosure and
afford IHS the opportunity to obtain assurance that compelled disclosures will
receive confidential treatment.
12.3 NON-SOLICITATION AND NON-PIRATING. Each Shareholder hereby
agrees that, during the Restricted Period it, he or she will not, directly or
indirectly, for itself, himself or herself on behalf of any other person, firm,
entity or other enterprise: (a) solicit or in any way divert or take away any
person or entity that, prior to the Closing Date, was a patient, client,
customer, payor, referral source, facility or patient of the Company or Medaids;
or (b) hire, entice away or in any other manner persuade any person who was an
employee, consultant, representative or agent of the Company or Medaids prior to
the Closing Date, to alter, modify or terminate their relationship with the
Surviving Corporation.
12.4 NECESSARY RESTRICTIONS. Each Shareholder acknowledges that
the restrictions contained in this Agreement are reasonable and necessary to
protect the legitimate business interests of IHS and the Surviving Corporation
and that any violation thereof by any of them would result in irreparable harm
to IHS and the Surviving Corporation, and that damages in the event of any such
breach of this Agreement will be difficult, if not impossible, to ascertain.
Accordingly, each of the Shareholders agrees that upon the violation of any of
the restrictions contained in this Agreement, IHS or the Surviving Corporation
shall be entitled to obtain from any court of competent jurisdiction a
preliminary and permanent injunction as well as any other relief provided at
law, equity, under this Agreement or otherwise. In the event any of the
foregoing restrictions are adjudged unreasonable in any proceeding, then the
parties agree that the period of time or the scope of such restrictions (or
both) shall be adjusted to such a manner or for such a time (or both) as is
adjudged to be reasonable.
12.5 REMEDIES FOR BREACH. Each Shareholder acknowledges that the
covenants contained in this Article XII of this Agreement are independent
covenants of IHS and the Surviving Corporation and that any failure by IHS or
the Surviving Corporation to perform its obligations under this Agreement or any
other agreement shall not be a defense to enforcement of the covenants contained
in this Agreement, including but not limited to a temporary or permanent
injunction.
ARTICLE XIII: INDEMNIFICATION; REMEDIES
13.1 INDEMNIFICATION BY SHAREHOLDERS. The Shareholders shall,
jointly and severally, indemnify and hold harmless at all times IHS and the
Surviving Corporation and their respective stockholders, directors, officers,
employees, agents and assigns (collectively, the "IHS CLAIMANTS" and each an
"IHS CLAIMANT", from and against any Damages (as hereinafter defined) resulting
from: (a) any inaccurate representation made by any Shareholder in, pursuant to
or under this Agreement or any Transaction Document; (b) any breach of any
warranty made by any Shareholder in, pursuant to or under this Agreement or any
Transaction Document; (c) any breach or default in the performance by any of the
Company or Shareholders of any of the covenants to be performed by any of the
Shareholders, or the Company hereunder or in any Transaction Document; (d) any
Closing Date Liabilities; (e) any Liabilities Deficiency; and (f) any Asset
Value Deficiency.
26
13.2 INDEMNIFICATION BY IHS. IHS shall indemnify and hold harmless
at all times each Shareholder from and against any Damages resulting from: (a)
any inaccurate representation made by IHS or Newco in, pursuant to or under this
Agreement; (b) any breach of any warranty made by IHS or Newco in, pursuant to
or under this Agreement; and (c) any breach or default in the performance by IHS
or Newco of any of the covenants to be performed by IHS or Newco hereunder.
13.3 DEFINITION OF DAMAGES. The term "DAMAGES" as used herein
shall include any demands, claims, actions, deficiencies, losses, delinquencies,
defaults, assessments, fees, costs, taxes, expenses, debts, liabilities,
obligations, settlements, penalties, and damages, including, without limitation,
reasonable counsel and arbitration fees incurred in investigating or in
attempting to avoid or oppose the imposition thereof.
13.4 REMEDIES.
(A) REMEDIES OF IHS CLAIMANTS. If any IHS Claimant makes
written request to any Shareholder for the payment of Damages, then such
Shareholder shall pay to such IHS Claimant the amount of Damages requested
within ten (10) days from the date on which such request is received (the
"NOTICE PERIOD").
(B) SHAREHOLDERS' REMEDIES. If any Shareholder makes written
request to IHS or the Surviving Corporation for the payment of Damages, then IHS
or the Surviving Corporation shall pay to such Shareholder the amount of Damages
requested within the Notice Period.
(C) NOTICE OF DISPUTE. Notwithstanding the foregoing
provisions of this Section 13.4, if a party (the "DEMANDING PARTY") serves a
request for payment on the other party (the "OBLIGATED PARTY"), the Obligated
Party shall have the option to provide written notice to the Demanding Party
(the "NOTICE OF DISPUTE") within the Notice Period that the Obligated Party
disputes, in good faith, the validity or amount of the Damages set out in the
request for payment of Damages, and if the affected parties cannot agree on the
validity or amount of such Damages within ten (10) days following the Notice
Period, the dispute as to the validity or amount of such claim or liability (the
"DISPUTE") shall be settled as set forth in Section 13.5 below, with the
non-prevailing party bearing the prevailing party's costs of arbitration if such
Dispute is resolved by arbitration.
(D) ARBITRATION. If arbitration is required pursuant to this
Section 13.4, IHS and the Surviving Corporation, on the one hand and the Group's
Representative on behalf of all of the Shareholders, on the other hand, each
shall select an arbitrator within ten (10) business days after the Notice of
Dispute is delivered; those two arbitrators will then select a third arbitrator;
and the three arbitrators so chosen will determine the validity of the claim for
Damages (unless a single arbitrator shall be agreed to by the applicable
parties; in which case such single arbitrator shall make such determination). If
either side delays in appointing an arbitrator when required, and ten (10) days
or more has elapsed, the arbitrator appointed by the other party shall arbitrate
the dispute. If any of the Shareholders shall be subject to a Dispute with IHS
and/or the Surviving Corporation, they shall, unless IHS or the Surviving
Corporation elects otherwise in its sole and absolute discretion, be required to
act as a group with respect to any and all rights and obligations with respect
to the resolution of the Dispute as provided in this Section 13.4. The parties
agree that any arbitration pursuant hereto shall be held in Tampa, Florida.
27
13.5 SETTLEMENT OF DISPUTES.
(A) DISPUTES NOT INVOLVING THIRD PARTIES. If a Dispute
involves claims not involving any third party, IHS and the Surviving
Corporation, on the one hand, and all of the Shareholders, on the other hand,
shall settle the Dispute by submitting the same to binding arbitration.
(B) DISPUTES INVOLVING CLAIMS MADE BY THIRD PARTIES. If a
Dispute involves claims made by one or more third parties (a "THIRD PARTY
CLAIM"), the party asserting its right to indemnification for such Third Party
Claim shall give written notice to the other party as soon as practical after
such asserting party receives notice of such Third Party Claim; provided,
however the failure to timely give such notice shall not affect such party's
right to indemnification except to the extent the party to receive the notice is
damaged by such delay. Upon such notice the parties shall submit the Dispute to
arbitration, and the following procedures shall apply:
(I) Solely for purposes of determining the party
responsible for defending the Third Party Claim, the arbitrators shall
deem such Third Party Claim to be valid (although such consideration
shall not be an admission by any party as to any liability to any
party). The arbitrators then shall decide which party shall be liable
for the Third Party Claim if it is successfully prosecuted by such
third party or parties, and the decision of such arbitrators with
respect to such liability shall be final and binding as among the
parties. (Such party determined to be liable for such claim sometimes
shall be referred to herein as the "RESPONSIBLE PARTY".)
(II) If the Responsible Party refuses to settle (and pay
the settlement amount of) the Third Party Claim immediately, then the
Responsible Party immediately shall select one of the following two
options:
Option One: The Responsible Party, at the
Responsible Party's sole expense and risk, can assume the
defense of the Third Party Claim, provided the
Responsible Party first places in escrow, in favor of the
other party, adequate collateral (as determined by the
arbitrators on consideration of all relevant facts) to
protect the other party from all Damages with respect to
such Third Party Claim (in which case the other party
immediately shall be reimbursed by the Responsible Party
for any amount the other party is required to pay with
respect to such Third Party Claim); or
Option Two: The Responsible Party, at the
Responsible Party's expense and risk, can co-defend the
Third Party Claim with the other party, with the
Responsible Party also responsible for advancing all
costs incurred by the other Party in connection with such
defense, including, without limitation, the legal fees
and expenses of the other party's counsel for its
reasonable involvement in such defense. If the other
party is found to be liable for any portion of such Third
Party Claim, the Responsible Party immediately shall
advance to the other party any amount required to be paid
by the
28
other party with respect thereto; provided, however, if
the Responsible Party selects this option, the
Responsible Party shall attempt diligently to have the
other party removed as a party to any legal action
involving the Third Party Claim (and, upon such removal,
the involvement of the other party's counsel shall cease
unless requested by the Responsible Party or the
Responsible Party's counsel); and
(III) No party may settle any Third Party Claim without
the prior consent of the other parties hereto unless the settlement
will not have a material adverse effect on the other party hereto. The
parties will resolve any Dispute with respect to any such proposed
settlement in accordance with this Section 13.5.
(IV) Any party responsible for defending a Third Party
Claim shall proceed with diligence and in good faith with respect
thereto.
ARTICLE XIV: POST-CLOSING REQUIREMENTS OF SHAREHOLDERS
14.1 PAYMENT ESCROW. At Closing, IHS shall pay over and
deliver to or on behalf of Shareholders (and shall be credited,
dollar-for-dollar, as partial payment of the Merger Consideration) to the Paying
Agent, in escrow (the "PAYMENT ESCROW"), an amount equal to the Closing Date
Liabilities as specified in Section 2.3(b), to be held by the Paying Agent
subject to the terms, conditions, and provisions of the Payment Escrow
Agreement. The Paying Agent shall be an attorney at law authorized to practice
law in the State of Florida, a trust company or a bank having trust powers in
such State, which Paying Agent has been selected by the Group's Representative
and approved by IHS.
(A) The Shareholders shall pay all costs and expenses of the
Payment Escrow, including without limitation, any fees or costs of the Paying
Agent.
(B) The Shareholders shall be obligated to ensure that the
Paying Agent timely and properly pays all Closing Date Liabilities, and that the
Paying Agent obtains and delivers to IHS the "Final Release" referred to in the
Payment Escrow Agreement, or other reasonable evidence of payment acceptable to
IHS.
(C) The existence of the Payment Escrow shall not affect the
obligations of the Shareholders to hold the IHS Claimants harmless against any
Closing Date Liabilities as provided in Section 13.1.
14.2 FINAL FINANCIAL AND TAX INFORMATION.
(A) Not later than thirty (30) days following Closing, the
Shareholders, at their sole cost and expense, shall deliver to IHS "FINAL AND
TAX FINANCIAL INFORMATION", which shall include:
29
(I) a balance sheet of the Company and the Subsidiary on
a consolidated basis as of the Economic Change Date prepared in
accordance with the Tax Principles;
(II) an income statement, prepared in accordance with the
Tax Principles, of the Company and the Subsidiary on a consolidated
basis for the period commencing on the date succeeding the last day of
the most recent Financial Statement Date and ending on the Economic
Change Date;
(III) an aged schedule of accounts receivable of the
Company and the Subsidiary as of the Economic Change Date;
(IV) a Cash Settlement Summary of the Company and the
Subsidiary, in form provided by Buyer;
(V) an inventory of fixed assets of the Company and the
Subsidiary as of the Economic Change Date;
(VI) an inventory of supplies of the Company and the
Subsidiary as of the Economic Change Date; and
(VII) a Federal and State tax return for the Company and
the Subsidiary for the Company's fiscal period ending on the Economic
Change Date, or if such a return may not be filed in accordance with
applicable Governmental Requirements, a fiscal year end Federal and
State income tax return for the Company and the Subsidiary prepared as
if the Economic Change Date was the last day of the fiscal year of the
Company and the Subsidiary.
(B) LIABILITIES DEFICIENCY. If all such Final Financial and
Tax Information is not delivered to IHS within such thirty (30) day period
following the effective date of the merger, the Guarantors and Shareholders
shall be liable to IHS in an amount equal to $500.00 for each day after such
thirty (30) day period until all such Final Financial and Tax Information is
delivered to IHS, and such liability shall constitute a Liabilities Deficiency
under the provisions of Section 2.7(a), above.
ARTICLE XV: MISCELLANEOUS
15.1 GROUP'S REPRESENTATIVE. Each Shareholder hereby designates
Lee T. McCarger, and Lee T. McCarger hereby accepts the designation as the
representative of the Shareholders ( the "GROUP'S REPRESENTATIVE") to act for
and on behalf of the Guarantors and Shareholders as provided in this Agreement.
Each Shareholder shall be bound by all actions taken or omitted by Group's
Representative on behalf of any Shareholder as provided in this Agreement, and
each Shareholder shall be deemed to have received any notice deemed given or
payment made to Group's Representative in accordance with the notice provisions
of this Agreement on the date deemed given or the date paid to Group's
Representative, and IHS and the Surviving Corporation shall be entitled to rely
on all notices and consents given, and all settlements entered into on behalf of
any Shareholder to the extent authorized pursuant to the terms of this Agreement
notwithstanding
30
any objections made by any Shareholder prior to, concurrently with or subsequent
to the giving of any such notice or consent or the settlement of any such
matter. Group's Representative may be replaced only if and when all of the
Shareholders shall notify IHS that a new individual person (named in such
notice) has been unanimously selected by them to be the new Group's
Representative, in which case such new person shall thereafter be the Group's
Representative.
15.2 THIRD PARTY BENEFICIARIES. Nothing in this Agreement,
expressed or implied, is intended to confer on any person, other than the
parties hereto, and their successors, any rights or remedies under or by reason
of this Agreement other the affiliates entitled to indemnification pursuant to
Sections 13.1 and 13.2.
15.3 EXPENSES. Except as otherwise stated herein, each of the
parties shall bear all expenses incurred by them in connection with this
Agreement and in consummation of the transactions contemplated hereby in
preparation thereof.
15.4 NOTICES. All notices, consents, waivers and other
communications required or permitted hereunder shall be in writing and shall be
deemed to be properly given when personally delivered to the party or parties
entitled to receive the notice or three (3) business days after sent by
certified or registered mail, postage prepaid, or on the business day after sent
by nationally recognized overnight courier, in each case, properly addressed to
the party or parties entitled to receive such notice at the address stated
below:
to any Shareholder: Lee T. McCargar
17726 Grey Eagle Rd
Tampa, Fl 33647
with a copy to: Michael D. LaBarbera, Esq.
LaBarbera, Campbell and Leto
West Kennedy Legal Center
1907 West Kennedy Boulevard
Tampa, Florida 33606
to IHS: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Marshall Elkins, General Counsel, and
Elizabeth B. Kelly, Executive Vice
President
and
Blass & Driggs
461 Fifth Avenue
New York, NY 10017
Attn: Andrew S. Bogen
31
with a copy to: RoTech Medical Corporation
4506 L.B. McLeod Road, Suite F
Orlando, FL 32811
Attention: Stephen P. Griggs
15.5 CHOICE OF LAW. The laws of the State of Florida
applicable to contracts executed, delivered and to be fully performed in such
State govern the validity of this Agreement, the construction of its terms, and
the interpretation of the rights and duties of the parties.
15.6 SECTIONS AND OTHER HEADINGS. Section, paragraph, and
other headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
15.7 COUNTERPART EXECUTION. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which, together, shall constitute but one instrument. Facsimile signatures may
be deemed binding for this Agreement, or any modification or amendment hereto,
or any Transaction Documents contemplated hereby.
15.8 GENDER. All gender employed in this Agreement shall
include all genders, and the singular shall include the plural and the plural
shall include the singular whenever and as often as may be appropriate.
15.9 PARTIES IN INTEREST. This Agreement shall be binding on
and shall inure to the benefit of, and be enforceable by, IHS, the Surviving
Corporation, Shareholders and their respective successors and assigns. IHS and
the Surviving Corporation shall be entitled to assign their rights under this
Agreement and the Transaction Documents after the Closing. No Shareholder may
assign this Agreement or any of his or her rights hereunder without the prior
consent of IHS.
15.10 ENTIRE AGREEMENT. This Agreement including all Schedules
and Exhibits hereto, and all Transaction Documents constitute the entire
agreement between the parties hereto with respect to the subject matter hereof
and there are no agreements, understandings, restrictions, warranties, or
representations between the parties with respect to the subject matter hereof
other than as set forth herein or as herein provided.
15.11 PERFORMANCE. In the event of a breach by any Shareholder
of any of its, his or her respective obligations hereunder, IHS shall have the
right, in addition to any other remedies which may be available, to obtain
specific performance of the terms of this Agreement, and each of the
Shareholders hereby waives the defense that there may be an adequate remedy at
law.
15.12 WAIVER, DISCHARGE, ETC. This Agreement and the
Transaction Documents and the obligations hereunder and thereunder shall not be
released, discharged, abandoned, changed or modified in any manner, except by an
instrument in writing executed by or on behalf of each of the parties hereto by
their duly authorized officer or representative. The failure of any party to
enforce at any time any of the provisions of this Agreement or any Transaction
Document shall in no way be construed to be a waiver of any such provision, nor
in any way to affect the validity of this Agreement or such Transaction
Document, as the case may be, or any part hereof or the right
32
of any party thereafter to enforce each and every such provision. No waiver of
any breach of this Agreement or any Transaction Document shall be held to be a
waiver of any other or subsequent breach.
15.13 COOPERATION FURTHER ASSISTANCE. From time to time, as
and when reasonably requested by any party hereto after the Closing, the other
parties will (at the expense of the requesting party) execute and deliver, or
cause to be executed or delivered, all such documents, instruments and consents
and will use reasonable efforts to take all such action as may be reasonably
requested or necessary to carry out the intent and purpose of this Agreement.
15.14 JOINT AND SEVERAL. The Shareholders shall be jointly and
severally liable for all representations, warranties and obligations, including,
without limitation, indemnification obligations, and covenants made by any of
them pursuant to this Agreement, including, without limitation, any made
pursuant to any Transaction Document. For all purposes of this Agreement, any
representation or warranty that is qualified to be "to the knowledge of any
Shareholder or Company" or by a requirement that the Company or any Shareholder
shall have received "notice" of any matter, or any similar qualification shall
be deemed to include the knowledge of the Company, or any Shareholder or notices
to the Company or any Shareholder, as the case may be. No Shareholder shall have
any right of contribution from, or indemnification by, the Surviving Corporation
(as the successor to the Company and Medaids) by reason of such Shareholder's
prior association with the Company or Medaids as a shareholder, employee,
officer or director.
15.15 INDEPENDENT LEGAL COUNSEL. Each Shareholder represents
and warrants that it, he or she has had the opportunity to seek the advice of
independent legal counsel prior to signing this Agreement, and that IHS has
recommended to such Shareholder that such party obtain legal counsel.
[SIGNATURES ON THE FOLLOWING PAGE]
33
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first stated above.
INTEGRATED HEALTH
SERVICES, INC.
By:
------------------------------
Name:
Title:
ROTECH OXYGEN & MEDICAL
EQUIPMENT, INC.
By: /s/ STEPHEN P. GRIGGS
------------------------------
Name: Stephen P. Griggs
Title: President
STATE OF FLORIDA
--------------
COUNTY OF ORANGE
--------------
The foregoing instrument was acknowledged before me by, Stephen P.
Griggs, as __________________________ President of Rotech Oxygen & Medical
Equipment, Inc., a corporation, on behalf of the corporation, and who is
personally known to me; or has produced __________________________ as
identification.
April 21, 1998 /s/ Elizabeth S. Brown
- ------------------------- ---------------------------------
Date Notary Signature
---------------------------------
Notary Name Printed
My Commission Expires:
[SEAL] ELIZABETH S. BROWN
MY COMMISSION # CC377695 EXPIRES
JUNE 25, 1998
BONDED THRU TROY FARM INSURANCE, INC.
34
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first stated above.
INTEGRATED HEALTH
SERVICES, INC.
By: /s/ ELIZABETH B. KELLY
------------------------------
Name: Elizabeth B. Kelly
Title: EVP, Corporate Development
ROTECH OXYGEN & MEDICAL
EQUIPMENT, INC.
By:
------------------------------
Name:
Title:
STATE OF MARYLAND
--------------
COUNTY OF BALTIMORE
--------------
The foregoing instrument was acknowledged before me by, Elizabeth B.
Kelly, as Executive Vice President of Integrated Health Services,
a_________________ corporation, on behalf of the corporation, and who is
personally known to me; or has produced a drivers' license as identification.
2/10/98 /s/ Joyce Walker Duley
- ------------------------- ---------------------------------
Date Notary Signature
/s/ Joyce Walker Duley
---------------------------------
Notary Name Printed
My Commission Expires:
JOYCE WALKER DULEY
NOTARY PUBLIC STATE OF MARYLAND
MY COMMISSION EXPIRES DECEMBER 24, 2001
35
PRIME MEDICAL SERVICES, INC.
By: /s/ LEE T. MCCARGER
-----------------------------
Name: LEE T. MCCARGER
Title: President
STATE OF FLORIDA
----------------
COUNTY OF HILLSBOROUGH
---------------
The foregoing instrument was acknowledged before me by, Lee T
McCarger, as ___________________ President of Prime Medical Services, a
corporation, on behalf of the corporation, and who is personally known to me; or
has produced________________________ as identification.
2/6/98 /s/ MICHAEL D. LABARBERA
- ------------------------------ ----------------------------------
Date Notary Signature
OFFICIAL NOTARY SEAL MICHAEL D. LABARBERA
MICHAEL D LABARBERA ----------------------------------
NOTARY PUBLIC STATE OF FLORIDA Notary Name Printed
COMMISSION NO. CC539722 My Commission Expires:
MY COMMISSION EXP. MAR. 22, 2000
/s/ LEANN JARCYNSKI /s/ SAMUEL JARCZYNSKI
- -------------------------------- ----------------------------------
LEANN JARCZYNSKI Samuel Jarczynski
STATE OF FLORIDA
------------------
COUNTY OF HILLSBOROUGH
-----------------
The foregoing agreement was acknowledged before me by, Leann Jarcynski,
Samuel Jarcynski who is personally known to me; or has produced
_______________________ as identification.
2/6/98 /s/ MICHAEL D. LABARBERA
- --------------------------- ----------------------------------
Date Notary Signature
MICHAEL D. LABARBERA
OFFICIAL NOTARY SEAL ----------------------------------
MICHAEL D LABARBERA Notary Name Printed
NOTARY PUBLIC STATE OF FLORIDA My Commission Expires:
COMMISSION NO. CC539722
MY COMMISSION EXP. MAR. 22, 2000
36
/s/ ELIZABETH TEPPER
----------------------------------
Elizabeth Tepper
STATE OF FLORIDA
----------------
COUNTY OF HILLSBOROUGH
---------------
The foregoing agreement was acknowledged before me by, Elizabeth Tepper
who is personally known to me; or has produced ____________________________ as
identification.
2/6/98 /s/ MICAHEL D. LABARBERA
- ------------------------------- ---------------------------------
Date Notary Signature
OFFICIAL NOTARY SEAL MICHAEL D. LABARBERA
MICHAEL D LABARBERA ---------------------------------
NOTARY PUBLIC STATE OF FLORIDA Notary Name Printed
COMMISSION NO. CC539722 My Commission Expires:
MY COMMISSION EXP. MAR. 22, 2000
/s/ BERNICE BRIERLEY by
ARTHUR TEPPER POA
---------------------------------
Bernice Brierley
STATE OF FLORIDA
-------------------
COUNTY OF HILLSBOROUGH
------------------
The foregoing agreement was acknowledged before me by, Arthur Tepper as
attorney in fact for Bernice Brierley, who is personally known to me; or has
produced ______________________________ as identification.
2/6/98 /s/ MICAHEL D. LABARBERA
- ------------------------------- ---------------------------------
Date Notary Signature
OFFICIAL NOTARY SEAL MICHAEL D. LABARBERA
MICHAEL D LABARBERA ---------------------------------
NOTARY PUBLIC STATE OF FLORIDA Notary Name Printed
COMMISSION NO. CC539722 My Commission Expires:
MY COMMISSION EXP. MAR. 22, 2000
37
/s/ LEE T. MCCARGER
---------------------------------
Lee T. McCarger
STATE OF FLORIDA
----------------------
COUNTY OF HILLSBOROUGH
---------------------
The foregoing agreement was acknowledged before me by, Lee T. McCarger,
who is personally known to me; or has produced____________________________ as
identification.
2/6/98 /s/ MICAHEL D. LABARBERA
- ------------------------------- ---------------------------------
Date Notary Signature
OFFICIAL NOTARY SEAL MICHAEL D. LABARBERA
MICHAEL D LABARBERA ---------------------------------
NOTARY PUBLIC STATE OF FLORIDA Notary Name Printed
COMMISSION NO. CC539722 My Commission Expires:
MY COMMISSION EXP. MAR. 22, 2000
38
SCHEDULES AND EXHIBITS
Schedule 1(a)(i) - Accounts Receivable
Schedule 1(a)(ii) - Inventory; Fixed Assets
Schedule 1(a)(iii) - Automobiles
Schedule 1(a)(v)(B) - Other Assets
Schedule 1(a)(v)(C) - Telephone Numbers
Schedule 2(a) - Allocation of Purchase Price
Schedule 2(b)(iv) - Wire Instructions
Schedule 4(a) - Closing Date Liabilities
Schedule 4(b) - Unassumed Contracts
Schedule 9(c) - Seller's Opinion
Schedule 12(c) - Liabilities
Schedule 12(g) - Contracts
Schedule 12(i) - Personnel Payrates; Employee Benefits
Schedule 12(k) - Insurance
Schedule 12(o) - Tax Returns and Financial Statements
Schedule 12(p) - Supplemental Tax Information
Schedule 12(q) - Adverse Business Developments
Schedule 12(r) - Relationships
Schedule 12(u) - Reimbursement Matters
Schedule 12(v) - Environmental Compliance
Schedule 15(a) - Locations
Exhibit 2(b)(i) - Escrow Agreement
Exhibit 2(b)(ii) - Payment Escrow Agreement
39