AGREEMENT FOR SALE AND PURCHASE OF ASSETS
AND RESTRICTIVE COVENANTS
THIS AGREEMENT is made as of April 29, 1998, by and among FIRST
COMMUNITY CARE, INC., a New York corporation, having its principal place of
business at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (the
"SELLER" or the "CORPORATION"), each of the holders of capital stock of Seller
who are executing this Agreement (the "SHAREHOLDERS"), NORTHEAST MEDICAL
EQUIPMENT, INC., a Florida corporation (the "BUYER"), and INTEGRATED HEALTH
SERVICES, INC., a Delaware corporation ("IHS").
W I T N E S S E T H :
WHEREAS, Seller operates a home respiratory care and durable medical
equipment business in the State of New York (the "BUSINESS"); and
WHEREAS, Shareholders are the shareholders of the Seller; and
WHEREAS, Seller wishes to sell, and Buyer desires to purchase from
Seller, substantially all of the assets of the Business; and Buyer also desires
to acquire from Seller and Shareholders, and each of Seller and Shareholders
desire to grant to Buyer, covenants not to compete and other restrictive
covenants as described in paragraph 17 hereof (the "RESTRICTIVE COVENANTS"); and
WHEREAS, Buyer is an indirect subsidiary of IHS; and
WHEREAS, the consent or approval of all persons necessary for the
consummation of the transactions contemplated hereby has been obtained,
including without limitation, all approvals of governmental authorities and
parties to any contracts to be assigned to Buyer in connection herewith.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is hereby agreed as follows:
1. Sale of Assets and Restrictive Covenants.
(a) The Assets. On the Closing Date referred to below in paragraph
9, Seller shall sell, transfer, convey and assign, free and clear of all liens,
claims, security interests, pledges, restrictions on transfer or use and other
encumbrances of any kind or nature whatsoever ("LIENS"), other than Liens
granted after the date hereof with the concurrence of Buyer ("PERMITTED LIENS"),
all of Seller' rights, title and interest in, to or under:
(i) Accounts Receivable. All of the accounts receivable of the
Business, including, without limitation, all accounts receivable set
forth on the Schedule of Accounts Receivable Data attached hereto as
Schedule 1(a)(i); and
(ii) Inventory; Fixed Assets. All inventory and fixed assets
of the Business, including, without limitation, all of the same set
forth on the Schedule of Inventory and Fixed Assets attached hereto as
Schedule 1(a)(ii); and
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(iii) Motor Vehicles. All motor vehicles of the Business,
including without limitation, all of the same set forth on the Schedule
of Motor Vehicles attached hereto as Schedule 1(a)(iii); and
(iv) Property Rights. All real property, easements and rights
of way permitting access to the Business; and
(v) Other Assets. All other assets of any kind, tangible or
intangible, real, personal or mixed, owned and used or held for use by
Seller in connection with the Business, including, without limitation,
all of the following: (A) the Patients' List of the Business, as
described in Schedule 1(a)(v)(A); (B) the telephone numbers listed on
the Schedule of Telephone Numbers and Licenses attached hereto as
Schedule 1(a)(v)(B); (C) all personal property, machinery and
equipment; (D) capital stock or membership interests in the
Subsidiaries (as defined in paragraph 14(a)), including, without
limitation, all capital stock in First Community Care of Niagara, Inc.
and membership interests in Tri-County Home Care Services, LLC and
First Community Care of ▇▇▇▇▇▇▇, LLC (the "JV INTERESTS"); (E) all of
Seller's prepaid assets; (F) rights under contracts, agreements,
including, without limitation, franchise agreements, and instruments;
(G) any Assets used in the operation of the Business, but not owned by
the Seller; (H) all intangible rights of Seller of every kind and
description used in, or held for use in connection with, the operation
of the Business, including, without limitation, all intangible assets,
and to the extent permitted by applicable law, all licenses, permits
and authorizations; and (I) all rights of Seller to receive payments
under the Consulting Services Agreement (the "MOHAWK VALLEY AGREEMENT")
dated September 15, 1994, among First Community Care, Inc., Mohawk
Valley Home Care, LLC and Mohawk Valley Network, Inc.; provided Buyer
shall not assume any obligations under the Mohawk Valley Agreement.
(b) Excluded Assets. Notwithstanding the foregoing, the Assets
shall not include, and Seller shall not be deemed to have sold, transferred,
conveyed or assigned the following assets to Buyer: Seller's cash, Certificate
of Incorporation, qualification to do business in any jurisdiction, taxpayer
identification number, minute books, stock transfer records and other documents
related specifically to Seller's corporate organization and maintenance, and
Seller's equity interest in Mohawk Valley Home Care, L.L.C. (collectively,
"EXCLUDED ASSETS").
(c) Restrictive Covenants. Pursuant to paragraph 17 hereof, each of
Seller and each Shareholder is granting to Buyer the Restrictive Covenants.
2. Purchase Price; Method of Payment.
(a) Purchase Price. The aggregate "PURCHASE PRICE" for the Assets
and the Restrictive Covenants shall be Eight Million Six Hundred Dollars
($8,600,000). The Purchase Price shall be allocated among the Assets and the
Restrictive Covenants in the manner set forth on the Allocation Schedule
attached hereto as Schedule 2(a), and the parties hereto expressly consent to
the allocation stated therein.
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(b) Method of Payment. Buyer shall pay the Purchase Price as
follows:
(i) Six Hundred Eighty-Eight Thousand Dollars ($688,000) (the
"BROKER'S FEE") shall be paid, on behalf of Seller, to ▇▇▇▇▇ &
Associates, Inc. (the "BROKER"), in cash in satisfaction of all fees
and compensation due to the Broker in connection with the transactions
contemplated by this Agreement. Seller represents and warrants to Buyer
that the Broker has acted as Seller's representative and broker in
connection with the transactions contemplated by this Agreement, and
authorizes and directs Buyer to withhold such sum from the Purchase
Price and disburse such sum directly to the Broker. In addition, eight
percent (8%) of the Remaining Escrow Funds (as defined in paragraph
6(d)(ii)) and of the amount payable under the Notes (as hereinafter
defined) shall be disbursed to the Broker, on behalf of Seller, at the
end of the Escrow Period (as defined in paragraph 6(d)(i)) or when the
Notes become due, as the case may be; and
(ii) Four Hundred Thirty Thousand Dollars ($430,000) thereof
(the "ESCROWED CASH") shall be paid and delivered to CoreStates Bank,
N.A., as escrow agent ("ESCROW AGENT"), to be held by Escrow Agent
during the Escrow Period (as defined in paragraph 6(d), below, pursuant
to the terms of an Escrow Agreement, in the form attached hereto as
Exhibit 2(b)(ii) (the "ESCROW AGREEMENT"). The Escrowed Cash shall be
referred to as the "ESCROW FUND" shall be subject to the provisions of
paragraphs 6 and 18 hereof; and
(iii) Five Million Two Hundred Thousand Dollars ($5,200,000)
in cash, shall be paid and delivered to the "PAYING AGENT" designated
by Seller (and reasonably satisfactory to Buyer), to be held and
administered pursuant to the "PAYMENT ESCROW AGREEMENT" attached hereto
as Exhibit 2(b)(iii), as provided in paragraph 20 hereof; and
(iv) Two Million Two Hundred Eighty-Two Thousand Dollars
($2,282,000) shall be payable in newly issued shares of the common
stock, par value $.001, of IHS (the "IHS STOCK"). The parties agree
that IHS will issue such IHS Stock to the Corporation.
(c) Receipt. Upon delivery of the Purchase Price as set forth
above, Seller shall provide to Buyer a receipt confirming said delivery.
3. Further Payment; Reductions.
(a) In addition to the Purchase Price, an aggregate amount equal to
One Million Five Hundred Thousand Dollars ($1,500,000) (the "FURTHER PAYMENT")
shall, subject to offset as hereinafter provided, be paid by wired funds to
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇▇") and ▇▇▇▇▇ ▇▇▇▇▇▇ ("VERITY"), collectively (the
"PRINCIPAL SHAREHOLDERS"), such obligation to be evidenced by the promissory
notes of the Buyer (the "PROMISSORY NOTES") to be executed and delivered to the
Principal Shareholders in the form of Exhibit 3; provided such Further Payment
shall be subject to the right of offset set forth in this paragraph 3 and in
paragraph 6, below; provided further the entire remaining Further Payment except
for $500,000 shall be paid on July 31, 2000 and the balance, if any, of the
Further Payment shall be paid on July 31, 2001. The parties acknowledge that the
Purchase Price was determined using a multiple of the expected Annual Operating
Profit (as hereinafter defined) of the Business after the Closing, and such
expected Annual Operating Profit was based upon the Seller's best good faith
estimate thereof. Accordingly, if the average Annual Operating Profit during the
two-year period commencing May 1, 1998 and ending April 30, 2000 (the
"APPLICABLE PERIOD") shall be less than One Million Eight Hundred Thousand
Dollars ($1,800,000),
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then, the Buyer shall be entitled to offset an amount from the Promissory Notes
equal to five times (5X) the amount of such deficiency; provided that if the
amount of the offset exceeds the Further Payment, the Promissory Notes shall be
cancelled and neither the Buyer nor the Principal Shareholders shall have any
payment obligations under this paragraph 3. For purposes hereof, the term
"ANNUAL OPERATING PROFIT" shall be determined as set forth on Exhibit A attached
hereto. Nothing contained in this paragraph 3 shall be deemed to limit Buyer's
right to recover Damages (as hereinafter defined) arising out of any breaches of
representations, warranties or covenants not contained in this paragraph 3.
(b) If the employment of ▇▇▇▇▇▇▇▇▇ or Verity is terminated prior to
the third anniversary of the date hereof other than by reason of a Permitted
Termination (as hereinafter defined) then the Buyer shall be entitled to reduce
the Further Payment (by offsetting against the Notes) by an amount equal to
$500,000, but only if the First Community Care of ▇▇▇▇▇▇▇, LLC Joint Venture
(the "▇▇▇▇▇▇▇ ▇▇") dissolves or is otherwise terminated other than by reason of
the purchase or sale by either party to the ▇▇▇▇▇▇▇ ▇▇ of the other party's
entire membership interest in the ▇▇▇▇▇▇▇ ▇▇ within a period of three (3) years
following the date hereof . For purposes hereof, a "Permitted Termination" shall
mean the termination by ▇▇▇▇▇▇▇▇▇ or Verity, as the case may be, of his
employment under his respective Employment Agreement for cause as provided in
such Employment Agreement or the termination by Buyer of the employment of
▇▇▇▇▇▇▇▇▇ or Verity, as the case may be, under his respective Employment
Agreement other than for cause as provided in such Employment Agreement.
4. Indemnity Against Creditors Claims; No Assumption of Liabilities.
Seller has requested that Buyer waive the requirements of the bulk sales and
transfer laws of the State of New York. Except as set forth on Schedule 4,
Seller agrees to indemnify Buyer and save and hold Buyer harmless against all
Damages (as defined in paragraph 17(c)) arising out of any claims made by
creditors (including, without limitation, any Federal, state or local taxing
authority) of Seller that relate to the Business, or that arise out of the
failure to comply with any of such laws.
5. Closing Date Liabilities.
(a) Seller and Shareholders represent and warrant that, to the best
of Seller's and Shareholders' knowledge and belief after diligent inquiry, all
of Seller's liabilities, as of the date hereof are listed on the Schedule of
Liabilities attached hereto as Schedule 5(a) (the "LIMITED LIABILITIES"). 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,
malpractice or other tort claims, claims for breach of contract, any claims of
any kind asserted by patients, former patients, employees of Seller or any other
party that are based on acts or omissions by Seller occurring on or before the
date hereof, amounts due or that may become due in connection with the
participation of Seller in the Medicare or Medicaid programs or due to any other
health care reimbursement or payment intermediary, or that may be due by Seller
to any other third party payor, accounts payable, notes payable, trade payables,
lease obligations, indebtedness for borrowed money, accrued interest, and
contractual obligations. Seller and Shareholders acknowledge that the Purchase
Price for the Assets is based on the accuracy of Seller's and Shareholders'
representations and warranties contained in this Agreement, including, but not
limited to, Seller's and Shareholders' representations and warranties contained
in this paragraph 5(a). Buyer will not assume any, and Seller and Shareholders
shall remain liable for each, liability of Seller existing on the Closing Date,
including, without limitation, any Limited
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Liabilities, and any liabilities that Seller may have by reason of its ownership
in any of the JVs (as defined in paragraph 14(a), below), including without
limitation, Mohawk Valley Home Care, L.L.C. (the "EXCLUDED LIABILITIES");
provided, however, notwithstanding the foregoing, Buyer will assume at Closing
such liabilities that are incurred between the date hereof and the Closing Date
(i) in the ordinary course of business consistent with past practice, or (ii) as
a direct result of Buyer's actions under the Management Agreement, or (iii)
contractual obligations (under assumed contracts or contracts entered into after
the date hereof in compliance with this Agreement) (the "ASSUMED LIABILITIES").
(b) Without limiting the generality of the provisions of
subparagraph (a) above, Buyer shall not assume the Contracts (as hereinafter
defined in paragraph 14(b)), if any, set forth on Schedule 5(b), or any
liabilities with respect thereto, and shall not, in any case, assume any
liabilities under any Contracts (whether or not such Contracts are assumed by
Buyer) to the extent such liabilities arise out of facts or circumstances, or
obligations to be satisfied, on or prior to the date hereof, all Taxes (as such
term is defined in paragraph 14(z)) that arise out of the transactions
contemplated hereby or out of any income earned by the Seller or any Subsidiary
on or prior to the Closing Date, and the Broker's Fee. Without limiting the
foregoing, Buyer shall not assume any obligations or liabilities (whether now
outstanding or hereafter arising) under the Merger Agreement , between First
Community Care, Inc. and North Country Medical Supplies, Inc., dated as of
November 1, 1997 and the Purchase Agreement, between First Community Care, Inc.
and First Community Care, L.L.C., dated as of April 1, 1998.
6. Right of Offset Against the Escrow Fund.
(a) Event of Deficiency. If:
(i) Buyer pays for any Excluded Liabilities, then Seller and
each Shareholder shall jointly and severally reimburse Buyer for such
payment (a "LIABILITIES DEFICIENCY"); or
(ii) the aggregate value of the Seller's collectible accounts
receivable as of the date hereof, are determined to be less than
$1,700,000, as determined by actual net cash collections of such
receivables during the twelve (12) month period immediately following
the date hereof, then Seller and each Shareholder, jointly and
severally, shall pay to Buyer the amount of such deficiency (an "ASSET
VALUE DEFICIENCY"); or
(iii) Buyer shall be entitled to be indemnified for any
Damages pursuant to this Agreement ("INDEMNIFICATION CLAIMS", and
together with any Liabilities Deficiencies or, Asset Value
Deficiencies, collectively "CLAIMS" and each, a "CLAIM");
then, and in any of such events, Buyer may provide written notice to Seller of
the Claim, in which case Buyer shall be entitled to recover the amount of such
Claim in accordance with the following procedure.
(b) Procedure if Seller Fails to Pay. If Seller fails to pay any Claim
in full to Buyer within ten (10) business days from the date of such written
notice (said ten (10) business day period hereinafter referred to as the "NOTICE
PERIOD"), Buyer shall have the right to make offset against either or both of
the Notes or 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
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of a "DISPUTE", to the provisions of paragraph 18 hereof applicable thereto),
and Seller agrees to any such offset. Buyer's right to proceed against the Notes
or the Escrow Fund shall not be exclusive of any other rights or remedies that
it may have under this Agreement, law, equity or otherwise. In no event shall
Buyer be required to offset Claims against the Notes.
(c) Escrow Costs. The costs, fees and expenses of the Escrow Agent
shall be borne by the Buyer.
(d) Escrow Periods.
(i) The "ESCROW PERIOD" shall terminate twelve (12) months
following the date hereof.
(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 disbursed to Seller within fifteen (15)
days after the last day of the Escrow Period.
(iii) Notwithstanding anything to the contrary contained in this
subparagraph (d), if any Claim made by Buyer is in dispute at the time
that any amounts are otherwise to be disbursed to Seller, then there
shall be withheld from such amount to be paid under the Notes or to be
disbursed from the Escrow Fund, an amount such that there will be
remaining due under the Notes and in the Escrow Fund at least twice the
amount of the Claim asserted by Buyer until the final settlement of
such Claim or Claims.
7. IHS Stock. A portion of the Purchase Price equal to TWO MILLION TWO
HUNDRED EIGHTY-TWO THOUSAND DOLLARS ($2,282,000) shall be payable by means of
the delivery of IHS Stock issued to the Corporation in accordance with the
following:
(a) Share Value. The number of shares of IHS Stock issuable upon
execution of this Agreement (the "EXECUTION DATE SHARE COUNT") shall be
calculated based upon a price per share of such stock equal to the average
closing New York Stock Exchange ("NYSE") price of such stock for the thirty (30)
trading day period immediately preceding the date which is two (2) trading days
before the date hereof (the "TRADE PRICE").
(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 Stock
issued to the Seller in connection with this transaction, including the shares,
if any, issuable under paragraph 7(c) in respect of any re-calculation of the
Execution 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
Purchase Price (and that have not previously been transferred by the Seller)
shall be re-calculated to be the number of shares of IHS Stock that would have
been delivered in lieu of such retained shares had the Recalculated Value (as
defined below) been used on the date
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hereof in lieu of the Trade Price with respect to the portion of the Purchase
Price represented by such retained shares. For purposes hereof, the
"RECALCULATED VALUE" shall mean the sum of: (x) the average closing NYSE price
for IHS Stock for the 30-trading day period immediately preceding the Share
Adjustment Date, plus (y) $2.00. Notwithstanding anything to the contrary
contained herein, such adjustment shall be made only if (i) the result shall be
an increase in the number of shares issuable to the Seller and (ii) the Trade
Price exceeds the Recalculated Value. If the number of shares as re-calculated
under this subparagraph (c) (the "ADJUSTED SHARE COUNT") exceeds the Execution
Date Share Count, IHS promptly shall deliver over to the Seller an additional
number of shares of IHS Stock as shall be equal to such excess, and such
additional shares shall be included in the aforementioned registration statement
by means of a post-effective amendment thereto. If the Execution Date Share
Count exceeds the Adjusted Share Count, no adjustment shall be made. For
purposes hereof, "SHARE ADJUSTMENT DATE" shall mean the day that is thirty (30)
days after the Registration Date.
(d) Registration Expenses. Sellers shall not be responsible for, and
Buyer 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 Stock and the costs and expenses (including fees and disbursements of its
counsel) incurred in connection with the qualification of IHS Stock under the
Blue Sky laws of various jurisdictions. Buyer, 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 Seller's or any transferee's failure to comply
with its obligations under this Article 7.
(e) Resale Limitations. All sales by Seller shall be effected
solely through ▇▇▇▇▇▇▇ ▇▇▇▇▇ Barney, Inc.
(f) Registration Procedures, etc. In connection with the
registration rights granted to the Sellers with respect to the IHS Stock as
provided in this Article 7, Buyer covenants and agrees as follows:
(i) At Buyer's expense, Buyer will keep the registration and
qualification under this Article 7 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. Buyer will
promptly notify the Seller, at any time when a prospectus relating to a
registration statement under this Article 7 is required to be delivered
under the Securities Act, of the happening of any event known to Buyer
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) Buyer shall furnish the Seller with such number of
prospectuses as shall reasonably be requested.
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(iii) Buyer shall take all necessary action which may be
required in qualifying or registering IHS Stock 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 Seller,
provided that Buyer 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 Article 7 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. Buyer shall indemnify the Seller, its
successors and assigns, and each person, if any, who controls such
Seller 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, 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 Buyer or based upon written
information furnished by Buyer filed in any jurisdiction in order to
qualify IHS Stock 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 Buyer by the Seller 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
Seller or any controlling person of the Seller in respect of which
indemnity may be sought against Buyer pursuant to this subparagraph
7(f)(iv), the Seller or such controlling person shall within thirty
(30) days after the receipt thereby of a summons or complaint, notify
Buyer in writing of the institution of such action and Buyer shall
assume the defense of such actions, including the employment and
payment of reasonable fees and expenses of counsel (reasonably
satisfactory to the Seller or such controlling person). The Seller 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 Seller or such controlling person unless
(A) the employment of such counsel shall have been authorized in
writing by Buyer in connection with the defense of such action, or (B)
Buyer 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 Buyer) that there may be defenses
available to it or them which are different from or additional to those
available to Buyer (in which case, Buyer 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 Seller and such controlling
persons shall be borne by Buyer. Except as expressly provided in the
previous sentence, in the event that Buyer shall not previously have
assumed the defenses of any such action or claim, Buyer shall not
thereafter be liable to the Seller or such controlling person in
investigating, preparing or defending any such action or claim.
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(v) The Seller, and its successors and assigns, shall
severally, and not jointly, indemnify Buyer, its officers and directors
and each person, if any, who controls Buyer 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
Sellers, or their successors or assigns for specific inclusion in such
registration statement.
(g) Notice of Sale. If the Seller desires to transfer all or any
IHS Stock, it will deliver prior written notice to Buyer, 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 Seller will sell the IHS Stock in
compliance with the disclosure therein and discontinue any offers and sales
thereunder upon notice from Buyer that the registration statement relating to
the IHS Stock being transferred is not "current" until Buyer gives further
notice that offers and sales may be recommenced. In the event of any such notice
from Buyer, Buyer agrees to file expeditiously such amendments to the
registration statement as may be necessary to bring it current during the period
specified in paragraph 7(b) and to give prompt notice to the Seller when the
registration statement has again become current. Further, during such time that
the effectiveness of the registration statement relating to the IHS Stock is not
"current", then such period of time will be added to the one-year registration
period referred to in subparagraph 7(b), above. If the Seller delivers to Buyer
an opinion of counsel reasonably acceptable to Buyer and its counsel and to the
effect that the proposed transfer of IHS Stock may be made without registration
under the Securities Act, the Seller will be entitled to transfer IHS Stock 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 Buyer to take any action pursuant to this Article 7 that the
Seller shall furnish to Buyer such information regarding themselves, the IHS
Stock held by it, and the intended method of disposition of such securities as
shall be required to effect the registration of its IHS Stock. In that
connection, each transferee of Seller shall be required to represent to Buyer
that all such information which is given is both complete and accurate in all
material respects. The Seller shall deliver to Buyer 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 Buyer at any time when a prospectus relating to a
registration statement covering such transferee's shares under this Article 7 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 Stock to be issued
hereunder will be newly issued shares of IHS. The Seller represents and warrants
to Buyer that the IHS Stock being issued hereunder are being acquired, and will
be acquired, by the Seller for investment for its own account 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 Seller
acknowledges that the IHS Stock constitutes restricted securities under Rule 144
promulgated by the Commission pursuant to the Securities Act, and may have to be
held indefinitely, and the Seller agrees that no IHS Stock may be sold,
transferred, assigned, pledged or otherwise disposed of except pursuant to an
effective registration statement or an exemption from registration under
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the Securities Act, the rules and regulations thereunder, and under all
applicable state securities laws. The Seller has the knowledge and experience in
financial and business matters, is capable of evaluating the merits and risks of
the investment, and is able to bear the economic risk of such investment. The
Seller has had the opportunity to make inquiries of and obtain from
representatives and employees of Buyer such other information about IHS as they
deem necessary in connection with such investment.
(j) Legend. It is understood that the certificates evidencing the
IHS Stock 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 Stock, Seller shall not transfer any shares of IHS Stock
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 Seller under this Article 7.
8. Employees. It is expressly understood and agreed that Buyer's
purchase of the Assets does not involve any undertaking on the part of Buyer to
retain any of the employees of the Seller, although Buyer shall have the right
to offer employment to any such employees. Seller shall remain fully responsible
for any severance, benefits, costs or liabilities arising out of the termination
by Seller of any of its employees, all of which liabilities shall constitute
Excluded Liabilities. Seller shall also remain fully responsible for any
benefits, costs or liabilities incurred or accrued prior to the date hereof with
respect to each employee retained by Buyer. Without limiting the generality of
the foregoing, except for the Employment Agreements (as hereinafter defined),
any employment agreement, arrangement, commitment or understanding with any
Shareholder is being terminated concurrently therewith, and all liabilities
arising in connection therewith shall constitute Excluded Liabilities. Without
limiting the foregoing, at the Closing each of the Employment Agreements shall
be assigned to and assumed by Buyer.
9. Closing Date. The consummation of the transactions contemplated by
this Agreement is sometimes referred to as the "CLOSING", and the date on which
such consummation occurs, is sometimes referred to as the "CLOSING DATE". The
Closing with respect to the JV Interests shall take place concurrently herewith,
and with respect to all of the other Assets, the Closing shall take place on
such date as the Buyer shall select by notice to Seller, which date shall be no
more than one week after Buyer receives notification from the National Supplier
Clearinghouse that its supplier number is or will be issued. Promptly following
the date hereof, Buyer shall use its best efforts to obtain the issuance of such
supplier number, and Seller and Shareholders will cooperate with Buyer in their
efforts to obtain such supplier number. If, notwithstanding its use of its best
efforts, the Buyer shall not have obtained such supplier number by the date that
is 18 months after the date hereof, Buyer shall, in its sole discretion either
(i) shall be entitled to terminate this Agreement, in which case any Purchase
Price previously paid to Seller or any Shareholder shall be returned to Buyer
(without interest); provided, however, that Seller and the Shareholders shall
not be required to
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return any portion of the Purchase Price that shall have been used to pay any
Limited Liabilities and Broker's Fee or (ii) in lieu of taking the Assets, in
Buyer's sole discretion, Buyer will have the option to require the Shareholders
to deliver all issued and outstanding shares of capital stock of the
Corporation, free and clear of all Liens.
10. Asset Condition and Quality. Seller and Shareholders represent,
warrant and covenant that, as of the date hereof, all physical Assets of Seller
that are in use by patients of Seller are free of patent defects and in good
working order, condition and repair, except for ordinary wear and tear, and
conform in all material respects with all applicable ordinances, regulations,
zoning and other laws. Seller and Shareholders represent, warrant and covenant
that, as of the date hereof, all physical Assets of Seller that are not in use
by patients of Seller shall be taken by Buyer on an "as is" basis.
11. Instruments of Conveyance and Transfer.
(a) Concurrently herewith Seller is delivering to Buyer's attorney
to be held in escrow pending notice from Buyer that it has elected to close the
transactions contemplated hereby, all of the following:
(i) Such bills of sale, assignments, motor vehicle
certificates of title, and other good and sufficient instruments of conveyance
and transfer in form sufficient to sell, assign and transfer the Assets (other
than the JV Interests) to Buyer as of the Closing Date, such documents to
contain full warranties of title, and which documents shall be effective to vest
in Buyer good, absolute, and marketable title to the Assets of the Business
being transferred to Buyer by Seller, free and clear of all Liens (other than
Permitted Liens). Buyer or its attorneys are hereby authorized to fill in the
dates on each of the aforementioned documents as of the Closing Date.
Simultaneously with such delivery out of escrow, Seller will take all steps as
may be requisite to put Buyer in actual possession, operation and control of the
Assets to be transferred hereunder.
(b) Simultaneously herewith, Seller and Shareholders are
delivering to Buyer all of the following:
(i) Such bills of sale, assignments, motor vehicle
certificates of title, and other good and sufficient instruments of conveyance
and transfer in form sufficient to sell, assign and transfer the JV Interests to
Buyer as of the date hereof, such documents to contain full warranties of title,
and which documents shall be effective to vest in Buyer good, absolute, and
marketable title to the JV Interests being transferred to Buyer by Seller, free
and clear of all Liens.
(ii) An opinion, dated as of the date hereof, of Seller's
counsel, in substantially the form attached hereto as Exhibit 11(b)(ii);
(iii) A certificate of its Secretary or other officer
certifying as of the date hereof a copy of resolutions of its board of directors
and, if applicable, its stockholders, authorizing the execution, delivery and
full performance of this Agreement and the Transaction Documents (as defined in
paragraph 14(a) below), and the incumbency of its officers;
(iv) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇'▇ and ▇▇▇▇▇ ▇▇▇▇▇▇'▇ Employment
Agreements, substantially in the form of Exhibit 11(b)(iv) (the "EMPLOYMENT
AGREEMENTS"); and
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(v) All consents from the JVs (as defined in paragraph 14(a))
(other than Mohawk Valley Home Care, L.L.C.) related to the transactions
contemplated herein.
12. Sales and Transfer Taxes; Fees. All applicable sales, transfer,
use, filing and other taxes and fees that may be due or payable as a result of
the conveyance, assignment, transfer or delivery of the Assets of the Business
to be conveyed and transferred as provided herein, whether levied on Seller or
Buyer, shall be borne by Seller; provided however that Buyer shall be
responsible for the 8% sales tax that is incurred on the amounts allocated to
furniture and capital equipment as set forth on Schedule 2(a) and shall be
collected by Seller from Buyer and; provided further that Buyer shall be
responsible for payment of sales tax on any vehicles included in the Assets.
13. Restrictions on Operations of Seller.
(a) Seller and Shareholders, jointly and severally, represent,
warrant and covenant that, except as expressly disclosed on Schedule 13 hereto,
since the most recent Financial Statement Date referred to in paragraph 14(o)
below, through the date hereof, there has been no material adverse change in the
condition (financial or otherwise) or prospects of the Seller or the Business.
From the date hereof through the Closing Date, without the prior consent of
Buyer, subject to the provisions of the Management Agreement, the Shareholders
and Seller shall cause Seller and Subsidiaries (as defined in paragraph 14(a)
below) not to:
(i) sell, assign, transfer or dispose of any of its Assets,
except in the ordinary course of business consistent with past practice and
replace with Assets of at least the same quality, type and quantity having an
aggregate value at least equal to the aggregate value of the items sold or
otherwise disposed of;
(ii) mortgage, pledge or subject to any Lien of any nature
whatsoever any of the Assets;
(iii) enter into any contract, agreement, commitment,
understanding or arrangement or transaction binding the Business, or make or
suffer any termination of any contract, agreement, commitment, understanding or
arrangement, or make or suffer any modification or amendment of any contract,
agreement, commitment, understanding or arrangement except for terminations,
modifications and amendments of contracts made in the ordinary course of
business consistent with past practice and which would not affect earnings or
otherwise be material;
(iv) incur any liabilities;
(v) fail to collect, withhold and/or pay to any proper
Governmental Authority, any Taxes required by applicable law to be so collected,
withheld and/or paid;
(vi) pay any bonuses, increase the salaries or other
compensation of any of its employees, or make any increase in, or any additions
to, other benefits to which any of such employees may be entitled;
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(vii) discharge or satisfy any Lien or encumbrance, or
satisfy, pay or prepay any material liabilities, or fail 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 Corporation or the Assets or
the Business;
(viii) fail to collect any accounts receivable in the ordinary
course of business, consistent with past practice;
(ix) change any of the accounting principles followed by it or
the methods of applying such principles;
(x) cancel, modify or waive any debts or claims held by it, or
waive any rights of substantial value;
(xi) issue any capital stock, or declare or pay or set aside
or reserve any amounts for payment of any dividend or other distribution in
respect of any equity interest or other securities, or redeem or repurchase any
of its capital stock or other securities, or make any payment to any of its
affiliates;
(xii) institute, settle or agree to settle any litigation,
action or proceeding before any Governmental Authority (as such term in defined
in paragraph 14(d) below) relating to it or its property or received any threat
thereof;
(xiii) enter into any material transaction other than in the
ordinary course of business, consistent with past practice;
(xiv) dissolve, reorganize, merge, consolidate or enter into a
share exchange with or into any other entity;
(xv) enter into any contract or agreement with any union or
other collective bargaining representative representing any employees;
(xvi) make any change to its by-laws or articles of
incorporation;
(xvii) perform, take or fail to take any action or incur or
permit to exist any of the acts, transactions, events or occurrences of a type
which would have been inconsistent with the representations, warranties and
covenants set forth in this Agreement had the same occurred prior to the date
hereof;
(xviii) take any action that would prevent any Shareholder or
Seller from consummating the transactions contemplated by this Agreement; or
(xix) agree or otherwise commit to do anything described in
any of subparagraphs (i) through and including (xviii) above.
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(b) Unless consented to by Buyer, between the date hereof and the
Closing, subject to the provisions of the Management Agreement, the Shareholders
and the Seller shall cause the Seller and Subsidiaries to:
(i) maintain the Assets in substantially the state of repair,
order and condition as on the date hereof, reasonable wear and tear or loss by
casualty excepted;
(ii) maintain in full force and effect all Licenses currently
in effect with respect to its business;
(iii) maintain in full force and effect the insurance policies
and binders currently in effect, or the replacements thereof;
(iv) use their reasonable efforts to preserve intact the
present business organization of the Seller and the Subsidiaries; keep available
the services of the present employees and agents of the Seller and the
Subsidiaries; and maintain the relations and goodwill with suppliers, Seller,
employees, affiliated medical personnel and any others having business relating
to the Seller or any Subsidiary;
(v) maintain all of the books and records in accordance with
its past practices;
(vi) comply in all material respects with all provisions of
the Contracts and with any other material agreements that the Seller or any
Subsidiary enters into in the ordinary course of business after the date of this
Agreement, and comply in all material respects with the provisions of all
Governmental Requirements applicable to the business of the Seller or any
Subsidiary;
(vii) cause to be paid when due, all Taxes, imposed upon it or
on any of its properties or which it is required to withhold and pay over;
(viii) promptly advise Buyer in writing of the threat or
commencement against the Seller or any Subsidiary of any claim, action, suit or
proceeding, arbitration or investigation or any other event that could
materially adversely affect the operations, properties, assets or prospects of
the Seller or any Subsidiary;
(ix) promptly notify the Buyer in writing of the termination
of any Contract; and
(x) promptly notify the Buyer in writing of any act, event or
occurrence that constitutes a breach by any Shareholder or the Seller of any
representation, warranty or covenant made pursuant to this Agreement; and
(xi) promptly notify the Buyer in writing of any event
involving the Company or any Subsidiary which has had or may be reasonably
expected to have a material adverse effect on the business or financial
condition of the Seller or any Subsidiary or may involve the loss of
relationships with any of the customers of the Seller or any Subsidiary.
-14-
14. Representations and Warranties by Seller and Shareholders. As a
material inducement to Buyer to execute and perform its obligations under this
Agreement, Seller and Shareholders hereby, jointly and severally, represent and
warrant to Buyer as follows as of the date hereof (it being understood that, for
the purposes of this Article 14, "Seller" shall be deemed to refer collectively
to the Seller and each of the Subsidiaries listed on Schedule 14(a) and "to the
knowledge of the Seller" shall be deemed to refer collectively to the Seller and
the Shareholders):
(a) Organization of Seller; Enforceability.
(i) Seller is a corporation, organized, and in good standing,
respectively, in the State of New York, 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 executed by Seller in connection with this Agreement or
the transactions contemplated hereby ("TRANSACTION DOCUMENTS") constitutes the
legal, valid and binding obligations of Seller, enforceable against it in
accordance with its respective terms. Schedule 14(a) sets forth a complete list
of all subsidiaries, joint ventures and partnerships in which the Seller is the
record or beneficial owner of any equity interest (collectively, the
"SUBSIDIARIES" and individually, a "SUBSIDIARY"). All of the issued and
outstanding capital stock or membership equity of the subsidiaries listed on
Schedule 14(a) hereto is owned of record or beneficially by the Seller or by one
of the listed subsidiaries on Schedule 14(a). Schedule 14(a) shall also set
forth all members, partners, shareholders and each of their ownership interests
in each joint venture and partnership (the "JV") in which the Seller is the
record or beneficial owner of any equity interest.
(ii) This Agreement and each Transaction Document to which
each Shareholder is a party constitutes the legal, valid and binding obligations
of such Shareholder, enforceable against such Shareholder in accordance with
their respective terms.
(b) Consents. Except as set forth on Schedule 14(b), 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 Seller or any Shareholder or any of the Assets is bound
("CONTRACTS") is necessary in connection with the execution, delivery and
performance of this Agreement or any of the Transaction Documents by Seller or
any Shareholder.
(c) Litigation. Except as set forth on Schedule 14(c), there are no
actions, suits or proceedings affecting Seller or any of the Assets which are
pending or threatened against Seller or affecting any of its properties or
rights, at law or in equity, or before any Governmental Authority (as
hereinafter defined), nor is Seller or any of its respective officers or
directors or any Shareholder aware of any facts which to them or their knowledge
might reasonably be expected to result in any such action, suit or proceeding.
(d) Compliance with Laws and Contracts. Seller 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
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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
Seller and Shareholders of, and the 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 Seller
or Shareholders pursuant to any such term or provision.
(e) 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 sale and transfer of
the Assets by Seller as provided for in this Agreement, have been approved and
consented to by the Board of Directors of Seller and, if applicable, by the
requisite number of holders of its outstanding capital stock, and all action
required by any applicable Governmental Requirement by the stockholders of
Seller with regard thereto have been appropriately authorized and accomplished.
(f) Title to Assets. Seller has good and indefeasible title to all
of the Assets, free and clear of all Liens.
(g) Contracts. Set forth on Schedule 14(g) hereto is a list of all
material Contracts of Seller including, without limitation, each:
(i) 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;
(ii) 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;
(iii) contract, agreement or commitment which contains any
provisions requiring the Seller or the Business to indemnify or act for any
other person or entity or to guaranty or act as surety for any other person or
entity;
(iv) contract, agreement or commitment restricting the Seller
or the Business from, or in favor of either of the Seller or the 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;
(v) partnership, joint venture or management contract or
similar arrangement, or agreement which involves a right to share profits or
future payments with respect to the Business or any portion thereof or the
business of any other person or entity;
-16-
(vi) licensing, distributor, dealer, franchise, sales or
manufacturer's representative, agency or other similar contract, arrangement or
commitment;
(vii) contract, agreement or arrangement granting a leasehold
or other interest in real property, including without limitation, subleases,
licenses and sublicenses (the "LEASES");
(viii) 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 Seller or the Business
not covered by clause (i) above;
(ix) agreement, consent order, plea bargain, settlement or
stipulation or similar arrangement with any Governmental Authority;
(x) agreement with respect to the settlement of any litigation
or other proceeding with any third person or entity;
(xi) agreement relating to the ownership, transfer, voting or
exercise of other rights with respect to any equity in the Seller, or any other
entity, including without limitation, registration rights agreements, voting
trust agreements and shareholder and proxy agreements;
(xii) contract, agreement or commitment to provide services or
products; or
(xiii) 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 (i) through (xii)
above.
To the best of Seller's and Shareholders' knowledge, no party to any
Contract other than Seller is in default under any Contract. Seller has
delivered to Buyer true and complete copies of each written Contract (or a
description of each oral Contract) requested by Buyer.
(h) Brokers. Seller has been represented solely by the Broker, and
as a result a brokerage commission in the amount of $688,000 payable to the
Broker at the Closing in connection with the transactions contemplated by this
Agreement is due, 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 Seller. An additional amount
equal to eight percent (8%) of the Remaining Escrow Funds and Notes shall be
paid to the Broker.
(i) Employment Contracts; Employees. There are no Contracts of
employment between Seller and any officer or other employee of the Business,
except as set forth on Schedule 14(g)(i) 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
current employee, sales representative, consultant and agent of the Seller,
contained on the Schedule of Personnel Payrates and Advances attached hereto as
Schedule 14(i) is accurate and complete. No employee, consultant or agent of the
Seller has any vested or unvested retirement benefits or other termination
benefits, except as described on Schedule 14(i). Since the date that is two (2)
years prior to the date hereof, there has been no material adverse change in the
relationship between the Seller and its employees, nor any strike or labor
disturbance
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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 Seller
are represented by any labor union or similar organization in connection with
their employment by or relationship with, Seller, and to the knowledge of the
Seller 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. Seller is not party to any collective
bargaining or other labor contracts.
(j) Employee Benefit Plans. Except as set forth on Schedule 14(j),
Seller has no pension, bonus, profit-sharing, or retirement plans for officers
or employees of the Business, nor is Seller required to contribute to any such
plan. Without limiting the generality of the foregoing, Seller does not maintain
or make contributions to and 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").
(k) Insurance. All inventories, buildings and fixed assets owned or
leased by the Seller 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 14(k), is accurate and complete.
Schedule 14(k) 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 Seller or otherwise in force and
providing coverage for the 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 Buyer. Such policies
are owned by and payable solely to the Seller, 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.
(l) Disclosure. No representation or warranty by Seller or 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
Shareholders or Seller or any of its officers, directors or stockholders has
knowledge or notice, required to make the statements herein or therein contained
not misleading.
(m) Officers, Directors and Shareholders of Seller. As of the
Closing Date, the Shareholders are the sole shareholders of Seller and the
following individuals are all of the officers and directors of Seller:
Name Office/Position
---- ---------------
▇▇▇▇▇ ▇▇▇▇▇▇ President
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Vice President/Treasurer
▇▇▇▇ ▇▇▇▇▇ Vice President
▇▇▇▇▇▇▇▇ ▇▇▇ Secretary
(n) Inventory and Fixed Assets. The information contained on the
Schedule of Inventory and Fixed Assets as of the most recent Financial Statement
Date, attached hereto as Schedule 1(a)(ii), is accurate and complete.
-18-
(o) Financial Statements. Seller has furnished Buyer with its
financial statements (the "FINANCIAL STATEMENTS") for the periods ended December
31, 1996 and December 31, 1997, and the interim period ending February 28, 1998
(the "FINANCIAL STATEMENT DATES"), copies of which are attached hereto as
Schedule 14(o). The Financial Statements: (i) are in accordance with the books
and records of the Seller; (ii) fairly present the financial condition of the
Seller at such date and the results of its operations for the periods specified;
(iii) were prepared in accordance with GAAP applied on a basis consistent with
prior accounting periods; (iv) with respect to all Contracts of the Seller,
reflect adequate reserves for all reasonably anticipated losses and costs in
excess of anticipated income; and (v) with respect to any balance sheets,
disclose all of the liabilities of the Seller 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 an Schedule 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.
(p) Supplemental Tax Information. Seller has furnished Buyer with
its most recent (i) tax registration certificates, and (ii) tax returns 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
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 Supplemental Tax
Information, attached hereto as Schedule 14(p).
(q) Adverse Business Developments. Except as set forth on Schedule
14(q), no notice has been received by Seller or any Shareholder of any new or
substantially expanded firm or individual engaged in a business directly
competitive to Seller in its primary service area within six (6) months before
the date hereof. Except as set forth on Schedule 14(q), neither Seller nor any
Shareholder 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 Seller, nor has Seller or
any Shareholder received, or been threatened with, any claim for refund specific
to it in excess of $500.00 by a Medicare or Medicaid carrier, except as
disclosed on Schedule 14(q).
(r) Relationships. Except as disclosed on Schedule 14(r), neither
Seller, its officers, directors and employees, nor any Shareholder and no member
of any of their respective immediate families, 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. No Affiliate
of Seller or any Shareholder is guaranteeing any obligations of the Seller.
(s) 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 Business 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 Business of the Seller in the ordinary course of the business of
the Seller, consistent with past practice, as determined by the Seller in good
faith and consistent with past
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(t) Questionable Payments. Seller has not, and to the knowledge of
the Seller 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 the Business,
including, without limitation, any of the same that would constitute a violation
of the Foreign Corrupt Practices Act of 1977, as amended.
(u) Reimbursement Matters. Seller, 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 14(u), (i) Seller and Shareholders have not 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 it, (ii) to Seller's and
Shareholders' knowledge, there is no basis for the assertion after the Closing
Date of any such denial or recoupment claim, and (iii) Seller and Shareholders
have not 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 Seller or otherwise, and to the
knowledge of Seller and Shareholders, no such investigation or survey is
pending, threatened or imminent. Seller shall not be considered to be in breach
of the foregoing unless and until recoupment claims attributable to operations
prior to Closing exceed the sum of $40,000.00. Notwithstanding the foregoing
Seller shall be liable for repayment of all recoupment claims attributable to
Seller's operations prior to the Effective Date.
(v) Environmental Compliance. Except as disclosed on Schedule
14(v), at all times during Seller's ownership of the Business, the Business has
not been, and currently is not, in violation of any environmental Governmental
Requirement and no notice has ever been served upon any Shareholder or Seller,
its agents or representatives or any prior owner of the 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.
(w) Cash Receipts. The information contained on the Schedule of
Collections for the period commencing on the most recent Financial Statement
Date, and ending on the Effective Date, attached hereto as Schedule 14(w), is
accurate and complete.
(x) Accounts Receivable. The information contained on the Schedule
of Accounts Receivable Data as of the most recent Financial Statement Date,
attached hereto as Schedule 14(x), is accurate and complete.
(y) Shareholders. Seller and Shareholders represent and warrant
that other than ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, and ▇▇▇▇▇ ▇▇▇▇▇▇▇ (the "MAJORITY SHAREHOLDERS'),
all other shareholders of Seller (the "MINORITY SHAREHOLDERS") are passive
investors in the Seller, are not employees, consultants or independent
contractors of Seller, and have less than a 10% ownership interest in the
Seller.
-20-
(z) Tax Information. Each of the Seller and each Subsidiary has
furnished Buyer with its (a) most recent tax registration certificates, and (b)
tax returns for the periods ended December 31, 1995 and December 31, 1996
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 14(z). The balance sheet included in
the most recent Financial Statements for the Seller and each Subsidiary on a
consolidated basis sufficiently provides for all accrued, deferred and unpaid
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 or the
Subsidiary. All Taxes payable by the Seller or each Subsidiary, 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 Seller or each Subsidiary with respect to employee's withholding taxes
have been duly made. Except as set forth on Schedule 14(z), none of the Seller
or each Subsidiary has 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 Seller and each Subsidiary have
been filed with the Internal Revenue Service for all of the fiscal years though
the year ended December 31, 1996, and no objections with respect thereto have
been received by the Seller, the Subsidiaries, 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 Seller or any
Subsidiary or any waiver or agreement by the Seller or any Subsidiary for the
extension of time for assessment of any Tax. Neither the Seller nor any
Subsidiary is a party to any pending action or proceeding, and, to the knowledge
of the Seller, each Subsidiary, 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 Seller or any Subsidiary. Neither the Seller nor any
Subsidiary is a party to any tax sharing agreement or arrangement. Neither the
Seller nor any Subsidiary has elected to be taxed in accordance with Subchapter
S of the Internal Revenue Code of 1986, as amended.
(aa) Recent Acquisitions. As of the Closing Date, Seller shall own
100% of the membership interests of First Community Care, L.L.C. ("FCC-LLC").
Prior to the date hereof, North Country Medical Supply, Inc. ("NORTH COUNTRY")
was merged with and into the Seller. Both FCC-LCC and North Country are free of
all liens, claims and encumbrances and shall have been fully paid for prior to
the date hereof.
15. Representations and Warranties of Buyer and IHS. Each of Buyer and
IHS represent and warrant to Seller and Shareholders that:
(a) Due Organization. Buyer is a duly organized, valid corporation
under the laws of the State of Florida. IHS is a duly organized, valid
corporation under the laws of the State of Delaware.
-21-
(b) Due Authority. Buyer and IHS are duly authorized by law and
corporate policy and approval to: (i) enter into this Agreement and each
Transaction Document; (ii) make all warranties and representations made by Buyer
and IHS herein; and (iii) deliver all consideration provided for under the terms
hereof.
(c) Binding Authority. All signatures and agents designated as
agents/officers for Buyer and IHS for signing purposes have the authority to
bind Buyer and IHS to the terms of this Agreement.
(d) Cash Payment Authority. Buyer has the authority to cause the
cash payment of the Purchase Price to be delivered in accordance with the terms
of this Agreement.
(e) Brokers. No broker or finder has acted for the Buyer or IHS 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 the Buyer or IHS.
(f) IHS Stock. IHS has duly authorized and reserved for issuance
the IHS Stock to be issued in connection herewith, and, when issued in
accordance with the terms of Article 7, such IHS Stock will be validly issued,
fully paid, and non-assessable and free of preemptive rights.
16. Survival of Representations and Warranties. The representations and
warranties of Seller, Shareholders, and Buyer contained and made pursuant to
this Agreement shall survive the execution of the Closing Date and for a period
of five (5) years after the Closing, notwithstanding any investigation at any
time made by or on behalf of the other party, provided that the representations
and warranties contained in paragraph 14(u) (Reimbursement Matters) and
paragraph 14(z) (Tax Information), shall survive until thirty (30) days after
the applicable period of limitations for audits by the applicable Governmental
Authority shall have expired, including extensions for any necessary appeals.
17. Restrictive Covenants.
(a) Non-Compete.
(i) Seller and Shareholders hereby agree that commencing on
the date hereof 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
17(a).
(ii) ▇▇▇▇▇▇▇ ▇▇▇▇ hereby agrees that until the expiration of
the Restricted Period, he will only act in his capacity as chief financial
officer in a home health care business.
(b) 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: (i) 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
Seller or generally, or to particular products, services, geographic areas, or
time periods; (ii) supply and service information, including but not limited to
information relating to goods and services, suppliers' names or addresses, terms
of supply or service
-22-
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 the Buyer, details of which are not generally known; (ii) 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
Seller, sales forecasts, advertising formats and methods or results of marketing
efforts or information about impending transactions; (iv) 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; (v)
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 Seller,
status of accounts or credit, patients' medical histories or related information
as well as customer lists; and (vi) 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 Seller or any
Shareholder, and/or in which property rights have been assigned or otherwise
conveyed to Seller, which information has commercial value in the business in
which the Seller is engaged. Seller and Shareholders 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 Buyer deems reasonably necessary or appropriate, to
prevent unauthorized use or disclosure of or to protect the Buyer's interest in
the Trade Secrets. The foregoing does not apply to information that by means
other than deliberate or inadvertent disclosure, by Seller, Shareholders or any
of their respective Affiliates, becomes well known to the public; or disclosure
compelled by judicial or administrative proceedings after they diligently try to
avoid each disclosure and afford Buyer the opportunity to obtain assurance that
compelled disclosures will receive confidential treatment.
(c) Non-Solicitation and Non-Pirating. Seller and each Shareholder
hereby agree that, during the Restricted Period it or he will not, directly or
indirectly, for itself or himself or on behalf of any other person, firm, entity
or other enterprise: (i) 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 Seller; or (ii) hire, entice away or
in any other manner persuade any person who was an employee, consultant,
representative or agent of the Seller prior to the Closing Date, to alter,
modify or terminate their relationship with the Buyer.
(d) Necessary Restrictions. Seller and each Shareholder acknowledge
that the restrictions contained in this Agreement are reasonable and necessary
to protect the legitimate business interests of the Buyer and that any violation
thereof by any of them would result in irreparable harm to the Buyer, and that
damages in the event of any such breach of this Agreement will be difficult, if
not impossible, to ascertain. Accordingly, the Seller and each Shareholder agree
that upon the violation of any of the restrictions contained in this Agreement,
the Buyer 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, without the necessity of posting
any bond or other security whatsoever. 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.
-23-
(e) Remedies For Breach. The Seller and each Shareholder
acknowledge that the covenants contained in this Article 17 are independent
covenants and that any failure by the Buyer 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.
(f) Exception. Notwithstanding anything to the contrary set forth
in this paragraph 17, until the Closing Date, the Buyer, Seller and Shareholders
acknowledge and agree that the Shareholders and the Seller shall continue to own
the Seller and the Assets, respectively.
18. Indemnification; Remedies.
(a) Indemnification by Seller and Majority Shareholders. Seller and
Majority Shareholders shall, jointly and severally, indemnify and hold harmless
at all times Buyer and its stockholders, directors, officers, employees, agents
and assigns, from and against any Damages (as hereinafter defined) resulting
from: (i) any inaccurate representation made by Seller or any Shareholder in,
pursuant to or under this Agreement or any Transaction Document; (ii) any breach
of any warranty made by Seller or any Shareholder in, pursuant to or under this
Agreement or any Transaction Document; (iii) any breach or default in the
performance by Seller or any Shareholder of any of the covenants to be performed
by Seller or any Shareholder hereunder or in any Transaction Document; (iv) any
Excluded Liabilities; and (v) any liabilities arising from the ownership or
operation of any Subsidiary.
(b) Indemnification by Principal Shareholders. Principal
Shareholders shall, jointly and severally, indemnify and hold harmless at all
times Buyer and its stockholders, directors, officers, employees, agents and
assigns, from and against any Damages resulting from any amounts due to Buyer
pursuant to paragraph 3, above.
(c) Indemnification by Buyer. Buyer shall indemnify and hold
harmless at all times Seller or Majority Shareholders from and against any
Damages resulting from: (i) any inaccurate representation made by Buyer in,
pursuant to or under this Agreement; (ii) any breach of any warranty made by
Buyer in, pursuant to or under this Agreement; and (iii) any breach or default
in the performance by Buyer of any of the covenants to be performed by Buyer
hereunder.
(d) 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,
counsel fees incurred in investigating or in attempting to avoid or oppose the
imposition thereof. The term "Damages" shall include, but shall not be limited
to, any Liabilities Deficiency or Asset Value Deficiency, as defined in
paragraph 6 hereof.
(e) Indemnity Limitations. The maximum aggregate liability of the
Seller and Majority Shareholders for indemnification hereunder shall not exceed
an amount equal to $10,100,000. In no event shall each Majority Shareholder's
indemnification obligation under this paragraph 17 exceed 150% of the amount of
the Purchase Price payable to such Majority Shareholder (in accordance with his
or her pro rata ownership interest in the Seller).
(f) Remedies.
-24-
(i) Buyer's Remedies. If Buyer makes written request to Seller
or the Majority Shareholders for the payment of Damages, then Seller
and/or Majority Shareholders shall pay to Buyer the amount of Damages
requested within ten (10) days from the date on which such request is
received (the "NOTICE PERIOD").
(ii) Seller's Remedies. If Seller or Majority Shareholders
make written request to Buyer for the payment of Damages, then Buyer
shall pay to Seller or Majority Shareholders the amount of Damages
requested within the Notice Period.
(iii) Notice of Dispute. Notwithstanding the foregoing
provisions of this subparagraph (d), 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 "NOTE 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 subparagraph (f) of this
paragraph 18.
(iv) Arbitration. If arbitration is required pursuant to this
paragraph 18, Buyer and Seller or the Majority Shareholders 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. If Seller or Buyer 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 the Seller and the Majority Shareholders shall be
subject to a Dispute with Buyer, they shall, unless Buyer 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 resolutions of the Dispute as provided in this paragraph 18.
(g) Settlement of Disputes.
(i) Disputes Not Involving Third Parties. If a Dispute
involves claims not involving any third party, Buyer and Seller or
Majority Shareholders shall settle the Dispute by submitting the same
to binding arbitration.
(ii) 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 to Seller or Majority Shareholders, Buyer and Seller
and/or Majority Shareholders shall submit the Dispute to arbitration,
and the following procedures shall apply:
(A) 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
-25-
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".)
(B) 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 including the amounts
of any already held in the Escrow Agreement (excluding the
Claw-back Amount) and Payment Escrow Agreement 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 paying 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 reimburse the other party for any amount
required to be paid by the 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
(C) 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 paragraph 18.
(D) Any party responsible for defending a Third Party
Claim shall proceed with diligence and in good faith with
respect thereto.
19. Use of Corporate and Fictitious Names. Seller and Shareholders
agree to take all actions necessary to assist Buyer in obtaining the rights to
use the corporate name and any fictitious names used in its conduct of any of
the Business, including but not limited to the execution of any assignments and
consents to use such name. If Buyer attempts to use such name, Seller shall
consent to Buyer's use of such name if such consent is required by any state,
county or local governmental authority.
-26-
20 Prepaid Items; Deposits; Etc. All prepaid insurance premiums, rent
and utility deposits, and similar items paid by or owing to the Seller by any
person, shall be considered to be part of the Assets being purchased by Buyer
and, on consummation of the transactions contemplated by this Agreement, shall
be the property of Buyer.
21. Post-Closing Requirements of Seller.
(a) Payment Escrow. On the date hereof, Buyer shall pay over and
deliver to or on behalf of Seller (and shall be credited, dollar-for-dollar, as
partial payment of the Purchase Price) to the Paying Agent, in escrow (the
"PAYMENT ESCROW"), an amount equal to the Limited Liabilities as specified in
paragraph 2(b)(iii), above, 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 New York
or a trust company or bank having trust powers in the State which Paying Agent
has been selected by Seller and approved by Buyer.
(i) Seller shall pay all costs and expenses of the Payment
Escrow, including without limitation, any fees or costs of the Paying
Agent.
(ii) Seller shall be obligated to see that the Paying Agent
timely and properly pays all Limited Liabilities, and that the Paying
Agent obtains and delivers to Buyer the "FINAL RELEASE" referred to in
the Payment Escrow Agreement, or other reasonable evidence of payment
acceptable to Buyer for all Limited Liabilities in excess of $5,000.
Additionally, Seller shall prepare and deliver UCC termination
statements, if applicable.
(iii) If any existing obligation has not been paid or
performed and a Final Release or other acceptable evidence of payment
therefor delivered or performance thereof to Buyer within nine (9)
months following the date hereof, then any unpaid portion of such
liability shall constitute "LIABILITIES" subject to the provisions of
paragraph 5, above.
(b) Final Financial Information. Not later than forty-five (45)
days following Closing, Seller, at Seller's sole cost and expense, shall deliver
to Buyer "FINAL FINANCIAL INFORMATION", which shall include:
(i) a balance sheet of Seller as of the date hereof, prepared
in accordance with GAAP;
(ii) an income statement of Seller for the period commencing
on the date succeeding the last day of the most recent Financial
Statement Date and ending on the Closing Date;
(iii) an inventory of fixed assets of Seller as of the Closing
Date;
(iv) an inventory of supplies of Seller as of the Closing
Date;
(v) an aged schedule of accounts receivable of Seller as of
the Closing Date;
and
(vi) a cash settlement of Seller, in the form provided by
Buyer.
-27-
(c) Liabilities Deficiency. If all such Final Financial
Information is not delivered to Buyer within such forty-five (45) day period
following Closing, Seller and Shareholders shall be liable to Buyer in an amount
equal to $500.00 for each day after such thirty (30) day period until all such
Final Financial Information is delivered to Buyer, and such liability shall
constitute a Liabilities Deficiency under the provisions of paragraph 5, above.
22. 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 paragraph 18.
23. 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.
24. 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 Seller: First Community Care, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
and ▇▇▇▇▇ ▇▇▇▇▇▇
to Shareholders: at the addresses set forth on Schedule 24
-----------
with a copy to: Williams, Stevens, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
to Buyer: c/o RoTech Medical Corporations
▇▇▇▇ ▇.▇. ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
with copies to: Integrated Health Services, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
and
-28-
Blass & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
25. Choice of Law. The laws of the State of New York 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.
26. 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.
27. 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 leases or other documents contemplated hereby, provided that originals of
same are delivered within a reasonable time.
28. 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.
29. Parties in Interest. This Agreement shall be binding on and shall
inure to the benefit of, and be enforceable by, Seller, Shareholders and Buyer
and their respective successors and assigns. Buyer shall be entitled to assign
its rights under this Agreement and the Transaction Documents after the Closing.
Seller and the Shareholders may not assign this Agreement or any of their rights
hereunder without the prior consent of Buyer.
30. 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.
31. Performance. In the event of a breach by Seller or any Shareholder
of any of their respective obligations hereunder, the Buyer 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 Seller and each
Shareholder hereby waives the defense that there may be an adequate remedy at
law.
32. 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 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.
-29-
33. 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, and to vest in
Buyer good title to, possession of and control of all the Assets.
34. Joint and Several. Subject to the limitations set forth in
paragraph 18(e) of this Agreement, Seller and the Majority 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 Seller" or by a requirement that Seller shall have received
"notice" of any matter, or any similar qualification shall be deemed to include
the knowledge of the Shareholders or notices to the Shareholders, as the case
may be.
35. Independent Legal Counsel. Seller and Shareholders represent and
warrant that each party has had the opportunity to seek the advice of
independent legal counsel prior to signing this Agreement, and that the Buyer
has recommended to Seller and Shareholders that such party obtain legal counsel.
-30-
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first stated above.
BUYER:
NORTHEAST MEDICAL
EQUIPMENT, INC.
By: /s/
----------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
IHS:
INTEGRATED HEALTH SERVICES,
INC.
By: /s/
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
FIRST COMMUNITY CARE, INC..
By:/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: President
STATE OF NEW YORK
COUNTY OF ERIE
The foregoing instrument was acknowledged before me by ▇▇▇▇▇ ▇▇▇▇▇▇, as
President of First Community Care, Inc., a New York corporation, on behalf of
the corporation, and who is personally known to me; or has produced ___
_________________ as identification.
APRIL 29, 1998 /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------- ------------------------------------
Date Notary Signature
------------------------------------
Notary Name Printed
My Commission Expires:
▇▇▇▇▇ ▇. ▇▇▇▇▇
NOTARY PUBLIC STATE OF NEW YORK
QUALIFIED IN ERIE COUNTY
MY COMMISSION EXPIRES 3-31-99
-------
-31-
SHAREHOLDERS:
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
STATE OF NEW YORK
COUNTY OF ERIE
-----------
The foregoing instrument was acknowledged before me by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
a shareholder of First Community Care, Inc., a New York corporation, on behalf
of the corporation, and who is personally known to me; or has produced as
identification.
APRIL 29, 1998 /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------- ------------------------------------
Date Notary Signature
▇▇▇▇▇ ▇. ▇▇▇▇▇
NOTARY PUBLIC STATE OF NEW YORK
QUALIFIED IN ERIE COUNTY
MY COMMISSION EXPIRES 3-31-99
----------
-------------------------------------
Notary Name Printed
My Commission Expires:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
STATE OF NEW YORK
COUNTY OF ERIE
----------
The foregoing instrument was acknowledged before me by ▇▇▇▇▇ ▇▇▇▇▇▇, a
shareholder of First Community Care, Inc., a New York corporation, on behalf of
the corporation, and who is personally known to me; or has produced ___
________________ as identification.
April 29, 1998 /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------- -------------------------------------
Date Notary Signature
-------------------------------------
Notary Name Printed
My Commission Expires:
▇▇▇▇▇ ▇. ▇▇▇▇▇
NOTARY PUBLIC STATE OF NEW YORK
QUALIFIED IN ERIE COUNTY
MY COMMISSION EXPIRES 3-31-99
----------
-32-
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------
▇▇▇▇ ▇▇▇▇▇
STATE OF NEW YORK
COUNTY OF ERIE
---------
The foregoing instrument was acknowledged before me by ▇▇▇▇ ▇▇▇▇▇, a
shareholder of First Community Care, Inc., a New York corporation, on behalf of
the corporation, and who is personally known to me; or has produced ___
_______________________ as identification.
APRIL 29, 1998 /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------- ------------------------------------
Date Notary Signature
▇▇▇▇▇ ▇. ▇▇▇▇▇
NOTARY PUBLIC STATE OF NEW YORK
QUALIFIED IN ERIE COUNTY
MY COMMISSION EXPIRES 3-31-99
----------
------------------------------------
Notary Name Printed
My Commission Expires:
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇
STATE OF NEW YORK
COUNTY OF ERIE
----------
The foregoing instrument was acknowledged before me by ▇▇▇▇▇▇▇ ▇▇▇▇, a
shareholder of First Community Care, Inc.., a New York corporation, on behalf of
the corporation, and who is personally known to me; or has produced ___
_________________ as identification.
APRIL 29, 1998 /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------- -------------------------------------
Date Notary Signature
-------------------------------------
Notary Name Printed
My Commission Expires:
▇▇▇▇▇ ▇. ▇▇▇▇▇
NOTARY PUBLIC STATE OF NEW YORK
QUALIFIED IN ERIE COUNTY
MY COMMISSION EXPIRES 3-31-99
----------
-33-
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇
-------------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Fox
STATE OF NEW YORK
COUNTY OF ERIE
----------
The foregoing instrument was acknowledged before me by ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇, a shareholder of First Community Care, Inc., a New York corporation, on
behalf of the corporation, and who is personally known to me; or has produced __
_________________ as identification.
APRIL 29, 1998 /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------- -------------------------------------
Date Notary Signature
▇▇▇▇▇ ▇. ▇▇▇▇▇
NOTARY PUBLIC STATE OF NEW YORK
QUALIFIED IN ERIE COUNTY
MY COMMISSION EXPIRES 3-31-99
----------
-------------------------------------
Notary Name Printed
My Commission Expires:
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ FOX
-------------------------------------
▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
By: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Fox
as Attorney-In-Fact
STATE OF NEW YORK
COUNTY OF ERIE
----------
The foregoing instrument was acknowledged before me by ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇, as Attorney-In-Fact for ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, a shareholder of First
Community Care, Inc., a New York corporation, on behalf of the corporation, and
who is personally known to me; or has produced _________________________________
as identification.
APRIL 29, 1998 /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------- -------------------------------------
Date Notary Signature
-------------------------------------
Notary Name Printed
My Commission Expires:
▇▇▇▇▇ ▇. ▇▇▇▇▇
NOTARY PUBLIC STATE OF NEW YORK
QUALIFIED IN ERIE COUNTY
MY COMMISSION EXPIRES 3-31-99
----------
-34-
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ FOX
------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
By: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Fox
as Attorney-In-Fact
STATE OF NEW YORK
COUNTY OF ERIE
-----------
The foregoing instrument was acknowledged before me by ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇, as Attorney-In-Fact for ▇▇▇▇▇ ▇▇▇▇▇▇▇, a shareholder of First Community
Care, Inc., a New York corporation, on behalf of the corporation, and who is
personally known to me; or has produced _____________________ as identification.
April 29, 1998 /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------- -------------------------------------
Date Notary Signature
-------------------------------------
Notary Name Printed
▇▇▇▇▇ ▇. ▇▇▇▇▇
NOTARY PUBLIC STATE OF NEW YORK
QUALIFIED IN ERIE COUNTY
MY COMMISSION EXPIRES 3-31-99
----------
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇
-------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇
By: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇
as Attorney-In-Fact
STATE OF NEW YORK
COUNTY OF ERIE
------------
The foregoing instrument was acknowledged before me by ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Fox, as Attorney-In-Fact for ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, a shareholder of First
Community Care, Inc., a New York corporation, on behalf of the corporation, and
who is personally known to me; or has produced _______________________________as
identification.
APRIL 29, 1998 /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------- -------------------------------------
Date Notary Signature
-------------------------------------
Notary Name Printed
My Commission Expires:
▇▇▇▇▇ ▇. ▇▇▇▇▇
NOTARY PUBLIC STATE OF NEW YORK
QUALIFIED IN ERIE COUNTY
MY COMMISSION EXPIRES 3-31-99
----------
-35-
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)(A) - Other Assets
Schedule 1(a)(v)(B) - Telephone Numbers
Schedule 2(a) - Allocation of Purchase Price
Schedule 2(b)(v) - Wire Instructions
Schedule 4 - North Country Indebtedness
Schedule 5(a) - Existing Obligations
Schedule 5(b) - Unassumed Contracts
Schedule 13 - Material Change
Schedule 14(a) - Subsidiaries, Joint Ventures, etc.
Schedule 14(b) - Consents
Schedule 14(c) - Litigation
Schedule 14(g) - Contracts
Schedule 14(i) - Personnel Payrates; Employee Benefits
Schedule 14(j) - Employee Benefit Plans
Schedule 14(k) - Insurance
Schedule 14(o) - Financial Statements
Schedule 14(p) - Supplemental Tax Information
Schedule 14(q) - Adverse Business Developments
Schedule 14(r) - Relationships
Schedule 14(u) - Reimbursement Matters
Schedule 14(v) - Environmental Compliance
Schedule 14(w) - Cash Receipts
Schedule 14(x) - Accounts Receivable
Schedule 14(z) - Tax Information
Schedule 17(a) - Locations
Schedule 24 - Shareholders' Address
Exhibit A - Annual Operating Profit
Exhibit 2(b)(ii) - Escrow Agreement
Exhibit 2(b)(iii) - Payment Escrow Agreement
Exhibit 3 - Promissory Notes
Exhibit 11(b)(ii) - Seller's Opinion
Exhibit 11(b)(iv) - Employment Agreements
-36-
EXHIBIT "A"
OPERATING PROFIT
1. General Standards.
(a) Performance. Except as otherwise expressly agreed in
writing, the parties intend that the financial and economic performance to be
determined and measured pursuant to this Exhibit "A" shall be determined with
respect to Seller's Business during the period commencing on the date hereof and
ending on the Closing Date, and thereafter until the end of the Applicable
Period, solely with respect to so much of the business operations of Buyer as
consists of the business enterprise previously conducted by the Corporation
before being acquired by Buyer (collectively, the "ACQUIRED ENTERPRISE").
Accordingly, all references herein to revenues, expenses, costs, profits,
losses, and any other transaction or activity, whether by reference to "Buyer",
or in any other manner, shall mean and refer only to so much thereof as pertains
directly to the Acquired Enterprise, unless such reference specifically provides
otherwise. The parties expressly intend all such calculations to provide a
determination of the profitability of the Acquired Enterprise, determined as if
such Acquired Enterprise at all times operated as an autonomous entity.
(b) Determination of Operating Profit. The Operating Profit to
be determined hereunder shall be calculated on a pre-tax basis in accordance
with generally accepted accounting principles, consistently applied ("GAAP"), as
further defined, limited, or explained as set forth herein.
2. Income and Cost.
(a) Income and Revenue. Income shall be accounted for on the
accrual method consistent with the prior accounting methods of the Acquired
Enterprise, and shall consist of all direct revenues, defined as all "RENTAL
REVENUE" and "SALES REVENUE", plus or minus the net change in unbilled revenue,
plus or minus gain or loss from equipment sales, plus or minus sales credits and
allowances, plus investment income.
(b) Costs and Expenses. Costs shall include the following:
(1) DIRECT EXPENSES incurred as kept on the accrual
method, including salary paid to any employee and related payroll taxes.
(2) BAD DEBT expenses shall be the actual bad debts
written off, plus or minus the change in allowance for bad debts. For the
purpose of this calculation, the allowance for bad debts is considered equal to
the amount of all accounts receivable in excess of 120 days old.
(3) REASONABLE TRAVEL EXPENSES of employees or
representatives of ROTECH MEDICAL CORPORATION ("ROTECH") to and from its
corporate offices on behalf of Buyer's matters, to be allocated on a reasonable
basis.
-37-
(4) INTEREST on all or any net intercorporate borrowing
from Integrated Health Services, Inc. ("IHS") at the cost of such funds to IHS;
provided that interest on any amounts borrowed by the Acquired Enterprise after
the Closing by reason of a reduction in the Acquired Enterprise's cash resulting
from the Buyer's delay in obtaining a supplier number from Medicare shall not be
included as expenses for purposes of determining costs.
(5) GROUP OR CONSOLIDATED PURCHASES for items benefitting
the Acquired Enterprise purchased by IHS, RoTech or by Buyer, to be allocated at
actual cost in accordance with usage. Costs to be allocated include costs, if
any, of transportation, storage, etc.
(6) DEPRECIATION EXPENSES will be limited, after the
Closing, to an amount not to exceed $37,000 per month.
(7) CORPORATION'S OVERHEAD. Prior to the Closing, the
general, administrative and overhead costs of Seller. The general,
administrative, and overhead costs of Buyer after the Closing, to the extent
allocable to the Acquired Enterprise on a reasonable basis.
(8) MANAGEMENT AGREEMENT FEES AND EXPENSES. Any management
fees that might be payable under any management agreement in effect with respect
to the operation of Seller's Business after the date hereof shall not be
deducted from revenue and shall not be treated as expenses. Any reimbursements
of expenses payable to the Buyer under a management agreement shall be treated
as expenses to the extent same would be treated as expenses if they had been
incurred by Buyer after the Closing Date.
(c) Excluded Items. Costs and expenses for purposes of
calculating operating profits shall not include the following:
(1) BRANCH OFFICES. All start-up costs, operating
profits, and operating losses incurred by Buyer in the initial six (6) months on
the start-up, opening, or operation of a branch office or location opened after
the date hereof shall be excluded from calculations of Operating Profits for
purposes of this Agreement.
(2) IHS/ROTECH OVERHEAD. Unless otherwise mutually agreed
by Buyer and the Seller, IHS and RoTech corporate overhead or costs will not be
allocated to Buyer or considered in Operating Profits.
(3) COSTS OF ACQUIRING THE ACQUIRED ENTERPRISE. The
calculation of Operating Profits will not include costs or amortization of costs
incurred in the acquisition of the Acquired Enterprise, and any liabilities
assumed by RoTech and subsequently paid off, which will be included in the
intercorporate borrowings in paragraph 2(b)(4), above.
(d) Acquisition of Enterprises. Buyer may from time to time
offer to acquire additional enterprises, in which case Buyer shall first seek
the consent thereto from the Seller. If the Seller consents thereto the
calculation of Operating Profits shall be adjusted in a mutually satisfactory
manner. If Seller does not so consent Buyer shall not acquire such enterprise.
Nothing contained herein shall be deemed to affect, limit or restrict the right
of RoTech or IHS to make any acquisitions.
-38-