1
EXHIBIT 10.2
Execution Draft
STOCK PURCHASE AGREEMENT
FOR
NAHC OF TENNESSEE, INC.
BETWEEN
NEW AMERICAN HEALTHCARE CORPORATION
SELLER
AND
XXXXX XXXXXX AND XXXX XXXXXX
BUYER
2
TABLE OF CONTENTS
ARTICLE I. PURCHASE AND SALE................................................1
1.1 Purchase and Sale.............................................1
1.2 Assets At Closing.............................................1
1.3 Excluded Assets...............................................3
1.4 Continuing Liabilities........................................3
1.5 Excluded Liabilities..........................................4
1.6 Delivery of Stock.............................................4
1.7 Condition of Assets...........................................4
ARTICLE II. PURCHASE PRICE...................................................5
2.1 Purchase Price................................................5
2.2 Payment of Purchase Price.....................................5
2.3 Taxes and Assessments; Prorations; Adjustments................6
2.4 Closing Statements............................................6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER........................6
3.1 Organization, Corporate Power and Qualification...............6
3.2 Capitalization of the Company.................................7
3.3 Subsidiaries and Affiliates; Organization of Seller...........7
3.4 Financial Statements..........................................7
3.5 Absence of Undisclosed Liabilities............................8
3.6 Absence of Certain Recent Changes.............................8
3.7 Title to Assets...............................................9
3.8 Real Property................................................10
3.9 Contracts....................................................11
3.10 Defaults.....................................................12
3.11 Inventory....................................................12
3.12 Receivables..................................................12
3.13 Permits and Licenses.........................................13
3.14 Bank Accounts................................................13
3.15 Litigation...................................................13
3.16 Court Orders, Decrees and Laws...............................13
3.17 Taxes........................................................13
3.18 Program Compliance...........................................14
3.19 Reimbursement Matters........................................14
3.20 Environmental Matters........................................14
3.21 ERISA........................................................15
3.22 Employee Matters.............................................16
3.23 Insurance; Malpractice.......................................16
3.24 Labor Matters................................................16
3.25 Certain Representations With Respect to the Hospital.........17
3.26 Books of Account; Reports....................................17
ii
3
3.27 Finders and Brokers..........................................17
3.28 Authority; Binding Effect....................................17
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER.........................18
4.1 Authority....................................................18
4.2 Absence of Default...........................................18
4.3 Finders and Brokers..........................................18
4.4 Investment Representations...................................18
ARTICLE V. COVENANTS OF PARTIES............................................19
5.1 Preservation of Company's Business and Assets................19
5.2 Absence of Material Change...................................19
5.3 Access to Books and Records..................................19
5.4 [Deleted]....................................................20
5.5 Risk of Loss.................................................20
5.6 Condemnation.................................................21
5.7 Good Faith...................................................21
5.8 Preserve Accuracy of Representations and Warranties..........21
5.9 Maintain Books and Accounting Practices......................21
5.10 Indebtedness; Liens..........................................21
5.11 Compliance with Laws and Regulatory Consents.................21
5.12 No Merger or Consolidation...................................22
5.13 Maintain Insurance Coverage..................................22
5.14 Medicare, Medicaid and Blue Cross Reporting..................22
5.15 CDU Payments.................................................22
5.16 [Deleted]....................................................23
5.17 Performance..................................................23
5.18 Tax Matters..................................................23
5.19 COBRA Coverage...............................................26
ARTICLE VI. DELETED.........................................................26
ARTICLE VII. CLOSING.........................................................26
7.1 Closing......................................................26
7.2 Termination..................................................26
ARTICLE VIII. SELLER'S CONDITIONS TO CLOSE....................................27
8.1 Representations and Warranties True at Closing; Compliance
with Agreement...............................................27
8.2 Regulatory Approvals.........................................27
8.3 No Action/Proceeding.........................................27
8.4 Compliance with Article XI...................................27
8.5 Order Prohibiting Transaction................................27
8.6 Consent of Lender............................................28
8.7 Completion of Exhibits.......................................28
iii
4
ARTICLE IX. BUYER'S CONDITIONS TO CLOSE.....................................28
9.1 Representations and Warranties True at Closing; Compliance
with Agreement...............................................28
9.2 No Loss, Damage or Destruction...............................28
9.3 Regulatory Approvals.........................................28
9.4 No Action/Proceeding.........................................28
9.5 Compliance with Article X....................................28
9.6 Order Prohibiting Transaction................................29
9.7 Tail Insurance...............................................29
9.8 Consent of Lender............................................29
9.9 Employees....................................................29
9.10 Completion of Exhibits.......................................29
ARTICLE X. OBLIGATIONS OF SELLER AT CLOSING................................29
10.1 Documents Relating to Stock..................................29
10.2 Opinion of Counsel...........................................29
10.3 Corporate Good Standing and Corporate Resolution.............29
10.4 Closing Certificate..........................................30
10.5 Taxes and Other Payments.....................................30
10.6 Tail Insurance...............................................30
10.7 Additionally Requested Documents; Post Closing Assistance....30
ARTICLE XI. OBLIGATIONS OF BUYER AT CLOSING.................................30
11.1 Purchase Price; Security Instruments.........................30
11.2 [Deleted]....................................................30
11.3 Opinion of Buyer's Counsel...................................31
11.4 Closing Certificate..........................................31
ARTICLE XII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION......................31
12.1 Survival.....................................................31
12.2 Indemnification by Seller....................................31
12.3 Indemnification by Company and Buyer.........................32
12.4 Procedure for Indemnification................................32
12.5 Limitations on Obligations...................................34
ARTICLE XIII. RESTRICTIVE COVENANTS...........................................34
13.1 Covenant Not to Compete......................................34
13.2 Enforceability...............................................35
ARTICLE XIV. MISCELLANEOUS...................................................35
14.1 Assignment...................................................35
14.2 Other Expenses...............................................35
14.3 Notices......................................................35
14.4 Controlling Law..............................................36
iv
5
14.5 Headings.....................................................36
14.6 Benefit......................................................37
14.7 Partial Invalidity...........................................37
14.8 Waiver.......................................................37
14.9 Counterparts.................................................37
14.10 Interpretation...............................................37
14.11 Entire Agreement.............................................37
14.12 Legal Fees and Costs.........................................37
14.13 "Knowledge"..................................................38
v
6
EXHIBIT INDEX
Exhibit No. Exhibit Matter
----------- --------------
1.2(1) Real Property
1.2(2) Equipment
1.2(8) Trade Names
1.3(2)-A Logo
1.3(2)-B Form of License Agreement
1.3(4) Excluded Assets
3.4 Financial Statements
3.5 Undisclosed Liabilities
3.6 Recent Changes
3.7 Permitted Liens; Security Interests of Record
3.8 Real Property
3.9 Contracts
3.10 Defaults
3.12 Receivables Outside Ordinary Course
3.14 Bank Accounts
3.15 Litigation
3.16 Governmental Proceedings or Investigations
3.17A Tax Liens
3.17B Tax Examinations
3.19A Audit Status Schedule of Medicare Cost Reports
3.19B Claims by any Third-Party Payors
3.20 Environmental Matters
3.21 Employee Benefit Plans
3.22A List of Employees
3.22B List of Employee Benefits of Seller and Company
3.22C List of Ex-Employees utilizing or eligible to use continuation
coverage (health insurance)
3.22D List of Company's full- and part-time employees who have
been terminated within 90 days before Closing
3.23 Insurance; Malpractice
14.13 List of Individuals with "Knowledge" of Seller's Business
vi
7
GLOSSARY
Section Defined Term
------- ------------
12.1 Absolute Covenants
2.4 Accountants
4.4 Act
Page 1 Agreement
1.2 Assets
1.4 Continuing Liabilities
Page 1 Buyer
12.5(1) Cap
5.15 CDU
12.4(1) Claim
7.1 Closing
7.1 Closing Date
3.22 Code
Recital A Company
5.18(8) Consolidated Return Short Year
5.18(6) Contest
1.4 Continuing Liabilities
3.9 Contracts
3.21(1) ERISA
1.2(2) Equipment
1.3 Excluded Assets
1.5 Excluded Liabilities
2.4 Final Closing Statement
3.4 Financial Statements
Recital A Hospital
12.4(1) Indemnitee
12.4(1) Indemnitor
1.2(3) Inventory
1.1 Liens
1.3(2) Logo
Page 1 XxXxxx
2.1(2) Net Working Capital
13.1 Noncompete Area
13.1 Noncompete Period
12.4(1) Notice
2.2(3) 1 Year Note
3.7 Permitted Liens
2.4 Preliminary Closing Statement
2.1 Purchase Price
1.4(2) PTO
2.2(2) Rate
vii
8
1.2(1) Real Property
1.2(4) Receivables
Page 1 Seller
5.18(8) Separate Return Short Year
2.2(2) 60 Day Note
Recital A Stock
Page 1 Xxxxxx
viii
9
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), is made as of August
31, 1999, by and among NEW AMERICAN HEALTHCARE CORPORATION, a Delaware
corporation ("SELLER"), XXXX X. XxXXXX, an individual and resident of the State
of Tennessee ("XXXXXX"), and XXXXX X. XXXXXX, an individual and resident of the
state of Tennessee ("XXXXXX") (XxXxxx and Xxxxxx are collectively, jointly and
severally "BUYER").
R E C I T A L S:
A. Seller owns all of the issued and outstanding capital stock (the
"STOCK") of NAHC of Tennessee, Inc., d/b/a Delta Medical Center, a Tennessee
corporation (the "COMPANY"). The Company operates a business in Memphis,
Tennessee located at 0000 Xxxxxxx Xxxxx, Xxxxxx Xxxxxx, Xxxxxxxxx, including a
hospital comprised of 243 licensed medical/surgical beds, associated equipment
and other hospital related businesses and programs (all of the above are
collectively, the "HOSPITAL").
B. Seller desires to sell and transfer the Stock to Buyer, and Buyer
desires to purchase the same from Seller, subject to the terms and conditions
set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual terms, covenants,
agreements and conditions contained in this Agreement and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound hereby, agree as
follows:
ARTICLE I. PURCHASE AND SALE
1.1 Purchase and Sale. Seller agrees to sell, transfer, assign, convey
and deliver to Buyer, and Buyer agrees to purchase from Seller, all right, title
and interest in and to the Stock. Seller shall deliver to Buyer at Closing all
stock certificates representing the Stock, duly endorsed for transfer or
accompanied by duly executed stock powers. The Stock shall be delivered free and
clear of all claims, liens, pledges, mortgages, restrictions, proceedings,
charges, options, security interests, assessments, covenants, rights of first
refusal and encumbrances of any kind (herein, "LIENS"), except as otherwise
permitted herein.
1.2 Assets At Closing. Except as provided in Section 1.3, at Closing
the Company shall own or lease, all assets, tangible and intangible, real and
personal, associated with the operation of the Hospital (collectively, the
"ASSETS"), free and clear of all Liens other than the Permitted Liens (as
defined in Section 3.7), which Assets shall include, without limitation, the
following:
10
(1) All real estate owned by the Company comprising or owned
in connection with the Hospital as described in Exhibit 1.2(1) (with leasehold
items noted as such); including, without limitation, all interests in real
property, including leaseholds, easements and improvements thereon, plants,
fixed assets, buildings, structures, fixtures (including fixed machinery and
fixed equipment) situated thereon or forming a part thereof and all
appurtenances, easements and rights-of-way related thereto (collectively, the
"REAL PROPERTY");
(2) All business, medical and other equipment, machinery, data
processing hardware and software, furniture, furnishings, appliances, vehicles
and other tangible personal property of every description and kind and all
replacement parts therefor, wherever located, including but not limited to the
items listed on Exhibit 1.2(2) (collectively, the "EQUIPMENT");
(3) All inventory of goods and supplies, including, but not
limited to, disposables, consumables, office supplies, drugs and medical
supplies (collectively, the "INVENTORY");
(4) All of the Company's patient accounts, notes and other
receivables, including those from third party payors, Medicare and Medicaid,
whether or not written off and whether recorded or unrecorded, including those
with respect to all prior year and terminating cost reports (collectively, the
"RECEIVABLES"); but expressly excluding all nonpatient accounts receivable owed
to the Company and all accounts receivable related to all Medicare or Medicaid
cost reports for all periods through April 30, 1999.
(5) All patient, medical, personnel, clinical and other
records of the Hospital and all manuals, books and records, including personnel
policies and manuals, and computer software;
(6) All licenses, permits, registrations, certificates,
consents, accreditations, approvals and franchises, and applications therefor,
and all waivers, if any, pertaining thereto;
(7) All plans and surveys, including "as-built" plans, all
plats, specifications, engineers' drawings, and architectural renderings and
similar items relating to the Hospital, including, without limitation, those
relating to utilities, easements and roads;
(8) All goodwill and other intangible assets including, but
not limited to, all rights to use the name "Delta Medical Center," the other
trade names listed on Exhibit 1.2(8) and derivatives thereof, but expressly
excluding the name "New American Healthcare Corporation" and all derivatives
thereof, and excluding the logo described in Section 1.3(2) below;
2
11
(9) The Company's rights and interests under the Contracts (as
defined in Section 3.9);
(10) All assets reflected on the Financial Statements, as
defined in Section 3.4, and additions thereto through the Closing (as defined in
Section 7.1) less deletions therefrom sold or consumed in the ordinary course of
business;
(11) All insurance proceeds arising in connection with damage
to the Assets prior to Closing, to the extent not expended for the repair and
restoration of the Assets;
(12) All other property, other than Excluded Assets, of every
kind, character or description owned by the Company and used or held for use in
the business of the Hospital, whether or not reflected on the Financial
Statements, wherever located.
1.3 Excluded Assets. The Assets shall expressly exclude those
items described in this Section 1.3 (the "EXCLUDED ASSETS"). Prior to conveyance
of the Stock, Company shall transfer to Seller the Excluded Assets. All tangible
Excluded Assets shall be removed from the Assets, without damage or defacement
to the Assets, by Seller prior to Closing. The Excluded Assets shall be
comprised of the following:
(1) All cash, money market accounts, investment accounts,
other accounts, certificates of deposit and other investments of the Company;
(2) All rights in the name "New American Healthcare
Corporation," "NAHC" and all derivatives thereof, and all rights to the logo
described on Exhibit 1.3(2)-A attached hereto (the "LOGO"); provided, however,
that Seller shall license to the Company for a period of one hundred eighty
(180) days following Closing certain limited rights to use the Logo and the
right to include "NAHC" in its corporate name pursuant to the terms of a License
Agreement in the form attached hereto as Exhibit 1.3(2)-B;
(3) All nonpatient accounts receivable owed to the Company as
of the Closing and all accounts receivable related to all Medicare or Medicaid
cost reports for all prior years ending through April 30, 1999; and
(4) Those items listed on Exhibit 1.3(4).
1.4 Continuing Liabilities. At Closing, Company will retain and
continue to pay or perform, as the case may be, only the following
(collectively, the "CONTINUING LIABILITIES"):
(1) All obligations accruing after Closing with respect to the
Company's contracts, agreements, purchase orders, instruments and leases;
3
12
(2) All accrued compensation, vacation time, compensatory
time/paid time off ("PTO"), holiday time and build up of sick leave, together
with all related taxes and tax withholding payable or held with respect thereto,
for the Company's employees who remain employees of the Company after Closing,
which was accrued or accumulated prior to Closing;
(3) All amounts payable under the Medicare or Medicaid
reimbursement programs applicable to cost reports for services rendered after
April 30, 1999, the most recently filed cost report but prior to the Closing, to
the extent properly recorded on the Company's Financial Statements; and
(4) All Current Liabilities, to the extent included in the
calculation of Net Working Capital, pursuant to Section 2.1(2) below.
1.5 Excluded Liabilities. Immediately prior to conveyance of the
Stock, Seller shall satisfy and release or Company shall transfer to Seller and
Seller shall assume responsibility from and after Closing for the following
(collectively, the "EXCLUDED LIABILITIES"):
(1) Any intercompany payables; and
(2) All liabilities, indebtedness, commitments, taxes,
assessments, claims, obligations and responsibilities of any kind whatsoever of
the Company arising from its operations prior to Closing, including, but not
limited to, malpractice claims or suits and scheduled or unscheduled liabilities
of any kind whatsoever, except as expressly included in the Continuing
Liabilities.
1.6 Delivery of Stock. Seller shall deliver to Buyer at Closing
all stock certificates representing the Stock, duly endorsed for transfer or
accompanied by duly executed stock powers. The Stock will be conveyed to Buyer
fully paid and nonassessable with good and valid title, free and clear of all
Liens, except as described herein, including all amounts due and payable for
federal, state and local transfer taxes.
1.7 Condition of Assets. Other than with respect to representations
and warranties expressly provided herein, Buyer accepts the condition of the
Assets at Closing "AS IS," WITH NO WARRANTY, EXPRESS OR IMPLIED, AND EXPRESSLY
EXCLUDED ARE THE WARRANTIES OF HABITABILITY, MERCHANTABILITY AND FITNESS FOR A
PARTICULAR USE, ALL OF WHICH SELLER HEREBY DISCLAIMS. All of the Assets shall
further be subject to normal wear and tear in the ordinary course of business up
to the Closing Date. Without limiting the foregoing, Buyer acknowledges that (i)
all Year 2000 Compliance efforts of Seller with respect to the Assets will
terminate on the Closing Date; (ii) notwithstanding anything to the contrary
contained herein, Seller makes no representation or warranty regarding Year 2000
Compliance with respect to any of the Assets; and (iii) Buyer assumes all
liability with respect to Year 2000 Compliance relating
4
13
to the Assets. As used herein, the term "Year 2000 Compliance" includes the
ability to perform any of the following functions: (i) to consistently handle
date information before, at and after January 1, 2000, including accepting date
input, providing date output, and performing calculations on dates or portions
of dates; (ii) to function accurately without interruption (or disruption of
other software or systems) before, at and after January 1, 2000, without any
change in operations associated with the advent of the new century; (iii) to
respond to two-digit date input in a way that resolves any ambiguity as to
century; and (iv) to store and provide output of date information in ways that
are unambiguous as to century.
ARTICLE II. PURCHASE PRICE
2.1 Purchase Price. Subject to the terms and conditions hereof,
the purchase price (the "PURCHASE PRICE") will be payable by Buyer to Seller for
the Stock as provided below and shall be an amount derived in the following
manner:
(1) One Million Dollars ($1,000,000.00);
(2) PLUS the amount of Net Working Capital at Closing. The
term "NET WORKING CAPITAL" shall mean the result of the following: PLUS Current
Assets, as reflected on the Financial Statements of the Company as of the
Closing (net of Excluded Assets, as defined herein, and for purposes of this
calculation, all accounts receivable included in the Current Assets purchased
shall be valued at 90% and said valuation shall be used on the Preliminary
Closing Statement and the Final Closing Statement), MINUS Current Liabilities,
as reflected on the Financial Statements of the Company as of the Closing (net
of Excluded Liabilities) and any other balance sheet liability assumed (the
"PURCHASE PRICE"). Seller agrees that the Company's accounts payable at Closing
shall not exceed Seven Hundred Thousand Dollars ($700,000.00), based on Seller's
reasonable estimates at Closing;
(3) MINUS, a credit against the Purchase Price equal to Two
Hundred Fifty Thousand Dollars ($250,000.00) for sick leave benefits payable
which are not recorded on the balance sheet.
2.2 Payment of Purchase Price. The Purchase Price shall be
payable as follows:
(1) One Hundred Thousand Dollars ($100,000.00) payable at
Closing in immediately available funds;
(2) a promissory note (the "60 DAY NOTE") in the original
principal amount of Two Million Dollars ($2,000,000.00), which (i) shall accrue
interest at a rate (the "RATE") equal to two percent (2%) over the prime rate
(as published in The Wall Street Journal) (said Rate to adjust whenever there is
an adjustment in said prime rate), (ii) shall be payable in full sixty (60) days
after the date of said 60 Day Note, and (iii) shall be secured
5
14
by a pledge of a certificate of deposit(s) from Buyer in the aggregate amount of
Four Hundred Thousand Dollars ($400,000.00), a guaranty by the Company, and by a
security interest in all of the Company's accounts receivable;
(3) a second promissory note (the "1 YEAR NOTE") for the
balance of the Purchase Price, which (i) shall accrue interest at the Rate, (ii)
shall be payable in full on the first anniversary of the date of said 1 Year
Note, and (iii) shall be secured by a pledge of the Stock, and a lien on all of
the Assets (plus any replacement or additions to the Assets) other than the
Company's accounts receivable.
2.3 Taxes and Assessments; Prorations; Adjustments. To the extent
not included as a reduction of Net Working Capital, Seller shall pay or credit
on the Purchase Price the amount of all delinquent real estate and personal
property taxes, including penalties and interest, and all special assessments
that are a lien as of the day of Closing, both current and reassessed and
whether due or to become due.
2.4 Closing Statements. The adjustments specified in Sections 2.1
and 2.3 shall be estimated by the parties hereto in good faith at the Closing
based on the most current interim financial statements with provisional
adjustments as shall be mutually agreed upon and shall be called the
"PRELIMINARY CLOSING STATEMENT". No later than one hundred twenty (120) days
after the Closing, the parties hereto shall prepare the "FINAL CLOSING
STATEMENT" reflecting the items listed above determined in accordance with
generally accepted accounting principles on an accrual basis applied
consistently with prior periods (subject to the terms of this Agreement). As
part of the preparation of the Final Closing Statement, Buyer and Seller shall
prepare a cost report for the four (4) month period ending August 31, 1999 for
use in calculating the adjustments to the Purchase Price described in Sections
2.1 and 2.3 above. Adjustments made after the Closing based on the Final Closing
Statement shall be payable by an adjustment to the 1 Year Note, which the
parties agree to complete on or before the tenth day following the day the Final
Closing Statement is agreed upon. If Buyer and Seller are unable to agree upon
said Final Closing Statement within one hundred twenty (120) days after Closing,
then they shall submit their dispute to Ernst & Young, Nashville, Tennessee (the
"ACCOUNTANTS"), and the Accountants shall make such determination which
determination shall be final and binding on the parties hereto for the purpose
of this Agreement, and Buyer and Seller shall each pay one-half the cost of the
Accountants.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer, which representations
and warranties shall be true and correct on the date hereof, and at Closing, as
follows:
3.1 Organization, Corporate Power and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Tennessee and has full corporate power and authority and
all material
6
15
authorizations, licenses and permits necessary to own, lease and operate its
properties and assets and to carry on its business as and where it is now being
conducted, to enter into this Agreement. The Company is duly qualified to do
business and is in good standing in the State of Mississippi. No jurisdiction
where the Company is not presently qualified as a foreign corporation has made
any written assertion that the Company's business or ownership of property makes
qualification as a foreign corporation in such jurisdiction necessary. A true,
accurate and complete copy of the Company's Charter and all amendments thereto
as of the date hereof and a copy of the Company's bylaws, as amended to the date
hereof (both certified by the Secretary of the Company), have been previously
provided to Buyer. The Company is not in default under or in violation of any
provision of its Charter or bylaws.
3.2 Capitalization of the Company. The authorized capital stock of
the Company consists of 1,000 shares of no par value voting common stock, of
which as of the date hereof, 1,000 shares have been duly authorized by all
necessary corporate action on the part of the Company, are validly issued and
outstanding, fully paid and non-assessable and all of which are owned
beneficially and of record by Seller. No assessments have been made with respect
to such stock which have not been fully satisfied. There are no other authorized
or outstanding or authorized equity securities of the Company of any class, kind
or character, and there are no outstanding rights, contracts, rights to
subscribe, conversion rights, exchange rights, warrants, options, calls, puts or
other agreements or commitments of any character relating to the capital stock
of the Company or any securities convertible or exchangeable or exercisable for
any shares of stock of any class of capital stock of the Company. At Closing,
the Stock shall be subject to no pledge or other Lien other than Permitted
Liens. No shares of the capital stock of the Company are reserved for any
purpose; there are no preemptive or similar rights with respect to the issuance,
sale or other transfer (whether present, past or future) of the capital stock of
the Company and there are no agreements or other obligations (contingent or
otherwise) which may require the Company to issue, repurchase or otherwise
acquire any shares of its capital stock or any other securities. There are no
outstanding or authorized stock appreciation/phantom stock or similar rights
with respect to the Company. There are no voting trusts, proxies, or any other
agreements or understandings with respect to the voting stock of the Company.
3.3 Subsidiaries and Affiliates; Organization of Seller. At the
Closing, the Company will have no direct or indirect ownership interest in, by
way of stock ownership or otherwise, any corporation, association or business
enterprise. Seller is duly organized, validly existing and in good standing
under the laws of the State of Delaware.
3.4 Financial Statements. Exhibit 3.4 consists of the Company's
unaudited financial statements, including balance sheet and statement of
operations for the fiscal year ended March 31, 1999 (including, for comparative
purposes, income statement figures for the fiscal year ended March 31, 1998),
and the unaudited four (4) month interim period ending July 31, 1999 (herein
collectively called "FINANCIAL STATEMENTS"). The Financial Statements present
fairly in all material respects the financial condition of the Company as at the
respective dates thereof and the results of operations for the periods ended at
the
7
16
respective dates thereof, prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved and with prior periods.
3.5 Absence of Undisclosed Liabilities. Except for (i) liabilities
disclosed in Exhibit 3.5, (ii) liabilities reflected or reserved against in the
Financial Statements, or (iii) commitments and obligations incurred in the
ordinary course of business accruing after the date of the most recent Financial
Statement, the Company had, or will have at Closing, no material liabilities,
claims or obligations.
3.6 Absence of Certain Recent Changes. Except as expressly
provided in this Agreement or as set forth on Exhibit 3.6 since the date of the
most recent Financial Statements, and through the Closing Date, the Company has
not and will not have:
(1) except in the usual and ordinary course of its businesses,
consistent with past practice, and in an amount which is usual and normal, both
individually and in the aggregate or as otherwise contemplated by this
Agreement, incurred, any material indebtedness or other liabilities (whether
accrued, absolute, contingent or otherwise), guaranteed any indebtedness or sold
any of its assets;
(2) suffered any damage, destruction or loss, whether or not
covered by insurance, in excess of Fifty Thousand Dollars ($50,000.00);
(3) increased the regular rate of compensation payable by it
to any employee or any physician other than normal merit and cost of living
increases granted in the ordinary course of business; or increased such
compensation by bonus, percentage, compensation service award or similar
arrangement theretofore in effect for the benefit of any of its employees, and
no such increase is required except for increases made in the ordinary course of
business;
(4) established or agreed to establish, amended or terminated
any pension, retirement or welfare plan or arrangement for the benefit of its
employees not theretofore in effect;
(5) suffered any material adverse change in its financial
condition, assets, liabilities, operations, or business;
(6) experienced any material labor organizational efforts,
strikes or complaints other than grievance procedures in the ordinary course of
business or entered into any collective bargaining agreements with any union;
(7) except with respect to Liens arising by operation of law
or conditional sales or similar security interest granted in connection with the
purchase of equipment or supplies, permitted or allowed any of its assets (real,
personal or mixed, tangible or intangible) to be subjected to any additional
Lien of any kind;
8
17
(8) paid, discharged or satisfied any claims, liabilities or
obligations (absolute, accrued, contingent or otherwise) other than in the usual
and ordinary course of business;
(9) suffered any extraordinary losses, canceled any material
debts, or waived any claims or rights of substantial value, whether or not in
the usual and ordinary course of business;
(10) paid, lent or advanced any amount to, or sold,
transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or arrangement with
any of the officers or directors of the Company, or of any "affiliate" or
"associate" of any of its officers or directors (as such terms are defined in
the rules and regulations of the Securities and Exchange Commission under the
Securities Act of 1933, as amended), except for reimbursement of ordinary and
reasonable business expenses related to the business of the Company;
(11) amended, terminated or otherwise altered (whether by
action or inaction) any material contract, agreement or license of significant
value to which the Company is a party, except in the ordinary course of
business;
(12) entered into a material transaction other than in the
ordinary course of business, or made any change in any method of accounting or
accounting practice;
(13) canceled, or failed to continue, insurance coverages; or
(14) agreed to take any action described in this Section 3.6.
3.7 Title to Assets. Except as disclosed in Exhibit 3.7, or
disclosed elsewhere in this Agreement, the Company will have at Closing, good
and marketable title to its property and assets, as reflected in the Financial
Statements or acquired by the Company subsequent to the date of the most recent
Financial Statements, subject to no Lien, except the following (collectively the
"PERMITTED LIENS"):
(1) property and assets sold or otherwise disposed of
subsequent to such date in the ordinary course of business or as otherwise
contemplated by this Agreement,
(2) liens in respect of unpaid taxes and interest and
penalties thereon as reflected in the Financial Statements not yet due and
payable or being contested in good faith by appropriate proceedings,
(3) liens in respect of pledges or deposits under worker's
compensation, unemployment insurance, social security and public liability laws
and other similar legislation,
9
18
(4) liens imposed by law, such as carriers', warehousemen's or
mechanics' liens incurred in good faith in the ordinary course of business,
(5) liens set forth in the Financial Statements as securing
specified debts or otherwise described in Exhibit 3.7,
(6) any Lien approved in writing by Buyer,
(7) such imperfections of title and other encumbrances, if
any, which do not in the aggregate materially detract from the value or
interfere with the use of their properties or otherwise materially impair their
business operations,
(8) Certain liens in favor of Toronto Dominion (Texas), Inc.,
as Agent for Seller's primary lender group, which shall be released as to the
Receivables upon payment in full of the 60 Day Note and as to the remainder of
the Assets upon payment in full of the 1 Year Note, and
(9) Liens securing the 60 Day Note and the 1 Year Note.
None of the Assets consisting of owned Real Property are subject to mortgage or
other encumbrance or charge other than those encumbrances described in Exhibit
3.7. The owned personal property included in the Assets is subject to no Liens
except the security interests of record set forth on Exhibit 3.7.
3.8 Real Property. Except as disclosed on Exhibit 3.8:
(1) The Company enjoys peaceful and undisturbed possession of
its Real Property. To the best of Seller's knowledge, the use of the Real
Property by the Company does not currently violate any existing zoning, building
or use statutes, rules, ordinances or regulations of any federal, state, county
or local entity, authority or agency the violation of which would have a
material adverse effect on its respective assets or the business of such entity
as it is presently conducted. Neither the Company nor Seller has received any
written notice of any violation of any law, zoning ordinance or regulation
affecting the Real Property and neither has received any written notice of nor
has any actual knowledge of or information as to any existing or condemnation or
other legal action of any kind involving the Real Property which may materially
and adversely affect the value of its respective Real Property.
(2) Seller does not know of any building, use or deed
restrictions relating to the Real Property that are not of public record.
(3) To the best of Seller's knowledge, there are no unrecorded
easements relating to the Real Property known to Seller, or special assessments
or proposed special assessments of which written notice has been given relating
to the Real Property, and no
10
19
federal, state or local taxing authority has asserted any tax deficiency, lien
or assessment against the Real Property which has not been paid.
(4) There are no outstanding accounts payable or mechanics'
liens or rights to claim a mechanic's lien in favor of any contractor,
materialman, laborer or any other person in connection with any portion of the
Real Property which are past due or are not otherwise being contested in good
faith by appropriate proceeding.
(5) The Company has rights of ingress and egress from the Real
Property which are adequate for the purposes for which the Real Property
currently is used. All service utilities, including gas, water, electricity,
telephone and sewer, are presently available and serving the Real Property in an
adequate manner for its current use.
3.9 Contracts. Exhibit 3.9 is a list of each contract, lease,
agreement and other instrument to which the Company is a party or is bound which
involves an unperformed commitment or obligation (contingent or otherwise) of
more than Fifty Thousand Dollars ($50,000.00) in the aggregate (herein, the
"CONTRACTS"). Except as noted in such Exhibit, all such Contracts are in full
force and effect, there has been no cancellation or written notice of any
threatened cancellation thereof, and there are no outstanding disputes
thereunder. Except as noted in Exhibit 3.9, there are no employment agreements
or other agreements to which the Company is a party or by which the Company is
bound that contain any severance or termination pay liabilities or obligations.
Except as described in Exhibit 3.9 or the other Exhibits hereto (and except for
purchase contracts and orders for inventory in the ordinary course of business
consistent with past practice), the Company is not, as of the date of this
Agreement, a party to or bound by any:
(1) employee collective bargaining agreement or other contract
with any labor union;
(2) covenant not to compete;
(3) (i) lease or similar agreement under which (A) the Company
is lessee of, or holds or uses, any machinery, equipment, vehicle or other
tangible personal property owned by a third party or (B) the Company is a lessor
or sublessor of any tangible personal property owned by the Company, (ii)
continuing contract for the future purchase of materials, supplies or equipment,
or (iii) management, service, consulting or other similar type of contract, in
any such case which has a future liability in excess of One Hundred Thousand
Dollars ($100,000.00), and which is not terminable by the Company for a cost of
less than Fifty Thousand Dollars ($50,000.00);
(4) agreement or contract under which the Company has borrowed
or lent any money or issued any note, bond, indenture or other evidence of
indebtedness or directly or indirectly guaranteed indebtedness, liabilities or
obligations of others for an amount in excess of Fifty Thousand Dollars
($50,000.00) (other than (i) endorsements for the purpose of collection in the
ordinary course of business, (ii) agreements or contracts
11
20
between the Company and Seller, and (iii) advances to employees of the Company
in the ordinary course of business);
(5) mortgage, pledge, security agreement, deed of trust or
other document granting a lien (including liens upon properties acquired under
conditional sales, capital leases or other title retention or security devices
but excluding operating leases) other than Permitted Liens;
(6) other agreement, contract, lease, license, commitment or
instrument to which the Company is a party or by or to which the Company or any
of its assets or businesses are bound or subject which has an aggregate future
liability in excess of Ten Thousand Dollars ($10,000.00) and is not terminable
by the Company for a cost of less than Ten Thousand Dollars ($10,000.00); or
(7) any agreement, contract, understanding or business venture
with any physician, other provider or any other person which knowingly violates
the Medicare/Medicaid Fraud and Abuse amendments or any regulations thereunder
adopted by the U.S. Department of Health and Human Services.
3.10 Defaults. Except as disclosed in Exhibit 3.10 or otherwise in
this Agreement, the Company is not in material default under, nor has any event
occurred which, with the lapse of time or action by a third party, could result
in a default by the Company under, any of its outstanding indentures, mortgages,
contracts, instruments or agreements to which the Company is a party or by which
the Company may be bound or under any provision of the Charter or bylaws of the
Company. Except as disclosed in Exhibit 3.10, the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement will not: (i) violate any provision of, or result
in the breach of, or constitute a material default under, any law the violation
of which would result in a significant liability to the Company, or any order,
writ, injunction or decree of any court, governmental agency or arbitration
tribunal; (ii) constitute a violation of or a material default under, or a
conflict with, any term or provision of the Charter or bylaws of the Company;
(iii) violate any contract, commitment, indenture, lease, instrument or other
agreement, or any other restriction of any kind to which the Company is a party
or it or its assets is bound; or (iv) give any party thereunder grounds to cause
(with or without notice, the passage of time or both) the maturity of any
liability or obligation of the Company to be accelerated, or increase any such
liability or obligation.
3.11 Inventory. Substantially all Inventory (not disposed of in the
ordinary course), consists of a quality and quantity generally usable and
saleable in the ordinary course of business.
3.12 Receivables. Except as set forth in Exhibit 3.12, all
Receivables shown on the Financial Statements and all those arising since the
date of the most recent Financial Statements, have arisen in the ordinary course
of business.
12
21
3.13 Permits and Licenses. The Company holds all material permits,
licenses or similar authorizations necessary with respect to the operation or
ownership of the Hospital. The Company is not required to obtain any additional
permits, licenses or similar authorizations (including, without limitation, any
additional certificates of need) from any governmental authority for the proper
conduct of its business as currently conducted or to become a member of or
accredited by any association or governmental authority.
3.14 Bank Accounts. Exhibit 3.14 is a true and complete list as of the
date hereof of all banking institutions in which the Company has accounts, plus
the account numbers thereof.
3.15 Litigation. Except as set forth in Exhibit 3.15: (i) there is no
litigation, arbitration, governmental claim, investigation or proceeding pending
or threatened in writing against the Company at law or in equity, before any
court, arbitral tribunal or governmental agency; (ii) there are no facts known
to Seller on which material claims may be hereafter made against the Company
which are not covered by insurance assuming the same insurance programs
presently in effect are maintained after the Closing; and (iii) all currently
pending claims and litigations against the Company are fully covered by
insurance subject to applicable deductibles.
3.16 Court Orders, Decrees and Laws. There is no outstanding or
threatened in writing any order, writ, injunction or decree of any court,
governmental agency or arbitration tribunal against or affecting the Company or
any of its assets which would significantly interfere with its ability to
conduct its businesses as presently conducted. The Company is in substantial
compliance with all applicable federal, state and local laws, regulations and
administrative orders which are material to the business of the Company, and the
Company has received no written notices of alleged violations thereof except as
disclosed herein. Except as set forth in Exhibit 3.16, to the best of Seller's
knowledge, no governmental authorities are presently conducting proceedings
against the Company and no such investigation or proceeding is pending or been
threatened in writing.
3.17 Taxes. All federal, state and other tax returns of the Company
required by law to be filed have been filed, and the Company has paid or accrued
on the balance sheets included in the Financial Statements (including taxes on
properties, income, franchises, licenses, sales and payrolls) which are shown to
be due on or have become due pursuant to such returns or pursuant to any
assessment, except for any taxes and assessments of which the amount,
applicability or validity is currently being contested in good faith by
appropriate proceedings and with respect to which the Company has set aside on
its books adequate reserves. All such tax returns have been prepared in
compliance with all applicable laws and regulations. Except as otherwise
disclosed in this Agreement or disclosed in Exhibit 3.17A, there are no tax
liens on any of the property of the Company, except those with respect to taxes
not yet due and payable and except for any taxes and assessments of which the
amount, applicability or validity is currently being contested in good faith by
appropriate proceedings. Except as otherwise disclosed in this Agreement or
disclosed in Exhibit 3.17B, there are no pending tax examinations of which
13
22
Seller has knowledge, nor has the Company received a revenue agent's report
asserting a tax deficiency. Seller has no knowledge of any basis for any taxing
authority to claim or assess any amount of additional taxes against the Company.
The Company has withheld from each payment made to employees of the Company the
amount of all taxes (including, but not limited to, federal, state and local
income taxes and Federal Insurance Contribution Act taxes) required to be
withheld therefrom and all amounts customarily withheld therefrom, and has set
aside all other employee contributions or payments customarily set aside with
respect to such wages and have paid or will pay the same to, or have deposited
or will deposit such payment with, the proper tax receiving officers or other
appropriate authorities. The Company has not been a member of an affiliated
group (as defined in ss.1504(a) of the Code) other than one of which Seller is
the common parent. The Company is not a party to or bound by any tax sharing
agreement and does not have any current or potential contractual obligation to
indemnify any other person with respect to taxes.
3.18 Program Compliance. To the best of Seller's knowledge, the
Company is not a party to any agreement or contract which violates the
Medicare/Medicaid Fraud and Abuse amendments (42 USC 1320a-7b(b)) or any
regulations thereunder adopted by the U.S. Department of Health and Human
Services as currently in force and interpreted.
3.19 Reimbursement Matters. Copies of all Medicare and Medicaid
Cost Reports filed by the Company either not audited by the fiscal intermediary
or audited and not formally settled have been made available to Buyer. A
schedule setting forth the audit status of such Medicare Cost Reports is set
forth in Exhibit 3.19A. The amounts set up as provisions for Medicare and
Medicaid adjustments and adjustments by any other third-party payors on the
Financial Statements are sufficient to pay any amounts for which the Company or
any of its subsidiaries may be liable. Seller does not know of any basis for any
claims against the Company by any third-party payors other than routine Medicare
and Medicaid audit adjustments except as identified in Exhibit 3.19B or
identified in the Financial Statements or otherwise disclosed herein.
3.20 Environmental Matters. Except as disclosed on (i) the Asbestos
Survey of the 1972, 1974 and 1981 Additions relating to Eastwood Hospital, Inc.,
prepared by Xxxxxxxx & Associates, Inc., dated March 7, 1996; (ii) the Soil
Sampling & Analysis dated August 30, 1988, prepared by Mid South Operations
Environmental Engineering Division of Certified Engineering & Testing Co., Inc.;
(iii) Service Order Agreement VacuTract Leak Detection including test report
dated June 26, 1996, prepared by Tanknology; (iv) Environmental Audit with
Additional Requested Services for Eastwood Medical Center dated April 21, 1997
prepared by Xxxxxxxx & Associates, Inc.; or (v) Exhibit 3.20:
(1) All material federal, state and local permits, licenses
and authorizations required for the current use and operation of the Real
Property have been obtained and are presently in effect.
(2) None of the Real Property has been used by the Company
(and to the actual knowledge of Seller, by any other person or entity at any
time) to handle, treat, store
14
23
or dispose of any hazardous or toxic waste or substance, nor is any of the Real
Property, including all soils, groundwaters and surface waters located on, in or
under the Real Property, known to be contaminated with pollutants or other
substances which contamination may give rise to a clean-up obligation under any
federal, state or local law, rule, regulation or ordinance, including, but not
limited to, the federal Comprehensive Environmental Response, Compensation and
Liability Act, 42 USC 9601 et seq, and the common law.
(3) To the best knowledge of Seller, all underground tanks
located in, on or under any Real Property are in a state of good condition; have
not leaked; nor are presently leaking any of the contents which they have held
or presently hold.
(4) There are no outstanding violations or any consent decrees
entered against the Company regarding environmental and land use matters,
including, but not limited to, matters affecting the emission of air pollutants,
the discharge of water pollutants, the management of hazardous or toxic
substances or wastes, or noise as those laws are in force and applied and
interpreted by courts and regulatory authorities at the time of or prior to the
Closing Date.
(5) There are no violations threatened in writing with respect
to any federal, state or local environmental law, rule, regulation, ordinance,
permit, license or authorization, and there are no present discussions by the
Company with any federal, state or local governmental agency concerning any
alleged violation of environmental laws, rules, regulations, ordinances,
permits, licenses or authorizations as those laws are in force and applied and
interpreted by courts and regulatory authorities as the time of or prior to the
Closing Date.
(6) All operations conducted by the Company on the Real
Property have been and are in substantial compliance with all federal, state and
local statutes, rules, regulations, ordinances, permits, licenses and
authorizations relating to environmental compliance and control as those laws
are in force and applied and interpreted by courts and regulatory authorities at
the time of or prior to the Closing Date.
3.21 ERISA.
(1) Except as listed in Exhibit 3.21, the Company does not
maintain any "employee benefit plans", as such term is defined under Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or any other plan or similar arrangement, written or otherwise, which
provides any type of welfare benefit any of their directors, employees, or
former employees. Neither Seller nor the Company maintains an "employee pension
benefit plan" as defined under ERISA. Buyer acknowledges that the Company will
cease to be able to participate in certain of these plans, including the New
American Healthcare Corporation 401(K) Plan, once the Company is no longer a
subsidiary of Seller.
15
24
(2) With respect to all of the plans listed in Exhibit 3.21,
the Company has delivered to Buyer true and exact copies of (i) all plan
documents embodying the provisions of such plans, together with all amendments
thereto, (ii) all summary plan descriptions and summaries of material
modifications pertaining thereto, (iii) copies of the most recent Internal
Revenue Service determination letters, if any, relating to such plans, (iv)
copies of all contract administration agreements between Seller or the Company
and third party administrators, (v) copies of all participant-related forms
currently in use in connection with such plans including, without limitation,
salary reduction agreements and beneficiary designations and (vi)
participant-specific claims history for any "welfare benefit plan" (within the
meaning of Section 3(1) of ERISA that has been in existence during any part of
the Company's ownership of the Hospital.
(3) No "prohibited transaction", as such term is defined under
Section 4975(c) of the Code or under Section 406 of ERISA, and the respective
regulations thereunder, has occurred or is occurring with respect to any
"employee benefit plan" maintained by the Company or with respect to any trustee
or administrator thereof.
3.22 Employee Matters. Included as Exhibit 3.22A is a list of all
employees of the Company (or employees of Seller based at the Hospital, if any)
whose total annual compensation (including bonuses) in the last twelve (12)
months was in excess of Fifty Thousand Dollars ($50,000.00), together with their
annual rates of compensation. Except as identified on Exhibit 3.9, no written
employment agreement to which Seller or the Company is a party requires longer
than a four-week notice before termination or agreement to lend to or guarantee
any loan to an employee or an agreement relating to a bonus, severance pay or
similar plan, agreement, arrangement or understanding. Exhibit 3.22B is a list
of employee benefits of Seller and the Company. Exhibit 3.22C sets forth all
ex-employees of Company utilizing or eligible to use continuation coverage
(health insurance). Exhibit 3.22D sets forth a complete list of all of Company's
full and part time employees who have been terminated within ninety (90) days
before Closing.
3.23 Insurance; Malpractice. Exhibit 3.23 is a list of all policies
of fire, general liability, professional liability, product liability,
environmental impairment liability, worker's compensation, health and other
forms of insurance policies or binders currently in force insuring against risks
of the Company. All insurance policies or binders of the Company are valid,
outstanding and enforceable and will continue to be valid, binding and
enforceable until the consummation of the transactions contemplated by this
Agreement assuming all premiums which become due after the date hereof are paid
in full when due. Buyer acknowledges that the coverages described on Exhibit
3.23 will terminate with respect to the Company as of the Closing Date, except
for the "tail" insurance coverage described in Section 5.13.
3.24 Labor Matters. There are no collective bargaining agreements
with any labor union to which Seller or the Company is a party or by which
Seller or the Company is bound, and they are not currently negotiating with a
labor union. To the best of Seller's knowledge, no employees of Seller or the
Company have ever petitioned for a
16
25
representation election. The Company is in compliance in all material respects
with all applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, and is not engaged in any
unfair labor practice. There is no known unfair labor practice complaint against
Seller or the Company currently pending before the National Labor Relations
Board. There is no labor strike, dispute, slowdown or stoppage actually pending
or, to Seller's knowledge, threatened against or affecting Seller or the
Company. No employee grievance which might have a material adverse effect on
Seller or the Company or the conduct of their businesses nor any arbitration
proceeding arising out of or under collective bargaining agreements is pending
and no written claim therefor exists. The Company has not experienced any
employee strikes during the last three (3) years. Seller will advise Buyer of
any material labor dispute, petition for representative election or negotiations
with any labor union which shall arise before the Closing Date. Except as may be
required by ss.4980B of the Code or applicable state health care continuation
coverage statutes, the Company has no liability under any plan or arrangement
which provides welfare benefits, including medical and life insurance, to any
current or future retiree or terminated employee.
3.25 Certain Representations With Respect to the Hospital. The
Hospital is duly accredited as a general hospital by the Joint Commission on
Healthcare Organizations. The Hospital is qualified for participation in the
Federal Medicare Program.
3.26 Books of Account; Reports. The books of account of the Company
in reasonable detail, accurately and fairly reflect its transactions and the
disposition of its assets. The Company has filed all reports and returns
required by any law or regulation to be filed by it other than those, the
failure to file will not have a material adverse effect on the business of the
Company.
3.27 Finders and Brokers. Seller shall be responsible for any
finders or brokers engaged by Seller, in connection with the transactions
described herein.
3.28 Authority; Binding Effect. Seller has the full corporate
right, power and authority to execute, deliver and carry out the terms of this
Agreement and all documents and agreements necessary to give effect to the
provisions of this Agreement, to consummate the transactions contemplated
hereby, and to take all actions necessary to approve the actions of Seller taken
in connection with this Agreement. The execution, delivery and consummation of
this Agreement, and all other agreements and documents executed in connection
herewith by Seller, have been duly authorized by all necessary action on the
part of such parties. This Agreement and all other agreements and documents
executed in connection herewith by Seller, upon due execution and delivery
thereof, shall constitute the valid and binding obligations of Seller,
enforceable in accordance with their respective terms, except as enforcement may
be limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally and by general principles of equity.
17
26
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller, which representations and
warranties shall be true and correct on the date hereof, and on Closing, as
follows:
4.1 Authority. The execution, delivery and consummation of this
Agreement and all other agreements and documents executed in connection herewith
by Buyer has been duly authorized by all necessary action on the part of Buyer.
No other action on the part of Buyer or any other person or entity is necessary
to authorize the execution, delivery and consummation of this Agreement and all
other agreements and documents executed in connection herewith. This Agreement
and all other agreements and documents executed in connection herewith by Buyer,
upon due execution and delivery thereof shall constitute valid binding
obligations of Buyer, enforceable in accordance with their respective terms.
4.2 Absence of Default. The execution, delivery and consummation
of this Agreement and all other agreements and documents executed in connection
herewith by Buyer will not constitute a violation of, be in conflict with, or,
with or without the giving of notice or the passage of time, or both, result in
a breach of, constitute a default under, or create (or cause the acceleration of
the maturity of ) any debt, indenture, obligation or liability under: (a) any
contract, lease, agreement, indenture, mortgage, pledge, assignment, permit,
license, approval or other commitment to which Buyer is a party or by which
Buyer is bound; (b) any judgment, decree, order, regulation or rule of any court
or regulatory authority, or (c) any law, statute, rule, regulation, order, writ,
injunction, judgment or decree of any court or governmental authority or
arbitration tribunal to which Buyer is subject.
4.3 Finders and Brokers. Buyer shall be fully responsible for any
finders or brokers engaged by Buyer in connection with the transactions
described herein.
4.4 Investment Representations. Buyer understands that the Stock
has not been registered under the federal Securities Act of 1933, as amended
(the "ACT") or under the securities laws of any jurisdiction, and that the Stock
is being sold under a claim of exemption from registration under the Act. Buyer
further understands that this transaction has not been reviewed by, passed on,
or submitted to the United States Securities and Exchange Commission or any
state agency. Buyer is aware that the Stock must be held indefinitely unless it
is subsequently registered or an exemption from such registration is available
and that the Company is under no obligation to register the Stock under the Act,
any state securities law, or any other applicable securities legislation. Buyer
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks in the acquisition of the Stock. The
Stock is being acquired by Buyer solely for Buyer's own account for investment,
with no present intention of making or participating in a distribution thereof
within the meaning of the Act.
18
27
ARTICLE V. COVENANTS OF PARTIES
5.1 Preservation of Company's Business and Assets. From the date
hereof until the Closing, Seller shall use its best efforts to do or cause to be
done all such acts and things as may be reasonably necessary to preserve,
protect and maintain intact the Assets and the business and operation of the
Hospital as a going concern consistent with prior practice and to preserve,
protect and maintain for Buyer and Company the good will of the Hospital's
medical staff, suppliers, employees, clientele, patients, tenants and others
having business relations with Company. Seller shall use their best efforts to
obtain all documents called for by this Agreement. From and after the date of
this Agreement until Closing, Seller shall cause the Company to maintain and
keep the Assets in good order and repair. Buyer and Seller shall use best
efforts to facilitate the consummation of the transactions contemplated by this
Agreement.
5.2 Absence of Material Change. From the date hereof until the
Closing, Seller shall cause the Company to make no material adverse change in
the business and operation of the Hospital and in the utilization of the Assets
and shall not enter jointly or separately into any other significant contract or
commitment or any other transaction with respect thereto without the prior
written consent of Buyer, which shall not be unreasonably withheld.
5.3 Access to Books and Records.
(1) From the date hereof until the Closing, Seller shall cause
the Company to give to Buyer and to Buyer's counsel, accountants, and other
representatives, reasonable access during normal business hours (and at a time
or times that will not disrupt the delivery of care to patients) to all of
Company's offices, properties, books, contracts, commitments, records and
affairs relating to the Stock and Assets, other than the Excluded Assets, so
that Buyer may inspect and audit them and shall furnish to Buyer a copy of all
documents and information concerning the properties and affairs of the Stock and
the Assets as Buyer may reasonably request. If any such books, records and
materials are in the custody of third parties, Seller shall cause the Company to
direct such third parties to promptly provide them to Buyer. Copies of documents
furnished to Buyer will be returned by Buyer upon request if the transaction is
not consummated. Seller shall cause the Company to provide Buyer promptly with
interim financial statements of Company and any other management reports as and
when they are available. Additionally, from the date hereof until Closing,
Seller shall cause the Company to grant Buyer full access to Company's personnel
and computers as is reasonably necessary to assist Buyer.
(2) Following the Closing, Buyer shall cause the Company to
permit Seller's representatives (including, without limitation, their counsel,
accountants and auditors), during normal business hours and upon appropriate
advance notice, to (i) have reasonable access to, and examine and make copies of
all books and records of the Hospital, including all medical records and medical
charts of any patient admitted to the
19
28
Hospital, to the maximum extent permitted by law and (ii) have reasonable access
without cost to the Hospital's employees and their successors, relating to
transactions or events occurring prior to the Closing and Seller's obligations
under this Agreement, as long as such requests do not unreasonably interfere
with the operation of the Hospital. For a period of seven (7) years after the
Closing, Buyer agrees that, prior to the destruction or disposition of any such
books or records, Buyer shall provide not less than forty-five (45) days', nor
more than ninety (90) days' prior written notice to Seller of such proposed
destruction or disposal. If Seller desires to obtain any of such documents, may
do so by notifying Buyer in writing prior to the date scheduled for such
destruction or disposal. In such event, Buyer shall cause the Company to not
destroy such documents and the parties shall then promptly arrange for the
delivery of such documents to Seller, their successors or assigns. All
out-of-pocket costs associated with the delivery of the requested documents
shall be paid by Seller.
(3) Following the Closing, Seller shall permit Buyer and its
representatives (including, without limitation, their counsel, accountants and
auditors), during normal business hours, to have access to, and examine and make
copies of, all books and records relating to the Company, which books and
records are retained by Seller if any, and which relate to transactions or
events contemplated by this Agreement occurring prior to the Closing, to the
maximum extent permitted by law. For a period of seven (7) years after the
Closing, Seller agrees that, prior to the destruction or disposition of any such
books or records, Seller shall provide not less than forty-five (45) days', nor
more than ninety (90) days' prior written notice to Buyer of such proposed
destruction or disposal. If Buyer desires to obtain any such documents, it may
do so by notifying Seller in writing prior to the date scheduled for such
destruction or disposal. In such event, Seller shall not destroy such documents
and the parties shall then promptly arrange for the delivery of such documents
to Buyer, its successors or assigns. All out-of-pocket costs associated with the
delivery of the requested documents shall be paid by Buyer.
(4) Seller shall use reasonable best efforts to cause
Company's accounting firm to consent to the inclusion of the Financial
Statements in any registration statements, private placement memoranda, and
periodic reports, if any, necessary or appropriate in order to enable Buyer or
its affiliates to comply with any applicable registration or reporting
requirements of federal or state securities laws.
5.4 [Deleted]
5.5 Risk of Loss. In the event there is any damage to or loss of
any of the Assets (whether by fire, theft, vandalism or other cause or
casualty), between the date hereof and the Closing, the Purchase Price shall be
reduced by the amount necessary to repair the damage; provided, however, in the
event of a casualty which is reasonably anticipated to be in excess of One
Million Dollars ($1,000,000.00), Buyer or Seller may elect to terminate this
Agreement by providing written notice to the other party within thirty (30) days
of the occurrence of said casualty. If neither party terminates this Agreement,
the parties shall negotiate a mutually acceptable reduction to the Purchase
Price.
20
29
5.6 Condemnation. From the date hereof until the Closing, in the
event that any portion of the Assets becomes subject to or is threatened with
any condemnation or eminent domain proceedings which in Buyer's reasonable
business judgment materially adversely affects the Assets, then Buyer or Seller
may elect to terminate this Agreement in its entirety by providing written
notice to the other party. If neither party terminates this Agreement, they
shall close with respect to the Assets less that part which is condemned or
threatened to be condemned with a mutually acceptable reduction in the Purchase
Price to be negotiated by Buyer and Seller.
5.7 Good Faith. All parties shall act in good faith and use their
reasonable best efforts to satisfy all conditions to their respective
obligations to close.
5.8 Preserve Accuracy of Representations and Warranties. Seller
shall refrain from and shall cause the Company to refrain from taking any action
which would render any representations and warranties contained in Article III
hereof inaccurate as of Closing. Seller shall promptly notify Buyer of any
lawsuits, claims, administrative actions or other proceedings asserted or
commenced against Seller, Company, their respective directors, officers,
shareholders or affiliates, or involving or affecting in any way the Assets or
the business and operation of the Assets. Seller shall promptly notify Buyer of
any facts or circumstances which come to their attention and which cause, or
through the passage of time may cause, any of Seller's representations and
warranties to be untrue or misleading at any time from the date hereof to
Closing.
5.9 Maintain Books and Accounting Practices. From the date hereof
until the Closing, Seller shall cause the Company to maintain the Company's
books of account in the usual, regular and ordinary manner in accordance with
generally accepted accounting principles consistently applied and on a basis
consistent with prior years and shall make no change in its accounting methods
or practices.
5.10 Indebtedness; Liens. From the date hereof until the Closing,
Seller shall not and shall cause the Company to not create, incur, assume,
guarantee or otherwise become liable with respect to any indebtedness for
borrowed money, nor make any loan or advance to, or any investment in, any
person or entity, nor create any Lien in any of the Assets or the Stock, without
Buyer's prior written approval which will not be unreasonably withheld. Until
Closing, Seller shall cause the Company to make all payments required with
respect to its long-term debt and fully and timely comply with and satisfy all
its obligations with respect thereto.
5.11 Compliance with Laws and Regulatory Consents. From the date
hereof until the Closing, Seller shall cause the Company to comply with all
applicable statutes, laws ordinances and regulations; keep, hold and maintain
all certificates, accreditations, licenses, and other permits necessary for the
business and operation of the Hospital; and shall use best efforts to consummate
the transactions contemplated by this Agreement and the agreements and documents
to be executed in connection with this Agreement as soon as is practicable.
21
30
5.12 No Merger or Consolidation. From the date hereof until the
Closing, Seller shall not cause or permit the Company to merge or consolidate
with any other entity; nor solicit any inquiries, proposals or offers relating
to the Stock or disposition of the Assets; and shall promptly notify Buyer
orally, and confirm in writing, of all relevant details relating to inquiries,
proposals or offers which they may receive relating to any of the matters
referred to in this Section.
5.13 Maintain Insurance Coverage. From the date hereof until the
Closing, Seller shall cause the Company to maintain and cause to be maintained
in full force and effect, without change of coverage or insurance carrier unless
approved of in writing by Buyer (which approval shall not be unreasonably
withheld), the existing insurance on the Assets and the operations of the
Hospital and shall provide, upon request by Buyer, evidence satisfactory to
Buyer that such insurance continues to be in effect and that all premiums due
have been paid.
Prior to Closing, Seller shall cause the Company to obtain, at Seller's
expense, "tail" insurance coverage, converting its existing malpractice
insurance to an "occurrence" basis policy from Company's current carrier with
professional and general liability coverages in amounts equal to or greater than
One Million Dollars ($1,000,000.00) per occurrence with a Ten Million Dollars
($10,000,000.00) umbrella. Buyer shall be named as an additional insured on all
insurance policies acquired or maintained by Company pursuant to this Section
5.13 and Seller will provide Buyer reasonable evidence thereof.
From and after the Closing for a period of five (5) years, Buyer shall
cause the Company to maintain at the expense of Company, professional and
general liability coverage with One Million Dollars ($1,000,000.00) primary
limits and Ten Million Dollars ($10,000,000.00) umbrella, specific and
aggregate.
5.14 Medicare, Medicaid and Blue Cross Reporting. From the date
hereof until Closing, Seller shall cause the Company to timely file or cause to
be filed all cost reports and other reports of every kind, nature or
description, required by law or by written or oral contract to be filed with
respect to the purchase of services by third party payors, including, but not
limited to, Medicare, Medicaid, and Blue Cross prior to Closing.
5.15 CDU Payments. The Company and its predecessor previously
billed Medicare for services provided to patients of its Chemical Dependency
Unit under its Medicare cost report (all such services billed prior to Closing
on a cost report basis are herein, the "CDU SERVICES"). The Company should have
billed on a DRG basis and notified Medicare of this. The Company has been
attempting to resolve this issue with Medicare and has been advised to rebill
Medicare for the CDU Services on a DRG basis.
Seller shall indemnify the Company for any sums the Company repays
after Closing with respect to the CDU Services; provided that any amounts
received from rebilling for these CDU Services on a DRG basis shall be credited
against Seller's obligation hereunder, or, at Seller's election, paid to Seller.
Buyer shall provide Seller monthly with
22
31
evidence of amounts received by the Company with respect to the CDU Services and
amounts due from the Company to Medicare with respect to the CDU Services. In
any month where the amounts due to Medicare exceed the amounts received by the
Company, Seller will pay the Company the difference before the later of (i) the
fifth (5th) day of the following month or (ii) five (5) business days after
Seller's receipt of the documentation evidencing these amounts. In any month
where the amounts paid by Medicare with respect to CDU Services exceed amounts
due to Medicare with respect to the CDU Services, Buyer shall cause the Company
to, and the Company shall, pay to Seller such excess on or before the fifth
(5th) day of the following month.
5.16 [Deleted]
5.17 Performance. Seller and Buyer shall take appropriate steps to
satisfy their respective obligations, and the conditions to Closing, including,
if any, the obtaining of necessary contracts and application for necessary
licenses and permits.
5.18 Tax Matters. The following provisions shall govern the
allocation of responsibility as between Buyer and Seller for certain tax matters
after the Closing:
(1) Tax Periods Ending on or Before the Closing Date. Seller
shall prepare or cause to be prepared and file or cause to be filed on or before
the date such returns are due (taking into account any extensions of time
granted in connection with such filing) all tax returns for the Company for all
periods ending on or prior to the Closing Date that are filed after the Closing
Date. At least twenty (20) business days prior to the due date of each such
return, Seller shall deliver a copy of each such return to Buyer.
(2) Tax Periods Beginning Before and Ending After the Closing
Date. Buyer shall prepare or cause to be prepared and file or cause to be filed
on or before the date such returns are due (taking into account any extensions
of time granted in connection with such filing) all tax returns for the Company
for all tax periods that begin before the Closing Date and end after the Closing
Date.
(3) Cooperation on Tax Matters. Buyer and Seller shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with the filing of tax returns pursuant to this Section 5.18.
(4) Closing Date. Notwithstanding anything contained in this
Agreement to the contrary, Company shall not (and Buyer shall not cause Company
to) take any action on or after the Closing Date that will cause Seller to be
liable for any taxes.
(5) Amended Returns. For tax years commencing before or after
Closing Date, Buyer shall neither amend or cause the Company to amend any
Company tax returns for such tax years nor take positions in tax returns for
such tax years if such amended return or position taken by the Company would
have an adverse effect on any tax liability of Seller or Company without
Seller's advance written consent.
23
32
(6) Controversies. After the Closing Date, Buyer and Seller
each shall promptly notify the other party in writing of the commencement of any
tax audit or administrative or judicial proceeding affecting the taxes of the
Company relating to taxable years commencing before the Closing Date. Such
notice shall include copies of any document received from any taxing authority.
If either Buyer or Seller fails to give the other party prompt notice of an
asserted tax liability as required by this Section, then (a) if the indemnifying
party is precluded by such failure from contesting any asserted tax liability in
the appropriate administrative or judicial forums, then such indemnifying party
shall not have any obligation to indemnify the other party for any loss or
damage arising out of such asserted tax liability, and (b) if the indemnifying
party is not so precluded from contesting such asserted tax liability but such
failure results in a detriment to the indemnifying party, then any amount which
the indemnifying party would otherwise be required to pay pursuant to this
Agreement shall be reduced by the amount of such detriment.
Seller may participate, through counsel of its own choosing
and at its own expense, in any audit, or administrative or judicial proceeding
involving any asserted tax liability with respect to which indemnity may be
sought herein against Seller (any such audit or proceeding relating to an
asserted tax liability is referred to herein collectively as a "CONTEST").
Seller may elect to participate in the portion of the Contest with respect to
which indemnity may be sought. If Seller so elects to participate in the Contest
of an asserted tax liability, Seller shall notify Buyer of its intent to do so,
and Buyer and Seller shall cooperate in good faith and Buyer shall cause the
Company or its successor to cooperate in good faith in each phase of such
Contest. The portion of the Contest with respect to which indemnity may be
sought shall not be settled without the consent of Seller. If Seller elects in
writing not to participate in the Contest, or contests its obligation to
indemnify hereunder, Buyer or the Company may pay, compromise or contest such
asserted tax liability. However, in such case, neither Buyer nor the Company
(including any designated representative of either) may settle or compromise any
asserted tax liability in a manner that would create an indemnification
obligation unless such settlement or compromise would be reasonable in the case
of a person that owned the Company both before and after the Closing Date.
(7) Records. Buyer will maintain and preserve all tax records
and supporting documents of the Company necessary for Seller to establish the
positions taken by the Company on any tax return for any taxable period prior to
and including the Closing Date. Buyer will provide Seller reasonable access to
such records as necessary for Seller to establish any such position in a
Contest. Buyer waives its right to indemnification to the extent its failure
either to adequately maintain and preserve the Company's books and records or to
provide Seller reasonable access to such books and records prejudices Seller's
ability to defend any Contest.
24
33
(8) Allocation of Federal Income Tax Liabilities Among Short
Tax Years. The parties acknowledge that, after the Closing Date, the Company
will cease to be a member of an affiliated group for which a consolidated tax
income tax return will be filed. Under Treas. Reg. ss.1.1502-76(b)(1), the
Company's taxable year will end at the close of business on the Closing Date
("CONSOLIDATED RETURN SHORT YEAR") and a new taxable year will begin on the day
after the Closing Date ("SEPARATE RETURN SHORT YEAR"). The allocation of the
items to be included on the federal income tax return related to the
Consolidated Return Short Year or the federal income tax return related to the
Separate Return Short Year shall be made pursuant to Treas. Reg.
ss.1.1502-76(b)(2)(i). The Company does not intend to elect to make a ratable
allocation of tax items between the Separate Return Short Year and the
Consolidated Return Short Year under Treas. Reg.
ss.1.1502-76(b)(2)(ii).
(9) Allocation of Tax Liability for Straddle Period. For
purposes of this Agreement, in the case of taxes of any nature that are payable
with respect to a taxable period that begins before the Closing Date and ends
after the Closing Date, an allocation of such taxes between said pre Closing
Date period and said post Closing Date period shall be made pursuant to this
Subsection (9). If such taxes are (i) either (x) based upon or related to income
or receipts or (y) imposed in connection with any sale, other transfer or
assignment or any deemed sale, transfer or assignment of property (real or
personal, tangible or intangible), then the portion of such taxes allocable to
the pre Closing Date period shall be deemed equal to the amount that would have
been payable if the taxable year ended on the Closing Date, and (ii) if such
taxes are imposed on a periodic basis with respect to the assets of the Company
or otherwise measured by the level of any item, then the portion of such taxes
allocable to the pre Closing Date period shall be deemed to be the amount of
such taxes for the entire period (or, in the case of such taxes determined on an
arrears basis, the amount of such taxes for the immediately preceding period)
multiplied by a fraction the numerator of which is the number of calendar days
in the portion of such period ending on and including the Closing Date and the
denominator of which is the number of calendar days in the entire period. For
purposes of clause (i) above, any exemption, deduction, credit or other item
that is calculated on an annual basis shall be allocated to the period beginning
before the Closing Date and, pursuant to clause (i) treated as ending on the
Closing Date, based on the pro rata portion of such item determined by
multiplying the total amount of such item times a fraction, the numerator of
which is the number of calendar days in the period up to and including the
Closing Date and the denominator of which is the total number of calendar days
in the entire period.
(10) Refunds. Seller shall be entitled to all refunds of any
taxes of the Company attributable to periods ending on or prior to the Closing
Date and the Company shall cooperate with Seller in filing any claims for
refunds.
(11) IRC Section 338(h)(10) Election. Following the Closing
Date, and not later than the fifteenth day of the ninth month beginning after
the month that includes the Closing Date, Buyer shall, and shall cause the
Company to, cooperate with Seller in the preparation and filing of a joint
election under ss. 338(h)(10) of the Internal Revenue Code
25
34
of 1986, as amended, with respect to the sale of the Stock hereunder. Buyer
shall, and shall cause the Company to, take all such action as Seller may
require in order to give effect to said election for federal, state and local
tax purposes to the greatest extent permitted by law.
5.19 COBRA Coverage. Following Closing, the Company shall continue
to administer COBRA coverage for those employees who have become eligible for
COBRA coverage prior to Closing through the Company's arrangement with Blue
Cross/Blue Shield.
ARTICLE VI. DELETED
ARTICLE VII. CLOSING
7.1 Closing. If all of the conditions set forth in Articles VIII
and IX hereof are satisfied, the closing of the transaction described herein
(the "CLOSING") shall occur on August 31, 1999 at the offices of Xxxxxxx Xxxxxx
Xxxx Xxxxxxx & Manner, P.C., Nashville, Tennessee, and transfer of the Stock
shall be deemed to be effective as of 12:01 a.m. local time on September 1, 1999
(said date sometimes being referred to as the "CLOSING DATE"). If all of the
conditions to Closing set forth in Articles VIII and IX hereof are not satisfied
by August 31, the Closing shall occur at such time as all approvals and other
conditions to Closing set forth in Articles VIII and IX hereof are satisfied or
at such other time as the parties may mutually agree. On the day of the
effectiveness of Closing, Seller shall receive immediately available funds in
the amount of the cash portion of Purchase Price.
7.2 Termination. Notwithstanding anything in this Agreement to the
contrary, this Agreement and the obligations of the parties hereunder may be
terminated on or prior to Closing as follows:
(a) By Seller (i) in the event the transactions contemplated
by this Agreement have been prohibited or enjoined by reason of any final
judgment, decree or order entered or issued by a court of competent jurisdiction
in litigation or proceedings involving either Buyer, Company or Seller; or (ii)
in the event Buyer breaches or violates any material provision of this Agreement
or fails to perform any material covenant or agreement to be performed by Buyer
under the terms of this Agreement, and Seller has provided written notice
thereof to Buyer giving reasonable specificity and Buyer has not cured same
within a reasonable period of time and such breach is not waived by Seller in
writing.
(b) By Buyer (i) in the event the transactions contemplated by
this Agreement have been prohibited or enjoined by reason of any final judgment,
decree or order entered or issued by a court of competent jurisdiction in
litigation or proceedings involving Buyer, Company or Seller; (ii) pursuant to
Section 5.5 or 5.6; or (iii) in the event
26
35
Seller breaches or violates any material provision of this Agreement or fails to
perform any material covenant or agreement to be performed by Seller under the
terms of this Agreement and Buyer has provided written notice thereof to Seller
giving reasonable specificity and Seller has not cured same within a reasonable
period of time and such breach is not waived by Buyer in writing.
(c) By Buyer or Seller if the Closing hereunder shall not have
taken place by September 3, 1999, or, by such later date as shall be agreed upon
by the parties in writing, provided that a party shall not have the right to
terminate under this Section 7.2(c) if the conditions precedent to such party's
obligation to close have been fully satisfied and such party has failed or
refused to close after being requested in writing to close by the other party.
ARTICLE VIII. SELLER'S CONDITIONS TO CLOSE
The obligations of Seller under Section X of this Agreement are subject
to the satisfaction on or prior to Closing, of the following conditions (which
may be waived specifically in writing by Seller in whole or in part):
8.1 Representations and Warranties True at Closing; Compliance
with Agreement. The representations and warranties of Buyer contained in this
Agreement (including the Exhibits hereto) or in any certificate or document
delivered pursuant hereto, shall be deemed to have been made again at the
Closing and shall then be true in all respects; and Buyer shall have performed
and complied with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by it prior to or at Closing.
8.2 Regulatory Approvals. Buyer shall have obtained, or have
reasonable assurance that it will obtain (at its own cost), all consents,
licenses, permits, and determinations from the Tennessee Department of Health,
if any, required for Buyer to acquire the Stock and continue the operations of
the Hospital.
8.3 No Action/Proceeding. No action or proceeding before a court
or any other governmental agency or body shall have been instituted or
threatened to restrain or prohibit the transaction herein contemplated, and no
governmental agency, body or other entity shall have taken any other action or
made any request of Company, Seller, or Buyer as a result of which Seller
reasonably and in good xxxxx xxxxx that to proceed with the transactions
hereunder may constitute a violation of law.
8.4 Compliance with Article XI. Buyer shall have made to Seller
the deliveries required by Article XI hereof.
8.5 Order Prohibiting Transaction. No order shall have been
entered in any action or proceeding before any court or governmental agency, and
no preliminary or permanent injunction by any court shall have been issued which
would have the effect of
27
36
(a) making the transactions contemplated by this Agreement illegal, (b)
otherwise preventing consummation of such transactions, or (c) imposing material
limitations on the ability of Buyer effectively to acquire and hold the Stock,
or, in any case, to exercise rights of ownership pursuant thereto.
8.6 Consent of Lender. Seller shall have obtained the consent of
its primary lender group, including said lenders' agreement with respect to the
release of its lien on the Receivables upon the payment of the 60 Day Note and
the remainder of the Assets upon the payment of the 1 Year Note.
8.7 Completion of Exhibits. All exhibits to this Agreement will be
completed to the mutual satisfaction of the parties.
ARTICLE IX. BUYER'S CONDITIONS TO CLOSE
The obligations of Buyer under Article XI of this Agreement are subject
to the satisfaction, on or prior to Closing, of the following conditions (which
may be waived in writing by Buyer in whole or in part):
9.1 Representations and Warranties True at Closing; Compliance
with Agreement. The representations and warranties of Seller contained in this
Agreement (including the Exhibits hereto) or in any certificate or document
delivered to Buyer pursuant hereto, shall be deemed to have been made again at
the Closing and shall then be true in all respects; and Seller shall have
performed and complied with all covenants, agreements and conditions required by
this Agreement to be performed or complied with by it prior to or at Closing.
9.2 No Loss, Damage or Destruction. In the event there is any
damage to or loss of any of the Assets (whether by fire, theft, vandalism or
other cause or casualty), the terms of Sections 5.5 and 5.6 hereof shall have
been complied with.
9.3 Regulatory Approvals. Buyer shall have obtained, if necessary,
or have reasonable assurance of obtaining (at its own cost) (a) certification
for participation in the Medicaid programs of the State of Tennessee, and (b)
certification from the appropriate agency of the federal government for
participation in the Medicare program.
9.4 No Action/Proceeding. No action or proceeding before a court
or any other governmental agency or body shall have been instituted or
threatened to restrain or prohibit the transaction herein contemplated, and no
governmental agency, body or other entity shall have taken any other action or
made any request of Company, Seller or Buyer as a result of which Buyer
reasonably and in good xxxxx xxxxx that to proceed with the transactions
hereunder may constitute a violation of law.
9.5 Compliance with Article X. Seller shall have made to Buyer the
deliveries required by Article X hereof within the time periods required
thereunder.
28
37
9.6 Order Prohibiting Transaction. No order shall have been
entered in any action or proceeding before any court or governmental agency, and
no preliminary or permanent injunction by any court shall have been issued which
would have the effect of (a) making the transactions contemplated by this
Agreement illegal, (b) otherwise preventing consummation of such transactions,
or (c) imposing material limitations on the ability of Buyer effectively to
acquire and hold the Stock or Assets, or, in any case, to exercise rights of
ownership pursuant thereto.
9.7 Tail Insurance. Seller shall deliver to Buyer evidence of tail
insurance coverage required by Section 5.13 hereof.
9.8 Consent of Lender. Seller shall have obtained the consent of
its primary lender group, including said lenders' agreement with respect to the
release of its lien on the Receivables upon the payment of the 60 Day Note and
the remainder of the Assets upon the payment of the 1 Year Note.
9.9 Employees. At or prior to Closing, Seller shall have
transferred all Hospital senior managers, with the exception of the Hospital's
Administrator, to the Company's payroll.
9.10 Completion of Exhibits. All exhibits to this Agreement will be
completed to the mutual satisfaction of the parties.
ARTICLE X. OBLIGATIONS OF SELLER AT CLOSING
At Closing, Seller shall deliver or cause to be delivered to Buyer, the
following in a form and substance reasonably satisfactory to Buyer:
10.1 Documents Relating to Stock. Seller shall execute,
acknowledge, deliver and cause to be executed, acknowledged and delivered to
Buyer:
(1) Stock certificates, registered in the name of Seller, duly
endorsed by Seller or with stock powers attached, representing all of the Stock,
or, in lieu thereof, new stock certificates representing the Stock, in Buyer's
name, along with evidence of the cancellation of the certificates previously
representing the Stock.
(2) The resignation of each member of the Board of Directors
and each officer of Company effective as of the Closing.
10.2 Opinion of Counsel. Seller shall deliver to Buyer the
favorable opinion of counsel for Seller and Company, dated as of Closing, in
form and substance reasonably acceptable to Buyer.
10.3 Corporate Good Standing and Corporate Resolution. Seller
shall deliver to Buyer a certificate of existence with respect to the Company
from the Secretary of State
29
38
and from each jurisdiction in which Company is qualified to do business, dated
the most recent practical date prior to Closing, together with a certified copy
of the Bylaws and Charter of the Company, and a certified copy of the
resolutions of the Board of Directors of Seller, authorizing the execution,
delivery and consummation of this Agreement and the execution, delivery and
consummation of all other agreements and documents executed in connection
herewith by them.
10.4 Closing Certificate. Seller shall deliver to Buyer
certificates of an officer of Seller, dated as of Closing, certifying that (a)
each covenant and obligation of Seller has been complied with, and (b) each
representation and warranty of Seller is true and correct on the Closing as if
made on and as of the Closing.
10.5 Taxes and Other Payments. Seller shall deliver to Buyer:
(1) Receipt or other evidence from the Revenue Department of
the State of Tennessee showing that all liability for sales and use taxes and
employment taxes due from Company have been paid.
(2) Receipt or other evidence from the Tennessee Department of
Unemployment Security evidencing that all contributions under Tennessee
unemployment compensation law due from Company have been paid.
10.6 Tail Insurance. Seller shall deliver evidence of tail
insurance coverage as required by Section 5.13 hereof.
10.7 Additionally Requested Documents; Post Closing Assistance. At
the reasonable request of Buyer at Closing and at any time or from time to time
thereafter, Seller shall cooperate with Buyer to put Buyer in actual possession
and operating control of the Hospital, execute and deliver such further
instruments of sale, conveyance, transfer and assignment, as Buyer may
reasonably request in order to effectively sell, convey, transfer and assign the
same to Buyer.
ARTICLE XI. OBLIGATIONS OF BUYER AT CLOSING
At Closing, Buyer shall deliver or cause to be delivered to Seller the
following in a form and substance reasonably satisfactory to Seller:
11.1 Purchase Price; Security Instruments. Buyer shall deliver the
cash portion of the Purchase Price to Seller in immediately available funds.
Buyer shall also execute and deliver to Seller the 60 Day Note, the 1 Year Note,
and the security instruments referred to in Section 2.2 above, together with
such other financing statements and other instruments as Seller may reasonably
request with respect to the security interests described in Section 2.2.
11.2 [Deleted]
30
39
11.3 Opinion of Buyer's Counsel. Buyer shall deliver to Seller a
favorable opinion of counsel for Buyer, dated as of Closing, in form and
substance reasonably acceptable to Seller.
11.4 Closing Certificate. Buyer shall deliver to Seller a
certificate, dated as of Closing, certifying that (a) each covenant and
obligation of Buyer has been complied with and (b) each representation and
warranty of Buyer is true and correct on the Closing as if made on and as of the
Closing.
ARTICLE XII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION
12.1 Survival. The covenants, obligations, representations and
warranties contained in this Agreement or any certificate or document delivered
pursuant hereto shall survive the date of Closing for a period of two (2) years
after Closing, and shall not be merged into any deeds or other document
delivered in connection with the Closing; provided that claims relating to the
following matters (collectively, the "ABSOLUTE COVENANTS") shall survive until
sixty (60) days after the applicable statute of limitations relating to the
underlying claim: claims arising from the Excluded Liabilities, claims arising
from a failure to comply with ERISA and other claims arising from employee
benefit matters, claims by third parties whether founded on negligence,
malpractice or other forms of alleged liability for acts, omissions or events,
adjustments under any Medicare cost reports, claims for breach based on the
first sentence of Section 3.28, and claims arising from the failure of the
Company to pay or perform the Continuing Liabilities.
12.2 Indemnification by Seller. Subject to the provisions of
Section 12.4 and Section 12.5, Seller shall promptly indemnify, defend and hold
harmless (and upon demand shall reimburse) Buyer, Company and the directors,
officers, stockholders, employees and agents of Buyer and, after Closing, the
directors, officers, stockholders, employees and agents of the Company (and with
respect to the ERISA matters, Buyer and all affiliated corporations within a
controlled group relationship with Buyer (as determined under Section 414 of the
Internal Revenue Code), and their employees) against any and all claims,
actions, demands, suits, proceedings, assessments, judgments, losses, costs, and
expenses (including reasonable costs of investigation, court costs, legal fees
and expenses incident to any of the foregoing or incurred in attempting to avoid
the same or oppose the imposition thereof) and other damages resulting from any
of the following (i) any inaccuracy in or any breach by Seller of any of its
covenants, obligations, representations or warranties contained in this
Agreement or any certificate or document of Seller delivered pursuant to this
Agreement, (ii) the ownership, licensing, operation, action, inaction or conduct
of Company, Hospital, or any of the Assets or any of Company's employees, agents
or independent contractors, relating to all periods of time prior to Closing,
except the Continuing Liabilities, (iii) the Excluded Liabilities, and (iv) any
other liabilities of Company not expressly retained by Company hereunder. The
maximum aggregate liability of all indemnitors for indemnification under this
Section 12.2 shall not exceed the Cap as defined in Section 12.5.
31
40
12.3 Indemnification by Company and Buyer. Subject to the
provisions of Section 12.4, Company and Buyer shall promptly indemnify, defend,
and hold harmless (and upon demand shall reimburse) Seller, its directors,
officers, stockholders, employees and agents against any and all claims,
actions, demands, suits, proceedings, assessments, judgments, losses, costs, and
expenses (including reasonable costs of investigation, court costs, legal fees
and expenses incident to any of the foregoing or incurred in attempting to avoid
the same or oppose the imposition thereof) and other damages resulting from any
of the following: (i) any inaccuracy in or any breach by Buyer of any of its
covenants, obligations, representations or warranties contained in this
Agreement or any certificate or document of Buyer delivered pursuant to this
Agreement, and (ii) any claim which is brought or asserted by any third
party(ies) against Seller for failure to pay or perform any of the Continuing
Liabilities. The Company further shall indemnify, defend and hold harmless (and
upon demand shall reimburse) Seller, its directors, officers, stockholders,
employees and agents against any and all claims, actions, demands, suits,
proceedings, assessments, judgments, losses, costs and expenses (including
reasonable attorneys' fees and court cost) resulting from the ownership,
licensing, operation, action, inaction or conduct of the Company or the Hospital
relating to periods of time after the Closing, but excluding any Excluded
Liabilities.
12.4 Procedure for Indemnification.
(1) Notice. Promptly after receipt of written or actual
notice of any action or claim (the "CLAIM") as to which it asserts a right to
indemnification, the party seeking indemnification hereunder (the "INDEMNITEE")
shall give written notice thereof (the "NOTICE") to the person from whom
indemnification is sought (the "INDEMNITOR"), provided that the failure of the
Indemnitee to give the Indemnitor prompt notice shall not relieve the Indemnitor
of any of its obligations hereunder, but may create a cause of action for breach
for damages directly attributable to such delay.
(2) Third Party Claims.
(a) If any claim for indemnification by Indemnitee
arises out of a Claim by a person other than Indemnitee, the Indemnitor
shall be entitled to assume the defense thereof, by written notice to
the Indemnitee within fifteen (15) days after receipt of the notice.
Indemnitor shall thereupon undertake all steps or proceedings to defeat
or compromise any such Claim, including retaining counsel reasonably
satisfactory to the Indemnitee. Except as otherwise provided herein,
all costs, fees and expenses with respect to any such Claim shall be
borne by Indemnitor. If the Indemnitor assumes the defense of a Claim,
it shall not settle such Claim unless such settlement includes an
unconditional release by the claimant of the Indemnitee, reasonably
satisfactory to the Indemnitee and except that Indemnitor shall not,
without the prior written consent of Indemnitee, directly or indirectly
require Indemnitee to take or refrain from taking any action, or make
any public statement, or consent to any settlement, which it reasonably
considers to be against its interest. Indemnitee shall have the right
to participate at its own expense, in such
32
41
proceedings, but control of such proceedings shall remain exclusively
with Indemnitor.
(b) If the Indemnitor shall fail to notify the
Indemnitee of its desire to assume the defense of any such Claim within
the prescribed period of time, then the Indemnitee may assume such
defense in such manner as it may deem appropriate, and the Indemnitor
shall be bound by any determinations made or any settlements thereof
effected by the Indemnitee. The Indemnitor shall be permitted, at its
own expense, to join in such defense and to employ its own counsel but
control of such proceedings shall remain exclusively with Indemnitee.
(c) Indemnitor and Indemnitee agree to make available
to each other, their counsel and other representatives, all information
and documents reasonably available to them reasonably requested by the
other which relate to any such Claim, and to render to each other such
reasonable assistance as may be reasonably requested in order to insure
the proper and adequate defense of such Claim, but any costs or
expenses related thereto shall be borne by Indemnitor; and provided
that any failure (after written notice with specificity and an
opportunity to cure) shall not relieve the Indemnitor of any of its
obligations hereunder but may create a cause of action for breach for
damages directly attributable to such failure.
(3) Other Claims. In the event of any Claim other than those
provided for in subsection (2) hereof, Indemnitee shall be entitled to
indemnification hereunder as provided herein.
(4) Payment of Claims. Amounts payable by the Indemnitor to
the Indemnitee under this Section 12.4 shall be payable by the Indemnitor as
incurred by the Indemnitee. In the event, Indemnitor fails to pay, timely and
fully, any such amounts, Indemnitee may pay such amount. In such event,
Indemnitee may recover from the Indemnitor, in addition to the amount so paid,
plus (i) interest on the amount claimed at the Rate, and (ii) reasonable
attorneys' fees in connection with the enforcement of payment under this Section
12.4. Notwithstanding any other provision herein, in the event Seller is
determined to have an indemnification obligation to Buyer or the Company
hereunder and amounts are still owed to Seller under the 60 Day Note and/or the
1 Year Note, Seller may, at Seller's election, reduce the amount owed under one
or both of said notes by the amount of said indemnification obligation until
said notes are satisfied in full.
(5) Claims by a Straddle Patient. Any claim by a patient
relating to professional negligence or similar matters involving a patient of
the Hospital served both prior to Closing and subsequent to Closing will be the
responsibility of either Buyer or Seller in accordance with the following
guidelines: (i) if it is a claim in which clearly the incident giving rise to
liability arose prior to Closing, Seller shall respond to the loss and defense
expenses; (ii) if it is a claim in which clearly the incident giving rise to
liability arose subsequent to Closing, Buyer shall respond to the loss and
defense expenses; and (iii) in the event that the incident giving rise to
liability as to time is not clear, Seller on the one
33
42
hand and Buyer on the other, will jointly defend the case and each will fully
cooperate with the other in such defense. Once the case is closed, if Buyer and
Seller cannot agree to the allocation of both indemnity and expenses, then the
matter shall be submitted to binding arbitration in accordance with the rules
and procedures of the American Arbitration Association.
12.5 Limitations on Obligations. Notwithstanding anything else to
the contrary, any liabilities and obligations under Sections 12.2 and 12.3 shall
be limited as follows:
(1) Maximum liability. The maximum aggregate liability of
Seller for indemnification under Sections 12.2 of this Agreement shall be equal
to Two Million Dollars ($2,000,000.00) (the "CAP"); provided, however, that the
following types of claims shall not be subject to the Cap: (i) claims based on
the failure of Seller or the Company to pay any taxes owed with respect to any
period prior to the Closing or (ii) any breach of Section 3.09(7) or 3.18. In
addition, amounts actually paid by Buyer's or Seller's insurance coverage (and
not ultimately paid by the Indemnitor) shall not count towards determining
whether the Cap has been met or exceeded.
(2) Threshold. No party shall have any liability for any
individual claim based on a breach of a representation or warranty contained in
this Agreement if the Indemnitee's total damages with respect to such claim are
Ten Thousand Dollars ($10,000.00) or less.
ARTICLE XIII. RESTRICTIVE COVENANTS
13.1 Covenant Not to Compete. Seller hereby covenants and agrees
with Buyer that during the "NONCOMPETE PERIOD" within the "NONCOMPETE AREA" it
shall not directly or indirectly without prior written consent of Buyer, (a)
acquire, lease, manage, consult for, finance or own any part of (as member,
shareholder or partner) any health care facility which provides any services
similar to the services provided by the Hospital, including general surgical,
acute care, and diagnostic services, or (b) solicit for employment or employ any
person who at Closing remained an employee of Company (other than the Hospital's
CEO, CFO or DNO), or (c) disrupt or attempt to disrupt any past, present or
reasonably foreseeable future relationship, contractual or otherwise between
Buyer, on the one hand, and any physician, physician group, or other healthcare
provider with whom Buyer contracts in connection with the Hospital, on the other
hand. The "NONCOMPETE PERIOD" shall commence at the Closing and terminate on the
second anniversary thereof. The "NONCOMPETE AREA" shall mean the area within a
ten (10) mile radius of the Hospital. Ownership of less than five percent (5%)
of the stock of a publicly held company shall not be deemed a breach of this
covenant. In addition, the following events shall not be deemed a violation of
this Section 13.1: (i) the merger of Seller with and/or into an entity that owns
or operates, directly or indirectly, a hospital, medical center, health system
or other related business within the Noncompete Area; or (ii) the acquisition by
Seller of a hospital, medical center, or health system within the Noncompete
Area as a part of a single
34
43
transaction in which Seller acquires at least two (2) other hospitals, medical
centers or health systems.
13.2 Enforceability. In the event of a breach of Section 13.1
hereof, Seller recognizes that monetary damages shall be inadequate to
compensate Company and Buyer and Company and Buyer shall be entitled, without
the posting of a bond, to an injunction restraining such breach, with the costs
including attorneys' fees of securing such injunction to be borne by Seller.
Nothing herein contained shall be construed as prohibiting Buyer from pursuing
any other remedy available to it for such breach or threatened breach.
All parties hereto hereby acknowledge the necessity of protection
against the competition of Seller and that the nature and scope of such
protection has been carefully considered by the parties. The period provided and
the area covered are expressly represented and agreed to be fair, reasonable and
necessary. The consideration provided for herein is deemed to be sufficient and
adequate to compensate for agreeing to the restrictions contained in Section
13.1 hereof. If, however, any court determines that the foregoing restrictions
are not reasonable, such restrictions shall be modified, rewritten or
interpreted to include as much of their nature and scope as will render them
enforceable.
ARTICLE XIV. MISCELLANEOUS
14.1 Assignment. No party may assign its rights or obligations
under this Agreement without the express written consent of the other party. No
assignment shall relieve the assignor of any liability or obligation hereunder.
14.2 Other Expenses. Except as otherwise provided in this
Agreement, each party shall pay all of their own expenses in connection with the
negotiation, execution, and/or implementation of the transactions contemplated
by this Agreement. Buyer shall pay the cost of any engineering fees,
mechanical/electrical/structural and environmental reports. Seller shall be
solely responsible for the payment of any fee to any finder, broker, or similar
person engaged by Seller or Company in connection with the transactions
contemplated by this Agreement. Buyer is solely responsible for the payment of
any fee to any finder, broker or similar person engaged by Buyer in connection
with the transactions contemplated by this Agreement. All applicable transfer
fees, state and local taxes, or other fees and costs due to any governmental
entity as a result of the transactions contemplated in this Agreement shall be
borne by Seller.
14.3 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given: (a) if delivered
personally or sent by facsimile, on the date received, (b) if delivered by
overnight courier, on the date due to be delivered by such courier, and (c) if
mailed, five (5) days after mailing with postage prepaid. Any such notice shall
be sent as follows:
35
44
To Seller, or to the Company prior to Closing:
New American Healthcare Corporation
000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxxx Xxxxxxxxx 00000
Attention: President
(000) 000-0000 (Fax)
with a copy to:
Xxxxxxx Xxxxxx Xxxx Xxxxxxx & Manner, P.C.
1800 First American Center
000 Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxxxx Xxxx, Esq.
(000) 000-0000 (Fax)
To Buyer, or to the Company after Closing:
Xxxx XxXxxx
Xxxxx Xxxxxx
c/o Delta Medical Center
0000 Xxxxxxx Xxxx
Xxxxxxx, Xxxxxxxxx
(000) 000-0000 (Fax)
with a copy to:
Xxx X. Xxxxx, Esq.
Xxxxxxxx & Xxx, PLLC
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, Xxxxxxxxx 00000-0000
(000) 000-0000 (Fax)
14.4 Controlling Law. This Agreement shall be construed,
interpreted and enforced in accordance with the laws of the State of Tennessee,
without giving effect to provisions thereof regarding conflicts of laws. Any
action or claim relating to or arising out of this Agreement may be brought in
any appropriate state or federal court in Davidson County, Tennessee, and each
party hereto irrevocably consents to personal jurisdiction in any such court for
such action or claim.
14.5 Headings. Any table of contents and paragraph headings in this
Agreement are for convenience of reference only and shall not be considered or
referred to in resolving questions of interpretation.
36
45
14.6 Benefit. Subject to Section 14.1 hereof, this Agreement shall
be binding upon and shall inure to the exclusive benefit of the respective
heirs, legal representatives, successors and assigns of the parties hereto. This
Agreement shall not confer any rights or remedies upon any person not a party
hereto.
14.7 Partial Invalidity. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted.
14.8 Waiver. Neither the failure nor any delay on the part of any
party hereto in exercising any rights, power or remedy hereunder shall operate
as a waiver thereof, or of any other right, power or remedy; nor shall any
single or partial exercise of any right, power or remedy preclude any further or
other exercise thereof, or the exercise of any other right, power or remedy.
14.9 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
14.10 Interpretation. All pronouns and any variation thereof shall
be deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the person or entity, or the context, may require. Further, it is
acknowledged by the parties that this Agreement including exhibits have
undergone several drafts with the negotiated suggestions of both; and,
therefore, no presumptions shall arise favoring either party by virtue of the
authorship of any of its provisions or the changes made through revisions.
14.11 Entire Agreement. This Agreement, including the exhibits,
constitutes the entire agreement between the parties hereto with regard to the
matters contained herein and it is understood and agreed that all previous
undertakings, negotiations and agreements between the parties are merged herein.
This Agreement may not be modified orally, but only by an agreement in writing
signed by Buyer and Seller. Except as expressly provided herein, no waiver of
any of the provisions of this Agreement shall be valid unless it is in writing
and signed by the party against which it is sought to be enforced.
14.12 Legal Fees and Costs. Except as otherwise provided herein,
each party hereto shall pay its own expenses, including, without limitation,
legal and accounting fees and expenses, incident to its negotiation and
preparation of this Agreement and to its performance and compliance with the
provisions contained herein. In the event that any part hereto elects to incur
legal expenses to enforce or interpret any provision of this Agreement, the
prevailing party will be entitled to recover legal expenses, including without
limitation, attorneys' fees, costs and necessary disbursements, in addition to
any other relief to which such party shall be entitled.
37
46
14.13 "Knowledge". The phrase, "to Seller's knowledge" or "to the
best of Seller's knowledge," or similar phrase shall mean the actual knowledge
of those individuals listed on attached Exhibit 14.13.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"BUYER":
/s/ Xxxx X. XxXxxx
--------------------------------------
XXXX X. XxXXXX
/s/ Xxxxx X. Xxxxxx
--------------------------------------
XXXXX X. XXXXXX
"SELLER":
NEW AMERICAN HEALTHCARE
CORPORATION
By: /s/ Xxxx X. XxXxxxxxx Xx.
-----------------------------------
Title: Senior Vice President
-------------------------------
"COMPANY":
NAHC OF TENNESSEE, INC.
By: /s/ Xxxx X. XxXxxxxxx Xx.
-----------------------------------
Title: Vice President
--------------------------------
38