MASTER TRANSACTION AGREEMENT
BY AND BETWEEN
MEDCATH PHYSICIAN MANAGEMENT, INC.
AND
VALLEY CARDIOLOGY, P.A.
December 12, 1997
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS ............................................................................... 1
SECTION 1.1 "Accounts Receivable" ............................................................... 1
SECTION 1.2 "Affiliate".......................................................................... 1
SECTION 1.3 "Assets" ............................................................................ 2
SECTION 1.4 "Closing" ........................................................................... 2
SECTION 1.5 "Closing Date" ...................................................................... 2
SECTION 1.6 "Employment Agreements" ............................................................. 2
SECTION 1.7 "Encumbrances" ...................................................................... 2
SECTION 1.8 "Manager" ........................................................................... 2
SECTION 1.9 "Person" ............................................................................ 2
SECTION 1.10 "Related Party" .................................................................... 2
SECTION 1.11 "Service Agreement" ................................................................ 3
SECTION 1.12 "Territory" ........................................................................ 3
ARTICLE II PRACTICE MANAGEMENT TRANSACTION .......................................................... 3
SECTION 2.1 Practice Management Transaction ..................................................... 3
SECTION 2.2 Consideration for Transaction ....................................................... 3
SECTION 2.3 The Closing ......................................................................... 4
SECTION 2.4 Further Acts and Assurances ......................................................... 5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PRACTICE............................................... 5
SECTION 3.1 Organization, Power and Qualification ............................................... 5
SECTION 3.2 Ownership Interests ................................................................. 5
SECTION 3.3 Subsidiaries, Affiliates, Affiliated Companies and Joint Venture .................... 5
SECTION 3.4 Financial Statements ................................................................ 5
SECTION 3.5 Absence of Undisclosed Liabilities................................................... 6
SECTION 3.6 Absence of Certain Recent Changes ................................................... 6
SECTION 3.7 Title to Assets ..................................................................... 7
SECTION 3.8 Contracts and Leases ................................................................ 8
SECTION 3.9 Defaults and Consents ............................................................... 8
SECTION 3.10 Litigation, Etc .................................................................... 9
SECTION 3.11 Court Orders, Decrees and Laws ..................................................... 9
SECTION 3.12 Taxes .............................................................................. 9
SECTION 3.13 Authority, Binding Effect........................................................... 10
SECTION 3.14 Employee Matters ................................................................... 10
SECTION 3.15 Labor Matters ...................................................................... 10
SECTION 3.16 Insurance; Malpractice ............................................................. 10
SECTION 3.17 Books of Account, Reports........................................................... 11
SECTION 3.18 No Finders or Brokers .............................................................. 11
SECTION 3.19 Inventory........................................................................... 11
SECTION 3.20 Equipment........................................................................... 11
SECTION 3.21 Accounts Receivable ................................................................ 11
SECTION 3.22 Employee Benefit Plans ............................................................. 12
SECTION 3.23 Power of Attorney................................................................... 14
SECTION 3.24 Bank Accounts, Officers ............................................................ 14
SECTION 3.25 Environmental Matters .............................................................. 14
SECTION 3.26 Fraud and Abuse .................................................................... 14
SECTION 3.27 Investment Representation and Access ............................................... 15
SECTION 3.28 Practice Disclosures ............................................................... 16
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF MEDCATH ................................................ 16
SECTION 4.1 Organization and Standing of MedCath ................................................ 16
SECTION 4.2 Authority; Binding Effect ........................................................... 16
SECTION 4.3 No Finders or Brokers ............................................................... 17
SECTION 4.4 Validity of Agreement ............................................................... 17
SECTION 4.5 Defaults and Consents ............................................................... 17
SECTION 4.6 Court Orders, Decrees and Laws ...................................................... 17
ARTICLE V COVENANTS OF PRACTICE ..................................................................... 18
SECTION 5.1 Access and Information .............................................................. 18
SECTION 5.2 Conduct of Business ................................................................. 18
SECTION 5.3 Best Efforts to Secure Consents ..................................................... 19
SECTION 5.4 Confidential Information ............................................................ 19
SECTION 5.5 Unusual Events ...................................................................... 19
SECTION 5.6 Departmental Violations ............................................................. 19
SECTION 5.7 Insurance Ratings ................................................................... 20
SECTION 5.8 [Intentionally Omitted.] ............................................................ 20
SECTION 5.9 Employment Agreements ............................................................... 20
ARTICLE VI COVENANTS OF MEDCATH ..................................................................... 20
SECTION 6.1 Information ......................................................................... 20
SECTION 6.2 Corporate Action .................................................................... 21
SECTION 6.3 Confidential Handling of Documents................................................... 21
SECTION 6.4 Access to or Furnishing of Information about MedCath ................................ 21
ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PRACTICE ..................................... 21
SECTION 7.1 Representations and Warranties True ................................................. 21
SECTION 7.2 Service Agreement ................................................................... 22
SECTION 7.3 No Obstruction Proceeding ........................................................... 22
SECTION 7.4 Consents and Approvals .............................................................. 22
SECTION 7.5 Proceedings And Documents Satisfactory .............................................. 22
SECTION 7.6 Receipt of the Purchase Price and Assumption ........................................ 22
ARTICLE VIII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MEDCATH ..................................... 22
SECTION 8.1 Representations and Warranties True ................................................. 23
SECTION 8.2 No Obstructive Proceeding ........................................................... 23
SECTION 8.3 Opinion of Practice's Counsel ....................................................... 23
SECTION 8.4 Consents and Approvals .............................................................. 23
SECTION 8.5 Proceedings and Documents Satisfactory .............................................. 23
SECTION 8.6 No Adverse Change ................................................................... 23
SECTION 8.7 Service Agreement ................................................................... 24
SECTION 8.8 Employment Agreements ............................................................... 24
SECTION 8.9 Bonus Agreements .................................................................... 24
SECTION 8.10 Limited Guaranty Agreements ........................................................ 24
ARTICLE IX TERMINATION............................................................................... 24
SECTION 9.1 Optional Termination ................................................................ 24
SECTION 9.2 Notice of Abandonment ............................................................... 25
SECTION 9.3 Termination ......................................................................... 25
ARTICLE X INDEMNIFICATION ........................................................................... 25
SECTION 10.1 Indemnity by Practice .............................................................. 25
SECTION 10.2 Indemnity by MedCath ............................................................... 26
SECTION 10.3 Rules Regarding Indemnification .................................................... 27
SECTION 10.4 Remedies Cumulative ................................................................ 29
SECTION 10.5 Set-Off ............................................................................ 30
SECTION 10.6 Definitions ........................................................................ 30
SECTION 10.7 Survival ........................................................................... 31
ARTICLE XI MISCELLANEOUS ............................................................................ 31
SECTION 11.1 Expenses ........................................................................... 31
SECTION 11.2 Restrictive Covenant ............................................................... 31
SECTION 11.3 Notices ............................................................................ 32
SECTION 11.4 Entire Agreement ................................................................... 32
SECTION 11.5 Governing Law ...................................................................... 32
SECTION 11.6 Section Headings ................................................................... 32
SECTION 11.7 Waiver ............................................................................. 33
SECTION 11.8 Nature and Survival of Representations and Warranties .............................. 33
SECTION 11.9 Successors and Assigns ............................................................. 33
SECTION 11.10 Amendments ........................................................................ 33
SECTION 11.11 Counterpart Executions; Facsimiles ................................................ 33
SECTION 11.12 Press Releases .................................................................... 34
SECTION 11.13 Access to Records After Closing ................................................... 34
SECTION 11.14 Disclosure of Certain Information ................................................. 34
SECTION 11.15 Attorneys' Fees ................................................................... 34
SECTION 11.16 Cure of Default ................................................................... 34
SECTION 11.17 Severability ...................................................................... 34
SECTION 11.18 Third-Party Beneficiary ........................................................... 35
SECTION 11.19 Arbitration ....................................................................... 35
SECTION 11.20 Contract Modifications for Prospective Legal Events ............................... 35
SECTION 11.21 Acknowledgment Regarding Attorney-Client Relationships ............................ 35
MASTER TRANSACTION AGREEMENT
THIS MASTER TRANSACTION AGREEMENT (the "Agreement") is made as of the
12th day of December, 1997 by and between VALLEY CARDIOLOGY, P.A., a Texas
professional association (hereinafter referred to as "Practice") and MEDCATH
PHYSICIAN MANAGEMENT, INC., an Arizona corporation ("MedCath").
WHEREAS, Practice is the owner and operator of a group medical practice
in the McAllen, Texas area which provides comprehensive professional cardiology
care to the general public;
WHEREAS, MedCath is in the business of owning, managing and furnishing
such assets to physicians to assist them in their medical practices;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, Practice agrees to sell, lease or sublease to MedCath the
assets described herein, and MedCath agrees to purchase, lease or sublease such
assets from Practice on the terms and conditions provided in this Agreement.
ARTICLE I
DEFINITIONS
Many of the capitalized words and phrases used in this Agreement are
defined below. Some defined terms used in this Agreement are not listed below,
but are defined in the Section in which they are first used because they are
better understood in that context.
SECTION 1.1 "Accounts Receivable" means all accounts and notes
receivable, negotiable instruments and chattel paper the rights to which were
generated by the operations of the Practice, and other evidences of indebtedness
of, and rights to receive payments from, any person which relate to the
operation of the Practice, as such exist on the Closing Date including, without
limitation, charges for services rendered to patients prior to the Closing Date
but not yet billed, all of which, together with the proceeds thereof shall
remain in the Practice and be used for working capital by Manager for the
benefit of the Practice. It is acknowledged and agreed that MedCath is not
acquiring the Accounts Receivable of Practice.
SECTION 1.2 "Affiliate" means, with respect to any Person, (i) any
Person directly or indirectly controlling, controlled by or under common control
with such Person, (ii) any Person directly or indirectly owning or controlling
fifty percent (50%) or more of any class of outstanding equity interests of such
Person or of any Person which such Person directly or indirectly owns or
controls fifty percent (50%) or more of any class of equity interests, (iii) any
officer, director, general partner or trustee of such Person, or any Person of
which such Person is an officer, director, general partner or trustee, or (iv)
any Person who is an officer, director, general partner, trustee or holder of
fifty percent (50%) or more of the equity interests of any
Person described in clauses (i) through (iii) of this sentence. Practice is not
an Affiliate of Manager.
SECTION 1.3 "Assets" means all of the assets and properties, tangible
and intangible, of and pertaining to or used at or in connection with the
Practice, and in which Practice has any right, title or interest, whether owned
or leased, wherever located, whether known or unknown, and whether or not
appearing on the books and records of Practice, as the same may exist on the
Closing Date.
SECTION 1.4 "Closing" means the effective date of the consummation and
effectuation of the transactions contemplated herein pursuant to the terms and
conditions of this Agreement.
SECTION 1.5 "Closing Date" means the date on which the Closing actually
occurs and such shall be held on the 1st day of January, 1998, at such time and
place as is mutually agreed upon by the parties hereto, it being acknowledged
that this Agreement shall be signed and the Closing shall occur on or about the
same date.
SECTION 1.6 "Employment Agreements" shall mean those employment
agreements between Practice and each of its Shareholders who are physicians.
SECTION 1.7 "Encumbrances" means all security interests, liens, pledges,
claims, charges, escrows, encumbrances, encroachments, rights of first refusal,
subleases, conditional sales agreements, options, mortgages, indentures,
easements, licenses, restrictions or other covenants, agreements,
understandings, obligations, defects or irregularities affecting title to any of
the Assets.
SECTION 1.8 "Manager" means the direct or indirect subsidiary of MedCath
that will provide management services to Practice pursuant to the Service
Agreement.
SECTION 1.9 "Person" means any natural person, partnership, trust,
estate, association, limited liability company, corporation, custodian, nominee,
governmental instrumentality or agency, body politic or any other entity in its
own or any representative capacity.
SECTION 1.10 "Related Party" means (a) with respect to any individual,
such individual's spouse, any descendants (whether natural, adopted or in the
process of adoption), any sibling, a spouse of any descendant or sibling, any
ancestor, any trust twenty-five percent (25%) or more of the beneficial
interests of which are owned by such individuals or any of them, and any
corporation, association, partnership or limited liability company twenty-five
(25%) or more of the equity interests of which are owned by those
above-described individuals or trusts, (b) with respect to any trust, the owners
of twenty-five (25%) or more of the beneficial interests of such trust, and (c)
with respect to any corporation, association, partnership or limited liability
company, the owners of twenty-five percent (25%) or more of the outstanding
equity interests in such entity.
-2-
SECTION 1.11 "Service Agreement" means the agreement for the provision
of management services by Manager to Practice being executed by such parties as
of the date hereof.
SECTION 1.12 "Territory" means the area within ▇▇▇▇▇▇▇ and ▇▇▇▇▇
Counties, Texas.
ARTICLE II
PRACTICE MANAGEMENT TRANSACTION
SECTION 2.1 Practice Management Transaction.
Practice has sought MedCath's physician practice management expertise
and MedCath desires to provide physician practice management services to
Practice in accordance with the terms of this Agreement and the other agreements
contemplated hereunder. As of the date hereof, Practice and MedCath shall enter
into the Service Agreement dated as of the date hereof under which MedCath shall
provide physician practice management services to Practice. In consideration
therefor, MedCath shall, as of the Closing Date, deliver the Consideration (as
defined below) to Practice. Contemporaneously therewith, in order to ensure the
availability to Practice of the continued services of the Physicians, the
Physicians and Practice shall enter into the Bonus Agreements dated as of the
date hereof in order to adequately compensate such Physicians. Each Physician
and Practice shall also enter into the appropriate Employment Agreement. The
transactions contemplated by this Section 2.1 and as otherwise set forth in this
Agreement and any other agreements and documents contemplated hereunder are
referred to collectively as the "Transaction".
SECTION 2.2 Consideration for Transaction.
The Consideration due from MedCath to Practice for entering into the
Transaction, subject to (c) below, shall equal Five Million Five Hundred Five
Thousand Four Hundred Sixty Seven Dollars ($5,505,467.00) which shall be
composed of and paid as follows:
(a) On January 2, 1998 a cash payment of [
]
($[ ]) shall be paid to Practice (the "Cash Payment") which
constitutes [ ] percent ([ ]%) of the Consideration; and
(b) On the second anniversary of the Closing Date MedCath
shall deliver to Practice the number of MedCath Incorporated Shares of
Common Stock, ($.01 par value) (the "Common Stock") determined by
dividing [ ] ($[ ]), which constitutes [
] percent ([ ]%) of the Consideration, by the average closing price
for one share of
[ ] These portions have been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
-3-
Common Stock quoted on the Nasdaq National Market System during the
thirty (30) day period ending three (3) days prior to the Closing Date.
In the event of an acquisition of, or a merger between MedCath
Incorporated and any other party, MedCath may deliver all of such
Common Stock to Practice prior to the closing of such transaction.
(c) Following the sixth (6th) full calendar month after the
Closing Date, MedCath and Practice shall reasonably agree upon the net
income earned by Practice, after payment of all expenses including
without limitation related physician compensation, bonuses and fringe
benefits, as a result of the direct professional services provided by
▇▇. ▇▇▇▇ ▇▇▇▇▇▇, M.D. on behalf of Practice during such period
determined consistent with the manner in which net income of Practice
was determined by MedCath prior to the Closing Date ("Additional Net
Income"). The Consideration provided to Practice pursuant to this
Section 2.2 shall be increased by an amount equal (a) to such
Additional Net Income, multiplied by (b) two (2), multiplied by (c)
twenty percent (20%) multiplied by, (d) seven (7), which amount shall
be paid within ten (10) days of its final determination, sixty-five
percent (65%) in cash and thirty-five percent (35%) in Common Stock
valued using the same methodology used to value Common Stock as of the
Closing Date pursuant to subsection (b) above except applied as of the
last day of such six (6) month period. Such additional shares of Common
Stock shall be delivered on the same date the Common Stock is to be
delivered under subsection (b) above. In the event of an acquisition or
merger between MedCath Incorporated and any other party, MedCath may
deliver all of such Common Stock to Practice prior to the closing of
such transaction or if such transaction has closed prior to the date
amounts are determined to be due hereunder, MedCath may pay such
amounts in cash rather than in shares of Common Stock.
SECTION 2.3 The Closing.
The Closing shall be effective as of 12:01 a.m. on January 1, 1998 and
all adjustments set forth in this Article II shall be made as of such date.
It is the intent of the parties that this Agreement, and all documents
and agreements executed in connection herewith, be legally binding as of
December 12, 1997. However, the parties intend that the services provided by
MedCath and the fees to be paid to MedCath under the Service Agreement commence
as of January 1, 1998. The parties agree to execute and deliver such additional
documents and agreements as may be necessary to effect the intent of the parties
expressed herein, including, transferring assets to the appropriate parties and
causing liabilities to be paid by the appropriate parties.
SECTION 2.4 Further Acts and Assurances.
Practice shall, at any time and from time to time at and after the
Closing, upon the reasonable request of MedCath, take any and all steps
necessary to provide to MedCath the full benefit of the transaction contemplated
by this Agreement.
-4-
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PRACTICE
Practice hereby represents and warrants to MedCath as follows:
SECTION 3.1 Organization, Power and Qualification.
Practice is a professional association duly organized, validly existing
and in good standing under the laws of the State of Texas and has full power to
own, lease and operate its properties and assets and to carry on its business as
now being conducted, and is duly qualified and in good standing to do business
in each jurisdiction in which the nature of Practice's business or the ownership
or leasing of Practice's properties make such qualification necessary. Practice
has full power to enter into this Agreement and to consummate the transactions
contemplated hereby. A copy of Practice's Articles of Incorporation and Bylaws
and all amendments thereto as of the date hereof, are included as Schedule 3.1
and are true, accurate and complete as of the date hereof.
SECTION 3.2 Ownership Interests.
The ownership interests of Practice are owned in the manner set forth in
Schedule 3.2 and, except as set forth on such Schedule, there are no outstanding
options, warrants rights or commitments for the sale or issuance of any
additional ownership interests in Practice. Except for the transactions
contemplated by this Agreement, insofar as is known to Practice, there are not
any agreements or understandings among the owners of Practice with respect to
the voting on any matter.
SECTION 3.3 Subsidiaries, Affiliates, Affiliated Companies and Joint
Venture.
Practice has no direct or indirect interest in, by way of stock
ownership or otherwise, any corporation, partnership, joint venture, association
or business enterprise except as listed in Schedule 3.3.
SECTION 3.4 Financial Statements.
The balance sheets of Practice at December 31, 1995 and 1996 and for the
year to date through November 31, 1997, and the related statements of income and
changes in financial position for the periods then ended, are included as
Schedule 3.4 (such financial statements and the related notes together with the
Year-to-Date Balance Sheet being herein called "Financial Statements"). The
Financial Statements are prepared using the cash method of accounting on a
consistent basis throughout the periods involved, and on that basis, the
financial statements are true, complete and accurate in all material respects
and present fairly the assets, liabilities and financial condition of Practice
at the respective dates thereof and the results of its operations for the
periods ended.
-5-
SECTION 3.5 Absence of Undisclosed Liabilities.
Except as and to the extent reflected or reserved against in the
Financial Statements and except for commitments and obligations incurred in the
ordinary course of business, consistent with past practice, accruing after the
date of the Financial Statements, Practice has no liabilities, claims or
obligations which would have a material adverse effect on the operations
(whether accrued, absolute, contingent or otherwise) of Practice other than such
liabilities that have been specifically disclosed on Schedule 3.5.
SECTION 3.6 Absence of Certain Recent Changes.
Except as disclosed on Schedule 3.6 or reflected on the Financial
Statements, Practice has not, since January 1, 1997, except in the ordinary
course of business consistent with past practice:
(a) incurred any indebtedness or other liabilities (whether
accrued, absolute, contingent or otherwise), guaranteed any
indebtedness or sold any of its assets;
(b) suffered any damage, destruction or loss, to any of the
tangible Assets, whether or not covered by insurance;
(c) increased the regular rate of compensation payable to any
employee or any physician; 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;
(d) established or agreed to establish any pension, retirement
or welfare plan for the benefit of its employees not theretofore in
effect;
(e) suffered any change in its financial condition, assets,
liabilities or business or suffered any other event or condition of any
character which individually or in the aggregate has or might
reasonably be expected to have a material adverse effect on its
business;
(f) experienced any labor organizational efforts, strikes or
formal complaints or entered into any collective bargaining agreements
with any union;
(g) made any single capital expenditure which exceeded $2,500
or made aggregate capital expenditures which exceeded $10,000;
(h) disposed of any of the Assets or written down the value of
any of the Assets, or written off as uncollectible any Accounts
Receivable, or revalued any of the Assets;
-6-
(i) paid, discharged or satisfied any claims, liabilities or
obligations (absolute, accrued, contingent or otherwise);
(j) canceled any debts or waived any claims or rights of
substantial value;
(k) entered into, amended or terminated any contract,
agreement or license to which it is a party;
(l) entered into a material transaction or made any change in
any method of accounting or accounting practice;
(m) canceled, or failed to continue, insurance coverages;
(n) agreed, whether in writing or otherwise, to take any
action described in this Section 3.6;
(o) declared any dividend or made any distribution to its
shareholders other than in accordance with its historic practices; or
(p) operated its business other than in the ordinary course
consistent with past practice.
SECTION 3.7 Title to Assets.
(a) Except as disclosed in Schedule 3.7(a), Practice has, or
will have on the Closing Date, good and marketable title to all its
Assets, free and clear of all Encumbrances.
(b) The Assets consisting of owned personal property are
subject to no Encumbrances except the security interests of record set
forth on Schedule 3.7(b), which Schedule is a copy of UCC searches duly
obtained by Practice and which searches show security interests of
record relating to such Assets in every place where such security
interests are legally required to be filed and includes copies of all
such financing statements.
(c) The Assets constitute all of the non-real estate operating
assets of Practice necessary or appropriate for the continued operation
of the Practice other than the Excluded Assets.
SECTION 3.8 Contracts and Leases.
Schedule 3.8 is a copy of each contract, lease, sublease, agreement and
other instrument to which Practice is a party or are bound that is for an amount
in excess of $5,000 or for a term in excess of twelve (12) months in duration.
Except as noted in such Schedule, all such contracts, leases, subleases and
agreements are in full force and effect, there has been no threatened
-7-
cancellation thereof, there are no outstanding disputes thereunder, each is with
unrelated third parties and was entered into on an arms-length basis in the
ordinary course of business and, assuming the receipt of the appropriate
consents, all will continue to be binding in accordance with their terms after
consummation of the transaction contemplated herein; except as noted in such
Schedule, there are no contracts, subleases, agreements or other instruments to
which Practice is a party or bound (other than physician employment contracts
and insurance policies) which could either singularly or in the aggregate have
an adverse effect on the value to MedCath of the Assets or which could inhibit
or prevent Practice in its ability to transfer to or vest in MedCath good and
sufficient title to the Assets; and, except as disclosed on Schedule 3.8, and
except for physician employment contracts, Practice is not a party to or bound
by any employment agreements or any agreements that contain any bonus, severance
or termination pay liabilities or obligations or by any agreements to loan to or
guarantee any loan to an employee. In every instance when consent is necessary,
Practice shall, on or before the Closing Date, obtain and deliver to MedCath in
writing, effective as of the Closing Date, such consents as are necessary to
effect a valid and binding transfer or assignment so as to enable MedCath to
enjoy all of the rights now enjoyed by Practice under such contracts. Said
consent shall be in a form acceptable to MedCath and shall contain an
acknowledgment by the consenting party that Practice has fully complied with and
is not in default under any provision of the particular contract or agreement.
SECTION 3.9 Defaults and Consents.
Except as disclosed in Schedule 3.9, Practice is not in default under,
nor has any event occurred which, with notice or the lapse of time or action by
a third party, could result in a default under, any outstanding indenture,
mortgage, contract, lease or agreement to which Practice is a party or by which
Practice may be bound or under any provision of the Articles of Incorporation,
Bylaws, or other governing documents of Practice. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement will not (a) result in a significant liability to
Practice; (b) constitute a violation of or a default under, or a conflict with,
(i) any term or provision of the Articles of Incorporation, Bylaws, or other
governing documents of Practice or (ii) any order, writ, injunction or decree of
any court, governmental agency or arbitration tribunal, or (iii) any contract,
commitment, indenture, lease, sublease or other agreement, or (iv) any other
restriction of any kind to which Practice is a party or by which Practice is
bound; (c) cause, or give any party grounds to cause (with or without notice,
the passage of time or both) the maturity of any liability or obligation of
Practice to be accelerated, or increase any such liability or obligation; or (d)
require any consent, approval or authorization of, or declaration, filing or
registration with any governmental or regulatory authority.
SECTION 3.10 Litigation, Etc.
Except as disclosed in Schedule 3.10, there is no litigation,
arbitration, governmental claim, investigation or proceeding pending or, to the
best knowledge of Practice, threatened against Practice at law or in equity,
before any court, arbitration tribunal or governmental agency.
No such proceeding set forth in Schedule 3.10 concerns the ownership or other
rights with
-8-
respect to the Assets. Except as disclosed on Schedule 3.10, Practice knows of
no facts based on which material claims may be hereafter made against it. Except
as set forth on Schedule 3.10, Practice has been informed by its carriers that
all claims and litigation against Practice and its employees involving
allegations of medical malpractice are fully covered by insurance, less
co-payments and deductibles.
SECTION 3.11 Court Orders, Decrees and Laws.
There are no outstanding or, to the best of Practice knowledge,
threatened orders, writs, injunctions or decrees of any court, governmental
agency or arbitration tribunal against or affecting Practice or the Assets.
Practice is in compliance with all applicable federal, state and local laws,
regulations and administrative orders which are material to the operation of the
Practice, including, without limitation, matters relating to antitrust and
anti-competitive practices, discrimination, employment, and health and safety,
and has received no notices of alleged violations thereof except as disclosed in
Schedule 3.11(a) hereof. No governmental authorities are presently conducting
proceedings against Practice and no such investigation or proceeding is pending
or being threatened. Practice has all federal, state and local permits,
certificates, licenses, approvals and other authorizations necessary in the
conduct and operation of the Practice. Schedule 3.11(b) contains a list of all
such governmental licenses and permits. All such licenses and permits of
Practice are in full force and effect, and no violations are or have been
recorded in respect thereof for which a fine or penalty may be levied, and no
proceeding is pending or threatened to revoke or limit any thereof. Practice
agrees to assume responsibility for the payment, if any, of any such future
fines for activities occurring in the Practice prior to the Closing Date.
Practice shall cooperate with and assist MedCath in all respects concerning the
transfer or re-issuance to MedCath of all permits, licenses, consents or
approvals required by all applicable laws or which are included in the Assets.
SECTION 3.12 Taxes.
All federal, state and other tax returns of Practice required by law to
be filed have been timely filed, and Practice has paid or adequately provided
for all taxes (including taxes on properties, income, franchises, licenses,
sales and payrolls) which have become due pursuant to such returns or pursuant
to any assessment, except for any taxes and assessments, the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which Practice has set aside on its
books adequate reserves. There are no tax liens on any of the Assets except
those with respect to taxes not yet due and payable. There are no pending tax
examinations of any Practice tax return nor has Practice received a revenue
agent's report asserting a tax deficiency in the last twelve (12) months. There
are not and will not be at the Closing Date, any claims pending or asserted
against the Assets for unpaid taxes by any federal, state or other governmental
body. Practice has withheld from each payment made directly or indirectly to its
employees (including persons who under the tax laws could be classified as its
employees) 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 has
-9-
paid or will pay the same to, or has deposited or will deposit such payment
with, the proper tax receiving officers or other appropriate authorities, except
to the extent of any liabilities, to be assumed by MedCath hereunder. Neither
Practice nor any Physician Shareholder is relying on MedCath, Manager, or any of
their affiliates, employees, professional advisors or consultants regarding any
tax implications arising from or relating to the transactions contemplated
herein and Practice and its Physicians have obtained their own tax advice in
that regard.
SECTION 3.13 Authority, Binding Effect.
Practice has full power and authority to enter into this Agreement and
to carry out the transactions contemplated hereby. The directors, shareholders
and officers of Practice have taken all action required, whether by law, by
their governing documents or otherwise, to authorize the execution and delivery
of this Agreement and the performance of the transactions contemplated hereby.
The execution, delivery, and performance of this Agreement constitutes the valid
and binding agreement of Practice enforceable in accordance with its terms.
SECTION 3.14 Employee Matters.
Included as Schedule 3.14 is a list of all current employees, officers
and consultants of Practice and their annual compensation.
SECTION 3.15 Labor Matters.
Except as disclosed in Schedule 3.15, Practice has no collective
bargaining agreements with any labor union and is not currently negotiating with
a labor union. No employee of Practice has ever petitioned for a representation
election. Practice is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and are not engaged in any unfair labor practice. There is no
unfair labor practice complaint against Practice pending before the National
Labor Relations Board or strike, dispute, slowdown or stoppage actually pending
or, to its knowledge, threatened against or affecting Practice.
SECTION 3.16 Insurance; Malpractice.
Schedule 3.16(a) is a list and brief description of all policies or
binders of fire, liability, product liability, worker's compensation, health and
other forms of insurance policies or binders currently in force insuring against
risks which will remain in full force and effect at least through the Closing
Date. Schedule 3.16(b) contains a description of all malpractice liability
insurance policies of Practice since 1992. Except as set forth on Schedule
3.16(c), (i) Practice has never filed a written application for any insurance
coverage which has been denied by an insurance agency or carrier and (ii)
Practice has been continuously insured for professional malpractice claims for
at least the past five (5) years. Schedule 3.16(c) also sets forth a list of all
claims for any loss in excess of Five Thousand Dollars ($5,000) per occurrence,
filed by Practice during the three (3) year period immediately preceding the
Closing Date, including but not limit to, worker's compensation, general
liability, environmental liability and professional malpractice
-10-
liability claims. Practice is not in material default with respect to any
provision contained in any such policy and has not failed to give any notice or
present any claim under any such policy when due in a timely fashion.
SECTION 3.17 Books of Account, Reports.
The books of account of Practice are in reasonable detail and accurately
and fairly reflect its transactions and the disposition of its assets consistent
with the past practices of Practice. Practice has filed all reports and returns
required by any law or regulation to be filed by it.
SECTION 3.18 No Finders or Brokers.
Practice has not engaged any finder or broker in connection with the
transactions contemplated hereunder. No commitments have been made to any
individuals for payments or stock options in connection with this Agreement
except for payments to certain employees of Practice in such capacities.
SECTION 3.19 Inventory.
All Assets consisting of inventory are of a quality and quantity
currently usable in the ordinary course of business. The present quantity of all
current and usable inventory is at a level consistent with the past operation of
Practice.
SECTION 3.20 Equipment.
All Assets consisting of equipment are located at the Practice and are
in good condition except for reasonable wear and tear and are sufficient for the
purposes for which currently used. Such Assets are reflected in the Financial
Statements at book value.
SECTION 3.21 Accounts Receivable.
The Accounts Receivable of Practice arose from bona fide transactions
and such Accounts Receivable have been carried on the books of Practice at
values in conformity with past practices, and reflect all facts reasonably known
to Practice as of the date hereof pertaining to the valuation thereof. Schedule
3.21 contains an aging of all Accounts Receivable.
SECTION 3.22 Employee Benefit Plans.
(a) Practice has delivered to MedCath true and complete copies,
in the case of documented plans, and a written description in the case of
undocumented plans, of each pension, retirement, profit-sharing, stock purchase,
stock option, severance, vacation, deferred compensation, bonus or other
incentive plan, or other employee benefit program, arrangement, agreement or
understanding, or medical, vision, dental or other health plan, or life
insurance or disability plan, retiree medical or life insurance plan or any
other employee benefit plans or fringe benefit arrangements, including, without
limitation, any
-11-
"employee benefit plan" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), to which Practice contributes
or is a party or by which it is bound or under which it may have liability and
under which employees or former employees of Practice (or their beneficiaries)
are eligible to participate or derive a benefit (the `Plans"). Each Plan which
is a "group health plan" (as such term is defined in Section 4980B(g)(2) of the
Internal Revenue Code of 1986, as amended (the "Code")) satisfies the applicable
requirements in order to avoid the imposition of tax under Section 4980B of the
Code. Except as set forth on Schedule 3.22, Practice has no formal plan or
commitment, whether legally binding or not, to create any additional plan,
practice or agreement or modify or change any existing plan, practice or
agreement that would affect any of the employees or former employees of
Practice. Benefits under all Plans are as represented and will not be increased
subsequent to the date documents are provided.
(b) The following representations are made with regard to the
Plans:
(i) any and all Plans which are pension plans within
the meaning of Section 3(2) of ERISA ("Pension Plans") are
intended to be qualified plans under Sections 401 and 501 of
the Code, have remained qualified under the Code since
inception and have been determined by the Internal Revenue
Service ("IRS") to be so qualified, and the IRS has taken no
action to revoke such determination or qualification;
(ii) Practice has, in all material respects,
performed all obligations, whether arising by operation of
law, contract, or past custom, required to be performed under
or in connection with the Plans, and Practice has no knowledge
of any default or violation by any other party with respect to
the Plans;
(iii) Practice has complied in all material respects
with ERISA and, where applicable, the Code, regarding the
Plans;
(iv) all reports and disclosures relating to the
Plans required to be filed with or furnished to governmental
agencies, plan participants or plan beneficiaries have been or
will be filed or furnished in accordance with applicable law
in a timely manner;
(v) there are no actions, suits or claims (other than
routine claims for benefits) pending, or, to the best of
Practice's knowledge, threatened, against any Plan or against
the assets funding any Plan;
(vi) no transactions have occurred with respect to
the Plans or assets thereof which could result in the
imposition on Practice, MedCath, the administrators or
trustees under the Pension Plans or the assets funding the
-12-
Pension Plan, either directly or indirectly, of taxes or
penalties imposed under Section 4975 of the Code or Section
502(i) of ERISA;
(vii) except as identified on Schedule 3.22, no
Pension Plan is a "defined benefit plan" as defined in Section
3(35) of ERISA;
(viii) other than applications for determination, no
action is pending with respect to the Plans before the
Internal Revenue Service, the Department of Labor, or before
any state or local governmental agency;
(ix) no act or omission constituting a breach of
fiduciary duties has occurred with respect to the Plans or the
assets thereof which could subject Practice, MedCath, or the
Assets, either directly or indirectly, to any liability;
(x) any bonding required by applicable provisions of
ERISA with respect to any of the Plans has been obtained and
is in full force and effect;
(xi) the transactions contemplated by this Agreement
will not result in liability for severance pay, or for events
occurring or expenses incurred after termination of employment
(except as required to avoid tax under Section 4980B of the
Code), or any similar payment to the employees of Practice;
and
(xii) no Plan is a "multi-employer plan" within the
meaning of Section 3(37) of ERISA.
(c) Practice has delivered to MedCath and its counsel prior to
the Closing Date, true and complete copies of (i) all documents
governing the Plans, including, without limitation, all amendments
thereto which will become effective at a later date, or if a Plan is
not documented, a written description thereof; (ii) the latest Internal
Revenue Service determination letter obtained with respect to each of
the Pension Plans; (iii) Form 5500 for the most recent completed plan
year for each of the Plans, together with all schedules forming a part
thereof; (iv) all summary plan descriptions relating to the Plans; (v)
annuity contracts funding obligations of any Plan; (vi) all employment
manuals; and (vii) insurance policies or contracts with respect to the
Plans.
SECTION 3.23 Power of Attorney.
Practice has not given any power of attorney, whether limited or
general, to any person which is continuing in effect.
SECTION 3.24 Bank Accounts, Officers.
Schedule 3.24 sets forth a list of all bank accounts and safe deposit
boxes in the name of or controlled by Practice and details about the persons
having access thereto. Schedule 3.24 also
-13-
contains a list of all officers of Practice as such have been designated or
elected by the Board of Directors of Practice.
SECTION 3.25 Environmental Matters.
Practice is in compliance with all federal, state and local
environmental laws, rules, regulations, standards and requirements, including,
without limitation, those respecting hazardous or biomedical materials and/or
wastes. Except as disclosed on Schedule 3.25, Practice has not engaged in any
storage, holding, release, emission, discharge, generation, processing,
disposition, handling or transportation of any biomedical wastes or hazardous
substances or materials, as defined in any applicable federal or state law or
regulation from, into or on any portion of the Practice premises.
SECTION 3.26 Fraud and Abuse.
To the best of its knowledge after due inquiry, neither Practice, its
officers and directors, or persons and entities providing professional services
for the Practice, have engaged in any activities which are prohibited under 42
U.S.C. Sec. 1320a-7b, or the regulations promulgated thereunder pursuant to such
statutes, or related state or local statutes or regulations, or which are
prohibited by rules, of professional conduct, including but not limited to the
following: (a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment; (b) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment; (c) failure to disclose knowledge by a
claimant of the occurrence of any event affecting the initial or continued right
to any benefit or payment on its own behalf or on behalf of another, with intent
to fraudulently secure such benefit or payment; and (d) knowingly and willfully,
soliciting or receiving any remuneration (including any kickback, bribe, or
rebate), directly or indirectly, overtly or covertly, in cash or in kind or
offering to pay or receive such remuneration (i) in return for referring an
individual to a person for the furnishing or arranging for the furnishing of any
item or service for which payment may be made in whole or in part by Medicare or
Medicaid, or (ii) in return for purchasing, leasing, or ordering or arranging
for or recommending purchasing, leasing, or ordering any good, facility,
service, or item for which payment may be made in whole or in part by Medicare
or Medicaid.
SECTION 3.27 Investment Representation and Access.
Practice represents and warrants to and covenants with MedCath as
follows:
(a) The Common Stock of MedCath to be acquired by Practice
will be acquired for its own account for the purpose of investment
only.
(b) Practice has received and reviewed the 1996 Annual Report
of Parent and its 10-K for the period ended September 30, 1996 and its
10-Q for the period ending June 30, 1997 (the "SEC Filings"). Practice
confirms that MedCath has made available to it or to its
representatives, the opportunity to ask questions of its officers and
directors
-14-
and to acquire such additional information about the Common Stock and
the business and financial condition of MedCath as Practice has
requested, which additional information has been satisfactory received.
(c) In deciding to acquire the Common Stock, Practice has
relied upon consultations with its legal, financial and tax advisers
with respect to this transaction and the nature of the investment
together with the additional information concerning MedCath set forth
in the SEC Filings, and any additional information provided under
subsection (b) above.
(d) The financial condition of Practice is such that it can
bear the risk of this investment indefinitely. Practice either alone or
with its representatives has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and
risks of an investment in MedCath.
(e) Practice will not transfer or otherwise dispose of the
Common Stock or any interest therein (other than to its physician
employees in accordance with the Securities Act, and who make the
representations to MedCath which are set forth in this Section 3.27) in
such manner as to violate any registration provision of the Securities
Act of 1933, as amended (the "Securities Act"), or of any applicable
state securities law regulating the disposition thereof. Practice is
aware that the Common Stock has not been registered under the
Securities Act or any state securities laws or any other applicable
securities legislation and that the Common Stock must be held
indefinitely unless it is subsequently registered or an exemption from
such registration is available. MedCath will permit transfer of the
Common Stock only in compliance with any applicable state securities
law and any other applicable securities legislation or when the request
is accompanied by an opinion of counsel, acceptable to MedCath, to the
effect that the sale or proposed transfer does not require registration
under the Securities Act, any state securities law or any other
applicable securities legislation and as set forth above. Practice
agrees that the following legend to such effect and any other legends
required by applicable state securities law will be placed on the
Common Stock and a stock transfer order shall be placed with respect
thereto, for as long as MedCath deems it necessary:
THIS COMMON STOCK HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF EFFECTIVE REGISTRATION STATEMENTS UNDER SUCH ACTS
OR AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO MEDCATH THAT
SUCH REGISTRATION IS NOT REQUIRED.
In addition, a legend similar to the above legend shall be
placed on the Common Stock acquired by Practice pursuant to Section
2.4(a)(iii).
-15-
(f) The representations, warranties and covenants of Practice
contained herein shall survive the execution and delivery of this
Agreement and the issuance of the Common Stock.
SECTION 3.28 Practice Disclosures.
No representations, warranties or disclosures of information made by
Practice, including disclosures made in any Exhibit, Schedule or certificate or
other writing delivered or to be delivered in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a material
fact or omits to state any material fact which is necessary in order to make the
disclosures not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MEDCATH
MedCath represents and warrants as follows:
SECTION 4.1 Organization and Standing of MedCath.
MedCath is a corporation duly organized, validly existing and in good
standing under the laws of the State of Arizona and has full corporate power 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 and to
consummate the transactions contemplated hereby.
SECTION 4.2 Authority; Binding Effect.
MedCath has full power and authority to enter into this Agreement and to
carry out the transactions contemplated hereby. MedCath has taken all action
required by law and by MedCath's Articles of Incorporation and Bylaws to
authorize the execution and delivery of this Agreement and the transactions
contemplated hereby. The execution, delivery, and performance of this Agreement
constitute the valid and binding agreements of MedCath enforceable in accordance
with its terms.
SECTION 4.3 No Finders or Brokers.
Neither MedCath nor any officer or director thereof has engaged any
finder or broker in connection with the transactions contemplated hereunder.
MedCath will indemnify and hold Practice harmless against claims (and expenses
in the defense thereof) of any person, firm or corporation for finder's fees,
broker's fees, brokerage commission, sales commissions or the like alleged in
connection with the transactions contemplated hereunder due to acts of MedCath.
-16-
SECTION 4.4 Validity of Agreement.
Upon execution and delivery of this Agreement and all documents executed
in connection herewith, they will constitute the valid and binding obligation of
MedCath and be binding against MedCath in accordance with its terms.
SECTION 4.5 Defaults and Consents.
MedCath is not in default under, nor has any event occurred which, with
notice or the lapse of time or action by a third party, could result in a
default under, any outstanding indenture, mortgage, contract, lease or agreement
to which MedCath is a party or by which MedCath may be bound and which is
material to the operations of MedCath and its subsidiaries taken as a whole, or
under any provision of the Articles of Incorporation, Bylaws, or other governing
documents of MedCath. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated by this Agreement will not
(i) constitute a violation of or a default under, or a conflict with, (A) any
term or provision of the Articles of Incorporation, Bylaws, or other governing
documents of MedCath or (B) any order, writ, injunction or decree of any court,
governmental agency or arbitration tribunal, or (C) any contract, commitment,
indenture, lease, sublease or other agreement, or (D) any other restriction of
any kind to which MedCath is a party or by which MedCath is bound; (ii) cause,
or give any party grounds to cause (with or without notice, the passage of time
or both) the maturity of any liability or obligation of MedCath to be
accelerated, or increase any such liability or obligation or (iii) other than
the consent of bankers, filings with respect to the registration of the Common
Stock, and filings under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act,
require any consent, approval or authorization of, or declaration, filing or
registration with any governmental or regulatory authority.
SECTION 4.6 Court Orders, Decrees and Laws.
There are no outstanding or, to the best of MedCath's knowledge,
threatened orders, writs, injunctions or decrees of any court, governmental
agency or arbitration tribunal against or affecting MedCath. MedCath is in
compliance with all applicable federal, state and local laws, regulations and
administrative orders which are material to the operations of MedCath and has
not received any notices of alleged violations thereof. No governmental
authorities are presently conducting proceedings against MedCath and no such
investigation or proceeding is pending or being, threatened. MedCath has all
federal, state and local permits, certificates, licenses, approvals and other
authorizations necessary in the conduct and operation of MedCath. All such
licenses and permits of MedCath are in full force and effect, and no violations
are or have been recorded in respect thereof for which a fine or penalty may be
levied, and no proceeding is pending or threatened to revoke or limit any
thereof
-17-
ARTICLE V
COVENANTS OF PRACTICE
Practice hereby covenants and agrees as follows:
SECTION 5.1 Access and Information.
Between the date hereof and the Closing Date, Practice shall give to
representatives of MedCath reasonable access during normal business hours to the
Practice's premises, books, accounts and records and all other relevant
documents and will make available copies of all such documents and information
with respect to the business and properties of Practice as representatives of
MedCath may from time to time reasonably request, including, without limitation,
the working papers used to prepare the Financial Statements and income tax
returns filed and in preparation, all in such manner as not unduly to disrupt
Practice's normal business activities. Such access shall include consultations
with the employees of Practice. During the period from the date of this
Agreement to the Closing Date, Practice shall confer on a regular and frequent
basis with one or more representatives of MedCath to report material operational
matters and to report the general status of on-going operations. Practice shall
notify MedCath of any material adverse change in the financial position,
earnings or business of Practice after the date hereof and prior to the Closing
Date and any unexpected emergency or other unanticipated change in the business
of Practice and of any governmental complaints, investigations or hearings or
adjudicatory proceedings (or communications indicating that the same may be
contemplated) or of any other matter which may be material to Practice or which
would cause the representations contained in Article III not to be true and
correct and shall keep MedCath fully informed of such events and permit its
representatives to participate in all discussions relating thereto.
SECTION 5.2 Conduct of Business.
Between the date hereof and the Closing Date, except as otherwise
approved by MedCath or necessary to consummate the transactions contemplated by
this Agreement, Practice shall conduct its business only in the ordinary course
thereof consistent with past practice and in such a manner that the
representations and warranties contained in Article III shall be true and
correct at and as of the Closing Date (except for changes contemplated,
permitted or required by this Agreement) and so that the conditions to be
satisfied by Practice at the Closing Date shall have been satisfied. Practice
shall (a) carry on its business in the usual and ordinary course, (b) use its
best efforts to preserve its business organization intact and maintain the good
will and relationships of its physicians and other employees, its patients, and
others having business relations with it, (c) conduct its business in a manner
which will cause the representations and warranties contained in Article III to
be true and correct on the Closing Date in each case, as if made on and as of
such date, (d) not grant any increases in wages, bonuses, benefits or other
compensation to any director, officer, employee or agent, (e) not enter into any
agreement or series of related agreements which would obligate Practice to
expend more than $25,000 or which has a term of more than thirty (30) days
beyond the Closing Date without MedCath's
-18-
consent, (f) not waive any right or benefit, or (g) not incur any liability or
obligation outside the ordinary course of business or which involves the receipt
or expenditure of more than $5,000 without MedCath's consent.
SECTION 5.3 Best Efforts to Secure Consents.
Practice shall take the necessary corporate actions and shall, on or
before the Closing Date, obtain and deliver to MedCath in writing, effective as
of the Closing Date, such consents as are necessary to effect a valid and
binding transfer or assignment so as to enable MedCath to enjoy all of the
rights now enjoyed by Practice under such contracts; provided, Practice shall
use its reasonable best efforts to secure assignments of data processing
licenses. Said consent shall use in a form acceptable to MedCath and shall
contain an acknowledgment by the consenting party that Practice has fully
complied with and is not in default under any provision of the particular
contract or agreement.
SECTION 5.4 Confidential Information.
Practice shall keep confidential all information provided by MedCath
regarding the business plan, financial condition and operations of MedCath,
which is not in the public domain, and shall exercise the same care in handling
such information as it would exercise with similar information of its own.
Practice may disclose information it deems advisable to its physician employees
provided such physician employees are advised of the confidential nature of such
information and agree to keep such information confidential as provided herein.
MedCath shall be a third party beneficiary of such agreements.
SECTION 5.5 Unusual Events.
Until the Closing Date, Practice shall supplement or amend all relevant
Exhibits and Schedules with respect to any matter thereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in such Exhibits or Schedules.
SECTION 5.6 Departmental Violations.
Practice shall make all reasonable attempts to comply with all notices
of violations of law or municipal ordinances, orders or requirements noted in or
issued by government agencies or departments having authority with respect to
buildings, fire, labor, health, or any other federal, state or municipal
department having jurisdiction against or affecting the operation of the
Practice or the Assets prior to the Closing Date unless contesting the same in
good faith. All such notices, after the date hereof and prior to the Closing
Date, shall be complied with by Practice prior to the Closing Date. Upon written
request, Practice shall furnish MedCath with an authorization to make the
necessary searches for such notices.
-19-
SECTION 5.7 Insurance Ratings.
Practice shall take all action reasonably requested by MedCath to enable
it to succeed to the Worker's Compensation and Unemployment Insurance ratings,
insurance policies, deposits and other interests of Practice and other ratings
for insurance or other purposes established by Practice. MedCath shall not be
obligated to succeed to any such rating, insurance policy, deposit or other
interest, except as it may elect to do so.
SECTION 5.8 [Intentionally Omitted.]
SECTION 5.9 Employment Agreements.
Practice shall ensure that each of the physician employees of Practice
who are shareholders of Practice as of the date hereof execute an employment
agreement for the provision of the full time services of such individual to
Practice and that each such physician employee who is a shareholder of Practice
shall remain employed by Practice pursuant to the terms of the Employment
Agreement for at least five (5) years from the Closing Date subject only to the
death or permanent disability of any such physician employee. Practice and the
applicable physician employees shall have breached their covenants set forth in
this Section 5.9 in the event that any such physician employee who is a
shareholder of Practice fails to so remain employed by Practice for at least
five (5) years from the Closing Date.
ARTICLE VI
COVENANTS OF MEDCATH
SECTION 6.1 Information.
MedCath shall promptly provide to Practice upon request any information
or documents reasonably necessary for Practice, or its owners to make an
informed judgment as to the advisability of consummating the transactions
contemplated hereby or to verify the representations and warranties of MedCath
herein. Until the Closing Date MedCath shall notify Practice of any matter which
may be materially adverse to MedCath and its subsidiaries considered as a whole
and shall keep Practice fully informed of such events.
SECTION 6.2 Corporate Action.
MedCath will take all necessary corporate and other action and obtain
all consents, approvals and amendments of agreements required of them to carry
out the transactions contemplated by this Agreement and to satisfy the
conditions specified herein.
-20-
SECTION 6.3 Confidential Handling of Documents.
Subject to the provisions of Section 11.14, MedCath shall keep
confidential all information provided by Practice pursuant to this Agreement
which is not in the public domain, and shall exercise the same care in handling
such information as it would exercise with similar information of its own.
SECTION 6.4 Access to or Furnishing of Information about MedCath.
(a) Practice, its offeree representative(s), or both, shall
have been furnished, during the course of the transactions described
herein and prior to the asset sale, by MedCath, or any person acting on
its behalf, the SEC Filings.
(b) MedCath shall make available, during the course of the
transactions described herein, to Practice and its advisors, the
opportunity to ask questions of, and receive answers from, MedCath or
any person acting on its behalf concerning the Common Stock to be
acquired pursuant to Section 2.2 and to obtain any additional
information including regularly prepared financial statements with
notes thereto, to the extent MedCath possesses such information or can
acquire it without unreasonable effort or expense, necessary to verify
the accuracy of the information delivered to Practice by or on behalf
of MedCath.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PRACTICE
All obligations of Practice which are to be discharged under this
Agreement on the Closing Date are subject to the performance, at or prior to the
Closing Date, of all covenants and agreements contained herein which are to be
performed by MedCath at or prior to the Closing Date and to the fulfillment at,
or prior to, the Closing Date, of each of the following conditions (unless
expressly waived in writing by Practice at any time at or prior to the Closing
Date):
SECTION 7.1 Representations and Warranties True.
All of the representations and warranties made by MedCath contained in
Article IV of this Agreement shall be true as of the date of this Agreement,
shall be deemed to have been made again at and as of the Closing Date, and shall
be true at and as of the Closing Date in all material respects; MedCath shall
have performed and complied in all material respects with all covenants and
conditions required by this Agreement to be performed or complied with by it
prior to or on the closing Date; and Practice shall have been furnished with a
certificate of the President or any Vice President of MedCath dated the Closing
Date, in their corporate capacities, certifying to the truth of such
representations and warranties as of the Closing Date and to the fulfillment of
such covenants and conditions.
-21-
SECTION 7.2 Service Agreement.
Practice and MedCath Physician Management, Inc., a subsidiary of MedCath
("Manager") shall have entered into a Service Agreement acceptable to them (the
"Service Agreement").
SECTION 7.3 No Obstruction Proceeding.
No action or proceeding shall have been instituted against, and no
order, decree or judgment of any court, agency, commission or governmental
authority shall be subsisting against MedCath or Practice which seeks to, or
would, render it unlawful to effect the asset sale in accordance with the terms
hereof, and no such action shall seek damages in a material amount by reason of
the transactions contemplated hereby. Also, no substantive legal objection to
the transactions contemplated by this Agreement shall have been received from or
threatened by any governmental department or agency.
SECTION 7.4 Consents and Approvals.
Any consents required from any public or regulatory agency having
jurisdiction shall have been received.
SECTION 7.5 Proceedings And Documents Satisfactory.
All proceedings in connection with the asset sale and all certificates
and documents delivered to the parties pursuant to this Agreement shall be
satisfactory in form and substance to the parties acting reasonably and in good
faith.
SECTION 7.6 Receipt of the Purchase Price and Assumption.
Practice shall have received the portion of the Purchase Price required
to be paid in cash on the Closing Date.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MEDCATH
All obligations of MedCath which are to be discharged under this
Agreement on the Closing Date are subject to the performance, at or prior to the
Closing Date, of all covenants and agreements contained herein which are to be
performed by Practice at or prior to the Closing Date and to the fulfillment at
or prior to the Closing Date of each of the following conditions (unless
expressly waived in writing by MedCath at any time at or prior to the Closing
Date):
-22-
SECTION 8.1 Representations and Warranties True.
All of the representations and warranties of Practice contained in
Article III of this Agreement shall be true as of the date of this Agreement,
shall be deemed to have been made again at and as of the Closing Date, and shall
be true at and as of the Closing Date in all material respects; Practice shall
have performed or complied in all material respects with all covenants and
conditions required by this Agreement to be performed or complied with by it
prior to or on the Closing Date; and MedCath shall be furnished with a
certificate of the President and Secretary of Practice, dated the Closing Date,
certifying to the truth of such representations and warranties as of the Closing
Date and to the fulfillment of such covenants and conditions.
SECTION 8.2 No Obstructive Proceeding.
No action or proceedings shall have been instituted against, and no
order, decree or judgment of any court, agency, commission or governmental
authority shall be subsisting against MedCath or Practice which seeks to, or
would, render it unlawful as of the Closing Date to effect the asset sale in
accordance with the terms hereof, and no such action shall seek damages in a
material amount by reason of the transactions contemplated hereby. Also, no
substantive legal objection to the transactions contemplated by this Agreement
shall have been received from or threatened by any governmental department or
agency.
SECTION 8.3 Opinion of Practice's Counsel.
Practice shall have delivered to MedCath on the Closing Date an opinion
of counsel to Practice, dated the Closing Date, in form and substance
satisfactory to MedCath.
SECTION 8.4 Consents and Approvals.
Any consents required from any public or regulatory agency having
jurisdiction shall have been received and any consents required from third
parties to the assignment to MedCath of any of the Assets shall have been
received.
SECTION 8.5 Proceedings and Documents Satisfactory.
All certificates and documents delivered to the parties pursuant to this
Agreement shall be satisfactory in form and substance to the parties acting
reasonably and in good faith.
SECTION 8.6 No Adverse Change.
From the date of this Agreement until the Closing Date the operations of
the Practice shall have been conducted in the ordinary course of business,
consistent with past practice, and from the date of the Financial Statements
until the Closing Date no event shall have occurred or have been threatened
which has or would have a material and adverse effect upon the operation of the
Practice including the departure of any physicians and Practice shall not have
sustained any loss or damage to the Assets, whether or not insured, or been the
subject of any union
-23-
activity that affects materially and adversely, in the opinion of MedCath, the
value of the Assets or the operations of the Practice.
SECTION 8.7 Service Agreement.
Practice and Manager shall have entered into the Service Agreement.
SECTION 8.8 Employment Agreements.
All physicians actively employed by Practice as of the date of this
Agreement shall have executed employment agreements acceptable to them and to
MedCath.
SECTION 8.9 Bonus Agreements.
Practice and its key physicians shall have entered into Bonus Agreement
acceptable to them and to MedCath.
SECTION 8.10 Limited Guaranty Agreements.
Practice and its shareholders shall have executed Limited Guaranty
Agreements acceptable to them and to MedCath.
ARTICLE IX
TERMINATION
SECTION 9.1 Optional Termination.
This Agreement may be terminated and the asset sale abandoned at any
time prior to the Closing Date as follows:
(a) By the mutual consent of MedCath and Practice;
(b) By Practice, if any of the conditions set forth in Article
VII shall not have been met by the Closing Date; or
(c) By MedCath, if any of the conditions set forth in Article
VIII hereof have not been met by the Closing Date.
SECTION 9.2 Notice of Abandonment.
In the event of such termination by either MedCath or Practice pursuant
to Section 9.1 above, written notice shall forthwith be given to the other party
or parties hereto.
SECTION 9.3 Termination.
In the event this Agreement is terminated as provided above, (a) MedCath
and Practice shall deliver to the other party all documents previously delivered
(and copies thereof in its possession) concerning one another and the
transactions contemplated hereby and (b) none of the parties nor any of their
respective stockholders, partners, owners, directors, officers, or agents shall
have any liability to the other party for costs, expenses, loss of anticipated
profits, consequential damages, or otherwise, except for any deliberate breach
or deliberate omission resulting in breach of any of the provisions of this
Agreement. Except as provided in Section 11.14 which shall survive termination,
after termination each party shall keep confidential all information provided by
the other pursuant to this Agreement which is not in the public domain, and
shall exercise the same care in handling such information as it would exercise
with similar information of its own.
ARTICLE X
INDEMNIFICATION
SECTION 10.1 Indemnity by Practice.
Subject to the conditions and provisions herein set forth, Practice
agrees to indemnify, defend and hold harmless MedCath, its officers, directors,
shareholders, subsidiaries, affiliates and agents from and against the
following, except as caused by the acts or omissions of MedCath:
(a) Any and all damages, losses, settlement payments,
obligations, liabilities, claims, actions or causes of action,
encumbrances and reasonable costs and expenses suffered, sustained,
incurred or paid by any indemnified party because of:
(i) the claims of any broker or finder engaged by
Practice;
(ii) the untruth, inaccuracy or breach of any
representation, warranty, agreement or covenant of Practice
contained in or made in connection with this Agreement;
(iii) the assertion against MedCath or any of its
affiliates of any liability or obligation relating to the
operation or ownership of Practice prior to the Closing Date;
(iv) all claims and litigation and potential claims
and litigation against MedCath or any of its affiliates with
respect to incidents or other matters which occurred prior to
the Closing Date; and
-25-
(v) any other liabilities of Practice, including any
professional malpractice liability of Practice or any
individual physicians associated therewith, whether absolute
or contingent, known or unknown, matured or unmatured.
(b) In recognition of the fact that MedCath is willing to
enter into this Agreement only if Practice and its physician employees
who are shareholders of Practice enter into the Service Agreement and
the employment agreements and that the parties thereto fulfill their
obligations thereunder, Practice and each of the physician employees
who are shareholders of Practice hereby acknowledge and agree that
MedCath will incur substantial losses and damages in the event that any
such physician employee of Practice fails to fulfill his obligations to
remain employed by the Practice for at least five (5) years from the
Closing Date. Accordingly, in the event that any physician employee who
are shareholders of Practice (the "Breaching Physician") as of the date
hereof ceases to be employed on a full-time basis for any reason by
Practice for at least five (5) years from the Closing Date (other than
due to the death or permanent disability of such physician employee)
which shall constitute a breach of their covenants in Section 5.9
hereof, then Practice and the Breaching Physician jointly and severally
agree to indemnify MedCath for its losses and damages suffered as a
result of such failure. Due to the difficulty in measuring such loss,
MedCath, Practice and each of its physician employees agree that upon
any such Breaching Physician's failure to fulfill his obligation to so
remain employed for five (5) years by Practice from the Closing Date,
Practice and any such Breaching Physician shall be jointly and
severally obligated to pay to MedCath as indemnification, liquidated
damages in an amount determined and set forth in Schedule 10.1(b)
hereof; provided that nothing herein shall release Practice or its
physician employees from any noncompetition covenant or restriction to
which they are a party during such five (5) year period and for the two
(2) year period thereafter. Such amounts shall be due in full within
fifteen (15) days of demand therefore by MedCath.
(c) All reasonable costs and expenses (including, without
limitation, attorneys' fees, interest and penalties) incurred by any
indemnified party in connection with any action, proceeding, demand,
assessment or judgment incident to any of the matters for which
indemnity is provided in this Section 10.1.
SECTION 10.2 Indemnity by MedCath.
Subject to the conditions and provisions herein set forth, MedCath
agrees to indemnify, defend and hold harmless Practice, its shareholders,
subsidiaries, officers, directors and agents, from and against the following,
except as caused by the acts or omission of Practice:
(a) Any and all damages, losses, settlement payments,
obligations, liabilities, claims, actions or causes of action,
encumbrances and reasonable costs and expenses suffered, sustained,
incurred or paid by any indemnified party because of:
(i) the claims of any broker or finder engaged by
MedCath;
-26-
(ii) the untruth, inaccuracy or breach of any
representation, warranty, agreement or covenant of MedCath
contained in or made pursuant to this Agreement, and
(iii) all liabilities or obligations of and claims
against Practice expressly assumed by MedCath in the
Assumption.
(b) All reasonable costs and expenses (including, without
limitation, attorneys' fees, interest and penalties) incurred by any
indemnified party in connection with any action, suit, proceeding,
demand, assessment or judgment incident to any of the matters for which
indemnity is provided in this Section 10.2.
SECTION 10.3 Rules Regarding Indemnification.
The obligations and liabilities of each indemnifying party hereunder
with respect to claims resulting from the assertion of liability by the other
party or third parties shall be subject to the following terms and conditions:
(a) All claims for indemnification by any Indemnified Party
under this Article X shall be asserted and resolved as provided in this
Section 10.3 except as otherwise set forth in Schedule 10.1(b). In the
event any Indemnified Party shall have a claim for indemnification
under Section 10.1 or 10.2 hereof against any Indemnifying Party, the
Indemnified Party shall deliver an Indemnity Notice to the Indemnifying
Party within a period of forty-five (45) days following the date on
which the Indemnified Party becomes aware of such claim. The failure by
any Indemnified Party to give such Indemnity Notice shall not impair
such party's rights hereunder, except to the extent that the
Indemnifying Party demonstrates that it has been irreparably prejudiced
thereby. If the Indemnifying Party notifies the Indemnified Party that
it does not dispute the claim described in such Indemnity Notice, or
fails to notify the Indemnified Party within the Dispute Period whether
the Indemnifying Party disputes the claim described in such Indemnity
Notice, the Losses in the amount specified in the Indemnity Notice will
be conclusively deemed a liability of the Indemnifying Party under
Section 10.1, hereof, as the case may be, and the Indemnifying Party
shall immediately pay the amount of such Losses to the Indemnified
Party on demand. If the Indemnifying Party notifies the Indemnified
Party within the Dispute Period that it disputes the claim described in
the Indemnity Notice, the Indemnifying Party and the Indemnified Party
will proceed in good faith to negotiate a resolution of such dispute,
and, if not resolved through negotiations within the Resolution Period,
such dispute shall be resolved by any lawful manner.
(b) If any written claim is made by a third party, or if any
suit or proceeding (including, but not limited to, an arbitration or an
audit by any taxing authority) is instituted, in each case against
Indemnified Party which, if prosecuted successfully, would, in the
judgment of Indemnified Party, be a matter for which Indemnified Party
is entitled to indemnification under this Agreement (a "Third Party
Claim"), the obligations
-27-
and liabilities of the parties hereunder with respect to such Third
Party Claim shall be subject to the following terms and conditions:
(i) Indemnified Party shall give Indemnifying Party
an Indemnity Notice of any such Third Party Claim within
twenty (20) days after receipt by Indemnified Party of written
notice thereof, provided, however, that the failure of
Indemnified Party to furnish written notice to Indemnifying
Party of a Third Party Claim shall not release Indemnifying
Party from Indemnifying Party's obligations under this Article
X, except to the extent Indemnifying Party is actually
prejudiced by such failure. Indemnifying Party may undertake
the defense of such Third Party Claim at its expense by
representatives of its own choosing; provided that (A) the
Indemnifying Party shall obtain the prior approval by the
Indemnified Party of such counsel, which approval shall not be
unreasonably withheld, (B) the Third Party Claim does not
involve a claim for specific performance, or injunctive or
other equitable relief (such claims being dealt with under
subsection (a) above) and (C) nothing herein shall prejudice
the right of the Indemnified Party to participate in such
defense at its own expense through counsel of its choosing.
The assumption of the defense of any Third Party Claim by
Indemnifying Party shall constitute the agreement of
Indemnifying Party to assume, without condition or
reservation, full responsibility for such Third Party Claim.
Thereafter, Indemnifying Party shall pay as and when due all
costs and expenses related to the defense of such Third Party
Claim and shall pay and satisfy in full the Final Amount of
any and all Losses arising therefrom or related thereto.
(ii) If Indemnifying Party does not so undertake the
defense of such Third Party Claim within fifteen (15) days
after written notice of such claim has been given to
Indemnifying Party by Indemnified Party, Indemnified Party
shall have the right to undertake the defense, compromise and
settlement of such Third Party Claim with counsel of its own
choosing. Under such circumstances, Indemnified Party shall,
promptly upon its assumption of the defense of such Third
Party Claim, give an Indemnity Notice which shall thereafter
be deemed to be an Indemnity Notice that is not with respect
to a Third Party Claim subject to the procedures set forth in
this Section 10.3(b).
(iii) The Indemnified Party and Indemnifying Party
shall cooperate with each other in all reasonable respects in
connection with the defense of any Third Party Claim,
including, but not limited to, making available records
relating to such claim and furnishing employees of Indemnified
Party or Indemnifying Party as may be reasonably necessary for
the preparation of the defense of any such Third Party Claim
or for testimony as witnesses in any proceeding relating to
such claim. All costs and expenses incurred by Indemnifying
Party or Indemnified Party in connection with the foregoing
shall be the responsibility of the party requesting such
cooperation.
-28-
(iv) The Indemnified Party shall have the right to
participate fully in all proceedings, including settlement
discussions, shall be provided copies of notices, orders and
all other papers, and shall be given prior notice by the
Indemnifying Party of any meetings, hearings and other
discussions in any such suit or proceeding. The Indemnifying
Party shall consult with the Indemnified Party and keep the
Indemnified Party fully advised of the progress of any such
suit or proceeding, and shall make no admissions or otherwise
act in a manner which might be prejudicial to the Indemnified
Party's rights in connection with any such suit or proceeding.
(v) The Indemnifying Party agrees that any
controversy between it and the Indemnified Party concerning
its obligations under this indemnity may be litigated in the
same forum and concurrently with any lawsuit against the
Indemnified Party to which such controversy may relate, and
the Indemnified Party agrees to voluntarily appear in such
forum and submit to the jurisdiction thereof.
(vi) Unless Indemnifying Party has failed or refused
to undertake the defense of such third party claim, no
settlement by Indemnified Party of a Third Party Claim shall
be made without the prior written consent of Indemnifying
Party, which consent shall not be unreasonably withheld or
delayed. If Indemnifying Party has assumed the defense of a
Third Party Claim as contemplated by this Section 10.3(b), no
settlement of such Third Party Claim may be made by
Indemnifying Party without the prior written consent of
Indemnified Party, which consent shall not be unreasonably
withheld or delayed.
(c) No amount shall be due by any Indemnifying Party for
claims for indemnification under Sections 10.1(a)(ii) or 10.2(a)(ii)
arising from the violation of a representation or warranty only, except
to the extent Losses from such violation exceed Ten Thousand Dollars
($10,000.00).
SECTION 10.4 Remedies Cumulative.
Except as herein expressly provided, the remedies provided in this
Article X shall be cumulative and shall not preclude assertion by any party of
any other rights or the seeking of any other rights or remedies against any
other party hereto.
SECTION 10.5 Set-Off.
MedCath shall be entitled to offset the amount of any Losses to which it
is entitled hereunder against any amounts of Common Stock (valued using the
Valuation Method as of the date of such offset) which it is obligated to deliver
to Practice or against any amounts owed to or held for Practice by Manager under
the Service Agreement.
-29-
SECTION 10.6 Definitions.
For purposes of this Article X the following terms shall have the
following meanings:
(a) "Dispute Period" means the period ending thirty (30) days
following receipt by an Indemnifying Party of an Indemnity Notice.
(b) "Final Amount" means the amount of any Losses or Loss
determined in accordance with this Article X.
(c) "Indemnified Party" means any Person claiming
indemnification under any provision of Article X.
(d) "Indemnifying Party" means any Person against whom a claim
for indemnification is being asserted under any provision of this
Article X.
(e) "Indemnity Notice" means written notification pursuant to
Section 10.3 of a claim for indemnity under Article X by an Indemnified
Party, specifying the nature of and basis for such claim, together with
the amount or, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such claim.
(f) "Losses" shall mean any and all claims, liabilities,
obligations, losses, damages, deficiencies, penalties, fines,
assessments, encumbrances, judgments, costs and expenses (including,
without limitation, reasonable fees and expenses of attorneys,
consultant's and expert's fees and expenses and reasonable costs and
expenses incurred in investigating, preparing, defending against or
prosecuting any litigation or claim, action, suit, proceeding,
administrative proceeding (including informal proceeding or demand),
but not including special, indirect or consequential damages and
without giving effect to any multiple of earnings.
(g) "Person" means any natural person, corporation, general
partnership, limited partnership, trust, other business organization or
other entity and shall include, without limitation, MedCath and
Practice.
(h) "Resolution Period" means the period ending thirty (30)
days following receipt by an Indemnified Party of a written notice from
an Indemnifying Party stating that it disputes all or any portion of
the claim set forth in an Indemnity Notice.
SECTION 10.7 Survival.
The representations and warranties and the covenants of Practice and/or
its physician employees, and MedCath contained in this Agreement or in any
Schedule or Exhibit hereto shall survive the Closing; provided that the
representations and warranties of the parties hereto, other than those under
Sections 3.1, 3.2, 3.7, 4.1 and 4.2, shall survive only for a period of eighteen
(18) months after the Closing Date.
-30-
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Expenses.
All expenses of the preparation of this Agreement (and any related
documents) and of the asset sale, including, without limitation, counsel fees,
accounting fees, sales taxes, recording fees, investment advisers' fees and
disbursements, shall be borne by the respective parties incurring such expense,
whether or not such transactions are consummated and none of such expenses shall
be treated in such a way as to reduce the Management Fee due to Manager under
the Service Agreement.
SECTION 11.2 Restrictive Covenant.
(a) The parties recognize that the services to be provided by
Manager shall be feasible only if Practice operates an active medical
practice to which the physicians associated with Practice devote their
full time and attention. To that end, Practice agrees that it shall not
establish, operate or provide physician services at any medical office,
clinic or other health care facility providing services, including but
not limited to ancillary services, substantially similar to those to be
provided by Practice other than pursuant to the Service Agreement for
the term of the Service Agreement and for a period of two (2) years
thereafter if the Service Agreement is terminated due to a default
thereunder by Practice, including extensions thereof, at any location
within the Territory.
(b) The parties acknowledge and agree that since a remedy at
law for any breach or attempted breach of the provisions of this
restrictive covenant shall be inadequate, the aggrieved party shall be
entitled to specific performance and injunctive or other equitable
relief in case of any such breach or attempted breach by the other, in
addition to whatever other remedies may exist at law. The parties waive
any requirement for the securing or posting of any bond in connection
with the obtaining of any such injunctive or other equitable relief.
The provisions of this restrictive covenant shall be deemed to be valid
to the extent of any lesser area and for any lesser duration permitted
by law if the area and duration set forth herein is deemed to be too
broad by a court of competent jurisdiction. The invalidity or
nonenforceability of this restrictive covenant in any respect shall not
affect the validity or enforceability of the remainder nor of any other
provisions of this Agreement.
SECTION 11.3 Notices.
All notices, demands and other communications required or permitted
hereunder shall be sufficiently given if delivered in person or mailed by
certified mail, postage prepaid, addressed as follows:
-31-
Practice: Valley Cardiology, P.A.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: President
MedCath: MedCath Physician Management, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
With a copy to: ▇▇▇▇▇ & ▇▇▇ ▇▇▇▇▇, PLLC
NationsBank Corporate Center
▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇
or to such other address as either Practice or MedCath may designate by notice
to the other.
SECTION 11.4 Entire Agreement.
This Agreement, the Exhibits, and the Schedules delivered pursuant
hereto, constitute the entire contract between the parties hereto pertaining to
the subject matter hereof and supersede all prior and contemporaneous
agreements, understandings, negotiations and discussions, whether written or
oral, of the parties, and there are no representations, warranties or other
agreements between the parties in connection with the subject matter hereof,
except as specifically set forth herein.
SECTION 11.5 Governing Law.
The validity and construction of this Agreement shall be governed by the
laws of the State of Texas.
SECTION 11.6 Section Headings.
The section headings are for reference only and shall not limit or
control the meaning of any provision of this Agreement.
SECTION 11.7 Waiver.
No delay or omission on the part of any party hereto in exercising any
right hereunder shall operate as a waiver of such right or any other right under
this Agreement.
-32-
SECTION 11.8 Nature and Survival of Representations and Warranties.
All statements contained in any certificate delivered by or on behalf of
any of the parties to this Agreement pursuant hereto in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties made by the respective parties hereunder. The covenants,
representations and warranties made by the parties each to the other in this
Agreement or pursuant hereto shall survive the asset sale and any investigation
made by MedCath or Practice. All Exhibits and Schedules referred to in this
Agreement are integral parts of this Agreement as if fully set forth herein and
all statements appearing therein shall be deemed to be representations and
warranties.
SECTION 11.9 Successors and Assigns.
This Agreement shall inure to the benefit of and bind the respective
successors and assigns of the parties hereto. Nothing expressed or referred to
in this Agreement is intended or shall be construed to give any person other
than the parties to this Agreement or their respective successors or permitted
assigns any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision contained herein, it being the intention of the
parties to this Agreement that the Agreement be for the sole and exclusive
benefit of such parties or such successors and assigns and not for the benefit
of any other person. Notwithstanding the above, neither MedCath nor Practice
shall have the right to assign their rights and obligations hereunder, except
that MedCath may assign this Agreement to any Person that is its Affiliate or is
a Related Party to it, NationsBank, N.A., or to any other lending institution(s)
with whom MedCath shall enter into a credit agreement, or any purchaser of
substantially all of the assets of MedCath.
SECTION 11.10 Amendments.
This Agreement may be amended, but only in writing, signed by the
parties hereto.
SECTION 11.11 Counterpart Executions; Facsimiles.
This Agreement may be executed in any number of counterparts with the
same effect as if all of the parties had signed the same document. Such
executions may be transmitted to the parties by facsimile and such facsimile
execution shall have the full force and effect of an original signature. All
fully executed counterparts, whether original executions or facsimile executions
or a combination, shall be construed together and shall constitute one and the
same agreement.
SECTION 11.12 Press Releases.
MedCath and Practice shall each approve any press releases regarding
this Agreement and its consummation; provided, however, MedCath shall be
entitled to release any information it deems necessary or appropriate as a
public company without the consent of Practice provided MedCath will use
reasonable efforts to provide Practice an advance copy of any such release and
the opportunity to comment.
-33-
SECTION 11.13 Access to Records After Closing.
Practice will cause its counsel and certified public accountants to
afford to the representatives of MedCath, including its counsel and accountants,
reasonable access to, and copies of, any records not transferred to MedCath,
including, but not limited to, audit and tax work papers. MedCath will afford to
the representatives of Practice reasonable access to, and copies of, the records
transferred to MedCath at the Closing during normal business hours after the
Closing Date. Copies furnished to the party gaining such access shall be
furnished at the cost of the recipient.
SECTION 11.14 Disclosure of Certain Information.
Practice grants MedCath authorization to disclose aggregate financial
history and financial and other information about Practice and about the
Practice (a) in order for MedCath to comply with disclosure requirements in
connection with the sale and registration of its securities, (b) to parties with
which MedCath is considering entering into a joint venture relationship or
corporate reorganization transaction, and (c) to lenders, investment bankers and
other officials as deemed necessary by MedCath.
SECTION 11.15 Attorneys' Fees.
If legal action is commenced to enforce this Agreement, the prevailing
party in such action shall be entitled to recover its costs and reasonable
attorneys' fees in addition to any other relief granted.
SECTION 11.16 Cure of Default.
MedCath shall have the right, but not the obligation, upon notice to
Practice and upon such party's failure to cure within a reasonable time, to cure
any default of Practice and to satisfy any condition precedent to MedCath's
obligation to close which can be cured and to deduct the amount so paid from the
amounts payable by MedCath at the Closing.
SECTION 11.17 Severability.
If any provision of this Agreement shall be held invalid under any
applicable law, such invalidity shall not affect any other provision of this
Agreement that can be given effect without the invalid provision, and, to this
end, the provisions hereof are severable.
SECTION 11.18 Third-Party Beneficiary.
The parties acknowledge and agree that Manager is a third-party
beneficiary of this Agreement and shall be independently entitled to the
benefits hereof and shall have an independent right to enforce the rights of
MedCath and/or Manager hereunder.
-34-
SECTION 11.19 Arbitration.
Other than with respect to any claim or action for equitable or
injunctive relief, any controversy, dispute or disagreement arising out of or
relating to this Agreement, or the breach thereof, shall be settled by
arbitration, which shall be conducted in Corpus Christi, Texas in accordance
with the National Health Lawyers Association Alternative Dispute Resolution
Service Rules of Procedure for Arbitration, and judgment on the award rendered
by the arbitrator may be entered into any court having jurisdiction thereof.
SECTION 11.20 Contract Modifications for Prospective Legal Events.
In the event any state or federal laws or regulations, now existing or
enacted or promulgated after the effective date of this Agreement, are
interpreted by judicial decision or regulatory agency or legal counsel in such a
manner as to indicate that the structure of this Agreement may be in violation
of such laws or regulations, MedCath and Practice shall amend this Agreement as
necessary to eliminate such economic and financial arrangements between MedCath
and Practice. To the extent the parties cannot agree on any such amendment or
changes, the matter shall be submitted to binding arbitration upon the request
of either party and through the arbitration process an equitable modification
shall be implemented or an equitable termination of the Agreement and the
relationship shall be made based on all of the facts and circumstances.
SECTION 11.21 Acknowledgment Regarding Attorney-Client Relationships.
Practice and Shareholders acknowledge and agree that they have elected
from time to time to communicate directly with MedCath's attorneys, that they
have initiated such communications and that they have been advised and were
aware at all times of their rights and the advisability of retaining and
utilizing legal counsel for all purposes related to the transactions and
agreements contemplated by this Agreement.
Such parties further acknowledge and agree that ▇▇▇▇▇ & ▇▇▇ ▇▇▇▇▇, has
served solely as legal counsel for MedCath Incorporated and MedCath Physician
Management, Inc. and not as legal counsel to Valley Cardiology, P.A. or its
Shareholders.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the following execution page(s) effective as of the day and year first above
written.
-35-
EXECUTION PAGE
TO THE
MASTER TRANSACTION AGREEMENT
BY AND BETWEEN
MEDCATH PHYSICIAN MANAGEMENT, INC.
AND
VALLEY CARDIOLOGY, P.A.
December 12, 1997
VALLEY CARDIOLOGY, P.A.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------------------------
Title: /s/ President
----------------------------------
MEDCATH PHYSICIAN MANAGEMENT, INC.
By: /s/ ▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------------
Title: /s/ President, PPM Division
----------------------------------
The undersigned individuals hereby also individually make to MedCath the
representation and warranties regarding Practice contained in Sections 3.1, 3.2,
3.13 and 3.27 of this Agreement and acknowledge and agree to be bound by the
terms and conditions of Section 5.9, Section 10.1(b) and Section 11.21 and
Schedule 10.1(b) of this Agreement, and thus the undersigned hereby execute this
Agreement.
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, M.D.
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, M.D.
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, M.D.
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇, M.D.
LIST OF SCHEDULES
Number Description
------ -----------
3.1 Practice's Articles of Incorporation and Bylaws
3.2 List of Ownership Interests
3.3 List of Subsidiaries, Affiliates, Affiliated Companies and Joint Ventures
3.4 Practice's Financial Statements
3.5 List of Undisclosed Liabilities
3.6 List of Recent Changes
3.7(a) List of Encumbrances
3.7(b) List of Security Interests (Lien Search)
3.8 Contracts and Leases
3.9 Defaults and Consents
3.10 Pending Litigation and Claims
3.11(a) Governmental Actions
3.11(b) List of Governmental Licenses and Permits
3.14 List of Employees with Annual Compensation
3.15 Labor Matters
3.16(a) List of Insurance Policies
3.16(b) List of Past Malpractice Insurance Policies
3.16(c) List of Claims in Excess of $5,000
3.21 Accounts Receivable
3.22 Employee Benefit Plans
3.24 List of Bank Accounts and Officers
3.25 Environmental Matters
10.1(b) Liquidated Damages
SCHEDULE 10.1(b)
TO THE
MASTER TRANSACTION AGREEMENT
BY AND BETWEEN
MEDCATH PHYSICIAN MANAGEMENT, INC.
AND
VALLEY CARDIOLOGY, P.A.
December 12, 1997
Liquidated Damages
1. In the event of a breach of Section 5.9 of the Agreement due to a
Shareholder's ceasing to be employed by Practice for any reason other than as a
result of his death or permanent disability (a "Breaching Physician"), the
amount of "Liquidated Damages" immediately due to MedCath from Shareholders and
Practice shall equal the Breaching Physician's Consideration Allocation.
"Consideration Allocation" shall mean the amount listed in Paragraph 2 below
that is in turn allocated to the Breaching Physician as provided in Paragraph 3
below. Such obligation to pay the Liquidated Damages shall be a joint and
several liability of the Practice and the Breaching Physicians.
2. The "Consideration Allocation" to be allocated among the Shareholders
shall equal:
$[ ] If the breach occurs between Closing and the last
day of the twelfth (12th) month after Closing.
$[ ] If the breach occurs between the first day of the
thirteenth (13th) month and the last day of the
twenty-fourth (24th) month after Closing.
$[ ] If the breach occurs between the first day of the
twenty-fifth (25th) month and the last day of the
thirty-sixth (36th) month after Closing.
$[ ] If the breach occurs between the first day of the
thirty-seventh (37th) month and the last day of the
forty-eighth (48th) month after Closing.
$[ ] If the breach occurs between the first day of the
forty-ninth (49th) month and the last day of the
sixtieth (60th) month after Closing.
In the event that Liquidated Damages are due to MedCath hereunder as result of
events occurring after the second (2nd) anniversary of the Closing Date, the
Consideration Allocation due hereunder from Practice and the Shareholders shall
be reduced by an amount determined by multiplying the Consideration Allocation
as provided above in this paragraph 2 by a fraction, the numerator of which
shall be the number of months which have passed after the second (2nd)
anniversary of the Closing Date
[ ] These portions have been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
at the time of the events giving rise to MedCath's right to Liquidated Damages
under this Agreement, and the denominator of which shall equal to thirty six
(36).
3. Listed below is the allocation of the Consideration Allocation among
the Shareholders as determined by Practice for which such Shareholder shall be
liable to MedCath if such Shareholder becomes a Breaching Physician:
Percentage of Consideration Allocation
Shareholder Allocated to each Shareholder
----------- -----------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, M.D. [ ]%
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, M.D. [ ]%
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, M.D. [ ]%
▇▇▇▇▇▇ ▇▇▇▇▇▇, M.D. [ ]%
[ ] These portions have been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
4. Notwithstanding the payment of Liquidated Damages as set forth above,
nothing herein shall release the Practice or the Breaching Physician from any
noncompetition covenant or restriction which shall remain in full force and
effect and MedCath shall also be entitled to any other equitable relief to which
it is entitled under this Agreement, the Service Agreement, any employment
agreement or otherwise (e.g., injunctive relief).