EXHIBIT 2(e)
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ASSET PURCHASE AGREEMENT
AMONG
CMSF, INC., AS THE BUYER,
AND
ALLIED HEALTH GROUP, INC.,
GUT MANAGEMENT, INC.,
SKY MANAGEMENT CO.,
FLORIDA SPECIALTY NETWORK, LTD.,
SURGICAL ASSOCIATES OF SOUTH FLORIDA, INC.,
SURGINET, INC., AS SELLERS,
AND
▇▇▇▇▇ ▇▇▇▇▇, M.D., ▇▇▇▇▇ ▇▇▇▇▇▇, M.D. AND ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, M.D.
AND
MAGELLAN HEALTH SERVICES, INC., AS PARENT
DATED AS OF OCTOBER 16, 1997
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TABLE OF CONTENTS
PAGE
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SECTION 1. DEFINITIONS................................................................... 1
Section 1.1 Definitions.................................................. 1
Section 1.2 Principles of Construction................................... 13
SECTION 2. PURCHASE AND SALE OF THE PURCHASED PROPERTY................................... 14
Section 2.1 Transfer of Assets........................................... 14
Section 2.2 Sale at Closing Date......................................... 14
Section 2.3 Subsequent Documentation..................................... 14
Section 2.4 Assumption of Liabilities.................................... 15
Section 2.5 Excluded Liabilities......................................... 16
Section 2.6 Breach of Representations.................................... 17
Section 2.7 Right of Enforcement......................................... 17
SECTION 3. PURCHASE PRICE; EARN-OUT...................................................... 17
Section 3.1 Purchase Price............................................... 17
Section 3.2 Working Capital Adjustment................................... 18
Section 3.3 Earn-Out..................................................... 19
Section 3.4 Payment of Adjustment and Earn-Out; Distribution of Escrow... 25
Section 3.5 Prorations and Other Adjustments............................. 26
SECTION 4. CLOSING....................................................................... 27
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE EXECUTIVE
SHAREHOLDERS.................................................................. 28
Section 5.1 Organization; Qualification to Do Business; Subsidiaries..... 29
Section 5.2 Authorization and Validity of Agreement...................... 29
Section 5.3 No Conflict or Violation..................................... 30
Section 5.4 Consents and Approvals....................................... 30
Section 5.5 Financial Statements and Projections......................... 30
Section 5.6 Absence of Certain Changes or Events......................... 31
Section 5.7 Tax Matters.................................................. 35
Section 5.8 Absence of Undisclosed Liabilities........................... 35
Section 5.9 Accounts Receivable; Banking................................. 36
Section 5.10 Real Property; Leases........................................ 36
Section 5.11 Equipment and Machinery...................................... 37
Section 5.12 Intellectual Property; Intangible Assets..................... 37
Section 5.13 Licenses and Permits......................................... 38
Section 5.14 Litigation................................................... 39
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Section 5.15 Professional Liability Claims................................ 39
Section 5.16 Contracts.................................................... 40
Section 5.17 Employee Plans and Benefits; Employees and Independent
Contractors.................................................. 42
Section 5.18 Insurance.................................................... 44
Section 5.19 Compliance with Law.......................................... 45
Section 5.20 Change in Ownership.......................................... 48
Section 5.21 Files and Records............................................ 48
Section 5.22 Related Party Transactions................................... 48
Section 5.23 Sufficiency of and Title to Assets........................... 48
Section 5.24 Accuracy of Information...................................... 49
Section 5.25 Brokers...................................................... 49
Section 5.26 Disclosure................................................... 49
Section 5.27 Survival..................................................... 49
SECTION 6. REPRESENTATIONS AND WARRANTIES
OF THE BUYER AND PARENT....................................................... 49
Section 6.1 Corporate Organization....................................... 49
Section 6.2 Authorization and Validity of Agreement...................... 50
Section 6.3 No Conflict or Violation..................................... 50
Section 6.4 Consents and Approvals....................................... 50
Section 6.5 Litigation................................................... 50
Section 6.6 Financing.................................................... 51
Section 6.7 Brokers...................................................... 51
Section 6.8 Accuracy of Representations and Warranties................... 51
Section 6.9 Survival..................................................... 51
SECTION 7. COVENANTS..................................................................... 51
Section 7.1 Information and Certain Tax Matters.......................... 51
Section 7.2 Conduct of the Businesses.................................... 53
Section 7.3 Tax Reporting and Allocation of Consideration................ 56
Section 7.4 Supplemental Schedules....................................... 56
Section 7.5 Transferred Persons.......................................... 57
Section 7.6 Consents and Approvals....................................... 58
Section 7.7 Negotiations................................................. 59
Section 7.8 Further Assurances........................................... 59
Section 7.9 Covenant Not to Compete...................................... 59
Section 7.10 Non-Solicitation of Employees................................ 60
Section 7.11 Assignment of Contracts and Warranties....................... 60
Section 7.12 Notice of Breach............................................. 61
Section 7.13 Bulk Sales Compliance........................................ 61
Section 7.14 Conduct of the Businesses after Closing...................... 61
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Section 7.15 Meetings of the Board of Directors of Buyer.................. 62
Section 7.16 Information Technologies Budget.............................. 62
Section 7.17 Indemnification for Certain Liabilities...................... 62
Section 7.18 Refinancing of Existing Bank Loan............................ 63
SECTION 8. CONDITIONS TO OBLIGATIONS OF BUYER............................................ 63
Section 8.1 Representations and Warranties............................... 63
Section 8.2 Performance of Seller's and Shareholders' Obligations........ 63
Section 8.3 Consents and Approvals....................................... 64
Section 8.4 No Violation of Orders....................................... 64
Section 8.5 No Material Adverse Change................................... 64
Section 8.6 Due Diligence with Respect to Third Party Payors............. 64
Section 8.7 Consents under Key Contracts................................. 64
Section 8.8 ▇▇▇▇▇▇▇ Consulting Arrangement............................... 65
Section 8.9 Employment Agreement with ▇▇. ▇▇▇▇▇.......................... 66
Section 8.10 Financial Statements and Projections......................... 66
Section 8.11 Opinion of Counsel........................................... 66
Section 8.12 Other Closing Documents...................................... 66
Section 8.13 Legal Matters................................................ 66
Section 8.14 TPA and UR Licenses.......................................... 67
SECTION 9. CONDITIONS TO OBLIGATIONS OF THE SELLERS...................................... 67
Section 9.1 Representations and Warranties of the Buyer.................. 67
Section 9.2 Performance of the Buyer's Obligations....................... 67
Section 9.3 Consents and Approvals....................................... 67
Section 9.4 No Violation of Orders....................................... 67
Section 9.5 Opinion of Counsel........................................... 67
Section 9.6 Other Closing Documents...................................... 68
Section 9.7 Legal Matters................................................ 68
SECTION 10. TERMINATION AND ABANDONMENT................................................... 68
Section 10.1 Methods of Termination; Upset Date........................... 68
Section 10.2 Procedure Upon Termination................................... 69
SECTION 11. INDEMNIFICATION............................................................... 70
Section 11.1 Indemnification by the Sellers and the Executive
Shareholders................................................. 70
Section 11.2 Procedures for Indemnification by the Sellers................ 71
Section 11.3 The Buyer's Right of Set-Off................................. 72
Section 11.4 Indemnification by the Buyer and Parent...................... 72
Section 11.5 Procedures for Indemnification by the Buyer and Parent....... 73
Section 11.6 The Sellers' and Executive Shareholders'
Right of Set-Off............................................. 73
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Section 11.7 Purchase Price Adjustment.................................... 74
SECTION 12. MISCELLANEOUS................................................................. 74
Section 12.1 Successors and Assigns; Restrictions on Assignment and
Transfer of Purchase Price................................... 74
Section 12.2 Governing Law, Jurisdiction.................................. 74
Section 12.3 Expenses..................................................... 74
Section 12.4 Joint and Several Obligations................................ 74
Section 12.5 Severability................................................. 74
Section 12.6 Notices...................................................... 75
Section 12.7 Amendments; Waivers.......................................... 76
Section 12.8 Public Announcements......................................... 76
Section 12.9 Entire Agreement............................................. 77
Section 12.10 Parties in Interest.......................................... 77
Section 12.11 Scheduled Disclosures........................................ 77
Section 12.12 Section and Paragraph Headings............................... 77
Section 12.13 Counterparts................................................. 77
Section 12.14 Post-Closing Survival........................................ 77
Section 12.15 Confidentiality.............................................. 77
Section 12.16 Litigation................................................... 78
Section 12.17 Specific Performance......................................... 78
Section 12.18 Retention of Independent Accounting Firms.................... 78
Section 12.19 Limited Obligations of Parent................................ 78
EXHIBITS
A -- Form of Assumption Agreement
B -- Form of Escrow Agreement
C -- Form of Opinion of Broad and ▇▇▇▇▇▇
D -- Form of Opinion of Dow, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, PLLC
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SCHEDULES
1.1(k) Best Knowledge and Knowledge
1.1(yyy) Permitted Encumbrances
1.1(hhhh) Excluded Assets
1.1(llll) Shareholders
2.4(a) Certain Excluded Contracts
2.4(b) Certain Payables
5.1(a) Equity Interests
5.1(b) Partnership Interests
5.3 Conflicts or Violations
5.4 Consents, Waivers, Authorizations and Approvals for Sellers
5.5 Financial Statements
5.6(a) Material Changes or Events
5.6(b) Exceptions to Section 5.6(b)
5.6(b)(13) Certain Encumbrances
5.6(c) Exceptions to Section 5.6(c)
5.7(b) Tax Matter Exceptions
5.7(c) Tax Jurisdictions
5.9(b) Bank Accounts
5.10(a) Owned Real Property
5.10(b) Leased Real Property
5.10(c) Amendments to Leases; Defaults
5.10(d) Subleases; Restrictive Covenants
5.11 Equipment and Machinery
5.12(a) Intellectual Property
5.12(b) Intangible Assets
5.13(a) Licenses, Permits and Governmental Approvals
5.14 Litigation
5.15(a) Professional Liability Claims
5.16(a) Contracts
5.16(c) Material Compliance with Contracts
5.16(d) Restrictions on Assignment
5.16(e) Co-Contractants; Change of Control Payments
5.16(f) Capitation Fees
5.16(h)(i) Non-Competition Provisions (Payors)
5.16(h)(ii) Non-Competition Provisions (Network Physicians, Consultants)
5.16(i) Significant Terminations
5.17(a) Plans and Compensation Arrangements
5.17(d) Determination Letters; Material Liability
5.17(e)(i) Network Physicians
5.17(e)(ii) Consultants
5.17(e)(iii) Employees
5.18(a) Insurance
5.18(b) Insurance for Third Parties
5.19 Compliance with Law
5.22 Related Party Transactions
6.3 Conflicts
6.4 Consents, Waivers, Authorizations and Approvals for Buyer
7.2 Conduct of Business
7.3(b) Allocation
7.5(a) Employees to be Engaged by the Buyer
8.7 Key Contracts
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of October 16, 1997, among CMSF, Inc.,a
Florida corporation (the "BUYER"), Allied Health Group, Inc., a Florida
corporation ("AHG"), Gut Management, Inc., a Florida corporation ("GUT"), Sky
Management Co., a Florida corporation ("SKY"), Florida Specialty Network, Ltd.,
a Florida limited partnership ("FSN"), Surgical Associates of South Florida,
Inc., a Florida corporation ("SASF"), Surginet, Inc., a Florida corporation
("SURGINET" and, together with AHG, Gut, Sky, FSN and SASF, the "SELLERS"), and
▇▇▇▇▇ ▇▇▇▇▇, M.D., ▇▇▇▇▇ ▇▇▇▇▇▇, M.D. and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, M.D. (each, in his
individual capacity, an "EXECUTIVE SHAREHOLDER", and collectively, the
"EXECUTIVE SHAREHOLDERS"), and Magellan Health Services, Inc., a Delaware
corporation, the ultimate corporate parent of the Buyer ("PARENT"),
W I T N E S S E T H:
WHEREAS, AHG is engaged in the business of managing physician networks and
providing administrative tasks relating thereto under a variety of
administrative services and managed care network agreements;
WHEREAS, Sky, SASF, Surginet and Gut are each engaged in the business of
providing surgical specialty networks which, in the case of Gut, is specialized
in gastroenterology, and certain related administrative tasks under a variety of
managed care agreements;
WHEREAS, FSN is engaged in performing various administrative and data
processing tasks for certain of the foregoing Sellers as well as to various
health maintenance organizations and managed care physician networks; and
WHEREAS, the Buyer desires to purchase the businesses of the Sellers by
purchasing all the assets relating to all the business activities and operations
of each Seller, including the activities described above (each, a "BUSINESS,"
and collectively, taking into account the Business of each Seller, the
"Businesses") from the Sellers, and the Sellers desire to sell such Businesses
and assets to the Buyer, in each case upon the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
covenants and agreements hereinafter contained, the parties hereby agree:
SECTION 1. DEFINITIONS.
Section 1.1 DEFINITIONS. Unless the context otherwise requires, as used in
this Agreement, the following terms shall have the following meanings (terms
defined in the singular to have the same meanings when used in the plural and
VICE VERSA):
(a) "Accounts Receivable" shall mean all accounts and notes receivable,
claims, debtor obligations and other rights to receive payments from third
parties of each Seller relating to its Business, existing on the Closing Date.
(b) "Accountants" shall have the meaning set forth in Section 3.3(a).
(c) "Affiliates" shall mean any individual, corporation, partnership, joint
venture, association, trust or unincorporated organization that controls, is
controlled by or is under common control with a Person and "control" of a Person
(including, with correlative meaning, the terms "control by" and "under common
control with") means the power to direct or cause the direction of the
management, policies or affairs of the controlled Person, whether through
ownership of securities or partnership or other ownership interests, by contract
or otherwise, PROVIDED, HOWEVER, that in the case of any Seller, the term
"Affiliates" shall also include each other Seller, and each Shareholder of such
Seller.
(d) "Agreement" shall mean this Asset Purchase Agreement, as it may be
amended, modified or supplemented from time to time in accordance with its
terms.
(e) "Allocation" shall have the meaning set forth in Section 7.3(b).
(f) "Applicable Percentage" shall mean the percentage of the Closing Cash
Installment of the Purchase Price being paid to each Seller at Closing in
relation to the other Sellers as set forth in a schedule to be provided by the
Sellers to the Buyer at least 5 Business Days prior to the Closing Date.
(g) "Asset Acquisition Statement" shall have the meaning set forth in
Section 7.3(b).
(h) "Assumed Liabilities" shall mean the liabilities and obligations of the
Sellers expressly assumed by the Buyer pursuant to Section 2.4 and no others.
(i) "Audited Financial Statements" shall mean, collectively, (i) for each of
Gut, Sky, and SASF, the audited balance sheets as of December 31, 1994, 1995 and
1996 and the related statements of operations and retained earnings, and cash
flows for the years then ended; (ii) the audited balance sheets of FSN as of
December 31, 1994, 1995 and 1996 and the related statements of operations,
partners' equity, and cash flows for the years then ended; (iii) the audited
balance sheets of AHG as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' equity and cash flows from inception
(May 15, 1995) to December 31, 1996; (iv) the audited balance sheets of Surginet
as of December 31, 1995 and 1996, and the related statements of operations,
stockholders' equity and cash flows from inception (April 12, 1995) to December
31, 1996; and (v) collectively, for the Sellers taken as a whole, the audited
combined balance sheets as of December 31, 1994, 1995 and 1996, and the related
combined statements of operations, owners' equity and cash flows for the years
then ended.
(j) "Best Efforts" means that the obligated party is required to make a
diligent and good faith effort to accomplish the applicable objective. Such
obligation, however, does not require a material expenditure of funds or the
incurrence of a material liability on the part of the obligated party, nor does
it require that the obligated party act in a manner that would be contrary to
normal commercial practices in order to accomplish the objective. The failure to
accomplish a given objective is no indication that the obligated party did not
in fact utilize its Best Efforts in attempting to accomplish the objective.
(k) "Best Knowledge" or "best knowledge" when used with respect to: (i) a
Seller shall mean the collective knowledge of the persons identified on SCHEDULE
1.1(K), as well as all of the officers, directors and the Executive Shareholders
of such Seller, including the knowledge any such Person has or could reasonably
be expected to have after due inquiry, and (ii) an Executive Shareholder shall
mean the knowledge of such Executive Shareholder, including the knowledge such
Executive Shareholder has or could reasonably be expected to have after due
inquiry. For purposes of this definition, "due inquiry" shall mean reasonable
inquiry of those Persons who are, in the judgment of such Person, likely to have
knowledge of the facts which are the subject of the inquiry.
(l) "Business" shall have the meaning set forth in the recitals hereto.
(m) "Business Day" shall mean days other than Saturdays, Sundays and other
legal holidays or days on which the principal office of First Union National
Bank of North Carolina is closed.
(n) "Buyer" shall have the meaning set forth in the introductory paragraph
hereto.
(o) "Buyer Indemnitees" shall have the meaning set forth in Section 11.1.
(p) "Buyer's Event of Breach" shall have the meaning set forth in Section
11.4.
(q) "Cash and Cash Equivalents" shall mean the amount of cash on hand and
cash in any bank account or brokerage account of each of the Sellers, including
any securities with maturities of less than 90 days.
(r) "Change of Control Payment" shall have the meaning set forth in Section
5.16(e).
(s) "Closing" shall have the meaning set forth in Section 4.
(t) "Closing Cash Installment" shall have the meaning set forth in Section
3.1.
2
(u) "Closing Date" shall have the meaning set forth in Section 4.
(v) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(w) "Compensation Arrangements" shall have the meaning set forth in Section
5.17(a).
(x) "Consultants" means all consultants, agents and independent contractors
providing consulting services, including marketing, promotion, software
development, administrative services and related services, engaged by any Seller
in connection with its Business, each of whom has been identified pursuant to
Section 5.17(e) and SCHEDULE 5.17(E)(II).
(y) "Contracts" shall mean, collectively, the Third Party Payor Agreements,
Leases, Purchase Orders and Other Contracts all of which are listed on SCHEDULE
5.16(A) hereto, and no others. The term Contracts shall not include any of the
Excluded Contracts regardless of whether such Excluded Contracts are also listed
on SCHEDULE 5.16(A).
(z) "December 31, 1996 Combined Balance Sheet" shall mean the audited
combined balance sheet of the Sellers at December 31, 1996, which is included in
the Financial Statements.
(aa) "Earn-Out Period" shall have the meaning set forth in Section 3.3(a).
(x) "EBITDA" shall have the meaning set forth in Section 3.3(a).
(bb) "EBITDA Statement" shall have the meaning set forth in Section 3.3(b).
(cc) "Employees" means the employees of each Seller who are employed in
connection with its Business (excluding temporary, leased and contract
personnel), each of whom as of ten Business Days prior to the date of this
Agreement has been identified pursuant to Section 5.17(e) and SCHEDULE
5.17(E)(III).
(dd) "Encumbrance" shall mean any encumbrance or lien of any character
whatsoever, including, any option, right to purchase, right to convert,
mortgage, charge, claim, pledge, conditional sales contract, judgment lien,
materialman's lien, mechanic's lien or security interest.
(ee) "Engagement Notice" shall have the meaning set forth in Section 7.5(a).
(ff) "Environmental Law" means the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA), 42 U.S.C. SectionSection 9601 et seq.;
the Resource Conservation and Recovery Act (RCRA), 42 U.S.C. SectionSection 6901
et seq.; the Federal Water Pollution Control Act, 33 U.S.C. SectionSection 1251
et seq.; the Clean Air Act, 42 U.S.C. SectionSection 7401 et seq.; the Hazardous
Materials Transportation Act, 49 U.S.C. SectionSection 1801 et seq.; the Toxic
Substances Control Act, 15 U.S.C., SectionSection 2601-2629; the Safe Drinking
Water Act, 42 U.S.C. SectionSection300f-300j; and any state and local laws and
ordinances that regulate in any way hazardous materials or wastes and the
regulations implementing such statutes.
(gg) "Equipment and Machinery" shall mean (i) the equipment, computer
hardware, machinery, furniture, fixtures and improvements, spare parts, supplies
and vehicles owned or leased by each Seller with respect to the operations of
its Business on the Closing Date (including all such items as set forth on the
June 30, 1997 Combined Balance Sheet), (ii) the replacements for any of the
foregoing owned or leased by such Seller, (iii) the warranties, service and
maintenance documents, bills of sale, assignments and licenses (to the extent
assignable) received from manufacturers and sellers of the aforesaid items and
(iv) any related claims, credits, rights of recovery and set-off with respect
thereto.
(hh) "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
(ii) "ERISA Affiliate" shall have the meaning set forth in Section 5.17(a).
(jj) "Escrow Agent" shall have the meaning set forth in Section 3.1(b).
3
(kk) "Escrow Agreement" shall mean the Escrow Agreement by and among the
Buyer, the Sellers, and the Escrow Agent, substantially in the form attached
hereto as EXHIBIT B.
(ll) "Escrow Deposit" shall have the meaning set forth in Section 3.1(b).
(mm) "Excluded Contracts" shall have the meaning set forth in Section
2.4(a).
(nn) "Excluded Liabilities" shall have the meaning set forth in Section 2.5.
(oo) "Excluded Employee Obligations" has the meaning set forth in Section
2.5(d).
(pp) "▇▇▇▇▇▇▇ Consulting Agreement" shall mean that certain agreement, made
as of June 1, 1996, by and among FSN, Inc., FSN, AHG, and each of the ▇▇▇▇▇▇▇
Parties.
(qq) "▇▇▇▇▇▇▇ Parties" shall mean, collectively, ▇▇▇▇▇▇ ▇▇▇▇▇ Company, a
Missouri corporation, and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇.
(rr) "Files and Records" shall mean all files, books and records, whether in
hard copy or magnetic or optical format, of each Business or the Purchased
Property, including the following types of files, books and records relating to
such Business: patient and supplier files, commitments, reports of examination,
correspondence or internal memoranda regarding Contracts or other Purchased
Property, equipment maintenance records, equipment warranty information and all
files relating to Employees or independent contractors of such Business employed
or engaged by the Buyer, including Form I-9's, credit records, and other similar
documents and records used and/or useful in connection with such Business, and
correspondence with Governmental Authorities relating to the operation of such
Business and related files and records of each Seller, in each case, whether
created prior to or following the Closing.
(ss) "Financial Statements" shall mean, collectively, (i) the Audited
Financial Statements, (ii) the Management Prepared Financial Statements, and
(iii) the Projections, each as defined herein.
(tt) "FSN, Inc." shall have the meaning set forth in Section 5.1(a).
(uu) "FSN Limited Partnership Agreement" shall have the meaning set forth in
Section 5.1(b).
(vv) "GAAP" shall mean generally accepted accounting principles as in effect
from time to time.
(ww) "Governmental Authority" shall mean any agency, division, department,
regulatory body, subdivision, commission, board, bureau, court, audit group,
procuring office or other instrumentality of the government of the United
States, any state or local government, or any foreign national or local
government, any subdivision thereof, including the employees, officers,
representatives or agents thereof, as well as any arbitrator.
(xx) "Hazardous Materials" shall have the meaning set forth in Section
5.19(f).
(yy) "IAF EBITDA Statement" shall have the meaning set forth in Section
3.3(b).
(zz) "IBNR" shall have the meaning set forth in Section 5.5(b).
(aaa) "Independent Accounting Firm" shall have the meaning set forth in
Section 3.3(a).
(bbb) "Information Technologies Budget" shall have the meaning set forth in
Section 7.16.
(ccc) "Initial Purchase Price" shall have the meaning set forth in Section
3.1.
(ddd) "Intangible Assets" shall mean all intangible personal property
rights, including the proceeds of any insurance policies and all claims on the
part of each Seller for recoupment, reimbursement and coverage under any
insurance policies, in each case in connection with its Business and all
goodwill of each Seller relating to its Business, and including those items
listed in SCHEDULE 5.12(B).
(eee) "Intellectual Property" shall mean all letters patent, patent
qualifications, patent applications, trademarks, trademark applications, service
marks, service ▇▇▇▇ applications, trade names, brands, trade
4
dress, logos, designs, private labels, copyrights, know-how, trade secrets and
licenses, including software, computer network systems, claims processing
procedures and other rights relating to the administration of Third Party Payor
Agreements or otherwise relating to the Businesses, and rights with respect to
the foregoing that each Seller holds or possesses the rights to use relating to
the Purchased Property or the operations of its Business, including those items
listed in SCHEDULE 5.12(A) hereto. Without limiting the generality of the
foregoing, the name "Allied Health Group" falls within the foregoing definition.
(fff) "Inventory" means all (i) inventoriable supplies held by each Seller
on the Closing Date (including all such items as set forth on the June 30, 1997
Combined Balance Sheet) for use in the operations of its Business, (ii) any
supplies delivered to each Seller's Business after the Closing Date which such
Seller has agreed to purchase in the ordinary course of business consistent with
past practices and (iii) any warranties received from each Seller's suppliers
with respect to such inventory (to the extent assignable) and related claims,
credits, rights of recovery and set-off with respect thereto.
(ggg) "June 30, 1997 Combined Balance Sheet" shall mean the unaudited
combined balance sheet of the Sellers at June 30, 1997, which is included in the
Financial Statements.
(hhh) "Key Contracts" shall have the meaning set forth in Section 8.7.
(iii) "Knowledge" or "knowledge" when used with respect to: (i) a Seller
shall mean the collective actual knowledge of the persons identified on SCHEDULE
1.1(K), as well as all of the other officers, directors and the Executive
Shareholders of such Seller; and (ii) an Executive Shareholder shall mean the
actual knowledge of such Executive Shareholder.
(jjj) "Leased Real Property" shall have the meaning set forth in Section
5.10(b).
(kkk) "Leases" shall have the meaning set forth in Section 5.10(b).
(lll) "Licenses and Permits" shall have the meaning set forth in Section
5.13.
(mmm) "Losses" shall have the meaning set forth in Section 11.1.
(nnn) "Management Agreement" shall mean the management agreement, to be
effective as of the Closing Date, between the Buyer and a corporation formed by
the Executive Shareholders pursuant to which the services of the Executive
Shareholders will be made available to the Buyer for a period of three years in
consideration of the payment by the Buyer of $250,000 per year in the aggregate
and upon such other terms and conditions as shall be mutually agreed to by the
Buyer and the Executive Shareholders.
(ooo) "Management Prepared Financial Statements" shall mean, collectively,
(i) for each Seller the unaudited balance sheet as of June 30, 1997, and the
related income statement for the six months then ended, (ii) collectively, for
the Sellers taken as a whole, the unaudited combined balance sheet as of June
30, 1997, and the related income statement for the six months then ended, (iii)
for the Sellers monthly combined and combining unaudited balance sheets and the
related income statements as of and for the month ending July 31, 1997 and each
month thereafter through the month ending thirty days prior to the Closing Date,
prepared by management of the Sellers, and (iv) for the Sellers combined and
combining unaudited balance sheets and the related income statements for the
period commencing January 1, 1997 through the month ending 30 days prior to the
Closing Date and the corresponding period in the prior year.
(ppp) "Minimum Amount" shall have the meaning set forth in Section 3.2(c).
(qqq) "Multiemployer Plan" shall have the meaning set forth in ERISA Section
3(37).
(rrr) "Net Revenue" shall have the meaning set forth in Section 3.3(a).
(sss) "Network Physicians" means primary care or specialist physicians
serving as independent contractors of any Seller or any Person contracting with
a Seller for the provision of health care or medical
5
services but who is not an Employee, each of whom has been identified pursuant
to Section 5.17(e) and SCHEDULE 5.17(E)(I).
(ttt) "New ▇▇▇▇▇▇▇ Consulting Agreement" shall have the meaning set forth in
Section 8.8(c).
(uuu) "Objection Notice" shall have the meaning set forth in Section 3.3(b).
(vvv) "Occurrence" shall have the meaning set forth in Section 5.15(b).
(www) "Other Contracts" shall mean all Equipment and Machinery leases, and
all loan agreements, security agreements, partnership or joint venture
agreements, license agreements, software licenses, service contracts, suretyship
contracts, guarantees, letters of credit, reimbursement agreements, distribution
agreements, contracts or commitments limiting or restraining any Seller with
respect to its Business from engaging or competing in any lines of business or
with any person, firm or corporation, contracts or commitments granting any
Seller rights of first refusal or exclusive rights or similar rights with
respect to its Business or any lines of business, documents granting the power
of attorney with respect to the affairs of any Seller, agreements not made in
the ordinary course of business of any Seller's Business, options to purchase
any assets or property rights of the Business, working capital maintenance or
other form of guaranty agreements, and all other agreements to which any Seller
is a party and which are related to the operation of its Business, all of which
are listed on SCHEDULE 5.16(A), but excluding Leases, Third Party Payor
Agreements and Purchase Orders.
(xxx) "Parent" shall have the meaning set forth in the introductory
paragraph hereto.
(yyy) "Permitted Encumbrances" means the Encumbrances set forth on SCHEDULE
1.1(YYY).
(zzz) "Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or Governmental Authority.
(aaaa) "Plans" shall have the meaning set forth in Section 5.17(a).
(bbbb) "Post-Closing Statement" shall have the meaning set forth in Section
3.2(a).
(cccc) "Premises" shall mean the Leased Real Property.
(dddd) "Professional Liability Claims" shall have the meaning set forth in
Section 5.15(a).
(eeee) "Projections" shall mean collectively, (i) the projected statement of
operations for the twelve months ending September 30, 1998 of AHG and FSN, and
(ii) run rates of Gut, Sky, SASF and Surginet for the twelve months ending
September 30, 1998. All such projections have been prepared by the management of
the Sellers.
(ffff) "Purchase Orders" shall mean any outstanding purchase orders,
contracts or other commitments to suppliers of goods and services for materials,
supplies or other items used in the Business and listed on SCHEDULE 5.16(A).
(gggg) "Purchase Price" shall mean the aggregate amount payable to the
Sellers pursuant to Section 3.
(hhhh) "Purchased Property" shall mean the (i) Accounts Receivable, (ii)
Contracts (except as set forth on SCHEDULE 2.4(A)), (iii) Equipment and
Machinery, (iv) Files and Records, (v) Intangible Assets, (vi) Intellectual
Property, (vii) Inventory, (viii) Licenses and Permits (to the extent
transferable by the Sellers), (ix) Cash and Cash Equivalents, (x) any prepaid
expenses and other assets relating to the operations of each Business on the
Closing Date, (xi) all software, software systems, databases and all other
information systems used in the Businesses, (xii) all other tangible and
intangible assets of the Sellers and the Executive Shareholders (other than
items of personal property owned by the Executive Shareholders which are not
material to the operations of the Businesses and do not have an aggregate fair
market value of more than $25,000) used in the respective Businesses (whether or
not such assets are reflected on
6
the June 30, 1997 Combined Balance Sheet) and related thereto, (xiii) all
proceeds (including any Cash and Cash Equivalents) received by the Sellers or
the Shareholders in respect of any or all of the foregoing on or after the
Closing Date, (xiv) all proceeds (including any Cash and Cash Equivalents)
received by the Sellers or the Shareholders in respect of any insurance policy
of the Sellers relating to an event occurring on or after July 1, 1997, and (xv)
all of the goodwill associated with the Businesses and the Purchased Property;
provided; however, that the Purchased Property shall not include those items
described on SCHEDULE 1.1(HHHH)hereto.
(iiii) "Seller" and "Sellers" shall have the respective meanings set forth
in the introductory paragraph hereto.
(jjjj) "Sellers' Event of Breach" shall have the meaning set forth in
Section 11.1.
(kkkk) "Seller Indemnitees" shall have the meaning set forth in Section
11.4.
(llll) "Shareholders" shall mean the shareholders or partners (including
general and limited partners), as the case may be, of each of the Sellers,
including the Executive Shareholders, as set forth on SCHEDULE 1.1(LLLL).
(mmmm) "Subject Business" shall mean contracting with independent physician
delivery systems and third party payors for the management of established
independent physician networks (including providing MSO services, quality
management, utilization review and claims processing), where the physician
providers are compensated on a fee for service basis out of a capitated pool.
(nnnn) "Subsidiaries" (or "Subsidiary" as the context may require) shall
mean each entity as to which a Person, directly or indirectly, owns or has the
power to vote, or to exercise a controlling influence with respect to, 10% or
more of the securities of any class of such entity the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the election
of directors (or persons performing similar functions) of such Person.
(oooo) "Tax Returns" shall mean any return, report, information return or
other document (including any related or supporting information) filed or
required to be filed with any Governmental Authority in connection with the
determination, assessment, collection or administration of any Taxes and shall
include any amended returns required as a result of any examination adjustments
made by the Internal Revenue Service or other Tax authority.
(pppp) "Taxes" shall mean for all purposes of this Agreement all taxes
however denominated, including any interest, penalties or additions to tax that
may become payable in respect thereof, imposed by any Governmental Authority,
which taxes shall include, without limiting the generality of the foregoing, all
income taxes, payroll and employee withholding taxes, unemployment insurance,
social security, sales and use taxes, excise taxes, franchise taxes, gross
receipts taxes, occupation taxes, real and personal property taxes, stamp taxes,
utility, severance, production, premium, capital stock, license, transfer and
transfer gains taxes, workmen's compensation taxes and other obligations of the
same or a similar nature, whether arising before, on or after the Closing; and
"Tax" shall mean any one of them.
(qqqq) "Third Party Payor Agreements" shall mean all agreements listed on
SCHEDULE 5.16(A) hereto to which any Seller is a party relating to the
furnishing, management or maintenance of, or administration or data processing
services relating to, physician or other professional service networks in
connection with professional, medical or health maintenance services or other
health cost arrangements in connection with any of the Businesses.
(rrrr) "Transferred Consultant" shall have the meaning set forth in Section
7.5(a).
(ssss) "Transferred Employee" shall have the meaning set forth in Section
7.5(a).
7
(tttt) "Transferred Network Physician" shall mean a Network Physician who is
offered engagement as a Network Physician by the Buyer and who serves as an
independent contractor of the Buyer as of the Closing Date.
(uuuu) "Unrestricted Cash" shall mean the aggregate of cash of the Sellers
immediately available for disbursement without restriction or limitation of any
kind, plus Due from Plan/Client amounts, less Contract Reserve amounts, less
Physician Payable amounts, as said terms are historically used and reflected in
the Financial Statements.
(vvvv) "Working Capital Amount" shall have the meaning set forth in Section
3.2(c).
(wwww) "Year 1 Adjustment" shall have the meaning set forth in Section
3.3(a).
(xxxx) "Year 2 Adjustment" shall have the meaning set forth in Section
3.3(a).
(yyyy) "Year 3 Adjustment" shall have the meaning set forth in Section
3.3(a).
(zzzz) "Year 1 Earn-Out" shall have the meaning set forth in Section 3.3(a).
(aaaaa) "Year 2 Earn-Out" shall have the meaning set forth in Section
3.3(a).
(bbbbb) "Year 3 Earn-Out" shall have the meaning set forth in Section
3.3(a).
(ccccc) "Year 1 EBITDA" shall have the meaning set forth in Section
3.3(c)(1).
(ddddd) "Year 2 EBITDA" shall have the meaning set forth in Section
3.3(d)(1).
(eeeee) "Year 3 EBITDA" shall have the meaning set forth in Section
3.3(e)(1).
(fffff) "Year 1 Earn-Out Period" shall have the meaning set forth in Section
3.3(a).
(ggggg) "Year 2 Earn-Out Period" shall have the meaning set forth in Section
3.3(a).
(hhhhh) "Year 3 Earn-Out Period" shall have the meaning set forth in Section
3.3(a).
(iiiii) "Year 1 Threshold EBITDA" shall have the meaning set forth in
Section 3.3(a).
(jjjjj) "Year 2 Threshold EBITDA" shall have the meaning set forth in
Section 3.3(a).
(kkkkk) "Year 3 Threshold EBITDA" shall have the meaning set forth in
Section 3.3(a).
Section 1.2 PRINCIPLES OF CONSTRUCTION. Definitions used in this Agreement
shall apply equally to both the singular and plural forms of the terms defined.
Whenever used in this Agreement, the words "include," "includes" and "including"
shall be deemed to be followed by the phrase "without limitation." Unless the
context otherwise requires, all references herein to Articles, Sections,
Exhibits and Schedules shall be deemed references to articles and sections of,
and schedules to this Agreement. Unless the context otherwise requires, the term
"party" when used in this Agreement means a party to this Agreement, and
references to a party or other Person shall be deemed to include successors and
permitted assigns of such party. All references herein to any agreement or
document shall be deemed to include such agreement or document (unless specific
reference is made to that agreement or document as in effect on a specific
date), as the same may be amended, supplemented or otherwise modified from time
to time. The parties acknowledge and agree that they have been represented by
counsel and that each of the parties has participated in the drafting of this
Agreement. Accordingly, it is the intention and agreement of the parties that
the language, terms and conditions of this Agreement are not to be construed in
any way against or in favor of any party hereto by reason of the
responsibilities in connection with the preparation of this Agreement.
SECTION 2. PURCHASE AND SALE OF THE PURCHASED PROPERTY.
Section 2.1 TRANSFER OF ASSETS. Subject to the terms and conditions herein
set forth, each Seller shall sell, convey, transfer, assign and deliver to the
Buyer, and the Buyer shall purchase, acquire and accept
8
from each Seller on the Closing Date, all right, title and interest of each
Seller and its Affiliates in or to the Purchased Property, wherever located,
free and clear of all Encumbrances except for Permitted Encumbrances.
Notwithstanding anything to the contrary contained in this Agreement, to the
extent that the sale or assignment of any Account Receivable is prohibited by
applicable contract, law or regulation, this Agreement shall not constitute an
agreement to sell or assign such Account Receivable, provided however, each
Seller agrees to pay to the Buyer the equivalent cash value of any and all such
Account Receivable(s), and upon each Seller's collection of any such Account
Receivable shall immediately remit a check to the Buyer for such amount. Each
Seller covenants and agrees to use its Best Efforts to collect any such Account
Receivable and shall deliver to Buyer on a monthly basis a report setting forth
the status of any such outstanding Account Receivable and describing its
collection efforts.
Section 2.2 SALE AT CLOSING DATE. The sale, transfer, assignment and
delivery by each Seller of the Purchased Property to the Buyer, as herein
provided, shall be effected on the Closing Date by deeds, bills of sale,
endorsements, assignments and other instruments of transfer and conveyance
reasonably satisfactory in form and substance to counsel for the Buyer.
Section 2.3 SUBSEQUENT DOCUMENTATION. Each Seller and each Executive
Shareholder shall, at any time and from time to time after the Closing Date,
upon the reasonable request of the Buyer and at the expense of the Sellers and
the Executive Shareholders, do, execute, acknowledge and deliver, or cause to be
done, executed, acknowledged and delivered (whether by any Seller, any
Shareholder or any other Person), all such further deeds, assignments, transfers
and conveyances as may be required for the better assigning, transferring,
granting, conveying and confirming to the Buyer or its successors and assigns or
for aiding and assisting in collecting and reducing to possession, any or all of
the Purchased Property. Each Seller and each Executive Shareholder hereby
constitutes and appoints, effective as of the Closing Date, the Buyer, its
successors and assigns as the true and lawful attorney-in-fact of such Seller or
Executive Shareholder with full power of substitution in the name of such Buyer
or in the name of the Seller or Executive Shareholder but for the benefit of the
Buyer (a) to collect for the account of the Buyer any item of Purchased Property
and (b) to institute and prosecute all proceedings which the Buyer may in its
discretion deem proper in order to assert or enforce any right, title or
interest in or to the Purchased Property and to defend or compromise (subject to
Section 10, if applicable) any and all actions, suits or proceedings in respect
of any of the Purchased Property. The Buyer shall be entitled to retain for its
own account any amounts collected pursuant to the foregoing powers, including
any amounts payable as interest in respect thereof. EACH SELLER AND EACH
EXECUTIVE SHAREHOLDER HEREBY DECLARES THAT THE FOREGOING APPOINTMENT IS COUPLED
WITH AN INTEREST AND SHALL BE IRREVOCABLE AND PERPETUAL AND SHALL NOT BE
TERMINATED BY ANY ACT OF ANY SELLER, ANY EXECUTIVE SHAREHOLDER OR THEIR
RESPECTIVE SUCCESSORS OR ASSIGNS, BY OPERATION OF LAW OR BY THE OCCURRENCE OF
ANY OTHER EVENT OR IN ANY OTHER MANNER.
Section 2.4 ASSUMPTION OF LIABILITIES. On the Closing Date, the Buyer
shall execute and deliver an assumption agreement in the form attached hereto as
EXHIBIT A, pursuant to which the Buyer shall accept, assume and agree to pay,
perform and discharge when due, in accordance with the respective terms and
subject to the respective conditions thereof, all of the liabilities and
obligations of the Sellers pursuant to and under the Assumed Liabilities. The
"ASSUMED LIABILITIES" shall mean:
(a) All liabilities and obligations of each Seller of any kind arising from
the operations of the Businesses beginning on or after the first day following
the Closing Date, other than those (i) to which the Buyer is entitled to
indemnification by the Executive Shareholders pursuant to Section 11 of the
Agreement, (ii) Taxes with respect to periods ending on or prior to the Closing
Date, and (iii) Change of Control Payments, if any; provided, however, that in
the case of Contracts, Third Party Payor Agreements, Leases, and Other
Contracts, only to the extent such Contracts, Third Party Payor Agreement, Lease
or Other Contract is described in SCHEDULE 5.16(A) of this Agreement; and
PROVIDED, FURTHER, that in no event shall the Buyer assume or be responsible for
the contracts listed on SCHEDULE 2.4(A) (the "EXCLUDED
9
CONTRACTS"); PROVIDED, FURTHER, that in the event that the parties hereto become
aware of the fact at any time after the Closing that a contract of any of the
Sellers in existence on the Closing Date is not listed on either SCHEDULE
5.16(A) or SCHEDULE 2.4(A), such contract, at the sole election of Buyer, shall
be assigned to and assumed by Buyer and shall for all purposes under this
Agreement be treated as a Contract under this Agreement; and
(b) Additional payables arising from the operations of the Businesses prior
to the first day following the Closing Date and specified on SCHEDULE 2.4(B), as
such Schedule may be amended by the mutual agreement of the Sellers and Buyer
prior to the Closing Date.
Section 2.5 EXCLUDED LIABILITIES. The Assumed Liabilities shall not
include, and the Buyer shall not assume or be liable for any liabilities and
obligations of the Sellers or any of their Affiliates not expressly assumed in
Section 2.4 (collectively, the "EXCLUDED LIABILITIES"), including, without
limitation:
(a) Any liability or obligation relating to Professional Liability Claims
arising from services performed on or before the Closing Date;
(b) Any liability or obligation relating to the Plans or the Compensation
Arrangements (as such terms are defined in Section 5.17);
(c) Other than as required pursuant to Sections 2.4(a) or (b), any
liabilities or obligations to current or former employees of, or independent
contractors with, any Seller who do not become Transferred Network Physicians,
Transferred Consultants or Transferred Employees, as the case may be;
(d) Any employment-related liabilities for which the Buyer is indemnified
under Section 11.1(d) (an "EXCLUDED EMPLOYEE OBLIGATION") and any other
liability for which the Buyer is indemnified under Section 11;
(e) Any liabilities with respect to Taxes of any Seller or Shareholder or
relating to any period ending on or prior to the Closing Date, including
liabilities related to (i) income Taxes of the Sellers or any of their
Affiliates whether arising before or after the Closing Date, (ii) Taxes relating
to the Purchased Property acquired under the terms and conditions of this
Agreement for all periods (or portions thereof) ending on or prior to the
Closing Date, (iii) Taxes attributable to or imposed with respect to the
transfer, assignment and delivery of the Purchased Property under Section 12.3
hereof or otherwise or to any other transactions contemplated by this Agreement
and (iv) Taxes of any other Person for which any of the Sellers may be liable by
contract or otherwise;
(f) Any liabilities to any Shareholders or any of their Affiliates;
(g) Any liabilities or obligations relating to or arising under the ▇▇▇▇▇▇▇
Consulting Agreement;
(h) Any liability arising from operations of the Businesses before the
Closing Date not expressly assumed pursuant to Section 2.4;
(i) Any liability or obligations under Contracts not included in Purchased
Property;
(j) Any liability or obligations relating to Nudel & ▇▇▇▇▇, M.D., P.A. and
Young, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ Surgical Associates, M.D., P.A.(d/b/a South Florida
Surgical Group); and
(k) Any other liability not expressly assumed pursuant to Section 2.4
notwithstanding the inclusion of any such liability on the June 30, 1997
Combined Balance Sheet or any Management Prepared Financial Statements.
Section 2.6 BREACH OF REPRESENTATIONS. Nothing in Section 2.4 shall limit
the Buyer's right to indemnification for the breach by any Seller or any
Executive Shareholder of any of its representations, warranties or covenants
hereunder.
10
Section 2.7 RIGHT OF ENFORCEMENT. Commencing on the Closing Date, the
Buyer will have complete control over the payment, settlement or other
disposition of the Assumed Liabilities and the right to commence, conduct and
control all negotiations and proceedings with respect thereto. The Sellers and
the Executive Shareholders will notify the Buyer promptly of any claim made with
respect to any Assumed Liabilities or Purchased Property and shall not, except
with the Buyer's prior written consent, voluntarily make any payment of,
settlement or offer to settle, or consent to any compromise or admit liability
with respect to, any Assumed Liabilities or Purchased Property. The Sellers will
cooperate, with the Buyer in connection with any negotiations or proceedings
involving any Assumed Liabilities or Purchased Property.
SECTION 3. PURCHASE PRICE; EARN-OUT.
Section 3.1 PURCHASE PRICE. As consideration for the sale and transfer of
the Purchased Property, the Buyer shall pay on the Closing Date an amount equal
to $70,000,000 (the "INITIAL PURCHASE PRICE"), payable as follows:
(a) The Buyer will pay to the Sellers, collectively, an amount equal to
$50,000,000, subject to the proration provisions of Section 3.4 (the "CLOSING
CASH INSTALLMENT") in cash by wire transfer to the "Broad and ▇▇▇▇▇▇ Trust
Account" in accordance with wire transfer instructions to be furnished in
writing by the Executive Shareholders (which shall be provided to the Buyer not
less than three Business Days before the Closing Date), for further credit to
each Seller in accordance with such Seller's Applicable Percentage.
(b) The Buyer will pay to the escrow agent designated in the Escrow
Agreement (the "ESCROW AGENT") in cash by wire transfer of immediately available
funds $20,000,000 (the "ESCROW DEPOSIT," which together with the interest or
other proceeds from the investment thereof and the amount of the Year 1
Earn-Out, Year 2 Earn-Out and Year 3 Earn-Out, if any, deposited pursuant to
Section 3.3 and not yet released from escrow, but less such amounts, if any,
previously distributed to the Buyer or to any of the Sellers pursuant to Section
3.3, is collectively referred to as the "ESCROW FUNDS"). The Escrow Funds shall
be held in escrow by the Escrow Agent pursuant to the terms and conditions of
the Escrow Agreement in order to provide a fund for the payment to the Sellers
of any upward adjustments to the Initial Purchase Price and/or the payment to
the Buyer of any downward adjustments to the Initial Purchase Price to which
such party or parties may be entitled from time to time pursuant to this Section
3. At such times as payments to be made from the Escrow Funds are due and
payable pursuant to the terms and conditions of this Section 3, the Buyer and
the Sellers agree to give the Escrow Agent prompt notice to make the applicable
disbursements from the Escrow Funds.
Section 3.2 WORKING CAPITAL ADJUSTMENT. The Purchase Price shall be
subject to a working capital adjustment after the Closing as follows:
(a) Within 60 days after the Closing, the Buyer shall prepare (with the full
cooperation and assistance of the Sellers and the Executive Shareholders, to the
extent requested by the Buyer) a statement of the Businesses' (taken as a whole)
current liabilities (to the extent assumed by the Buyer) and current assets (to
the extent purchased by the Buyer) as of the Closing (the "POST-CLOSING
STATEMENT"), and shall submit such statement to the Sellers for review and
approval.
(b) Within 30 days after receipt of the Post-Closing Statement, the Sellers
shall notify the Buyer of any objections the Sellers may have to the
Post-Closing Statement. In the absence of any such objections, the Sellers shall
be deemed to have approved the Post-Closing Statement for purposes of the
adjustment to be made pursuant to this Section 3.2. If the Sellers notify the
Buyer of any such objections, the Buyer and the Sellers shall attempt to resolve
such objections in good faith for a period of 15 days from the date of such
notice of objection. If any objections of the Sellers cannot be resolved by the
Sellers and the Buyer within such 15-day period, such dispute shall immediately
be referred to an Independent Accounting Firm mutually selected by the parties.
The determination of such Independent Accounting Firm with respect to such
dispute shall be conclusive and binding on the Sellers and the Buyer. The party
whose determination
11
differs the most from the determination of such Independent Accounting Firm
shall pay the fees of such firm.
(c) Upon final determination of the Post-Closing Statement in accordance
with the foregoing, in the event that the current assets of the Businesses
(taken as a whole and to the extent purchased by the Buyer) less the current
liabilities of the Businesses (taken as a whole and to the extent assumed by the
Buyer), as stated in the Post-Closing Statement (the "WORKING CAPITAL AMOUNT"),
is an amount which is less than $1,000,000 (the "MINIMUM AMOUNT"), then the
Purchase Price shall be reduced by the difference between the Working Capital
Amount and the Minimum Amount and the Sellers shall be jointly and severally
obligated to pay to the Buyer an amount equal to such difference with 5 Business
Days of the final determination of the Post-Closing Statement.
Section 3.3 EARN-OUT. The Purchase Price shall be subject to adjustment
after the Closing as set forth in this Section 3.3:
(a) EARN-OUT DEFINITIONS. Unless the context otherwise requires, as used
in this Agreement, the following terms shall have the following meanings:
(1) "Accountants" shall mean the independent public accountants of the
Buyer.
(2) "Earn-Out Period" shall mean each of the Year 1 Earn-Out Period, the
Year 2 Earn-Out Period and the Year 3 Earn-Out Period.
(3) "EBITDA" shall mean the aggregate Net Revenue from the operations of the
Businesses, minus all expenses incurred in operating the Businesses but before
interest, income taxes, depreciation and amortization, prepared in accordance
with GAAP, consistently applied, and adjusted as follows: (1)Introduced Business
will be deemed to have been conducted at the Businesses' cost of providing
services for such Introduced Business plus the applicable IB Profit Margin. (2)
Any increase in EBITDA earned by the Businesses through the restructuring of the
▇▇▇▇▇▇▇ Consulting Agreement that requires one-time cash payments by Buyer or
Buyer's Affiliates shall be deducted from EBITDA. (3) As long as the Businesses
are operated as a separate subsidiary or division, administrative services
provided to the Businesses will be actual corporate overhead, including services
provided by Parent or Parent's Affiliates, on a cost basis, and will only
include administrative services that are reasonably and directly related to the
Businesses. In the event the Businesses are integrated into Parent or an
Affiliate of Parent to the extent that the corporate overhead attributable to
the Businesses cannot be readily determined, then, in lieu of actual overhead,
an amount equal to a percentage of Net Revenue of the Businesses shall be
allocated to the Businesses as deemed overhead, which percentage will be
established by dividing (A) the amount of actual overhead incurred with respect
to the Businesses for the six month period immediately preceding such
integration by (B) the Net Revenue of the Businesses for said six-month period.
Said fixed percentage shall thereafter be applied to the Net Revenue of the
Businesses for purposes of determining the deemed overhead to be allocated to
the Businesses. (4) Net proceeds from dispositions of assets of the Businesses
shall be reinvested in the Businesses. (5) With respect to acquisitions made
from and after the Closing, in lieu of including Net Revenue and expenses
related to such acquisition in the calculation of EBITDA, net income, determined
in accordance with GAAP, from such acquisition shall be included in EBITDA. (6)
Expenses and capital expenditures with respect to the items set forth in the
Information Technologies Budget, will be allocated and treated as set forth in
the Information Technologies Budget regardless of their treatment under GAAP.
(7) Any and all amounts payable under, or in connection with the termination of,
any Leases which are assumed by the Buyer as part of the Contracts for Leased
Real Property which is no longer used in any of the Businesses shall be treated
as current expenses for purposes of calculating EBITDA regardless of their
treatment under GAAP.
(4) "IB Profit Margin" shall mean a profit margin equal to fifty percent
(50%) or such other agreed upon percentage (the "IB PROFIT MARGIN PERCENTAGE")
of the average profit margin of the Businesses for services similar to the
applicable Introduced Business provided during the fiscal quarter immediately
12
preceding the fiscal quarter in which the Businesses are to begin to provide
services for the Introduced Business. The proposed IB Profit Margin Percentage
and the proposed calculation of the IB Profit Margin (collectively, the "IB
PROFIT MARGIN CALCULATION") will be made by the Buyer in good faith and
presented in writing to the Executive Shareholders as soon as practicable prior
to the date on which services relating to the Introduced Business are to be
rendered. The Executive Shareholders shall, not later that five Business Days
after receipt of the IB Profit Margin Calculation, notify the Buyer in writing
of any objections thereto. Absent delivery of a written objection as provided
above, the IB Profit Margin Calculation will be conclusive and binding upon the
parties to this Agreement. If written objection is delivered to the Buyer and
the Buyer and the Executive Shareholders are unable, within 5 Business Days
after the receipt by the Buyer of such written objection, to resolve the
dispute, the Buyer, in its sole discretion, may elect either (i) to not make the
Introduced Business available to the Buyer or (ii) to submit the IB Profit
Margin Calculation to an Independent Accounting Firm mutually acceptable to the
Executive Shareholders and the Buyer whose determination shall be conclusive and
binding on the parties. In the event the Buyer elects to submit the matter to an
Independent Accounting Firm, the Businesses shall provide services for the
Introduced Business pending determination of the IB Profit Margin Calculation.
(5) "Independent Accounting Firm" shall mean one of the "big-six" certified
public accounting firms that does not have a conflict of interest with respect
to the preparation or review of the EBITDA Statements.
(6) "Introduced Business" shall mean business introduced to the Buyer by
Parent or Parent's Affiliates (i) as part of a contract with Parent or its
Affiliates, or (ii) by reason of introductions to the Buyer made by Parent or
Parent's Affiliates. The Executive Shareholders acknowledge and agree that
neither Parent nor any Parent Affiliate shall be obligated to introduce any
business to the Buyer or to otherwise cause any business that could be conducted
by the Buyer as Introduced Business to be referred to or conducted by the Buyer.
(7) "Net Revenue" shall be defined as the combined revenues of the
Businesses (including income on operating cash and monies held on behalf of
third parties remaining after Buyer distributes cash in excess of working
capital requirements to Parent) (after elimination of all inter-Business
transactions and balances) which are capitation fees (net of physician services
expenses for AHG only, and net of any retroactive adjustments under the terms of
any managed care plans), service bureau billing fees, administrative fees,
facility fees, and fee for service ▇▇▇▇▇▇▇▇ (less contractual adjustments, bad
debt expense, charity adjustments, refunds, NSF checks, collection agency fees
and other adjustments to gross revenues), all as computed in accordance with
GAAP.
(8) "Year 1 Adjustment" shall mean the amount, if any, payable to the Buyer
from the Escrow Funds in accordance with the provisions of Section 3.3(c) and
Section 3.4(a).
(9) "Year 2 Adjustment" shall mean the amount, if any, payable to the Buyer
from the Escrow Funds in accordance with the provisions of Section 3.3(d) and
Section 3.4(b).
(10) "Year 3 Adjustment" shall mean the amount, if any, payable to the Buyer
from the Escrow Funds in accordance with the provisions of Section 3.3(e) and
Section 3.4(c).
(11) "Year 1 Earn-Out" shall mean the amount, if any, payable by the Buyer
to the Escrow Agent in accordance with the provisions of Section 3.3(c) and
Section 3.4(a).
(12) "Year 2 Earn-Out" shall mean the amount, if any, payable by the Buyer
to the Escrow Agent in accordance with the provisions of Section 3.3(d) and
Section 3.4(b).
(13) "Year 3 Earn-Out" shall mean the amount, if any, payable by the Buyer
to the Escrow Agent in accordance with the provisions of Section 3.3(e) and
Section 3.4(c).
(14) "Year 1 EBITDA" shall have the meaning set forth in Section 3.3(c)(1).
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(15) "Year 2 EBITDA" shall have the meaning set forth in Section 3.3(d)(1).
(16) "Year 3 EBITDA" shall have the meaning set forth in Section 3.3(e)(1).
(17) "Year 1 Earn-Out Period" shall mean the 12-month period ending on
September 30, 1998.
(18) "Year 2 Earn-Out Period" shall mean the 12-month period ending on
September 30, 1999.
(19) "Year 3 Earn-Out Period" shall mean the 12-month period ending on
September 30, 2000.
(20) "Year 1 Threshold" shall mean $11,000,000.
(21) "Year 2 Threshold" shall mean the greater of (i) $11,000,000 or (ii)
Year 1 EBITDA.
(22) "Year 3 Threshold" shall mean the greater of (i) $11,000,000, (ii) Year
1 EBITDA, or (iii) Year 2 EBITDA.
(b) EBITDA STATEMENT. Within 75 calendar days after the last day of each
of the Year 1 Earn-Out Period, the Year 2 Earn-Out Period and the Year 3
Earn-Out Period, the Buyer shall prepare, the Accountants shall review, and the
Buyer shall deliver to AHG a statement reflecting the EBITDA from the
consolidated operations of the Businesses during such Earn-Out Period (each, an
"EBITDA STATEMENT"), which statement will be determined in accordance with GAAP,
applied on a basis consistent with the financial statements of the Buyer and
Parent for such period. The parties shall ensure that the Accountants have full
access to the books, records, facilities and employees of the Businesses for
purposes of reviewing the EBITDA Statement and shall cooperate with the
Accountants to the extent reasonably requested to review the EBITDA Statement.
The EBITDA Statement will be examined by AHG (and, if AHG so chooses, by a firm
of independent certified public accountants), who shall, not later than 45
calendar days after receipt of the EBITDA Statement, raise any objections it has
to the EBITDA Statement by notifying the Buyer in writing within such time
period in a statement indicating the item or items disputed, AHG's proposed
adjustments and an adjusted EBITDA Statement reflecting such adjustments (an
"OBJECTION NOTICE"). During such 45 day period, AHG and any such independent
certified public accountants shall have full access to the books and records,
other financial information (including the working papers of the Accountants)
and appropriate financial personnel of the Buyer reasonably necessary for the
preparation of an Objection Notice. Absent delivery of an Objection Notice as
provided above, the EBITDA Statement will be conclusive and binding upon the
parties to this Agreement for the purposes of any purchase price adjustment
under this Section 3.3. In the event that an Objection Notice is delivered by
AHG as provided above, and if the Buyer and AHG are unable, within 15 calendar
days after receipt by the Buyer of such Objection Notice, to resolve the
disputed exceptions, such disputed exceptions will be referred to an Independent
Accounting Firm mutually acceptable to AHG and the Buyer. The Independent
Accounting Firm shall, within 60 days following its engagement by the Buyer and
AHG for this purpose, deliver to AHG and the Buyer a written report determining
such disputed exceptions (the "IAF EBITDA STATEMENT"). During such 60 day
period, the Independent Accounting Firm shall have full access to the books and
records, other financial information (including the working papers of the
Accountants and AHG's accountants, if any) and appropriate financial personnel
of the Buyer which the Independent Accounting Firm reasonably deems necessary or
advisable for the preparation of the IAF EBITDA Statement. The EBITDA reflected
in the IAF EBITDA Statement will be conclusive and binding upon the parties to
this Agreement for the purposes of any purchase price adjustment under this
Section 3.3, subject to application of the following provisions: (i) if the IAF
EBITDA Statement reflects EBITDA in excess of $300,000 over the amount of the
EBITDA reflected in the EBITDA Statement for the Earn-Out Period at issue, then
EBITDA for such Earn-Out Period shall be deemed to be equal to the EBITDA
reflected in the IAF EBITDA Statement, and the Buyer shall bear all the fees and
disbursements of the Independent Accounting Firm in respect of its services
under this Section 3.3 for such Earn-Out Period; (ii) if the IAF EBITDA
Statement reflects EBITDA that is equal to or less than $300,000 over the amount
of the EBITDA reflected in the EBITDA Statement for such Earn-Out Period, but
greater than the amount of the EBITDA reflected in such EBITDA Statement, then
EBITDA for such Earn-Out Period shall be
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deemed to be equal to (A) the sum of (1) the EBITDA reflected in the EBITDA
Statement and (2) the EBITDA reflected in the IAF EBITDA Statement divided by
(B) two, and AHG and the Executive Shareholders, on a joint and several basis,
shall bear all the fees and disbursements of the Independent Accounting Firm in
respect of its services under this Section 3.3 for the Earn-Out Period at issue;
and (iii) if the IAF EBITDA Statement reflects EBITDA that is equal to or less
than the amount of the EBITDA reflected in the EBITDA Statement for such
Earn-Out Period, then EBITDA for such Earn-Out Period shall be deemed to be
equal to the EBITDA reflected in the IAF EBITDA Statement, and AHG and the
Executive Shareholders, on a joint and several basis, shall bear all the fees
and disbursements of the Independent Accounting Firm in respect of its services
under this Section 3.3 for the Earn-Out Period at issue.
(c) YEAR 1 ADJUSTMENT/YEAR 1 EARN-OUT CALCULATION.
(1) In the event the EBITDA for the Year 1 Earn-Out Period calculated
pursuant to Section 3.3(b)above (the "YEAR 1 EBITDA") is less than
$10,000,000, then the Year 1 Adjustment is the amount equal to seven
multiplied by the difference between the Year 1 EBITDA and $10,000,000.
(2) In the event the Year 1 EBITDA is equal to or less than the Year 1
Threshold and equal to or greater than $10,000,000, then the Year 1
Adjustment is $0.00.
(3) In the event the Year 1 EBITDA is greater than the Year 1 Threshold,
then the Year 1 Earn-Out is the amount equal to six multiplied by the
difference between the Year 1 EBITDA and the Year 1 Threshold.
(d) YEAR 2 ADJUSTMENT/YEAR 2 EARN-OUT CALCULATION.
(1) In the event the EBITDA for the Year 2 Earn-Out Period calculated
pursuant to Section 3.3(b) above (the "YEAR 2 EBITDA") is equal to or less
than the Year 2 Threshold, then the Year 2 Adjustment is the amount equal to
the sum of (i) six multiplied by the difference between the Year 2 Threshold
and the greater of (x) $11,000,000 or (y) the Year 2 EBITDA, plus (ii) the
amount equal to seven multiplied by the amount, if any, by which the Year 2
EBITDA is less than $10,000,000; PROVIDED, HOWEVER, that the Year 2
Adjustment will be $0.00 if the Year 2 EBITDA is equal to or greater than
$10,000,000 but less than or equal to $11,000,000.
(2) In the event the Year 2 EBITDA is greater than the Year 2 Threshold,
then the Year 2 Earn-Out is the amount equal to six multiplied by the
difference between the Year 2 EBITDA and the Year 2 Threshold; PROVIDED,
HOWEVER, that the Year 2 Earn-Out will be $0.00 if the Year 2 EBITDA is
equal to or greater than $10,000,000 but less than or equal to $11,000,000.
(e) YEAR 3 ADJUSTMENT/YEAR 3 EARN-OUT CALCULATION.
(1) In the event the EBITDA for the Year 3 Earn-Out Period calculated
pursuant to Section 3.3(b) above (the "YEAR 3 EBITDA") is equal to or less
than the Year 3 Threshold, then the Year 3 Adjustment is the amount equal to
the sum of (i) four multiplied by the difference between Year 3 Threshold
and the greater of (x) $11,000,000 or (y) the Year 3 EBITDA, plus (ii) the
amount equal to seven multiplied by the amount, if any, by which the Year 3
EBITDA is less than $10,000,000; PROVIDED, HOWEVER, that the Year 3
Adjustment will be $0.00 if the Year 3 EBITDA is equal to or greater than
$10,000,000 but less than or equal to $11,000,000.
(2) In the event the Year 3 EBITDA is greater than the Year 3 Threshold,
then the Year 3 Earn-Out is the amount equal to four multiplied by the
difference between the Year 3 EBITDA and the Year 3 Threshold; PROVIDED,
HOWEVER, that the Year 3 Earn-Out will be $0.00 if the Year 3 EBITDA is
equal to or greater than $10,000,000 but less than or equal to $11,000,000.
Section 3.4 PAYMENT OF ADJUSTMENT AND EARN-OUT; DISTRIBUTION OF
ESCROW. The Year 1 Adjustment or Year 1 Earn-Out, Year 2 Adjustment or Year 2
Earn-Out and Year 3 Adjustment or Year 3 Earn-Out, if
15
any, shall be paid within 5 Business Days of final determination of EBITDA for
the applicable Earn-Out Period pursuant to Section 3.3(b) and shall be paid to
the Buyer or the Escrow Agent, as the case may be, in the following manner:
(a) YEAR 1 ADJUSTMENT/YEAR 1 EARN-OUT.
(1) In the event the Year 1 Adjustment is calculated pursuant to Section
3.3(c)(1) above, then the Escrow Agent shall deliver to Buyer from the
Escrow Funds an amount equal to the Year 1 Adjustment, together with the
interest or earnings thereon as set forth in Section 3.4(d).
(2) In the event the Year 1 Earn-Out is calculated pursuant to Section
3.3(c)(3) above, the Buyer shall pay to the Escrow Agent the Year 1 Earn-Out
in cash by wire transfer of immediately available funds, which shall be held
by the Escrow Agent as part of the Escrow Funds. Upon receipt by the Escrow
Agent of the Year 1 Earn-Out, the Escrow Agent shall then deliver to AHG, on
behalf of the Sellers, an amount equal to one-third of the principal of the
Escrow Funds, together with the interest or earnings thereon as set forth in
Section 3.4(d).
(b) YEAR 2 ADJUSTMENT/YEAR 2 EARN-OUT.
(1) In the event the Year 2 Adjustment is calculated pursuant to Section
3.3(d)(1) above, then the Escrow Agent shall deliver to the Buyer from the
Escrow Funds an amount equal to the Year 2 Adjustment, together with the
interest or earnings thereon as set forth in Section 3.4(d).
(2) In the event the Year 2 Earn-Out is calculated pursuant to Section
3.3(d)(2) above, then the Buyer shall pay to the Escrow Agent the Year 2
Earn-Out in cash by wire transfer of immediately available funds, which
shall be held by the Escrow Agent as part of the Escrow Funds. Upon receipt
by the Escrow Agent of the Year 2 Earn-Out, the Escrow Agent shall then
deliver to AHG, on behalf of the Sellers, an amount equal to one-half of the
principal of the Escrow Funds, together with the interest or earnings
thereon as set forth in Section 3.4(d).
(c) YEAR 3 ADJUSTMENT/YEAR 3 EARN-OUT.
(1) In the event the Year 3 Adjustment is calculated pursuant to Section
3.3(e)(1) above, then the Escrow Agent shall deliver to the Buyer from the
Escrow Funds an amount equal to the Year 3 Adjustment, together with the
interest or earnings thereon as set forth in Section 3.4(d). Any Escrow
Funds remaining after distribution of the Year 3 Adjustment to the Buyer
shall be disbursed to AHG, on behalf of the Sellers, promptly after
disbursement of the Year 3 Adjustment, together with interest or earnings
thereon, to the Buyer.
(2) In the event the Year 3 Earn-Out is calculated pursuant to Section
3.3(e)(2) above, then the Buyer shall pay to AHG, on behalf of the Sellers,
the Year 3 Earn-Out in cash by wire transfer of immediately available funds,
and the Escrow Agent shall transfer the Escrow Funds to AHG, on behalf of
the Sellers.
(d) DISTRIBUTIONS OF INTEREST OR EARNINGS ON THE ESCROW FUNDS. Interest or
other earnings on the Escrow Deposit and additional amounts paid by the Buyer to
the Escrow Agent pursuant to this Section 3.4 shall be disbursed prorata to the
recipient of principal held in the Escrow Funds. For income tax purposes, it
shall be assumed that the Sellers will be entitled to receive all interest and
other earnings on the principal amounts held in the Escrow Fund and the Buyer
and AHG agree to direct the Escrow Agent pursuant to joint instructions to
disburse to AHG, on behalf of the Sellers, an amount from the Escrow Funds
necessary for the Sellers to pay their federal income tax liability on said
interest and earnings, assuming for purposes hereof an effective tax rate of
31%. The amount of any previous distributions for taxes made to AHG, on behalf
of the Sellers, shall be taken into account in the event that disbursements from
the Escrow Funds are later made to the Buyer and appropriate adjustments will be
made in accordance with joint instructions from the Buyer and AHG to the Escrow
Agent.
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(e) LIMITATIONS ON PURCHASE PRICE ADJUSTMENTS/ EARN-OUTS. Notwithstanding
anything to the contrary contained in this Section 3, in no event shall the
Purchase Price, as adjusted pursuant to the provisions of Sections 3.3 and 3.4,
be greater than $110,000,000 nor less than $50,000,000.
(f) ADJUSTMENTS IN EXCESS OF ESCROW FUNDS. In the event that the
Adjustment for any Earn-Out Period should exceed the amount of the remaining
Escrow Funds, the amount of such excess shall be applied as a credit in favor of
the Buyer and shall be deducted from the amount otherwise payable by the Buyer
as the Year 2 Earn-Out and Year 3 Earn-Out, as applicable.
Section 3.5 PRORATIONS AND OTHER ADJUSTMENTS.
(a) All revenues and expenses arising from the business and operations of
the Businesses, including without limitation business and license fees (and any
retroactive adjustments thereof), utility charges, property and equipment
rentals, real and personal property Taxes and assessments, and similar prepaid
and deferred items shall be prorated between the Buyer and the Sellers in
accordance with the principle that the Sellers shall receive all revenues and
all refunds and shall be responsible for all expenses, payables, costs,
liabilities and obligations allocable to the conduct and operations of the
Businesses for the period on or prior to the Closing Date, and the Buyer shall
receive all revenues and be responsible for all expenses, payables, costs,
liabilities and obligations allocable to the conduct and operations of the
Businesses for the period after the Closing Date; provided, however, that the
parties shall allocate any real property Tax in accordance with Section 164(d)
of the Code. The Buyer and the Sellers shall deliver a statement setting forth
such prorations at the time of making any such proration payment.
Notwithstanding the foregoing, there shall be no proration with regard to, and
the Sellers shall remain solely liable with respect to, any Excluded Liabilities
and any assets not included in the Purchased Property.
(b) Any adjustments and prorations pursuant to this Section 3.5 will,
insofar as feasible, be determined and paid on the Closing Date, with final
settlement and payment by the appropriate party or parties occurring no later
than 30 days after the actual amount becomes known.
SECTION 4. CLOSING.
The closing hereunder (the "CLOSING") shall take place on the first
practicable date after all required regulatory and other approvals have been
obtained and after the satisfaction or waiver of all other conditions precedent
set forth in Sections 8 and 9, but in any event no later than November 30, 1997,
or such other date as Buyer and AHG shall mutually agree, and shall be held at
the offices of Broad and ▇▇▇▇▇▇, Miami, Florida, at 9:00 a.m. or at such other
place and time as may be mutually agreed to by the Buyer and AHG (the "CLOSING
DATE"). Notwithstanding the actual time the following steps are taken on the
Closing Date, the parties hereto agree that the Closing shall be effective and
deemed for all purposes to have occurred as of 12:01 a.m. local time on the date
immediately following the Closing Date.
At the Closing, the parties agree to take the following steps in the order
listed below (provided, however, that upon their completion all of these steps
shall be deemed to have occurred simultaneously):
(a) Each of the Sellers and the Buyer shall deliver to the other a copy of
the resolutions of its Board of Directors and, in the case of each Seller, its
shareholders or partners, as the case may be, authorizing the transactions
contemplated by this Agreement as to such Seller, certified in each case by its
Secretary or Assistant Secretary or partner, as the case may be;
(b) Each of the Sellers and the Buyer shall deliver to the other a good
standing certificate of such party (which is dated not more than 15 days prior
to the Closing);
(c) Each of the Sellers shall deliver to the Buyer instruments reasonably
satisfactory to the Buyer and its counsel for such Seller to assign the
Purchased Property (including, without limitation, the Cash and Cash
Equivalents, which, at the election of the Buyer, shall be either by bank check
or wire transfer of immediately available funds) to the Buyer, and the Buyer
shall deliver to the Sellers the Assumption Agreement;
17
(d) Each of the Sellers shall deliver to the Buyer, or make available at the
locations specified by the Buyer prior to the Closing, the originals of the
Files and Records, Licenses and Permits and Contracts, together with originals
of any required consents to assignment;
(e) Each of the Sellers and their Affiliates shall have delivered to the
Buyer all other agreements, documents and certificates required by this
Agreement to be delivered by them to the Buyer at or before the Closing;
(f) Each of the Sellers and the Buyer shall deliver to each other
certificates by appropriate officers of such parties certifying the fulfillment
of the conditions set forth in Section 8, and, in the case of the Buyer, the
fulfillment of the conditions set forth in Section 9;
(g) The Buyer shall pay the Closing Cash Installment to the Sellers and the
Escrow Deposit to the Escrow Agent in accordance with Section 3.1, and each of
the Sellers, the Buyer and the Escrow Agent shall execute and deliver the Escrow
Agreement and documents acknowledging receipt from the other, respectively, of
the Purchased Property, the Closing Cash Installment and the Escrow Deposit.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE EXECUTIVE
SHAREHOLDERS.
Each of the Sellers and each of the Executive Shareholders, on a joint and
several basis, hereby represents and warrants to, and covenants with, the Buyer
as follows, each of which is relied upon by the Buyer in consummating the
transactions contemplated hereby regardless of any other investigation made or
information obtained by the Buyer; PROVIDED, HOWEVER, that the representations,
warranties and cove-
nants of each Executive Shareholder in this Section 5 shall be made only as to
himself and to each Seller in which such Executive Shareholder owns any shares
or partnership interests, as the case may be:
Section 5.1 ORGANIZATION; QUALIFICATION TO DO BUSINESS; SUBSIDIARIES.
(a) Each of the Sellers (except FSN), and Florida Specialty Network, Inc.
("FSN INC."), is a corporation duly organized, validly existing and in good
standing under the laws of the State of Florida, and is duly qualified as a
foreign corporation in each jurisdiction in which it is required to be so
qualified, and has all requisite corporate power and authority to own its
properties and assets and to conduct its business as now conducted. The Sellers
have furnished the Buyer true, complete and correct copies of the Articles of
Incorporation and By-laws of each Seller (except FSN), and FSN Inc., with all
amendments thereto. SCHEDULE 5.1(A) sets forth as to each Seller the name and
security ownership of each holder of equity or any right to acquire equity of
such Seller.
(b) FSN is a limited partnership duly organized, validly existing and in
good standing under the laws of the State of Florida, and is duly qualified as a
foreign limited partnership in each jurisdiction in which it is required to be
so qualified, and has all partnership powers necessary to own its properties and
conduct its business as now conducted. The Sellers have furnished the Buyer
true, complete and correct copies of FSN's limited partnership agreement, with
all amendments thereto (the "FSN LIMITED PARTNERSHIP AGREEMENT"). FSN's sole
general partner, FSN Inc. has all requisite corporate power and authority to
fulfill its duties as the sole general partner of FSN in accordance with the FSN
Limited Partnership Agreement. SCHEDULE 5.1(B) sets forth the name and ownership
interest of each partner of FSN and of each person who has a right to acquire
any interest in FSN.
(c) None of the Sellers has any direct or indirect Subsidiaries, or has made
any advances to or investments in, or owns any securities of or other interests
in, any Person.
(d) Each Shareholder has full power to vote his or her shares without
obtaining the consent or approval of any Person.
18
Section 5.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. Each Seller has all
requisite corporate (or, in the case of FSN, partnership) power and authority to
enter into this Agreement and to carry out its obligations hereunder. Except for
FSN, the execution and delivery of this Agreement and the performance of each
Seller's obligations hereunder have been duly authorized by all necessary
corporate action by the Board of Directors and shareholders of such Seller, and
no other corporate or shareholder proceedings on the part of such Seller are
necessary to authorize such execution, delivery and performance. The execution
and delivery of this Agreement and the performance of FSN's obligations
hereunder have been duly authorized by all necessary partnership action on
behalf of FSN, and by FSN Inc., as sole general partner on behalf of FSN, and no
other proceedings on the part of FSN or FSN Inc. are necessary to authorize such
execution, delivery and performance. This Agreement has been duly executed and
delivered by each Seller and each Executive Shareholder and constitutes its or
his legal, valid and binding obligation, enforceable against it or him in
accordance with its terms.
Section 5.3 NO CONFLICT OR VIOLATION. The execution, delivery and
performance by each Seller and each Executive Shareholder of this Agreement (a)
does not and will not, as of the Closing Date, violate or conflict with any
provision of the Articles of Incorporation or By-laws (or, in the case of FSN,
the Certificate of Limited Partnership or the FSN Limited Partnership Agreement)
of such Seller, (b) does not and, as of the Closing Date, will not violate any
order, judgment or decree of any court, arbitrator or other Governmental
Authority or, except as set forth on SCHEDULE 5.19, to the knowledge of each
Seller and each Executive Shareholder, any provision of law, (c) as of the date
hereof, except as set forth on SCHEDULE 5.3 does not, and as at the Closing Date
will not, violate or result in a breach of or constitute (with due notice or
lapse of time or both) a default under, or give rise to a right to terminate or
modify, any Contract or any other contract, lease, loan agreement, mortgage,
security agreement or other agreement or instrument (whether or not the same is
in writing) to which any Seller or Shareholder is a party or by which it or any
of them is bound or to which any of its or their properties or assets is
subject, and (d) will not result in the creation or imposition of any
Encumbrance upon any of the Purchased Property or accelerate any indebtedness of
any Seller to which the Purchased Property may be bound, or result in the
cancellation, modification, revocation or suspension of any of the Licenses and
Permits.
Section 5.4 CONSENTS AND APPROVALS. SCHEDULE 5.4 sets forth a true and
complete list of (i) each consent, waiver, authorization or approval of any
Governmental Authority, or of any other Person, and (ii) to the knowledge of
each Seller and each Executive Shareholder, each declaration to or filing or
registration with any such Governmental Authority that is required in connection
with the execution and delivery of this Agreement by each Seller or the
performance by each Seller of its obligations hereunder.
Section 5.5 FINANCIAL STATEMENTS AND PROJECTIONS.
(a) The Sellers have heretofore delivered to the Buyer true and complete
copies of the Financial Statements, accompanied in the case of the Audited
Financial Statements by reports thereon from the Sellers' independent certified
public accountants. The Audited Financial Statements and the Management Prepared
Financial Statements (i) were prepared in accordance with GAAP applied on a
consistent basis, (ii) present fairly the financial condition, results of
operation and cash flows of each Business (and, in the case of the Audited
Financial Statements presenting combined financial statements, the Businesses
taken as a whole) as of their respective dates, (iii) are complete, correct and
in accordance with the books of account and records of each Seller, (iv) can be
legitimately reconciled with the financial statements and the financial records
maintained and the accounting methods applied by each Seller for federal income
tax purposes, and (v) in the case of the Audited Financial Statements, contain
all entries recommended by the Sellers' independent certified public
accountants. Except as provided in the Audited Financial Statements or the
Management Prepared Financial Statements, or as fully disclosed in SCHEDULE 5.5,
no Seller has any liabilities or obligations (whether accrued, absolute,
contingent, whether due or to become due or otherwise) which might be or become
a charge against the Purchased Property, including any "loss contingencies"
considered "probable" or "reasonably possible" within the meaning of the
Financial Accounting Standard Board's Statement of Financial Accounting
Standards No. 5, except trade payables
19
and similar liabilities and obligations incurred in the ordinary and regular
course of business since the dates of the Audited Financial Statements and the
Management Prepared Financial Statements, respectively. The Audited Financial
Statements were audited by ▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇. The Projections are
reasonable in light of the historical operations and results of the Businesses,
represent each Seller's management's good faith best estimate of the future
operating performance of such Seller's Business, and were prepared on an
accounting basis consistent with historical earnings reports of each Seller as
set forth in the Financial Statements.
(b) The most recent Management Prepared Financial Statements as at the date
hereof reflect all adjustments, which consist only of normal accruals, including
provision for accrued liabilities, including vacation and sick, medical claims
and extended reporting endorsement for each of the Sellers (including all
incurred but not reported ("IBNR") amounts).
Section 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as set forth in SCHEDULE 5.6(A), since January 1, 1997:
(1) there has not been any material adverse change in the assets,
properties, business, operations, prospects, net income or condition
(financial or other) of any Business, no event has occurred and, to the
knowledge of each Seller and each Executive Shareholder, no factor or
condition exists that would reasonably be likely to result in any such
change;
(2) there has not been any material loss, damage, destruction or other
casualty to the Purchased Property (whether or not insured);
(3) there has been no adverse change in the amount of total assets set
forth on the December 31, 1996 Combined Balance Sheet except for reductions
attributable to amortization and/or depreciation on a basis consistent with
past practice as reflected in the Audited Financial Statements or the
Management Prepared Financial Statements;
(4) there has not been any change in any method of accounting or
accounting practice of any Business or any Seller relating to its Business;
(5) there has not been a loss of the employment, services or benefits of
any Consultants or Employees, or of any Network Physicians (A) in excess of
8% of the number of Network Physicians engaged in respect of any single
Third Party Payor Agreement, or (B) which would cause any Seller to be in
breach of any Third Party Payor Agreement to which it is a party; and
(6) there has not been any default, breach or termination of, or any
notification of any of the foregoing, or any modification or requested
modification that would be materially adverse to any Seller, in respect of,
any Third Party Payor Agreement or any Contract;
(b) Since January 1, 1997, each Seller has operated its Business in the
ordinary course of its business consistent with past practice (including without
limitation by keeping in full force and effect insurance comparable in amount
and scope to the coverage maintained by it (or on behalf of it) at such date),
and, except as set forth in SCHEDULE 5.6(B) hereto, no Seller has:
(1) permitted any of the Purchased Property (real or personal, tangible
or intangible) to be sold, licensed or subjected to any Encumbrance (other
than a Permitted Encumbrance) except in dispositions of inventory or of
worn-out or obsolete equipment for fair or reasonable value in the ordinary
course of business consistent with past practices, canceled any debts or
claims, or waived or released any rights material to such Business relating
to the operations of such Business, or defaulted on any material obligation
relating to the operations of its Business;
(2) failed to exercise all Best Efforts to maintain and preserve for the
Buyer its relationships with customers, suppliers, managers, Employees,
Network Physicians, Consultants, parties to Third Party Payor Agreements and
actively sought prospective parties to Third Party Payor Agreements
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(including, without limitation PruCare), active patients and others having
business relationships with the Business;
(3) acquired any assets or properties, or entered into any other
transaction, other than in the ordinary course of business consistent with
past practice and which does not require payment of aggregate amounts
exceeding $10,000;
(4) made or committed to make any capital expenditure other than
ordinary repairs or maintenance;
(5) paid, lent or advanced any amount to, or sold, transferred or leased
any properties or assets to, or entered into any agreement or arrangement
with, any of its Affiliates;
(6) issued, granted or sold any capital stock, partnership interests,
options, or other right to purchase any equity interests in such Seller, or
issued any security convertible into such capital stock, partnership
interests or equity interests, or entered into any subscription contract or
other arrangements obligating such Seller to issue or sell any of the
foregoing, or redeem, purchase or otherwise acquire any such capital stock
or equity interests;
(7) made any change in any method of accounting or accounting principle,
method, estimate or practice except for any such change required by reason
of a concurrent change in GAAP, or written down the value of any inventory
or written off as uncollectible any accounts receivable except in the
ordinary course of business consistent with past practice;
(8) settled, released or forgiven any claim or litigation or waived any
right thereto;
(9) made, entered into, modified, amended or terminated any Contract,
including any Third Party Payor Agreement or bid with respect to any of the
Businesses, that could be materially adverse to any Seller;
(10) deferred the payment of any expense or liability, or prepaid any
expense or liability, in anticipation of the consummation of the
transactions contemplated hereby;
(11) accelerated the collection of any accounts receivable or any other
amounts owed to it;
(12) decreased by a material amount the quantity of Equipment and
Machinery or Inventory maintained for use in its Business;
(13) failed to discharge or satisfy any Encumbrance or pay or satisfy
any obligation or liability (whether absolute, accrued, contingent or
otherwise) arising from the operation of its Business in a timely manner,
other than liabilities being contested in good faith and for which adequate
reserves have been provided, each of which is set forth on SCHEDULE
5.6(B)(13) hereof, and Permitted Encumbrances;
(14) failed to continue to maintain the Purchased Property in accordance
with past practice; or
(15) entered into any agreement or made any commitment to do any of the
foregoing or taken any other action that would cause any of the
representations and warranties made by any Seller in this Agreement not to
remain true and correct.
(c) Except as set forth on SCHEDULE 5.6(C):
(1) from and after July 1, 1997, no Seller has declared, set aside, paid
or made any dividend or other distribution or payment (whether in cash,
stock, interests, equity or property) with respect to, or purchased or
redeemed, any shares of the capital stock or any partnership interests or
other equity interests (including profit sharing plans or distributions
relating to such Seller's financial results) of such Seller, or otherwise
withdrawn any cash from such Seller for the direct or indirect benefit of
the holders of any such shares or interests or for any third party, or made
or agreed to make any other
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payments to any Shareholder or any of his or her Affiliates; PROVIDED,
HOWEVER, that nothing set forth in this Section 5.6(c)shall prohibit or
require disclosure of cash distributions to the extent that after giving
effect to such cash distributions the Sellers still have at least $1,000,000
in Unrestricted Cash in the aggregate;
(2) from and after July 1, 1997, no Seller has entered into any new (or
amended any existing) employee benefit plan, program or arrangement or any
new (or amend any existing) employment, independent contractor, severance or
consulting agreement, granted any general increase in the compensation of
officers or Employees (including any such increase pursuant to any bonus,
pension, profit-sharing or other plan or commitment) or granted any increase
in the compensation payable or to become payable to any Network Physician,
Consultant or Employee, except (i) in accordance with pre-existing
contractual provisions or consistent with past practice, (ii) increases on
an annual basis for the 1997 calendar year up to a maximum amount of five
percent in excess of such Person's aggregate compensation for the 1996
calendar year and (iii) in respect of the Executive Shareholders, as
permitted in Section 7.2(i) below; and
(3) from and after July 1, 1997, no Seller has made or agreed to make
any payment or incurred or agreed to incur any obligation or liability
(whether absolute, accrued, contingent or otherwise) with respect to any
Contract except in accordance with the terms of such Seller's Contracts as
in effect on June 30, 1997, or in accordance with the terms of Contracts
which such Seller has modified or entered into after June 30, 1997 with the
prior written consent of the Buyer.
Section 5.7 TAX MATTERS.
(a) The Sellers have provided the Buyer a true and complete copy of all Tax
Returns filed by each Seller since January 1, 1994.
(b) Except as set forth in SCHEDULE 5.7(B), all Tax Returns required to be
filed before the Closing Date in respect of each Seller have been filed on a
timely basis, and each Seller has paid when due, Taxes required to be paid in
respect of the periods covered by such Tax Returns and has adequately reserved
for the payment of all Taxes with respect to periods ended on or before the
Closing Date for which tax returns have not yet been filed. All Taxes of each
Seller have been paid or adequately provided for, there are not any proposed
additional Tax assessments against any Seller not adequately provided for in the
June 30, 1997 Combined Balance Sheet. There are no unpaid Taxes which are or
could become an Encumbrance on the Purchased Property. No Tax liens have been
filed against the Purchased Property of any Seller and there are no audits
pending with respect to any Seller with any Governmental Authority. The charges,
accruals and reserves with respect to Taxes on the books of each Seller are
adequate (as determined in accordance with GAAP). All Taxes that any Seller is
or was legally required to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper Governmental
Authority.
(c) To the knowledge of each Seller and each Executive Shareholder, SCHEDULE
5.7(C) sets forth each state and locality with jurisdiction to impose any Tax on
the Purchased Property or the Business at any time prior to the Closing Date.
Each of the Sellers represent that they have properly and timely filed all Tax
Returns required to be filed in such jurisdictions on or before the Closing
Date.
Section 5.8 ABSENCE OF UNDISCLOSED LIABILITIES. None of the Sellers has
any indebtedness or liability, absolute or contingent, known or unknown relating
to its Business, which is not shown or provided for on the most recent
Management Prepared Financial Statements, other than liabilities as shall have
been incurred or accrued in the ordinary course of business since the date of
such Management Prepared Financial Statements, and which are consistent in
amount and type with those incurred during the year ended December 31, 1996.
Except as shown in the most recent Management Prepared Financial Statements,
none of the Sellers is directly or indirectly liable upon or with respect to (by
discount, repurchase agreements or otherwise), or obliged in any other way to
provide funds in respect of, or to guarantee or
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assume, any debt, obligation or dividend of any Person in connection with its
Business, except endorsements in the ordinary course of business in connection
with the deposit, in banks or other financial institutions, of items for
collection.
Section 5.9 ACCOUNTS RECEIVABLE; BANKING.
(a) All Accounts Receivable (i) reflected on the June 30, 1997 Combined
Balance Sheet or (ii) acquired by each Business after June 30, 1997 have been
collected or are (or will be) current and collectible in amounts not less than
the aggregate amount thereof (net of reserves established in accordance with
prior practice) carried or to be carried on the books of each Business, are not
subject to any counterclaims or set-offs, and have arisen only in the ordinary
course of business in accordance with the customary credit policies of each of
the Sellers.
(b) SCHEDULE 5.9(B) contains a complete list of all of each Seller's bank
accounts (including name, location, and account number)and all lines of credit
owned or used by each Seller, and the names of all persons with authority to
withdraw funds from, or execute drafts or checks on, each such account.
Section 5.10 REAL PROPERTY; LEASES.
(a) None of the Sellers, the Shareholders or their respective Affiliates
owns, directly or indirectly, any real property that is used in its Business
except as set forth on SCHEDULE 5.10(A).
(b) SCHEDULE 5.10(B) sets forth a list of all properties in which any Seller
has a leasehold interest and which is used in connection with its Business
(each, a "LEASE" and collectively, the "LEASES"; the property covered by such
Leases is referred to herein as the "LEASED REAL PROPERTY"). None of the Leased
Real Property consists of a Lease of an entire building.
(c) Except as set forth in SCHEDULE 5.10(C), no Lease has been modified or
amended in writing. No party to any Lease has given any Seller written notice of
or made a claim with respect to any breach or default.
(d) Except as set forth in SCHEDULE 5.10(D), none of the Leased Real
Property is subject to (i) any sublease, license or other agreement granting to
any person or entity any right to the use, occupancy or enjoyment of such
property or any portion thereof or (ii) to the knowledge of each Seller and each
Executive Shareholder, any restrictive covenant, zoning ordinance, building
code, use or occupancy restriction that restricts the use of such Leased Real
Property in connection with the Businesses.
(e) To the knowledge of each Seller and each Executive Shareholder, the
plumbing, electrical, heating, air conditioning, elevator, ventilating and all
other mechanical or structural systems for which any Seller is responsible under
the Leases in the buildings or improvements are in good working order and
condition, and the roof, basement and foundation walls of such buildings and
improvements for which such Seller is responsible under the Leases are in good
condition and free of leaks and other defects. To the knowledge of each Seller
and each Executive Shareholder, all such mechanical and structural systems and
such roofs, basement and foundation walls for which others are responsible under
said Leases are in good working order and condition and free of leaks and other
defects. To each Seller's and each Executive Shareholder's knowledge, there is
no asbestos-containing material in any of the buildings or facilities on the
Leased Real Property or any polychlorinated biphenyls in any hydraulic oils,
transformers, capacitors or other electrical equipment, nor does any Seller or
Executive Shareholder operate any underground or aboveground tanks on the Leased
Real Property.
Section 5.11 EQUIPMENT AND MACHINERY. SCHEDULE 5.11 sets forth a complete
and correct list and brief description of each item of Equipment and Machinery
having an original purchase cost or aggregate lease cost exceeding $2,500. Each
Seller has good title, free and clear of all title defects and objections, and
Encumbrances (other than the Encumbrance of current property taxes and
assessments not yet due and payable, if any), to the Equipment and Machinery
owned by it. Except as set forth on SCHEDULE 5.3, each Seller holds good and
transferable leaseholds in all of the Equipment and Machinery leased by it, in
each
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case under valid and enforceable leases. No Seller is in default with respect to
any item of Equipment and Machinery purported to be leased by it, and no event
has occurred that constitutes or with due notice or lapse of time or both may
constitute a default under any lease thereof. To the knowledge of each Seller
and each Executive Shareholder, the Equipment and Machinery is sufficient and
adequate to carry on the Business of each Seller as presently conducted and, to
the knowledge of each Seller and each Executive Shareholder, all material items
thereof have generally been maintained in satisfactory operating condition and
repair, ordinary wear and tear excepted.
Section 5.12 INTELLECTUAL PROPERTY; INTANGIBLE ASSETS.
(a) SCHEDULE 5.12(A) sets forth a complete and correct listing of the
Intellectual Property. Except as described in SCHEDULE 5.12, all Intellectual
Property listed therein is owned by the Sellers, free and clear of all
Encumbrances and is in good standing and is not known to be the subject of any
challenge. As of the date hereof, except as described in SCHEDULE 5.12(A), there
are no unresolved claims made and there has not been communicated to any of the
Sellers the threat of any claim that the holder of such Intellectual Property is
in violation or infringement of any service ▇▇▇▇, patent, trademark, trade name,
trademark or trade name registration, copyright, copyright registration or other
intellectual property of any other Person. Each Seller is the owner of the
Intellectual Property and other proprietary and trade rights necessary for the
conduct of its Business as now conducted, and without any known conflict with
the rights of others, and no Seller has knowingly forfeited or otherwise
relinquished any such Intellectual Property or other proprietary right necessary
for the conduct of its Business as conducted on the date hereof. Each Seller
owns or has the right to use all computer software, software systems and
databases and all other information systems included in the Purchased Property
and has the right to transfer title thereto or such rights of the use thereof to
the Buyer free and clear of any Encumbrances. All of the Intellectual Property
listed on SCHEDULE 5.12(A) are subsisting and have not been abandoned, and all
required annuities, renewal fees, maintenance fees, royalty payments, amendments
and/or other filings or payments which are necessary to preserve and maintain
such Intellectual Property have been filed and/or made.
(b) SCHEDULE 5.12(B) sets forth a true and complete list of all of the
Intangible Assets. There is no restriction affecting the use of any of the
Intangible Assets, and no license has been granted with respect thereto. Each of
the Intangible Assets is valid and in good standing, is not currently being
challenged, is not involved in any pending or, to the knowledge of each Seller
and each Executive Shareholder, threatened administrative or judicial
proceeding, and, to the knowledge of each Seller and each Executive Shareholder,
does not conflict with any rights of any other Person. Each Seller's rights in
and to the Intangible Assets are sufficient and adequate in all respects to
permit the conduct of its Business as now conducted and none of the products or
operations of such Business involves any infringement of any proprietary right
of any other Person.
Section 5.13 LICENSES AND PERMITS.
(a) SCHEDULE 5.13(A) sets forth a true and complete list of all licenses,
permits, franchises, authorizations and approvals issued or granted to each
Seller with respect to its Business by any Governmental Authority (the "LICENSES
AND PERMITS"), and all pending applications therefor. Such list, where
applicable, specifies the date issued, granted or applied for, the expiration
date and the current status thereof. Each License and Permit has been duly
obtained, is valid and in full force and effect, and is not subject to any
pending or threatened administrative or judicial proceeding to revoke, cancel,
suspend or declare such License and Permit invalid in any respect. To the
knowledge of each Seller and each Executive Shareholder, no license, permit,
franchise, authorization or approval by or from any Governmental Authority,
other than the Licenses and Permits, is required to permit the continued lawful
conduct of the Businesses in the manner now conducted and none of the operations
of the Businesses are being conducted in a manner that violates any of the terms
or conditions under which any License and Permit was granted. Except as set
forth in SCHEDULE 5.13(A), no such License and Permit will in any way be
affected by, or terminate or lapse by reason of, the transactions contemplated
by this Agreement.
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(b) To the knowledge of each Seller and Executive Shareholder, no Network
Physician ever has (i) had his/her license to practice medicine in any
jurisdiction denied, surrendered, limited, suspended, revoked or subject to
probationary conditions or is subject to any pending proceedings regarding any
of the foregoing, (ii) had his/her Federal or State Drug Enforcement Agency
controlled substance authorization denied, revoked, suspended, reduced or not
renewed or has been subject to institution of, or is subject to any pending or
threatened proceedings regarding any of the foregoing, or (iii) been the subject
of administrative sanctions or been suspended from or lost eligibility for
participating in Medicare, Medicaid or other medical insurance programs offered
by any Governmental Authority or any non-governmental body or is subject to any
pending or threatened proceedings regarding any of the foregoing.
Section 5.14 LITIGATION. Except as set forth in SCHEDULE 5.14, there are
no claims, actions, suits, proceedings, labor disputes or investigations pending
or, to the knowledge of each Seller and each Executive Shareholder, threatened,
before any Governmental Authority, or before any arbitrator or mediator of any
nature, domestic or foreign, brought by or against any Seller or any of its
officers, directors, employees, agents or Affiliates involving, affecting or
relating to its Business, the Purchased Property or the transactions
contemplated by this Agreement, nor is any basis known to any Seller or any
Executive Shareholder for any such action, suit, proceeding or investigation.
SCHEDULE 5.14 sets forth a list and a summary description of all such pending
actions, suits, proceedings, disputes or investigations. Neither any Business
nor any Purchased Property is subject to any order, writ, judgment, award,
injunction or decree of any Governmental Authority or arbitrator, domestic or
foreign, that affects any Businesses or Purchased Property, or that would or
might interfere with the transactions contemplated by this Agreement.
Section 5.15 PROFESSIONAL LIABILITY CLAIMS.
(a) Except as set forth in SCHEDULE 5.15(A), to the knowledge of each Seller
and each Executive Shareholder, in respect of Network Physicians: (i) there is
no notice, demand, claim, action, suit, inquiry, hearing, proceeding, notice of
violation or investigation of a civil, criminal or administrative nature before
any Governmental Authority or before any arbitrator or mediator of any nature
against or involving any professional services performed in connection with or
on behalf of any Business, or class of claims or lawsuits involving the same or
similar services performed in connection with or on behalf of any Business
which, in any such case, is pending or, to the knowledge of the Sellers and the
Executive Shareholders, threatened (collectively, "PROFESSIONAL LIABILITY
CLAIMS") and (ii) there has not been any Occurrence (as such term is defined
below).
(b) The term "OCCURRENCE" shall mean any accident, happening or event which
takes place at any time which is caused or allegedly caused by any such
accident, happening or event otherwise involving any professional services
performed in connection with or on behalf of any Business that is likely to
result in a claim or loss.
Section 5.16 CONTRACTS.
(a) SCHEDULE 5.16(A) sets forth a complete and correct list of all Contracts
(as in effect on the date hereof), which list of Contracts constitutes all the
contracts, agreements, understandings or commitments, whether or not the same
are in writing, to which each Seller is a party in connection its Business.
(b) Each Contract is valid, binding and enforceable against the parties
thereto in accordance with its terms, and in full force and effect. Each Seller
has performed all material obligations required to be performed by it under, and
is not in default or delinquent in performance, status or any other respect
(claimed or actual) in connection with any Contract, and no event has occurred
which, with due notice or lapse of time or both, would constitute such a
default. To the knowledge of each Seller and each Executive Shareholder, no
other party to any Contract is in default in respect thereof, and no event has
occurred which, with due notice or lapse of time or both, would constitute such
a default.
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(c) Except as set forth in SCHEDULE 5.16(C), with respect to each Contract,
each Seller which is a party thereto has complied in all material respects with
and expects to comply in all material respects with all material terms thereof,
all certifications and representations of such Seller with respect thereto and
all statutes and regulations applicable thereto. By way of example, and not by
way of limitation, "material obligations" or "material terms" shall include (i)
any obligation to comply with rules or regulations imposed by any party to a
Third Party Payor Agreement, whether or not such rules or regulations are
attached to the relevant Contract, (ii) any obligation to provide most favored
pricing terms, (iii) non-competition agreements, (iv) exclusive service
requirements, (v) requirements to report information, or to furnish reports,
(vi) confidentiality obligations, (vii) indemnification obligations and
obligations to maintain insurance, and (viii) any term in respect of which the
failure to observe or comply with would, with due notice or lapse of time or
both, constitute a ground for default or termination.
(d) Each Seller has permitted the Buyer to inspect and review true and
complete copies of all of the Contracts to which it is a party (and, in the case
of oral agreements, true and complete written summaries of the material terms of
such oral agreements), all attachments, schedules, exhibits, annexes, all rules,
regulations or other documents referenced in such Contracts, together with and
all amendments and addendums thereto (including any and all oral modifications
to such agreements and all amendments that do not require the consent of any
Seller). Except as set forth in SCHEDULE 5.16(D), each Seller has full legal
power and authority to assign its rights under such Contracts to the Buyer in
accordance with this Agreement, and such assignment will not affect the
validity, enforceability or continuity of any of such Contracts. All consents,
waivers, approvals and authorizations which may be required under the Contracts
with respect to the transactions contemplated hereby are listed on SCHEDULE
5.16(D).
(e) Except as set forth in SCHEDULE 5.16(E), none of the Contracts that any
Seller has with its Network Physicians, Consultants or Employees provides or
requires that (i) any Person other than the aforementioned personnel and such
Seller will be a party to such Contracts (including any party to any Third Party
Payor Agreement), and the assignment of each Seller's agreements with such
Persons to the Buyer does not require the consent or approval of any party to
any Third Party Payor Agreement or any other Person, or (ii) any compensation or
payment be made to any such Person (a "CHANGE OF CONTROL PAYMENT") by reason of
(A) the transactions contemplated by this Agreement, including by reason of the
sale of all or substantially all of the assets relating to the Businesses or (B)
the acquisition by any Person of beneficial ownership of 50% or more of the
voting securities of the Buyer or any of its Affiliates or (C) the merger of the
Buyer or any of its Affiliates with and into another Person.
(f) Set forth in SCHEDULE 5.16(F) is a true and correct schedule reflecting
the monthly capitation fees required to be paid by each party to a Third Party
Payor Agreement to any Seller in accordance with each Third Party Payor
Agreement.
(g) None of the Sellers is required to make any payments to, or to receive
lower capitation fees from, any party to any Third Party Payor Agreement in
accordance with the foregoing provisions or by reason of any other provision in
any Third Party Payor Agreement, and none of the Sellers has any reason to
believe that any such payment or reduction in capitation fees will be required
under the terms of any Third Party Payor Agreement in the foreseeable future.
(h) Except as set forth in SCHEDULE 5.16(H), there are no non-competition or
exclusive service agreements (i) between any Executive Shareholder, any Seller
or their respective Affiliates, and any party to any Third Party Payor
Agreement, that would restrict any such Seller, Executive Shareholder or
Affiliate in the manner in which it conducts, or could conduct, its Business, or
that would restrict the manner in which the Buyer or its Affiliates conducts, or
could conduct, its (or their) businesses, including, after the Closing, the
Businesses or (ii) between any Seller and any Network Physician, Consultant,
Employee or Shareholder, that would restrict any such Person from performing
services for the Buyer or its Affiliates. Each Seller has previously furnished
the Buyer with true, correct and complete copies of all the agreements
(including all amendments thereto) set forth in SCHEDULE 5.16(H).
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(i) Except as set forth on SCHEDULE 5.16(I), since June 30, 1997, no party
to any Third Party Payor Agreement has terminated or changed significantly, or
to the knowledge of the Sellers and the Executive Shareholders, intends to
terminate or change significantly, its relationship with any of the Businesses.
(j) There has been no material change in the terms of or manner of
administering any of the Contracts since June 30, 1997.
(k) To the knowledge of each Seller and each Executive Shareholder, no
current Network Physician, Consultant, or Employee intends to terminate or
materially change the terms of his agreements with any of the Sellers relating
to its Business.
Section 5.17 EMPLOYEE PLANS AND BENEFITS; EMPLOYEES AND INDEPENDENT
CONTRACTORS.
(a) Except as set forth on SCHEDULE 5.17(A), neither any Seller nor any
member of a "controlled group" (within the meaning of Section 4971(e)(2)(B) of
the Code) that includes a Seller (hereinafter referred to as an "ERISA
AFFILIATE") is a party to or participates in or has any liability or contingent
liability with respect to:
any "employee welfare benefit plan" or "employee pension plan" (as those
terms are respectively defined in ERISA Sections 3(1)and 3(2)) or a
Multiemployer Plan (referred to collectively as the "PLANS"); or
any retirement or deferred compensation plan, incentive compensation
plan, stock plan, unemployment compensation plan, vacation pay, severance
pay, bonus or benefit arrangement, insurance or hospitalization program or
any other fringe benefit arrangements for any employee, director, consultant
or agent, whether pursuant to contract, arrangement, custom or informal
understanding, which does not constitute an "employee benefit plan," as
defined in Section 3(3) of ERISA (referred to collectively as "COMPENSATION
ARRANGEMENTS".
Complete and accurate copies of any such written Plans and Compensation
Arrangements (or related insurance policies), including any amendments thereto,
have been furnished to Buyer, along with copies of any employee handbooks or
similar documents describing such Employee Plans and Compensation Arrangements.
Any unwritten Employee Plans or Compensation Arrangements also are listed in
SCHEDULE 5.17(A), and complete descriptions thereof have been furnished to
Buyer. Except as disclosed in SCHEDULE 5.17(A), neither Seller nor any ERISA
Affiliate is a party to and or has in effect or to become effective after the
date of this Agreement any plan or arrangement that will become a Plan or
Compensation Arrangement.
(b) Each Plan and Compensation Arrangement has been administered in
compliance with its own terms and in material compliance with the provisions of
ERISA, the Code, the Age Discrimination in Employment Act and any other
applicable Federal or state laws.
(c) No Seller has within the last six (6) years, does or is required to
contribute to any Multiemployer Plan with respect to the Employees, and neither
any or the Sellers nor any ERISA Affiliate of any of them has incurred, within
the last six (6) years, or reasonably expect to incur any "withdrawal
liability," as defined under Section 4201 et seq. of ERISA.
(d) Except as described in SCHEDULE 5.17(D), with respect to each Plan and,
to the extent applicable, each Compensation Arrangement: (i) each Plan that is
intended to be tax-qualified, and each amendment thereto, is the subject of a
favorable determination letter, and no plan amendment that is not the subject of
a favorable determination letter would affect the validity of a Plan's letter;
(ii) no condition or event exists or is expected to occur that could subject,
directly or indirectly, any assets to any material liability, contingent or
otherwise, or the imposition of any lien under the Code or Title IV of ERISA.
(e) Attached hereto as SCHEDULES 5.17(E)(I), (II) AND (III), respectively,
are true and complete lists, as of ten Business Days prior to the date of this
Agreement, of (i) all Network Physicians, (ii) all Consultants,
27
and (iii) all Employees. Set forth opposite the name of each Employee is such
Employee's employment position title, the base salary, any bonus provisions, any
additional compensation arrangements, all other benefits to which such person is
entitled. Each Seller, for each of the persons who are, or may be deemed,
Employees of such Seller's Business, as listed on SCHEDULE 5.17(E)(III), has
either paid or adequately provided for the payment of all accrued benefits such
Employees are entitled to receive as of the Closing Date as set forth on
SCHEDULE 5.17(E)(III), including all accrued vacation, sick or personal time and
benefits due under any Plans.
(f) There are no severance pay, stay or retention bonus, continuation pay or
termination pay arrangements between any Seller and any officer, director,
employee, independent contractor, consultant or Shareholder thereof, that will
become Assumed Liabilities. Each Seller has paid on a current basis and will
continue to pay on a current basis through the Closing Date all amounts owed to
any officer, employee, independent contractor and consultant. Each Seller has
previously permitted Buyer to inspect and review true and correct copies of all
the agreements described in the foregoing sentence. The Buyer assumes no
liability or obligation with respect to, and receives no right or interest in,
any of the employment, consulting or independent contractor agreements to which
any Seller or Affiliate thereof is or was from time to time a party.
(g) None of the Sellers or the Executive Shareholders has received notice or
has any knowledge (i) of any discrepancy in any application filed with any
Seller at any time by such Network Physician or (ii) that any Network Physician
(whether or not credentialed by any Seller) has been decredentialed by any party
to a Third Party Payor Agreement or otherwise. With respect to each Network
Physician, (i) no regulatory authority has asserted any claim against any Seller
challenging the characterization of such Network Physician as an independent
contractor, and no such assertion is pending, or to each of the Seller's and
Executive Shareholder's knowledge, threatened, and (ii) no liability exists or
is pending or, to each of the Seller's and Executive Shareholder's knowledge,
threatened, which results from characterization of any Network Physician as an
independent contractor.
(h) The Sellers have permitted Buyer to inspect and review true, complete
and correct copies of their forms of independent contractor or employment
agreements used with respect to each of the Network Physicians.
Section 5.18 INSURANCE.
(a) SCHEDULE 5.18(A) lists (i) the fidelity bonds, (ii) the aggregate
coverage amount, (iii) the type and generally applicable deductibles, (iv) a
brief description of each claim of more than $10,000, and (v) the aggregate
amounts paid out under each such policy during the period from January 1, 1995
to the date hereof, of or relating to all policies of general and professional
liability and other forms of insurance of each Seller insuring each Business,
Consultants and all Employees of the Sellers, the Purchased Property, and all
insurance required under the Contracts or the Leases. Each Seller has furnished
a true, complete and accurate copy of all such policies and bonds to the Buyer.
Except as set forth in SCHEDULE 5.18(A), all such policies and bonds are in full
force and effect, and are sufficient for all Contracts and, to the knowledge of
the Sellers and the Executive Shareholders, all applicable requirements of law.
None of the Sellers is in material default under any provisions of any such
policy of insurance or has received notice of cancellation of any such
insurance. None of the Sellers has received (i) any notice that any issuer of
any such policy has filed for protection under applicable bankruptcy laws or is
otherwise in the process of liquidating or has been liquidated, (ii) any other
indication that such policies are no longer in full force and effect or that the
issuer of any such policy is no longer willing or able to perform its
obligations thereunder. There is no claim by any Seller pending under any of
such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds or any notice that a
defense will be afforded with reservation of rights. Since December 31, 1996,
except as set forth in SCHEDULE 5.18(A), none of the Sellers or the Executive
Shareholders has received any written notice from or on behalf of any insurance
carrier issuing such policies, that there will hereafter be a cancellation, or
an increase in a
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deductible or non-renewal of existing policies. All premiums due on such
policies have been paid, and the aggregate amount of all claims under such
policies do not exceed policy limits. Each Seller has given notice to the
insurers of all claims that may be insured thereunder. The insurance maintained
by each Seller in connection with its Business is adequate in accordance with
the requirements of any applicable Leases. After the Closing each Seller will
provide the Buyer with all reasonable assistance and information necessary to
enable the Buyer to obtain and maintain insurance coverage for the Businesses
and the Purchased Property.
(b) Except as set forth on SCHEDULE 5.18(B), none of the Sellers is
obligated, pursuant to any of the Contracts or otherwise, to maintain insurance
for the benefit of any Person (including any Network Physician or customer), or
to name any Person (including any Network Physician or customer) as an
additional insured party.
Section 5.19 COMPLIANCE WITH LAW.
(a) Except as set forth on SCHEDULE 5.19, and except with respect to
Environmental Laws which are referred to in Section 5.19(f), the operations of
each Business have been conducted in accordance with all applicable laws,
regulations, orders and other requirements of all courts and other Governmental
Authorities having jurisdiction over any Seller or its Network Physicians,
Consultants, Employees, assets, properties and operations, including all such
laws, regulations, orders and requirements promulgated by or relating to
consumer protection, equal opportunity, health, architectural barriers to the
handicapped, fire, zoning and building and occupation safety, and, to the
knowledge of each Seller and each Executive Shareholder, there are no
circumstances arising out of the operation of any Business prior to the Closing
that will give rise to any claim against the Buyer under any such laws if the
Closing occurs, except where the failure to comply would not have material
adverse effect on the Purchased Property, operations, prospects, net income or
condition (financial or other) of such Business. None of the Sellers, Executive
Shareholders or their respective Affiliates has received notice of any violation
of any such law, regulation, order or other legal requirement or, to the best
knowledge of each Seller and each Executive Shareholder, are in default with
respect to any order, writ, judgment, award, injunction or decree of any
Governmental Authority or arbitrator, domestic or foreign, applicable to any
Business or any of the assets, properties or operations with respect thereto.
(b) None of the Sellers, the Shareholders, or persons or entities providing
professional services for any Business, and, to the knowledge of the Sellers and
the Executive Shareholders, the Network Physicians, have engaged in any
activities which are prohibited under Section 1320a-7b to Title 42 of the United
States Code or the regulations promulgated thereunder, or related state or local
statutes or regulations, or which are prohibited by rules of professional
conduct including, but not limited to, the following: (i) knowingly and
willfully making or causing to be made any false statement or representation of
a fact in any application for any benefit or payment; (ii) any failure by a
claimant to disclose knowledge 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 the intent to secure fraudulently such benefit or
payment; (iii) knowingly and willfully offering, paying, 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 receive such
remuneration (A) in return for referring an individual to a person or accepting
a referral of an individual from 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 the Medicare or Medicaid programs, or (B) in return for purchasing,
leasing or ordering or arranging for, or recommending any good, facility,
service or item for which payment may be made in whole or in part by the
Medicare or Medicaid programs or (iv) knowingly and willfully making or causing
to be made, agreeing to be made, or aware that there is any agreement to make,
any political contribution or any contributions, payments or gifts of their
respective funds or property to or for the private use of any employee, official
or agent of any Governmental Authority, in circumstances in which the payment or
the purpose of such contribution, payment or gift relates to any Business and is
illegal under the laws of any Governmental Authority. Furthermore, each Seller
has at all
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times billed for professional services in accordance with 42 U.S.C. Section
1395nn and the regulations promulgated thereunder, and has not been engaged in
any conduct violation of 42 U.S.C. Section 1395nn or the regulations thereunder,
including, without limitation, billing for or receiving payment for a service
which arose out of a refund prohibited by that Section.
(c) All bills submitted by or on behalf of each Seller, its Consultants,
Employees or Executive Shareholders, and, to the knowledge of each Seller and
Executive Shareholder, its Network Physicians, to Medicare or Medicaid have been
submitted in compliance with all laws, regulations and manual instructions
pertaining to billing for services rendered to recipients and beneficiaries of
the Medicaid and Medicare programs.
(d) Each Seller and each Executive Shareholder has at all times complied
with the requirements of all state laws relating to self referrals, including,
without limitation, the 1992 Florida Patient Self Referral Act, as amended, and
codified at Sections 455.236 and 455.237, Florida Statutes, which prohibits
physicians who have an ownership or investment interest in certain health care
facilities from referring patients to such facilities for the provisions of
designated and other health services. Furthermore, each Seller and each
Executive Shareholder has filed all reports required to be filed by state and
federal law regarding compensation arrangements and financial relationships
between a physician and an entity to which the physician refers patients.
(e) Each Seller is in compliance with all federal, state and local laws,
rules and regulations relating to the employment authorization of its employees
and independent contractors (including the Immigration Reform and Control Act of
1986, as amended and supplemented, and Sections 212(n) and 274A of the
Immigration and Nationality Act, as amended and supplemented, and all
implementing regulations relating thereto), and no Seller is employing or
engaging as an independent contractor any unauthorized aliens (as such term is
defined under 8 CFR Section274a.1(a)(1994)). No Seller or Executive Shareholder
is a party to, or is otherwise bound by, any agreement or arrangement, including
any confidentiality, non-competition or proprietary rights agreement, between
such individual and any other Person that in any way adversely affects the
performance of his duties or the ability of any Seller to conduct its Business.
(f) To the knowledge of the Sellers, the operations of each Business have
been conducted in accordance with all applicable Environmental Laws except where
the failure to comply would not have a material adverse effect on the Purchased
Property, operations, prospects, net income or condition (financial or other) of
such Business. None of the Sellers or Executive Shareholders has received notice
from any Governmental Authority with respect to, nor do they have any knowledge
of, any material violation by any Seller of any law, regulation or ordinance of
any federal, state or local government relating to the storage, disposal or
release of Hazardous Materials. For purposes of this Section 5.19(f), the term
"Hazardous Materials" means any flammable materials, explosives, radioactive
materials, hazardous wastes, hazardous or toxic substances, infectious wastes,
medical wastes or related or similar materials.
Section 5.20 CHANGE IN OWNERSHIP. Neither the purchase of the Purchased
Property by the Buyer nor the consummation of the transactions contemplated by
this Agreement will result in any material adverse change in the Businesses or
in the loss of the benefits of any material relationship with any party to any
Third Party Payor Agreement or any other customer or supplier.
Section 5.21 FILES AND RECORDS. All the Files and Records included in the
Purchased Property are true and complete in all material respects, are
maintained in accordance with good business practice and all laws and
regulations of any Governmental Authority applicable to the business, and
accurately present and reflect in all material respects all of the transactions
therein described.
Section 5.22 RELATED PARTY TRANSACTIONS. SCHEDULE 5.22 hereto sets forth,
in respect of the Businesses, (i) all management, computer, telephone or other
services, and all space, facilities and services, provided by any Seller or its
Affiliates to any other Seller or its Affiliates at any time since January 1,
1994 that could or will result in aggregate payments by any Seller of $2,500 or
more, and (ii) all other Contracts
30
and transactions between any Seller or its Affiliates and any other Seller or
its Affiliates currently in effect or which were in effect or occurred since
January 1, 1994 that resulted in or will result in aggregate payments by any
Seller of $2,500 or more.
Section 5.23 SUFFICIENCY OF AND TITLE TO ASSETS. Upon the consummation of
the transactions contemplated by this Agreement, the Sellers will have assigned,
transferred and conveyed to the Buyer all of the Purchased Property free and
clear of any Encumbrances, except for Permitted Encumbrances, which Purchased
Property (a) constitutes all of the properties and assets now held or employed
by the Sellers or any of their Affiliates that are attributable to the
Businesses, (b) constitutes and on the Closing Date will constitute, all of the
property and assets that are necessary to permit the operation of the Businesses
as historically and currently conducted, (c) is suitable for the purposes for
which it is currently used, and (d) is to be conveyed hereunder in good
operating condition and repair, subject to reasonable use, wear and tear. No
assets used in the Businesses are owned by any party other than one of the
Sellers except for property that is the subject of the Contracts.
Section 5.24 ACCURACY OF INFORMATION. None of the Sellers' or Executive
Shareholders' representations, warranties or statements contained in this
Agreement, or in the schedules, exhibits and other attachments hereto, contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make any of such representations, warranties or statements
in light of the circumstances under which they were made not misleading.
Section 5.25 BROKERS. Except for ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ of JeMJ Financial
Services, Inc. and for Mr. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, the fees and expenses of which shall
be the sole responsibility of the Sellers and the Executive Shareholders, no
broker, investment banker, financial advisor or other Person is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of any Seller. The Sellers and the Executive
Shareholders, jointly and severally, agree to indemnify and hold harmless the
Buyer against any fee, loss or expense arising out of any claim by any broker of
finder employed or alleged to have been employed by any of them.
Section 5.26 DISCLOSURE. Each of the Shareholders has been furnished with
a copy of this Agreement and has been given sufficient opportunity to ask
questions and receive answers from the Sellers and the Executive Shareholders as
to all financial terms and all other material terms of this Agreement.
Section 5.27 SURVIVAL. Each of the representations and warranties set
forth in this Article 5 shall survive the Closing, notwithstanding any
investigation on the part of the Buyer, for a period terminating on the second
anniversary of the Closing Date; PROVIDED, HOWEVER, that the representations and
warranties contained in Sections 5.1, 5.2, 5.7, 5.14, 5.15, 5.17 and 5.19 shall
survive until the fourth anniversary of the Closing Date.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE BUYER AND PARENT.
The Buyer and Parent hereby, jointly and severally represent and warrant to,
and covenant with, the Sellers as follows:
Section 6.1 CORPORATE ORGANIZATION. Each of the Buyer and Parent is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Florida and the State of Delaware, respectively, is duly
qualified as a foreign corporation in each jurisdiction in which it is required
to be so qualified, and each has all requisite corporate power and authority to
own its properties and assets and to conduct its businesses as now conducted.
The Buyer is a wholly owned subsidiary of Parent. Each of Parent and the Buyer
has furnished to the Sellers true, complete and correct copies of its Articles
or Certificate of Incorporation and By-laws, with all amendments thereto.
Section 6.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. Each of the Buyer and
Parent has all requisite corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder. The
31
execution and delivery of this Agreement and the performance of the respective
obligations of the Buyer and Parent hereunder have been duly authorized by all
necessary corporate action by the Buyer and Parent, respectively, and no other
corporate or shareholder proceedings on the part of the Buyer or Parent are
necessary to authorize such execution, delivery and performance. This Agreement
has been duly executed and delivered by each of the Buyer and Parent,
respectively, and constitutes the legal, valid and binding obligation of the
Buyer and Parent, enforceable against each in accordance with its terms.
Section 6.3 NO CONFLICT OR VIOLATION. Except as set forth on SCHEDULE 6.3,
the execution, delivery and performance by the Buyer and Parent of this
Agreement do not and will not violate or conflict with any provision of the
Articles or Certificate of Incorporation or By-Laws of the Buyer or Parent,
respectively, and do not and will not violate any provision of law, or any
order, judgment or decree of any Governmental Authority, nor violate nor will
result in a breach of or constitute (with due notice or lapse of time or both) a
default under, or give rise to a right to terminate or modify, any contract,
lease, loan agreement, mortgage, security agreement, trust indenture or other
agreement or instrument to which the Buyer or Parent is a party or by which it
is bound or to which any of its properties or assets is subject.
Section 6.4 CONSENTS AND APPROVALS. Except as disclosed on SCHEDULE 6.4,
the execution, delivery and performance of this Agreement on behalf of the Buyer
and Parent does not require the consent or approval of, or filing with, any
Governmental Authority or other entity or person except such consents, approvals
and filings, of which the failure to obtain or make would not, individually or
in the aggregate, have a material adverse effect on the ability of the Buyer or
Parent to consummate the transactions contemplated hereby.
Section 6.5 LITIGATION. There are no claims, actions, suits, proceedings,
labor disputes or investigations pending, or to the knowledge of the Buyer or
Parent, threatened, before any Governmental Authority, or before any arbitrator
or mediator of any nature, domestic or foreign, brought by or against the Buyer
or Parent or any of their respective officers, directors, employees, agents or
Affiliates, involving, affecting or relating to the transactions contemplated by
this Agreement or which would prohibit the Buyer or Parent from consummating the
transactions contemplated by this Agreement nor is any basis known to the Buyer
or Parent for any such action, suit, proceeding or investigation.
Section 6.6 FINANCING. As of the date hereof, neither the Buyer nor Parent
has any reason to believe that the Buyer will not be able to obtain the
financing necessary for it to consummate the transactions contemplated by this
Agreement.
Section 6.7 BROKERS. No broker, investment banker, financial advisor or
other Person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based on arrangements made by or on behalf of the Buyer. The
Buyer and the Parent, jointly and severally, agree to indemnify and hold
harmless the Sellers and the Shareholders against any fee, loss or expense
arising out of any claim by any broker or finder employed or alleged to have
been employed by Buyer or Parent.
Section 6.8 ACCURACY OF REPRESENTATIONS AND WARRANTIES. None of the
Buyer's or Parent's representations, warranties or statements contained in this
Agreement contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make any such representations or warranties
not misleading or includes any untrue statement of a material fact or omits to
state any material fact necessary in order to make such statements, in the light
of the circumstances under which they were made, not misleading.
Section 6.9 SURVIVAL. Each of the representations and warranties set forth
in this Article 6 shall survive the Closing, notwithstanding any investigation
on the part of the Sellers or the Executive Shareholders, for a period
terminating on the second anniversary of the Closing Date; PROVIDED, HOWEVER,
that the representation and warranty contained in Sections 6.1, 6.2 and 6.5
shall survive until the fourth anniversary of the Closing Date.
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SECTION 7. COVENANTS.
Each Seller and each of the Executive Shareholders, jointly and severally,
and, to the extent expressly specified, the Buyer and Parent, covenants as
follows:
Section 7.1 INFORMATION AND CERTAIN TAX MATTERS.
(a) Each Seller will give to the Buyer and to its officers, employees,
accountants, counsel and other representatives reasonable access during its
normal business hours throughout the period prior to the Closing to all of such
Seller's properties, Files and Records, Licenses and Permits, Contracts, Tax
Returns, and other Purchased Property relating to the Businesses (subject to any
limitations that are reasonably required to preserve any applicable
attorney-client privilege or third-party confidentiality obligation). Such
access by the Buyer will be coordinated through one of the Executive
Shareholders, as representatives of the Sellers.
(b) After the Closing Date, the Sellers and the Buyer will provide to each
other and to their respective officers, employees, counsel and other
representatives, upon request (subject to any limitations that are reasonably
required to preserve any applicable attorney-client privilege or third-party
confidentiality obligation), access for inspection and copying, of all Files and
Records, Licenses and Permits, Contracts and any other information existing as
of the Closing Date and relating to the Businesses or the Purchased Property,
and will make their respective personnel reasonably available to provide
information relating to the Businesses or the Purchased Property prior to the
Closing Date, and as otherwise may be necessary or desirable to enable the party
requesting such assistance to: (i) comply with reporting, filing or other
requirements imposed by any foreign, local, state or federal court, agency or
regulatory body; (ii) assert or defend any claims or allegations in any
litigation or arbitration or in any administrative or legal proceeding other
than claims or allegations that one party to this Agreement has asserted against
the other; or (iii) subject to clause (ii) above, perform its obligations under
this Agreement. The party requesting such information or assistance shall
reimburse the other party for all out-of-pocket costs and expenses incurred by
such party in providing such information and in rendering such assistance. The
access to files, books and records contemplated by this Section 7.1(b) shall be
during normal business hours and upon not less than two Business Days' prior
written request and shall be subject to such reasonable limitations as the party
having custody or control thereof may impose to preserve the confidentiality of
information contained therein. For a period of seven years after the Closing
Date, the Buyer shall keep and preserve all medical and other records of the
Sellers in its possession which are existing as of the Closing Date and which
are required to be kept and preserved (i) by any applicable federal or state law
or regulation or (ii) in connection with any claim or controversy still pending
involving any of the Sellers.
(c) The Buyer, Parent, the Sellers and the Executive Shareholders shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with any Tax audit, litigation or other Tax proceeding relating to
the Businesses or the Purchased Property. Such cooperation shall include the
retention and, upon the other party's request, the provision of records and
information reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any records and information
provided hereunder. The Buyer, Parent, the Sellers and the Executive
Shareholders further agree to furnish or cause to be furnished to each other, as
promptly as practicable, such information and assistance relating to the
Businesses as is reasonably necessary to the preparation and filing of any Tax
Return, claim for refund or other required or optional filings relating to Tax
matters, for the preparation for and proof of facts during any Tax audit, for
the preparation for any Tax protest, for the prosecution or defense of any suit
or other proceeding relating to Tax matters and for the answer to any inquiry
relating to Tax matters by any Governmental Authority.
(d) Without limiting the generality of the foregoing, each Seller agrees (i)
to provide both before and after the Closing Date financial information
reasonably requested by the Buyer from time to time in connection with the
preparation by the Buyer of financial statements relating to the Businesses and
(ii) to
33
use its Best Efforts to cause Sellers' independent accountants to provide any
such information (including copies of all workpapers) reasonably promptly upon
the request of the Buyer. The Buyer will use such information for its normal
business purposes only, including, without limitation, preparation of financial
information required to be included in reports filed with the Securities
Exchange Commission and each Seller will use its Best Efforts to provide or
cause to be provided to the Buyer such information in a timely fashion.
(e) The Sellers agree to retain possession of all accounting, business,
financial and Tax records and information (i) relating to the Businesses in
existence on the Closing Date transferred to the Buyer hereunder and (ii) coming
into existence after the Closing Date which relate to the Businesses before the
Closing Date, for the period not less than seven years from the Closing Date. In
addition, from and after the Closing Date, the Sellers agree that they will not
unreasonably withhold access by the Buyer and its attorneys, accountants and
other representatives (after reasonable notice and during normal business hours
and with reasonable charge), to such personnel, books, records, documents and
any or all other information relating to the Businesses as the Buyer may
reasonably deem necessary to properly prepare for, file, prove, answer,
prosecute and/or defend any such return, filing, audit, protest, claim, suit,
inquiry or other proceeding or for other legitimate business purposes. Such
access shall include, without limitation, access to any computerized information
retrieval systems relating to the Businesses.
Section 7.2 CONDUCT OF THE BUSINESSES.
From and after the date of this Agreement and until the Closing Date, except
as set forth on SCHEDULE 7.2 or as otherwise contemplated by this Agreement or
as the Buyer shall otherwise consent to in writing, each Seller will, with
respect to its Business, and each Executive Shareholder will cause each Seller
in which he or his Affiliates have any direct or indirect ownership interest to:
(a) carry on its Business in the ordinary course in a manner consistent with
past practice, including without limitation by keeping in full force and effect
insurance comparable in amount and scope to the coverage maintained by it (or on
behalf of it) on the date hereof, not cancel any debts or claims, or waive or
release any rights material to such Business relating to the operations of such
Business, or default on any material obligation relating to the operations of
its Business;
(b) not permit all or any of the Purchased Property (real or personal,
tangible or intangible) to be sold, licensed or subjected to any Encumbrance
(other than a Permitted Encumbrance) except in dispositions of inventory or of
worn-out or obsolete equipment for fair or reasonable value in the ordinary
course of business consistent with past practices;
(c) exercise all Best Efforts to maintain and preserve for the Buyer its
relationships with customers, suppliers, managers, Employees, Network
Physicians, Consultants, parties to Third Party Payor Agreements and actively
sought prospective parties to Third Party Payor Agreements (including, without
limitation PruCare) and others having business relationships with the Business;
(d) not acquire any assets or properties, or enter into any other
transaction, other than in the ordinary course of business consistent with past
practice and which does not require payment of aggregate amounts exceeding
$10,000;
(e) not enter into any new (or amend any existing) Plan, including, any
employee benefit plan, program or arrangement or any new (or amend any existing)
employment, independent contractor, severance or consulting agreement, grant any
general increase in the compensation of officers or Employees (including any
such increase pursuant to any bonus, pension, profit-sharing or other plan or
commitment) or grant any increase in the compensation payable or to become
payable to any Network Physician, Consultant or Employee, except (i) in
accordance with pre-existing contractual provisions or consistent with past
practice, (ii) increases on an annual basis for the 1997 calendar year up to a
maximum amount of five percent in excess of such Person's aggregate compensation
for the 1996 calendar year and (iii) in respect of the Executive Shareholders,
as permitted in Section 7.2(i)(B) below;
34
(f) not issue, grant or sell any capital stock, partnership interests,
options, or other right to purchase any equity interests in such Seller, or
issue any security convertible into such capital stock, partnership interests or
equity interests, or enter into any subscription contract or other arrangements
obligating such Seller to issue or sell any of the foregoing, or redeem,
purchase or otherwise acquire any such capital stock or equity interests;
(g) not make or commit to make any capital expenditure except as expressly
contemplated by the Information Technologies Budget, other than ordinary repairs
or maintenance;
(h) not pay, lend or advance any amount to, or sell, transfer or lease any
properties or assets to, or enter into any agreement or arrangement with, any of
its Affiliates;
(i) not declare, set aside, pay or make any dividend or other distribution
or payment (whether in cash, stock, interests, equity or property) with respect
to, or purchase or redeem, any shares of the capital stock or any partnership
interests or other equity interests (including profit sharing plans or
distributions relating to such Seller's financial results) of such Seller, or
otherwise withdraw any cash from such Seller for the direct or indirect benefit
of the holders of any such shares or interests or for any third party, or make
or agree to make any other payments to any Shareholder or any of his or her
Affiliates; PROVIDED, HOWEVER, that nothing set forth in this Section 7.2(i)
shall prohibit cash distributions to the extent that after giving effect to such
cash distributions the Sellers still have at least $1,000,000 in Unrestricted
Cash in the aggregate;
(j) not make any change in any method of accounting or accounting principle,
method, estimate or practice except for any such change required by reason of a
concurrent change in GAAP, or write down the value of any inventory or write off
as uncollectible any accounts receivable except in the ordinary course of
business consistent with past practice;
(k) not settle, release or forgive any claim or litigation or waive any
right thereto;
(l) not make, enter into, modify, amend or terminate any Contract, including
any Third Party Payor Agreement or bid with respect to any of the Businesses;
(m) not defer the payment of any expense or liability, or prepay any expense
or liability, in anticipation of the consummation of the transactions
contemplated hereby;
(n) not accelerate the collection of any accounts receivable or any other
amounts owed to it;
(o) not decrease by a material amount the quantity of Equipment and
Machinery or Inventory maintained for use in its Business;
(p) discharge or satisfy all Encumbrances and pay or satisfy all obligations
or liabilities (whether absolute, accrued, contingent or otherwise) arising from
the operation of its Business in a timely manner, other than liabilities being
contested in good faith and for which adequate reserves have been provided, each
of which is set forth on SCHEDULE 5.6(B)(13) hereof, and Permitted Encumbrances;
(q) continue to maintain the Purchased Property in accordance with present
practice; and
(r) not enter into any agreement or make any commitment not in compliance
with any of the foregoing and not take any other action that would cause any of
the representations and warranties made by any Seller in this Agreement not to
remain true and correct.
Section 7.3 TAX REPORTING AND ALLOCATION OF CONSIDERATION.
(a) Each of the Sellers and the Buyer acknowledge and agree that (i) the
Sellers will be responsible for and will perform all Tax withholding, payment
and reporting duties with respect to any wages and other compensation paid by
any Seller to any Transferred Employee (and, if applicable, any Transferred
Consultant) in connection with operating the Businesses prior to or on the
Closing Date and (ii) the Buyer will be responsible for and will perform all Tax
withholding payment and reporting duties with respect to
35
any wages and other compensation paid by Buyer to any employee or independent
contractor in connection with operating the Businesses after the Closing Date.
(b) The Buyer and each of the Sellers recognize their mutual obligations
pursuant to Section 1060 of the Code to timely file IRS Form 8594 (the "ASSET
ACQUISITION STATEMENT") with each of their respective federal income Tax
Returns. The Buyer and each of the Sellers acknowledge that they will allocate
the Purchase Price and the Assumed Liabilities among the Purchased Property in
the manner set forth on SCHEDULE 7.3(B) (such agreed allocation hereinafter
referred to as the "ALLOCATION"). The Buyer and each of the Sellers further
agree to act in accordance with the Allocation, if any, in any Tax Returns or
similar filings. In the event that any Tax authority disputes the Allocation, if
any, the Sellers or the Buyer, as the case may be, shall promptly notify the
other party of the nature of such dispute and shall provide reasonable
cooperation with the goal of resolving such dispute.
Section 7.4 SUPPLEMENTAL SCHEDULES. The Sellers and the Executive
Shareholders shall, from time to time prior to the Closing (but no later than
three Business Days prior to the Closing), by notice in accordance with this
Agreement, supplement or amend any Schedule to correct any matter which would
constitute a breach of any representation or warranty herein contained. No such
supplemental or amended Schedule shall be deemed to cure any breach of such
representation or warranty for purposes of conditions to Closing or termination,
or for any other purpose, and the Buyer shall continue to have all of its rights
and remedies hereunder.
Section 7.5 TRANSFERRED PERSONS.
(a) The Buyer, in its sole discretion, may offer employment or engagement,
as the case may be, to as many Consultants and Employees whose Contracts are not
being assumed by the Buyer as is consistent with, and subject to, the Buyer's
requirements and employment policies. Notwithstanding anything to the contrary
in the previous sentence, within five Business Days prior to the Closing, the
Buyer shall offer employment to the Employees listed on SCHEDULE 7.5(A), such
terms of employment to be no more advantageous to such Employees than the terms
on which such Employees are currently employed as set forth on SCHEDULE
5.17(E)(III) opposite their respective names (an "ENGAGEMENT NOTICE"), PROVIDED,
HOWEVER, that nothing herein requires the Buyer to employ any such Employees for
any period of time after the Closing Date except that (i) the Buyer agrees not
to terminate the employment of any such Employees without the prior consent of
the Executive Shareholders, which consent will not be unreasonably withheld or
delayed, for a period ending 90 days after the Closing Date, and (ii) the Buyer
agrees to offer to employ each of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ at her
respective current salary and not to terminate the employment of either one
without the prior consent of the Executive Shareholders, which consent will not
be unreasonably withheld or delayed, for a period ending one year after the
Closing Date. All Employees hired by Buyer shall be referred to as "TRANSFERRED
EMPLOYEES" and all Consultants engaged by Buyer, including Consultants relating
to Contracts assumed by Buyer, shall be referred to as "TRANSFERRED
CONSULTANTS." Promptly following the delivery by the Buyer of the list of
Transferred Consultants and Transferred Employees, each Seller will make
appropriate arrangements with each of its Consultants, and Employees being so
transferred, in order to terminate any existing agreements which are not being
assigned to the Buyer, including any non-competition restrictions that may be
contained in related agreements, or, if requested by the Buyer, provide for the
assignment of such employment, consulting or independent contractor agreements
to the Buyer at the Closing to the extent such contracts or agreements
constitute Contracts.
(b) All Transferred Employees (but not Network Physicians or Transferred
Consultants) shall participate in the employee benefit plans, programs, policies
and arrangements of the Buyer in accordance with the terms thereof generally
applicable to employees of the Buyer. Except to the extent expressly provided
for in Section 7.5(a), nothing herein requires the Buyer to employ any
Transferred Employee or to engage any Network Physicians, or Transferred
Consultants for any period of time after the Closing Date.
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(c) Except as otherwise expressly provided in Section 2.4, neither the Buyer
nor its Affiliates shall assume or have any direct or indirect obligation or
liability of any nature, whether matured or unmatured, accrued or contingent,
due or to become due or otherwise, to any Network Physician, Transferred
Consultant or Transferred Employee or other present or former employee of or
independent contractor with any of the Sellers or its Affiliates, or to any
dependent, survivor or beneficiary thereof, arising out of or in relation to
such person's employment or engagement with any of the Sellers or its Affiliates
or the termination of such employment, nor shall the Buyer or its Affiliates
have any such liability to any such Person to make any Change of Control
Payments.
(d) Sellers shall assume full responsibility and liability for offering and
providing "continuation coverage" to any "qualified beneficiary" who is covered
by a "group health plan" sponsored or contributed to by any Seller and who has
experienced a "qualifying event" or is receiving "continuation coverage" on or
prior to the Closing. "Continuation coverage," "qualified beneficiary,"
"qualifying event" and "group health plan" all shall have the meanings given
such terms under Section 4980B of the Code and Section 601 et seq. of ERISA.
Sellers, jointly and severally, shall hold Buyer and any entity required to be
combined with Buyer (within the meaning of Sections 414(b), (c), (m) or (i) of
the Code) harmless from and fully indemnify them against any costs, expenses,
losses, damages and liabilities incurred or suffered by them directly or
indirectly, including, but not limited to, reasonable attorneys' fees and
expenses, which relate to continuation coverage and arise as a result of any
action or omission by Seller or because Buyer is deemed to be a successor
employer to any Seller.
Section 7.6 CONSENTS AND APPROVALS. The Sellers and the Executive
Shareholders (a) shall, at their own cost and expense, use their Best Efforts to
obtain all necessary consents, waivers, authorizations, domestic and foreign,
and of all other persons, firms or corporations required in connection with the
execution, delivery and performance by them of this Agreement, and (b) shall
diligently assist and cooperate with the Buyer in preparing and filing all
documents required to be submitted by the Buyer to any Governmental Authority in
connection with such transactions and in obtaining any consents, waivers,
authorizations or approvals from any Governmental Authority which may be
required to be obtained by the Buyer in connection with such transactions (which
assistance and cooperation shall include timely furnishing to the Buyer all
information concerning the Sellers, the Executive Shareholders and their
respective Affiliates that counsel to the Buyer reasonably determines is
required to be included in such documents or would be helpful in obtaining any
such required consent, waiver, authorization or approval).
Section 7.7 NEGOTIATIONS. From and after the date hereof through and until
the earlier to occur of Closing or termination of this Agreement, neither the
Sellers, nor their respective officers, directors, Employees or Shareholders nor
anyone acting on behalf of the Sellers or any of the foregoing persons shall,
directly or indirectly, encourage, solicit, engage in discussions or
negotiations with, or provide any information to, any person, firm, or other
entity or group (other than the Buyer or its representatives) concerning any
merger, sale of substantial assets, purchase or sale of shares of capital stock
or similar transaction involving any Seller or any of the Businesses or any
other transaction inconsistent with the transactions contemplated hereby. The
Sellers and the Executive Shareholders shall promptly communicate to the Buyer
any inquiries or communications concerning any such transaction which they may
receive or of which they may become aware prior to the termination of this
Agreement.
Section 7.8 FURTHER ASSURANCES. Upon the reasonable request of the Buyer
at any time after the Closing Date, each Seller shall forthwith execute and
deliver such further instruments of assignment, transfer, conveyance,
endorsement, direction or authorization and other documents as the Buyer or its
counsel may request to perfect title of the Buyer and its successors and assigns
to the Purchased Property or otherwise to effectuate the purposes of this
Agreement.
Section 7.9 COVENANT NOT TO COMPETE.
(a) The Sellers and the Executive Shareholders agree for themselves and
their respective Affiliates that, for a period commencing on the Closing Date
hereof and ending on the fifth anniversary of the
37
Closing Date, without the written consent of the Buyer, they shall not, jointly
or severally, provide or have any interest in any Person that provides or is
engaged in, whether as an owner, employee, officer, director, shareholder,
partner, contractor, consultant, agent, joint venturer, or advisor, (i)
subspecialty capitated or discounted fee for service networks, or related
administrative or management services, to any Person providing, directly or
indirectly, health care services or (ii) the business presently engaged in, or
engaged in at such time by any Seller, any Executive Shareholder, the Buyer, or
any of their respective Affiliates, in either case in the United States of
America, its territories and possessions.
(b) The Sellers and the Executive Shareholders acknowledge and agree that
the restrictions set forth in Section 7.9(a), including the territory set forth
therein, are reasonable and necessary to protect the legitimate business
interests of the Buyer including the goodwill of the Sellers, the Executive
Shareholders, and their respective Affiliates being purchased by the Buyer
pursuant to this Agreement and the substantial relationships (as reflected, in
part, in the Contracts) with payors and other medical providers and patients
that are being transferred to the Buyer as contemplated by this Agreement.
(c) The Sellers and the Executive Shareholders agree that a monetary remedy
for a breach of the agreement set forth in Section 7.9(a) hereof will be
inadequate and impracticable and further agree that such a breach would cause
the Buyer irreparable harm, and that the Buyer shall be entitled to temporary
and permanent injunctive relief without the necessity of proving actual damages.
In the event of such a breach, the Sellers and the Executive Shareholders agree
that, in addition to all other remedies available at law or in equity, the Buyer
shall be entitled to such injunctive relief, including temporary restraining
orders, preliminary injunctions and permanent injunctions as a court of
competent jurisdiction shall determine.
(d) If any provision of this Section 7.9 is invalid, void or unenforceable
in part, it shall be curtailed, both as to time and location, to the minimum
extent required for its validity under applicable laws and shall be binding and
enforceable with respect to each Seller and each Shareholder as so curtailed.
(e) The foregoing five-year period shall be tolled for any period(s) of
violation or period(s) of time required for litigation to enforce the covenants
herein.
Section 7.10 NON-SOLICITATION OF EMPLOYEES. The Sellers and the Executive
Shareholders agree for themselves and their respective Affiliates, for a period
commencing on the Closing Date hereof and ending on the fifth anniversary of the
Closing Date, not to make, offer, solicit or induce to enter into, any written
or oral arrangement, agreement or understanding regarding employment or
retention as a consultant or independent contractor with any person who (i) was,
on the date hereof, a Network Physician, Consultant, or an Employee of any
Seller and employed or engaged in any Business, or (ii) is at the time of such
solicitation, or who was at any time during the six-month period prior to such
solicitation, an employee or consultant or independent contractor of Buyer or an
Affiliate of Buyer, without the written consent of the Buyer.
Section 7.11 ASSIGNMENT OF CONTRACTS AND WARRANTIES. Each Seller assigns
to the Buyer effective from and after the Closing all right, title and interest
of each Seller and its Affiliates in, to and under the Contracts.
Notwithstanding the foregoing, no Contract shall be assigned contrary to law or
the terms of such Contract and, with respect to Contracts that cannot be
assigned to the Buyer, the performance obligations of the applicable Seller
thereunder shall, unless not permitted by such Contract, be deemed to be
subleased or subcontracted to the Buyer until such Contract has been assigned.
The Buyer shall reasonably assist each Seller in obtaining any necessary
approvals to such subleases and subcontracts. The Buyer shall take all necessary
actions to perform and complete all Contracts in accordance with their terms if
neither assignment, subleasing nor subcontracting is permitted by the other
party, and each Seller shall pay over to the Buyer any amounts received by such
Seller after the Closing Date as a result of performance by the Buyer of such
Contracts; PROVIDED; HOWEVER, to the extent any such Contract is a Key Contract,
nothing set forth herein shall require the Buyer to assume any obligation of any
of the Sellers under such Key Contract until the consent to assignment with
respect thereto has been obtained unless the
38
Buyer shall have waived the requirement that such consent be obtained as a
condition to Closing as contemplated in Section 8.7 hereof.
Section 7.12 NOTICE OF BREACH.
(a) The Sellers and the Executive Shareholders shall promptly give the Buyer
and Parent notice with particularity upon having knowledge of any matter that
may constitute a breach of any of their respective representations, warranties,
agreements or covenants contained in this Agreement.
(b) Each of the Buyer and Parent shall promptly give the Sellers and the
Executive Shareholders written notice with particularity upon having knowledge
of any matter that may constitute a breach of any of their respective
representations, warranties, agreements or covenants contained in this
Agreement.
Section 7.13 BULK SALES COMPLIANCE. The Sellers and the Executive
Shareholders shall take all action necessary such that all transactions
contemplated by this Agreement comply in all material respects with any "Bulk
Transfer" provisions of the Uniform Commercial Code which may be in effect in
each applicable jurisdiction.
Section 7.14 CONDUCT OF THE BUSINESSES AFTER CLOSING. Each of Parent, the
Buyer, the Sellers and the Executive Shareholders covenant and agree that the
business of the Buyer shall be conducted in accordance with the provisions of
this Section 7.14 from and after the Closing Date through and including the
third anniversary of the Closing Date:
(a) Parent, the Buyer and the Executive Shareholders acknowledge that it is
their intent to exercise their Best Efforts to facilitate the growth and
profitability of the Subject Business; provided, however, that nothing set forth
in this Agreement shall require the Parent or any Affiliate of the Parent to
refer any business to or to otherwise conduct any business through the Buyer.
Parent is not prohibited from acquiring or merging with other entities engaged
in the Subject Business, or from being acquired by or merged with those who are,
but in the event the Buyer is sold or otherwise ceases to be an Affiliate of the
Parent, the Parent will seek to obtain contractual protection from the acquiring
entity or entities to agree not to interfere with the existing business of the
Buyer or with the Buyer's existing contractual relationships.
(b) Notwithstanding anything to the contrary in this Section 7.14, the prior
approval of the Board of Directors of the Buyer shall be required for any Third
Party Payor Agreements to which the Buyer or any of its subsidiaries is a party
and which involves aggregate payments or liabilities in excess of $100,000.
Parent shall use its Best Efforts to cause the directors designated by it to
vote in favor of any such contract unless Parent determines in good faith that
the operations, prospects, net income or condition (financial or other) of
Parent or any Affiliate of Parent would be adversely affected by entering into
or performing the contract.
(c) Without the consent of the Executive Shareholders, Buyer shall not sell,
merge, transfer, consolidate or otherwise dispose of any material part of the
Businesses to any other party, other than as a whole entity or entities;
PROVIDED, HOWEVER, that nothing set forth in this Section 7.14 shall prohibit or
restrict Buyer from making any distributions of any kind to the Parent.
Section 7.15 MEETINGS OF THE BOARD OF DIRECTORS OF BUYER. From and after
the Closing Date through and including the third anniversary of the Closing
Date, the Executive Shareholders shall be entitled to attend and participate in
a non-voting capacity in all meetings of the board of directors of the Buyer. In
this regard, the Executive Shareholders will receive all notices and other
materials distributed to members of the board of directors of the Buyer in such
capacity.
Section 7.16 INFORMATION TECHNOLOGIES BUDGET. Within 30 days following the
date of this Agreement, Buyer and AHG shall mutually agree upon a budget for
information technologies expenditures (the "INFORMATION TECHNOLOGIES BUDGET").
The Information Technologies Budget will designate which items will be expensed
and which items will be capitalized for purposes of calculating EBITDA
regardless of the treatment of such items under GAAP.
39
Section 7.17 INDEMNIFICATION FOR CERTAIN LIABILITIES. ▇▇▇▇▇ ▇▇▇▇▇, M.D.
and Gut agree to jointly and severally indemnify and hold harmless Buyer
Indemnitees (as said term is define in Section 11) from and against any Losses
(as said term is defined in Section 11) arising out of, relating to or resulting
from the following legal action: ▇▇▇▇▇▇▇ ▇▇▇▇▇, M.D., Plaintiff, vs. ▇▇▇▇▇
▇▇▇▇▇, M.D., ET AL, Defendants, filed in the Circuit Court of the Seventeenth
Judicial Circuit in and for Broward County, Florida, General Jurisdiction
Division, Case No. 97 04553. In the event said action has not been dismissed
with prejudice on or before the Closing Date or in the event that all
Encumbrances on any of the Purchased Property arising out of said litigation or
the settlement thereof have not been released in full on or before the Closing
Date to the Buyer's satisfaction, at the election of the Buyer, in its sole
discretion, it shall withhold from the Closing Cash Installment payable to Gut
an amount not to exceed 50% of such sum and to pay said sum to a mutually
acceptable escrow agent to be held in escrow and released pursuant to the terms
and conditions of a mutually acceptable escrow agreement in order to provide a
fund for the payment of any indemnification claim to which the Buyer Indemnitees
may be entitled pursuant to the terms and conditions set forth in this Section
7.17. At the election of Buyer, in its sole discretion, it may also direct that
up to 50% of Gut's share of any future distributions to be made to AHG, on
behalf of the Sellers, pursuant to Section 3.4 be deposited into the escrow
agreement entered into pursuant to this Section 7.17. ▇▇▇▇▇ ▇▇▇▇▇, M.D. and Gut
acknowledge and agree that if the indemnification claims under this Section
exceed the amount held pursuant to said indemnification agreement, ▇▇▇▇▇ ▇▇▇▇▇,
M.D. and Gut shall remain liable for any such excess.
Section 7.18 REFINANCING OF EXISTING BANK LOAN. Pursuant to that certain
Business Loan Agreement dated March 7, 1997 between FSN and Executive National
Bank, FSN borrowed the principal amount of $240,000. Magellan agrees to
refinance the outstanding indebtedness under said bank loan as follows. At the
Closing, Magellan agrees to loan the Buyer such amount as is necessary to enable
the Buyer to pay said bank loan, including all accrued interest, in full. The
loan from Magellan shall bear interest at the same rate as that of the bank loan
and shall be payable in three equal annual installments on each of the first
three anniversaries of the Closing Date. Payments of principal shall be taken
into account in connection with the calculation of the earn-out and/or
adjustment amounts pursuant to Section 3.3.
SECTION 8. CONDITIONS TO OBLIGATIONS OF BUYER.
The obligations of the Buyer to consummate the transactions contemplated by
this Agreement are subject to the fulfillment, at or before the Closing Date, of
the following conditions, any one or more of which may be waived by the Buyer in
its sole discretion.
Section 8.1 REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by each Seller and each Executive Shareholder in this Agreement
shall be true and correct on and as of the Closing Date as if again made by such
Seller and such Executive Shareholder on and as of such date.
Section 8.2 PERFORMANCE OF SELLER'S AND SHAREHOLDERS' OBLIGATIONS. Each
Seller and each Executive Shareholder shall have performed in all respects all
obligations required under this Agreement to be performed by them on or before
the Closing Date.
Section 8.3 CONSENTS AND APPROVALS. All consents, waivers, authorizations
and approvals of any Governmental Authority, and of any other person, firm or
corporation, required of each Seller and each Shareholder in connection with the
execution, delivery and performance of this Agreement, shall have been duly
obtained and shall be in full force and effect on the Closing Date.
Section 8.4 NO VIOLATION OF ORDERS. No preliminary or permanent injunction
or other order issued by any Governmental Authority, nor any statute, rule,
regulation, decree or executive order promulgated or enacted by any Governmental
Authority, which declares this Agreement invalid in any respect or prevents the
consummation of the transactions contemplated hereby, or which materially and
adversely affects the Purchased Property, operations, prospects, net income or
financial condition of any Seller shall be in effect; and no action or
proceeding before any Governmental Authority shall have been instituted or
40
threatened by any Governmental Authority or by any other person, or entity which
seeks to prevent or delay the consummation of the transactions contemplated by
this Agreement or which challenges the validity or enforceability of this
Agreement.
Section 8.5 NO MATERIAL ADVERSE CHANGE. During the period from July 1,
1997 to the Closing Date, there shall not have been any material adverse change
in the Purchased Property, business, operations, prospects, net income or
condition (financial or other) of the Businesses of the Sellers, taken as a
whole.
Section 8.6 DUE DILIGENCE WITH RESPECT TO THIRD PARTY PAYORS. The Buyer
shall have completed its due diligence investigation of the Third Party Payor
Agreements, the parties thereto and actively sought prospective parties to Third
Party Payor Agreements (including, without limitation PruCare) and shall have
concluded, in its sole and absolute discretion, that the results of such
investigation are satisfactory to it and that it is willing, following such
review, to consummate the transactions contemplated by this Agreement. The
Sellers and the Executive Shareholders acknowledge and agree that the Buyer may
conclude for any reason deemed sufficient by it that the results of such
investigation are not satisfactory.
Section 8.7 CONSENTS UNDER KEY CONTRACTS. On or before the Closing Date,
the Sellers shall have obtained all necessary or appropriate consents,
approvals, notations, authorizations, exemptions or waivers from parties to the
Contracts, Licenses and Permits listed or referred to on SCHEDULE 8.7 (as the
same shall be amended at the Buyer's request to reflect Contracts, Licenses and
Permits disclosed on any supplemental Schedule delivered pursuant to Section
7.4) (collectively, the "KEY CONTRACTS") on terms satisfactory to the Buyer;
PROVIDED, HOWEVER, that the Buyer shall not require any changes to any such
Contracts or Licenses and Permits in connection with such consents, approvals,
notations, authorizations, exemptions or waivers; and PROVIDED, FURTHER that
none of the Sellers shall make any changes to any such Contracts or Licenses and
Permits in connection with such consents, approvals, notations, authorizations,
exemptions or waivers.
Section 8.8 ▇▇▇▇▇▇▇ CONSULTING ARRANGEMENT.
(a) The Sellers shall have demonstrated and presented evidence to the
Buyer's satisfaction that the ▇▇▇▇▇▇▇ Consulting Agreement shall have been
terminated as of the Closing, which termination shall provide an express
exculpation of each of the Buyer and its Affiliates, the Sellers and the
Executive Shareholders as to any past, present or future liability or obligation
toward the ▇▇▇▇▇▇▇ Parties arising out of the ▇▇▇▇▇▇▇ Consulting Agreement and
each of the ▇▇▇▇▇▇▇ Parties shall have agreed to indemnify and hold harmless, on
a joint and several basis, each of the Sellers, the Executive Shareholders and
the Buyer and its Affiliates from and against any damages, costs and expenses
suffered by any such party arising from any such claim.
(b) Each of the ▇▇▇▇▇▇▇ Parties shall have executed and delivered to the
Buyer a buy-out agreement with the Buyer (with its effectiveness conditioned on
completion of the Closing) in such form as shall be mutually acceptable to the
parties.
(c) ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ shall have executed and delivered to the Buyer a
consulting agreement with the Buyer (with its effectiveness conditioned on
completion of the Closing) in such form as shall be mutually acceptable to the
parties(the "NEW ▇▇▇▇▇▇▇ CONSULTING AGREEMENT"). Notwithstanding anything to the
contrary set forth in the New ▇▇▇▇▇▇▇ Consulting Agreement, Buyer shall not be
responsible for any compensation or other benefits or expenses owing to ▇▇.
▇▇▇▇▇▇▇ in excess of $800,000 per year, and the Sellers and the Executive
Shareholders agree, jointly and severally, to be responsible for and to
indemnify and hold Buyer and its Affiliates harmless from and against any and
all liability for amounts owing to ▇▇. ▇▇▇▇▇▇▇ in excess of $800,000 per year.
(d) Global Health Systems, Inc., a limited partner of FSN, shall have agreed
to provide software support services to the Buyer relating to the Business of
and the Purchased Property relating to FSN for no more than $60,000 per year
during the Earn-Out Periods in substantially the same manner as Global Health
Systems, Inc. performed such services prior to the Closing, such agreement to be
in form and
41
substance reasonably satisfactory to the Buyer, and the Buyer shall have
received such assurances as it deems necessary or advisable that the Buyer will
continue to have a perpetual license to the underlying software with the right
to make modifications.
Section 8.9 EMPLOYMENT AGREEMENT WITH ▇▇. ▇▇▇▇▇. The Buyer and Dr. ▇.▇.
▇▇▇▇▇ shall have executed and delivered an amendment to that certain employment
agreement with ▇▇. ▇▇▇▇▇ identified on SCHEDULE 5.16(A) (with its effectiveness
conditioned on completion of the Closing), containing mutually acceptable
non-solicitation and non-competition provisions in favor of the Buyer in such
form as shall be mutually acceptable to the parties.
Section 8.10 FINANCIAL STATEMENTS AND PROJECTIONS. On the Closing Date,
the most recent Management Prepared Financial Statements available prior to the
Closing reflect provision for accrued liabilities, including vacation and sick,
medical claims and extended reporting endorsement for each of the Sellers
(including all IBNR amounts), in an amount which the Sellers and Executive
Shareholders reasonably believe will be adequate to meet such accrued
liabilities. On the Closing Date, the Sellers shall have Cash and Cash
Equivalents and Accounts Receivable in an amount sufficient to satisfy the
aggregate current liabilities of the Sellers as set forth in the most recent
Management Prepared Financial Statements. The Audited Financial Statements and
the Management Prepared Financial Statements reflect all professional liability
claims and reserves, including all IBNR amounts, as at the respective dates of
the Audited Financial Statements and the Management Prepared Financial
Statements.
Section 8.11 OPINION OF COUNSEL. The Buyer shall have received a favorable
opinion, dated as of the Closing Date, from Broad and ▇▇▇▇▇▇, counsel to the
Sellers and the Executive Shareholders, in form and substance reasonably
satisfactory to the Buyer and its counsel, to the effect set forth on EXHIBIT C.
Section 8.12 OTHER CLOSING DOCUMENTS. The Buyer shall have received such
other certificates, instruments and documents in confirmation of the
representations and warranties of the Sellers and the Shareholders or in
furtherance of the transactions contemplated by this Agreement as the Buyer or
its counsel may reasonably request, including, without limitation, the
Management Agreement in form and substance satisfactory to the Buyer.
Section 8.13 LEGAL MATTERS. All certificates, instruments, opinions and
other documents required to be executed or delivered by or on behalf of any of
the Sellers and the Shareholders under the provisions of this Agreement, and all
other actions and proceedings required to be taken by or on behalf of any of the
Sellers and the Shareholders in furtherance of the transactions contemplated
hereby, shall be reasonably satisfactory in form and substance to counsel for
the Buyer. Each of the Sellers shall have provided the Buyer with a certificate
stating that it is not a "foreign person" within the meaning of Treasury
Regulations Section 1.1445-2(b). The certificate shall be in such form as shall
be mutually acceptable to the parties.
Section 8.14 TPA AND UR LICENSES. The Buyer shall have received approval
from all required state agencies, including Florida's and Texas' Department of
Insurance, to operate as a "third party administrator" or the Buyer shall have
otherwise received such assurances as the Buyer, in its sole discretion, deems
necessary or advisable, that it will be able to operate the Businesses pursuant
to an agreement with a holder of a TPA license upon such terms and conditions
acceptable to the Buyer in its sole discretion.
SECTION 9. CONDITIONS TO OBLIGATIONS OF THE SELLERS.
The obligations of the Sellers to consummate the transactions contemplated
by this Agreement are subject to the fulfillment, at or before the Closing Date,
of the following conditions, any one or more of which may be waived by the
Sellers in their sole discretion:
Section 9.1 REPRESENTATIONS AND WARRANTIES OF THE BUYER. All
representations and warranties made by the Buyer and Parent in this Agreement
shall be true and correct on and as of the Closing Date as if again made by the
Buyer and Parent on and as of such date.
42
Section 9.2 PERFORMANCE OF THE BUYER'S OBLIGATIONS. Each of the Buyer and
Parent shall have performed in all respects all obligations required under this
Agreement to be performed by it on or before the Closing Date.
Section 9.3 CONSENTS AND APPROVALS. All consents, waivers, authorizations
and approvals of any Governmental Authority and of any other person, firm or
corporation, required of the Buyer and Parent in connection with the execution,
delivery and performance of this Agreement, shall have been duly obtained and
shall be in full force and effect on the Closing Date.
Section 9.4 NO VIOLATION OF ORDERS. No preliminary or permanent injunction
or other order issued by any Governmental Authority, nor any statute, rule,
regulation, decree or executive order promulgated or enacted by any Governmental
Authority which declares this Agreement invalid or unenforceable in any respect
or which prevents the consummation of the transactions contemplated hereby shall
be in effect and no action or proceeding before any Governmental Authority shall
have been instituted or threatened by any Governmental Authority or by any other
person which seeks to prevent or declare the consummation of the transactions
contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement.
Section 9.5 OPINION OF COUNSEL. The Sellers shall have received a
favorable opinion, dated as of the Closing Date, from Dow, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇,
PLLC, counsel to the Buyer and Parent, in form and substance reasonably
satisfactory to the Sellers and their counsel, to the effect set forth on
EXHIBIT D. In addition, the Sellers shall have received a favorable opinion,
dated as of the Closing Date, from in-house counsel of the Buyer and Magellan,
in form and substance reasonably satisfactory to the Sellers and their counsel,
to the effect that the execution and delivery of this Agreement by the Buyer and
Parent did not, and the performance of this Agreement by the Buyer and Parent
will not violate or conflict with any provision of the Articles or Certificate
of Incorporation or By-Laws of the Buyer or Parent, respectively, and did not
and will not violate any provision of any order, judgment or decree of any
Governmental Authority to which either the Buyer or Parent is bound, and (other
than as disclosed in SCHEDULE 6.4) did not and will not violate or result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any material loan agreement, mortgage, security agreement or trust
indenture to which the Buyer or Parent is a party or by which it is bound or to
which any of its properties or assets is subject, which violation, breach or
default would have a material adverse effect on the financial condition of the
Buyer or Parent, taken as a whole.
Section 9.6 OTHER CLOSING DOCUMENTS. The Sellers shall have received such
other certificates, instruments and documents in confirmation of the
representations and warranties of the Buyer and Parent or in furtherance of the
transactions contemplated by this Agreement as the Sellers, the Executive
Shareholders or their counsel may reasonably request, including, without
limitation, the Management Agreement in form and substance satisfactory to the
Executive Shareholders.
Section 9.7 LEGAL MATTERS. All certificates, instruments, opinions and
other documents required to be executed or delivered by or on behalf the Buyer
and Parent under the provisions of this Agreement, and all other actions and
proceedings required to be taken by or on behalf of the Buyer and Parent in
furtherance of the transactions contemplated hereby, shall be reasonably
satisfactory in form and substance to counsel for the Sellers.
SECTION 10. TERMINATION AND ABANDONMENT.
Section 10.1 METHODS OF TERMINATION; UPSET DATE. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned at any time
before the Closing:
(a) By the mutual written consent of the Buyer and all of the Sellers;
43
(b) By the Buyer, if all the conditions set forth in Section 8 of this
Agreement shall not have been satisfied or waived on or before November 30, 1997
unless such satisfaction has been frustrated or made impossible by any act or
failure to act of the Buyer;
(c) By agreement of all the Sellers if all the conditions set forth in
Section 9 of this Agreement shall not have been satisfied or waived on or before
November 30, 1997, unless such satisfaction has been frustrated or made
impossible by any act or failure to act of any Seller or any Shareholder;
(d) By either the Buyer, on the one hand, or the agreement of all the
Sellers, on the other, if the Buyer, in the case of the Sellers, or any of the
Sellers or the Executive Shareholders, in the case of the Buyer, fails to comply
in any material respect with any of its covenants or agreements contained herein
or in any document delivered in connection herewith, or breaches any of its
representations and warranties in any material way;
(e) By the Buyer or agreement of all the Sellers if a Governmental Authority
of competent jurisdiction shall have issued an order, decree or ruling or taken
any other action (which order, decree or ruling the parties hereto shall use
their reasonable efforts to lift), which permanently restrains, enjoins or
otherwise prohibits the transactions contemplated by this Agreement; or
(f) By the Buyer on or before October 23, 1997, in the event Parent and the
minority shareholders of Care Management Resources, Inc. (i) shall not have
terminated that certain shareholders agreement with respect to their interests
in said corporation, or (ii) shall not have otherwise amended said shareholders
agreement to Parent's satisfaction, or (iii) shall not have otherwise entered
into an agreement providing for such termination or amendment, all upon such
terms and conditions acceptable to Parent, in its sole discretion.
Section 10.2 PROCEDURE UPON TERMINATION. In the event of termination and
abandonment of this Agreement by the Sellers or the Buyer pursuant to Section
10.1, written notice thereof shall forthwith be given to the other party or
parties, as applicable, and this Agreement shall terminate and the transactions
contemplated hereby shall be abandoned, without further action by the Sellers or
the Buyer. If this Agreement is terminated as provided herein, no party to this
Agreement shall have any liability or further obligation to any other party to
this Agreement except as provided below and elsewhere in this Agreement,
including Sections 12.3, 12.4, 12.8 and 12.14 hereof; PROVIDED, HOWEVER, that no
termination of this Agreement pursuant to this Section 10 shall relieve any
party of liability for a breach of any provision of this Agreement occurring
before such termination. Upon the termination of this Agreement, Parent and
Buyer, on the one hand, and the Sellers and Executive Shareholders, on the
other, shall return all confidential materials previously furnished to the other
except to the extent that a party may require such materials for purposes of
enforcing its rights or pursuing any of its remedies under this Agreement, at
law or in equity. This provision shall survive the termination of this
Agreement.
SECTION 11. INDEMNIFICATION.
Section 11.1 INDEMNIFICATION BY THE SELLERS AND THE EXECUTIVE
SHAREHOLDERS. Notwithstanding the Closing or the delivery of the Purchased
Property and regardless of any investigation at any time made by or on behalf of
the Buyer or Parent or of any knowledge or information that the Buyer or Parent
may have, each Seller and each of the Executive Shareholders agrees to jointly
and severally indemnify and fully defend, save and hold the Buyer, any Affiliate
of the Buyer and their respective directors, officers and employees (the "BUYER
INDEMNITEES"), harmless if any Buyer Indemnitee shall at any time or from time
to time suffer any damage, liability, loss, cost, expense (including all
reasonable attorneys' and experts' fees and disbursements), deficiency,
interest, penalty, impositions, assessments or fines, whether or not arising
with respect to any claim, charge, suit, proceeding, investigation, arbitration
or mediation and, if instituted, whether at any trial or appellate level, and
whether raised by the parties hereto or any third party (collectively, "LOSSES")
arising out of or resulting from, or shall pay or become obliged to pay any sum
on
44
account of, any Sellers' Event of Breach. As used herein, "SELLERS' EVENT OF
BREACH" shall be and mean any one or more of the following:
(a) any untruth or inaccuracy in any representation of any Seller or any
Executive Shareholder or the breach of any warranty of any Seller or Executive
Shareholder, without giving effect to any "materiality" qualification or
limitation stated in such representation or warranty and without regard to
whether the indemnifying Seller or Executive Shareholder made such
representation or breached such warranty (including, without limitation, (i) any
misrepresentation in, or omission from, any statement, certificate, schedule,
exhibit, annex or other document furnished pursuant to this Agreement by any
Seller or any Shareholder (or any of their representatives) to the Buyer (or any
representative of the Buyer) and any misrepresentation in or omission from any
document furnished to the Buyer in connection with the Closing and (ii) any and
all liabilities of or claims against any Business, the Purchased Property, or
any Buyer Indemnitee arising out of any action, suit, proceeding, dispute or
investigation or order, writ, judgment, award, injunction or decree of the
character described in Section 5.15 or out of any Contract to the extent not set
forth in SCHEDULE 5.16(A) or with respect to any obligation under any such
Contract with respect to any period prior to the Closing Date);
(b) any failure of any Seller or any Executive Shareholder to perform or
observe any term, provision, covenant, agreement or condition on the part of any
Seller or any Executive Shareholder to be performed or observed;
(c) any claim or cause of action by any party against any Buyer Indemnitee,
with respect to the Excluded Liabilities; or with respect to Losses arising with
respect to the operation of any Business or the Purchased Property on or prior
to the Closing Date or with respect to any services provided by the Seller or
its employees, independent contractors or consultants on or prior to the Closing
Date;
(d) any direct or indirect obligations or liabilities described in Section
7.5(c) that may arise before or after the Closing Date; or
(e) any claim or cause of action against any Buyer Indemnitee by any
Shareholder (other than the Executive Shareholders) other than by reason of
their employment agreements, if any, with the Buyer;
PROVIDED, HOWEVER, that, except as otherwise stated in the following
proviso, the Sellers and the Executive Shareholders shall have no obligation to
make any payment under Section 11.1(a) with respect to any representation or
warranty made in good faith without actual knowledge or notice of falsity unless
the aggregate amount to which all Buyer Indemnitees are entitled by reason of
all such claims exceeds $100,000, it being understood that once such amount is
exceeded, the aggregate of all such claims (including such $100,000 amount and
any amount in excess thereof) shall be payable jointly and severally by the
Sellers and the Executive Shareholders to the Buyer. In addition, the Sellers
and the Executive Shareholders shall have no obligation to make any payment
under Section 11.1(a) with respect to the representation and warranty made in
Section 5.13(b), made in good faith without actual knowledge or notice of
falsity, unless such Losses arise as a result of events, conditions or facts
existing before the Closing Date.
Section 11.2 PROCEDURES FOR INDEMNIFICATION BY THE SELLERS. If a Sellers'
Event of Breach occurs or is alleged and a Buyer Indemnitee asserts that the
Sellers or any of the Executive Shareholders has become obligated to such Buyer
Indemnitee pursuant to Section 11.1, or if any suit, action, investigation,
mediation, claim or proceeding is begun, made or instituted as a result of which
the Sellers or any of the Executive Shareholders may become obligated to a Buyer
Indemnitee hereunder, such Buyer Indemnitee shall give written notice to the
Sellers and the Executive Shareholders. The Sellers and the Executive
Shareholders agree to jointly and severally defend, contest or otherwise protect
the Buyer Indemnitee against any such suit, action, investigation, claim or
proceeding at their sole cost and expense. The Buyer Indemnitee shall have the
right, but not the obligation, to participate at its own expense in the defense
thereof by counsel of the Buyer Indemnitee's choice and shall in any event
cooperate with and assist the
45
Sellers and the Executive Shareholders to the extent reasonably possible. If the
Sellers and the Executive Shareholders fail to timely defend, contest or
otherwise protect against such suit, action, investigation, claim or proceeding,
the Buyer Indemnitee shall have the right to do so, including the right to make
any compromise or settlement thereof, and the Buyer Indemnitee shall be entitled
to recover the entire cost thereof jointly and severally from the Sellers or the
Executive Shareholders, including reasonable attorneys' fees, disbursements and
amounts paid as the result of such suit, action, investigation, mediation, claim
or proceeding.
Section 11.3 THE BUYER'S RIGHT OF SET-OFF. In the event the Buyer has a
claim against any of Sellers or Executive Shareholders for indemnification
pursuant to this Section 11 or as a result of the failure by the Sellers or the
Executive Shareholders to pay the Buyer any amounts owed to it pursuant to
Section 3, the Buyer may set-off the amount of such Losses against any amounts
payable directly or indirectly by or on behalf of the Buyer to the Sellers from
time to time pursuant to this Agreement or the agreements and documents
referenced herein, including without limitation any amounts payable by the Buyer
to the Escrow Agent pursuant to Section 3.
Section 11.4 INDEMNIFICATION BY THE BUYER AND PARENT. Notwithstanding the
Closing or the delivery of the Purchased Property and regardless of any
investigation at any time made by or on behalf of the Sellers or the Executive
Shareholders or of any knowledge or information that the Sellers or the
Executive Shareholders may have, the Buyer and Parent shall jointly and
severally indemnify and agree to fully defend, save and hold each of the
Sellers, and its directors, officers and employees, and each Executive
Shareholder (collectively, the "SELLER INDEMNITEES"), harmless if any Seller
Indemnitee shall at any time or from time to time suffer any Losses arising out
of or resulting from, or shall pay or become obligated to pay any sum on account
of, any Buyer's Event of Breach. As used herein, "BUYER'S EVENT OF BREACH" shall
be and mean any one or more of the following:
(i) any untruth or inaccuracy in any representation of the Buyer or
Parent or the breach of any warranty of the Buyer or Parent contained in
this Agreement;
(ii) any failure of the Buyer or Parent duly to perform or observe any
term, provision, covenant, agreement or condition contained in this
Agreement on the part of the Buyer or Parent to be performed or observed;
and
(iii) any claim or cause of action by any party against any Seller
Indemnitees with respect to Assumed Liabilities;
PROVIDED, HOWEVER, that neither the Buyer nor Parent shall have any obligation
to make any payment under Section 11.4(a) with respect to any representation or
warranty made in good faith without actual knowledge or notice of falsity unless
the aggregate amount to which all Seller Indemnitees are entitled by reason of
all such claims exceeds $100,000, it being understood that once such amount is
exceeded, the aggregate of all such claims (including such $100,000 amount and
any amount in excess thereof) shall be payable by the Buyer and Parent on demand
by the Seller Indemnitees.
Section 11.5 PROCEDURES FOR INDEMNIFICATION BY THE BUYER AND PARENT. If a
Buyer's Event of Breach occurs or is alleged and a Seller Indemnitee asserts
that the Buyer or Parent has become obligated to it pursuant to Section 11.4, or
if any suit, action, investigation, claim or proceeding is begun, made or
instituted as a result of which the Buyer or Parent may become obligated to a
Seller Indemnitee hereunder, such Seller Indemnitee shall give written notice to
the Buyer and Parent. The Buyer and Parent agree to defend, contest or otherwise
protect such Seller Indemnitee against any such suit, action, investigation,
claim or proceeding at its sole cost and expense. Such Seller Indemnitee shall
have the right, but not the obligation, to participate at its own expense in the
defense thereof by counsel of its choice and shall in any event cooperate with
and assist the Buyer or Parent to the extent reasonably possible. If the Buyer
or Parent fails timely to defend, contest or otherwise protect against such
suit, action, investigation, claim or proceeding, such Seller Indemnitee shall
have the right to do so, including the right to make any
46
compromise or settlement thereof, and such Seller Indemnitee shall be entitled
to recover the entire cost thereof from the Buyer or Parent including reasonable
attorneys' fees, disbursements and amounts paid as the result of such suit,
action, investigation, claim or proceeding.
Section 11.6 THE SELLERS' AND EXECUTIVE SHAREHOLDERS' RIGHT OF SET-OFF. In
the event the Sellers or Executive Shareholders have a claim against the Buyer
or Parent for indemnification pursuant to this Section 11 or as a result of the
failure by the Buyer or Parent to pay the Sellers any amounts owed to them
pursuant to Section 3, the Sellers and Executive Shareholders may set-off the
amount of such Losses against any amounts payable directly or indirectly by or
on behalf of the Sellers or Executive Shareholders to the Buyer or Parent from
time to time pursuant to this Agreement or the agreements and documents
referenced herein, including without limitation any amounts payable by the
Sellers or Executive Shareholders pursuant to Section 3.
Section 11.7 PURCHASE PRICE ADJUSTMENT. The Buyer and each of the Sellers
agree to treat any payments under this Section 11 as an adjustment to the
Purchase Price for all federal, state and local Tax purposes.
SECTION 12. MISCELLANEOUS.
Section 12.1 SUCCESSORS AND ASSIGNS; RESTRICTIONS ON ASSIGNMENT AND
TRANSFER OF PURCHASE PRICE. Except as otherwise provided in this Agreement, no
party hereto shall assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other party hereto and any such
attempted assignment without such prior written consent shall be void and of no
force and effect, PROVIDED, that the Buyer may assign its rights hereunder to
any of its Affiliates, and the Buyer may assign its rights to indemnification or
damages hereunder to the lender or lenders providing financing to the Buyer;
PROVIDED, FURTHER, that no such assignment shall reduce or otherwise vitiate any
of the obligations of any of the Sellers, the Executive Shareholders or Parent
hereunder. This Agreement shall inure to the benefit of and shall be binding
upon the parties hereto and their respective successors, permitted assigns,
heirs, beneficiaries, estates, executors and personal representatives.
Section 12.2 GOVERNING LAW, JURISDICTION. This Agreement shall be
construed, performed and enforced in accordance with, and governed by, the laws
of the State of Florida, without giving effect to the principles of conflicts of
laws thereof.
Section 12.3 EXPENSES. Except as otherwise provided herein, each of the
parties hereto shall pay its own expenses in connection with this Agreement and
the transactions contemplated hereby, including any legal and accounting fees,
whether or not the transactions contemplated hereby are consummated. The Sellers
shall pay all state and local sales, use, transfer, excise, value-added or other
similar Taxes and all recording and filing fees that may be imposed by reason of
the sale, transfer, assignment and delivery of the Purchased Property and shall
prepare and file all Tax Returns related thereto. The Buyer shall pay 50% and
the Sellers shall pay 50% of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ filing fee, if any, required
in connection with the transaction contemplated hereby.
Section 12.4 JOINT AND SEVERAL OBLIGATIONS. Notwithstanding anything to
the contrary contained in this Agreement, each and every obligation of any
Seller or Executive Shareholder hereunder shall be a joint and several
obligation of all the Sellers and Executive Shareholders.
Section 12.5 SEVERABILITY. In the event that any part of this Agreement is
declared by any court or other judicial or administrative body to be null, void
or unenforceable, said provision shall survive to the extent it is not so
declared, and all of the other provisions of this Agreement shall remain in full
force and effect.
Section 12.6 NOTICES. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given (i) on the date of service if served personally on the
party to whom notice is to be given; (ii) on the day of transmission if sent via
facsimile
47
transmission to the facsimile number given below, and telephonic confirmation of
receipt is obtained promptly after completion of transmission; (iii) on the day
after delivery to Federal Express or similar overnight courier; or (iv) on the
fifth day after mailing, if mailed to the party to whom notice is to be given,
by first class mail, registered or certified, postage prepaid and properly
addressed, to the party as follows:
If to the Sellers and/or the Executive Shareholders:
Allied Health Group, Inc.
Florida Specialty Network, Ltd.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Gut Management, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Sky Management Co.
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Surginet, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Surgical Associates of South Florida, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Florida Specialty Network, Ltd.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, M.D.
▇▇▇▇ ▇.▇. ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, M.D.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, M.D.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Copy to:
Broad and ▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇, P.A.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Buyer and/or Parent:
Magellan Health Services, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇, ▇▇▇▇▇ ▇▇▇▇
48
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Vice President-Mergers and Acquisitions
Copy to:
Magellan Health Services, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: General Counsel
Any party may change its address for the purpose of this Section by giving
the other party written notice of its new address in the manner set forth above.
Section 12.7 AMENDMENTS; WAIVERS. This Agreement may be amended or
modified, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
parties hereto, or in the case of a waiver, by the party waiving compliance. Any
waiver by any party of any condition, or of the breach of any provision, term,
covenant, representation or warranty contained in this Agreement, in any one or
more instances, shall not be deemed to be nor construed as further or continuing
waiver of any such condition, or of the breach of any other provision, term,
covenant, representation or warranty of this Agreement.
Section 12.8 PUBLIC ANNOUNCEMENTS. The parties agree that after the
signing of this Agreement, neither party shall make any press release or public
announcement concerning this transaction without the prior written approval of
the other party unless, in the opinion of such party's counsel, a press release
or public announcement is required by applicable law or stock exchange rules.
If, in the opinion of such party's counsel, any such announcement or other
disclosure is required by applicable law or stock exchange rules, the disclosing
party agrees to give the nondisclosing party prior notice and an opportunity to
comment on the proposed disclosure.
Section 12.9 ENTIRE AGREEMENT. This Agreement contains the entire
understanding between the parties hereto with respect to the transactions
contemplated hereby and supersedes and replaces all prior and contemporaneous
agreements and understandings, oral or written, with regard to such
transactions. All exhibits and schedules hereto and any documents and
instruments delivered pursuant to any provision hereof are expressly made a part
of this Agreement as fully as though completely set forth herein.
Section 12.10 PARTIES IN INTEREST. Nothing in this Agreement is intended
to confer any rights or remedies under or by reason of this Agreement on any
persons other than the Sellers, and the Buyer and their respective successors
and permitted assigns. Nothing in this Agreement is intended to relieve or
discharge the obligations or liability of any third persons to the Sellers or
the Buyer. No provision of this Agreement shall give any third persons any right
of subrogation or action over or against the Sellers or the Buyer.
Section 12.11 SCHEDULED DISCLOSURES. Disclosure of any matter, fact or
circumstance in a Schedule to this Agreement shall not be deemed to be
disclosure thereof for purposes of any other Schedule hereto.
Section 12.12 SECTION AND PARAGRAPH HEADINGS. The section and paragraph
headings in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
Section 12.13 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which shall
constitute the same instrument.
Section 12.14 POST-CLOSING SURVIVAL. All covenants and agreements which by
their respective terms are intended to survive the consummation of the
transactions contemplated by this Agreement shall survive such consummation in
accordance with their respective terms and conditions.
Section 12.15 CONFIDENTIALITY. After the Closing, the Sellers and the
Executive Shareholders hereby agree to hold in strict confidence all business
and other information relating to the Purchased Property and
49
the Business and, except as otherwise required by law or as to information which
becomes publicly available, not to disclose or otherwise reveal any such
confidential information to any other person or entity without in each instance
the prior written consent of the Buyer.
Section 12.16 LITIGATION. It is recognized by the parties to this
Agreement that litigation may arise at some time in the future relating to the
Sellers, the Buyer, Parent, the Purchased Property or the Assumed Liabilities
which may be related directly or indirectly to the period prior to the Closing
or the period subsequent to the Closing, or both. Each of the parties to this
Agreement agrees, therefore, that to the extent reasonable under the
circumstances, it will fully cooperate with and provide information, records,
documents and assistance of employees to the other parties with respect to any
litigation or potential litigation in which the other party is or may be
involved.
Section 12.17 SPECIFIC PERFORMANCE. Each of the Sellers and the Executive
Shareholders acknowledge that the Buyer will be irreparably harmed and the Buyer
will have no adequate remedy at law if any of the Sellers or the Executive
Shareholders fail to perform any of their obligations under this Agreement. It
is accordingly agreed that, in addition to any other remedies which may be
available to it, the Buyer will have the right to obtain injunctive relief to
restrain a breach or threatened breach of, or otherwise obtain specific
performance of, the Sellers' and the Executive Shareholders' covenants and other
agreements contained in this Agreement.
Section 12.18 RETENTION OF INDEPENDENT ACCOUNTING FIRMS. If an Independent
Accounting Firm is retained pursuant to Section 3 of this Agreement, the Buyer,
the Sellers and the Executive Shareholders shall each execute such accounting
firm's retention agreement, if any, and shall each be bound by the obligation,
if any, contained therein to provide indemnification, contribution and related
expense reimbursement to such Independent Accounting Firm.
Section 12.19 LIMITED OBLIGATIONS OF PARENT. Parent hereby guarantees the
full and prompt payment when due of the Purchase Price payable pursuant to and
in accordance with the provisions set forth in Section 3. The parties expressly
agree that, notwithstanding anything to the contrary contained in this
Agreement, Parent shall not be liable to any third parties in respect of any of
the Assumed Liabilities or in respect of any other matter not related to
Parent's express obligations as set forth in this Agreement.
50
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed either in an individual capacity or by their respective officers
thereunto duly authorized, as the case may be, as of the date first above
written.
CMSF, INC.
By: -------------------------------------------
Name:
Title:
ALLIED HEALTH GROUP, INC.
By: -------------------------------------------
Name:
Title:
GUT MANAGEMENT, INC.
By: -------------------------------------------
Name:
Title:
SKY MANAGEMENT CO.
By: -------------------------------------------
Name:
Title:
FLORIDA SPECIALTY NETWORK, LTD., BY ITS GENERAL
PARTNER, FLORIDA SPECIALTY NETWORK, INC.
By: -------------------------------------------
Name:
Title:
SURGICAL ASSOCIATES OF SOUTH FLORIDA, INC.
By: -------------------------------------------
Name:
Title:
51
SURGINET, INC.
By: -------------------------------------------
Name:
Title:
THE EXECUTIVE SHAREHOLDERS:
------------------------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, M.D.,
Individually
------------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇, M.D., Individually
------------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇, M.D., Individually
MAGELLAN HEALTH SERVICES, INC.
By: -------------------------------------------
Name:
Title:
52