SHARE EXCHANGE AGREEMENT
AND PLAN OF REORGANIZATION
DATED AS OF JUNE 30, 1997
BY AND AMONG
SHAREHOLDERS
OF
PIMA HEART ASSOCIATES, P.C.
AND
MEDCATH INCORPORATED
TABLE OF CONTENTS
Page
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ARTICLE I EXCHANGE OF SHARES..................................................1
1.01 Exchange of Shares....................................................1
1.02 Further Assurances....................................................1
ARTICLE II METHOD OF EXCHANGE.................................................2
2.01 Exchange Value........................................................2
2.02 Manner of Delivery....................................................2
ARTICLE III CLOSING...........................................................2
3.01 Closing...............................................................2
3.02 Postponement of Closing Date..........................................3
ARTICLE IV DOCUMENTS TO BE DELIVERED AT CLOSING...............................3
4.01 Deliveries by Shareholders............................................3
4.02 Deliveries by MedCath.................................................4
ARTICLE V REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS......................4
5.01 Organization; Good Standing...........................................5
5.02 Corporate Documents...................................................5
5.03 Power; Authority......................................................5
5.04 Capitalization; Title.................................................6
5.05 Financial Statements..................................................6
5.06 Absence of Undisclosed Liabilities....................................6
5.07 Absence of Certain Recent Changes.....................................7
5.08 Title to Assets.......................................................8
5.09 Contracts and Leases..................................................8
5.10 Defaults and Consents.................................................9
5.11 Litigation, Etc......................................................10
5.12 Court Orders, Decrees and Laws.......................................10
5.13 Employee Matters.....................................................10
5.14 Labor Matters........................................................10
5.15 Insurance; Malpractice...............................................11
5.16 Books of Account, Reports............................................11
5.17 No Finders or Brokers................................................11
5.18 Inventory............................................................11
5.19 Equipment............................................................11
5.20 Employee Benefit Plans...............................................12
5.21 Power of Attorney....................................................15
5.22 Bank Accounts; Officers..............................................15
5.23 Environmental Matters................................................15
5.24 Fraud and Abuse......................................................15
5.25 Receivables..........................................................16
5.26 Taxes................................................................16
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5.27 Investments..........................................................18
5.28 Affiliated Transactions..............................................18
5.29 Investment Representations and Warranties............................18
5.30 Tax and Securities Advice, Etc.......................................20
5.31 Disclosure...........................................................20
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF MEDCATH.........................20
6.01 Organization; Good Standing..........................................21
6.02 Power; Authority.....................................................21
6.03 Conflicting Agreements...............................................21
6.04 MedCath Shares.......................................................21
6.05 Investment Intent....................................................22
6.06 Litigation...........................................................22
6.07 Disclosure...........................................................22
6.08 Legal Compliance.....................................................22
6.09 Registration Rights..................................................22
ARTICLE VII COVENANTS OF THE COMPANY AND THE SHAREHOLDERS....................23
7.01 Conduct of Business..................................................24
7.02 No Dividends on Shares; No Share Transfers...........................24
7.03 Governmental Filings.................................................24
7.04 Assistance...........................................................24
7.05 Access...............................................................25
7.06 Material Contracts...................................................25
7.07 Intentionally Omitted................................................25
7.08 Confidentiality......................................................25
7.09 Benefit Plans........................................................25
7.10 Tax Matters..........................................................26
7.11 Tax Indemnification..................................................26
ARTICLE VIII SHAREHOLDERS' CONDITIONS PRECEDENT..............................26
8.01 MedCath's Representations, Warranties and Covenants..................27
8.02 No Actions...........................................................27
8.03 Consents and Approvals...............................................27
8.04 Inquiries; Investigations............................................27
8.05 Deliveries...........................................................27
ARTICLE IX COVENANTS OF MEDCATH..............................................27
9.01 Governmental Filings.................................................28
9.02 Assistance...........................................................28
9.03 Confidentiality......................................................28
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ARTICLE X MEDCATH'S CONDITIONS PRECEDENT.....................................28
10.01 Shareholders' Representations, Warranties and Covenants.............28
10.02 No Actions..........................................................28
10.03 Consents and Approvals..............................................29
10.04 Inquiries; Investigations...........................................29
10.05 Material Adverse Change.............................................29
10.06 Intentionally Omitted...............................................29
10.07 Percentages of Shareholders Signing Agreement.......................29
10.08 Deliveries..........................................................29
10.09 Bank Accounts.......................................................30
10.10 Change in Accounting................................................30
10.11 Bank Loan...........................................................30
ARTICLE XI TERMINATION.......................................................30
11.01 Methods of Termination..............................................30
11.02 Effect of Termination...............................................31
ARTICLE XII SURVIVAL; INDEMNIFICATION........................................31
12.01 Survival............................................................31
12.02 Indemnification by Shareholders.....................................31
12.03 Indemnification by MedCath..........................................32
12.04 [INTENTIONALLY LEFT BLANK]..........................................32
12.05 Method of Asserting Claims..........................................32
12.06 Special Recovery Provisions.........................................34
12.07 Definitions.........................................................35
ARTICLE XIII GENERAL.........................................................36
13.01 Entire Agreement; Modifications.....................................36
13.02 Binding Effect......................................................37
13.03 Public Announcements................................................37
13.04 Counterparts........................................................37
13.05 Costs and Expenses..................................................37
13.06 Assignment..........................................................37
13.07 Notices.............................................................37
13.08 Governing Law.......................................................38
13.09 Severability........................................................39
13.10 Review By Shareholders..............................................39
13.11 Knowledge...........................................................39
13.12 Cancellation of Shareholders Agreement..............................39
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SHARE EXCHANGE AGREEMENT
AND PLAN OF REORGANIZATION
THIS SHARE EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement")
dated as of the 30th day of June, 1997 is by and among those shareholders of
PIMA HEART ASSOCIATES, P.C. ("Company") who have executed this Agreement below
(each such person being individually referred to herein as a "Shareholder" and
collectively as the "Shareholders") and MEDCATH INCORPORATED, a North Carolina
corporation ("MedCath").
BACKGROUND
A. The Shareholders at Closing shall be the owners of Two Thousand Six
Hundred (2,600) shares of the issued and outstanding common shares of the
Company, representing 100% of the issued and outstanding common shares of the
Company as of the Closing Date.
B. MedCath desires to issue and exchange shares of its common stock with
the Shareholders in exchange for their common shares of the Company, and the
Shareholders desire to so exchange their common shares of the Company for common
shares of MedCath in a transaction intended to qualify as a reorganization
within the meaning of Section 368(a)(1)(B) of the Internal Revenue Code, as
amended, such that following such exchange the Company shall be a wholly-owned
subsidiary of MedCath.
Accordingly, in consideration of the mutual promises contained herein and
intending to be legally bound, the Company, the Shareholders and MedCath hereby
agree as follows:
ARTICLE I
EXCHANGE OF SHARES
1.01 Exchange of Shares.
Each of the Shareholders hereby agrees to exchange all of his, her or its
common shares of the Company (the "Company Shares"), which in the aggregate
shall, as of the Closing Date, constitute all of the issued and outstanding
capital shares of the Company, on the terms and conditions herein set forth.
MedCath, in reliance upon the representations and warranties of the Shareholders
and the covenants of the Shareholders and the Company contained herein and
subject to the terms and conditions of this Agreement, hereby agrees to exchange
common shares of MedCath for Company Shares in the manner provided in Article II
hereof.
1.02 Further Assurances.
Each party hereto will execute such further documents and instruments and
take such further actions as may reasonably be requested by one or more of the
others to consummate the exchange of Company Shares for MedCath Shares (as
defined by Section 2.01 below), to vest
MedCath with full title to all Company Shares, to vest the Shareholders with
full title to all MedCath Shares, and to ensure that the Company continues to
have, following the consummation of such exchange, all of the assets, rights,
permits, licenses, properties, approvals, immunities and franchises of the
Company on the date hereof and to otherwise to effect the other purposes of this
Agreement.
ARTICLE II
METHOD OF EXCHANGE
2.01 Exchange Value.
In exchange for the Company Shares, MedCath shall issue to the Shareholders
Five Hundred Thousand and Six (500,006) of its shares of common stock, $.01 par
value per share (the "MedCath Shares") and deliver such shares in the manner
provided in Section 2.02. Each of the Shareholders is exchanging the number of
Company Shares referenced on Exhibit A attached hereto, and shall, in accordance
with this Article II, be issued in exchange the number of MedCath Shares
referenced on Exhibit A.
2.02 Manner of Delivery.
(a) On the Closing Date, MedCath shall cause to be issued to the
Shareholders by LaSalle National Bank (the "Exchange Agent") Five Hundred
Thousand and Six (500,006) duly authorized, fully paid and non-assessable
whole MedCath Shares, the certificates for which shall be delivered no
later than three (3) days after the Closing Date (as defined by Section
3.01 below).
(b) In the case of any lost, mislaid, stolen or destroyed certificate
for Company Shares (each a "Company Certificate" and collectively "Company
Certificates"), the holder thereof may be required, as a condition
precedent to delivery to such holder of the consideration described in this
Article II, to deliver to MedCath a bond in such reasonable sum or a
satisfactory indemnity agreement as MedCath may direct as indemnity against
any claim that may be made against the Exchange Agent or the Company with
respect to the Company Certificate alleged to have been lost, mislaid,
stolen or destroyed.
ARTICLE III
CLOSING
3.01 Closing.
The closing (the "Closing") of the transactions contemplated by this
Agreement and the Exhibits and Schedules hereto (the "Transactions") shall take
place at the offices of Bonn, Luscher, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, or at such other
location as mutually agreed upon by MedCath and the Shareholders, promptly after
the conditions precedent set forth in Article VIII and Article X have been
satisfied but in no event later than September 30, 1997, unless extended as
provided herein, (the actual date on which Closing occurs is referred to herein
as the "Closing Date");
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provided, however, nothing contained herein shall obligate any party to close
hereunder if any of the conditions to such party's obligation to close (as set
forth in Article VIII or Article X hereof, as appropriate) are not satisfied.
3.02 Postponement of Closing Date.
The Closing Date may be postponed by mutual agreement signed by MedCath and
the Shareholders.
ARTICLE IV
DOCUMENTS TO BE DELIVERED AT CLOSING
4.01 Deliveries by Shareholders.
At the Closing, the Shareholders and the Company shall deliver, or cause to
be delivered, to MedCath all of the following documents and instruments:
(a) Certificates evidencing the Company Shares duly endorsed to
MedCath or accompanied by stock powers.
(b) Unaudited balance sheets and related statements of income and
retained earnings and cash flows of the Company, calculated on a cash (and
on an accrual basis) as of and for the three (3) month period ending the
month prior to the Closing Date (the "Stub Financial Statements").
(c) The resignation of all directors and removal of all officers of
the Company to be effective immediately after the Closing.
(d) Closing certificates duly executed by Shareholders and the Company
in the form satisfactory to MedCath.
(e) A certificate executed by the Secretary of the Company (i)
attaching copies of the corporate resolutions adopted by the Board of
Directors of the Company authorizing, adopting and approving or ratifying
the execution, delivery and performance of this Agreement and the
consummation of the Transactions by the Company, (ii) confirming the
incumbency of officers executing this Agreement and the agreements,
documents and instruments to be executed and delivered by the Company at
the Closing, and (iii) attaching copies of the Articles of Incorporation
and Bylaws of the Company, and certifying as to the accuracy and
completeness of such corporate documents.
(f) A Certificate of Good Standing issued by the Secretary of the
State of Arizona, dated as of a date no earlier than fifteen (15) days
prior to the Closing Date, evidencing that the Company is a corporation in
good standing under the laws of the State of Arizona.
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(g) The opinion of Bonn, Luscher, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, as counsel to the
Company and the Shareholders, dated the Closing Date, in the form
satisfactory to MedCath.
(h) Estoppel certificates dated as of a date no earlier than sixty
(60) days prior to the Closing Date from each lessor stating that the
Company is in compliance with its lease agreements and that there are no
outstanding amounts owing thereunder to lessor (other than amounts owing
with respect to the then current month) and containing other terms and
conditions customary for a lessor's estoppel certificate.
(i) The Service Agreement between the Company and Pima Heart
Physicians, P.C. (the "Practice") duly executed by such parties.
4.02 Deliveries by MedCath.
At the Closing, MedCath shall deliver, or cause to be delivered, to the
Shareholders all of the following documents and instruments:
(a) Or as soon as possible thereafter, certificates evidencing the
MedCath Shares required to be issued to the Shareholders pursuant to
Section 2.02 hereof.
(b) Closing certificates executed by MedCath in the form satisfactory
to the Shareholders.
(c) A certificate executed by the Secretary of MedCath attaching a
copy of the corporate resolutions adopted by the Board of Directors of
MedCath authorizing the execution, delivery and performance of this
Agreement and consummation of the Transactions by MedCath.
(d) The opinion of ▇▇▇▇▇ & ▇▇▇ ▇▇▇▇▇, as counsel for MedCath, dated
the Closing Date in the form satisfactory to the Shareholders.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF SHAREHOLDERS
Each Shareholder represents and warrants to MedCath as of the Closing Date
as follows, it being understood and agreed, however, that (a) each Shareholder
severally (and not jointly) makes the representations and warranties hereinafter
set forth in Sections 5.03, 5.04, 5.29 and 5.30 hereof, and (b) each
Shareholder, jointly and severally, with all other Shareholders, makes those
other representations and warranties set forth in this Article V of this
Agreement:
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5.01 Organization; Good Standing.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Arizona and has full power and authority
to own its properties and to carry on its business as now conducted. The Company
is not duly qualified to conduct business as a foreign corporation in any other
state.
5.02 Corporate Documents.
True and correct copies of the Company's by-laws and the Company's articles
of incorporation, all as currently in effect, have been delivered to MedCath.
Copies of the minute books and share records of the Company have been delivered
to MedCath prior to the date hereof and such copies were complete and accurately
reflect in all material respects all proceedings of the shareholders and
directors of the Company and ownership of all outstanding shares, options,
warrants and other rights to acquire shares of the Company. Except as disclosed
on Schedule 5.02, neither the Company nor any Shareholder is a party to any
shareholder agreement or voting trust which is currently or is as of the Closing
Date in effect relating to the Company and/or any equity interest therein.
5.03 Power; Authority.
(a) Each Shareholder has full power, authority and the legal capacity
to enter into this Agreement and the other agreements, documents and
instruments contemplated hereby to which such Shareholder is a party and to
consummate the transactions contemplated hereby, and this Agreement and
such other agreements, documents and instruments have been (or will be)
duly executed and delivered by such Shareholder and are (or will be) the
valid and legally binding obligations of such Shareholder enforceable in
accordance with their terms except as enforceability may be limited by
applicable bankruptcy, reorganization, moratorium or other similar laws
relating to or effecting the rights of creditors general and the
availability of equitable remedies. Neither the execution of this Agreement
or such other documents by such Shareholder nor the consummation of the
Transactions will constitute or cause a breach or violation of any
agreements, covenants, or obligations binding upon such Shareholder and
affecting the Company Shares owned by such Shareholder. No consent of any
other party is required for the Transactions and the documents executed by
such Shareholder in connection herewith to be valid and legal binding
obligations of such Shareholder.
(b) The Company has full power, authority and legal capacity to enter
into this Agreement and the other agreements, documents and instruments
contemplated hereby to which the Company is a party and to consummate the
transactions contemplated hereby. This Agreement and such other agreements,
documents and instruments have been (or will be) duly executed and
delivered by the Company and are (or will be) valid and legally binding
obligations of the Company enforceable in accordance with the their terms
except as such enforceability may be limited by applicable bankruptcy,
5
reorganization, moratorium or other similar laws relating to or effecting
the rights of creditors generally and the availability of equitable
remedies.
5.04 Capitalization; Title.
(a) The Company's authorized capitalization consists of One Hundred
Thousand (100,000) common shares of which Two Thousand Six Hundred (2,600)
shares are issued and outstanding as of the Closing Date. Attached as
Schedule 5.04 hereto is a true and correct list of all Shareholders of the
Company as of the Closing Date, the residence address of such Shareholder
and the number of Company Shares held by each Shareholder.
(b) Each Shareholder of the Company is the true and lawful beneficial
and record owner of the number of Company Shares set forth opposite such
Shareholder's name on Schedule 5.04 hereto, and such shares are owned by
such Shareholder free and clear of all liens, security interests, charges,
options, agreements, and encumbrances (collectively, a "Share Lien").
(c) All of the Company Shares are validly issued, fully paid, and
nonassessable and there are, and shall be as of or on the Closing Date, no
options, calls, warrants, or any other securities, rights or common share
equivalents outstanding, which are convertible into, exercisable for or
relate to, any capital shares of the Company. The Company Shares described
on Schedule 5.04 hereto constitute all of the issued and outstanding
capital shares of the Company. All Company Shares were issued in compliance
with all applicable federal and state securities laws, rules, and
regulations.
5.05 Financial Statements.
The balance sheets of Company at February 29, 1996 and February 28, 1997
for the fiscal year to date through May 31, 1997, and the related statements of
income and cash flows for the periods then ended, are included as Schedule 5.05
(the financial statements and the related notes being herein called "Financial
Statements"). The Financial Statements and the Stub Financial Statements are
prepared on the cash basis of accounting on a consistent basis throughout the
periods involved, and on that basis, the financial statements are true, complete
and accurate in all material respects and present fairly the assets, liabilities
and financial condition of Company at the respective dates thereof and the
results of its operations for the periods then ended.
5.06 Absence of Undisclosed Liabilities.
Other than with respect to obligations to be performed after the Closing
Date which are listed on Schedule 5.06, or are otherwise specified in Section
5.09 below, and other than obligations to National Bank of Arizona with respect
to equipment acquired prior to the date hereof, the Company has no and shall not
have as of the Closing Date liabilities or obligations whether accrued,
absolute, contingent or otherwise other than up to Thirty Thousand Dollars
($30,000.00) in accounts payable due to unrelated third parties incurred in the
ordinary course of
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business, consistent with past practice, and which include no amounts for
salaries, benefits or taxes for physicians.
5.07 Absence of Certain Recent Changes.
Except as disclosed on Schedule 5.07 or reflected on the Financial
Statements or except with respect to this Agreement, Company has not, since
December 31, 1996, except in the ordinary course of business consistent with
past practice:
(a) incurred any indebtedness or other liabilities (whether accrued,
absolute, contingent or otherwise), guaranteed any indebtedness or sold any
of its assets, other than the loan from a bank in an amount to be agreed
upon by the parties but not to exceed [
] (the "Bank Loan") the proceeds of which are to be used
to pay the Compensation Amount (as defined below) prior to the date hereof
which Bank Loan shall allow for voluntary full or partial prepayments;
(b) suffered any damage, destruction or loss, to any of the tangible
Assets (as defined by Section 5.08(a), whether or not covered by insurance;
(c) increased the regular rate of compensation payable to any employee
or any physician; or increased such compensation by bonus, percentage,
compensation service award or similar arrangement theretofore in effect for
the benefit of any of its employees, and no such increase is required,
exclusive however of the payment of compensation to the Shareholders in an
amount to be agreed upon by the parties but not to exceed [
] immediately prior to the date hereof
(the "Compensation Amount");
(d) established or agreed to establish any pension, retirement or
welfare plan for the benefit of its employees not theretofore in effect;
(e) suffered any change in its financial condition, assets,
liabilities or business or suffered any other event or condition of any
character which individually or in the aggregate has or might reasonably be
expected to have a material adverse effect on its business;
(f) experienced any labor organizational efforts, strikes or formal
complaints or entered into any collective bargaining agreements with any
union;
(g) made any single capital expenditure which exceeded $5,000 or made
aggregate capital expenditures which exceeded $50,000;
(h) disposed of any of its assets having a value greater than $5,000
or written down the value of any of its assets, or revalued any of its
assets;
[ ] These portions have been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
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(i) paid, discharged or satisfied any claims, liabilities or
obligations other than in the ordinary course of its business (absolute,
accrued, contingent or otherwise);
(j) canceled any debts or waived any claims or rights of substantial
value other than in the ordinary course of its business;
(k) entered into, amended or terminated any contract, agreement or
license to which it is a party other than in the ordinary course of its
business;
(l) entered into a material transaction or made any change in any
method of accounting or accounting practice prior to the date hereof, other
than the change to the accrual basis method for tax and accounting
purposes;
(m) canceled, or failed to continue, insurance coverages; or
(n) agreed, whether in writing or otherwise, to take any action
described in this Section 5.07.
5.08 Title to Assets.
(a) Schedule 5.08(a) is a complete and accurate list of each of the
Company's material assets, tangible or intangible, real or personal having
an individual value greater than $1,000.00 (the "Assets").
(b) Except as disclosed in Schedule 5.08(b), Company has, or will have
on the Closing Date, good and marketable title to all of the Assets free
and clear of all liens, security interests, mortgages, claims or
encumbrances of any type or nature ("Encumbrances"). The Assets consisting
of owned personal property are subject to no Encumbrances except the
security interests of record set forth on Schedule 5.08(b), which Schedule
is a copy of UCC searches duly obtained by Company and which searches show
security interests of record relating to such Assets in every place where
such security interests are legally required to be filed and includes
copies of all such financing statements.
(c) The Assets constitute all of the non-real estate operating assets
of Company necessary or appropriate for the continued operation of the
business of the Company as it was conducted during the prior twelve (12)
month period. Immediately following the Closing Date, the Company shall
have sufficient title in and to the assets necessary or advisable to
operate and conduct the business of the Company in the same fashion as
Company was conducting such business.
5.09 Contracts and Leases.
Schedule 5.09 is a list of each contract, lease, sublease, agreement and
other instrument to which Company is a party or is bound that is for an amount
in excess of $5,000 or for a term in
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excess of twelve (12) months in duration. Except as noted in such Schedule 5.09,
all such contracts, leases, subleases and agreements are in full force and
effect, there has been no threatened cancellation thereof, there are no
outstanding disputes thereunder, each is with unrelated third parties and was
entered into on an arms-length basis in the ordinary course of business and,
assuming the receipt of the appropriate consents, all will continue to be
binding in accordance with their terms after consummation of the transaction
contemplated herein; except as noted in Schedule 5.09, there are no contracts,
subleases, agreements or other instruments to which Company is a party or bound
(other than physician employment contracts and insurance policies) which could
either singularly or in the aggregate have an adverse effect on the value to
MedCath or the Company or which could inhibit or prevent Company in its ability
to transfer to or vest in MedCath good and sufficient title to the Company
Shares; and, except as disclosed on Schedule 5.09, Company is not a party to or
bound by any employment agreements or any agreements that contain any bonus,
severance or termination pay liabilities or obligations or by any agreements to
loan to or guarantee any loan to an employee. Except as set forth otherwise in
Schedule 5.09, in every instance where consent is necessary, Company shall, on
or before the Closing Date, obtain and deliver to MedCath in writing, effective
as of the Closing Date, such consents as are necessary to enable the Company to
enjoy all of the rights now enjoyed by Company under such contracts (exclusive
of contracts for the provision of medical services). Said consent shall be in a
form reasonably acceptable to MedCath and shall contain an acknowledgment by the
consenting party that Company has fully complied with and is not in default
under any provision of the particular contract or agreement.
5.10 Defaults and Consents.
Except as disclosed in Schedule 5.10, Company, to the best of its
knowledge, is not in default under, nor has any event occurred which, with
notice or the lapse of time or action by a third party, could result in a
default under any outstanding indenture, mortgage, contract, lease or agreement
to which Company is a party or by which Company may be bound or under any
provision of the Articles of Incorporation, Bylaws, or other governing documents
of Company. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement will not (a)
result in a significant liability to Company other than is contemplated by or
related to this Agreement; (b) constitute a violation of or a default under, or
a conflict with, (i) any term or provision of the Articles of Incorporation,
Bylaws, or other governing documents of Company or (ii) any order, writ,
injunction or decree of any court, governmental agency or arbitration tribunal,
or (iii) any material contract, commitment, indenture, lease, sublease or other
agreement, or (iv) any other restriction of any kind to which Company is a party
or by which Company is bound; (c) cause, or give any party grounds to cause
(with or without notice, the passage of time or both) the maturity of any
liability or obligation of Company to be accelerated, or increase any such
liability or obligation; or (d) require any consent, approval or authorization
of, or declaration, filing or registration with any governmental or regulatory
authority.
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5.11 Litigation, Etc.
Except as disclosed in Schedule 5.11, there is no litigation, arbitration,
governmental claim, investigation or proceeding pending or, to the best
knowledge of Company and the Shareholders, threatened against Company or a
Shareholder at law or in equity, before any court, arbitration tribunal or
governmental agency. No such proceeding set forth in Schedule 5.11 concerns the
ownership or other rights with respect to the Assets or the Company Shares.
Except as disclosed on Schedule 5.11, Company knows of no facts based on which
material claims may be hereafter made against it. Except as set forth on
Schedule 5.11, Company has been informed by its carriers that all claims and
litigation against Company and its employees involving allegations of medical
malpractice are fully covered by insurance, less co-payments and deductibles.
5.12 Court Orders, Decrees and Laws.
There are no outstanding or, to the best of Company knowledge, threatened
orders, writs, injunctions or decrees of any court, governmental agency or
arbitration tribunal against or affecting Company or the Assets. Company is in
compliance with all applicable federal, state and local laws, regulations and
administrative orders which are material to the operation of its business,
including, without limitation, matters relating to antitrust and
anti-competitive practices, discrimination, employment, and health and safety,
and has received no notices of alleged violations thereof except as disclosed in
Schedule 5.12 hereof. No governmental authorities are presently conducting
proceedings against Company and no such investigation or proceeding is pending
or being threatened. Company has all federal, state and local permits,
certificates, licenses, approvals and other authorizations necessary in the
conduct and operation of the Company. Schedule 5.12 contains a list of all such
governmental licenses and permits. All such licenses and permits of Company are
in full force and effect, and no violations are or have been recorded in respect
thereof for which a fine or penalty may be levied after the Closing, and no
proceeding is pending or threatened to revoke or limit any thereof. The
Shareholders shall cooperate with and assist MedCath in all respects concerning
the continued validity of all permits, licenses, consents or approvals required
by all applicable laws as a result of this transaction.
5.13 Employee Matters.
Included as Schedule 5.13 is a list of all current employees, officers and
consultants of Company and their annual compensation.
5.14 Labor Matters.
Except as disclosed in Schedule 5.14, Company has no collective bargaining
agreements with any labor union and is not currently negotiating with a labor
union. No employee of Company has ever petitioned for a representation election.
Company is in compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and are not engaged in any unfair labor practice. There is no
10
unfair labor practice complaint against Company pending before the National
Labor Relations Board or strike, dispute, slowdown or stoppage actually pending
or, to its knowledge, threatened against or affecting Company.
5.15 Insurance; Malpractice.
Schedule 5.15 is a list and brief description of all policies or binders of
fire, liability, product liability, worker's compensation, health and other
forms of insurance policies or binders currently in force insuring against risks
which will remain in full force and effect at least through the Closing Date.
Except as set forth on Schedule 5.15, (a) Company, to the best of its and the
Shareholders' knowledge, has never filed a written application for any insurance
coverage which has been denied by an insurance agency or carrier and (b) Company
has been continuously insured for professional malpractice claims for at least
the past seven (7) years. Schedule 5.15 also sets forth a list of all claims for
any loss in excess of Five Thousand Dollars ($5,000) per occurrence, filed by
Company during the three (3) year period immediately preceding the Closing Date,
including but not limit to, worker's compensation, general liability,
environmental liability and professional malpractice liability claims. Company,
to the best of its knowledge, is not in material default with respect to any
provision contained in any such policy and neither has failed to give any notice
or present any claim under any such policy in due and timely fashion.
5.16 Books of Account, Reports.
The books of account of Company accurately and fairly reflect its
transactions and the disposition of its assets consistent with the past
practices of Company. Company has filed all reports and returns required by any
law or regulation to be filed by it.
5.17 No Finders or Brokers.
Company has not engaged any finder or broker in connection with the
transactions contemplated hereunder. No commitments have been made to any
individuals for payments of stock or stock options in connection with this
Agreement except for distributions to shareholders of Company in their
capacities as shareholders.
5.18 Inventory.
All Assets consisting of inventory, to the best of Company's and the
Shareholders' knowledge, are of a quality and quantity currently usable in the
ordinary course of business. The present quantity of all current and usable
inventory is at a level consistent with the past practices of Company.
5.19 Equipment.
Except as listed on Schedule 5.19, all Assets consisting of equipment are
located at the offices of the Company and are in good condition except for
reasonable wear and tear and are
11
sufficient for the purposes for which currently used. Except as listed on
Schedule 5.19, such Assets are reflected in the Financial Statements at book
value.
5.20 Employee Benefit Plans.
(a) Definition of Benefit Plans. For purposes of this Agreement, the term
"Company Benefit Plan" means any plan, program, arrangement, fund, policy,
practice, or contract to which (i) which, through which, or under which the
Company or a Company ERISA Affiliate (as hereinafter defined) provides benefits
or compensation to or on behalf of employees, former employees, or independent
contractors of the Company or a Company ERISA Affiliate (as hereinafter
defined), whether formal or informal, whether or not written, including but not
limited to the following:
(i) Arrangements - any bonus, incentive compensation, stock option,
deferred compensation, commission, severance pay, golden parachute, or
other compensation plan or rabbi trust;
(ii) ERISA Plans - any "employee benefit plan" (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), including, but not limited to, any multiemployer plan (as
defined in Section 3(37) and Section 4001(a)(3) of ERISA), defined benefit
plan, profit sharing plan, money purchase pension plan, 401(k) plan,
savings or thrift plan, stock bonus plan, employee stock ownership plan, or
any other plan, fund, program, arrangement, or practice providing for
medical (including postretirement medical), hospitalization, accident,
sickness, disability, or life insurance benefits; and
(iii) Other Employee Fringe Benefits - any stock purchase, vacation,
scholarship, day care, prepaid legal services, dependent care, cafeteria
plan, or other fringe benefit plans, programs, arrangements, contracts, or
practices.
(b) Company ERISA Affiliate. For purposes of this Agreement, the term
"Company ERISA Affiliate" means each trade or business (whether or not
incorporated) which together with the Company is treated as a single employer
under Section 414(b), (c), (m), or (o) of the Code.
(c) Identification of Benefit Plans. Except for (i) the Company Benefit
Plans which have been terminated and with respect to which neither the Company
nor any Company ERISA Affiliate has any financial, administrative, or other
liability, obligation, or responsibility, or (ii) the Company Benefit Plans set
forth in Schedule 5.20, the Company does not maintain, nor has it at any time
established or maintained, nor has it at any time been obligated to make, or
otherwise made, contributions to or under or otherwise participated in any
Company Benefit Plan.
(d) No Certain Types of Plans. Except as described in Schedule 5.20,
neither the Company nor any Company ERISA Affiliate maintains, nor has at any
time established or maintained, nor has at any time been obligated to make, or
made, contributions to or under (i) any "multiemployer plan" (as defined in
Sections 3(37) or 4001(a)(3) of ERISA) or "multiple
12
employer plan" (within the meaning of Section 4064(a) of ERISA); (ii) any
defined benefit pension plan or money purchase pension plan subject to Title IV
of ERISA; (iii) any plan which provides post-retirement medical or health
benefits with respect to employees of the Company (other than to the extent
necessary to comply with Sections 601-609 of ERISA and Section 4980B of the
Code); (iv) any organization described in Sections 501(c)(9) or 501(c)(20) of
the Code; or (v) any plan which provides retirement benefits in excess of the
limitations in Sections 401(a)(17), 401(k), 401(m), 402(g), or 415 of the Code.
There is no lien upon any property of the Company or any Company ERISA Affiliate
outstanding pursuant to Section 412(n) of the Code in favor of any Company
Benefit Plan. No assets of the Company or any Company ERISA Affiliate have been
provided as security for any Company Benefit Plan pursuant to Section 401(a)(29)
of the Code.
(e) Documentation. Each of the Company Corporations has made available to
Purchaser a true and complete copy of the following documents, if applicable,
with respect to each Company Benefit Plan identified in Schedule 5.20: (i) all
documents, including any insurance contracts and trust agreements, setting forth
the terms of the Company Benefit Plan, or if there are no such documents
evidencing the Company Benefit Plan, a full description of the Company Benefit
Plan, (ii) the ERISA summary plan description and any other summary of plan
provisions provided to participants or beneficiaries for each such Company
Benefit Plan, (iii) the annual reports (Form 5500 series) filed for the most
recent three plan years and most recent financial statements or periodic
accounting of related plan assets with respect to each Company Benefit Plan,
(iv) the most recent favorable determination letter, opinion, or ruling from the
Internal Revenue Service ("IRS") for each Company Benefit Plan, the assets of
which are held in trust, to the effect that such trust is exempt from federal
income tax, and (v) each opinion or ruling from the IRS, Department of Labor, or
the Pension Benefit Guaranty Corporation with respect to such Company Benefit
Plans.
(f) Qualified Status. Each Company Benefit Plan that is intended to be
qualified under Section 401(a) of the Code, and related trust that is intended
to be tax-exempt under Section 501(a) of the Code, has received a favorable
determination letter from the Internal Revenue Service to the effect that such
plan is qualified under the Code and such trust is tax-exempt ("Qualified
Company Benefit Plan"). Any such determination letter remains in effect and has
not been revoked, and no amendment to such Qualified Company Benefit Plans have
been made since the effective date of such determination letter which adversely
affects the tax-qualified status of such plan and related trust. Each such
Qualified Company Benefit Plan currently complies in form with the requirements
under Section 401(a) of the Code, other than changes required by statutes,
regulations, and rulings for which amendments are not yet required. Each such
Qualified Company Benefit Plan has been administered according to its terms
(except for those terms which are inconsistent with the changes required by
statutes, regulations, and ruling for which changes are not yet required to be
made, in which case such plans have been administered in accordance with the
provisions of those statutes, regulations, and rulings) and in accordance with
the requirements of Section 401(a) of the Code.
(g) Compliance. Each Company Benefit Plan maintained by the Company or a
Company ERISA Affiliate has at all times been maintained, by its terms and in
operation, in
13
accordance with all applicable laws in all material respects, including (to the
extent applicable) Code Section 4980B. Further, there has been no failure to
comply with applicable ERISA or other requirements concerning the filing of
reports, documents, and notices with the Secretary of Labor and Secretary of
Treasury or the furnishing of such documents to participants or beneficiaries
that could subject any Company Benefit Plan, Company, any Company ERISA
Affiliate to any material civil or any criminal sanction.
(h) Legal Actions. There are no actions, audits, suits, or claims known to
the Company which are pending or threatened against any Company Benefit Plan,
any fiduciary of any of Company Benefit Plans with respect to the Company
Benefit Plans, or against the assets of any of the Company Benefit Plans, except
claims for benefits made in the ordinary course of the operation of such plans.
(i) Funding. The Company and each Company ERISA Affiliate has made full and
timely payment of all amounts required to be contributed under the terms of each
Company Benefit Plan and applicable law or required to be paid as expenses under
such Company Benefit Plan, and no excise taxes are assessable as a result of any
nondeductible or other contributions made or not made to a Company Benefit Plan.
The assets of all Company Benefit Plans which are required under applicable laws
to be held in trust are in fact held in trust, and the assets of each such
Company Benefit Plan equal or exceed the liabilities of each such plan. The
liabilities of each other plan are properly and accurately reported on the
financial statements and records of the Company. The assets of each Company
Benefit Plan are reported at their fair market value on the books and records of
each plan.
(j) Liabilities. Neither the Company nor any Company ERISA Affiliate is
subject to any material liability, tax, or penalty whatsoever to any person
whomsoever as a result of the Company's or any Company ERISA Affiliate's
engaging in a prohibited transaction under ERISA or the Code, and the Company
have no knowledge of any circumstances which reasonably might result in any such
material liability, tax, or penalty as a result of a breach of fiduciary duty
under ERISA. The termination of or withdrawal from any Company Benefit Plan
maintained by the Company or a Company ERISA Affiliate which is subject to Title
IV of ERISA or any other Company Benefit Plan immediately after the Closing Date
will not subject Purchaser or any of its ERISA Affiliate to any additional
contribution requirement or to any other liability, tax, or penalty whatsoever
(excluding any liability, tax, or penalty attributable solely to the fact that
such termination or withdrawal would violate the permanency requirement of
Section 401(a) of the Code or an excise tax under Code Section 4980). Neither
the Company nor any Company ERISA Affiliate has any obligation to any retired or
former employee, or any current employee upon retirement, under any Company
Benefit Plan aside from the payment when due of any vested accrued benefits
thereunder.
(k) Amendment/New Plans. From the date of this Agreement to the Closing
Date, no amendment shall be made to any Company Benefit Plan (except as
otherwise provided in Section 7.09), no commitment shall be made to amend any
Company Benefit Plan, and no oral or written commitment shall be made to
continue any Company Benefit Plan or to adopt any new Company
14
Benefit Plan for the benefit of any employees of the Company or any Company
ERISA Affiliate, absent the express written consent of Purchaser.
(l) Excess Parachute Payments. No payment required to be made to any
employee associated with the Company as a result of the transactions
contemplated hereby under any contract or otherwise will, if made, constitute an
"excess parachute payment" within the meaning of Section 280G of the Code or be
nondeductible under Section 162(m) of the Code.
(m) No Acceleration of Liability Under Benefit Plans. Neither execution nor
consummation of the transactions contemplated by this Agreement will create,
accelerate, or increase any liability, obligation, or right under any Company
Benefit Plan, other than the immediate, 100% vesting of all accrued benefits
under any Qualified Company Benefit Plan upon its termination pursuant to the
terms of Section 7.09.
5.21 Power of Attorney.
Except as provided on Schedule 5.21, Company has not given any power of
attorney, whether limited or general, to any person which is continuing in
effect past the Closing Date.
5.22 Bank Accounts; Officers.
Schedule 5.22 sets forth a list of all bank accounts and safe deposit boxes
in the name of or controlled by Company and details about the persons having
access thereto. Schedule 5.22 also contains a list of all officers of Company as
such have been designated or elected by the Board of Directors of Company.
5.23 Environmental Matters.
Company is in compliance with all federal, state and local environmental
laws, rules, regulations, standards and requirements, including, without
limitation, those respecting hazardous or biomedical materials and/or wastes.
Except as disclosed on Schedule 5.23, Company has not engaged in any storage,
holding, release, emission, discharge, generation, processing, disposition,
handling or transportation of any biomedical wastes or hazardous substances or
materials, as defined in any applicable federal or state law or regulation from,
into or on any portion of the Clinic premises.
5.24 Fraud and Abuse.
To the best of its knowledge after due inquiry, neither Company, its
officers and directors, or the Shareholders, or persons and entities providing
professional services for the Clinic, have engaged in any activities which are
prohibited under U.S.C. Sec. 1320a-7b, or the regulations promulgated thereunder
pursuant to such statutes, or related state or local statutes or regulations, or
which are prohibited by rules of professional conduct, including but not limited
to the following: (i) knowingly and willfully making or causing to be made a
false statement or representation of a material fact in any application for any
benefit or payment; (ii) knowingly and
15
willfully making or causing to be made any false statement or representation of
a material fact for use in determining rights to any benefit or payment; (iii)
failure to disclose knowledge by a claimant of the occurrence of any event
affecting the initial or continued right to any benefit or payment on its own
behalf or on behalf of another, with intent to fraudulently secure such benefit
or payment; and (iv) knowingly and willful, soliciting or receiving any
remuneration (including any kickback, bribe, or rebate), directly or indirectly,
overtly or covertly, in cash or in kind or offering to pay or receive such
remuneration (a) in return for referring an individual to a person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by Medicare or Medicaid, or (b) in
return for purchasing, leasing, or ordering or arranging for or recommending
purchasing, leasing, or ordering any good, facility, service, or item for which
payment may be made in whole or in part by Medicare or Medicaid.
5.25 Receivables.
All accounts receivables on the books of the Company arose from bona fide
transactions involving the delivery of the Company's or its physicians services.
5.26 Taxes.
(a) All federal, state and local and foreign tax and information returns,
declarations, reports, estimates, information statements, and other
documentation (including any additional or supporting material) filed or
maintained, or required to be filed or maintained by the Company prior to the
Closing Date, in connection with the calculation, determination, assessment or
collection of Taxes as defined herein ("Returns") have been and will be filed by
the Company within the time and in the manner prescribed by law and such Returns
reflect, in all material respects, the income tax liability, and other tax
liability and all other information required to be reported thereon. All Returns
covering taxable periods ending prior to the Closing Date but due after the
Closing Date will be completed and submitted to MedCath at least fifteen (15)
business days prior to the due date for these filings, for its review and
satisfaction, and such Returns approved by MedCath will be subsequently filed
with the appropriate taxing authority by the due date; consistent with past
practice. The Company has provided to MedCath a list of all federal, state,
local, and foreign income tax returns filed with respect to the Company for
taxable periods ending on or after December 31, 1993.
(b) The Company, its employees, the Shareholders, its outside accountants,
and any tax advisors utilized by the Company or Shareholders will fully
cooperate with MedCath, or any of its affiliates in the complete, accurate, and
timely preparation of any additional Returns which are due after the Closing
Date and which include taxable periods through and including the Closing Date.
(c) The Company has complied (and until the Closing will comply) in all
respects with all applicable laws, rules and regulations relating to the payment
and withholding of Taxes as defined herein (including, without limitation,
withholding of Taxes pursuant to Sections 1441 or 1442 of the Code or similar
provisions under foreign laws), penalties, interest and related charges and fees
to the extent such payments are required prior to and as of the date hereof, and
16
the Company does not have any deficiency with respect to any tax period or any
liability with respect to taxes, penalties or interest thereon, or related
charges and fees, whether or not assessed, which are not adequately provided for
in the tax accrual reserves in the Annual Financial Statements, except current
and deferred taxes pertaining to income earned after the date of the most recent
Annual Financial Statements.
(d) For purposes of this Agreement, "Taxes" shall mean all taxes, charges,
levies or other assessments of whatever kind or nature, including without
limitation, all net income, gross income, gross receipts, sales, use, service,
ad valorem, value added, transfer, franchise, profits, license, withholding,
payroll, employment, social security, workers' compensation, unemployment
compensation, excise, estimated, severance, stamp, occupancy or property taxes,
customs duties, fees, assessments or charges of any kind whatsoever (together
with any interest and any penalties, additions to tax or additional amounts)
imposed by any taxing authority (domestic or foreign) upon the Company.
(e) Except as set forth in Schedule 5.26 (which shall set forth the type of
return, date filed, and date of expiration of the statutes of limitations), (i)
the three (3) year statute of limitations for the assessment of federal income
tax expired for all federal income tax returns of the Company or such returns
have been examined by the Internal Revenue Service (the "Service") for all
periods through December 31, 1991; (ii) the three (3) year statute of
limitations for the assessment of state, local and foreign income taxes has
expired for all applicable Returns of the Company or such Returns have been
examined by the appropriate tax authorities for all periods through December 31,
1991; and (iii) no deficiency for any Taxes has been proposed, asserted or
assessed against the Company which has not been resolved and paid in full. Any
adjustment to Taxes made by the Service in any examination which is required to
be reported to state, local and foreign or other taxing authorities has been so
reported, and any additional Taxes due with respect thereto have been paid. No
such Taxes or Returns have been audited or, to the Shareholders' or the
Company's knowledge, are the subject of any federal, state, local or foreign
audits or other administrative proceedings or court proceedings. Except as set
forth on Schedule 5.26 hereto, neither the Company nor any subsidiary has (i)
made requests for rulings, requests for changes in accounting methods,
subpoenas, or request for information pending with respect to any taxing
authority or (ii) granted any power of attorney that is currently in force with
respect to any matter relating to Taxes. There are not in effect any waivers or
comparable consents by the Company regarding the application of statutes of
limitations or deadlines for assessments of any Taxes.
(f) No claim has ever been made to the Company by any federal, state, local
or foreign authority, at any time from January 1, 1990 until the date hereof, in
any jurisdiction where the Company does not file any Returns that it is or may
be subject to taxation by that jurisdiction.
(g) The Company has withheld and paid to the proper governmental
authorities, within the time and manner prescribed by law, all Taxes required to
have been withheld under all applicable laws and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, shareholder, or
other third party.
17
(h) No Shareholder expects any authority to assess any additional Taxes
against the Company for any period for which Returns have been filed. There is
no dispute or claim concerning any Taxes of the Company claimed or raised
pending, or to the best knowledge of the Shareholders, threatened by any
federal, state, local or foreign authority prior hereto.
(i) All Tax carryovers available to the Company as of the Closing Date will
be set forth on Schedule 5.26.
(j) Except as set forth on Schedule 5.26 hereto, the Company has not taken
any action that would have the effect of deferring any liability for Taxes for
the Company from any taxable period ending on or before the Closing Date to any
taxable period ending thereafter.
5.27 Investments.
Except as identified on Schedule 5.27 (which reflects the Company's
ownership percentages), the Company has no subsidiaries and does not, directly
or indirectly, possess any interest or have an investment in any corporation,
partnership, joint venture, trust or other business or have any investment in
cash or securities or other investment assets.
5.28 Affiliated Transactions.
Schedule 5.28 sets forth a list and description of (a) all outstanding
loans in excess of One Thousand Dollars ($1,000.00) made by the Company to any
of its directors, officers, employees or shareholders or any family member of
the foregoing, (b) all outstanding loans made by the Company's directors,
officers, employees or shareholders or any family member of the foregoing, to
the Company, and (c) all other outstanding transactions out of the ordinary
course of business either between or among the Company and its directors,
officers, employees or shareholders or any family member of the foregoing.
5.29 Investment Representations and Warranties.
(a) Each Shareholder has received prior to the date hereof copies of the
following items:
(i) MedCath's 1996 Annual Report;
(ii) MedCath's 10-K report for the year ended September 30, 1996,
Proxy Statement and 10-Q for the fiscal quarter ended March 31, 1997, all
as filed with the SEC (the "Filings");
(iii) A statement by MedCath describing any material changes in
MedCath's affairs that are not disclosed in the 1996 Annual Report and the
Filings;
18
(iv) Written information about any terms or arrangements of the
Transactions involving any of the Shareholders of the Company that are
materially different from those being offered to other Shareholders;
(v) Information regarding the limitations on resale of the MedCath
Shares to be issued to the Shareholders; and
(vi) Only for any of the Shareholders of the Company who are
classified as non-accredited investors in accordance with the provisions of
Rule 501(a) of Regulation D of the Securities Act of 1933, a brief written
description of any additional information MedCath has provided to any
Shareholders of the Company who are classified as accredited investors in
accordance with the provisions of such Rule 501(a).
(b) Each Shareholder has received the information designated to be received
by him, her or it which is listed above in Section 5.29(a), and in making his,
her or its decision to invest in MedCath has relied only upon such information.
(c) Each Shareholder acknowledges that all documents, records and books of
MedCath pertaining to his, her or its investment in MedCath have been made
available for inspection by him, her or it; his, her or its attorney; his, her
or its accountant and/or his, her or its representative(s), and that MedCath has
made and agreed to make such books and records available upon reasonable notice,
for inspection by the Shareholders during reasonable business hours.
(d) Each Shareholder and/or his, her or its advisor(s) have had a
reasonable opportunity to ask questions of and receive answers from MedCath, or
a person or persons acting on MedCath's behalf, concerning the terms and
conditions of the offering of the MedCath Shares, and to obtain additional
information, to the extent possessed or obtainable without unreasonable effort
or expense, necessary to verify the accuracy of the information furnished
pursuant to Section 5.29(a). All such questions have been answered to the full
satisfaction of each Shareholder. No oral representations have been made or
information furnished to any Shareholder or his, her or its advisor(s) in
connection with the offering of the MedCath Shares which were in any way
inconsistent with the information furnished pursuant to Section 5.29(a).
(e) Each Shareholder (i) has adequate means of providing for his, her or
its current needs and possible personal contingencies, (ii) has no need for
liquidity in the investment in the MedCath Shares, (iii) is able to bear the
economic risks of an investment in the MedCath Shares for an indefinite period,
(iv) at the present time, can afford a complete loss of such investment, and (v)
does not have an overall commitment to investments which are not readily
marketable that is disproportionate to such Shareholder's net worth, and such
Shareholder's investment in the MedCath Shares will not cause such overall
commitment to become excessive.
(f) The MedCath Shares are being acquired solely for each Shareholder's own
account for investment purposes only and not for
19
the account of any other person and not for distribution, assignment or resale
to others and no other person has a direct or indirect beneficial interest in
such MedCath Shares.
(g) Each Shareholder is sophisticated and well informed both with respect
to the terms and conditions of the proposed investment in MedCath and with
respect to his, her or its knowledge of finance, securities and investments
generally. Each Shareholder has knowledge of the type of business proposed to be
engaged in by MedCath which has allowed such Shareholder to make an informed
decision regarding a proposed investment in MedCath. Each Shareholder has also
engaged in other investments in a manner which allows such Shareholder to
understand the nature of his, her or its proposed investment in MedCath.
5.30 Tax and Securities Advice, Etc.
No Shareholder has relied upon MedCath or any employee, agent, officer or
director of MedCath or any affiliate of MedCath for advice as to the tax
treatment or securities law consequences of the Transactions or the taxes that
may be owing or tax obligations that may be incurred by Shareholders as a result
of the Transactions. Each Shareholder has obtained its own independent,
financial and legal advice with regard to all aspects of this Agreement and the
Transactions including, but not limited to, tax and securities matters. Except
for those representations made by MedCath in Article VI hereof with respect to
the MedCath Shares, MedCath, any affiliate of MedCath, or any employee, agent,
officer or director of MedCath or any affiliate of MedCath have not made, and
will not make, any representation or warranty in this Agreement or otherwise
with respect to the federal, foreign, state, local or other tax or securities
law consequences to any Shareholder of the Company or the Company as a result of
the Transactions.
5.31 Disclosure.
No representation or warranty by the Shareholders set forth in this Article
V or in any of the agreements comprising the Exhibits hereto contains or will
contain any untrue statement of a material fact, or omits or will omit to state
a material fact necessary to make the statements contained in this Article V or
in any such Exhibit not materially misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF MEDCATH
MedCath represents and warrants to the Shareholders as of the Closing Date
as follows:
6.01 Organization; Good Standing.
MedCath is a corporation duly organized, validly existing and in good
standing under the laws of the State of North Carolina. MedCath has full power
and authority to own its properties and carry on its business as now conducted
and MedCath is in good standing and duly qualified to conduct business as a
foreign corporation in each jurisdiction in which the character of the business
conducted by it or the location of the properties owned by it makes such
qualification
20
necessary and in which the failure to be so qualified, individually or in the
aggregate, could reasonably be expected to (a) have a material adverse effect on
MedCath's consolidated financial condition, results of operation, assets,
liabilities, or net worth, or (b) require the payment by MedCath of a material
amount of additional taxes or associated penalties.
6.02 Power; Authority.
MedCath possesses full power, authority, and legal right to enter into and
to perform under this Agreement and the other documents contemplated hereby to
which MedCath is a party and to consummate the Transactions, and this Agreement
and such other agreements, documents and instruments have been (or will be) duly
executed and delivered by MedCath and are (or will be) the valid and legally
binding obligations of MedCath enforceable in accordance with their terms except
as enforceability may be limited by applicable bankruptcy, reorganization,
moratorium or other similar laws relating to or effecting the rights of
creditors generally and the availability of equitable remedies. Neither the
execution of this Agreement or such other documents by MedCath nor the
consummation of the Transactions will constitute or cause a breach or violation
of any agreements, covenants, or obligations binding upon MedCath. No consent of
any other party which has not been obtained is required for the Transactions and
the documents executed by MedCath in connection herewith to be valid and legal
binding obligations of MedCath.
6.03 Conflicting Agreements.
The execution and delivery of this Agreement by MedCath, the consummation
of the Transactions, and the performance by MedCath of its obligations hereunder
will not be in conflict with, or result in, or constitute a breach or default of
the terms, conditions or provisions of MedCath's articles of incorporation or
by-laws or any instrument, agreement, mortgage, judgment, order, award, decree
or other restriction to which MedCath is a party or by which MedCath is bound,
or any regulatory provision affecting MedCath, subject to obtaining those
consents and/or approvals referred to in Section 9.01 hereof. MedCath has, on
the date hereof, full power and authority to enter into this Agreement and to do
and perform all other acts and things required to be done by it under this
Agreement.
6.04 MedCath Shares.
The MedCath Shares for which the Company Shares shall be exchanged, shall
be duly authorized by all necessary corporate action of MedCath, validly issued,
fully paid and nonassessable, free and clear of all liens, encumbrances and
other claims by third parties.
6.05 Investment Intent.
MedCath is acquiring the Company Shares to be transferred to it under this
Agreement for investment only and not with a view to the sale or distribution
thereof, and MedCath has no commitment or present intention to liquidate the
Company or to sell or otherwise dispose of the Company Shares.
21
6.06 Litigation.
There are no claims, demands, suits, proceedings or litigation of any kind
pending or, to the knowledge of MedCath, threatened toward MedCath, and there
are no unreleased or unsatisfied judgments, decrees or orders of any court or
governmental authority, which involve or affect the ability of MedCath to enter
into this Agreement or the value of the MedCath Shares other than as disclosed
in the Securities Filings or the 1996 Annual Report.
6.07 Disclosure.
No representation or warranty by MedCath set forth in this Article VI or in
any of the Agreements comprising the Exhibits hereto contain or will contain any
untrue statement of a material fact, or omits or will omit to state a material
fact necessary to make the statements contained in this Article VI or in any
such Exhibit not materially misleading.
6.08 Legal Compliance.
To the best of MedCath's knowledge, MedCath is, and at Closing will be, in
compliance with all laws, statutes, regulations, rules and other requirements of
any governmental authority applicable to it for which noncompliance could have a
material adverse affect on MedCath or its business. MedCath has, and shall have
on the date of Closing, all licenses, permits, certificates and certifications
required to be held by MedCath as of such date by any and all local and state
governments and governmental departments having jurisdiction over the business
of MedCath the failure of which to hold would have a material adverse effect on
MedCath. There is presently no proceeding pending or, to the best of MedCath's
knowledge, threatened with respect to the revocation or limitation of any of its
material licenses.
6.09 Registration Rights.
The Shareholders shall have certain rights to require MedCath to register
with the Securities and Exchange Commission (the "SEC") their MedCath's Shares
in accordance with the terms and conditions of this Section 6.09. Within sixty
(60) days from the date hereof, MedCath and the Shareholders shall enter into a
registration rights agreement which shall contain the following terms and
conditions:
(a) On one (1) occasion during the period commencing six (6) months
after the Closing Date, the Shareholders may require MedCath to register up
to twenty-five percent (25%) of their MedCath Shares, provided, however, in
the event MedCath's Board of Directors reasonably determines that, due to
pending circumstances, it would be potentially materially adverse to
MedCath to register such shares at such time, such registration may be
delayed only until such circumstances are no longer pending or for one
hundred twenty (120) days, whichever is earlier, provided that in all
events the rights of the Shareholders to require the registration of their
MedCath Shares hereunder shall be extended until at least thirty (30) days
after the Shareholders receive notice from the
22
MedCath that their shares may now be registered. Such registration
statement shall remain effective for at least thirty (30) days;
(b) All legal, accounting, printing, registration and such other fees
incurred in connection with and directly attributable to such registration
of the MedCath Shares shall be paid equally by the Shareholders and by
MedCath;
(c) The execution of an underwriting agreement, if any, entered into
in connection with such registration shall be subject to terms acceptable
to MedCath, and all underwriting commissions and discounts, if any, shall
be paid by the Shareholders with respect to their MedCath Shares;
(d) The registration rights agreement to be entered into between
MedCath and the Shareholders shall contain such other terms and conditions
as are reasonable and customary for such agreements;
(e) The election to exercise the rights of the Shareholders under this
Section 6.10 and the registration rights agreement shall be made only upon
the affirmative vote of Shareholders holding at least sixty-six (66%) of
the MedCath Shares. Upon such decision, all Shareholders shall have the
option to include or exclude, pro rata, their MedCath Shares in such
registrations in accordance with the terms of this Section 6.10;
(f) Notwithstanding anything in this Section 6.09 to the contrary, in
no event shall MedCath have any obligation to register, the MedCath Shares
of the Shareholders once their MedCath Shares become freely tradeable under
Rule 144 of the Securities Act of 1933, as amended or if MedCath is
acquired by or merged into any other party as long as the Shareholders have
all of the rights and benefits of such transaction as are provided to the
other shareholders of MedCath.
ARTICLE VII
COVENANTS OF THE COMPANY AND THE SHAREHOLDERS
From the date hereof until the Closing (the "Executory Period") (except
that these covenants shall survive and continue after the expiration of the
Executory Period), the Company and the Shareholders, jointly and severally,
agree as follows:
7.01 Conduct of Business.
Except as required by this Agreement or for the performance of their
obligations in this Agreement, the Shareholders shall cause the Company and the
Practice to, (a) carry on its business in the usual and ordinary course, (b) use
reasonable efforts to preserve its business organization intact and conserve the
good will and relationships of its customers, and others having business
relations with it, (c) conduct its business in a manner which will cause the
representations and warranties contained in Article V to be true and correct on
the Closing Date in each case, as if made on and as of such date, (d) not enter
into any agreement which would be
23
material to the Company or the Practice including without limitation any
agreement calling for an expenditure of more than $5000 (a "Material Contract")
without MedCath's consent, (e) not waive any right or benefit, (f) other than
the Bank Loan, not incur any liability or obligation outside the ordinary course
of business or which involves the receipt or expenditure of more than $5,000
without MedCath's consent, and (g) maintain the employment of each of its
physicians.
7.02 No Dividends on Shares; No Share Transfers.
Except as otherwise set forth on Schedule 7.02, the Shareholders shall
cause the Company not to, declare, set aside, or pay any dividend or other
distribution of any nature on or in respect of any of the capital shares of the
Company, and the Company shall not, and the Shareholders shall cause the Company
not to, declare, set aside, or pay any dividend or other distribution of any
nature on or in respect of any of the capital shares of the Company, and the
Company shall not, and the Shareholders shall cause the Company not to, directly
or indirectly issue, redeem, retire, purchase or otherwise acquire any of its
capital shares, or agree to do any of the foregoing or grant any rights which
could result in any of the foregoing. Except as specified by this Agreement, no
Shareholder shall sell, assign, or transfer, or agree to or allow to be created
any rights or obligations for the sale, assignment or transfer of, any of the
Company Shares of such Shareholder, or any rights or interests therein. Each
Shareholder whose Company Shares are held in the name of a nominee, as indicated
on Schedule 5.04 hereto, shall cause such nominee not to sell, assign or
transfer, or agree to or allow to be created any rights or obligations for the
sale, assignment or transfer of, any of such Company Shares except as specified
by this Agreement.
7.03 Governmental Filings.
The Company shall, and the Shareholders shall and shall cause the Company
to, take all steps reasonably necessary in connection with, and diligently
pursue any filings or submissions determined by counsel to MedCath to be
appropriate or required to be made by or for the Shareholders or the Company in
order for the Transactions to be consummated.
7.04 Assistance.
The Company shall, and the Shareholders shall and shall cause the Company
to, provide, at the cost and expense of the Company, such reasonable assistance
and cooperation as may be necessary in connection with the filings of MedCath
pursuant to Section 9.01 hereof.
7.05 Access.
The Company shall, and the Shareholders shall and shall cause the Company
to, give to MedCath and its authorized agents and representatives (including,
but not limited to, accountants, lawyers, environmental consultants, lenders and
appraisers) full and complete access to the properties, premises, assets,
employees, representatives, advisors and agents of the Company and any and all
of the Company's books, records and documents except patient medical records.
The Company shall, and the Shareholders shall cause the Company to, furnish
24
to MedCath such information and copies of such documents and records as MedCath
shall reasonably request in connection with its examination under and pursuant
to this Section 7.05.
7.06 Material Contracts.
The Company shall not, and the Shareholders shall cause the Company not to,
amend, terminate or give any notice with respect to amending, termination or
non-renewal of any Material Contract without the prior written consent of
MedCath. The Company shall not, and the Shareholders shall cause the Company not
to, enter into or renew the term of any agreement which constitutes or would
constitute a Material Contract, without the prior written consent of MedCath.
7.07 Intentionally Omitted.
7.08 Confidentiality.
In connection with its examination of MedCath, the Company, the
Shareholders and their agents and representatives have obtained and been
furnished and may hereafter obtain and be furnished documents and information
concerning or relating to MedCath and affiliates of MedCath. The Company, the
Shareholders and their agents and representatives shall hold in confidence and
not use, except in connection with or as otherwise provided in this Agreement
and the Transactions, all such documents, materials and information and, if the
Transactions shall not be consummated for any reason or no reason, such
confidence shall be maintained, and such documents, materials and information
shall not be used by the Company, the Shareholders or their agents or
representatives.
7.09 Benefit Plans.
On or before the Closing Date, Shareholders shall cause the Company to take
all action necessary or otherwise appropriate to transfer the sponsorship of
each Qualified Company Benefit Plan to Pima Heart Physicians, P.C., effective as
of the Closing Date, including, but not limited to (i) the timely adoption of
valid resolutions of Company's board of directors effectuating the change in
sponsorship and assumption of responsibility under ERISA with respect to such
plans; (ii) the timely adoption of valid resolutions by Pima Heart Physicians,
P.C. adopting such plans and to accept the transfer of sponsorship and
assumption of responsibility under ERISA with respect to such plans; and (iii)
taking all other actions necessary to effectuate the change in sponsorship of
such plans. Except as described in the preceding sentences, prior to the
Closing, Company shall not adopt or become obligated under any new Company
Benefit Plan and shall not materially change the terms of any existing Company
Benefit Plan without the express written consent of Purchaser.
7.10 Tax Matters.
The Company shall close its books for tax purposes as of the Closing Date.
The Shareholders shall, at their expense, cause, the Company to file all tax
returns for such period
25
after having converted to accrual basis accounting for accounting and tax
purposes (which returns shall be submitted to MedCath for its reasonable
approval thirty (30) days prior to filing) and the Shareholders shall be solely
liable for Taxes of the Shareholders and/or the Company for the period through
the Closing Date and arising from the Closing of the Transactions (such returns
shall reflect its conversion to accrual basis accounting). However,
notwithstanding anything to the contrary in this Agreement, the Shareholders
shall not be liable for taxes due and payable for periods commencing after the
Closing Date arising from the conversion from cash to accrual basis accounting.
The Company shall comply with the provisions of Section 5.26 regarding the
preparation and submission of Tax Returns.
7.11 Tax Indemnification.
The Shareholders shall indemnify and hold harmless MedCath in connection
with any Taxes which are ultimately due and payable by MedCath or the Company as
a result of any act or inaction by the Company, whether prior to the Closing or
as a result of or in connection with the Closing of the transaction described
herein to the extent it relates to the period through and including the Closing,
or as a result of any act or omission by a Shareholder at any time to the extent
it relates to the period through and including the Closing and in all cases, for
Taxes not yet due and payable. Such indemnification shall include, but not be
limited to, the cost of any reasonable professional fees which are incurred by
MedCath in connection with the contesting in good faith of any such Taxes. For
purposes of this tax indemnification, Taxes shall have the same meaning as set
forth in Section 5.26(d) herein. MedCath shall indemnify and hold harmless the
Shareholders in connection with any Taxes which are due and payable by the
Shareholders as a result of any act or inaction by MedCath whether subsequent to
the Closing or as a result of or in connection with the Closing of the
transaction described herein to the extent it relates to the period of time
after the Closing. Such indemnification shall include, but not be limited to,
the cost of any reasonable professional fees which are incurred by the
Shareholders in connection with the contesting of any such Taxes. As long as the
Shareholders acknowledge in writing their indemnification obligation hereunder,
they may assume the response to and settlement of any claims for additional
Taxes for which they are liable hereunder.
ARTICLE VIII
SHAREHOLDERS' CONDITIONS PRECEDENT
All of the following shall be conditions precedent to Shareholders'
obligations to close the Transactions:
8.01 MedCath's Representations, Warranties and Covenants.
The representations and warranties made by MedCath herein shall be accurate
and correct on and as of the date of Closing as if made on and as of that date
and MedCath shall have performed and complied, in all material respects, with
all of the terms, provisions and conditions of this Agreement to be performed
and complied with by MedCath at or before the Closing.
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8.02 No Actions.
There shall not be, on the date of Closing, any action or proceeding,
judicial or administrative, federal, state or local, pending or threatened
against MedCath, any Shareholder or the Company which, if adversely determined,
would materially impair the ability of any such party to carry out its
obligations under this Agreement or in connection with the Transactions or which
relates to the Transactions and, if successful, would expose such party to a
material amount of damages.
8.03 Consents and Approvals.
All filings and submissions under Section 7.03 hereof shall have been made
and the approval or consent of the regulatory authorities with respect to the
filings described in Section 7.03 hereof shall have been obtained, and evidence
thereof shall have been provided to the Shareholders.
8.04 Inquiries; Investigations.
The Shareholders shall have the right, in addition to any other right or
election provided for herein, at any time after the date hereof, to terminate
this Agreement and all obligations hereunder in the event any inquiry,
investigation, suit or proceeding challenging the Transactions is threatened or
commenced prior to the date of Closing by any governmental agency.
8.05 Deliveries.
MedCath shall have made all of the deliveries required to be made by
MedCath, or for which MedCath has responsibility, under Article IV hereof.
ARTICLE IX
COVENANTS OF MEDCATH
During the Executory Period (except for the covenant set forth in Section
9.03 hereof, which shall relate to the period after the Closing as therein
provided), MedCath covenants and agrees as follows:
9.01 Governmental Filings.
MedCath shall take all steps reasonably necessary in connection with, and
shall diligently pursue, any filings or submissions required by MedCath for the
Transactions under (a) Federal and applicable state securities laws in order to
obtain exemption for the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended, and similar state laws, and (b) such
other filings and submissions that MedCath's counsel deems necessary or prudent
in connection with this Agreement or the consummation of the Transactions.
27
9.02 Assistance.
MedCath covenants and agrees to provide such reasonable assistance and
cooperation as may be necessary in connection with the filings of the
Shareholders and/or the Company pursuant to Section 7.03 hereof.
9.03 Confidentiality.
In connection with its examination of the Company, MedCath and its agents
and representatives have obtained and been furnished and may hereafter obtain
and be furnished documents and information concerning or relating to the Company
or the Company's business. MedCath and its agents and representatives shall hold
in confidence and not use, except in connection with or as otherwise provided in
this Agreement and the Transactions, all such documents, materials and
information and, if the Transactions shall not be consummated for any reason or
no reason, such confidence shall be maintained, and such documents, materials
and information shall not be used by MedCath, its agents or representatives.
ARTICLE X
MEDCATH'S CONDITIONS PRECEDENT
All of the following shall be conditions precedent to MedCath's obligations
to close the Transactions:
10.01 Shareholders' Representations, Warranties and Covenants.
The representations and warranties made by the Shareholders herein shall be
accurate and correct on and as of the date of Closing as if made on and as of
that date, and the Shareholders and the Company shall have performed and
complied, in all material respects, with all the terms, provisions and
conditions of this Agreement to be performed and complied with by the
Shareholders or the Company at or before the Closing.
10.02 No Actions.
There shall not be, on the date of Closing, any action or proceeding,
judicial or administrative, federal, state or local, pending or threatened
against MedCath, any Shareholder, or the Company which, if adversely determined,
would materially impair the ability of any such party to carry out such party's
obligations under this Agreement or in connection with the Transactions or which
relates to the Transactions and, if successful, would expose such party to a
material amount of damages.
10.03 Consents and Approvals.
All filings and submissions under Section 9.01 hereof shall have been made
and the approval or consent of the regulatory authorities with respect to the
filings described in Sections
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7.03 and 9.01 hereof shall have been obtained or the relevant waiting periods
with respect to such filings shall have expired, and evidence thereof shall have
been provided to MedCath.
10.04 Inquiries; Investigations.
MedCath shall have the right, in addition to any other right or election
provided for in this Agreement, at any time after the date hereof, to terminate
this Agreement and all obligations hereunder in the event any inquiry,
investigation, suit or proceeding challenging the Transactions is threatened or
commenced prior to the date of the Closing by any governmental agency.
10.05 Material Adverse Change.
Since December 31, 1996, there shall not have been any material adverse
change to the Company or the Practice, including without limitation in the
financial condition, operations, assets, liabilities or net worth of the Company
or the Practice, exclusive of changes which affect medical practices generally
and exclusive of the loss of business or revenue which has occurred not as a
result of any intentional act or omission (other than entering into this
Agreement or any other agreements related to the same transactions between the
parties) on the part of the Company, the Practice or the Shareholders.
10.06 Intentionally Omitted.
10.07 Percentages of Shareholders Signing Agreement.
Shareholders owning one hundred percent (100%) of the Company Shares shall
have executed this Agreement (on their own behalf and not through an agent) and
shall have delivered this Agreement to MedCath.
10.08 Deliveries.
The Shareholders and the Company shall have made or cause to have been made
all of the deliveries required to be made by the Shareholders of the Company, or
for which the Shareholders or the Company have responsibility, under Article IV
hereof.
10.09 Bank Accounts.
The Company shall have taken such action or may be required by MedCath to
cause the bank accounts, safe deposit boxes and relationships identified on
Schedule 5.22 to be modified so that the persons with signatory or other power
with respect to such items and matters are changed in accordance with MedCath's
written instructions.
10.10 Change in Accounting.
Prior to the Closing, the Shareholders shall have caused the Company to
convert to the accrual basis method of accounting for tax and accounting
purposes.
29
10.11 Bank Loan.
Prior to the Closing, the Shareholders shall have caused the Company to
incur the Bank Loan.
ARTICLE XI
TERMINATION
11.01 Methods of Termination.
This Agreement may be terminated and the Transactions herein contemplated
may be abandoned at any time prior to Closing:
(a) by mutual consent of MedCath and Shareholders;
(b) by MedCath if all of the conditions specified in Article X hereof
have not been satisfied on or before the Closing Date;
(c) by the Shareholders if all of the conditions specified in Article
VIII hereof have not been satisfied on or before the Closing Date;
(d) by MedCath if the Shareholders or any Shareholder are in default
in any material respect under this Agreement and such default is not cured
within five (5) days after written notice thereby by MedCath to the
Shareholders; or
(e) by the Shareholders if MedCath is in default in any material
respect under this Agreement and such default is not cured within five (5)
days after written notice thereof by the Shareholders to MedCath.
MedCath may exercise its right to terminate this Agreement by giving
written notice thereof to the Shareholders. The Shareholders may exercise its
right to terminate this Agreement by giving written notice thereof to MedCath.
11.02 Effect of Termination.
If this Agreement is terminated pursuant to Section 11.01 hereof, this
Agreement shall forthwith become void (other than Sections 7.08 and 9.03, which
shall remain in full force and effect), and there shall be no further liability
on the part of any party who is not in violation or breach of their covenant,
representation or warranty hereunder (except for any liability of MedCath or the
Shareholders under Sections 7.08 and 9.03). The nonbreaching party shall have
all rights and remedies available to it at law or equity arising from any breach
or violation of any covenant, representation or warranty hereunder by any other
party hereto including without limitation those arising from the failure to
close the Transaction by the Closing Date.
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ARTICLE XII
SURVIVAL; INDEMNIFICATION
12.01 Survival.
(a) Representations and Warranties. The representations and warranties and
the covenants (including, without limitation, Sections 7.11, 13.01 and 13.06
thereof) of the Shareholders (or any Shareholder), the Company and MedCath
contained in this Agreement or in any Schedule or Exhibit hereto shall survive
the Closing.
(b) Indemnity Claim. Notwithstanding the foregoing, any claim arising out
of any representation, warranty, covenant or right to indemnification that would
otherwise terminate in accordance with Section 12.02 or 12.03 will continue to
survive, if an Indemnity Notice (as hereinafter defined) based in whole or in
part thereon shall have been timely given under this Article XII on or prior to
such termination date, until such claim for indemnification has been satisfied
or otherwise finally resolved.
12.02 Indemnification by Shareholders.
Subject to the terms, conditions and limitations of this Article XII the
Shareholders shall jointly and severally (except for violations of Sections
5.03, 5.04, 5.29 or 5.30 for which a Shareholder's liability shall be several
and not joint) indemnify, defend and hold harmless MedCath from, against and
with respect to any and all Losses suffered or incurred by MedCath after
Closing, arising out of or in any manner incident, relating or attributable to
(i) any inaccuracy, falsity or incorrectness in any representation or warranty
of the Shareholders or any Shareholder contained in this Agreement or in any
Schedule or Exhibit hereto, (ii) any breach by the Shareholders, any Shareholder
or the Company of, or the failure of the Shareholders, any Shareholder or the
Company to perform, any covenant or agreement of the Shareholders or any
Shareholder or the Company contained in this Agreement or in any Schedule or
Exhibit hereto (including, without limitation, Sections 7.11, 13.01 and 13.06
hereof), (iii) any Loss arising out of any violation of any law, rule or
regulation by any Shareholder or the Company prior to the Closing Date other
than as set forth in (vi) below, (iv) any Loss arising out of the performance or
delivery of any medical services or patient care arising out or related to
events or circumstances which first occurred or arose prior to the Closing Date,
(v) any Loss, howsoever arising, relating to or arising out of any cause of
action, claim or proceeding of or by any former shareholder of the Company or
(vi) any Loss arising out of any failure to comply with Medicare or Medicaid
laws, rules or regulations during the period prior to the Closing Date. Any
Losses suffered or incurred by the Company or its successor shall, for purposes
of this Article 12.02, be deemed to be suffered or incurred by MedCath on a
dollar for dollar basis.
Notwithstanding anything herein to the contrary, MedCath's rights to make
indemnity claims under this Article 12.02 shall terminate unless an Indemnity
Notice shall have been given with two (2) years after the Closing Date except
that its rights to make indemnity claims with respect to claims arising based
upon representations, warranties or covenants made in Sections
31
5.04, 5.21, 5.27, 7.10 or 7.11 hereof or claims arising under subsections (iv),
(v) or (vi) above shall survive until the expiration of any applicable statute
of limitations.
12.03 Indemnification by MedCath.
Subject to the terms, conditions and limitations of this Article XII,
MedCath shall indemnify, defend and hold harmless the Shareholders from, against
and with respect to any and all Losses suffered or incurred by the Shareholders
or any of them after Closing, arising out of or in any manner incident, relating
or attributable to (a) any inaccuracy, falsity or incorrectness in any
representation or warranty of MedCath contained in this Agreement, in any
Schedule or Exhibit hereto the 1996 Annual Report or the Filings or (b) any
breach by MedCath of, or the failure of MedCath to perform, any covenant or
agreement of MedCath contained in this Agreement or in any Schedule or Exhibit
hereto (including, but not limited to Section 13.01). The Shareholders' rights
to make indemnity claims under this Article XII shall terminate unless an
Indemnity Notice shall have been given two (2) years from the Closing Date.
12.04 [INTENTIONALLY LEFT BLANK]
12.05 Method of Asserting Claims.
(a) Other than with respect to claims arising under Section 12.02(b), all
claims for indemnification by any Indemnified Party under this Article XII shall
be asserted and resolved as provided in this Section 12.05 and in Section 12.06.
In the event any Indemnified Party shall have a claim for indemnification under
Section 12.02 or 12.03 hereof against any Indemnifying Party, the Indemnified
Party shall deliver an Indemnity Notice to the Indemnifying Party within a
period of forty-five (45) days following the date on which the Indemnified Party
becomes aware of such claim. The failure by any Indemnified Party to give such
Indemnity Notice (provided such notice is given within one (1) year of the date
hereof) shall not impair such party's rights hereunder, except to the extent
that the Indemnifying Party demonstrates that it has been irreparably prejudiced
thereby. If the Indemnifying Party notifies the Indemnified Party that it does
not dispute the claim described in such Indemnity Notice, or fails to notify the
Indemnified Party within the Dispute Period whether the Indemnifying Party
disputes the claim described in such Indemnity Notice, the Losses in the amount
specified in the Indemnity Notice will be conclusively deemed a liability of the
Indemnifying Party under Section 12.02 or 12.03, hereof, as the case may be, and
the Indemnifying Party shall immediately pay the amount of such Losses to the
Indemnified Party on demand, subject to the provisions of Section 12.06 hereof.
If the Indemnifying Party notifies the Indemnified Party within the Dispute
Period that it disputes the claim described in the Indemnity Notice, the
Indemnifying Party and the Indemnified Party will proceed in good faith to
negotiate a resolution of such dispute, and, if not resolved through
negotiations within the Resolution Period, such dispute shall be resolved by any
lawful manner.
(b) If any written claim is made by a third party, or if any suit or
proceeding (including, but not limited to, an arbitration or an audit by any
taxing
32
authority) is instituted, in each case against Indemnified Party which, if
prosecuted successfully, would, in the judgment of Indemnified Party, be a
matter for which Indemnified Party is entitled to indemnification under this
Agreement (a "Third Party Claim"), the obligations and liabilities of the
parties hereunder with respect to such Third Party Claim shall be subject to the
following terms and conditions:
(i) Indemnified Party shall give Indemnifying Party an Indemnity
Notice of any such Third Party Claim within twenty (20) days after receipt
by Indemnified Party of written notice thereof, provided, however, that the
failure of Indemnified Party to furnish written notice to Indemnifying
Party of a Third Party Claim shall not release Indemnifying Party from
Indemnifying Party's obligations under this Article XII, except to the
extent Indemnifying Party is actually prejudiced by such failure.
Indemnifying Party may undertake the defense of such Third Party Claim at
its expense by representatives of its own choosing; provided that (A) the
Indemnifying Party shall obtain the prior approval by the Indemnified Party
of such counsel, which approval shall not be unreasonably withheld, (B) the
Third Party Claim does not involve a claim for specific performance, or
injunctive or other equitable relief (such claims being dealt with under
subsection (a) above) and (C) nothing herein shall prejudice the right of
the Indemnified Party to participate in such defense at its own expense
through counsel of its choosing. The assumption of the defense of any Third
Party Claim by Indemnifying Party shall constitute the agreement of
Indemnifying Party to assume, without condition or reservation, full
responsibility for such Third Party Claim. Thereafter, Indemnifying Party
shall pay as and when due all costs and expenses related to the defense of
such Third Party Claim and shall pay and satisfy in full the Final Amount
of any and all Losses arising therefrom or related thereto.
(ii) If Indemnifying Party does not so undertake the defense of such
Third Party Claim within fifteen (15) days after written notice of such
claim has been given to Indemnifying Party by Indemnified Party,
Indemnified Party shall have the right to undertake the defense, compromise
and settlement of such Third Party Claim with counsel of its own choosing.
Under such circumstances, Indemnified Party shall, promptly upon its
assumption of the defense of such Third Party Claim, give an Indemnity
Notice which shall thereafter be deemed to be an Indemnity Notice that is
not with respect to a Third Party Claim subject to the procedures set forth
in this Section 12.05(b).
(iii) The Indemnified Party and Indemnifying Party shall cooperate
with each other in all reasonable respects in connection with the defense
of any Third Party Claim, including, but not limited to, making available
records relating to such claim and furnishing employees of Indemnified
Party or Indemnifying Party as may be reasonably necessary for the
preparation of the defense of any such Third Party Claim or for testimony
as witnesses in any proceeding relating to such claim. All costs and
expenses incurred by
33
Indemnifying Party or Indemnified Party in connection with the foregoing
shall be the responsibility of the party requesting such cooperation.
(iv) The Indemnified Party shall have the right to participate fully
in all proceedings, including settlement discussions, shall be provided
copies of notices, orders and all other papers, and shall be given prior
notice by the Indemnifying Party of any meetings, hearings and other
discussions in any such suit or proceeding. The Indemnifying Party shall
consult with the Indemnified Party and keep the Indemnified Party fully
advised of the progress of any such suit or proceeding, and shall make no
admissions or otherwise act in a manner which might be prejudicial to the
Indemnified Party's rights in connection with any such suit or proceeding.
(v) The Indemnifying Party agrees that any controversy between it and
the Indemnified Party concerning its obligations under this indemnity may
be litigated in the same forum and concurrently with any lawsuit against
the Indemnified Party to which such controversy may relate, and the
Indemnified Party agrees to voluntarily appear in such forum and submit to
the jurisdiction thereof.
(vi) Unless Indemnifying Party has failed or refused to undertake the
defense of such third party claim, no settlement by Indemnified Party of a
Third Party Claim shall be made without the prior written consent of
Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. If Indemnifying Party has assumed the defense of a Third Party
Claim as contemplated by this Section 12.05(b), no settlement of such Third
Party Claim may be made by Indemnifying Party without the prior written
consent of Indemnified Party, which consent shall not be unreasonably
withheld or delayed.
12.06 Special Recovery Provisions.
(a) Several Representations. Subject to subsection (c) below, in the case
of any claim for indemnification by MedCath based upon any representation made
on a several basis only, the individual Shareholder breaching such
representation or covenant shall pay to MedCath the Final Amount with respect to
such claim and the remaining Shareholders shall have no obligations with respect
to such claim.
(b) Joint and Several Representations. Subject to subsection (c) below, in
the case of any claim for indemnity made by MedCath based upon any
representation or breach of covenant made on a joint and several basis, the
Shareholders shall, jointly and severally, pay to MedCath, the Final Amount with
respect to such claim.
(c) General Limitations on Recovery from Shareholders. Except with respect
to breaches of the representation and warranty in Section 5.26 and/or the
covenant set forth in Section 7.07 (with respect to which the liability of the
Shareholder breaching
34
such representation, warrant or covenant is unlimited), MedCath agrees that the
maximum aggregate Final Amount of Losses which each Shareholder shall be liable
for and pay to MedCath pursuant to this Article XII, whether such liability is
several or joint and several, shall be an amount equal to the aggregate value of
the MedCath Shares received or which may be received by such Shareholder as a
result of the Transactions, valued under Section 2.01 as of the Closing Date.
(d) Limitation on Recovery from MedCath. The Shareholders agree that the
maximum aggregate Final Amount of Losses which MedCath shall be liable for and
pay to the Shareholders pursuant to this Article XII shall be an amount equal to
the aggregate value of the MedCath Shares delivered or which may be delivered to
the Shareholders as a result of the Transactions, valued under Section 2.01 as
of the Closing Date.
(e) Set-Off. MedCath shall be entitled to offset, in accordance with the
terms of the Service Agreement, the amount of any Losses to which it is entitled
hereunder against any amounts owed to or held for the Shareholders by MedCath or
its Affiliates under the Service Agreement.
(f) Notwithstanding anything in this Agreement to the contrary, in no event
shall either party hereto have any liability to the other under this Article XII
for any failure of this transaction to qualify as a tax-free transaction or
reorganization under the Code.
12.07 Definitions.
For purposes of this Article XII the following terms shall have the
following meanings:
(a) "Dispute Period" means the period ending thirty (30) days following
receipt by an Indemnifying Party of an Indemnity Notice.
(b) "Final Amount" means the amount of any Losses or Loss determined in
accordance with this Article XII.
(c) "Indemnified Party" means any Person claiming indemnification under any
provision of Article XII.
(d) "Indemnifying Party" means any Person against whom a claim for
indemnification is being asserted under any provision of this Article XII.
(e) "Indemnity Notice" means written notification pursuant to Section 12.05
of a claim for indemnity under Article XII by an Indemnified Party, specifying
the nature of and basis for such claim, together with the amount or, if not then
reasonably ascertainable, the estimated amount, determined in good faith, of
such claim.
35
(f) "Losses" shall mean any and all claims, liabilities, obligations,
losses, damages, deficiencies, penalties, fines, assessments, encumbrances,
judgments, costs and expenses (including, without limitation, reasonable fees
and expenses of attorneys, consultant's and expert's fees and expenses and
reasonable costs and expenses incurred in investigating, preparing, defending
against or prosecuting any litigation or claim, action, suit, proceeding,
administrative proceeding (including informal proceeding or demand), but not
including special, indirect or consequential damages and without giving effect
to any multiple of earnings.
(g) "Person" means any natural person, corporation, general partnership,
limited partnership, trust, other business organization or other entity and
shall include, without limitation, MedCath, the Company and each Shareholder.
(h) "Resolution Period" means the period ending thirty (30) days following
receipt by an Indemnified Party of a written notice from an Indemnifying Party
stating that it disputes all or any portion of the claim set forth in an
Indemnity Notice.
ARTICLE XIII
GENERAL
13.01 Entire Agreement; Modifications.
This Agreement (including the Exhibits and Schedules referred to herein)
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements relating thereto, whether oral
or written. No amendment, supplement, modification, waiver or termination of
this Agreement shall be implied or be binding (including, without limitation,
any alleged waiver based on a party's knowledge of any inaccuracy in any
representation or warranty contained herein) unless in writing and signed by the
party against which such amendment, supplement, modification, waiver or
termination is asserted. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly therein provided.
13.02 Binding Effect.
All of the terms and provisions of this Agreement by or for the benefit of
the parties shall be binding upon and inure to the benefit of their successors,
permitted assigns, heirs and personal representatives. Except as expressly
provided herein, nothing herein is intended to confer upon any person other than
the parties, their successors, permitted assigns, heirs and personal
representatives, any rights or remedies under or by reason of this Agreement.
13.03 Public Announcements.
Except as may be required by law (so long as advance written notice thereof
is given by the party making the required release or announcement), any and all
public announcements or
36
releases related to the Transactions shall be approved by MedCath and the
Shareholders in advance of dissemination.
13.04 Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same Agreement. The parties hereto may execute this Agreement on separate
signature pages, and there is no requirement that all parties sign the same
signature pages. Signatures may be by fax if followed promptly by original
signature pages.
13.05 Costs and Expenses.
Each party hereto assumes the payment of its own costs and expenses
(including any legal and/or accounting fees) in connection with the negotiation
and execution of this Agreement and the consummation of the Transactions.
13.06 Assignment.
No Shareholder shall have the right to assign its rights or to delegate its
obligations under this Agreement without the prior written consent of MedCath.
13.07 Notices.
All notices, requests, instructions, documents and other communications
provided for herein or given hereunder shall be in writing and shall be deemed
to have been given if sent to the parties at the following addresses in the
manner set forth below:
37
(a) If to MedCath to:
MedCath Incorporated
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
with a copy to:
▇▇▇▇▇ & ▇▇▇ ▇▇▇▇▇, PLLC
NationsBank Corporate Center
▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇
(b) If to Shareholders or any Shareholder:
Pima Heart Physicians, P.C.
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
in either case, with a copy to:
▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Bonn, Luscher, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
All such notices, requests, instructions, documents and other
communications shall be sent either by registered or certified mail, postage
prepaid, or by a nationally recognized overnight courier service providing
receipt of delivery and shall be deemed to have been given three (3) days after
being deposited in the mails or one (1) day after being delivered to such a
courier service. Any party from time to time may change its address, or other
information for the purpose of notices to that party, by giving notice
specifying such change to the other parties hereto in the manner provided
hereby.
13.08 Governing Law.
This Agreement shall be construed and governed under the domestic, internal
law (but not the conflicts of law principles) of the State of Arizona.
38
13.09 Severability.
Should any clause, section or part of this Agreement be held or declared to
be void or illegal for any reason, all other clauses, sections or parts of this
Agreement which can be effective without such void or illegal clause section or
part shall, nevertheless, remain in full force and effect.
13.10 Review By Shareholders.
EACH SHAREHOLDER HEREBY WAIVES AND RELEASES ANY CLAIM OF SUCH SHAREHOLDER
AGAINST ANY DIRECTOR OR SHAREHOLDER OF THE COMPANY OR AGAINST THE SHAREHOLDERS
BASED ON THEIR APPROVAL OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
13.11 Knowledge.
As used in this Agreement, the phrase "to the knowledge" and any
substantially similar words and phrases shall mean the actual knowledge of a
person (or, in the case of a person that is a corporation or other entity, the
actual knowledge of the officers of the corporation or persons holding similar
positions in an unincorporated entity) and the knowledge such person could be
expected to have after making due inquiry with respect to the matter involved.
13.12 Cancellation of Shareholders Agreement.
By execution and delivery of this Agreement, each Shareholder and the
Company consents to the consummation of the transactions contemplated by the
Agreement by the other parties hereto, notwithstanding any restrictions
contained in the Company's bylaws or any shareholders agreement or buy-sell
agreement among the Company and the Shareholders all of which agreements are
hereby cancelled.
39
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as
of the date and year first above written.
MEDCATH:
MEDCATH INCORPORATED
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
----------------------------
Printed Name: ▇▇▇▇▇ ▇▇▇▇▇
Title: Executive V.P. & COO
SHAREHOLDERS:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, M.D.
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇, M.D.
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, M.D.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, M.D.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, M.D.
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇▇, M.D.
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, M.D.
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, M.D.
/s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D.
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D.
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, M.D.
/s/ ▇▇▇▇▇▇▇ ▇. Winter
-------------------------------
▇▇▇▇▇▇▇ ▇. Winter, M.D.
Schedules
5.02 Corporate Documents
5.04 Shareholders List
5.05 Financial Statements
5.06 Absence of Undisclosed Liabilities
5.07 Absence of Certain Recent Changes
5.08(a) Assets
5.08(b) UCC Searches
5.09 Contracts and Leases
5.10 Defaults and Consents
5.11 Litigation
5.12 Court Orders, Decrees and Laws
5.13 Employee Matters
5.14 Labor Matters
5.15 Insurance; Malpractice
5.20 Company Benefit Plans
5.22 Bank Accounts; Officers
5.23 Environmental Matters
5.26 Taxes
5.27 Investments
5.28 Affiliated Transactions
7.02 No Dividends on Shares; No Share Transfers
Exhibits
A Shareholder Interests
Exhibit A
--------------------------------------------------------------------------------
Name of Shareholder Company Shares MedCath Shares
--------------------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, M.D. [ ] [ ]
▇▇▇▇ ▇. ▇▇▇▇▇▇, M.D. [ ] [ ]
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, M.D. [ ] [ ]
▇▇▇▇▇ ▇. ▇▇▇▇▇, M.D. [ ] [ ]
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D. [ ] [ ]
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, M.D. [ ] [ ]
▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇▇, M.D. [ ] [ ]
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, M.D. [ ] [ ]
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, M.D. [ ] [ ]
▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D. [ ] [ ]
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D. [ ] [ ]
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, M.D. [ ] [ ]
▇▇▇▇▇▇▇ ▇. Winter, M.D. [ ] [ ]
[ ] These portions have been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.