EXHIBIT 10.4
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into to be effective as of August 31, 1997, by and between Physician
Health Corporation, a Delaware corporation ("PHC"), Greater Cincinnati
Gastroenterology Associates, Inc. ("Practice Group") and the individual
shareholders of the Practice Group listed on Exhibit A attached hereto
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(individually a "Shareholder" and collectively the "Shareholders").
R E C I T A L S:
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WHEREAS, the Boards of Directors of Practice Group and PHC have determined
that a reorganization between Practice Group and PHC is in the best interests of
their respective companies;
WHEREAS, it is intended for Federal income tax purposes that the
reorganization contemplated by this Agreement shall qualify as an reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986 (the
"Code"); and
WHEREAS, the Shareholders own all the issued and outstanding shares (the
"Practice Group Shares") of common stock of Practice Group.
A G R E E M E N T S:
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For and in consideration of the premises and the mutual covenants,
agreements, representations and warranties contained herein, the parties hereto,
intending to be legally bound, covenant and agree as follows:
ARTICLE I.
TERMS OF THE REORGANIZATION
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I.1 The Closing. The closing of the transactions contemplated hereby
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shall take place at 10:00 am local time, at the offices of Katz, Teller, ▇▇▇▇▇ &
▇▇▇▇, a legal professional association, on the day (the "Closing Date")
following the first day that the conditions precedent to Closing set forth in
Article VI and Article VII have been satisfied (or at such other place and time
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as the parties hereto shall mutually agree). In the event that the Closing does
not occur on or prior to November 14, 1997, any party may terminate this
Agreement by delivery of written notice to the other parties.
I.2 Merger. Subject to and upon the terms and conditions contained
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herein, on the Closing Date, the Practice Group shall be merged with and into
PHC in accordance with this Agreement and the separate corporate existence of
the Practice Group shall thereupon cease ("Merger"). PHC shall be the surviving
corporation in the Merger ("Surviving Corporation") and
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shall continue to be governed by the laws of the State of Delaware and the
separate corporate existence of PHC with all rights, privileges, powers,
immunities and purposes shall continue unaffected by the Merger. The Merger
shall have the effects specified in the Delaware General Corporation Law and the
Ohio General Corporation Law. If all the conditions to the Merger set forth
herein shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated in accordance herewith, the parties
hereto shall cause to be properly executed and filed on the Closing Date
Certificates of Merger for the Practice Group meeting the applicable legal
requirements. The Merger shall become effective on the Closing Date or the
filing of such documents, in accordance with applicable law.
I.3 Certificate of Incorporation; Bylaws. The Certificate of
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Incorporation and Bylaws of PHC shall be the Certificate of Incorporation and
Bylaws of the Surviving Corporation unless and until duly amended in accordance
with their terms.
I.4 Directors; Officers. The persons who are directors of PHC immediately
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prior to the effective date of the Merger shall be the directors of the
Surviving Corporation until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Certificate of Incorporation and Bylaws. The
persons who are officers of PHC immediately prior to the effective date of the
Merger shall be the officers of the Surviving Corporation and shall hold their
respective offices until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal.
I.5 Conversion of Practice Group Shares. As a result of the Merger and
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without any action on the part of the holder thereof, all Practice Group Shares
issued and outstanding on the effective date of the Merger shall cease to be
outstanding and shall be canceled and retired and shall cease to exist, and each
holder of a certificate representing Practice Group Shares shall thereafter
cease to have any rights with respect to such shares except the right to receive
the cash and shares of the common stock of PHC (the "PHC Shares") in the amounts
and as allocated as set forth on Annex I attached hereto, plus an amount (the
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"Initial Working Capital Amount") in cash equal to the amount by which current
assets exceed current liabilities as reflected on the balance sheet of the
Practice Group prepared by the Practice Group in accordance with generally
accepted accounting principles consistently applied ("GAAP") on the accrual
basis of accounting as of the close of business on August 31, 1997 (the "Merger
Consideration"). Notwithstanding the previous sentence, in computing the
Initial Working Capital Amount, adequate provision shall be made (in accordance
with GAAP except that the applicable federal income tax rate shall be assumed to
be 34% and the applicable state and local income tax rates, if any, shall be the
applicable maximum marginal corporate income tax rates and except that all
accrued compensation expense shall be deemed to be fully deductible in 1997 for
federal income tax purposes) for federal, state and local income taxes arising
from conversion of such balance sheet from the cash method of accounting to the
accrual method of accounting as if such taxes were due and payable in full by
the Practice Group on August 31, 1997 (without regard to any
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available deferral). The Practice Group shall designate the Initial Working
Capital Amount at least two business days prior to the Closing Date.
Notwithstanding the foregoing, the Merger Consideration otherwise receivable by
the Shareholders on the effective date of the Merger shall be reduced by
$200,000.00 cash (the "Withheld Portion"). Each share of Practice Group Shares
held in treasury at the effective date of the Merger shall cease to be
outstanding and shall be canceled and retired without payment of any
consideration therefor. On the effective date of the Merger, each share of PHC
Common Stock issued and outstanding shall, by virtue of the Mergers, and without
any action on the part of the holder thereof, continue unchanged and remain
outstanding as a share of validly issued, fully paid and nonassessable share of
Surviving Corporation common stock.
I.6 Closing Matters.
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(a) At the Closing, the Shareholders shall deliver or cause to be
delivered to PHC stock certificates evidencing the Practice Group
Shares duly endorsed in blank or accompanied by stock powers duly
executed in blank.
(b) At the Closing, PHC shall deliver to the Shareholders the cash and
the PHC Shares set forth opposite their names on Annex I attached
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hereto representing the Purchase Price, less the Withheld Portion.
I.7 Exchange of Stock Certificates. On the effective date of the Merger,
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the Shareholders, as the holders of a certificate or certificates representing
Practice Group Shares shall, upon surrender of such certificate or certificates,
receive the Merger Consideration, and until the certificate or certificates of
Practice Group Shares shall have been surrendered by the Shareholder and
replaced by a certificate or certificates representing PHC Common Stock (as set
forth on Annex I), the certificate or certificates of Practice Group Shares
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shall, for all purposes be deemed to evidence ownership of the number of shares
of PHC Common Stock determined in accordance with the provisions of Annex I.
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All PHC Shares issuable to the Shareholders in the Merger shall be deemed for
all purposes to have been issued by PHC on the Closing Date. The Shareholders
shall deliver to PHC at Closing the certificate or certificates representing the
Practice Group Shares owned by them, duly endorsed in blank by the Shareholders,
or accompanied by duly executed blank stock powers, and with all necessary
transfer tax and other revenue stamps, acquired at the Shareholder's expense,
affixed and canceled.
I.8 Subsequent Actions. If, at any time after the Closing Date, PHC shall
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consider or be advised that any deeds, bills of sale, assignments, assurances or
any other actions or things are necessary or desirable to vest, perfect or
confirm of record or otherwise in PHC its right, title or interest in, to or
under any of the assets of Practice Group or otherwise to carry out this
Agreement, in return for the consideration set forth in this Agreement, the
Practice Group and Shareholders shall execute and deliver all such deeds, bills
of sale, assignments and assurances and take and do all such other actions and
things as may be necessary or desirable to vest, perfect
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or confirm any and all right, title and interest in, to and under the assets of
Practice Group in PHC or otherwise to carry out this Agreement.
I.9 Purchase Price Adjustment.
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(a) On or prior to the 180th day following the Closing Date, PHC shall
deliver to the Shareholder Representative (defined below) in
writing PHC's calculation of the Closing Working Capital Amount
(defined below). If the Shareholder Representative objects to
PHC's calculation of the Closing Working Capital Amount, he shall
deliver to PHC a Dispute Notice within fifteen (15) business days
of receipt by the Shareholder Representative of PHC's calculation.
In the absence of such Dispute Notice, PHC's calculation shall be
final and binding on each party hereto. If a Dispute Notice is
delivered to PHC, PHC and the Shareholder Representative shall
negotiate in good faith to resolve any differences related to the
calculation of the Closing Working Capital Amount promptly
following delivery of the Dispute Notice. If PHC and the
Shareholder Representative fail to reach agreement after three
business days of such good faith negotiations, then the Closing
Working Capital Amount shall be determined by a partner in the
Houston, Texas office of Coopers & ▇▇▇▇▇▇▇, L.L.P. (or its
successor entity) with significant health care experience (the
"Determining Party"), whose determination of the Closing Working
Capital Amount shall be final and binding on each party hereto. In
the event that it is necessary for the Determining Party to
calculate the Closing Working Capital Amount, PHC and the
Shareholder Representative will fully cooperate with the
Determining Party in order to enable the Determining Party to
reach its determination as soon as practicable, but in no event
later than 15 days after the matter is referred to the Determining
Party. The cost of retaining the Determining Party will be borne
equally fifty percent (50%) by PHC and fifty percent (50%) through
a deduction from the Withheld Portion. The "Shareholder
Representative" shall be the individual designated by ▇▇▇▇ ▇▇▇▇▇,
M.D., whom the parties agree has the power to bind the
Shareholders for the limited purpose of this Section 1.9.
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(b) Subject to further adjustment as set forth in Section 8.1, on the
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date that is two hundred and twenty-five (225) days following the
Closing Date, (i) to the extent that the Initial Working Capital
Amount exceeds the Closing Working Capital Amount, PHC shall pay
to the Shareholders (other than the Recent Shareholders and the
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Trust ("▇▇▇▇▇▇")) an amount equal to the Withheld
Portion less the amount by which the Initial Working Capital
Amount exceeds the Closing Working Capital Amount; (ii) to the
extent that the Closing Working Capital Amount exceeds the Initial
Working Capital Amount, PHC shall pay to the Shareholders (other
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than the Recent Shareholders and ▇▇▇▇▇▇) an amount equal to the
Withheld Portion plus the amount by which the Closing Working
Capital Amount exceeds the Initial Working Capital Amount; and
(iii) to the extent that the Initial Working Capital Amount equals
the Closing Working Capital Amount, PHC shall pay to the
Shareholders (other than the Recent Shareholders and ▇▇▇▇▇▇) an
amount equal to the Withheld Portion. To the extent that PHC pays
to the Shareholders any portion of the Withheld Portion as
provided above, PHC shall also pay to the Shareholders (other than
the Recent Shareholders and ▇▇▇▇▇▇) an amount equal to the
interest that has accrued on such portion since the Closing Date
(computed using an interest rate of nine percent (9%) per annum).
As used in this Agreement, the term "Closing Working Capital
Amount" shall mean the amount by which current assets exceed
current liabilities as reflected on the balance sheet of the
Practice Group prepared in accordance with GAAP as of the close of
business on August 31, 1997. Notwithstanding the previous
sentence, in computing the Closing Working Capital Amount,
provision shall be made (in accordance with GAAP except that the
applicable federal income tax rate shall be assumed to be 34% and
the applicable state and local income tax rates, if any, shall be
the applicable maximum marginal corporate income tax rates and
except that all accrued compensation expense shall be deemed to be
fully deductible in 1997 for federal income tax purposes) for
federal, state and local income taxes arising from conversion of
such balance sheet from the cash method of accounting to the
accrual method of accounting as if such taxes were due and payable
in full by the Practice Group on August 31, 1997 (without regard
to any available deferral).
(c) Any payment made to the Shareholders (other than the Recent
Shareholders and ▇▇▇▇▇▇) pursuant to this Section shall be made in
cash on a pro rata basis in accordance with the number of Practice
Group Shares held by each Shareholder (other than the Recent
Shareholders) immediately preceding the Closing.
I.10 Risk of Loss. Risk of loss to the assets of the Practice Group,
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however caused (other than by PHC or those duly authorized to act on behalf of
PHC) from the date hereof, through the Closing Date, shall remain wholly upon
the Practice Group. Such risk shall shift to PHC at the beginning (viz.,
12:00:01 a.m.) of the day immediately following the Closing Date.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
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AND PRACTICE GROUP
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As a material inducement to PHC to enter into this Agreement, each
Shareholder and Practice Group hereby, jointly, severally and unconditionally,
represent and warrant to PHC as follows:
II.1 Organization, Standing and Authority of Practice Group. Practice
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Group is a corporation duly organized and validly existing under the laws of the
State of Ohio and qualified to do business in all locations where the nature of
its business or the ownership of its assets or properties requires such
qualification. Practice Group has the full requisite corporate power and
authority to (a) own all its assets and properties and to operate its business
of operating a medical practice in the specialty of gastroenterology in the
greater metropolitan Cincinnati, Ohio area (the "Practice") as conducted on the
date hereof, (b) execute and deliver this Agreement and each other document or
instrument contemplated hereby (collectively, the "Transaction Agreements") and
perform its obligations hereunder and thereunder according to their respective
terms, and (c) to carry on and operate the Practice as now being conducted.
Practice Group is not a participant in any joint venture, partnership,
association or similar business arrangement with any other person or party.
II.2 Absence of Conflicting Agreements or Required Consents Relating to
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Shareholders and Practice Group's Respective Obligations. The execution,
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delivery and performance by Shareholders and Practice Group respectively, of the
Transaction Agreements (with or without the giving of notice, the lapse of time,
or both): (a) except as expressly set forth on Schedule 2.2, do not require the
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consent of any governmental or regulatory authority or any other third party;
(b) will not conflict with any provision of Practice Group's articles of
incorporation, regulations or other organizational documents; (c) will not
conflict with, result in a breach of, or constitute a default under any law,
ordinance, regulation, ruling, judgment, order or injunction of any court or
governmental instrumentality to which a Shareholder or Practice Group is a party
or by which a Shareholder or Practice Group or their respective properties are
bound; (d) will not conflict with, constitute grounds for termination of, result
in a breach of, constitute a default under, or accelerate or permit the
acceleration of any performance required by the terms of any agreement,
instrument, license or permit, material to this transaction, to which a
Shareholder or Practice Group is a party or by which a Shareholder or Practice
Group or their respective properties are bound and (e) will not create any
claim, lien, charge or encumbrance upon any of the assets or properties of
Practice Group.
II.3 Licenses and Authorizations. Shareholders and Practice Group hold all
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valid licenses, permits and other rights and authorizations required by any
federal, state or local law, ordinance, regulation or ruling of any governmental
regulatory authority necessary to operate the Practice at each of its current
locations as it is currently being operated including, without limitation, the
right to receive Medicare and Medicaid reimbursements. A correct and complete
list of all such licenses, permits and other authorizations is set forth in
Schedule 2.3 hereto. None of such licenses has been revoked or suspended or is
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the subject of any proceeding or
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action for revocation or suspension.
II.4 Lease Agreements. Schedule 2.4 hereto contains a current list of all
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the lease agreements and license and sublicense agreements to which Practice
Group and/or Shareholders are parties and pursuant to which the Practice Group
and/or a Shareholder lease (whether as lessor or lessee) or license (whether as
licensor or licensee) any real or personal property related to the operation of
the Practice Group (the "Lease Agreements"). Practice Group has delivered to
PHC true and complete copies of all of the Lease Agreements. Each of the Lease
Agreements is valid and effective in accordance with its terms, and there is not
under any of such Lease Agreements (a) any existing or claimed default by
Practice Group or a Shareholder or event of default or event which with notice
or lapse of time, or both, would constitute a default by Practice Group or a
Shareholder, or (b) any existing default by any other party under any of the
Lease Agreements or any event of default or event which with notice or lapse of
time, or both, would constitute a default by any such party.
II.5 Financial Statements. Attached hereto as Schedule 2.5 are Practice
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Group's unaudited financial statements for the fiscal years ending December 31,
1994, 1995 and 1996 and unaudited interim financial statements (the "Interim
Financial Statements") for the period ending August 31, 1997 (the "Interim
Financial Date"), reflecting the results of the operations and financial
condition of Practice Group and the Practice at such dates which have been
prepared in accordance with the federal income tax basis of accounting (cash
method) consistently applied (collectively, the "Financial Statements"). The
Financial Statements: (i) present fairly in all material respects the financial
position of Practice Group and the Practice as of the dates indicated and
present fairly in all material respects the results of Practice Group's
operations for the periods then ended in accordance with the federal income tax
basis of accounting (cash method) and (ii) are in accordance with the books and
records of the Practice Group, as the case may be, which have been properly
maintained and are complete and correct in all material respects.
II.6 Absence of Changes. Except as expressly set forth in Schedule 2.6
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hereto and as permitted or contemplated by this Agreement, since the Interim
Financial Date, Shareholders and Practice Group have conducted the Practice only
in the ordinary course of business consistent with past practices, and have not:
(a) Suffered any material adverse change in its working capital,
condition (financial or otherwise), assets, liabilities, reserves,
business or operations (such change, a "Material Adverse Effect");
(b) Paid, discharged or satisfied any material liability other than
the payments, discharge or satisfaction of liabilities in the
ordinary course of business;
(c) Written off as uncollectible any receivable, except for
contractual
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discounts and write-offs in the ordinary course of business,
exceeding Five Thousand and No/100 Dollars ($5,000) in the
aggregate;
(d) Canceled or compromised any debts or waived or permitted to lapse
any claims or rights or sold, transferred or otherwise disposed of
any of its properties or assets;
(e) Entered into any commitment or transaction not in the ordinary
course of business or made any capital expenditure or commitment
in excess of Five Thousand and No/100 Dollars ($5,000.00);
(f) Made any change in any method of accounting or accounting practice
for financial or income tax purposes;
(g) Incurred any liabilities or obligations (absolute, accrued or
contingent) in excess of Five Thousand and No/100 Dollars
($5,000.00), except for trade payables incurred in the ordinary
course of business;
(h) Mortgaged, pledged, subjected or agreed to subject, any of its
assets, tangible or intangible, to any lien, claim or encumbrance,
except for liens of current personal property taxes not yet due
and payable;
(i) Sold or otherwise transferred any ownership interest in Practice
Group;
(j) Increased any salaries, wages or any employee benefits for any
employee;
(k) Hired, committed to hire or terminated any employee; or
(l) Agreed, whether in writing or otherwise, to take any action
particularly described in this Section 2.6.
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II.7 Litigation and Claims. Except as expressly set forth in Schedule 2.7
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hereto, there are no claims, lawsuits, counterclaims, proceedings, or
investigations pending, and to Shareholders' or Practice Group's knowledge
threatened, against or affecting a Shareholder, Practice Group, the Practice or
any licensed professional or other individual employed by or under contract with
the Practice in any court or before any arbitrator or governmental authority or
agency, and to Shareholders' or Practice Group's knowledge, there is no
reasonable basis for any such action or any state of facts or occurrence of any
event which would be likely to give rise to the foregoing which has or would be
likely to have a Material Adverse Effect on the Practice Group, on a
Shareholder's or Practice Group's performance hereunder, or on the continued
operation of the Practice. There are no unsatisfied judgments against a
Shareholder, Practice Group, the Practice, or any licensed professional or other
individual affiliated with the Practice,
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or any consent decrees to which any of the foregoing are subject which would
reasonably be likely to have a Material Adverse Effect on the Practice Group, on
Practice Group's or a Shareholder's performance hereunder, or on the continued
operation of the Practice.
II.8 No Undisclosed Liabilities. Except as and to the extent reflected in
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the Financial Statements or as expressly shown in Schedule 2.8 hereto, Practice
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Group has no material liability or obligation whatsoever, whether matured,
unmatured, absolute, contingent or otherwise, except for liabilities and
obligations incurred in the ordinary course of its business since the Interim
Financial Date, which do not in the aggregate have a Material Adverse Effect on
the Practice Group or the Practice.
II.9 No Violation of Law, Generally.
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(a) Except as expressly set forth in Schedule 2.9 hereto, to the
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Shareholders' or Practice Group's knowledge, neither Practice
Group nor a Shareholder has been or shall be as of the Closing
Date (by virtue of any action, omission to act, contract to which
it is a party or any occurrence or state of facts whatsoever) in
violation of any applicable local, state or federal law,
ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency or authority or court
binding on it, or relating to its property or business or its
advertising, sales, referral or pricing practices (including,
without limitation, Titles 18 and 19 of the Social Security Act
and all applicable zoning and use laws).
(b) Billing Practices/Regulatory Compliance.
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(i) Billing Practices Generally. Except as set forth in Schedule
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2.9, to Shareholders' or Practice Group's knowledge, all
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billing practices by Practice Group to all third party
payors, including, but not limited to, the federal Medicare
program, state Medicaid programs and private insurance
companies, have been true, fair and correct and in
compliance with all applicable laws, regulations and
policies of all such third party payors, and Practice Group
has not billed for or received any payment or reimbursement
in excess of amounts allowed by law.
(ii) Fraud and Abuse. Practice Group, its officers and
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directors, and persons and entities providing professional
services for Practice Group, have not engaged in any
activities which are prohibited under the federal Fraud and
Abuse Statute, 42 U.S.C. (S) 1320 a-7b and Regulations
contained in 42 CFR (S) 1001 et seq. (the "Fraud and Abuse
Statute"), or related state or local statutes or
regulations,
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or which are prohibited by rules of professional conduct,
including, but not limited, to the following: (a) knowingly
and willfully making or causing to be made a false statement
or representation of a material fact in any application for
any benefit or payment; (b) knowingly and willfully making
or causing to be made any false statement or representation
of a material fact for use in determining rights to any
benefit or payment; (c) knowingly and willfully soliciting
or receiving any remuneration (including any kickback,
bribe, or rebate), directly or indirectly, overtly or
covertly, in cash or in kind (1) 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 (2)
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; and (d)
knowingly and willfully offering or paying any remuneration
(including any kickback, bribe, or rebate), directly or
indirectly, overtly or covertly, in cash or in kind to any
person to induce such person (1) to refer 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 under Medicare or Medicaid or (2) to purchase,
lease, order, or arrange for or recommend purchasing,
leasing, or ordering any good, facility, service, or item
for which payment may be made in whole or in part under
Medicare or Medicaid.
(c) Transactions with Referral Sources. Except as expressly set forth
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in Schedule 2.9, neither any Shareholder nor Practice Group nor
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any affiliate of Practice Group, nor any director, officer or
employee thereof, is a party to any contract, lease, agreement or
arrangement, including, but not limited to, any joint venture or
consulting agreement with any physician, hospital, nursing
facility, home health agency or other person who is in a position
to make or influence referrals to or otherwise generate business
for Practice Group to provide services, lease space, lease
equipment or engage in any other venture or activity.
II.10 Properties.
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(a) Schedule 2.10(a) hereto sets forth a current and complete list
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and description of all of the tangible and intangible assets
owned by Practice Group as of the Interim Financial Date.
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(b) Schedule 2.10(b) hereto sets forth a current and complete list of
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all property, equipment and other assets leased, subleased, or
licensed or sublicensed by Practice Group including, without
limitation, all computer hardware and software (collectively, the
"Leased Equipment").
(c) To the extent not expressly itemized in the Interim Financial
Statements, Schedule 2.10(c) hereto sets forth a current and
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complete list and description of all equipment, utility and other
deposits owned by Practice Group.
(d) Except as expressly set forth and described on Schedule 2.10(d),
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Practice Group: (i) has good, valid and indefeasible title to all
of the personal and mixed, tangible and intangible property,
rights and assets which it purports to own, including all the
personal property and assets reflected, but not shown as leased
or encumbered, in the Interim Financial Statements (except for
inventory and assets sold in the ordinary course of business
consistent with past practice and supplies consumed in the
ordinary course of business consistent with past practice since
the Interim Financial Date) and (ii) owns such rights, assets and
personal property free and clear of all title defects or
objections, liens, restrictions, claims, charges, security
interest, or other encumbrances of any nature whatsoever,
including any mortgages, leases, chattel mortgages, conditional
sales contracts, collateral security arrangements and other title
or interest retention arrangements.
(e) All of the Leased Equipment and tangible assets owned by Practice
Group are in good operating condition and repair and will be in
such condition on the Closing Date.
(f) All of the durable and nondurable supplies owned by Practice
Group are of a quality and quantity usable in the ordinary and
usual course of the business of Practice Group.
(g) No assets, rights or interests are required in addition to those
tangible assets, Leased Equipment, rights and interests owned by
Practice Group in order to manage or operate the Practice and/or
business of the Practice Group as it is currently being managed
and operated by Practice Group.
II.11 Indebtedness. Schedule 2.11 sets forth a current and complete list
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and description of all instruments or other documents relating to any direct or
indirect indebtedness for borrowed funds of Practice Group in excess of Five
Thousand and No/100 Dollars ($5,000.00), as well as indebtedness by way of lease
purchase arrangements, guarantees, undertakings on which others
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rely in extending credit and all conditional sales contracts, chattel mortgages
and other security arrangements with respect to personal property used or owned
by Practice Group. Practice Group has not loaned funds to or guaranteed a loan
to any employee or shareholder of Practice Group or other investor in Practice
Group that is in a position, directly or indirectly to make or influence
referrals of patients to, furnish items or services to, or otherwise generate
business for the Practice.
II.12 Employee Contracts, Union Agreements and Benefit Plans. Except as set
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forth on Schedule 2.12 hereto, Practice Group is not a party to any employment
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contract (except for oral employment agreements which are terminable by Practice
Group at will), consulting or collective bargaining contracts, deferred
compensation, pension (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended, and all rules and regulations from time
to time promulgated thereunder ("ERISA")), profit sharing, bonus or other
nonqualified benefit or compensation commitments, benefit plans, arrangements or
plans (whether written or oral), including all welfare plans, as defined in
Section 3(l) of ERISA, of or pertaining to any present or former employee of
Practice Group, or its predecessors in interest, that have been in effect at any
time within the past five (5) years.
II.13 Labor Relations. Except as expressly set forth in Schedule 2.13
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hereto:
(a) Practice Group is in compliance with all applicable laws
respecting employment and employment practices, terms and
conditions of employment, wages and hours, occupational safety and
health, and is not engaged in any unfair labor practice within the
meaning of Section 8 of the National Labor Relations Act;
(b) There is no unfair labor practice, charge or complaint or any
other matter against or involving Practice Group pending or, to
the Shareholders' or Practice Group's knowledge, threatened before
the National Labor Relations Board or any court of law;
(c) There are no charges, investigations, administrative proceedings
or formal complaints of discrimination (including discrimination
based upon sex, age, marital status, race, national origin, the
making of workers' compensation claims, sexual preference,
handicap or veteran status) pending or threatened before the Equal
Employment Opportunity Commission or any federal, state or local
agency or court against Practice Group. There have been no
governmental audits of the equal employment opportunity practices
of Practice Group, and to Shareholders' or Practice Group's
knowledge, no reasonable basis for any such audit exists;
(d) Practice Group is in compliance with the Immigration Reform and
Control
12-
Act of 1986, as amended, and all applicable regulations
promulgated thereunder; and
(e) There are no inquiries, investigations or monitoring activities of
any licensed, registered, or certified professional personnel
employed by, credentialed or privileged, or under contract with
Practice Group or the Practice pending or, to Shareholders' or
Practice Group's knowledge, threatened by any state professional
board or agency charged with regulating the professional
activities of health care practitioners or providers.
II.14 Contracts and Commitments. Except as expressly set forth in Schedule
------------------------- --------
2.14 hereto:
----
(a) No written or oral contract or commitment to which Practice Group
is a party or is bound continues for a period of more than six
(6) months from the date hereof or requires payments by Practice
Group after the Closing Date, in the aggregate, in excess of Five
Thousand and No/100 Dollars ($5,000.00);
(b) There are no written or oral contracts or agreements to which
Practice Group is a party or is bound:
(i) With any of the directors, officers or shareholders of the
Practice Group, or
(ii) With any person related by blood or marriage to any
director, officer or shareholder of Practice Group or with
any company or other organization in which anyone related
by blood or marriage to Practice Group has a direct or
indirect financial interest;
(c) Neither Practice Group nor any Shareholder is a party to or bound
by any contracts or agreements containing covenants prohibiting
or limiting the freedom of a Shareholder and/or Practice Group to
compete in any line of business or to subject the employees or
patients of any business in any geographic area or requiring a
Shareholder and/or Practice Group to share any profits;
(d) Neither Practice Group nor any Shareholder is a party to any
existing agreement for the management or administration of the
Practice, and neither Practice Group nor any Shareholder is
obligated to become a party to any such management or
administration agreement;
13-
(e) Neither Practice Group nor any Shareholder is a party to or bound
by any contract, agreement or other arrangement that has had or
may in the future have a Material Adverse Effect upon the
Practice Group; and
(f) Neither Practice Group nor any Shareholder is a party to or bound
by any contract, agreement or other arrangement, requiring the
personal services of another person or entity which would be
reasonably likely to violate any of the provisions of the Fraud
and Abuse Statute.
II.15 Environmental Protection. Except as would not reasonably be expected
------------------------
to have a Material Adverse Effect, Practice Group has obtained all permits,
licenses and other authorizations and filed all notices which are required to be
obtained or filed by a Shareholder and/or Practice Group for the operation of
the Practice under federal, state and local laws relating to pollution,
protection of the environment or the generation or disposal of waste. Except as
would not reasonably be expected to have a Material Adverse Effect, Practice
Group is in compliance in all material respects with all terms and conditions of
such required permits, licenses and authorizations. Except as would not
reasonably be expected to have a Material Adverse Effect, Practice Group is in
compliance with all other applicable limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in those laws or contained in any law, regulation, code, plan, order,
decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder. Except as expressly disclosed on Schedule 2.15 hereto and,
-------------
except as would not reasonably be expected to have a Material Adverse Effect,
there are no past or present events, conditions, circumstances, activities,
practices, incidents, actions or plans which may interfere with or prevent
continued compliance, or which may give rise to any common law or statutory
liability or, to Shareholders' or Practice Group's knowledge, otherwise form the
basis of any claim, action, suit, proceeding, hearing or investigation, based on
or related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling, or the emission, discharge, release
or threatened release into the environment, or any pollutant, contaminant, or
hazardous or toxic material or waste (including medical waste) with respect to
Practice Group or the Practice.
II.16 Filing of Reports. All returns, reports, plans and filings of any
-----------------
kind or nature necessary to be filed by Practice Group with any governmental
authority have been properly completed and timely filed in compliance with all
applicable requirements where failure to so file would have a Material Adverse
Effect on the Practice after the Closing.
II.17 Insurance Policies. Schedule 2.17 hereto sets forth a complete and
------------------ -------------
accurate list and description of all insurance policies in force (i) naming any
Shareholder or any director, officer or employee of Practice Group as an insured
or beneficiary or as a loss payee and for which Practice Group has paid or is
obligated to pay all or any part of the premiums including, without limitation,
all general liability, malpractice, fire, health, disability and life insurance
14-
policies or (ii) naming Practice Group as an insured or beneficiary or as a loss
payee. Practice Group has not received notice of any pending or threatened
termination or premium increase (retroactive or otherwise) with respect thereto,
and Practice Group and Shareholders are in compliance with all conditions
contained therein. Except as expressly set forth on Schedule 2.17 hereto, there
-------------
are no pending claims against such insurance by Practice Group as to which
insurers are defending under reservation of rights or have denied liability, and
except as set forth on Schedule 2.17 hereto, there exists no claim under such
-------------
insurance that has not been properly filed or reported by Practice Group.
II.18 Accounts Receivable. Attached hereto as Schedule 2.18 is a true,
------------------- -------------
complete and accurate list and aging of all accounts receivable of Practice
Group as of the Interim Financial Date. All such accounts receivable arose in
the ordinary course of the business of Practice Group for the provision of
professional services, have not been previously written off as bad debts and, to
the knowledge of the Practice Group and the Shareholders, are properly recorded
in the Interim Financial Statements.
II.19 Accounts Payable. Attached hereto as Schedule 2.19 is a current and
---------------- -------------
complete list of all accounts payable of Practice Group as of the Interim
Financial Date, including each individual indebtedness of Five Hundred and
No/100 Dollars ($500.00) or more and setting forth the payee, the amount of
indebtedness and such additional information as may be material with respect to
any such account payable.
11.20 Inventory. All items of inventory of the Practice reflected on the
---------
Interim Financial Statements consisted, all such items on hand on the date of
this Agreement consist, and all such items on hand on the Closing Date will
consist, of items of a quality and a quantity usable in the ordinary course of
the Practice Group's business and conform to generally accepted standards for
physician medical practices. The purchase commitments of Practice Group for
inventory are not materially in excess of normal requirements, and none of such
purchase commitments were made at prices in excess of prevailing market prices
at the time of purchase.
II.21 Inspections and Investigations. Neither any Shareholder's nor
------------------------------
Practice Group's right nor the right of any licensed professional or other
individual employed by or under contract with the Practice to receive Medicare
and Medicaid reimbursements has been terminated or otherwise adversely affected
as a result of any investigation or action by any federal or state governmental
regulatory authority. Except as expressly set forth and described on Schedule
--------
2.21, to Shareholders' or Practice Group's knowledge, neither Practice Group nor
----
any Shareholder nor any licensed professional or other individual affiliated
with the Practice has, during the past three (3) years, been the subject of any
inspection, investigation, survey, audit or monitoring by any governmental
regulatory entity, trade association, professional review organization,
accrediting organization or certifying agency, nor has Practice Group, any
Shareholder or the Practice received from any such entity any notice of
deficiency in connection with the operation of the Practice. Except as set
forth in Schedule 2.21, no Shareholder has been the subject of a "medical
-------------
15-
malpractice action or claim" or a "professional review action" within the last
three (3) years as those terms are defined in the Health Care Quality
Improvement Act of 1986. Attached as part of Schedule 2.21 hereto are copies of
-------------
all reports, correspondence, notices and other documents relating to any such
inspection, investigation, survey, audit, monitoring or other form of review to
which any of the foregoing has been subject.
II.22 Ownership of Medical Service Practice(s). Except as expressly set
----------------------------------------
forth in Schedule 2.22 hereto, no Shareholder nor any member of any
-------------
Shareholder's family owns any interest in nor has a financial relationship with
any health care facility, practice or entity other than Practice Group
(including, without limitation, any physician or physician practice, allied
professional services such as chiropracty, physical therapy or podiatry, or any
physician management services organization, or any provider of ancillary or
specialty services including, but not limited to, laboratory and radiology
services).
II.23 Agreements in Full Force and Effect. Except as expressly set forth in
-----------------------------------
the Schedules to this Agreement, all contracts, agreements, plans, leases,
policies and licenses referred to, or required to be referred to, in any
Schedule delivered hereunder are valid and binding and are in full force and
effect and are enforceable in accordance with their terms, except to the extent
that the validity or enforceability thereof may be limited by bankruptcy,
insolvency, reorganization and other similar laws affecting creditors' rights
generally. There is no pending or, to Shareholders' or Practice Group's
knowledge, threatened bankruptcy, insolvency or similar proceeding with respect
to any party to such agreements, and no event has occurred which (whether with
or without notice, lapse of time or the happening or occurrence of any other
event) would constitute a default thereunder by Practice Group, any Shareholder
or any other party thereto.
II.24 Taxes.
-----
(a) As used in this Agreement, "Taxes" means all taxes, fees,
assessments, levies, duties and other charges of any nature
imposed by any federal, state, local or foreign taxing authority,
together with all interest, penalties, fines and other additions
imposed in respect thereof.
(b) As used in this Agreement, "Tax Returns" means all original and
amended returns, declarations, certifications, statements,
notices, elections, estimates, reports, claims for refund and
information returns relating to or required to be filed or
maintained in connection with any Tax, together with all
schedules and attachments thereto.
(c) All Tax Returns required to have been filed by the Practice Group
have been timely filed (taking into account duly granted
extensions) and are true, correct and complete in all material
respects. Except as disclosed in Schedule 2.24, (i) the Practice
-------------
Group is not currently the beneficiary of
16-
any extension of time within which to file any Tax Return, and
(ii) no claim has ever been made by any governmental authority in
a jurisdiction where the Practice Group does not file Tax Returns
that the Practice Group is or may be subject to taxation by that
jurisdiction.
(d) All Taxes of the Practice Group which have become due (without
regard to any extension of the time for payment and whether or
not shown on any Tax Return) have been paid. The Practice Group
has withheld and paid over to the applicable taxing authority all
Taxes required to have been withheld and paid over and has
complied with all information reporting and back-up withholding
requirements relating to Taxes. There are no liens with respect
to Taxes on any of the assets of the Practice Group, other than
liens for Taxes not yet due and payable or for Taxes disclosed in
Schedule 2.24 that are being contested in good faith through
-------------
appropriate proceedings and for which adequate reserves have been
established in the Financial Statements.
(e) The accrued unpaid Taxes of the Practice Group at August 31,
1997, will not exceed the amount of the current liability
accruals for Taxes (exclusive of reserves for deferred Taxes
established to reflect timing differences) reflected in the
calculation of the Closing Working Capital Amount. For this
purpose, the portion of any Tax imposed on a periodic basis that
is attributable to a taxable period beginning before and ending
after the Closing Date shall be determined by apportioning the
Tax for the entire period based upon the number of days in the
period, except that any such Tax measured by income or receipts
shall be apportioned based upon actual results of operations
through the end of the Closing Date.
(f) No deficiencies exist or have been asserted or are expected to be
asserted (verbally or in writing) with respect to Taxes of the
Practice Group and the Practice Group has not received notice nor
does it expect to receive notice (verbally or in writing) that it
has not filed a Tax Return or paid any Taxes required to be filed
or paid by it. No audit, examination, investigation, action,
suit, claim or proceeding relating to the determination,
assessment or collection of any Tax of the Practice Group is
currently in process, pending or, to the Shareholders' or
Practice Group's knowledge, threatened (verbally or in writing).
No waiver or extension of any statute of limitations relating to
the assessment or collection of any Tax of the Practice Group is
in effect. There are no outstanding requests for rulings with any
taxing authority relating to Taxes of the Practice Group.
(g) The Practice Group is not and has never been (i) a party to any
tax sharing
17-
agreement or arrangement (formal or informal, verbal or in
writing), or (ii) a member of an affiliated group of corporations
(within the meaning of Section 1504 of the Code) filing a
consolidated federal income Tax Return, or any similar group
under analogous provisions of other law.
(h) The Practice Group has delivered to PHC true and complete copies
of all federal, state, local and foreign income Tax Returns filed
by the Practice Group for its three most recently ended taxable
years, together with all related examination reports, statements
of deficiencies and closing and other agreements. Schedule 2.24
-------------
indicates which, if any, of such returns have been, or currently
are, the subject of any audit, examination or other Tax
proceeding.
(i) The Practice Group (i) has not filed a consent under Code Section
341(f) concerning collapsible corporations; (ii) has not made any
payments, obligated itself to make any payments or become a party
to any agreement that under any circumstance could obligate it or
any successor or assignee of it to make any payments that are not
or will not be deductible under Code Section 280G, or that would
be subject to excise Tax under Code Section 4999; (iii) is not a
"foreign person" as defined in Code Section 1445(f)(3); (iv) is
not and has not been a United States real property holding
corporation within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section 897(c)(1)(A)(ii);
(v) does not own and has not owned any interest in any
"controlled foreign corporation" as defined in Code Section 957
or "passive foreign investment company" as defined in Code
Section 1296; (vi) is not and has not been a party to any
agreement or arrangement for which partnership Tax Returns are
required to have been filed; (vii) does not own any asset that is
subject to a "safe harbor lease" within the meaning of Code
Section 168(f)(8), as in effect prior to amendment by the Tax
Equity and Fiscal Responsibility Act of 1982; (viii) does not own
any "tax-exempt use property" within the meaning of Code Section
168(h) or "tax exempt bond financed property" within the meaning
of Code Section 168(g)(5); and (ix) has not agreed to and is not
required to make any adjustment under Code Section 481(a) by
reason of a change in accounting method or otherwise.
(j) As used in this Section only, "Practice Group" shall be deemed to
include any and all subsidiaries and predecessor entities.
II.25 Capitalization; Title to Shares. Each Shareholder has, and on the
-------------------------------
Closing Date will have, good title to those Practice Group Shares owned by
Shareholder, free and clear of all claims, liens, charges, encumbrances,
options, and rights of any third parties whatsoever.
18-
Practice Group has a total number of shares of its capital stock authorized and
a total number of shares of its capital stock outstanding as set forth in Annex
-----
I attached hereto. No person or entity has any rights to acquire or to be
-
granted from the Practice Group any shares in the Practice Group or any options
or other rights to acquire shares in the Practice Group.
II.26 Corporate Documents.
-------------------
(a) The corporate minute books of Practice Group, made available by
Practice Group to PHC prior to the date hereof, accurately
reflect all significant corporate actions taken by the directors
and shareholders of Practice Group or any committee of the Board
of Directors of Practice Group, and contain true and accurate
copies of or originals of the respective minutes of all meetings
or consent actions of the directors and shareholders of Practice
Group and any committee of the Board of Directors of Practice
Group.
(b) The stock record books of Practice Group, made available by
Practice Group to PHC prior to the date hereof, accurately
reflect the stock ownership of Practice Group, and contain
complete and accurate records with respect to the transfer of all
securities issued by Practice Group since its inception.
II.27 Statements True and Correct. No representation or warranty made by
---------------------------
any Shareholder or Practice Group herein, nor any statement, certificate or
instrument furnished or to be furnished by any Shareholder or Practice Group to
PHC pursuant to this Agreement or any other document, agreement or instrument
referred to herein or therein, contains or will contain any untrue statement of
material fact or omits or will omit any material fact necessary to make the
statements contained therein not misleading.
II.28 Investment Intent. Each Shareholder represents that he is acquiring
-----------------
his PHC Shares for his own direct account or investment and not with a view,
directly or indirectly, to or in connection with a distribution thereof and will
not sell or transfer his or her respective PHC Shares in violation of any
federal or state securities laws and the rules and regulations promulgated
pursuant thereto. Each Shareholder (other than the Recent Shareholders) is an
"Accredited Investor" within the meaning of Rule 501 under Regulation D of the
Securities Act of 1933 (the "Securities Act"), and capable of evaluating, either
alone or with Shareholder's representatives and advisors, the merits and risks
of the investment in the PHC Shares to be made hereunder by such Shareholder.
II.29 Reorganization Matters.
----------------------
(a) There is no present plan, intention or arrangement by any Shareholder
to sell, exchange, or otherwise dispose of any of the PHC Shares to be received
by any Shareholder in
19-
the Merger.
(b) Except as disclosed to PHC in writing, neither Practice Group nor any
Shareholder has issued, redeemed, acquired or disposed of, or agreed to issue,
redeem, acquire or dispose of, any shares of capital stock of Practice Group, or
securities convertible into or exchangeable for shares of capital stock of
Practice Group, in contemplation of the Merger.
(c) Practice Group owns a significant portion of its historic business
assets within the meaning of Treasury Regulations Section 1.368-1(d)(4).
(d) None of the Practice Group Shares is encumbered by or subject to any
liability. No liabilities of any Shareholder will be assumed by PHC or any
affiliate of PHC in the Merger. All of Practice Group's liabilities were
incurred in the ordinary course of its business, for a bona-fide business
purpose and not in contemplation of the Merger or with a principal purpose of
federal income tax avoidance.
(e) The fair market value of Practice Group's assets exceeds the sum of the
Practice Group's liabilities.
II.30 ▇▇▇▇▇▇ Matters. All representations and warranties of Practice Group
--------------
contained herein are qualified to the extent (and only to the extent) made
untrue or inaccurate by the issuance of Practice Group Shares to ▇▇▇▇▇▇ (whom
the parties acknowledge is not licensed to practice medicine) immediately prior
to Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PHC
-------------------------------------
As an inducement to Shareholders and Practice Group to enter into this
Agreement, PHC hereby represents and warrants to the Shareholders and to
Practice Group as follows:
III.1 Organization, Standing and Authority of PHC. PHC is a corporation
-------------------------------------------
duly organized and validly existing under the laws of the State of Delaware and
qualified to do business in all locations where the nature of its business or
the ownership of its assets or properties requires such qualification. PHC has
the full requisite corporate power and authority to (a) own all its assets and
properties and to operate its business as conducted on the date hereof and (b)
execute and deliver the Transaction Agreements and perform its obligations
hereunder and thereunder according to their respective terms. PHC is not a
participant in any joint venture, partnership, association or similar business
arrangement with any other person or party, other than the various management
services agreements and similar agreements which it has entered into and enters
into from time to time as part of its business.
III.2 Absence of Conflicting Agreement or Required Consents Relating to
-----------------------------------------------------------------
PHC's
-----
20-
Obligations. Except as expressly set forth on Schedule 3.2, the execution,
----------- ------------
delivery and performance by PHC of the Transaction Agreements (with or without
the giving of notice, the lapse of time, or both): (a) do not require the
consent of any governmental or regulatory authority or any other third party;
(b) will not conflict with any provision of PHC's restated certificate of
incorporation, bylaws or other organizational documents; (c) will not conflict
with, result in a breach of, or constitute a default under any law, ordinance,
regulation, ruling, judgment, order or injunction of any court or governmental
instrumentality to which PHC is a party or by which PHC is bound; (d) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, or accelerate or permit the acceleration of any
performance required by the terms of any agreement, instrument, license or
permit, material to this transaction, to which PHC is a party or by which PHC is
bound and (e) will not create any claim, lien, charge or encumbrance upon any of
the assets or properties of PHC.
III.3 Capital Stock of PHC. The PHC Shares are duly authorized, and when
--------------------
issued to Shareholders by PHC, will be validly issued, fully paid and
nonassessable. As of October 9, 1997, PHC has such number of shares of its
various classes of capital stock authorized and such number of shares of its
various classes of capital stock outstanding as set forth in Schedule 3.3
------------
attached hereto.
III.4 No Violation of Law. To PHC's knowledge, PHC has not been nor shall
-------------------
be, as of the Closing Date (by virtue of any act, omission to act, contract to
which it is a party or any current state of facts whatsoever) in violation of
any applicable material local, state or federal law, ordinance, regulation,
order, injunction or decree, or any other requirement of any other governmental
body, agency, authority or court binding on it, or relating to its property or
business which could have a Material Adverse Effect.
III.5 Litigation and Claims. Except as expressly set forth in Schedule 3.5,
--------------------- ------------
there are no claims, lawsuits, counterclaims, proceedings, or investigations
pending, or to PHC's knowledge, threatened, against or affecting PHC in any
court or before any arbitrator or governmental authority or agency, and, to
PHC's knowledge, there is no basis for any such action or state of facts or
occurrence of any event which might give rise to the foregoing which has or
could have a Material Adverse Effect on PHC. There are no unsatisfied judgments
against PHC or any consent decrees to which PHC is subject which would have a
Material Adverse Effect on PHC.
III.6 Financial Statements of PHC. Attached hereto as Schedule 3.6 are PHC'
--------------------------- ------------
unaudited financial statements for the calendar year ending December 31, 1995,
audited financial statements for the calendar year ending December 31, 1996, and
the audited financial statements for the six month period ending June 30, 1997
(collectively, the "PHC Financial Statements"), reflecting the results of the
operations and financial condition of PHC as of such date, which have been
prepared in accordance with generally accepted accounting principles
consistently applied, subject, in the case of PHC's interim financial
statements, to normal year-end adjustments. The PHC Financial Statements: (i)
present fairly in all material respects the
21-
financial condition of PHC as of such date, which have been prepared in
accordance with generally accepted accounting principles consistently applied,
subject, in the case of PHC's interim financial statements, to normal year-end
adjustments. The PHC Financial Statements: (i) present fairly in all material
respects the financial position of PHC as of the dates indicated and present
fairly in all material respects the results of PHC's operations for the periods
then ended in accordance with GAAP and (ii) are in accordance with the books and
records of PHC which have been properly maintained and are complete and correct
in all material respects.
III.7 No Undisclosed Liabilities. Except as and to the extent reflected
--------------------------
in the PHC Financial Statements or in the Memorandum (as such term is defined in
Section 6.5), PHC has no material liability or obligation whatsoever, whether
-----------
matured, unmatured, absolute, contingent or otherwise, except for liabilities
and obligations incurred in the ordinary course of its business since the
Interim Financial Date, which do not in the aggregate have a Material Adverse
Effect on PHC.
III.8 No Violation of Law, Generally.
------------------------------
(a) Billing Practices Generally. To PHC's knowledge, all billing
---------------------------
practices by PHC to all third party payors, including, but
not limited to, the federal Medicare program, state Medicaid
programs and private insurance companies, have been true,
fair and correct and in compliance with all applicable laws,
regulations and policies of all such third party payors, and
PHC has not billed for or received any payment or
reimbursement in excess of amounts allowed by law.
(b) Fraud and Abuse. PHC has not engaged in any activities which
---------------
are prohibited under the federal Fraud and Abuse Statute, 42
U.S.C. (S) 1320 a-7b and Regulations contained in 42 CFR (S)
1001 et seq. (the "Fraud and Abuse Statute"), or related
state or local statutes or regulations, or which are
prohibited by rules of professional conduct, including, but
not limited, to the following: (a) knowingly and willfully
making or causing to be made a false statement or
representation of a material fact in any application for any
benefit or payment; (b) knowingly and willfully making or
causing to be made any false statement or representation of
a material fact for use in determining rights to any benefit
or payment; (c) knowingly and willfully soliciting or
receiving any remuneration (including any kickback, bribe,
or rebate),
22-
directly or indirectly, overtly or covertly, in cash or in
kind (1) 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 (2) 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; and (d) knowingly
and willfully offering or paying any remuneration (including
any kickback, bribe, or rebate), directly or indirectly,
overtly or covertly, in cash or in kind to any person to
induce such person (1) to refer 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 under Medicare or Medicaid or (2) to purchase, lease,
order, or arrange for or recommend purchasing, leasing, or
ordering any good, facility, service, or item for which
payment may be made in whole or in part under Medicare or
Medicaid.
III.9 Environmental Protection. Except as would not reasonably be
------------------------
expected to have a Material Adverse Effect, PHC has obtained all permits,
licenses and other authorizations and filed all notices which are required to be
obtained or filed by PHC for the operation of PHC's business under federal,
state and local laws relating to pollution, protection of the environment or the
generation or disposal of waste. Except as would not reasonably be expected to
have a Material Adverse Effect, PHC is in compliance in all material respects
with all terms and conditions of such required permits, licenses and
authorizations. Except as would not reasonably be expected to have a Material
Adverse Effect, PHC is in compliance with all other applicable limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in those laws or contained in any law,
regulation, code, plan, order, decree, judgment, notice or demand letter issued,
entered, promulgated or approved thereunder. Except as expressly disclosed on
Schedule 3.9 hereto and, except as would not reasonably be expected to have a
------------
Material Adverse Effect, there are no past or present events, conditions,
circumstances, activities, practices, incidents, actions or plans which may
interfere with or prevent continued compliance, or which may give rise to any
common law or statutory liability or, to PHC's knowledge, otherwise form the
basis of any claim, action, suit, proceeding, hearing or investigation, based on
or related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling, or the emission, discharge, release
or threatened release into the environment, or any pollutant, contaminant, or
hazardous or toxic material or waste (including medical waste) with respect to
PHC.
III.10 Filing of Reports. All returns, reports, plans and filings of any
-----------------
kind or nature necessary to be filed by PHC with any governmental authority have
been properly completed and timely filed in compliance with all applicable
requirements where failure to so file would have a Material Adverse Effect on
PHC.
III.11 Taxes.
-----
(a) All Tax Returns required to have been filed by PHC have been
timely filed (taking into account duly granted extensions)
and are true, correct and complete in all material respects.
Except as disclosed in Schedule 3.11, (i) PHC is not
currently the beneficiary of any extension of time within
which to file any Tax Return, and (ii) no claim has ever
been made by any governmental authority in a jurisdiction
where PHC does not file Tax
23-
Returns that PHC is or may be subject to taxation by that
jurisdiction.
(b) All Taxes of PHC which have become due (without regard to
any extension of the time for payment and whether or not
shown on any Tax Return) have been paid. PHC has withheld
and paid over to the applicable taxing authority all Taxes
required to have been withheld and paid over and has
complied with all information reporting and back-up
withholding requirements relating to Taxes. There are no
liens with respect to Taxes on any of the assets of PHC,
other than liens for Taxes not yet due and payable or for
Taxes disclosed in Schedule 3.11 that are being contested in
-------------
good faith through appropriate proceedings and for which
adequate reserves have been established in the Financial
Statements.
(c) No deficiencies exist or have been asserted or are expected
to be asserted (verbally or in writing) with respect to
Taxes of PHC and PHC has not received notice nor does it
expect to receive notice (verbally or in writing) that it
has not filed a Tax Return or paid any Taxes required to be
filed or paid by it. No audit, examination, investigation,
action, suit, claim or proceeding relating to the
determination, assessment or collection of any Tax of PHC is
currently in process, pending or threatened (verbally or in
writing). No waiver or extension of any statute of
limitations relating to the assessment or collection of any
Tax of PHC is in effect. There are no outstanding requests
for rulings with any taxing authority relating to Taxes of
PHC.
III.12 Statements True and Correct. No representation or warranty made
---------------------------
by PHC herein, nor any statement, certificate or instrument furnished or to be
furnished by PHC pursuant to this Agreement or any other document, agreement or
instrument referred to herein or therein, contains or will contain any untrue
statement of material fact or omits or will omit any material fact necessary to
make the statements contained therein not misleading.
III.13 Reorganization Matters. Following the Merger, the Surviving
----------------------
Corporation will use a significant portion of Practice Group's historic business
assets in a business, within the meaning of Treasury Regulations Section 1.368-
1(d)(4).
ARTICLE IV.
ADDITIONAL AGREEMENTS
---------------------
IV.1 Access and Inspection. From and after the date of this Agreement,
---------------------
PHC and its representatives and agents, on the one hand, and the Practice Group
and the Shareholders and their representatives and agents, on the other hand,
shall each have the right to enter the other's
24-
premises during regular business hours to review, inspect and copy any and all
books, records, documents or other information concerning the operation of the
Practice or PHC (as the case may be) as the other may reasonably request (the
"Due Diligence Inspection"). Following Closing, the Shareholders, on the one
hand, and PHC, on the other hand, shall continue to provide the other with
access to any and all financial and other records of the other as the other may
reasonably request in order to operate the Practice or the business of PHC, as
the case may be, to file any reports or respond to inquiries or investigations
including, without limitation, (i) the preparation or examination of tax
returns, (ii) the preparation of documents in connection with any proposed
public offering of any class of the capital stock of PHC or of debt instruments
of PHC, or (iii) for any other reasonable business purpose in connection with
the operation of the Practice or the business of PHC.
IV.2 Cooperation in Meeting Filing Requirements. Shareholders,
------------------------------------------
Practice Group and PHC shall cooperate in preparing, executing and filing such
requests, applications, information and other submittals as may be required by
any federal or state governmental agency or authority having jurisdiction over
the assets or properties of Practice Group or the Practice, for the purpose of
consummating the transactions contemplated herein and operation of the Practice.
IV.3 Post Closing Audit of Practice Group. Shareholders shall
------------------------------------
cooperate with and assist PHC and its accountants and other representatives in
preparing audited financial statements of Practice Group for any time period
ending prior to the Closing Date.
IV.4 Conversion of PHC Shares. In the event that (i) PHC should
------------------------
conduct an underwritten public offering of any class of its capital stock or
otherwise access the public markets for capital in a transaction that would
require registration under the Securities Act or would require PHC to file
reports under the Securities Exchange Act of 1934, as amended, and (ii) such
transaction (the "Non-Triggering Transaction") would not trigger the conversion
(the "Conversion") of the PHC Shares into the Voting Common Stock of PHC as
provided in PHC's certificate of incorporation, PHC shall promptly either (x)
offer the Shareholders the right to exchange their PHC Shares for PHC's Voting
Common Stock on the same terms and effective as of such time as if the Non-
Triggering Transaction had triggered the Conversion or (y) amend PHC's
certificate of incorporation to provide for such Non-Triggering Transaction to
trigger the Conversion effective as of the time of such Non-Triggering
Transaction.
IV.5 Further Assurances. Each party covenants that it will, in
------------------
connection with the Closing and from time to time after the Closing Date,
execute such additional instruments and take such actions as may be reasonably
requested by the other party to confirm or perfect or otherwise to carry out the
intent and purposes of this Agreement.
IV.6 Benefit Plans.
-------------
(a) Before Closing, Shareholders shall cause the entity carrying
on the
25-
Practice after Closing (the "New P.A.") to become the plan
sponsor, employer and plan administrator of all plans
identified on Schedule 2.12 which are in effect at that
-------------
time.
(b) PHC or an affiliate thereof shall employ, as employees at
will, all persons (other than physician Shareholders and
employees who perform clinical/medical services incident to
the services of Shareholders) who are employees of Practice
Group (the "Transferred Employees") in good standing on the
Closing Date. As of the Closing Date, Shareholders shall
cause the plans, agreements, arrangements and understandings
set forth in Schedule 2.12 to be amended to provide for the
-------------
eligibility of the Transferred Employees as "leased
employees" in accordance with the applicable provisions of
the Code and ERISA. Notwithstanding the foregoing, New P.A.
shall not maintain a self-insured group health plan after
the Closing Date.
IV.7 Best Efforts to Close. Each party covenants that it will use its
---------------------
best efforts to fulfill the conditions precedent to closing as set forth in
Articles VI and VII and to consummate the transactions contemplated hereby as
---------- ---
soon as is practicably possible.
IV.8 Reorganization Matter. No party to this Agreement shall take any
---------------------
position on any Tax Return inconsistent with qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
ARTICLE V.
CONDUCT OF BUSINESS OF PRACTICE GROUP AND SHAREHOLDERS
------------------------------------------------------
PENDING CLOSING
---------------
Shareholders and Practice Group jointly and severally covenant and agree
that, without the prior written consent of PHC, between the date of this
Agreement and the Closing:
V.1 Disposition of Assets. The operation of the Practice shall be
---------------------
conducted only in the ordinary course, and, except for the assets and properties
set forth in Schedule 5.1 hereto or inventory or supply items disposed of in the
------------
ordinary course of business, Practice Group shall not dispose of any interest of
any kind in the assets or properties of Practice Group nor incur nor guarantee
any obligations for borrowed money, except as otherwise permitted by this
Agreement.
V.2 Sale of Shares. Shareholders and Practice Group shall not sell or
--------------
transfer, or consent to the issuance, sale or transfer of, any shares of capital
stock in Practice Group or any option, warrant or other right to acquire an
equity interest in Practice Group.
26-
V.3 Contracts. Practice Group will not enter into any contract or
---------
other arrangement except in the ordinary course of business and then only if
such contract or arrangement would not have a Material Adverse Effect on the
operation of the Practice.
V.4 Condition of Assets. Practice Group will maintain its assets in
-------------------
substantially the same condition as they are in on the date of this Agreement,
ordinary wear and tear excepted.
V.5 Liens; Encumbrances. Practice Group will not sell, transfer or
-------------------
otherwise dispose of, nor mortgage, pledge or subject to any lien, charge or
other encumbrance, any of the assets or any interest in the rights, except (i)
as otherwise permitted by this Agreement and (ii) for inventory or supply items
disposed of in the ordinary course of business.
V.6 Conversion to Business Corporation. Practice Group will convert
----------------------------------
from a professional corporation to a business corporation or other entity which
would be permitted to consummate the transactions contemplated hereby in
accordance with applicable laws.
ARTICLE VI.
CONDITIONS TO OBLIGATIONS OF PHC
--------------------------------
The obligations of PHC to close the transactions contemplated hereby are
subject to the satisfaction, at or prior to Closing, of each of the following
conditions:
VI.1 Necessary Approvals. Except as set forth in Schedule 6.1, PHC
------------------- ------------
shall have received all (i) licenses, consents, permits and approvals, if any,
necessary in order for the New P.A. to operate the Practice in substantially the
same manner as Practice Group; (ii) consents necessary to consummate the
transactions contemplated by this Agreement, including the consents of (x) third
party lenders, (y) E.G.L. Holdings, Inc., an investor in PHC and (z) the
investors in PHC pursuant to the terms of the Securities Purchase Agreement
dated June 16, 1997 among PHC and such investors; and (iii) the approval of the
Board of Directors of PHC. In the event that, following the execution of this
Agreement, PHC is unable to consummate the transactions contemplated herein
because of its failure to obtain the consents set forth in subclauses (x)
through (z) above, PHC shall reimburse the Practice Group for the reasonable
legal fees incurred by Practice Group in connection with the negotiation and
documentation of this Agreement and ancillary agreements (provided, however,
that under no circumstances shall PHC be obligated to reimburse the Practice
Group to the extent that the legal fees incurred by the Practice Group exceed
Twenty Thousand Dollars ($20,000.00).
VI.2 Representations and Warranties. The representations and
------------------------------
warranties of the Shareholders and Practice Group set forth in this Agreement,
or any document or instrument delivered to PHC hereunder, that are qualified as
to materiality shall have been true and correct in all respects when initially
made and shall be true and correct in all respects as of the Closing Date and
all other representations and warranties of the Shareholders and Practice Group
set
27-
forth in this Agreement, or any document or instrument delivered to PHC
hereunder, shall have been true and correct in all material respects when
initially made and shall be true and correct in all material respects at the
Closing Date.
VI.3 Performance; Covenants. All of the terms, covenants and
----------------------
conditions of this Agreement to be complied with or performed by Shareholders or
Practice Group at or prior to Closing shall have been complied with and
performed in all material respects.
VI.4 Closing Deliveries. The following documents shall have been
------------------
delivered to PHC:
(a) An Acquisition Restrictive Covenant Agreement executed by
Shareholders in substantially the form of Exhibit B;
---------
(b) A Practice Management Agreement executed by Shareholders in
substantially the form of Exhibit C;
---------
(c) A certificate dated the Closing Date signed by a duly
authorized officer of Practice Group certifying that the
representations and warranties are true and correct as of
the date of such certificate and that Shareholders and
Practice Group have fulfilled the conditions of this Section
-------
64;
--
(d) Unanimous Consent Resolutions of the Board of Directors and
Shareholders of Practice Group in form and substance
satisfactory to PHC approving the execution, delivery and
performance of this Agreement and the consummation of the
transactions contemplated hereby, certified by a duly
authorized representative of Practice Group;
(e) Written consents of all third parties necessary for the
consummation of the transactions contemplated by this
Agreement and the operation of the Practice by the New P.A.
as currently being operated (except to the extent disclosed
in Schedule 6.1);
------------
(f) All of the books and records of the Practice Group related
to the operation of the Practice including, but not limited
to: (i) the books of accounts, contracts and agreements to
which either the Practice Group or the Practice is a party
and (ii) such other documents or certificates as shall be
reasonably requested by PHC (notwithstanding the foregoing,
it is acknowledged by the parties that (i) such books and
records shall remain in the Cincinnati metropolitan area
indefinitely after Closing and (ii) the Shareholders shall
be permitted reasonable access to such books and records
after Closing);
28-
(g) An opinion of counsel of Practice Group in substantially the
form of Exhibit D attached hereto;
---------
(h) The Investment Agreement in the form of Exhibit E attached
---------
hereto executed by the Shareholders pursuant to this
Agreement (the "Investment Agreement");
(i) Tail insurance policies as may be reasonably required by PHC
for any and all former professional employees and/or
shareholders of the Practice Group; and
(j) Such other documents as counsel for PHC shall reasonably
request, including, without limitation, any documents
required to be filed with any governmental body.
VI.5 Private Offering Memorandum. Each Shareholder shall have reviewed
---------------------------
the Private Offering Memorandum (the "Memorandum") of PHC and returned to PHC
within forty-eight (48) hours of the receipt by the Shareholder of the
Memorandum an acknowledgment (substantially in the form attached hereto as
Exhibit I) of such Shareholder's (i) review of the Memorandum and (ii) intention
---------
to proceed with the transactions contemplated by this Agreement.
ARTICLE VII.
CONDITIONS TO OBLIGATIONS OF SHAREHOLDERS AND PRACTICE GROUP
------------------------------------------------------------
The obligations of Shareholders and Practice Group to close the transaction
contemplated hereby are subject to the satisfaction, at or prior to Closing, of
each of the following conditions:
VII.1 Representations and Warranties. The representations and
------------------------------
warranties of PHC set forth in this Agreement, or any document or instrument
delivered to the Shareholders and Practice Group hereunder, that are qualified
as to materiality shall have been true and correct in all respects when
initially made and shall be true and correct in all respects as of the Closing
Date and all other representations and warranties of PHC set forth in this
Agreement, or any document or instrument delivered to the Shareholders and
Practice Group hereunder, shall have been true and correct in all material
respects when initially made and shall be true and correct in all material
respects at the Closing Date.
VII.2 Performance; Covenants. All of the terms, covenants and
----------------------
conditions of this Agreement to be complied with or performed by PHC at or prior
to Closing shall have been complied with and performed in all material respects.
29-
VII.3 Closing Deliveries. The following documents shall have been
------------------
delivered to the Shareholders and the Practice Group:
(a) The PHC Shares (to the extent set forth in Annex I);
-------
(b) A certificate dated the Closing Date signed by duly
authorized representatives of PHC certifying that the
representations and warranties are true and correct on the
date of such certificate and that PHC has fulfilled all of
the conditions of this Section 7.3;
-----------
(c) Consent Resolutions of the Board of Directors of PHC
approving the execution, delivery and performance of this
Agreement and the consummation of the transactions
contemplated hereby, certified by a duly authorized
representative of PHC.
(d) An opinion of counsel of PHC in substantially the form of
Exhibit F attached hereto;
---------
(e) The Investment Agreement;
(f) The Letter Agreement in substantially the form of Exhibit G
---------
attached hereto;
(g) The Agreement regarding Certain Shareholders substantially
in the form of Exhibit H attached hereto and any deliveries
---------
required thereby; and
(h) Such other documents necessary for the consummation of the
transactions contemplated herein as counsel for Shareholder
shall reasonably request, including, without limitation, any
documents required to be filed with any governmental body.
VII.4 Private Offering Memorandum. Each of the Shareholders shall have
---------------------------
received the Memorandum at least forty-eight (48) hours prior to Closing and
shall have elected to proceed with the transactions contemplated by this
Agreement within forty-eight (48) hours after receipt of the Memorandum.
ARTICLE VII
INDEMNIFICATION
---------------
VIII.1 Indemnification by Shareholders. Subject to the terms and
-------------------------------
conditions of this Article VIII, Shareholders, jointly and severally, agree to
------------
indemnify, defend, and hold PHC
30-
harmless from, against, for, and in respect of any and all Losses (as defined
below) asserted against, relating to, imposed upon, or incurred by PHC by reason
of, resulting from, based upon, or arising out of:
(a) The inaccuracy, untruth, or incompleteness of any
representation or warranty of Practice Group and/or
Shareholder contained in or made pursuant to this Agreement;
(b) The failure of Practice Group and/or any Shareholder to
comply with any of the covenants made by Practice Group
and/or a Shareholder in this Agreement;
(c) The conduct of the Practice and business of Practice Group
on or prior to the Closing Date, other than for liabilities
disclosed in the Schedules hereto or in the Financial
Statements; and
(d) Taxes of any Shareholder arising from or as a result of the
transactions contemplated by this Agreement and all sales,
use, transfer, registration or similar Taxes arising from or
as a result of the transactions contemplated by this
Agreement (regardless of upon whom imposed).
In the event that any Losses are asserted against, imposed upon, or incurred by
PHC prior to the date on which PHC is obligated to remit the Withheld Amount, as
adjusted, to the Shareholders pursuant to Section 1.4, and for which the
-----------
Shareholders would be required to indemnify PHC pursuant to this Section, PHC
shall have the option, but not the obligation, to subtract the amount of the
Losses from the Withheld Amount. The preceding sentence provides for a non-
exclusive remedy and shall in no way limit PHC's right to be indemnified by the
Shareholders for any and all Losses that may be asserted against, imposed upon,
or incurred by PHC at any time.
VIII.2 Indemnification by PHC. Subject to the terms and conditions of
----------------------
this Article VIII, PHC agrees to indemnify, defend and hold Shareholders
------------
harmless from, against, for and in respect of any and all Losses (as defined
below) asserted against, relating to, imposed upon, or incurred by Practice
Group and/or Shareholders by reason of, resulting from, based upon, or arising
out of:
(a) The inaccuracy, untruth, or incompleteness of any
representation or warranty of PHC contained in or made
pursuant to this Agreement; and
(b) The failure of PHC to comply with any of the covenants made
by PHC in this Agreement.
VIII.3 Definition of Losses. For the purposes of this Article VIII,
-------------------- ------------
"Losses" shall mean
31-
any and all demands, claims, actions or causes of action, assessments, losses,
damages, liabilities, costs, and expenses, including, without limitation,
interest, penalties, and reasonable attorneys' and other professional fees, and
expenses incurred in the investigation, preparation, defense, and settlement of
any claim, loss, damage, or liability as to which a party is entitled to
indemnification hereunder.
VIII.4 Notice and Opportunity to Defend.
--------------------------------
(a) The party indemnified hereunder (the "Indemnified Party")
shall notify in writing the indemnifying party (the
"Indemnifying Party") within thirty (30) days after a claim
is presented to the Indemnified Party, and the Indemnifying
Party shall defend such claim at its expense. If the
Indemnifying Party does not defend or settle such claim, the
Indemnified Party may do so without the Indemnifying Party's
participation, in which case the Indemnifying Party shall
pay the expenses of such defense, and the Indemnified Party
may settle or compromise such claim without the Indemnifying
Party's consent. If the Indemnified Party fails to notify
the Indemnifying Party, and if the Indemnifying Party is
thereby materially prejudiced by such failure of notice in
its defense of the claim, the Indemnifying Party's
obligation of indemnity hereunder shall be extinguished with
respect to such claim to the extent that the Indemnifying
Party has been prejudiced by the failure to give such
notice.
(b) Anything herein to the contrary notwithstanding, no party
shall make any claim against any other party pursuant to
this Article VIII unless the dollar amount of all Losses
------------
suffered or incurred by the party seeking such indemnity
hereunder shall exceed, in the aggregate, the amount of
Fifty Thousand and No/100 Dollars ($50,000.00). If such
amount is exceeded, the Indemnifying Party shall be required
to pay the amount by which such aggregate Losses exceed
Fifty Thousand and No/100 Dollars ($50,000.00) (up to an
amount (the "Cap Amount") equal to the sum of (i) the cash
portion of the Purchase Price plus (ii) the then Fair Market
Value of any PHC Shares then held by the Shareholders plus
(iii) the cash proceeds from any and all sales of PHC Shares
by the Shareholders and without deduction for such Fifty
Thousand and No/100 Dollars ($50,000.00) threshold amount)
for which indemnification rights and obligations are
provided under this Article VIII. "Fair Market Value" per
------------
share as used in this paragraph means (if the PHC Shares are
then listed on a national securities exchange) the average
closing price per share over the five business days ending
two business days prior to the date of valuation, or (if the
PHC Shares are not listed on a national securities exchange)
the price per share determined by an independent certified
public accounting
32-
firm (the cost of which shall be borne equally between the
Shareholders, on the one hand, and PHC and the other hand)
selected by PHC and reasonably satisfactory to a majority in
interest of the Shareholders. Payments by the Shareholders
to PHC pursuant to this Article VIII may be in cash or the
PHC Shares (valued at Fair Market Value); provided, however,
that in the event that PHC shall incur indebtedness pursuant
to a financing arrangement with a third party in connection
with the payment of the Purchase Price, all payments to PHC
by the Shareholders pursuant to this Article VIII shall be
made in cash (up to an amount equal to the cash portion of
the Purchase Price) until such time as the third party
financing arrangement has been extinguished.
The foregoing notwithstanding, the Cap Amount shall not
apply to Losses suffered or incurred in connection with (i)
medical malpractice or professional liability claims in
excess of the insured limits provided for in the
professional liability insurance policies maintained for the
benefit of the Practice Group and professional employees
and/or shareholders of the Practice; (ii) violations by the
Practice Group or the Shareholders of any of the billing
practices or Fraud and Abuse laws, rules and regulations
referenced in Section 3.8 hereof; (iii) violations by the
-----------
Practice Group or the Shareholders of the Civilian Health
and Medical Program of the Uniformed Service ("CHAMPUS") and
all laws, rules, regulations, manuals, orders, guidelines or
requirements pertaining to such program including (a) all
federal statutes (whether set forth in U.S. (S)(S)1071-1106
or elsewhere) affecting such program; and (b) all rules,
regulations, (including 32 C.F.R. (S)199), manuals, orders
and administrative, reimbursement and other guidelines of
all governmental authorities promulgated in connection with
such program (whether or not having the force of law), in
each case as the same may be amended, supplemented or
otherwise modified from time to time (iv) the Civilian
Health and Medical Program of the Department of Veteran
Affairs ("CHAMPVA") and all laws, rules, regulations,
manuals, orders, guidelines or requirements pertaining to
such program, including (a) all federal statutes (whether
set forth in 38 U.S.C. (S)1713 or elsewhere) affecting such
program or, to the extent applicable to CHAMPVA, CHAMPUS;
and (b) all rules, regulations (including 38 C.F.R.
(S)17.54), manuals, orders and administrative, reimbursement
and other guidelines of all governmental authorities
promulgated in connection with such program (whether or not
having the force of law), in each case as the same may be
amended, supplemented or otherwise modified from time to
time and (v) violations by the Practice Groups or the
Shareholders of the representations and warranties contained
in Section 2.24.
------------
33-
(b) Anything herein to the contrary notwithstanding, no party
shall be liable to any other party under this Article VIII
------------
for punitive or consequential damages, including lost
profits, except to the extent contained in a settlement,
award or judgment obtained by a third party.
VIII.5 Effect of Investigation by PHC. No investigation or inquiry made
------------------------------
by PHC of Shareholders or Practice Group or its books and records and financial
condition shall, regardless of the Closing of the transactions contemplated
hereby, affect or limit any representation or warranty made by Shareholders or
Practice Group to PHC in this Agreement or in any Schedule delivered by any of
them pursuant hereto or any right of indemnification of PHC under Section 8.1
-----------
hereof.
ARTICLE IX.
MISCELLANEOUS PROVISIONS
------------------------
IX.1 Notices. Any notice required or permitted by this Agreement or
-------
any agreement or document executed and delivered in connection with this
Agreement shall be deemed to have been served properly if transmitted by
certified mail, return receipt requested, with proper postage prepaid or sent by
overnight carrier or by personal delivery, addressed to the respective party to
whom such notice relates at the following addresses:
If to PHC: Physician Health Corporation
One Lakeside Commons
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
With a copy to: Physician Health Corporation
One Lakeside Commons
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D., Esq.
And a Copy to: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ L.L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇, III
34-
If to Practice Group GCGA Physicians
or the Shareholders: ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇
With a Copy to: Katz, Teller, ▇▇▇▇▇ & ▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
or such other address as shall be furnished in writing by any party to the other
party. All such notices shall be considered received: (a) if transmitted by
certified mail, return receipt requested, with proper postage prepaid, upon the
fifth (5/th/) business day after mailing; (b) if transmitted by overnight
carrier, on the next business day and (c) if transmitted by personal delivery,
upon receipt.
IX.2 Successors and Assigns. PHC may assign its rights under this
----------------------
Agreement to any affiliated entity, but otherwise this Agreement shall not be
assignable, by operation of law or otherwise, without the prior written consent
of the other parties. Subject to the foregoing, this Agreement shall inure to
the benefit of, be enforceable by and be binding upon the parties, their
successors and assigns.
IX.3 Entire Agreement. This Agreement and the Exhibits, Schedules,
----------------
certificates and other documents delivered pursuant hereto or incorporated
herein by reference, contain and constitute the entire agreement among the
parties and supersede and cancel any prior agreements, representations,
warranties, or communications, whether oral or written, among the parties
relating to the transactions contemplated by this Agreement. Neither this
Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, but only by an agreement in writing signed by the party
against whom or which the enforcement of such change, waiver, discharge or
termination is sought.
IX.4 Governing Law; Severability. This Agreement shall be governed by
---------------------------
and construed in accordance with the laws of the State of Georgia, but excluding
the conflicts laws of the State of Georgia. The parties consent to the
jurisdiction of such courts. The provisions of this Agreement are severable and
the invalidity of one or more of the provisions herein shall not have any effect
upon the validity or enforceability of any other provision.
IX.5 No Brokers. Shareholders, Practice Group and PHC each represent
----------
to the others that no broker or finder has been employed in connection with the
transactions hereunder.
IX.6 Schedules and Exhibits. All Schedules and Exhibits attached to
----------------------
this Agreement
35-
are by reference made a part hereof.
IX .7 Waivers. No failure on the part of any party hereto to exercise,
-------
and no delay in exercising, any right, power or remedy created hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or remedy by any such party preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. No waiver by any
party hereto of any breach of or default in any term or condition of this
Agreement shall constitute a waiver of or assent to any succeeding breach of or
default in the same or any other term or condition hereof.
IX.8 Headings. The headings contained in this Agreement are for
--------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
IX.9 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
IX.10 Confidentiality. The parties agree that they will not make any
---------------
disclosure about the existence or contents of this Agreement or activities
relating to the consummation of the transactions contemplated herein without
prior approval of the other party, except as may be required by law, as may be
necessary to obtain the required consents, licenses, permits or approvals
pursuant to Section 6.1 herein, or as may be necessary in the ordinary course of
-----------
business of PHC.
IX.1I Mediation. Except as provided in Section 1.9 of this Agreement,
---------
the parties agree to utilize the following procedure with regard to any
contention or claim arising out of or relating to this Agreement (a "Dispute")
if any such Dispute can not be settled through direct discussions.
(a) Initiation of Procedure: The initiating party shall give
written notice to the other parties describing the nature of
the Dispute, its claim for relief and identifying one or
more individuals with authority to resolve the Dispute on
such party's behalf. The other parties shall each have five
business days from receipt of such notice within which to
designate in writing one or more individuals with authority
to resolve the Dispute on each other party's behalf.
(b) Selection of Mediator: Within ten business days from the
last date of designation by the noninitiating parties, the
parties shall make a good faith effort to select a person to
mediate the Dispute. If no mediator has been selected under
this procedure, the parties shall jointly request a State or
Federal District Judge of their choosing to supply within
ten business days a list of potential qualified attorney-
mediators in Cincinnati, Ohio. Within
36-
five business days of receipt of the list, the parties shall
rank the proposed mediators in numerical order of
preference, simultaneously exchange such lists and select as
the mediator the individual receiving the highest combined
ranking. If such mediator is not available to serve, they
shall proceed to contact the mediator who was next highest
in ranking until they select a mediator.
(c) Time and Place for Mediation; Parties Represented: In
consultation with the mediator selected, the parties shall
promptly designate a mutually convenient time in Cincinnati,
Ohio for the mediation, such time to be no later than sixty
days after selection of the mediator. In the mediation, each
party shall be represented by a person with authority and
discretion to negotiate a resolution of the Dispute, and may
be represented by counsel.
(d) Conduct of Mediation: The mediator shall determine the
format for the meetings and the mediation sessions shall be
private. The mediator will keep confidential all information
learned in private caucus with any party unless specifically
authorized by such party to make disclosure of the
information to the other parties. The parties agree that the
mediation shall be governed by such rules as the mediator
shall reasonably prescribe.
(e) Fees of Mediator; Disqualification: The reasonable fees and
expenses of the mediator shall be shared equally by the
parties. The mediator shall be disqualified as a witness,
consultant, expert or counsel for any party with respect to
the Dispute and any related matters.
(f) Confidentiality: Mediation is a compromise negotiation for
purposes of Federal and state rules of evidence and
constitutes privileged communication. The entire mediation
process is confidential, and such conduct, statements,
promises, offers, views and opinions shall not be
discoverable or admissible in any legal proceeding for any
purpose.
IX.12 Binding Arbitration. If any Dispute cannot be settled through
-------------------
mediation as set forth in Section 9.11 above, such Dispute shall be settled
------------
solely by arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered and enforced in any court having jurisdiction
thereof. The parties agree to execute a complete written Arbitration Agreement
(requiring binding arbitration and setting forth in detail procedures for
arbitration) within ten days of the close of any unsuccessful mediation
proceeding. If the parties cannot agree on a binding Arbitration Agreement, such
agreement shall, within twenty days of the close of the unsuccessful mediation
proceedings, be prepared and submitted to each party by the mediator and such
agreement in the form submitted by the mediator shall be binding on both parties
as to all arbitration procedures.
37-
IX.13 Breach of Mediation and/or Arbitration Provisions. In the event
-------------------------------------------------
any party shall breach the terms of Sections 9.11 or 9.12 above regarding
------------- ----
mediation and arbitration, the parties agree the following shall occur:
(a) The non-breaching party/parties may, no earlier than five
days after written notice to the breaching party/parties,
apply to a court of competent jurisdiction for specific
enforcement of the mediation and arbitration procedures set
forth herein;
(b) The breaching party/parties shall pay all costs and expenses
of such breach to the non-breaching party/parties, including
attorney's fees, travel expenses and mediator fees;
(c) Upon a judicial determination of a material breach, the
breaching party/parties hereby waive(s) and relinquish(es)
all claims of treble, punitive damages or similar damages or
claims of irreparable harm concerning the Dispute in
question, and further waives all objections to the non-
breaching parties' claim of treble, punitive or similar
damages or claims of irreparable harm concerning said
Dispute; and
(d) The breaching party/parties shall pay all other actual and
special damages to the non-breaching party/parties that
result from such breach.
(e) Other Damages: In addition to the agreed consequences of
breach set out above, the parties hereby agree any court
obtaining jurisdiction over the involved Dispute shall, upon
the court's discretion, have the authority to impose the
consequences set out in the Rules of Civil Procedure of the
court, for the failure of a party to cooperate in discovery
and pretrial matters, including, but not limited to, the
striking of a party's pleadings, award of attorney's fees
and costs, and such other remedies as the court may deem
appropriate. The remedies set forth in this subparagraph are
in addition to the court's contempt and other judicial
power.
IX.14 Expenses. Each party shall bear its own expenses incurred in the
--------
preparation, negotiation and performance of this Agreement; provided, however,
that the Shareholders shall bear all of the expenses of the Practice Group so
incurred.
IX.15 No Third Party Beneficiaries. Nothing contained in this Agreement
----------------------------
(express or implied) is intended or shall be construed to confer upon or give to
any person, corporation or other entity, other than the parties hereto and their
permitted successors or assigns, any rights or remedies under or by reason of
this Agreement.
38-
IX.16 Survival. Except for the provisions of Section 2.9(b), Section
-------- -------------- -------
2.24, Section 3.8, Section 3.11, Section 4.1, Section 4.2, Section 4.3, Section
---- ----------- ------------ ----------- ----------- ----------- -------
4.4, Section 4.5, Section 4.8, Section 8.1(d), Section 9.10, Section 9.11,
--- ----------- ----------- -------------- ------------ ------------
Section 9.12 and Section 9.13, which shall continue in full force and effect
------------ ------------
indefinitely, the provisions of Articles I, II, III, IV and VIII of this
-------------- --- -- ----
Agreement shall survive the Closing and continue in full force and effect until
eighteen (18) months after the Closing Date.
IX.17 Attorney-Client Privilege. Except in connection with the
-------------------------
enforcement of this Agreement and/or as set forth below, Practice Group hereby
conveys to the Shareholders, effective as of the Closing, the right to invoke
the attorney-client privilege with respect to all matters involving any or all
of the Shareholders in their dealings with Practice Group or otherwise to the
extent that such privilege may be possessed by Practice Group. Except in
connection with the enforcement of this Agreement and/or as set forth below,
neither PHC nor Practice Group shall object to the assertion of the attorney-
client privilege by any or all of the Shareholders, or waive the attorney-client
privilege, regarding any matter involving legal services performed for Practice
Group or any or all of the Shareholders prior to Closing. Notwithstanding the
foregoing, nothing contained herein shall be construed in any way to prevent
PHC, its affiliates or their successors and assigns from investigating any
alleged breach of this Agreement and/or enforcing any provision of this
Agreement against the Shareholders, and the Practice Group and the Shareholders
shall cooperate fully with PHC in connection with any such matter. This
provision shall be binding upon Practice Group, PHC and their successors and
assigns, and shall survive the Closing.
39-
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first written above.
GREATER CINCINNATI
PHYSICIAN HEALTH CORPORATION GASTROENTEROLOGY ASSOCIATES,
INC.
By:_____________________________ By:______________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President M.D.
THE SHAREHOLDERS
_________________________, M.D.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, M.D.
_________________________, M.D.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, M.D.
_________________________, M.D.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, M.D.
_________________________, M.D.
▇▇▇▇ ▇. ▇▇▇▇▇, M.D.
_________________________, M.D.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D.
_________________________, M.D.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, M.D.
_________________________, M.D.
▇▇▇ ▇. ▇▇▇▇▇▇, M.D.
_________________________, M.D.
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D.
_________________________, M.D.
▇▇▇▇▇▇▇ ▇. Bekal, M.D.
_________________________, M.D.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Trust by ▇▇▇▇ ▇. ▇▇▇▇▇, M.D., Trustee
40-
EXHIBIT A
---------
LIST OF SHAREHOLDERS AND ADDRESSES
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, M.D. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D.
________________________________ ________________________________
________________________________ ________________________________
________________________________ ________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, M.D. ▇▇▇▇▇▇▇ ▇. Bekal, M.D.
________________________________ ________________________________
________________________________ ________________________________
________________________________ ________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, M.D. ▇▇▇▇ ▇. ▇▇▇▇▇, M.D.
________________________________ ________________________________
________________________________ ________________________________
________________________________ ________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, M.D.
________________________________ ________________________________
________________________________ ________________________________
________________________________ ________________________________
▇▇▇ ▇. ▇▇▇▇▇▇, M.D. ▇▇▇▇ ▇. ▇▇▇▇▇, Trustee
________________________________ ________________________________
________________________________ ________________________________
________________________________ ________________________________
1-
EXHIBIT B
---------
ACQUISITION RESTRICTIVE COVENANT AGREEMENT
EXHIBIT C
---------
PRACTICE MANAGEMENT AGREEMENT
EXHIBIT D
---------
OPINION OF COUNSEL OF PRACTICE GROUP
EXHIBIT E
---------
INVESTMENT AGREEMENT
EXHIBIT F
---------
OPINION OF COUNSEL OF PHC
EXHIBIT G
---------
LETTER AGREEMENT
EXHIBIT H
---------
AGREEMENT REGARDING CERTAIN SHAREHOLDERS
EXHIBIT I
---------
ACKNOWLEDGMENT
ANNEX I
-------
PURCHASE PRICE
SCHEDULE 2.2
------------
REQUIRED CONSENTS RELATING TO SELLER'S OBLIGATIONS
SCHEDULE 2.3
------------
LICENSES AND AUTHORIZATIONS
SCHEDULE 2.4
------------
LEASE AND LICENSE AGREEMENTS
SCHEDULE 2.5
------------
FINANCIAL STATEMENTS OF PRACTICE GROUP
SCHEDULE 2.6
------------
ABSENCE OF CHARGES
SCHEDULE 2.7
------------
LITIGATION AND CLAIMS
SCHEDULE 2.8
------------
UNDISCLOSED LIABILITIES
SCHEDULE 2.9
------------
VIOLATIONS OF LAW; TRANSACTIONS WITH REFERRAL SOURCES
SCHEDULE 2.10(A)
----------------
OWNED ASSETS
SCHEDULE 2.10(B)
----------------
LEASED EQUIPMENT
SCHEDULE 2.10(C)
----------------
EQUIPMENT, UTILITY AND OTHER DEPOSITS
SCHEDULE 2.10(D)
----------------
EXCEPTIONS TO TITLE TO ASSETS
SCHEDULE 2.11
-------------
INDEBTEDNESS
SCHEDULE 2.12
-------------
EMPLOYMENT CONTRACTS, UNION AGREEMENTS AND BENEFIT PLANS
SCHEDULE 2.13
-------------
EXCEPTIONS TO COMPLIANCE WITH EMPLOYMENT AND LABOR LAWS
SCHEDULE 2.14
-------------
CONTRACTS AND AGREEMENTS OF PRACTICE GROUP
SCHEDULE 2.15
-------------
ENVIRONMENTAL PROTECTION
SCHEDULE 2.17
-------------
INSURANCE POLICIES
SCHEDULE 2.18
-------------
ACCOUNTS RECEIVABLE
SCHEDULE 2.19
-------------
ACCOUNTS PAYABLE
SCHEDULE 2.21
-------------
INSPECTIONS AND INVESTIGATIONS
SCHEDULE 2.22
-------------
OWNERSHIP OF MEDICAL SERVICE PRACTICE(S)
SCHEDULE 2.24
-------------
TAXES
SCHEDULE 3.2
------------
ABSENCE OF CONFLICTING AGREEMENT OR REQUIRED CONSENTS
None, except as set forth in Section 6.1
SCHEDULE 3.3
------------
CAPITAL STOCK OF PHC
Please see attached
SCHEDULE 3.5
------------
LITIGATION AND CLAIMS OF PHC
None
SCHEDULE 3.6
------------
FINANCIAL STATEMENTS OF PHC
Please see attached
SCHEDULE 3.7
------------
UNDISCLOSED LIABILITIES
SCHEDULE 3.9
------------
COMPLIANCE
None
SCHEDULE 3.11
-------------
TAXES
None
SCHEDULE 5.1
------------
DISPOSITION OF ASSETS
SCHEDULE 6.1
------------
NECESSARY APPROVALS
1. Consents referenced in Section 4.11 of the Due Diligence Checklist.