<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File Number: 0-26938
Home Health Corporation of America, Inc.
- ------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2224800
- ---------------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2200 Renaissance Boulevard
Suite 300
King of Prussia, PA 19406
- ---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610)272-1717
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date:
Class Outstanding at November 1, 1996
----- --------------------------------
Common stock, no par value 8,103,340 Shares
Exhibit index is located on page 17
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Number
------
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income for the three months
ended September 30, 1996 and 1995 3
Consolidated Balance Sheets as of September 30, 1996
and June 30, 1996 4
Consolidated Statements of Cash Flows for the three
months ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
EXHIBIT INDEX 17
2
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
September 30,
--------------------------------
1995 1996
---- ----
<S> <C> <C>
Net revenues............................ $18,808 $25,302
Costs and expenses:
Patient care costs................... 9,184 12,226
General and administrative........... 7,687 8,819
Provision for doubtful accounts...... 487 906
Depreciation......................... 156 260
Amortization......................... 81 355
Interest expense, net................ 504 431
------- -------
Total expenses.................... 18,099 22,997
Income before income taxes.............. 709 2,305
Provision for income taxes.............. 318 899
------- -------
Net income........................... $ 391 $ 1,406
======= =======
Per share data:
Net income available to common
stockholders........................... $ 375 $ 1,406
======= =======
Net income per common and common
equivalent share........................ $0.10 $0.17
======= =======
Weighted average shares used in
computing net income per common and
common equivalent share................ 3,665 8,182
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
June 30, September 30,
ASSETS 1996 1996
------ ------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................ $ 1,331 $ 2,041
Accounts receivable, net of allowance
for doubtful accounts of $2,152 and
$2,345, respectively..................... 25,964 28,525
Inventories, net......................... 1,359 1,584
Prepaid expenses and other
current assets......................... 658 688
Deferred income taxes.................... 862 862
------- -------
Total current assets................. 30,174 33,700
Property and equipment, net................... 8,447 9,184
Goodwill, net of accumulated amortization
of $1,123 and $1,458, respectively......... 26,540 31,051
Other assets, net............................. 1,010 1,054
------- -------
Total assets......................... $66,171 $74,989
======= =======
LIABILITIES
-----------
Current liabilities:
Current maturities of long-term debt..... $ 1,801 $ 3,409
Accounts payable......................... 2,668 2,353
Accrued salaries and related employee
benefits................................ 2,161 2,277
Other accrued expenses and current
liabilities............................. 3,008 1,660
Income taxes payable...................... 552 966
------- -------
Total current liabilities............. 10,190 10,665
Long-term debt................................. 16,137 22,566
Other noncurrent liabilities................... 869 698
Deferred income taxes.......................... 126 126
Common stock, redeemable, no par value,
100 shares issued and outstanding,
stated at redemption value of $5.00
per share.................................... 500 500
</TABLE>
Continued
4
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
June 30, September 30,
1996 1996
------------- ---------------
<S> <C> <C>
Stockholders' equity:
Preferred stock (undesignated), no par
value, no shares and 10,000 shares
authorized; no shares issued and
outstanding.............................. - -
Common stock, no par value, no shares
and 20,000 shares authorized;
7,890 and 8,090, outstanding............. 33,725 34,400
Retained earnings............................. 4,642 6,048
------- -------
38,367 40,448
Stock subscriptions receivable................ (18) (14)
------- -------
Total stockholders' equity............... 38,349 40,434
------- -------
Total liabilities and
stockholders' equity............... $66,171 $74,989
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
For the three months ended
September 30,
-----------------------------
1995 1996
---- ----
<S> <C> <C>
Cash flows provided by (used in)
operating activities:
Net income..................................... $391 $1,406
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, amortization and other......... 445 1,055
Provision for doubtful accounts.............. 487 906
Net changes in certain assets and
liabilities, net of acquisitions:
Accounts receivable....................... (722) (3,017)
Inventories............................... (348) (104)
Prepaid expenses and other current
assets.................................. (145) (40)
Accounts payable, accrued expenses and
other................................... 32 (1,957)
Income taxes payable...................... (445) 414
-------- -------
Net cash flows used in operating
activities........................... (305) (1,337)
-------- -------
Cash flows used in investing activities:
Purchases of property and equipment............ (298) (795)
Cash paid for acquisitions..................... (12,750) (2,985)
Increase in other assets....................... (353) (27)
-------- -------
Net cash flows used in investing
activities........................... (13,401) (3,807)
-------- -------
Cash flows provided by (used in)
financing activities:
Proceeds from long-term debt................... 1,245 6,467
Repayments of long-term debt................... (253) (404)
Borrowings from Bridge financing notes......... 13,000 -
Payment of preferred stock dividends.......... (10) -
Payment of deferred financing fees............. - (209)
Proceeds from issuance of common
stock........................................ 41 -
-------- -------
Net cash flows provided by financing
activities........................... 14,023 5,854
-------- -------
Net increase in cash and cash
equivalents.................................... 317 710
Cash and cash equivalents, beginning of
quarter........................................ 259 1,331
-------- -------
Cash and cash equivalents, end of
quarter........................................ $576 $2,041
======== =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Home Health
Corporation of America, Inc. and Subsidiaries (the "Company") have been
prepared in accordance with generally accepted accounting principles for
interim financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. Additionally, although the June 30, 1996
balance sheet was derived from audited financial statements, it does not
include all disclosures required by generally accepted accounting principles.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended September 30, 1996 are
not necessarily indicative of the results that may be expected for the fiscal
year ending June 30, 1997. The interim consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto for the year ended June 30, 1996 included in the Company's Form 10-K
filed with the Securities and Exchange Commission.
2. Acquisitions
In the first quarter of fiscal 1997, the Company acquired the assets of (i)
Dailey Resources, Ltd., a provider of durable medical equipment and respiratory
therapy services with $1.8 million in aggregate net revenues for the twelve
month period ended December 31, 1995, and operations in Scranton, Pennsylvania,
(ii) National Home Infusion, Inc., a provider of infusion therapy services with
$1.3 million in aggregate net revenues for the twelve month period ended
September 30, 1995, and operations in Sarasota, Florida, and (iii) Eastern Shore
Health Services, Inc., a provider of home nursing services with $3.6 million in
aggregate net revenues for the twelve month period ended June 30, 1996, and
operations in Berlin and Salisbury, Maryland (collectively, the "Fiscal 1997
Acquisitions"). The aggregate purchase price for the Fiscal 1997 Acquisitions
was $5.3 million, consisting of $3.0 million in cash, $1.6 million in notes and
61,262 shares of Common Stock. Unaudited pro forma financial information is not
presented due to immateriality.
The Fiscal 1997 Acquisition purchase prices have been allocated to identifiable
assets, principally accounts receivable, equipment and inventory. The excess of
the purchase prices over the fair value of the net assets acquired of $4.8
million was recorded as goodwill and is being amortized on a straight-line basis
over 20 years.
7
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Subsequent Events
Completed Acquisitions
On October 1, 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of Medical Express, Inc., a durable medical
equipment and respiratory therapy company located in Bristol, Pennsylvania with
$2.5 million in net revenues for the twelve month period ended June 30, 1996.
The aggregate purchase price for this acquisition was $3.2 million comprised of
cash, sellers notes payable, and shares of the Company's Common Stock. This
acquisition will be accounted for as a purchase.
On November 12, 1996, the Company completed the acquisition of Home Health
Systems, Inc., a provider of durable medical equipment and infusion and
respiratory therapy services with $8.2 million in net revenues for the twelve
month period ended June 30, 1996 (the "HHSI Acquisition") and operations in New
Jersey, Pennsylvania, Maryland and Illinois. As consideration, the Company
issued 455,238 shares of its Common Stock, net of shares that will be treated
similarly to treasury shares for accounting purposes. The HHSI Acquisition will
be accounted for as a pooling of interests and, accordingly, the Company's
financial statements issued for periods subsequent to the acquisition will be
combined with the accounts and operations of the HHSI Acquisition, including the
restatement of all prior periods presented therein. The HHSI Acquisition is not
expected to have a material effect on the financial condition or results of
operations of the Company for the first quarter of fiscal 1997 upon the
restatement of the financial statements and notes thereto. Merger costs are
expected to amount to approximately $500,000 and will be recorded in the second
quarter of fiscal 1997.
Pending Acquisitions
The Company has entered into a definitive agreement to purchase the stock of
R.S.D. Management, Inc. a provider of primarily Medicare-reimbursed nursing and
related patient services with $18.3 million of net revenues for the twelve month
period ended June 30, 1996. The estimated aggregate consideration payable for
this acquisition is $11.9 million which includes approximately $10.1 million in
cash. The Company has entered into letters of intent to acquire certain assets
of (i) Alternative Home Care, Inc. a provider of infusion therapy services with
$6.3 million of net revenues for the twelve months ended December 31, 1995 and
(ii) LHS Holdings, Inc. a provider of primarily Medicare-reimbursed nursing and
related patient services and, to a lesser extent, infusion therapy services with
$16.0 million in net revenues for the twelve month period ended June 30, 1996.
The estimated aggregate consideration payable for the acquisitions under letters
of intent is $15.5 million, which includes approximately $12.3 million in cash.
(The acquisition under a definitive agreement and the acquisitions under a
letter of intent are collectively referred to as the "Pending Acquisitions.")
The Pending Acquisitions will be accounted for as purchases.
8
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Subsequent Events, continued
Registration Statement
On November 1, 1996, the Company filed with the Securities and Exchange
Commission a registration statement for the sale in an underwritten public
offering of 3,623,500 shares of Common Stock, excluding the underwriters' over-
allotment option (the "Offering"). The Offering consists of 3,000,000 shares of
Common Stock to be sold by the Company with the remaining shares to be sold by
existing shareholders. Net proceeds to be received by the Company will be used
to repay bank indebtedness and pay a portion of the cash consideration for the
Pending Acquisitions.
4. Supplemental Cash Flow Information
Supplemental disclosure of cash flow information for the three months ended
September 30 follows.
<TABLE>
<CAPTION>
1995 1996
---- ----
(in thousands)
<S> <C> <C>
Noncash investing and financing activities:
Acquisitions:
Assets.............................................. $17,787 $5,689
Less:
Liabilities assumed and acquisition costs........... 537 404
Issuance of seller notes............................ 1,500 1,625
Issuance of common stock............................ - 675
Issuance of convertible subordinated note........... 3,000 -
------- ------
Cash paid, net of cash acquired..................... $12,750 $2,985
======= ======
</TABLE>
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The financial condition and results of operations of the Company for the three
months ended September 30, 1996 compared with the three months ended September
30, 1995 have been affected by both acquisitions and internal growth.
During the second and fourth quarters of fiscal 1996 the Company extended its
operations into the Tampa/St. Petersburg, Florida market with the completion of
the acquisition on September 30, 1995 of Preferred Diagnostic and Medical
Services, Inc., a provider of respiratory therapy services and durable medical
equipment with $8.7 million in aggregate net revenues for the twelve months
ended June 30, 1995 and the acquisition on May 1, 1996 of three providers of
home health services, including home nursing and mobile diagnostic services,
with aggregate net revenues of $8.0 million for the twelve month period ended
December 31, 1995. The aggregate consideration paid by the Company for these
acquisitions was $22.7 million, consisting of $16.0 million in cash, $2.4
million in notes and 501,401 shares of Common Stock.
In the first quarter of fiscal 1997, the Company acquired the assets of (i)
Dailey Resources, Ltd., a provider of durable medical equipment and respiratory
therapy services with $1.8 million in aggregate net revenues for the twelve
month period ended December 31, 1995, and operations in Scranton, Pennsylvania,
(ii) National Home Infusion, Inc., a provider of infusion therapy services with
$1.3 million in aggregate net revenues for the twelve month period ended
September 30, 1995, and operations in Sarasota, Florida, and (iii) Eastern Shore
Health Services, Inc., a provider of home nursing services with $3.6 million in
aggregate net revenues for the twelve month period ended June 30, 1996, and
operations in Berlin and Salisbury, Maryland. The aggregate consideration paid
by the Company for these acquisitions was $5.3 million, consisting of $3.0
million in cash, $1.6 million in notes and 61,262 shares of Common Stock.
On November 12, 1996, the Company completed the HHSI Acquisition, a provider of
durable medical equipment and infusion and respiratory therapy services with
$8.2 million in net revenues for the twelve month period ended June 30, 1996
with operations in New Jersey, Pennsylvania, Maryland and Illinois. As
consideration, the Company issued 455,238 shares of its Common Stock, net of
shares that will be treated similarly to treasury shares for accounting
purposes. The HHSI Acquisition will be accounted for as a pooling of interests
and, accordingly, the Company's financial statements issued for periods
subsequent to the acquisition will be combined with the accounts and operations
of the HHSI Acquisition, including the restatement of all prior periods
presented therein. The HHSI Acquisition is not expected to have a material
effect on the results of operations for the first quarter of fiscal 1997 upon
the restatement of the financial statements and notes thereto. Merger costs are
expected to amount to approximately $500,000, which will be recorded in the
second quarter of fiscal 1997.
10
<PAGE>
<TABLE>
<CAPTION>
Results of Operations
Percentage of net revenues
for the three months ended
September 30,
--------------------------
1995 1996
------------- ------------
<S> <C> <C>
Net revenues 100.0% 100.0%
Operating costs and expenses:
Patient care costs 48.8 48.3
General and administrative 40.9 34.9
Provision for doubtful accounts 2.6 3.6
Depreciation 0.8 1.0
Amortization 0.4 1.4
Interest expense, net 2.7 1.7
--- ---
Income before income taxes 3.8 9.1
Provision for income taxes 1.7 3.5
--- ---
Net income 2.1% 5.6%
=== ===
</TABLE>
Three Months Ended September 30, 1996 Compared with the Three Months Ended
September 30, 1995.
Net revenues. Net revenues increased to $25.3 million during the first quarter
of fiscal 1997, representing an increase of $6.5 million, or 34.5%, compared
with the first quarter of fiscal 1996. Of this increase, $5.0 million resulted
from an acquisition completed on September 30, 1995 and acquisitions completed
during the fourth quarter of fiscal 1996 and $1.5 million resulted from internal
growth at existing branch locations. Internal growth in net revenues relating to
services and products other than Medicare nursing and related patient services
from the first quarter of fiscal 1996 to the first quarter in fiscal 1997 was
22.0%. The growth primarily resulted from cross-selling the Company's services
and products and increasing patient referrals, particularly nursing services
referred to the Company by managed care organizations. During these periods, net
revenues from same-branch Medicare-reimbursed nursing services decreased 8.5% as
a result of the payor shift of Medicare home nursing patients to managed care
organizations, particularly in the Florida market.
Total Medicare nursing visits increased 25.2% to 130,000 visits in the first
quarter of fiscal 1997 compared with the first quarter of fiscal 1996. Total
non-Medicare nursing hourly and visit volume increased 14.3% and 43.2%,
respectively, during the same period. The increase in Medicare visits and the
increase in non-Medicare hours and visits resulted from the acquisitions of two
providers of home nursing services in the Tampa/St. Petersburg, Florida market
in the fourth quarter of fiscal 1996 and increased referrals. Respiratory
therapy, infusion therapy and durable medical equipment net revenues increased
$4.2 million, or 88.0%, to $9.1 million in the first quarter of fiscal 1997 from
$4.8 million in
11
<PAGE>
the first quarter of fiscal 1996 as a result of acquisitions, effective cross-
selling of these services and products to the Company's nursing patients and
increased referrals.
Patient care costs. Patient care costs increased to $12.2 million during the
first quarter of fiscal 1997, representing an increase of $3.0 million, or
33.1%, compared with the first quarter of fiscal 1996. This increase principally
related to increases in net revenues. These costs decreased as a percentage of
net revenues from 48.8% to 48.3%. This resulted from the increase in the portion
of net revenues from the higher-margin non-nursing services and products in the
first quarter of fiscal 1997 compared with the first quarter of fiscal 1996,
somewhat offset by the reduction in margins due to increased managed care
penetration, particularly in nursing and related patient services.
General and administrative expenses. General and administrative expenses
increased to $8.8 million during the first quarter of fiscal 1997, representing
an increase of $1.1 million, or 14.7%, compared with the first quarter of fiscal
1996. This increase principally related to increases in net revenues. These
costs decreased as a percentage of net revenues from 40.9% to 34.9% due to the
Company's continuing implementation of cost containment initiatives and because
certain general and administrative expenses did not increase with increases in
net revenues.
Provision for doubtful accounts. The provision for doubtful accounts increased
to $906,000 during the first quarter of fiscal 1997, representing an increase of
$418,000, or 85.8%, compared with the first quarter of fiscal 1996. This
increase was due partially to increases in net revenues. In addition, bad debt
expense increased as a percentage of net revenues from 2.6% to 3.6% primarily
due to an increase in net revenues from managed care organizations whose
approval process for authorization and payment for services is more complex than
other payors resulting in more coverage and payment denials. Also, managed care
organizations generally require patients to be responsible for copayments which
may be difficult to collect.
Depreciation. In the first quarter of fiscal 1997, depreciation expense
increased to $260,000. This represented an increase of $104,000, or 66.8%, over
the first quarter of fiscal 1996. Of this increase, $65,000 related to fixed
assets acquired in connection with acquisitions with the remainder resulting
from capital expenditures relating to vehicles, management information systems
and equipment in support of the Company's internal growth.
Amortization. In the first quarter of fiscal 1997, amortization increased to
$355,000. This represented an increase of $274,000, or 337.9%, over the first
quarter of fiscal 1996. This increase was attributable to amortization of
goodwill arising from acquisitions in fiscal 1996 and the first quarter of
fiscal 1997.
Interest expense, net. Interest expense, net, decreased $72,000, or 14.2%, to
$432,000 during the first quarter of fiscal 1997 compared with the first quarter
of fiscal 1996. This decrease resulted from the repayment of $10.0 million in
outstanding indebtedness during November 1995 with a portion of the net proceeds
from the Company's initial public offering of common stock. Offsetting this
reduction of indebtedness were increased borrowings relating to acquisitions in
fiscal 1996 and fiscal 1997.
Provision for Income Taxes. The Company's effective tax rate decreased to 39.0%
of pretax income for the first quarter of fiscal 1997 from 44.9% in the first
quarter of fiscal 1996, principally as a result of reduced pretax income as a
percentage of total pretax income relating to states with higher income tax
rates.
12
<PAGE>
Liquidity and Capital Resources
Working capital increased to $23.0 million at September 30, 1996 from $20.0
million at June 30, 1996, an increase of $3.0 million. The increase primarily
resulted from an increase in accounts receivable of $2.6 million, or 9.9%, to
$28.5 million. This increase was principally due to acquisitions, internal
growth and an increase in days net revenues outstanding. The increase in days
net revenues outstanding resulted from an increase in the portion of net
revenues from managed care organizations. Cash flow used in operations was $1.3
million for the first quarter of fiscal 1997 compared with $305,000 used in
operations in the first quarter of fiscal 1996 due primarily to the increase in
accounts receivable and a $1.9 million decrease in accounts payable and accrued
expenses during the first quarter of fiscal 1997.
Cash expenditures for acquisitions were $3.0 million and $12.8 million for the
first quarters of fiscal 1997 and 1996, respectively. On October 1, 1996, the
Company acquired substantially all the assets and assumed certain liabilities of
Medical Express, Inc., a provider of durable medical equipment and respiratory
therapy services with $2.5 million in net revenues for the twelve month period
ended June 30, 1996, and operations in Bristol, Pennsylvania. The aggregate
consideration paid for this acquisition was $3.2 million, including $1.5 million
in cash.
The Company has entered into a definitive agreement to purchase the stock of
R.S.D. Management Inc., a provider of primarily Medicare-reimbursed nursing and
related patient services with $18.3 million of net revenues for the twelve month
period ended June 30, 1996. The estimated aggregate consideration payable for
this acquisition is $11.9 million which includes approximately $10.1 million in
cash. The Company has entered into letters of intent to acquire certain assets
of (i) Alternative Home Care, Inc.,a provider of infusion therapy services with
$6.3 million of net revenues for the twelve months ended December 31, 1995, and
(ii) LHS Holdings, Inc.,a provider of primarily Medicare-reimbursed nursing and
related patient services and, to a lesser extent, infusion therapy services,
with $16.0 million in net revenues for the twelve month period ended June 30,
1996. The estimated aggregate consideration payable for the acquisitions under
letters of intent is $15.5 million which includes approximately $12.3 million in
cash. (The acquisition under a definitive agreement and the acquisitions under a
letter of intent are collectively referred to as the "Pending Acquisitions.")
There can be no assurance that the Pending Acquisitions will be consummated, or
if consummated, will not materially adversely affect the Company's financial
condition or results of operations.
Expenditures for purchases of capital equipment were $1.1 million and $298,000
for the first quarters of fiscal 1997 and 1996, respectively, including
$349,000 of purchases in fiscal 1997 funded through a secured master lease
arrangement. The Company expects to spend approximately $4.6 million for
capital expenditures for the remainder of fiscal 1997. The Company typically
funds its capital expenditures through a secured master lease arrangement.
On November 13, 1996, the Company had $26.7 million available for working
capital and acquisitions under its senior credit facilities. The Company has
begun discussions with its senior lenders to increase the amount of credit
available under its existing senior credit facilities. There can be no assurance
that the Company will be able to negotiate an increase in the amounts available
under its existing senior credit facilities.
13
<PAGE>
On November 1, 1996, the Company filed with the Securities and Exchange
Commission a registration statement for the sale in an underwritten public
offering of 3,623,500 shares of Common Stock, excluding the underwriters' over-
allotment option (the "Offering"). The Offering consists of 3,000,000 shares of
Common Stock to be sold by the Company with the remaining shares to be sold by
existing shareholders. Net proceeds to be received by the Company will be used
to repay bank indebtedness and pay a portion of the cash consideration for the
Pending Acquisitions. There can be no assurance that the Company will be able to
complete the Offering.
Management anticipates the Company's available lines of credit and cash flow
generated from operations will be adequate to enable the Company to fund its
operations, capital expenditures and anticipated growth for at least the next
twelve months.
14
<PAGE>
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
2.1 Stock Purchase Agreement among HHCA, Home Health Corporation of
New Hampshire, Randy DiSalvo, R.S.D. Management Services, Inc.,
Nursing Services Home Care, Inc. and Nursing Services Home Care,
Ltd.
11.1 Computation of primary earnings per share for the three month
periods ended September 30, 1996 and 1995.
27.0 Financial Data Schedule.
(a) Reports on Form 8-K.
The registrant did not file a report on Form 8-K during the
quarter ended September 30, 1996.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Home Health Corporation of America, Inc.
Date: November 14, 1996 /s/ Bruce J. Colburn
--------------------------------------
Bruce J. Colburn,
Chief Financial and Accounting Officer
16
<PAGE>
EXHIBIT INDEX
- -------------
2.1 Stock Purchase Agreement among HHCA, Home Health Corporation of New
Hampshire, Randy DiSalvo, R.S.D. Management Services, Inc., Nursing
Services Home Care, Inc. and Nursing Services Home Care, Ltd.
11.1 Computation of primary earnings per share for the three month periods
ended September 30, 1996 and 1995.
27.0 Financial Data Schedule.
17
<PAGE>
================================================================================
STOCK PURCHASE AGREEMENT
AMONG
HOME HEALTH CORPORATION OF AMERICA, INC.
HHCA NEW HAMPSHIRE, INC
RSD MANAGEMENT, INC.
NURSING SERVICES HOME CARE, INC.
NURSING SERVICES HOME CARE, LTD.
NURSING SERVICES STAFFING OF N.H., INC.
NURSING SERVICES, INC.
AND
RANDY DISALVO
OCTOBER 31, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Certain Definitions; Purchase and Sale of Shares; Certain Liabilities................. 2
1.1 Certain Definitions..................................................... 2
1.2 Purchase of Shares...................................................... 4
1.3 Assets Owned by Related Parties; Excluded Assets........................ 4
1.4 Loan Repayment and Capitalization....................................... 4
2. Acquisition Price and Closing......................................................... 4
2.1 Acquisition Price....................................................... 4
2.2 Manner of Payment....................................................... 5
2.3 Acquisition Price Adjustment............................................ 7
2.4 Uncollected Accounts Receivable Adjustments............................. 9
2.5 Unbooked Cost Adjustments............................................... 9
2.6 Holdback Amount........................................................ 10
2.7 The Closing............................................................ 10
3. Representations and Warranties of Seller............................................ 10
3.1 Organizational Status.................................................. 10
3.2 Qualification.......................................................... 11
3.3 Authorization; No Conflict............................................. 11
3.4 Financial Statements of Seller......................................... 11
3.5 Compliance with Laws................................................... 12
3.6 Permits................................................................ 13
3.7 Litigation............................................................. 13
3.8 Leased Real Property................................................... 13
3.9 Accounts Receivable.................................................... 14
3.10 Inventory.............................................................. 14
3.11 Personal Property Leases............................................... 14
3.12 Contracts and Other Agreements......................................... 14
3.13 Consents............................................................... 16
3.14 Intellectual Property Rights........................................... 16
3.15 Equipment.............................................................. 16
3.16 Title; Location of Assets.............................................. 16
3.17 Undisclosed Liabilities................................................ 16
3.18 Relationships.......................................................... 17
3.19 Employee Benefit Plans................................................. 17
3.20 Employee Relations..................................................... 18
3.21 Transactions with Related Parties...................................... 18
3.22 No Material Adverse Change; Absence of Certain Changes................. 18
</TABLE>
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3.23 Books and Records...................................................... 19
3.24 Insurance.............................................................. 19
3.25 Taxes.................................................................. 20
3.26 No Other Agreements to Sell the Assets or Shares....................... 22
3.27 Environmental.......................................................... 22
3.28 Non-Solicitation....................................................... 23
3.29 No Bankruptcy.......................................................... 23
3.30 Shares................................................................. 23
3.31 Disclosure............................................................. 23
4. Representations and Warranties of Purchaser.......................................... 24
4.1 Organizational Status.................................................. 24
4.2 Qualification.......................................................... 24
4.3 Authorization; No Conflict; Shares..................................... 24
4.4 Compliance with Laws................................................... 25
4.5 Consents............................................................... 25
4.6 Litigation............................................................. 25
4.7 SEC Filings............................................................ 26
4.8 Financial Statements................................................... 26
4.9 Disclosure............................................................. 26
5. Covenants of the Parties............................................................. 26
5.1 Conduct of Business.................................................... 27
5.2 Access to Information.................................................. 30
5.3 Governmental Permits and Approvals; Consents........................... 30
5.4 Assignment of Contracts, Etc. ......................................... 31
5.5 Maintenance of Permits................................................. 31
5.6 Employees; Employee Compensation....................................... 31
5.7 Accounts Receivable.................................................... 31
5.8 Title; Risk of Loss.................................................... 31
5.9 Non-solicitation....................................................... 32
5.10 Regulatory Approvals................................................... 32
5.11 Monthly Financial Statements and Cost Reports.......................... 32
5.12 SEC and NASDAQ Disclosure.............................................. 33
5.13 Current Period Tax Returns............................................. 33
6. Conditions Precedent to the Purchasing Parties' Obligations.......................... 34
6.1 Regulatory Approvals................................................... 34
6.2 Closing Deliveries..................................................... 34
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6.3 Representations and Warranties on Closing Date......................... 34
6.4 Terms, Covenants and Conditions........................................ 35
6.5 Consents, Approvals, Etc. ............................................. 35
6.6 No Material Adverse Change............................................. 35
6.7 Absence of Litigation.................................................. 35
6.8 Absence of Liens; Payment of Loans..................................... 35
6.9 Contribution to Capital; Repayment of HHCA Loan........................ 36
6.10 Subordination Agreement................................................ 36
6.11 Subscription Agreement................................................. 36
6.12 Registration Rights Agreement.......................................... 36
6.13 Employment Agreements.................................................. 36
6.14 Restrictive Covenant Agreement......................................... 36
6.15 Escrow Agreement....................................................... 36
6.16 Stock Certificates and Corporate Records............................... 36
6.17 Opinion of Seller's Counsel............................................ 37
6.18 Additional Documents................................................... 37
6.19 Approval of HHCA Board................................................. 37
6.20 Approval of HHCA's Lenders............................................. 37
6.21 Satisfactory Completion of Due Diligence............................... 37
6.22 Marital Rights......................................................... 37
7. Conditions Precedent to the Selling Parties' Obligations............................. 38
7.1 Closing Deliveries..................................................... 38
7.2 Representations and Warranties on Closing Date......................... 38
7.3 Terms, Covenants and Conditions........................................ 38
7.4 Absence of Litigation.................................................. 38
7.5 Closing Cash Payments and Loan Repayment............................... 39
7.6 Note................................................................... 39
7.7 HHCA Stock............................................................. 39
7.8 Subordination Agreement................................................ 39
7.9 Subscription Agreement................................................. 39
7.10 Registration Rights Agreement.......................................... 39
7.11 Employment Agreements.................................................. 39
7.12 Escrow Agreement....................................................... 39
7.13 Opinion of Purchaser's Counsel......................................... 39
7.14 HHCA Guaranty.......................................................... 39
8. Confidentiality...................................................................... 40
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9. Books and Records; Uses of Names..................................................... 41
10. Survival of Representations and Warranties........................................... 41
11. Indemnification...................................................................... 42
11.1 Obligation to Indemnify by the Selling Parties......................... 42
11.2 Obligation to Indemnify by Purchaser................................... 42
11.3 Losses................................................................. 42
11.4 Procedures for Claims Between the Parties.............................. 43
11.5 Defense of Third-Party Actions......................................... 43
11.6 Limitation of Indemnification.......................................... 44
11.7 Exclusive Remedy....................................................... 45
12. Breaches and Defaults; Termination; Remedies......................................... 45
12.1 Termination............................................................ 45
12.2 Effect of Termination.................................................. 46
12.3 Specific Performance................................................... 46
13. Miscellaneous........................................................................ 47
13.1 Consent to Jurisdiction................................................ 47
13.2 Expenses............................................................... 47
13.3 Further Assurances..................................................... 47
13.4 Indemnification for Brokerage.......................................... 47
13.5 Severability........................................................... 48
13.6 Notices................................................................ 48
13.7 Entire Agreement....................................................... 49
13.8 Disclosure Schedules; Independent Significance......................... 49
13.9 Amendments and Waivers................................................. 50
13.10 Governing Law.......................................................... 50
13.11 Binding Effect; Assignment............................................. 50
13.12 Joint and Several...................................................... 50
13.13 Beneficiaries of Agreement............................................. 50
13.14 Counterparts; Facsimile Signatures..................................... 50
13.15 Exhibits and Schedules................................................. 51
13.16 Formation of Purchaser................................................. 51
13.17 Headings............................................................... 52
</TABLE>
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LIST OF EXHIBITS AND SCHEDULES
------------------------------
EXHIBITS
--------
2.2(b)(1) The Note
2.2(b)(2) Escrow Agreement
6.10 The Subordination Agreement
6.11 The Subscription Agreement
6.12 The Registration Rights Agreement
6.13(i)(ii)(iii) The Employment Agreements
SCHEDULES
---------
1.4 Loan Repayment and Capitalization
3.3 Authorization; No Conflict
3.5 Compliance with Laws
3.6 Permits
3.7 Litigation
3.8 Leased Real Property
3.9 Accounts Receivable
3.10 Inventory
3.11 Personal Property Leases
3.12 Contracts and Other Agreements
3.13 Consents
3.14 Intellectual Property Rights
3.15 Equipment
3.16 Title; Location of Assets
3.17 Undisclosed Liabilities
3.19 Employee Benefit Plans
3.20 Employee Relations
3.22 No Material Adverse Change; Absence of Certain Changes
3.24 Insurance
3.25 Taxes
3.27 Environmental
4.3 Authorization; No Conflict; Shares
4.5 Consents
4.6 Litigation
4.7 SEC Filings
5.1 Conduct of Business
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<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT made this 31st day of October, 1996, among
HHCA NEW HAMPSHIRE, INC., a New Hampshire corporation or its affiliated assignee
("Purchaser"), HOME HEALTH CORPORATION OF AMERICA, INC. a Pennsylvania
corporation ("HHCA")(Purchaser and HHCA are sometimes hereinafter referred to as
the "Purchasing Parties"), RANDY DISALVO, an individual (the "Seller"), RSD
MANAGEMENT, INC., a New Hampshire corporation ("RSD"), NURSING SERVICES HOME
CARE, INC., a New Hampshire corporation ("NSH"), NURSING SERVICES HOME CARE,
LTD., a Massachusetts corporation ("NSL"), NURSING SERVICES STAFFING OF N. H.,
INC.,, a New Hampshire corporation ("NSS"), and NURSING SERVICES, INC. , a
Massachusetts corporation ("NSI") (RSD, NSH, NSL, NSS and NSI are sometimes
hereinafter referred to as the "Selling Companies" and the Selling Companies
together with Seller are sometimes hereinafter referred to as the "Selling
Parties").
W I T N E S S E T H
WHEREAS, Seller is the owner of all of the issued and outstanding capital
stock of RSD and RSD is the owner of all of the issued and outstanding capital
stock of NSH, NSL, NSS and NSI;
WHEREAS, Purchaser is a wholly-owned subsidiary of HHCA;
WHEREAS, the Selling Companies are providers of (i) staffing and related
services to hospitals, nursing homes and other heath care providers and (ii)
nursing and related home health services to patients which include but are not
limited to qualified recipients under Medicaid, Massachusetts Executive Office
of Elder Affairs ("Eldercare") and Medicare programs (the "Business");
WHEREAS, HHCA has loaned Seller the sum of $350,000 pursuant to the terms
of a Promissory Note dated August 8, 1996 (the "HHCA Loan") which loan has been
guaranteed by the Selling Companies pursuant to the terms of a Guarantee and
Security Agreement dated August 8, 1996;
WHEREAS, Seller has loaned the proceeds of the HHCA Loan to RSD (the
"August Seller Loan"); and
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to
acquire from Seller, all of the issued and outstanding capital stock of RSD in
accordance with the terms and conditions hereinafter set forth.
1
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereto, intending to be legally
bound hereby, agree as follows:
1. Definitions; Purchase and Sale of Shares; Certain Liabilities.
-------------------------------------------------------------
1.1 Definitions. For purposes of this Agreement, the following terms
-----------
have the following meanings:
(a) "affiliate", with respect to any person, means any other person
controlling, controlled by or under common control with such person;
(b) "Accounts Receivable" means all accounts and notes receivable
and other claims for money due to the Selling Companies arising from the
rendering of services or the sale of goods or materials, and all negotiable
instruments or other instruments and chattel paper generated in connection with
the conduct of the Business;
(c) "Books and Records" means all of the books and records, manuals,
files and operating data (including without limitation patient and customer
records, referral source records, Medicare, Medicaid, Eldercare and other cost
reports, tax returns, payroll records, employee benefits records, employee
information, accounts payable records, inventory records, maintenance records
and asset history records, patient and customer lists, ledgers, sales and credit
reports, marketing and service records, credit information, distribution
records, economic, demographic and other studies, business plans and other
proposals and any other financial information, and computer software and data in
computer readable and/or machine readable form used to maintain such books and
records, together with the media on which such software and data are stored and
all documentation relating thereto) of the Selling Companies;
(d) "Contracts" means all rights of the Selling Companies under all
contracts, agreements and commitments (including without limitation third party
payor agreements, Medicare, Medicaid, Eldercare and other provider agreements,
the Personal Property Leases and the Real Property Leases and contracts of the
type referred to in Section 3.12(a));
---------------
(e) "Environmental Laws" means all federal, state, county or local
environmental statutes, regulations, ordinances, administrative or judicial
judgments or orders (including without limitation the Resource Conservation
Recovery Act of 1976, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Clean Air Act, the Clean Water Act, the Hazardous
Material Transportation Act, the Safe Drinking Water Act, the Federal Water
Pollution Control Act, and the Toxic Substances Control Act and any similar
federal, state or local laws and any regulations under any of the foregoing).
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(f) "Equipment" means all of the Selling Companies' furniture,
fixtures, equipment and machinery, vehicles, supplies, computer hardware and
software (including all documentation relating thereto), office equipment,
improvements, parts and other tangible personal property other than Inventory,
whether or not obsolete, including such equipment used in operating the
Business;
(g) "Excluded Assets" means the life insurance policies owned by any
Selling Company insuring the life of Seller;
(h) "Improvements" means all of the Selling Companies' interest in
Leased Real Property and in all leasehold improvements thereto;
(i) "Intellectual Property Rights" means all of the Selling
Companies' intellectual property rights relating to the Business, including the
right to use computer software programs, patents and applications therefor,
know-how, trade secrets, secret formulas, business and marketing plans,
copyrights and applications therefor, trademarks, service marks, trade names and
all logos, names and slogans used by the Seller Companies in conjunction with
the Business including without limitation the Selling Companies' right to use
their names and any variations thereof, in each case, to the extent that the
Selling Companies possess such rights (collectively, the "Intellectual Property
Rights");
(j) "Inventory" means all inventory of the Selling Companies
(including durable medical equipment used for demonstration purposes, leased,
rented or on consignment);
(k) "Leased Real Property" means all of the Selling Companies'
interest in all buildings, facilities and other structures and improvements
subject to a Real Property Lease;
(l) "Permits" means all of the Selling Companies' certificates of
need, Medicare, Medicaid, Eldercare and other licenses, provider numbers,
permits, franchises, registrations and regulatory approvals used in connection
with the Business to the extent transferable under applicable law or with any
required consent;
(m) "Personal Property Leases" means all leases of personal property
under which any of the Selling Companies is a lessee or lessor;
(n) "Prepaid Expenses" means all of the Selling Companies' prepaid
insurance, rent, taxes and other expenses, advance payments, deferred charges,
rights of offset, security and other deposits deposited by Selling Companies
with third parties with respect to Leased Real Property or otherwise, and claims
for refunds, credits and the like;
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<PAGE>
(o) "Real Property Leases" means all leases of real property under
which any of the Selling Companies is a lessee or lessor; and
(p) "Related Party" means (i) any past or present partner,
shareholder or affiliate of the Selling Parties, (ii) any director, officer,
partner or shareholder of any affiliate of the Selling Parties, including
without limitation, NSS and NSI, (iii) any relative or spouse of any such person
or (iv) Seller.
1.2 Purchase of Shares. On the terms and subject to the conditions
------------------
contained in this Agreement, Seller agrees to sell, assign, transfer and deliver
to Purchaser and Purchaser agrees to purchase from Seller, free and clear of all
liens or other encumbrances, all issued and outstanding shares of capital stock
of RSD (collectively referred to herein as the "Shares").
1.3 Assets Owned by Related Parties; Excluded Assets. If any Related
------------------------------------------------
Party owns any assets that are used in the operation of the Business, Seller
shall cause such Related Party to transfer such assets to the Selling Parties
prior to Closing (at no cost to Purchaser). The Excluded Assets shall be
transferred to Seller prior to the Closing.
1.4 Loan Repayment and Capitalization. The Selling Parties
---------------------------------
acknowledge and agree that Schedule 1.4 sets forth a complete and accurate list
------------
of all indebtedness for borrowed money provided to the Selling Companies,
including without limitation, principal and interest under (i) all loans
provided by LINC Financial (the "Linc Indebtedness"), (ii) all loans provided by
Merrill Lynch (the "Merrill Lynch Indebtedness"), (iii) all loans provided by
Elayne and Julian Roberts (the "Roberts Indebtedness"), (vi) the August Seller
Loan and (v) all other loans provided by Seller (the "Seller Indebtedness")(the
Seller Indebtedness shall not include the August Seller Loan). Contemporaneous
with the Closing, (x) Purchaser and HHCA shall cause the Selling Companies to
pay in full the Linc Indebtedness, the Merrill Lynch Indebtedness, the Roberts
Indebtedness and the August Seller Loan and shall provide the Selling Companies
with sufficient funds to enable such payments to be made, (y) Seller shall repay
in full the HHCA Loan, and (z) the Seller Indebtedness shall be contributed to
the capital of RSD and extinguished to the extent necessary to cause the
Consolidated Net Book Value of RSD (hereinafter defined) to equal the Base Net
Book Value (hereinafter defined)(the "Contribution to Capital") and the
remaining Seller Indebtedness, if any (the "Remaining Seller Indebtedness"),
shall be repaid in full by the Selling Companies. Notwithstanding the
foregoing, Seller shall be responsible for any stated prepayment fees and any
other similar fees, if any, incurred in connection with the retirement of the
foregoing obligations.
2. Acquisition Price and Closing.
-----------------------------
2.1 Acquisition Price. The maximum aggregate acquisition price for
-----------------
the Shares shall be Seven Million Seven Hundred Fifty Thousand Dollars
($7,750,000)(the "Preliminary
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<PAGE>
Acquisition Price"), subject to adjustment as provided herein (as adjusted, the
"Acquisition Price").
2.2 Manner of Payment. Subject to adjustment as provided in this
-----------------
Agreement, at Closing:
(a) Purchaser and HHCA shall pay to Seller by wire transfer of
immediately available funds to such banks and accounts thereat as shall be
specified in writing by Seller, the aggregate amount of Four Million Two Hundred
Fifty Thousand Dollars ($4,250,000) plus or minus the Estimated Acquisition
Price Adjustment (as hereinafter defined).
(b) Purchaser and HHCA shall deliver to Citizens Bank or another
financial institution acceptable to the parties (the "Escrow Agent") (i) cash in
the amount of One Million Dollars ($1,000,000)(the "Holdback Amount"), (ii) the
Promissory Note of Purchaser and HHCA payable to Seller in the original
principal amount of One Million Dollars ($1,000,000) in the form of Exhibit
-------
"2.2(b)(1)" hereto (the "Note"), and (iii) stock certificates issued to Seller
- -----------
evidencing ownership of unregistered shares of the common stock of HHCA having a
value (as determined by this Section) of One Million Dollars ($1,000,000)(the
"HHCA Stock"). The HHCA Stock shall be valued on the date of Closing based on
the average of the last transaction prices quoted by the NASDAQ System for a
share of HHCA common stock during a period of ten (10) trading days occurring
immediately prior to the third business day preceding the Closing. The Holdback
Amount, the Note and the HHCA Stock will be held in escrow (the "Escrow") by the
Escrow Agent in accordance with the terms and conditions set forth in the Escrow
Agreement dated the date of Closing among Seller, the Purchasing Parties and the
Escrow Agent substantially in the form of Exhibit 2.2(b)(2) hereto (the "Escrow
-----------------
Agreement").
(c) In the event that Actual Net Revenue (hereinafter defined) for
each of the calendar years set forth below (the "Earnout Period") exceeds the
minimum net revenue for such year set forth below (the "Target Net Revenue"),
Purchaser and HHCA shall pay Seller an amount equal to Three (3) times the
difference between the Actual Net Revenue and the Target Net Revenue for each
such year (the "Earnout Payment"). The aggregate amount of all Earnout Payments
made hereunder shall not exceed Five Hundred Thousand Dollars ($500,000)(the
"Maximum Earnout Amount").
Calendar Year Target Net Revenue
------------- ------------------
1997 $200,000
1998 The greater of $200,000 or prior years Actual Net Revenue
1999 The greater of $200,000 or prior years Actual Net Revenue
-5-
<PAGE>
"Eligible Companies" shall mean and be limited to NSS and NSI and shall not
include RSD, HHCA or any of their other subsidiaries.
"Net Revenue" shall mean the Eligible Companies' consolidated net revenue
from the provision of professional nursing and related services to private pay
patients (i.e. without third party reimbursement) and from the provision of
staffing and related services to hospitals, nursing homes and other health care
providers, after deduction of all direct costs and expenses of providing such
services and an allocation of RSD overhead (which allocation shall be based on
the percentage of revenue generated by the Eligible Companies in proportion to
the total revenue generated by the Selling Companies), except for income taxes,
interest expense and allocated HHCA home office expense to RSD or the Eligible
Companies. Net Revenue shall not include revenues and related expenses arising
in connection with (i) the sale or provision of services or goods not provided
or sold by the Eligible Companies prior to the date hereof, or (ii) businesses
acquired after the date hereof. The Purchasing Parties shall endeavor to conduct
such excluded businesses through companies other than the Eligible Companies.
During the Earnout Period, the Purchasing Parties:
(i) shall not distribute or reallocate any revenue attributable to the
Eligible Companies;
(ii) shall manage the Eligible Companies in good faith and not with a
view towards preventing the Eligible Companies from achieving the Target Net
Revenue;
(iii) shall permit Seller and Salvatore DiSalvo to devote a reasonable
amount of time to the Eligible Companies subject to the terms of the Employment
Agreements; and
(vi) shall not materially impair the ability of the Seller to earn the
Maximum Earnout Amount, subject to HHCA Policies and Procedures (as defined in
the Employment Agreement).
Within one hundred twenty (120) days after each calendar year referred to
above (the "Determination Period"), Purchaser and HHCA shall notify Seller in
writing of the Actual Net Revenue from the preceding calendar year and shall
provide supporting work papers. Actual Net Revenue shall be determined in
accordance with GAAP (hereinafter defined), subject to the modifications set
forth herein. Unless there is a disagreement among the parties, the required
Earnout Payment will be made within the Determination Period. If Seller does
not agree with Purchaser's determination of Actual Net Revenue for any calendar
year during the Earnout Period, Seller shall notify Purchaser and HHCA in
writing within 30 days of receipt thereof and Purchaser, HHCA and Seller shall
use reasonable efforts to resolve such dispute. Any dispute between such
parties relating to the required Earnout Payment shall be resolved by Peat
Marwick (the "Independent Accountant") who shall be engaged to provide a final
and conclusive resolution of all unresolved disputes within thirty (30) calendar
days after such engagement. The determination of the Independent Accountant
shall be final and binding on such parties and the
-6-
<PAGE>
fees and expenses of the Independent Accountant shall be borne by the party who,
in the Independent Accountant's determination, submitted a disputed amount which
differs more significantly from the amount finally determined by the Independent
Accountant.
In the event that substantially all of the assets or stock of the Eligible
Companies is sold prior to the end of the Earnout Period, at the closing on such
sale, Purchaser and HHCA shall pay Seller an amount equal to the Maximum Earnout
Amount discounted to present value using a rate of interest equal to eight
percent (8%) less any Earnout Payments previously made to Seller; provided,
however, that such acceleration shall not be triggered by a merger of HHCA where
HHCA is the surviving entity (and Employment Agreements continue in accordance
with the terms thereof) or by a merger where HHCA is not surviving entity so
long as the surviving entity agrees in writing to continue to pay the Earnout
Payments in accordance with the terms hereof and to honor the terms of the
Employment Agreements. In the event that Seller's or Salvatore DiSalvo's
employment under the Employment Agreements (hereinafter defined) is terminated
for any reason, the Earnout Payments, if any, will continue to be made in
accordance with the terms hereof.
2.3 Acquisition Price Adjustment.
----------------------------
(a) The Preliminary Acquisition Price shall be adjusted (the
"Acquisition Price Adjustment") upward or downward on a dollar-for-dollar basis,
as applicable, to the extent that the "Consolidated Net Book Value of RSD" (as
hereinafter defined) reflected on the Closing Date Balance Sheet is greater or
less than Sixty Thousand Dollars ($60,000) (the "Base Net Book Value"). For
purposes of this Agreement, "Consolidated Net Book Value of RSD" shall mean the
aggregate value reflected on the Closing Date Balance Sheet (determined in
accordance with generally accepted accounting principles consistently applied
("GAAP")) of the Selling Companies' (i) cash, (ii) Accounts Receivable (less
allowance for doubtful accounts and reserves for cost report disallowances and
contractual allowances)(the "Closing Date Accounts Receivable"), plus (iii)
Inventory, plus (iv) Prepaid Expenses, plus (v) Equipment and Improvements (net
of accumulated depreciation), plus (vi) the Contribution to Capital, less (vii)
cash overdrafts, less (viii) short term and long term borrowings including the
Linc Indebtedness, the Merrill Lynch Indebtedness, the Roberts Indebtedness, the
August Seller Loan and the Remaining Seller Loan, if any, less (ix) amounts due
to Medicare and other third party payors, less (x) accounts payable, accrued
expenses and other liabilities (the "Accounts Payable and Accrued Expenses") and
less (xi) customer deposits.
(b) For purposes of determining Consolidated Net Book Value of
RSD, (i) the Excluded Assets and the Selling Parties Expenses (hereinafter
defined, which shall be borne entirely by Seller and not the Selling Companies)
shall not be taken into account, (ii) the Linc Indebtedness, the Merrill Lynch
Indebtedness, the Roberts Indebtedness, the August
-7-
<PAGE>
Seller Loan and the Remaining Seller Indebtedness, if any, shall be treated as
if each such loan was still outstanding and (iii) the Contribution to Capital
shall be taken into account.
(c) At least five (5) business days prior to Closing, Seller will
cause Simione & Simione (the "Selling Parties' Accountant") to deliver to
Purchaser a good faith estimate of the Acquisition Price Adjustment (the
"Estimated Acquisition Price Adjustment") as of September 30, 1996 adjusted to
reflect an estimate of the actual balance of any cash and indebtedness as of the
Closing. Purchaser and its accountants shall have the right to participate in
the determination of the Estimated Acquisition Price Adjustment.
(d) As promptly as practicable (but in no event later than ninety
(90) calendar days after the Closing Date) Seller shall cause the Selling
Parties' Accountant to prepare in accordance with GAAP (subject to the
adjustments required by this Agreement) and deliver to Purchaser and its
accountants for their review and comment (i) a consolidated balance sheet for
the Selling Companies dated as of the Closing Date (the "Closing Date Balance
Sheet"), (ii) a consolidated income statement for the Selling Companies dated as
of the Closing date (the "Closing Date Income Statement") and (iii) an
accompanying closing statement (the "Closing Statement") reasonably detailing as
of the Closing Date its final determination of each element of the Acquisition
Price Adjustment. To facilitate the preparation of the foregoing financial
statements, the Purchaser shall provide the Selling Parties' Accountant and
Seller with reasonable and complete access to the Books and Records and to the
Selling Companies' personnel; provided, however that Purchaser and its
accountants shall have the right to participate in the preparation of the
foregoing financial statements and that such access will not unreasonably
interfere with the operations of the Selling Companies. Seller shall cause the
Selling Parties' Accountants to provide Purchaser and its accountants with such
supporting documentation as they shall reasonably request.
(e) If Purchaser objects to any amounts reflected on the Closing
Date Balance Sheet, the Closing Date Income Statement or the Closing Statement,
Purchaser must, within twenty (20) calendar days after Purchaser's receipt of
the Closing Date Balance Sheet, the Closing Date Income Statement and Closing
Statement, give written notice (the "Notice") to Seller specifying in reasonable
detail Purchaser's objections, or the Selling Parties' Accountant's
determination of the Acquisition Price Adjustment and the financial statements
referred to above shall be final, binding and conclusive on the parties. With
respect to any disputed amounts, the parties shall meet in person and negotiate
in good faith during the fifteen (15) calendar day period (the "Resolution
Period") after the date of Seller's receipt of the Notice to resolve any such
disputes. If the parties are unable to resolve all such disputes within the
Resolution Period, then within five (5) business days after the expiration of
the Resolution Period, all disputes shall be submitted to the Independent
Accountant who shall be engaged to provide a final and conclusive resolution of
all unresolved disputes within thirty (30) calendar days after such engagement.
The determination of the Independent Accountant shall be final, binding and
-8-
<PAGE>
conclusive on the parties hereto, and the fees and expenses of the Independent
Accountant shall be borne by the party who, in the Independent Accountant's
determination, submitted a disputed amount which differs more significantly from
the amount finally determined by the Independent Accountant.
(f) If the Acquisition Price Adjustment (as finally determined in
accordance with the provisions set forth above) is a (i) positive amount, then,
within five (5) business days after such final determination, Purchaser shall
pay to Seller such amount in immediately available funds, or (ii) negative
amount, then, within five (5) business days after such final determination, the
Seller shall pay to Purchaser such amount in immediately available funds. If
Seller fails to pay such amount, the parties shall cause the Escrow Agent to
release to Purchaser from the Escrow such unpaid amount in immediately available
funds. Notwithstanding the foregoing, all undisputed amounts shall be paid
promptly by the party responsible for the payment thereof.
2.4 Uncollected Accounts Receivable Adjustments. In the event
-------------------------------------------
that all of the Closing Date Accounts Receivable (less reserves for bad debts,
cost report disallowances and contractual allowances set forth on the Closing
Date Balance Sheet) are not fully collected by Purchaser within fifteen (15)
months after the Closing (the "Uncollected Accounts Receivable"), the parties
shall cause the Escrow Agent to release to Purchaser in immediately available
funds from the Escrow an amount equal to the Uncollected Accounts Receivable and
Seller shall promptly pay to Purchaser any remaining deficiency. Any
Uncollected Accounts Receivable shall be assigned to Seller without recourse to
Purchasing Parties and to the extent that any such Uncollected Accounts
Receivable are collected by Purchaser or the Selling Companies after such
assignment, they shall be promptly paid over to Seller. Purchaser shall use
commercially reasonable efforts to collect the Closing Date Accounts Receivable
in accordance with its established collection practices and policies; provided,
however, that Purchaser shall not be required to engage a collection firm or to
commence any legal action in connection therewith. Seller may pursue and collect
any Uncollected Accounts Receivable assigned to Seller. Notwithstanding the
foregoing, with respect to the collection of Medicare Uncollected Accounts
Receivable, (i) such amounts shall not be assigned to Seller, (ii) Purchaser
(with the assistance of Seller) shall appeal any such amounts which remain
unpaid after 15 months and (iii) the proceeds thereof, if any, when collected,
less the reasonable costs incurred in the collection thereof, will be paid by
Purchaser promptly to Seller.
2.5 Unbooked Cost Adjustments. In the event that after the Closing
-------------------------
the Selling Companies shall incur or receive any Medicare, Medicaid, Eldercare
or other unbooked cost adjustment or audit (which is not taken into account as
part of the Acquisition Price Adjustment) with respect to any period prior to
the Closing, any such negative cost or audit adjustments shall be promptly
reimbursed by Seller and any such positive cost or audit adjustments shall be
promptly paid to Seller by Purchaser. Purchaser (with the assistance of
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<PAGE>
Seller) shall appeal any audit determinations at Seller's request, and the
proceeds thereof, if any, when collected, less the reasonable costs incurred in
the collection thereof, will be paid by the Purchaser promptly to Seller.
2.6 Holdback Amount. Subject to the provisions of Section 11
--------------- ----------
of this Agreement, as security for the indemnities and other agreements of the
Selling Parties contained in this Agreement, on the Closing Date the Escrow
Agent shall retain the Holdback Amount, the Note and the HHCA Stock in
accordance with the terms of the Escrow Agreement. Nothing in this Section 2.6
-----------
or in the Escrow Agreement shall be construed as limiting the liability of the
Selling Parties under this Agreement to the amount of the Holdback Amount, the
Note or the HHCA Stock nor shall that amount be considered as liquidated damages
for any breach of this Agreement by the Selling Parties.
2.7 The Closing. Unless this Agreement shall have been earlier
-----------
terminated in accordance with the terms hereof, the transactions contemplated by
this Agreement shall be consummated (the "Closing") at the offices of Kleinbard,
Bell & Brecker on the last business day to fall within the ten (10) calendar day
period after receipt by Purchaser of the Regulatory Approvals (as hereinafter
defined), or at such other place or on such other date as Purchaser and Seller
may agree in writing; provided, however, that if Purchaser shall have waived the
condition that the Regulatory Approvals be granted (in accordance with the
provisions of Section 5.10), the Closing shall be consummated on the last
------------
business day to fall within the ten (10) calendar day period after Purchaser
notifies Seller in writing of Purchaser's intention to waive such condition. The
date on which the Closing shall occur is referred to in this Agreement as the
"Closing Date". The Closing shall be deemed to have occurred as of 12:01 a.m. on
the Closing Date.
3. Representations and Warranties of Seller. Selling Parties jointly and
----------------------------------------
severally represent and warrant to Purchasing Parties that:
3.1 Organizational Status. RSD, NSH and NSS are New Hampshire
---------------------
corporations duly organized, validly existing and in good standing under the
laws of the State of New Hampshire and have all requisite corporate power and
authority to own, lease and operate their respective assets, properties, and the
Business, and to carry on the Business as now being conducted. NSL and NSI are
Massachusetts corporations duly organized, validly existing and in good standing
under the laws of the State of Massachusetts and have all requisite corporate
power and authority to own, lease and operate their respective assets,
properties, and the Business, and to carry on the Business as now being
conducted. The copies of the articles of incorporation and bylaws of RSD, NSH,
NSL, NSI and NSS, each as amended to date, which have been heretofore delivered
to Purchaser, are correct and complete and are in full force and effect. The
Seller is the sole stockholder of RSD. RSD does not, directly or indirectly, own
any stock of, or any interest in, any other person, except for NSH, NSL, NSS and
NSI which are each wholly owned subsidiaries of RSD.
-10-
<PAGE>
3.2 Qualification. Each Selling Company is duly qualified to
-------------
do business as a foreign corporation and is in good standing as a foreign
corporation in all states or jurisdictions in which the nature of the Business
as presently operated by it or the character of the property owned or leased by
it with respect to the Business makes such qualification or authorization
necessary, except where the failure to be so qualified would not have a material
adverse effect on the Selling Companies taken as a whole.
3.3 Authorization; No Conflict. Each Selling Company has the
--------------------------
corporate power and authority and the Seller has the legal right and power
required to enter into, execute and deliver this Agreement and the documents and
other agreements required to be executed and delivered hereunder and to perform
fully their obligations hereunder and thereunder. This Agreement has been duly
executed and delivered and constitutes, and each of the other agreements and
documents to be delivered by a Selling Party hereunder when executed and
delivered by such Selling Party will constitute, the valid and binding
obligation of such Selling Party, enforceable in accordance with their
respective terms, except to the extent that enforceability may be limited by the
effect of bankruptcy, reorganization or other similar laws relating to or
affecting the rights of creditors generally. Except as set forth on Schedule
--------
3.3, the execution, delivery and performance of this Agreement and the documents
- ---
and other agreements to be delivered hereunder by the Selling Parties and the
consummation of the transactions contemplated hereby and thereby by the Selling
Parties will not (i) violate any provision of a Selling Companies articles of
incorporation or bylaws, (ii) violate, conflict with or result in the breach of
any of the terms of, result in a material modification of the effect of,
otherwise give any other contracting party the right to terminate, or constitute
(or with notice or lapse of time or both constitute) a default under, any
material contract or other agreement to which a Selling Party is a party or by
or to which any of them or any of their respective assets or properties may be
bound or subject, (iii) violate any order, judgment, injunction, award or decree
of any court, arbitrator or governmental or regulatory body by which any Selling
Party or the assets, properties or Business of a Selling Party is bound, which
could reasonably be expected to have a material adverse effect on the Selling
Companies, the Shares or the Business taken as a whole. (iv) violate any
statute, law or regulation, which violation could reasonably be expected to have
a material adverse effect on the Selling Companies, the Shares or the Business
taken as a whole or (v) violate or cause any revocation of or limitation on any
Permit (A) which is necessary to the lawful conduct of the Business or (B) the
violation, revocation or limitation of which could reasonably be expected to
have a material adverse effect on the Selling Companies, the Shares or the
Business taken as a whole.
3.4 Financial Statements of Seller. Selling Parties have
------------------------------
delivered to Purchaser copies of the consolidated and unconsolidated, as
applicable, financial statements of the Selling Companies (including balance
sheets, statements of income and retained earnings, and statements of cash
flows, together with notes thereto) as of June 30, 1996, 1995 and 1994
(collectively, the "Financial Statements"). As used herein the term "Balance
Sheet Date" shall
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<PAGE>
mean June 30, 1996. The Financial Statements were reviewed (except the June 30,
1996 Financial Statements which have been audited) by Simione & Simione
certified public accountants whose report without qualification thereon is
included with such Financial Statements. The Financial Statements (i) fairly
present the financial condition, assets and liabilities of the Selling Companies
at their respective dates and the results of their operations and changes in
their cash flows for the periods covered thereby, (ii) were prepared in
accordance with GAAP, and (iii) were prepared from the books and records of RSD
and its subsidiaries. Selling Parties have also delivered to Purchaser copies of
the consolidated balance sheet of RSD (the "Interim Balance Sheet") as of August
31, 1996 (the "Interim Balance Sheet Date"), and a consolidated statement of
operations of RSD for the period then ended (collectively, the "Interim
Financial Statements"). The Interim Financial Statements (x) fairly present the
financial condition, assets and liabilities as of such date and the results of
operations of the Selling Companies for the period covered thereby, (y) were
prepared in accordance with the same accounting principles used to prepare the
Financial Statements except with respect to the absence of notes thereto and
with respect to customary year-end adjustments consistent with past practices
(which adjustments are not material to the Selling Companies), and (z) were
prepared from the books and records of the Selling Companies.
3.5 Compliance with Laws.
--------------------
(a) Except as otherwise set forth on Section 3.5, the Selling
-----------
Companies are in compliance with all applicable federal, state and local laws,
regulations and ordinances (including those relating to reimbursement, reporting
requirements, certification standards, patient utilization, limitations on
ownership and other financial relationships between a provider and its referral
sources, pharmaceuticals, medical devices and the provision of medical and
related services) and any applicable requirements of any governmental or
regulatory body, court or arbitrator affecting the Business or the assets of the
Selling Companies, except for noncompliance which has not and would not have a
material adverse effect on the Selling Companies or the Business taken as a
whole. Except as otherwise set forth on Section 3.5, the Selling Parties have
-----------
not received notice to the effect that, or otherwise been advised that, the
Selling Companies are not in compliance with any Permits, statutes, regulations,
orders, ordinances or other laws, and have not taken any action or failed to
take any action that is a violation of any such Permits, statutes, regulations,
orders, ordinances or other laws.
(b) The Selling Companies are certified for participation in,
and are parties to provider agreements for payment by federal Medicare and New
Hampshire and Massachusetts Eldercare and Medicaid programs (the "Programs").
All of the cost reports of the Selling Companies, including their home office
cost reports for the Programs for their last three (3) fiscal years, have been
filed when due or within valid extension periods and were prepared in all
material respects in accordance with all applicable laws, regulations and
principles governing reimbursement under the Programs. Except as otherwise
disclosed on Schedule 3.5, there are no
------------
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<PAGE>
pending appeals, judgements, challenges, audits or litigation to reopen cost
reports with respect to the Programs and no notices of intent to the contrary
have been provided to the Selling Companies. Except as otherwise set forth on
Section 3.5, each of the Selling Companies is in good standing with the United
- -----------
States Department of Health and Human Services, to the extent applicable, and
all similar New Hampshire and Massachusetts state agencies where good standing
is so required. The Selling Companies have not, directly or indirectly, offered,
paid, solicited or received any remuneration in return for the referral of
products or services in violation of the Programs, any federal or state laws and
regulations promulgated thereunder, or any requirements imposed by third-party
payors.
3.6 Permits. Schedule 3.6 sets forth all of the Permits
------- ------------
necessary to operate the Business as now operated, and are validly issued in the
name of the Selling Companies. Such Permits are in full force and effect, are
unimpaired by any acts or omissions of the Selling Parties, are valid for the
balance of the current license term, if any, applicable generally to each
such Permit. Except as otherwise set forth on Section 3.6, each Permit is
-----------
transferrable with such consents of third parties as are set forth in Schedule
--------
3.13, and is sufficient in all material respects to permit the continued lawful
- ----
operation of the Business after the Closing as currently conducted.
3.7 Litigation. Except as set forth on Schedule 3.7, there is
---------- ------------
no action, suit, claim, arbitration, investigation or other legal or
administrative proceeding or audit or claim by any insurance company, managed
care organization, third party payor or other third party (collectively,
"Actions") pending or, to the Selling Parties' knowledge, threatened against the
Selling Companies with respect to the Business, any of the their assets, the
Plans or any employee (in his or her capacity as such) of a Selling Company.
There is no outstanding any order, writ, injunction, decree, or judgment of any
court, governmental or regulatory body or arbitration tribunal applicable to any
Selling Party, the Business or their respective assets. There is no pending
Action which has been brought by or on behalf of any Selling Party with respect
to the Business or its assets in any court or before any governmental or
regulatory body or arbitration tribunal.
3.8 Leased Real Property. Schedule 3.8 sets forth a list of
-------------------- ------------
all of the Real Property Leases (together with street addresses). There have
been delivered to Purchaser true and complete copies of all of the Real Property
Leases. All of the Real Property Leases are valid, in full force and effect and
binding upon the Selling Companies, and to the Selling Parties' knowledge, the
other parties thereto, enforceable in accordance with their respective terms;
and, except as set forth on Schedule 3.8, Selling Parties have satisfied in all
------------
material respects all liabilities and obligations thereunder through the date
hereof, are not in default under any of them, nor does any condition exist that,
with notice or lapse of time or both, would constitute such a default. To the
Selling Parties' knowledge, no other party to any Real Property Lease is in
default thereunder, nor, to the Selling Parties' knowledge, does any condition
exist that, with notice or lapse of time or both, would constitute such a
default.
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<PAGE>
3.9 Accounts Receivable. The Accounts Receivable reflected on
-------------------
the Financial Statements, the Interim Financial Statements (and the Accounts
Receivable created thereafter) and the Closing Date Accounts Receivable
reflected on the Closing Date Balance Sheet represent bona fide claims of
Selling Companies against debtors for sales, performance of services or other
transactions in the ordinary course of business. The Accounts Receivable are
subject to no defenses, counterclaims or rights of set-off and are fully
collectible in the ordinary course of business within 15 months after the
Closing, without costs and expenses of collection agents or attorneys in
collection efforts therefor, except to the extent of appropriate reserves for
bad debts, cost report disallowances and contractual allowances, as set forth in
the Financial Statements, the Interim Financial Statements or the Closing Date
Balance Sheet, as applicable. Except as otherwise provided on Schedule 3.9, the
------------
Selling Companies do not maintain a lock box at any location for the collection
of Accounts Receivable.
3.10 Inventory. The Inventory (i) was purchased in the ordinary
---------
course of business and (ii) consists only of new and, subject to the last
sentence of this Section 3.10, complete items of Inventory (i.e., all component
------------
parts are included). All Inventory which is obsolete, discontinued or of below
standard quality was discounted in value to net realizable value on such
Schedule. No write-offs or charges against Inventory have been made since the
Balance Sheet Date, except for charges in the ordinary course of business for
sales of Inventory. None of the Inventory is unusable or not saleable in the
lawful and ordinary course of business because of legal restrictions, failure to
meet specifications, damage, physical deterioration or for any other cause.
3.11 Personal Property Leases. Set forth on Schedule 3.11 is a
------------------------ -------------
true and complete list of all material Personal Property Leases, copies of which
have been previously delivered to Purchaser. Each Personal Property Lease is
valid, binding and enforceable against the Selling Companies in accordance with
its terms. Except as set forth on Schedule 3.11, Selling Parties have satisfied
-------------
in all material respects all liabilities and obligations thereunder through the
date hereof, are not in default under any of them, nor does any condition exist
that, with notice or lapse of time or both, would constitute such a default. To
the Selling Parties' knowledge, no other party to any Personal Property Lease is
in default thereunder, nor, to the Selling Parties' knowledge, does any
condition exist that, with notice or lapse of time or both, would constitute
such a default.
3.12 Contracts and Other Agreements.
------------------------------
(a) Schedule 3.12 sets forth all written or oral contracts
-------------
and other agreements to which a Selling Party is a party or by or to which it
is or any of its assets are bound or subject, including without limitation:
(i) contracts and agreements with any labor union or association representing
any employee; (ii) contracts and agreements (including barter
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<PAGE>
arrangements) for the purchase or sale of materials, supplies, merchandise,
equipment or services; (iii) contracts and agreements for the sale of any of
the assets or properties of the Business (except for the sale of medical
equipment in the ordinary course of business) or for the grant to any person
of any preferential rights to purchase any of the assets or properties relating
to the Business; (iv) joint marketing, joint venture and partnership agreements;
(v) contracts and agreements under which a Selling Party agrees to indemnify any
party or to share any tax liability of any party; (vi) contracts and other
agreements with suppliers for the rebating of charges or other similar
arrangements; (vii) contracts and agreements containing covenants of a Selling
Party not to compete in any line of business or with any person in any
geographical area or covenants of any other person not to compete with a Selling
Party in any line of business or in any geographical area; (viii) contracts and
other agreements relating to the acquisition by a Selling Party of any operating
business or the capital stock of or other interest in any other person; (ix)
options for the purchase of any asset, tangible or intangible; (x) contracts and
agreements requiring the payment to any person of a royalty, override or similar
commission or fee; (xi) contracts and agreements relating to the borrowing of
money; (xii) any guaranty, performance or completion bond or surety contract or
agreement; (xiii) contracts and agreements for the development, display or
promotion of any products or services; (xiv) contracts and agreements for the
employment for any period of time whatsoever or in regard to the employment, or
restricting the employment, of any salaried employee of a Selling Party employed
in the Business; (xv) outstanding powers of attorney executed on behalf of a
Selling Party; (xvi) third-party payor agreements (including provider agreements
for the Programs), managed care agreements, and agreements relating to the
provision of health care, pharmaceuticals, goods and services and (xvii) any
other material contract or agreement whether or not made in the ordinary course
of business.
(b) There have been delivered to Purchaser true and complete copies
of all of the contracts and agreements set forth or required to be set forth on
Schedules 3.8, 3.11 and 3.12 or on any other Schedule, and there are no other
- ----------------------------
material terms of such contracts or other agreements except as set forth on such
copies. Except as disclosed on Schedule 3.12 or on the respective Schedule to
-------------
which it pertains, all of such contracts and other agreements are valid, in full
force and effect, binding upon the Selling Parties, and, to the Selling Parties'
knowledge, the other parties thereto and enforceable against the Selling Parties
in accordance with their respective terms; and the Selling Parties have
satisfied in all material liabilities and obligations thereunder through the
date hereof, are not in default in any material respect under any of them, nor,
to the Selling Parties' knowledge, does any condition exist which, with notice
or lapse of time or both, would constitute such a material default. To the
Selling Parties' knowledge, no other party to any such contract or other
agreement is in default thereunder, nor, to the Selling Parties' knowledge, does
any condition exist which, with notice or lapse of time or both, would
constitute such a default thereunder.
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<PAGE>
3.13 Consents. Except for the consents of such third parties as
--------
are separately identified on Schedule 3.13, no approval, consent or
-------------
authorization of, or registration or filing with any person is required in
connection with the execution and delivery of this Agreement by the Selling
Parties or the consummation of the transactions contemplated hereby by the
Selling Parties (including with respect to any Personal Property Lease, Real
Property Lease, Intellectual Property Right or any other Contract).
3.14 Intellectual Property Rights. All Intellectual Property
----------------------------
Rights owned or licensed by or to the Selling Parties relating to the Business
are listed and described on Schedule 3.14. To Selling Parties' knowledge, all
-------------
such Intellectual Property Rights are valid, uncontested and in good standing
subject to no liens or other encumbrances, and the Selling Parties own or
possess adequate and enforceable rights to use any of the foregoing in the
manner currently being used with no conflict with or infringement by the Selling
Parties of the asserted rights of others.
3.15 Equipment. Set forth on Schedule 3.15 is a true, correct
--------- -------------
and complete list of all material items of Equipment (including parts and
supplies and all Equipment which is not currently being used in the operation of
the Business), which list sets forth the Equipment by type of Equipment and
which lists all individual items of Equipment with a book value in excess of
$1,000. The Selling Companies have maintained the Equipment materially in
accordance with all warranties provided by the vendors or manufacturers thereof.
All agreements pursuant to which the Selling Companies may hold or use any
interest owned or claimed by the Selling Companies (including options) in or to
Equipment are in full force and effect and, to the Selling Parties's knowledge,
there is no material default or event which, with notice or lapse of time or
both, would constitute such a default. Schedule 3.15 lists all motor vehicles
-------------
and other Equipment for which a certificate of title or origin has been issued
to a Selling Company.
3.16 Title; Location of Assets. Except as otherwise disclosed
-------------------------
on Schedule 3.16, each Selling Company has good and marketable title (fee or
-------------
leasehold) to all of its assets and properties (tangible and intangible).
Except as set forth on Schedule 3.16 with respect to leased property, the
-------------
Selling Companies will at Closing have good and marketable title to all of its
assets, in each case free and clear of any lien or other encumbrance, assuming
that the Linc Indebtedness and the Merrill Lynch Indebtedness is repaid in
accordance with the terms of this Agreement. All of Seller's assets are located
within the states of New Hampshire and Massachusetts.
3.17 Undisclosed Liabilities. The Selling Companies do not (as
-----------------------
of the Balance Sheet Date) have any direct or indirect indebtedness, liability,
claim, loss, damage, deficiency, obligation or responsibility, fixed or unfixed,
inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute,
contingent or otherwise, known or unknown to a Selling Party (individually a
"Liability" and collectively, the "Liabilities"), except (i) Liabilities
reflected and fully reserved against in the Interim Balance Sheet which have not
been paid or discharged since
-16-
<PAGE>
the date thereof, (ii) Liabilities disclosed on Schedule 3.17 and (iii) liabili-
-------------
ties incurred since the date of such balance sheet in the ordinary course of
business (and not in violation of this Agreement) and consistent with past
practice, which liabilities will be fully reflected as liabilities on the
Closing Date Balance Sheet, except for Liabilities which, individually or in the
aggregate, could not reasonably be expected to have a material adverse effect on
the Business or the assets of the Selling Companies taken as a whole.
3.18 Relationships. The Selling Parties have no knowledge that
-------------
any material supplier, referral source, third party payor of the Business or
party to an agreement with a Selling Company intends to cancel or otherwise
modify its relationship in a material adverse respect with a Selling Company or
the Business or to materially decrease or limit its purchases, services,
supplies or materials from or to a Selling Company or the Business. The Selling
Parties make no representation or warranty as to the effect of the transactions
contemplated by this Agreement on any such person or its relationship with the
Business or any Selling Party.
3.19 Employee Benefit Plans.
----------------------
(a) Schedule 3.19 contains a true and complete list of any
-------------
pension, profit sharing, retirement, deferred compensation, stock purchase,
stock option, phantom stock, stock appreciation right, incentive compensation,
bonus, vacation, severance, disability, hospitalization, medical insurance or
other employee benefit plan or program which a Selling Company maintains or to
which a Selling Company has any present or future obligation to contribute (the
"Plans"). The Selling Parties have delivered or made available to Purchaser true
and complete copies of all material documents relating to the Plans. The Selling
Companies do not have any contract or understanding, whether legally binding or
not, to create any additional Plan. Accurate and complete copies of all
favorable determination letters from the Internal Revenue Service ("IRS"), the
most recent annual return on Form 5500 for each Plan, if applicable, and all
applicable actuarial or valuation reports (reporting correctly the value of the
assets in the fund as of the date thereof) for each Plan have been delivered to
Purchaser.
(b) The Selling Companies do not maintain or contribute to
any employee pension benefit plan as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
(c) Neither the Selling Companies nor any affiliate is (nor
were any of their respective affiliated predecessors) obligated to contribute to
any multi-employer plan as defined in ERISA Section 3(37) in which any employee
of the Business is a participant. Neither the Selling Companies nor any
affiliate has ever (nor had any of their respective affiliated predecessors)
completely or partially withdrawn (within the meaning of the Multi-employer
Pension Plan Amendments Act of 1980) from any multi-employer plan.
-17-
<PAGE>
3.20 Employee Relations.
------------------
(a) The Selling Companies have not experienced any attempt by
organized labor or its representatives to make a Selling Company conform to the
demands of organized labor relating to its employees or to enter into a binding
agreement with organized labor that would cover the employees of a Selling
Company. The Selling Companies have not at any time during the last three (3)
years had, nor, to the Selling Parties' knowledge, is there now threatened, (i)
a strike, picket, work stoppage or work slowdown relating to the Business or
(ii) any unfair labor practice complaint against a Selling Company before the
National Labor Relations Board.
(b) Except for statutory and other legal constraints imposed
upon employers generally, there are no agreements, arrangements or
understandings that would restrict the ability of a Selling Company to terminate
the employment of any or all of its employees for any lawful reason or for no
reason at all, without penalty or liability, except for accrued but unpaid
compensation and COBRA benefits.
(c) Set forth in Schedule 3.20 is the name, past twelve
-------------
months' salary and most recent bonus of each salaried employee of a Selling
Company.
3.21 Transactions with Related Parties. No Related Party has
---------------------------------
(i) borrowed money from or loaned money to a Selling Company which remains
outstanding, except as reflected on Schedule 1.4, (ii) any contractual or other
------------
claims, express or implied, of any kind whatsoever against a Selling Company
(except as otherwise disclosed on Schedule 1.4 and except with respect to
------------
(x) indemnification rights provided under the articles or bylaws of a Selling
Company and similar rights provided under applicable law and (y) employment
compensation and related benefits), (iii) any interest in any property or assets
used by the Selling Companies or the Business, or (iv) been a director, officer,
or employee of, or had any direct or indirect interest in, any entity which has
done business with a Selling Company.
3.22 No Material Adverse Change; Absence of Certain Changes.
------------------------------------------------------
(a) Except as set forth on Schedule 3.22, since the Balance
-------------
Sheet Date, there has been no material adverse change in the business,
prospects, operations or condition (financial or otherwise) of the Business or
in the assets of the Selling Companies and, to the knowledge of the Selling
Parties, no such change is threatened. Since the Balance Sheet Date, the Selling
Parties have conducted the Business only in the ordinary course and there has
been no damage, destruction or loss adversely affecting the business, operations
or condition (financial or otherwise) of the Business or the assets of the
Selling Companies, in any material adverse respect, whether or not covered by
insurance. Since such date, there has been no loss or
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<PAGE>
interruption in the use of any Permit which has not been fully disclosed to
Purchaser and remedied.
(b) Since the Balance Sheet Date, except as set forth in
Schedule 3.22, the Selling Companies have not: (i) mortgaged, pledged or
- -------------
subjected to any lien or other encumbrance any of their respective assets; (ii)
acquired or disposed of (including through sale, lease, license or other
transfer, or through abandonment) any assets or properties except in the
ordinary course of business; (iii) forgiven or canceled any debts or claims or
waived any rights arising under or in connection with any asset, except with
respect to Accounts Receivable that have not been collectible in the ordinary
course of business; (iv) adopted, canceled, terminated or amended in any respect
any material agreement (including any third-party payor agreement) related to
the conduct of the Business; (v) incurred or assumed any debt, obligation or
liability (whether absolute or contingent and whether or not currently due and
payable) except in the ordinary course of business; (vi) made any wage or salary
increase or bonus, or increase in any other direct or any indirect compensation
or any severance or termination pay, for or to any employees, consultants,
agents or other representatives, or any accrual for or commitment or agreement
to make or pay the same, except for annual increases in compensation of
employees made in the ordinary course consistent with past practices; (vii)
entered into any agreement with any labor union or association representing any
employee or adopted, entered into or amended any employee benefit plan except as
necessary to comply with ERISA or other applicable legal requirements; (viii)
entered into any lease affecting Real Property or any other lease that requires
or involves annual lease payments of $2,500 or more; (ix) except for inventory
or equipment acquired in the ordinary course of business, made any acquisition
of all or any part of the assets, properties, capital stock or business of any
other person; (x) incurred any material Liability other than in the ordinary
course of business; (xi) entered into any merger, consolidations,
recapitalization or other business combination or reorganization; (xii) made any
loans, advances or capital contributions to or investments in any person; (xiii)
done anything to affect adversely the relationship of a Selling Company with
clients, customers, providers, referral sources, third-party payors or any
material suppliers or with any governmental or regulatory body; (xiv) made any
change in any method of accounting practice; (xv) made any payment or
distribution on account of capital stock; or (xvi) entered into any other
material contract or other agreement or other transaction respecting the
Business or their assets (whether or not with a Related Party).
3.23 Books and Records. The Selling Companies have made and
-----------------
kept (and have given Purchaser access to) the Books and Records.
3.24 Insurance. Set forth on Schedule 3.24 is a list and
--------- -------------
description (including coverage) of all insurance policies or binders of
insurance which relate to the Business, correct and complete copies of which
have been delivered to Purchaser. No notice of reduction in coverage, increase
in premium, or cancellation or non-renewal with respect to, or disallowance of
any material claim under, any such policy or binder has been received by the
Selling Parties. All
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<PAGE>
such policies provide coverage to the extent and in the manner (i) customary for
the home health care industry and for the Businesses of the size and nature
conducted by the Selling Companies and (ii) required by law and all agreements
to which a Selling Company is a party or otherwise bound. The Selling Companies
are not in default under any of such policies or binders, and to the knowledge
of Selling Parties, no event has occurred which, with notice or lapse of time or
both, would constitute such a default. The Selling Parties have not failed to
give any notice or to present any claim under any such policy or binder in a due
and timely fashion. Except as set forth on Schedule 3.24, there are no outstan-
-------------
ding unpaid claims under any such policies or binders.
3.25 Taxes.
-----
(a) Except as set forth on Schedule 3.25, the Selling
-------------
Parties have timely filed or caused to be filed with the appropriate taxing
authorities all true, correct and complete tax returns for federal, state,
municipal, payroll, withholding, excise, income, sales, use, unemployment
compensation, personal property, use and occupancy, business and occupation,
mercantile, real estate, franchise and other taxes (all the foregoing taxes,
including interest and penalties thereon and estimated taxes, being hereinafter
collectively referred to as "Taxes") required to be filed by it or them so as to
prevent any lien or other encumbrance on any of the Shares or the assets of the
Selling Companies. The Selling Parties have delivered or made available to
Purchaser complete and accurate copies of all of the Selling Companies' federal,
state and local tax returns for the three most recent complete tax years
together with copies of all significant correspondence between a Selling Party
and any taxing authorities since inception.
(b) All Taxes, in respect of periods beginning before the
Closing Date, have been timely paid or an adequate reserve has been established
therefor in the Financial Statements or will be established on the Closing Date
Balance Sheet, and the Selling Companies do not have any liability for Taxes in
excess of the amounts so paid or reserves so established or otherwise for
periods prior to the Closing Date.
(c) The tax returns of the Selling Parties have not been
audited by the Internal Revenue Service or any state, local or other relevant
taxing authority within the past five (5) years. No deficiencies for Taxes have
been claimed, proposed or assessed by any taxing or other governmental authority
against a Selling Party within such period. Except as set forth on Schedule
--------
3.25, within the past five (5) years, there have been no and, as of the date
- ----
hereof, there are no pending or, to the best of the Selling Parties' knowledge,
threatened audits, investigations or claims for or relating to any additional
liability in respect of Taxes in any jurisdiction, and there are no matters
under discussion between any Selling Party and any governmental or regulatory
body with respect to Taxes that in the reasonable judgment of the Selling
Parties is likely to result in an additional liability for Taxes. No extension
of a statute of limitations relating to Taxes is in effect with respect to the
Selling Parties.
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<PAGE>
(d) None of the Selling Parties have (i) filed any consent under
Section 341(f) of the Code, (ii) executed or been affected by a waiver or
consent extending any statute of limitation for federal income or other Tax
liability which remains outstanding, (iii) applied for a Tax ruling that has
continuing effect (or been affected by a Tax ruling directed to an affiliated
corporation which has continuing effect), (iv) entered into or been affected by
a closing agreement with any taxing authority that has continuing effect, (v)
filed an election under Section 338(g) or Section 338(h)(10) of the Code or
caused or been the subject of a deemed election under Section 338(e) thereof,
(vi) made or been affected by a deemed dividend election under Section 1.1502-32
of the Treasury Regulations or a consent dividend election under Section 565
of the Code, (vii) made an election, or been required, to treat any asset of a
Selling Company as owned by another person pursuant to the provisions of Section
168(f) of the Code or as tax-exempt bond financed property or tax-exempt use
property within the meaning of Section 168 of the Code, (viii) agreed to make,
nor been required to make any adjustment under Section 481(a) of the Code, or
(ix) participated in an international boycott under Section 999 of the Code.
(e) Except as otherwise disclosed on Schedule 3.25, the Selling
-------------
Companies have at all times been members of an affiliated group of corporations
(which included only the Selling Companies, NSS and NSI) within the meaning of
Section 1504 of the Code of which RSD was or is, as the case may be, the common
parent.
(f) None of the Selling Companies has made or become obligated to
make, or will, as a result of any event connected with the acquisition of the
Stock by Purchaser or any other transaction contemplated herein, make or become
obligated to make, any payment that would be not be deductible under Section
280G of the Code (without regard to subsection b(4) thereof).
(g) No Selling Party is a "foreign person" for purposes of Section
1445 of the Code.
(h) None of the assets of any Selling Company directly or indirectly
secures the payment of debt the interest on which is tax-exempt under the Code.
(i) Except as set forth in Schedule 3.25, none of the Selling
-------------
Companies currently is the beneficiary of any extension of time within which to
file any Tax Return. No claim has ever been made to any Selling Company by an
authority in a jurisdiction where any Selling Company does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction. There are no
liens, encumbrances or security interests on any of the assets of any of the
Selling Companies that arose in connection with any failure (or alleged failure)
to pay any Taxes.
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<PAGE>
(j) Except as set forth on Schedule 3.25, each Selling Company has
-------------
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, shareholder or third party.
(k) Except as set forth on Schedule 3.25, there is no dispute or claim
-------------
concerning any Tax liability of any Selling Company either: (i) claimed or posed
in writing; or (ii) as to which any Selling Party has knowledge based upon
personal contact with any agent of such authority.
(l) No Selling Party has waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
3.26 No Other Agreements to Sell the Assets or Shares. The Selling Parties
------------------------------------------------
and any Related Party do not have any commitment or legal obligation, absolute
or contingent, to any other person other than Purchaser to sell, assign,
transfer or effect a sale of any of the Shares or the assets of the Selling
Companies (other than inventory in the ordinary course of business and the
factoring of accounts receivable to Linc), to sell or effect a sale of any
interest in the Selling Companies, to effect any merger, consolidation,
liquidation, dissolution or other reorganization of the Selling Companies, or to
enter into any agreement or cause the entering into of an agreement with respect
to any of the foregoing.
3.27 Environmental. Except as set forth on Schedule 3.27:
------------- -------------
(a) To the knowledge of the Selling Parties, none of the properties
leased by the Selling Companies has underground or above ground storage tanks,
or has had any leak, spill, disposal, discharge, or release (collectively,
"Release") of any hazardous material or pollutant. Selling Parties have not been
responsible for any Release of any "hazardous waste", "hazardous substance" or
"toxic substances" (as defined in or regulated by the applicable Environmental
Laws (hereinafter defined) in violation of any applicable Environmental Law.
(b) To the knowledge of the Selling Parties, there are no electrical
transformers, fluorescent light fixtures with ballasts, or other equipment
containing PCB's in excess of legal requirements on properties leased by Selling
Companies.
(c) No Selling Company has generated "hazardous waste" or "hazardous
substances" or "toxic substances", nor have any of such properties been used by
a Selling Company for the use, treatment, transportation, storage, handling or
disposal of any "hazardous waste" or "hazardous substance" or "toxic substance"
in violation of an Environmental Law. No Selling Party has ever received any
notice or claim from the Federal or any state or local government or agency
concerning the alleged or threatened Release of any such waste or substance.
-22-
<PAGE>
(d) There have been no environmental audits or assessments which have
been conducted at any Real Property site since the date of a Selling Parties'
occupancy thereof, either by a Selling Party or any attorney, environmental
consultant or engineer engaged by a Selling Party or, to the Selling Parties'
knowledge, by any other person for such purpose.
(e) The Selling Parties have not released any other person from any
claim under any Environmental Law or waived any rights of which they are aware
concerning any environmental condition.
3.28 Non-Solicitation. Since July 26, 1996, neither the Selling Parties
----------------
(nor any of their shareholders, employees, representatives or agents, as
appropriate) nor any Related Party has, directly or indirectly, solicited,
initiated, encouraged or participated in negotiations in any manner with respect
to, or furnished or caused or permitted to be furnished any information to any
person (other than Purchaser or Purchaser's representatives, including Advest),
in connection with, any inquiry or offer for any purchase or sale of the assets
of a Selling Company, the Business, or the Shares, or any portion thereof, or
any acquisition, combination or similar transaction involving a Selling Company
or any substantial part of the assets of a Selling Company or the Business (a
"Third-Party Proposal"). Since such date, a Third-Party Proposal has not
occurred.
3.29 No Bankruptcy. The Selling Parties are not subject to any voluntary
-------------
or involuntary proceedings in bankruptcy, reorganization, dissolution or
liquidation or to any assignment for the benefit of creditors, and no trustee,
receiver or liquidator has been appointed for any Selling Party or any of their
respective properties.
3.30 Shares. The Shares constitute all of the issued and outstanding
------
capital stock of RSD and are owned by Seller free and clear of all liens, claims
and encumbrances. RSD owns all of the issued and outstanding capital stock of
NSH, NSL, NSS and NSI free and clear of all liens, claims and encumbrances. No
subscriptions, calls, commitments, options, warrants, rights or agreements to
acquire shares of capital stock of any Selling Company have been authorized or
issued or are outstanding. There are no securities convertible or exchangeable,
actually or contingently, into capital stock of any Selling Company. The Shares
have been duly authorized, are validly issued and outstanding and are fully paid
and non-assessable. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation or similar rights with respect to any
Selling Company.
3.31 Disclosure. No representation or warranty of a Selling Party
----------
contained in this Agreement, in any Schedule or Exhibit, or any certificate
delivered under this Agreement or in connection herewith contains or will
contain any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein and therein not mis-
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<PAGE>
leading. Copies of all documents furnished by or on behalf of a Selling Party or
a Related Party to Purchaser are complete and accurate in all material respects.
4. Representations and Warranties of Purchaser. The Purchasing Parties
-------------------------------------------
jointly and severally represent and warrant to the Selling Parties as follows:
4.1 Organizational Status. HHCA is a corporation duly organized,
---------------------
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania. Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of New Hampshire. Each of the
Purchasing Parties has all requisite corporate power and authority to own, lease
and operate its assets, properties and business and to carry on its business as
now being and as heretofore conducted.
4.2 Qualification. Each of the Purchasing Parties is duly qualified
-------------
to do business as a foreign corporation and is in good standing in all states or
jurisdictions in which the nature of its business as presently operated by it or
the character of the property owned or leased by it with respect to its business
makes such foreign qualification or authorization necessary.
4.3 Authorization; No Conflict; Shares.
----------------------------------
(a) Each of the Purchasing Parties has the full legal right and
all power and authority required to enter into, execute and deliver this
Agreement and the documents and other agreements required to be delivered
hereunder and to perform fully its obligations hereunder and thereunder. The
execution, delivery and performance of this Agreement and each of the agreements
and documents contemplated hereby by the Purchasing Parties have been duly
authorized by all necessary corporate action. This Agreement has been duly
executed and delivered by the Purchasing Parties and constitutes, and each of
the other agreements and documents to be delivered by the Purchasing Parties
hereunder when executed and delivered by the Purchasing Parties will constitute,
the valid and binding obligation of the Purchasing Parties enforceable in
accordance with their respective terms, except to the extent that enforceability
may be limited by the effect of bankruptcy, reorganization or other similar laws
relating to or affecting the rights of creditors generally.
(b) Except as set forth on Schedule 4.3, the execution, delivery
------------
and performance of this Agreement by the Purchasing Parties and the documents
and other agreements to be delivered hereunder by the Purchasing Parties and the
consummation of the transactions contemplated hereby and thereby by the
Purchasing Parties will not (i) violate any provision of the Purchasing Parties'
articles of incorporation or bylaws, (ii) violate, conflict with or result in
the breach of any of the terms of, result in a material modification of the
effect of, otherwise give any other contracting party the right to terminate, or
constitute (or with notice or lapse of time or both constitute) a default under,
any material contract or other agreement to
-24-
<PAGE>
which any of the Purchasing Parties is a party or by or to which it or any of
their respective assets or properties may be bound or subject, (iii) violate any
order, judgment, injunction, award or decree of any court, arbitrator or
governmental or regulatory body by which any of the Purchasing Parties, or the
assets, properties or business of the Purchasing Parties are bound, (iv) violate
any statute, law or regulation which violation could reasonably be expected to
have a material adverse effect on the Purchasing Parties taken as a whole, or
(v) violate or cause any revocation of or limitation on any permit (A) that is
necessary to the lawful conduct of their respective businesses or (B) the
violation, revocation or limitation of which could reasonably be expected to
have a material adverse effect on their respective businesses taken as a whole.
(c) The HHCA Stock to be issued to Seller at Closing has been
duly authorized, will be validly issued and outstanding and fully paid and non-
assessable when issued in accordance with the terms hereof. The HHCA Stock will
be issued to Seller in compliance with all applicable federal and New Hampshire
securities laws pursuant to valid exemptions from the registration; provided,
however that the representations and warranties made by Seller in the
Subscription Agreement (hereinafter defined) shall be true and correct in all
material respects.
4.4 Compliance with Laws. Each of the Purchasing Parties has
--------------------
operated in, compliance with all applicable federal, state and local laws,
regulations and ordinances and any applicable requirements of any governmental
or regulatory body, court or arbitrator affecting its business or its assets,
except for noncompliance which would not reasonably be expected to have a
material adverse effect on a Purchasing Party.
4.5 Consents. Except for the consents set forth on Schedule 4.5, no
-------- ------------
approval, consent or authorization of, or registration or filing with any person
is required in connection with the execution and delivery of this Agreement or
the consummation of the other transactions contemplated hereby.
4.6 Litigation. Except as set forth on Schedule 4.6, there is no
---------- ------------
Action pending or, to the Purchasing Parties' knowledge, threatened against the
Purchasing Parties or any of their assets, which could reasonably be expected to
have a material adverse effect on Purchasing Parties taken as a whole. There is
no outstanding order, writ, injunction, decree, or judgment of
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<PAGE>
any court, governmental or regulatory body or arbitration tribunal applicable to
any Purchasing Party or their respective assets, which could reasonably be
expected to have a material adverse effect on Purchasing Parties taken as a
whole.
4.7 SEC Filings.
-----------
(a) HHCA has filed or caused to be filed all registration
statements, reports or statements, and any amendments thereto required to be
filed by it pursuant to the Securities Exchange Act of 1934 and has heretofore
furnished to the Selling Parties copies of: (i) HHCA's annual report on form 10-
K for the most recent fiscal year; (ii) HHCA's definitive proxy statement for
the current fiscal year; and (iii) HHCA's quarterly reports on Form 10-Q for
each quarter since its most recent fiscal year (collectively, the "SEC
Filings").
(b) The SEC Filings were in all material respects prepared
in accordance with the requirements of the Securities Exchange Act of 1934 and
the rules and regulations thereunder. Set forth on Schedule 4.7 is a description
------------
of each event which has occurred since the latest SEC Filing which renders any
information contained therein misleading or untrue in any material respect.
4.8 Financial Statements. HHCA has delivered to Selling Parties
--------------------
copies of its consolidated financial statements (including balance sheets,
statements of earnings, statements of stockholders' equity and statements of
cash flows, together with notes thereto) as of June 30, 1996 and 1995
(collectively, "HHCA's Financial Statements"). HHCA's Financial Statements were
audited by Coopers & Lybrand, independent certified public accountants, whose
report without qualification thereon is included with such Financial Statements.
HHCA's Financial Statements (i) fairly present the financial condition, assets
and liabilities of HHCA at their respective dates and the results of operations
and changes in cash flows for the periods covered thereby, (ii) were prepared in
accordance with generally accepted accounting principles, and (iii) were
prepared from the books and records of HHCA.
4.9 Disclosure. No representation, warranty or statement of a
----------
Purchasing Party contained in this Agreement, in any Schedule or Exhibit, or any
agreement or document delivered under this Agreement or in connection herewith
contains or will contain any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein and
therein not misleading.
5. Covenants of the Parties. The Selling Parties and the Purchasing
------------------------
Parties covenant and agree with the other as follows:
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<PAGE>
5.1 Conduct of Business. Except as otherwise disclosed on
-------------------
Schedule 5.1, from the date hereof until the Closing Date, the Selling Parties
- -------------
agree that they will, unless otherwise consented to in writing by Purchaser:
(a) cause the Selling Companies to carry on the Business in, and
only in, the usual, regular and ordinary course in substantially the same manner
as heretofore carried on; preserve intact the Permits and the present business
organization of the Business; use best efforts to keep available the services of
the present employees of the Business (except as provided in Section 5.6);
-----------
encourage such employees to continue their employment with the Selling
Companies; maintain insurance; perform obligations; comply with applicable laws;
maintain complete and accurate records; pay all taxes when due; and use best
efforts to preserve its relationships with clients, providers, suppliers and
others having business dealings with the Business to the end that its goodwill
and ongoing business shall be conducted on substantially the same basis on the
Closing Date as on the date hereof;
(b) maintain, in accordance with the Selling Companies' past
practices and in accordance with any vendor or manufacturer warranties, the
Improvements, Equipment and other personal property of the Business in the same
condition as on the date hereof, except for depletion, depreciation, ordinary
wear and tear and damage by unavoidable casualty;
(c) keep in full force and effect insurance of the same type and
in amounts at least equal to that carried by the Selling Companies with respect
to the Business and the Purchased Assets on the date hereof;
(d) perform all of their obligations under all contracts and
other agreements relating to the Business, including the discharge of all
accounts payable of the Business according to the terms and conditions of all
invoices therefor except when the amount thereof is being contested in good
faith, by appropriate proceedings and with adequate reserves therefor being set
aside on the Books and Records (and if still being contested as of the Closing
Date, on the Closing Date Balance Sheet);
(e) maintain true, correct and complete books of account and
records relating to the Business;
(f) comply in all material respects with all statutes, laws,
ordinances, rules and regulations applicable to the conduct of the Business;
(g) promptly upon its knowledge thereof, advise Purchaser in
writing of the termination or resignation of any key employee and, to their
knowledge, the circumstances therefor;
-27-
<PAGE>
(h) not amend their respective articles of incorporation or by-laws
(or comparable constitutive documents);
(i) not declare, set aside or pay any dividend or make any
distribution on, with respect to or in exchange for shares of their capital
stock;
(j) not issue, grant, sell or pledge any shares of, or rights of
any kind to acquire any shares of, its capital stock, or purchase, redeem or
otherwise acquire any shares of their capital stock;
(k) not acquire any assets or properties, other than in the
ordinary course of business consistent with past practice;
(l) not sell, lease, transfer, dispose of, encumber or mortgage any
assets or properties, other than in the ordinary course of business consistent
with past practice, except for the Excluded Assets;
(m) not enter into any merger, consolidation, recapitalization or
other business combination, reorganization or acquisition;
(n) not create, incur or assume any indebtedness for borrowed money
except in the ordinary course of business consistent with past practice (and in
any event not in an amount exceeding $50,000), or prepay any part of the
principal or interest of any existing indebtedness before the due date thereof;
(o) not assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other person or entity except endorsements of negotiable instruments in the
ordinary course of business consistent with past practice;
(p) not sell, transfer, license or otherwise dispose of any
material asset, it being expressly agreed and understood that all material
assets shall continue to be assets of the Selling Companies and shall not be
liquidated, transferred or sold until after the Closing;
(q) not waive, release, grant or transfer any rights of value or
modify or change in any material respect any existing license, lease, contract
or other documents other than in the ordinary course of business consistent with
past practice;
(r) not make aggregate capital expenditures and commitments
therefor, which, when taken together with all other capital expenditures and
commitments of the Selling Parties existing or made during such period, would
exceed $50,000;
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<PAGE>
(s) not make any change in any method of accounting or accounting
practice, except as may be required by law or by GAAP and after written notice
to the Purchaser;
(t) not increase the compensation payable or to become payable to any
of their employees except for normal periodic increases in the ordinary course
of business that are made in accordance with established compensation policies
of the Selling Parties;
(u) not make any payment or provision with respect to any Benefit
Plan, except in the ordinary course of the administration of such plans
consistent with the established compensation policies of the Selling Parties;
(v) not enter into any employment agreement or other contract or
arrangement with respect to the performance of personal services which is not
terminable without liability by the Selling Parties on not more than 30 days'
notice;
(w) not adopt any new employee benefit plan or program or amend to
increase the compensation or benefits payable under any of the Benefit plans, or
grant any severance or termination pay or benefit otherwise than pursuant to
policies of the Selling Parties in effect on the date hereof;
(x) not make any payment of, discharge or satisfy any material
liability or obligation (whether accrued, absolute, contingent or otherwise) of
any Selling Party, except in the ordinary course of business in accordance with
the terms thereof, or to cure defaults disclosed on Schedule 5.1;
------------
(y) not enter into any contract or commitment providing for payments
in excess of $25,000 in any fiscal year, except in the ordinary course of
business after consultation with Purchaser;
(z) not take or permit to be taken any action that is represented and
warranted in Section 3.22(b) not to have been taken since the Balance Sheet
---------------
Date;
(aa) not fail to pay when due all taxes, assessments, governmental
charges or levies imposed upon them or their income, profits or assets or
otherwise required to be paid by them, or fail to pay when due any liability or
charge that, if unpaid, might become a lien or other encumbrance upon any of
their assets;
(bb) not file any tax returns or amendments thereto, make, change, or
revoke any tax election or make any agreement or settlement with any taxing
authority or file any tax returns without Purchaser's written consent;
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<PAGE>
(cc) not make any payments to or enter into or modify any existing
agreement or arrangement with any Related Party; and
(dd) promptly upon its knowledge thereof, advise Purchaser in writing
of: (i) any material adverse change in the financial condition or operations of
the Business; (ii) any event, condition or circumstance occurring from the date
hereof until the Closing Date that would constitute a violation or breach of any
representation, warranty, covenant, agreement or provision contained in this
Agreement (provided, however, that such disclosure shall not be deemed to cure
-------- -------
any violation or breach of any such representation, warranty, covenant,
agreement or provision), or (iii) any event, occurrence, transaction or other
item that would have been required to have been disclosed on any Schedule
delivered hereunder, had such event, occurrence, transaction or item existed on
the date hereof.
5.2 Access to Information. From and after the date hereof, at reasonable
---------------------
times and upon reasonable notice to Seller, the Purchasing Parties shall be
entitled, through its employees and representatives, to make such investigation
of the assets, properties, facilities, personnel, business and operations of the
Selling Companies and the Business and such examination of the books, records
and financial condition of the Selling Companies and the Business as Purchaser
reasonably requests. No investigation by the Purchasing Parties shall diminish,
obviate or constitute a waiver as to the enforcement of any of the
representations, warranties, covenants or agreements of the Selling Parties
under this Agreement and all related agreements executed at the Closing. There
are no other representations, warranties, covenants or agreements among the
parties. The Selling Parties shall furnish the representatives of the Purchasing
Parties during such period with all information and copies of documents
concerning the affairs of the Business as such representatives may reasonably
request and shall cause the appropriate officers, employees, consultants,
agents, accountants and attorneys of the Selling Parties to cooperate fully with
such representatives in connection with such review and examination and to make
full disclosure to the Purchasing Parties of all material facts affecting the
financial condition and business operations of the Selling Parties. Neither such
investigation by the Purchasing Parties nor the delivery of such information or
documents shall affect the Purchasing Parties' right to rely on any
representation or warranty made by the Selling Parties or relieve the Selling
Parties of any obligation hereunder as the result of a breach of their
representations and warranties.
5.3 Governmental Permits and Approvals; Consents. The Selling Parties
--------------------------------------------
shall use their reasonable best efforts (with the reasonable assistance of the
Purchasing Parties to the extent required to obtain such approvals) to obtain
promptly (i) all permits and approvals from any governmental or regulatory body
required to be obtained by the Selling Parties for lawful consummation of the
Closing, (ii) the consents set forth or required to be set forth on Schedule
--------
3.13, and (iii) appropriate estoppel representation letters in form and
- ----
substance reasonably satisfactory to the Purchasing Parties from the lessors
under the Real Property Leases.
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<PAGE>
5.4 Assignment of Contracts, Etc. To the extent that the sale
----------------------------
of the Shares constitutes an assignment under the terms of any of the Contracts
(including the Real Property Leases) or the Permits which requires the consent
of another party, the Selling Parties agree to use their reasonable best efforts
(with the reasonable assistance of the Purchasing Parties to the extent
necessary to obtain such consents) to obtain the consent of such other party to
an assignment in all cases in which consent is required or novation agreements
to contracts, licenses, permits or approvals not so assignable.
5.5 Maintenance of Permits. The Selling Parties shall at all
----------------------
times prior to the Closing Date, cause the Selling Companies to preserve and
maintain each of the Permits free and clear of all liens and other encumbrances.
The Selling Parties shall not take any action or permit the Selling Companies to
take any action which would cause any governmental or regulatory body to
institute proceedings regarding any of the Permits or take any other action
which would result in a Selling Company being in noncompliance in any material
respect with the require ments of any other governmental or regulatory body
having jurisdiction thereof.
5.6 Employees; Employee Compensation.
--------------------------------
(a) Except as other wise provided herein with respect to
a specific employee, nothing contained in this Agreement shall confer upon any
such employee any right with respect to continued employment by the Selling
Companies. No provision of this Agreement shall create any third-party rights in
any such employee, or any beneficiary or dependent thereof, with respect to the
compensation, terms and conditions of employment and benefits that may be
provided to such employee by the Selling Companies or under any benefit plan
that the Selling Companies may maintain after the Closing.
(b) The Selling Parties agree to cause the Selling
Companies to discharge when due all compensation and benefits to any employee
under all pay and compensation practices applicable to the Business and under
any employment agreements payable in the ordinary course of business, except to
the extent otherwise reflected on the Closing Date Balance Sheet. The Selling
Parties shall pay all severance costs in respect of employees severed prior to
the Closing Date.
5.7 Accounts Receivable. Between the date hereof and the
-------------------
Closing Date, the Selling Parties will use prudent credit and collection
procedures in order to collect the Accounts Receivable so as not to jeopardize
Purchaser's future customer, patient, provider, referral source and third-party
payor relations.
5.8 Title; Risk of Loss. Legal title and risk of loss with
-------------------
respect to the assets of the Selling Companies and the Shares shall not pass to
Purchaser until the Shares are transferred at Closing. If prior to the Closing
Date any of the assets of the Selling Parties are destroyed or
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<PAGE>
damaged by fire or other casualty, Purchaser may, at its option, if the amount
of such destruction or damage is in excess of $100,000, terminate this
Agreement. In the event that Purchaser elects not to terminate this Agreement,
the amount any insurance proceeds shall not be taken into account in connection
with the determination of any Purchase Price Adjustment.
5.9 Non-solicitation.
----------------
(a) From the date hereof until the earlier of the Closing
Date or the Outside Date (hereinafter defined), the Selling Parties (and any
Related Party and any of their respective employees, representatives or agents)
will not, directly or indirectly, solicit, initiate, encourage or participate in
negotiations in any manner with respect to, or furnish or cause or permit to be
furnished any information to any person (other than Purchaser or Purchaser's
representatives) in connection with, any Third-Party Proposal. During such
period, the Selling Parties shall promptly inform Purchaser of the occurrence of
a Third-Party Proposal and the terms thereof (including the identity of the
prospective purchaser or soliciting party).
(b) If a Selling Party (or any Related Party or any of
their respective employees, representatives or agents) breaches or threatens to
commit a breach of, any of the provisions of this Section 5.9, Purchaser shall
-----------
have the right (in addition to any other rights and remedies available to
Purchaser at law or in equity) to equitable relief (including injunctions)
against such breach or threatened breach, it being acknowledged and agreed that
any such breach or threatened breach will cause irreparable harm to Purchaser
and that money damages would not be an adequate remedy to Purchaser. The Selling
Parties agree that they will not seek, and hereby waives any requirement for,
the securing or posting of a bond or proving actual damages in connection with
Purchaser's seeking or obtaining such relief.
5.10 Regulatory Approvals. The parties agree that in order to
--------------------
consummate the transactions contemplated hereby, all applicable federal, state
and local governmental or regulatory approvals (collectively, the "Regulatory
Approvals") must be obtained, subject to Purchasing Parties' right to waive this
condition in writing on behalf of the parties; provided, however that in the
event of such written waiver, so long as the Selling Parties are not responsible
for the failure to obtain the Regulatory Approvals, the Selling Parties shall
incur no liability for failing to obtain such Regulatory Approvals.
5.11 Monthly Financial Statements and Cost Reports. From the
---------------------------------------------
date hereof until the Closing Date, the Selling Parties will deliver to
Purchaser, as soon as possible but in any event within twenty (20) calendar days
after the end of each month, a balance sheet, statement of earnings and
statement of cash flows for such month and for the part of the fiscal year
ending with such month, certified by an executive officer of the Selling
Companies that such financial statements fairly present the financial position,
results of operations and changes in cash flows as of the end of such month and
for such period and that such financial statements have been
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<PAGE>
prepared in accordance with GAAP. Selling Parties shall promptly deliver to
Purchaser copies of all Medicare, Medicaid, Eldercare and other cost reports for
the period ended June 30, 1996 all of which to Seller's knowledge shall be true
and correct in all material respects.
5.12 SEC and NASDAQ Disclosure. The Selling Parties shall
-------------------------
furnish promptly to HHCA and its counsel for inclusion in any report filed with
the Securities and Exchange Commission or the NASDAQ System in a form reasonably
satisfactory to HHCA and its counsel, such information concerning each of the
Selling Companies, its respective operations, capitalization, stock ownership,
financial statements, businesses, assets and other matters as HHCA or its
counsel may reasonably request in connection with such filing.
5.13 Current Period Tax Returns.
--------------------------
(a) The Selling Parties shall be responsible for
preparing and filing all Tax Returns of any Selling Company relating to the
current fiscal year or other current reporting period ending prior to the date
of Closing (including, without limitation, federal and state income tax returns
for the fiscal year ended June 30, 1996 and the interim period ending on the
Closing Date), which may be due after the Closing Date (a "Current Return").
Purchasing Parties shall be responsible for remitting all Taxes due with any
Current Return to the extent that the same are accrued on the Closing Date
Balance Sheet and are taken into account in determining the Consolidated Net
Book Value of RSD. The Selling Parties will be responsible for remitting all
Taxes (including any interest and penalties) due with any Current Return to the
extent that such Taxes exceed the amount accrued on the Closing Date Balance
Sheet (each a "Tax Deficiency").
(b) The procedures set forth in this Section 5.13(b)
---------------
shall apply to each Current Return, which shall also include any estimated tax
return filed or estimated tax payment made after the date hereof that relates to
a Current Return. The Selling Parties shall submit a draft of each such Current
Return to the Purchasing Parties for their review and comment as soon as
reasonably practicable, but in any event not less than Thirty (30) days prior to
the date on which the return or payment is due. The parties will cooperate in
the preparation of each Current Return. In the event that the Purchasing Parties
shall disagree with or dispute the accuracy of any Current Return, the
Purchasing Parties shall notify the Selling Parties in writing of such dispute
within thirty (30) days of the delivery of the Current Return. In connection
with the review of the Current Return, the Selling Parties shall cause the
Selling Parties' Accountants to make all work papers available to the Purchasing
Parties. In the event of such a dispute, the Selling Parties and the Purchasing
Parties shall attempt to reconcile their differences and any resolution by them
of any disputed amounts shall be final, binding and conclusive on the parties.
If the parties are unable to reach a resolution to such effect within twenty
(20) days of the delivery of the Purchasing Parties' written notice of the
dispute to the Selling Parties, the items
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<PAGE>
remaining in dispute (the "Unresolved Disputes") shall be submitted to the
Independent Accountant, which shall, within thirty (30) days after such
submission, issue a report resolving all Unresolved Disputes, and such report
shall be final, binding and conclusive on the parties. The fees and
disbursements of the Independent Accountant shall be allocated to the party
whose determination of the Unresolved Disputes differs the most from the
Independent Accountant's determination. The Selling Parties shall cause the
Escrow Agent to release promptly from the Escrow the amount of any Tax
Deficiency and fees and disbursements of the Independent Accountant for which
the Selling Parties are liable hereunder.
(c) Each Selling Party shall provide Purchasing Parties
an affidavit stating, under penalties of perjury, the transferor's United States
taxpayer identification number and that the transferor is not a foreign person
pursuant to section 1445(b)(2) of the Code.
6. Conditions Precedent to the Purchasing Parties' Obligations. The
-----------------------------------------------------------
obligation of the Purchasing Parties to consummate the transactions contemplated
hereby is subject to the satisfaction on or prior to the Closing Date of the
following conditions, any of which may be waived in writing by the Purchasing
Parties:
6.1 Regulatory Approvals. All Regulatory Approvals shall have
--------------------
been received in accordance with the provisions of Section 5.10.
------------
6.2 Closing Deliveries. All documents required to be delivered by
------------------
the Selling Parties to the Purchasing Parties at Closing hereunder shall have
been delivered to the Purchasing Parties, including officers' certificates,
dated as of the Closing Date, certifying (i) as to incumbency and the
resolutions adopted by the shareholders and the boards of directors of the
Selling Companies duly authorizing the execution, delivery and performance by
the Selling Companies of this Agreement and the execution, delivery and
performance by the Selling Companies of all instruments and documents
contemplated hereby, (ii) that except for changes between the date of this
Agreement and the Closing Date permitted by this Agreement or waived by
Purchaser in writing, all of the representations and warranties of the Selling
Parties contained in this Agreement are true and correct in all material
respects (except for representations and warranties which are already qualified
as to materiality, which shall be true and correct in all respects), (iii) that
the Selling Parties have performed in all respects all of the obligations and
covenants to be performed by them hereunder, (iv) all of the conditions
precedent to the obligations of the Selling Parties hereunder have been waived
by the Selling Parties or satisfied, and (v) that since the date of this
Agreement, there has not been any material adverse change in the business,
prospects, operation or condition (financial or otherwise) of the Business or in
the assets of the Selling Companies except as otherwise stated therein.
6.3 Representations and Warranties on Closing Date. All
----------------------------------------------
representations and warranties of the Selling Parties made in this Agreement or
in any document or certificate
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<PAGE>
delivered by the Selling Parties to the Purchasing Parties pursuant hereto shall
be true and correct in all material respects on and as of the Closing Date with
the same force and effect as though such representations and warranties were
made on and as of the Closing Date, or if made as of a specific date, as of such
date (except for representations and warranties which are already qualified as
to materiality, which shall be true and correct in all respects).
6.4 Terms, Covenants and Conditions. All the terms, covenants
-------------------------------
and conditions of this Agreement to be complied with and performed by the
Selling Parties on or prior to the Closing Date shall have been complied with
and performed in all material respects unless waived in writing by the
Purchasing Parties.
6.5 Consents, Approvals, Etc. The Selling Parties shall have
------------------------
obtained and delivered to the Purchasing Parties all required consents and
approvals of third parties, including consents and approvals of third parties
under the Real Property Leases (containing appropriate estoppel representations
in form and substance reasonably satisfactory to Purchaser), the Personal
Property Leases and the other Contracts for which such consent is required as
indicated on Schedule 3.13.
-------------
6.6 No Material Adverse Change. On the Closing Date, there
--------------------------
shall have been no material adverse change in the business, prospects, operation
or condition (financial or otherwise) of the Business or in the assets of the
Selling Companies.
6.7 Absence of Litigation. No Action shall have been instituted
----------------------
before any court or governmental or regulatory body by any person (other than
Purchaser or any of its affiliates), or instituted or threatened by any
governmental or regulatory body, to restrain or modify, in any respect which is
materially adverse to the Purchasing Parties, the Selling Parties, the Business
or the assets of the Selling Companies, to prevent the carrying out of the
transactions contemplated hereby, or to seek damages or a discovery order in
connection with such transactions, or that has or, if adversely determined,
would reasonably be expected to have a materially adverse effect on the business
prospects, operation or condition (financial or otherwise) of the Business or
the assets of the Selling Companies.
6.8 Absence of Liens; Payment of Loans. At or prior to the
----------------------------------
Closing, Purchaser shall have received a Uniform Commercial Code ("UCC") search
report issued by the New Hampshire and Massachusetts Secretaries of State and
any applicable local offices indicating that there are no filings under the UCC
on file with such Secretary of State and such local office which name any
Selling Company as debtor or otherwise indicating any lien or other encumbrance
on the assets of any Selling Company or the Shares or, if any such liens or
other encumbrances exist, such liens or other encumbrances shall be extinguished
and removed at Closing. Notwithstanding the foregoing, (i) liens encumbering
leased property in favor of the lessors thereof need not be released and (ii)
the Purchasing Parties shall be responsible for
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<PAGE>
providing the Selling Companies with sufficient funds to pay in full at the
Closing, the Linc Indebtedness, the Merrill Lynch Indebtedness, the Roberts
Indebtedness, the August Seller Loan and the Remaining Seller Indebtedness, if
any, as reflected on the Closing Date Balance Sheet, and any liens securing the
Linc Indebtedness and Merrill Lynch Indebtedness may be removed of record
promptly after the Closing so long as there is a written commitment to do so
upon payment such indebtedness. Purchaser shall utilize its reasonable best
efforts to cause Seller and her husband to be released from any guarantees of
executory liabilities under the Contracts after the Closing.
6.9 Contribution to Capital; Repayment of HHCA Loan. Seller
-----------------------------------------------
shall have made the Contribution to Capital and provided Purchaser with evidence
thereof in form and substance reasonably acceptable to Purchaser. Seller shall
have repaid the HHCA Loan in full.
6.10 Subordination Agreement. Seller shall have executed and
-----------------------
delivered to Purchaser at Closing, a Subordination Agreement in the form of
Exhibit 6.10 hereto (the "Subordination Agreement").
- ------------
6.11 Subscription Agreement. Seller shall have executed and
----------------------
delivered to HHCA the Subscription Agreement in the form of Exhibit 6.11 hereto
------------
(the "Subscription Agreement").
6.12 Registration Rights Agreement. Seller shall have executed
-----------------------------
and delivered to HHCA the Registration Rights Agreement in the form of Exhibit
-------
6.12 hereto (the "Registration Rights Agreement").
- ----
6.13 Employment Agreements. Seller and Salvatore DiSalvo shall
---------------------
have executed and delivered to Purchaser the Employment Agreements in the form
of Exhibits 6.13(i), 6.13(ii) and 6.13(iii) hereto, as applicable (the
----------------------------------------
"Employment Agreements").
6.14 Restrictive Covenant Agreement. Elayne Roberts and Julian
------------------------------
Roberts shall have executed and delivered to Purchaser the Restrictive Covenant
Agreement in a form reasonably acceptable to the Purchaser (the "Restrictive
Covenant Agreement"); provided that such restrictions shall not exceed the
restrictions set forth in the Employment Agreements.
6.15 Escrow Agreement. Seller and the Escrow Agent shall have
----------------
executed and delivered to Purchaser the Escrow Agreement.
6.16 Stock Certificates and Corporate Records. Seller shall
----------------------------------------
have delivered to Purchaser (i) original stock certificates for all issued and
outstanding shares of capital stock of each Selling Company accompanied by stock
powers for the Shares duly endorsed in blank for transfer; (ii) resignations of
such officers and directors of the Selling Companies as may be
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<PAGE>
requested by Purchaser and (iii) stock books and minute books for each Selling
Company. Seller shall have executed and delivered to the Escrow Agent, stock
powers duly endorsed in blank for transfer for all HHCA Stock.
6.17 Opinion of Seller's Counsel. Purchaser shall have received
---------------------------
the opinions of counsel to the Selling Parties, in form and substance reasonable
acceptable to Purchaser ("Seller's Opinion").
6.18 Additional Documents. Purchaser shall have received such
--------------------
other certificates, documents and instruments as Purchaser shall reasonably
request in connection with the consummation of the transactions contemplated by
this Agreement.
6.19 Approval of HHCA Board. HHCA shall have received from its Board
----------------------
of Directors their approval of the this Agreement and the transactions
contemplated hereby (the "Board Approval"); provided, however that this
condition to close shall expire on November 13, 1996. If the Board Approval is
not obtained, Purchaser must give Seller written notice thereof prior to the
date set forth in this Section 6.19.
------------
6.20 Approval of HHCA's Lenders. HHCA shall have received from its
--------------------------
senior lenders their approval of the this Agreement and the transactions
contemplated hereby (the "Lender Approval"); provided, however that this
condition to close shall expire on November 22, 1996. If the Lender Approval is
not obtained, Purchaser must give Seller written notice thereof prior to the
date set forth in this Section 6.20.
------------
6.21 Satisfactory Completion of Due Diligence. Purchaser shall have
----------------------------------------
completed its due diligence investigation of the Selling Parties (the "Due
Diligence Investigation"); provided, however that this condition to close shall
expire on November 30, 1996. If the results of Purchaser's Due Diligence
Investigation are not satisfactory to Purchaser for any reason, Purchaser must
give Seller written notice thereof prior to the date set forth in this Section
-------
6.21.
- ----
6.22 Marital Rights. Seller shall cause Salvatore DiSalvo to
--------------
execute an agreement in form and substance reasonably acceptable to Purchaser
acknowledging and agreeing that (i) any payments or other consideration Seller
or he shall receive under this Agreement or any other related agreement
(excluding payments to him under his Employment Agreement) shall be subject to
any claims for indemnification asserted by the Purchasing Parties hereunder;
(ii) to the extent that he receives such consideration he shall be responsible
for any indemnification claims asserted by Purchasing Parties hereunder.
Salvatore DiSalvo's property as of the date hereof and any additional property
acquired after the date hereof except as
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<PAGE>
otherwise provided above with respect to the consideration payable hereunder
shall not be utilized to satisfy claims for indemnification hereunder.
7. Conditions Precedent to Selling Parties' Obligations. The obligation
----------------------------------------------------
of Selling Parties to consummate the transactions contemplated hereby is subject
to the satisfaction on or prior to the Closing Date of the following conditions,
any of which may be waived in writing by Selling Parties (provided that if any
condition shall not have been satisfied due to the action or inaction of the
Selling Parties or any Related Party, such condition shall be deemed to have
been satisfied or waived by the Selling Parties and the Purchasing Parties shall
incur no further obligation with respect thereto):
7.1 Closing Deliveries. All documents required to be delivered
------------------
by the Purchasing Parties to the Selling Parties shall have delivered to the
Selling Parties, including officers certificates dated as of the Closing Date,
certifying (i) as to incumbency and the resolutions adopted by the board of
directors of the Purchasing Parties duly authorizing the execution, delivery and
performance of this Agreement and the execution, delivery and performance of all
instruments and documents contemplated hereby to which a Purchasing Party is a
party, (ii) that except for changes between the date of this Agreement and the
Closing Date permitted by this Agreement or waived by the Selling Parties in
writing, all of the representations and warranties of the Purchasing Parties
contained in this Agreement are true and correct in all material respects
(except for representations and warranties which are already qualified as to
materiality, which shall be true and correct in all respects), (iii) that the
Purchasing Parties have performed in all respects all of their obligations and
covenants to be performed by them hereunder, and (iv) that all of the conditions
precedent to the obligations of the Purchasing Parties hereunder have been
waived by Purchaser or satisfied.
7.2 Representations and Warranties on Closing Date. All
----------------------------------------------
representations and warranties of the Purchasing Parties contained in this
Agreement or in any document or certificate delivered by the Purchasing Parties
to the Selling Parties pursuant hereto shall be true and correct in all material
respects on and as of the Closing Date with the same force and effect as though
such representations and warranties were made on and as of the Closing Date, or
if made as of a specific date, as of such date (except for representations and
warranties which are already qualified as to materiality, which shall be true
and correct in all respects).
7.3 Terms, Covenants and Conditions. All the terms, covenants
-------------------------------
and conditions of this Agreement to be complied with and performed by the
Purchasing Parties on or prior to the Closing Date shall have been complied with
and performed in all respects unless waived in writing by the Selling Parties.
7.4 Absence of Litigation. No Action shall have been instituted
---------------------
before any court or governmental or regulatory body by any person (other than
the Selling Parties or any
-38-
<PAGE>
Related Party) or instituted or threatened by any governmental or regulatory
body, to prevent the carrying out of the transactions contemplated hereby.
7.5 Closing Cash Payments and Loan Repayment. The Purchasing
----------------------------------------
Parties shall have (i) delivered the Closing Cash Payment to Seller; (iii)
delivered the Holdback Amount to the Escrow Agent and (iii) caused the Selling
Companies to pay in full the Linc Indebtedness, the Merrill Lynch Indebtedness,
the Roberts Indebtedness, the August Seller Loan and the Remaining Seller
Indebtedness, if any, as reflected on the Closing Date Balance Sheet.
7.6 Note. The Purchasing Parties shall have executed and
----
delivered the Note to the Escrow Agent.
7.7 HHCA Stock. HHCA shall duly issued the HHCA Stock to
----------
Seller and duly endorsed and delivered certificates representing the HHCA Stock
to the Escrow Agent.
7.8 Subordination Agreement. The Purchasing Parties and their
-----------------------
affiliates shall have executed and delivered to Seller at Closing, the
Subordination Agreement.
7.9 Subscription Agreement. HHCA shall have executed and
----------------------
delivered to Seller the Subscription Agreement.
7.10 Registration Rights Agreement. HHCA shall have executed
-----------------------------
and delivered to Seller the Registration Rights Agreement.
7.11 Employment Agreements. HHCA shall have executed and
---------------------
delivered to Seller and Salvatore DiSalvo, as applicable, the Employment
Agreements.
7.12 Escrow Agreement. HHCA and the Escrow Agent shall have
----------------
executed and delivered to Seller the Escrow Agreement.
7.13 Opinion of Purchaser's Counsel. Seller shall have received
------------------------------
the opinions of counsel to Purchasing Parties, in form and substance reasonable
acceptable to Seller ("Purchaser's Opinion").
7.14 HHCA Guaranty. HHCA shall execute and deliver to Seller
-------------
and Salvator DiSalvo a guaranty of all of Purchaser's obligations under
Employment Agreements in form and substance reasonably acceptable to Seller.
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<PAGE>
8. Confidentiality.
---------------
(a) As used in this Agreement, the term "Confidential
Information" shall mean all confidential and proprietary material considered to
be confidential by any of the parties and knowledge and information not readily
available to the public heretofore or hereafter conceived, learned or disclosed
(including all documents, writings, memoranda, business plans, computer
software, reports, pricing, cost and sales information, financial statements or
condition, customer, patient, provider, referral source and supplier lists,
trade secrets, and marketing strategies, plans and techniques).
(b) From and after the date hereof, the Selling Parties shall
(and shall use their best efforts to cause the Related Parties to) keep secret
and retain in strictest confidence, and shall not, without Purchasing Parties'
express prior written consent, directly or indirectly, disclose, disseminate,
publish, reproduce, retain, use (for their benefit or for the benefit of others
after Closing), or otherwise make available in any manner whatsoever, any
Confidential Information regarding the Selling Companies or the Purchasing
Parties (or this Agreement or the transactions contemplated hereby) to anyone
except (i) to their representatives (who shall be informed of the confidential
nature of such information and who shall agree to keep such information
confidential), (ii) to Purchasing Parties and its affiliates or representatives,
(iii) as otherwise required by law, (iv) as required by the Selling Parties to
enforce their rights under this Agreement, or (v) as required to obtain the
Regulatory Approvals. Notwithstanding the foregoing the Selling Companies shall
be permitted to utilize their respective Confidential Information in the conduct
of the Business in the ordinary course.
(c) From and after the date hereof and continuing until the
Closing Date, the Purchasing Parties shall keep secret and retain in strictest
confidence, and shall not, without Seller's express prior written consent,
directly or indirectly, disclose, disseminate, publish, reproduce, retain, use
(for its benefit or for the benefit of others) or otherwise make available in
any manner whatsoever, any Confidential Information regarding the Selling
Parties (or this Agreement or the transactions contemplated hereby) to anyone
except (i) to its representatives (who shall be informed of the confidential
nature of such information and who shall agree to keep such information
confidential), (ii) as otherwise required by law, including securities laws,
(iii) as required by its lenders, (iv) as required by the Purchasing Parties to
enforce their rights under this Agreement, or (v) as required to obtain the
Regulatory Approvals.
(d) If any party (the "Disclosing Party") breaches, or
threatens to commit a breach of, any of the provisions of this Section 8.1, the
-----------
other party (the "Non-Disclosing Party") shall have the right (in addition to
any other rights and remedies available to the Non-Disclosing Party at law or in
equity) to equitable relief (including injunctions) against such breach or
threatened breach, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable harm to the Non-Disclosing Party and
that money
-40-
<PAGE>
damages would not be an adequate remedy to the Non-Disclosing Party. The
Disclosing Party agrees that it will not seek, and hereby waives any requirement
for, the securing or posting of a bond or proving actual damages in connection
with the Non-Disclosing Party's seeking or obtaining such relief.
9. Books and Records; Use of Names.
-------------------------------
(a) Each party agrees that it will cooperate with and make
available to the other party, during normal business hours, all books and
records relating to the Business, information and employees (without substantial
disruption of employment) retained and remaining in existence after the Closing
which are necessary or useful in connection with any tax inquiry, audit,
investigation or dispute, any litigation or investigation or any other matter
requiring any such books and records, information or employees for any
reasonable business purpose. All information received pursuant to this Section
-------
9(a) shall be subject to the confidentiality provisions of Section 8.
- ---- ---------
(b) Cooperation and Records Retention. The parties shall (i)
---------------------------------
each provide the other with such assistance as may reasonably be requested by
either of them in connection with the preparation of any return, audit, or other
examination by any taxing or any other authority or judicial or administrative
proceedings relating to any liability, (ii) for a reasonable period of time,
each retain and provide the other with any records or other information that may
be relevant to such return, audit or examination, proceeding or determination,
and (iii) each provide the other with any final determination of any such audit
or examination, proceeding, or determination that affects any amount required to
be shown on any tax return or other documents of the other for any period.
Without limiting the generality of the foregoing, the parties shall each retain,
until the applicable statutes of limitations (including any extensions) has
expired, copies of all tax returns, supporting work schedules, and other records
or information that may be relevant to such returns for all tax periods or
portions thereof ending on or before the Closing Date and shall, during such
period, provide the other party with a reasonable opportunity to review and copy
the same. The parties shall also make reasonably available financial and other
information concerning the Selling Companies, as a party may from time to time
reasonably request.
(c) After the Closing Date, Seller shall not permit any Related
Party to conduct business in any location under a name confusing similar to the
name of any Selling Company.
10. Survival of Representations and Warranties. Any disclosures contained
------------------------------------------
in any Schedule or any certificate delivered pursuant to this Agreement by any
party hereto shall constitute a representation and warranty of such party. The
representations and warranties of the Selling Parties and the Purchasing Parties
contained herein shall survive the consummation of the
-41-
<PAGE>
transactions contemplated hereby and the Closing Date, without regard to any
investigation made by any of the parties hereto, and shall expire three (3)
years after the Closing Date; provided, however, that the representations and
-------- -------
warranties (and all claims and causes of action with respect thereto) in
Sections 3.16, 3.19, and 3.25 and claims based on fraud and obligations under
- -----------------------------
Sections 2.4 and 2.5 hereof shall survive the Closing Date until the expiration
of the applicable statute of limitations. The termination of the representations
and warranties provided herein shall not affect the rights of a party seeking
indemnification under this Agreement, provided that such party shall have given
written notice to the other party, prior to the expiration of the applicable
survival period provided above, of a claim for indemnification.
11. Indemnification.
---------------
11.1 Obligation to Indemnify by Selling Parties. Subject to the
------------------------------------------
terms of Section 10, Selling Parties prior to the Closing and the Seller after
----------
the Closing, agree to indemnify, defend and hold harmless Purchasing Parties and
the Selling Companies (and their shareholders, affiliates, and their directors,
officers, stockholders and employees), from and against all losses, Taxes,
liabilities, damages, lawsuits, deficiencies, claims, demands, costs or
expenses, including interest, penalties and reasonable attorneys' fees and
disbursements ("Losses"), based upon, incurred in connection with, arising out
of or otherwise in respect of (i) any breach of any representation or warranty
of the Selling Parties contained in this Agreement or in any agreement attached
as an exhibit hereto delivered pursuant to this Agreement, (ii) any breach of
any covenant or agreement of the Selling Parties contained in this Agreement or
in any agreement attached as an exhibit hereto delivered pursuant to this
Agreement, (iii) any liability or obligation of the Selling Companies which is
not reflected and adequately reserved for on the Closing Date Balance Sheet,
except for executory liabilities under Contracts with respect to periods after
the Closing Date, or (iv) Tax Deficiencies.
11.2 Obligation to Indemnify by Purchaser. Subject to the terms of
------------------------------------
Section 10, the Purchasing Parties agree to indemnify, defend and hold harmless
- ----------
Seller from and against all Losses based upon, incurred in connection with,
arising out of or otherwise in respect of (i) any breach of any representation
or warranty of the Purchasing Parties contained in this Agreement or in any
agreement attached as an exhibit hereto, (ii) any breach of any covenant or
agreement of the Purchasing Parties contained in this Agreement or in any
agreement attached as an exhibit hereto, (iii) any liability or obligation of
the Selling Companies to the extent reflected and adequately reserved for on the
Closing Date Balance Sheet, (iv) executory liabilities under Contracts with
respect to periods after the Closing Date or (v) any liability or obligation of
the Selling Companies arising solely out of Purchaser's operation of the
Business after the Closing.
11.3 Losses. The term "Losses" as used herein (i) is not limited to
------
matters asserted by third parties against the Selling Parties or the Purchasing
Parties and includes Losses incurred or sustained in the absence of third-party
claims, (ii) includes Losses incurred through
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<PAGE>
and after the date of the claim for indemnification (including any
Losses related thereto and suffered after the end of any applicable survival
period provided that a claim for indemnification was timely given pursuant to
Section 10), (iii) does not include any decline in value of the HHCA Stock and
- ----------
(iv) does not include consequential damages (unless awarded to a third party).
11.4 Procedures for Claims Between the Parties. If a claim (a
-----------------------------------------
"Claim") is to be made by the party claiming indemnification (the "Claimant")
against the other party (the "Indemnifying Party"), the Claimant shall give
written notice (a "Claim Notice") to the Indemnifying Party as soon as
practicable after the Claimant becomes aware of the facts, condition or event
which may give rise to Losses for which indemnification may be sought under this
Section 11. The Claim Notice shall specify in reasonable detail the nature and
- ----------
extent of the Claim. Following receipt of the Claim Notice from the Claimant,
the Indemnifying Party shall have thirty (30) calendar days to make such
investigation of the Claim as the Indemnifying Party deems necessary or
desirable; provided, however, that if Claimant reasonably determines that it
-------- -------
will be materially prejudiced by affording the Indemnifying Party such period of
time for investigation, the Claimant shall so notify the Indemnifying Party and
the Indemnifying Party and the Claimant shall agree promptly on the appropriate
period of time for such investigation. For the purposes of such investigation,
the Claimant agrees to make available to the Indemnifying Party and/or its
authorized representative(s) the information relied upon by the Claimant to
substantiate the Claim. If the Claimant and the Indemnifying Party agree at or
prior to the expiration of said thirty (30) day period (or any mutually agreed
upon period or extension thereof) to the validity and amount of such Claim, the
Indemnifying Party shall pay promptly to the Claimant the agreed upon amount of
such Claim. If the Claimant and the Indemnifying Party do not agree within said
period (or any mutually agreed upon period or extension thereof), the Claimant
may seek appropriate legal remedy subject to this Section 11.
----------
11.5 Defense of Third-Party Actions. If any lawsuit or enforcement
------------------------------
action (a "Third Party Action") is filed against a Claimant entitled to the
benefit of indemnity hereunder, written notice thereof (the "Third-Party Action
Notice") shall be given by Claimant to the Indemnifying Party as promptly as
practicable (and in any event within fifteen (15) calendar days after the
service of the citation or summons or other manner of process). The failure of
any Claimant to give notice timely hereunder shall not affect rights to
indemnification hereunder, except to the extent that the Indemnifying Party
demonstrates actual damage caused by such failure. After such notice, the
Indemnifying Party shall be entitled, if it so elects, (i) to take control of
the defense and investigation of such Third-Party Action, (ii) to employ and
engage attorneys reasonably satisfactory to the Claimant to handle and defend
the same, at the Indemnifying Party's cost, risk and expense, and (iii) to
compromise or settle such Third-Party Action, which compromise or settlement
shall be made only with the written consent of the Claimant, such consent not to
be unreasonably withheld, conditioned or delayed. If the Indemnifying Party
fails to assume the defense of such Third-Party Action at its cost within
fifteen (15) calendar days after receipt of the Third-Party Action Notice, the
Claimant will (upon
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<PAGE>
delivering notice to such effect to the Indemnifying Party) have the right to
undertake, at the Indemnifying Party's cost and expense, the defense, compromise
or settlement of such Third-Party Action on behalf of and for the account and
risk of the Indemnifying Party; provided, however, that such Third-Party Action
-------- -------
shall not be compromised or settled, nor shall an entry of judgment be agreed
to, without (i) the written consent of the Indemnifying Party, which consent
shall not be unreasonably withheld, conditioned or delayed and (ii) an
unconditional release of the Claimant and the Indemnifying Party. In the event
the Claimant assumes the defense of the Third-Party Action, the Claimant will
keep the Indemnifying Party reasonably informed of the progress of any such
defense, compromise or settlement. The Indemnifying Party shall be liable for
any settlement of any Third-Party Action effected pursuant to and in accordance
with this Section 11 and for any final judgment (subject to any right of
----------
appeal), and the Indemnifying Party agrees to indemnify and hold harmless
Claimant from and against any Losses by reason of such settlement or judgment.
11.6 Limitation of Indemnification. The Indemnifying Party's
-----------------------------
obligations to indemnify the Claimant pursuant to this Section 11 shall be
----------
subject to the following limitations:
(a) No indemnification shall be required to be made by the
Indemnifying Party until the aggregate amount of the Claimant's Losses (which
Losses shall include Losses relating to any representation or warranty qualified
by reference to materiality or to a material adverse change even if such Loss
does not in and of itself result in a breach of such representation or warranty)
exceeds $100,000 (the "Basket"), and then indemnification shall only be required
by the Indemnifying Party to the extent of such excess. Notwithstanding the
foregoing, the limitation imposed by the Basket shall not apply to (i) the
Acquisition Price Adjustment, or (ii) breaches of the provisions of Sections
--------
2.4, 2.5 or 13.4.
- ----------------
(b) No indemnification shall be required to be made by the
Indemnifying Party under this Section 11 for the amount of the Claimant's Losses
----------
that are in excess of $2,000,000, except with respect to (i) breaches of the
provisions of Sections 2.4 or 2.5 which will be subject to a separate limitation
-------------------
in the amount of the Closing Date Accounts Receivable (less allowance for
doubtful accounts, and reserves for cost report disallowances and contractual
allowances reflected on the Closing Date Balance Sheet) which amount shall be
reduced by Accounts Receivable actually collected by the Purchaser after the
Closing, (ii) the Acquisition Price Adjustment which is not subject to a
limitation, and (iii) Losses incurred in connection with undisclosed liabilities
which are subject to a separate limitation in the amount of $3,500,000 for
Claims asserted during the first 15 months after Closing and $2,000,000 for
Claims asserted thereafter.
(c) The indemnification obligation of an Indemnifying Party
shall be adjusted so as to give effect to any net reduction in federal, state,
local or foreign income or franchise tax liability actually realized at any time
by the Claimant in connection with the
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<PAGE>
satisfaction by the Indemnifying Party of a Claim with respect to which
indemnification is sought hereunder. Any Claims payable by the Indemnifying
Party to the Claimant hereunder shall also include the federal, state, local or
foreign income or franchise tax liability that the Claimant will incur upon the
receipt of payment in respect of such Claims (taking into account any net
operating loss, capital loss or credit carryover of the Claimant); however, with
respect to any Claims for which the Claimant (but for the operation of this
sentence) is entitled to indemnification hereunder, there shall be disregarded
any tax liabilities arising by reason of (i) any reduction or disallowance of
deductions from taxable income in one taxable year, but only to the extent such
reduction or disallowance actually results in a corresponding increase in
allowable deductions from income in another year, (ii) the shifting of items of
income from one taxable year to another, or (iii) the capitalization of amounts
that were expended, but only if such capitalized amounts are subject to
amortization or depreciation or recovery in costs of goods sold, inventory or
materials, except insofar as such reduction, disallowance, shifting or
capitalization would only result in the increase of any unutilized net operating
loss, capital loss or carryover. The indemnification obligation of an
Indemnifying Party with respect to any Claim shall also be adjusted to take into
account the amount, if any, of any insurance proceeds recovered by the Claimant
as a result of such Claim, after the deduction of all costs incurred to obtain
such proceeds.
11.7 Exclusive Remedy. The remedies provided under this Agreement
----------------
shall constitute the sole and exclusive remedy of the parties hereto for any
breach of representation or warranty contained in this Agreement or in any of
the agreements attached as Exhibits hereto or for any breach or covenant of or
failure to perform any covenant contained in this Agreement or in any of the
agreements attached as Exhibits hereto and the parties waive any other remedy
which they or any other person entitled to indemnification hereunder may have at
law or in equity with respect thereto; provided, however that this exclusion
shall not apply to Claims based on fraud.
12. Breaches and Defaults; Termination; Remedies.
--------------------------------------------
12.1 Termination. This Agreement may be terminated at any time
-----------
prior to the Closing as follows:
(a) by mutual written agreement of the parties hereto;
(b) provided the Purchasing Parties are not then in breach of
this Agreement, at the election of the Purchasing Parties (pursuant to a written
notice to the Selling Parties), (i) if any one or more of the conditions to the
Purchasing parties' obligations to close has not been fulfilled in any material
respect as of the Closing Date, (ii) if the conditions set forth in Sections
--------
6.19 (Board Approval), 6.20 (Lender Approval) or 6.21(Due Diligence
- -------------------------------------------------------------------
Investigation) are not satisfied; provided, however, that these conditions shall
- --------------
expire as provided therein, (iii) if
-45-
<PAGE>
any of the Selling Parties have breached in any material respect any
representation, warranty, covenant or agreement contained in this Agreement or
in any other agreement or document delivered pursuant hereto, or (iii) if the
Closing shall not have taken place by December 31, 1996 (the "Outside Date")
(unless any of the foregoing events shall have resulted primarily from the
Purchasing Parties breaching any representation, warranty, covenant or agreement
contained in this Agreement);
(c) provided the Selling Parties are not then in breach of this
Agreement, at the election of the Selling Parties (pursuant to a written notice
to the Purchasing Parties), (i) if any one or more of the conditions to the
Selling Parties' obligations to close has not been fulfilled in any material
respect as of the Closing Date, (ii) if the Purchasing Parties have breached in
any material respect any representation, warranty, covenant or agreement
contained in this Agreement or in any other agreement or document delivered
pursuant to hereto, or (iii) if the Closing shall not have taken place by the
Outside Date (unless any of the foregoing events shall have resulted primarily
from the Selling Parties' breach of any representation, warranty, covenant or
agreement contained in this Agreement); and
(d) in accordance with the terms of Sections 5.8 or 13.8.
--------------------
12.2 Effect of Termination. In the event of any termination of
---------------------
this Agreement, all obligations of the parties hereto under this Agreement shall
terminate as of such date of termination and this Agreement shall thereafter
become void and be of no further force and effect, and upon such termination no
party hereto shall be liable to the other party; provided however, that (i) the
obligations contained in Sections 8 and 11 shall survive any termination hereof,
-----------------
and (ii) the foregoing provisions shall not limit or restrict the availability
of specific performance (as provided in Section 12.3) or other injunctive relief
------------
to the extent that specific performance or such other relief would otherwise be
available to a party hereunder.
12.3 Specific Performance. The Selling Parties agree that the Shares
--------------------
and the Business are unique assets that cannot be readily obtained on the open
market and that the Purchasing Parties will be irreparably injured if this
Agreement is not specifically enforced. Therefore, notwithstanding anything to
the contrary contained herein or otherwise, prior to the consummation of the
Closing, the Purchasing Parties shall have the right to enforce specifically the
Selling Parties' performance under this Agreement, and the Selling Parties waive
any defense in any such suit that the Purchasing Parties have an adequate remedy
at law and to interpose no opposition, legal or otherwise, as to the propriety
of specific performance as a remedy. The remedies described in this Section 12.3
------------
shall be in addition to, and not in lieu of, any other remedies that the
Purchasing Parties may elect to pursue.
-46-
<PAGE>
13. Miscellaneous.
-------------
13.1 Consent to Jurisdiction. In order to enforce the provisions
-----------------------
hereof, each of the parties hereto (i) submits and consents to the personal
jurisdiction of any Massachusetts state or federal court with respect to any
suit, action or proceeding relating to this Agreement or any of the transactions
contemplated hereby, (ii) waives any objection which such party may now or
hereafter have to the laying of venue of any such suit, action or proceeding
brought in any such court, and waives any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum,
(iii) waives the right to object that any such court does not have personal
jurisdiction over such party, and (iv) consents to the service of process in any
such suit, action or proceeding upon the receipt through the United States mail
of copies of such process to such party by certified mail to the addresses
indicated herein or at such other addresses of which the other parties shall
have received written notice. Nothing herein shall pre clude any party from
bringing suit or taking other legal action in any other jurisdiction or from
serving legal process in any other manner permitted by law or in equity.
13.2 Expenses. The parties to this Agreement shall bear their
--------
respective expenses incurred in connection with the preparation, negotiation,
execution and performance of this Agreement and the transactions contemplated
hereby, including all fees and expenses of agents, representatives, consultants,
counsel and accountants. The Selling Parties shall pay in full all such expenses
at or prior to the Closing (the "Selling Parties' Expenses"). Notwithstanding
the foregoing, at the Closing the Purchasing Parties shall pay the audit
expenses incurred by the Selling Companies for services performed by the Selling
Parties' Accountant solely with respect to the audit of the Selling Companies'
financial statements for the year ended June 30, 1996 (excluding the audit
expense incurred in auditing NSL's June 30, 1996 financial Statements) and the
preparation of the Closing Date Balance Sheet, the Closing Date Income Statement
and the Closing Statement, which in each case, will not be considered to be
Selling Parties' Expenses.
13.3 Further Assurances. Each of the parties shall execute such
------------------
agreements and documents and take such further actions as may be reasonably
required or desirable to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall use its reasonable best efforts to
fulfill or obtain the fulfillment of the conditions to the Closing, including
the execution and delivery of any other agreement or document, the execution and
delivery of which are conditions precedent to the Closing.
13.4 Indemnification for Brokerage. The Selling Parties agree to
-----------------------------
indemnify and save the Purchasing Parties harmless from any claim or demand for
commissions or other compensation by any broker, finder, agent or similar
intermediary claiming to have been employed by or on behalf of the Selling
Parties and to bear the cost of legal fees and expenses incurred in defending
against any such claim. The Purchasing Parties agree to indemnify and save the
Selling Parties harmless from any claim or demand for commissions or other
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<PAGE>
compensation by any broker, finder, agent or similar intermediary claiming to
have been employed by or on behalf of the Purchasing Parties and to bear the
cost of legal fees and expenses incurred in defending against such claim. The
Selling Parties shall pay any commission due to Advest.
13.5 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. If any court determines
that any covenant, or any part of any covenant is invalid or unenforceable, such
covenant shall be enforced to the extent permitted by such court, and all other
covenants shall not thereby be affected and shall be given full effect, without
regard to the invalid portions.
13.6 Notices. Any notice or other communication required or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given when received if delivered personally against receipt; when transmission
is confirmed, if transmitted by telecopy, electronic or digital transmission
method; the next day if sent for next day delivery by a nationally recognized
overnight courier service; or upon receipt if sent by certified, registered or
express mail, return receipt requested, postage prepaid. In each case notice
shall be sent as follows:
(a) if to Purchaser, to:
Home Health Corporation of America, Inc.
2200 Renaissance Boulevard, Suite 300
King of Prussia, Pennsylvania 19406
Telecopy No.: 610-272-3131
Attention: Mr. Bruce J. Feldman
with a copy (which shall not constitute notice) to:
Kleinbard Bell & Brecker
1900 Market Street / Suite 700
Philadelphia, Pennsylvania 19103
Telecopy No.: 215-568-0140
Attention: Howard J. Davis, Esquire
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<PAGE>
(b) if to Seller, to:
4 Ivy Street
Windham, NH 03087
Attention: Ms. Randy DiSalvo
with a copy (which shall not constitute notice) to:
Brown, Rudnick, Freed & Gesmer
1 Financial Center
Boston, MA 02111
Telecopy No.: (617) 856-8201
Attention: Gordon R. Penman, Esquire
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
13.7 Entire Agreement. This Agreement (including the Schedules and
----------------
Exhibits) and the agreements, certificates and other documents delivered
hereunder contain the entire agreement between the parties with respect to the
transactions described herein, and supersede all prior agreements, written or
oral, with respect thereto.
13.8 Disclosure Schedules; Independent Significance.
----------------------------------------------
(a) The parties acknowledge and agree that (i)the parties have
not yet completed the Schedules to this Agreement; and (ii) the failure to
complete the Schedules prior to signing this Agreement shall not constitute a
waiver of any parties' right to require that the Schedules be completed and
attached. Selling Parties shall as promptly as possible complete the Schedules
and submit the same to the Purchasing Parties for their review on or before 5:00
P.M. on Tuesday, November 5, 1996.
(b) In the event that any of the Schedules delivered to the
Purchasing Parties pursuant to this Section are not acceptable to the Purchasing
Parties, the Purchasing Parties shall have the right to terminate this Agreement
by giving Seller written notice thereof within 5 days after receipt of
Schedules.
(c) Nothing in any Schedule hereto shall be deemed adequate to
disclose an exception to a representation or warranty made herein unless the
Schedule identifies the exception with reasonable particularity. The parties
intend that each representation, warranty, covenant and agreement contained
herein shall have independent significance; accordingly, if any party has
breached any representation, warranty, covenant or agreement, the fact that
there
-49-
<PAGE>
exists another representation, warranty, covenant or agreement relating to
the same subject matter which such party has not breached shall not detract from
or mitigate the fact that the party is in breach of the first representation,
warranty, covenant or agreement.
13.9 Amendments and Waivers. This Agreement may be modified or
----------------------
amended, and the terms hereof may be waived, only by a written instrument signed
by the parties or, in the case of a waiver, by the party waiving compliance. No
delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
any party of any such right, power or privilege, nor any single or partial
exercise of any such right, power or privilege, preclude any further exercise
thereof or the exercise of any other such right, power or privilege.
13.10 Governing Law. This Agreement shall be governed and
-------------
construed in accordance with the laws of the Commonwealth of Massachusetts
without regard to principles of conflicts of law or any rule of interpretation
or construction as to which party drafted this Agreement, except with respect to
matters of law concerning the internal corporate affairs of any corporate entity
which is a party to or the subject of this Agreement (as to those matters of
law, the jurisdiction under which the respective entity derives its powers shall
govern).
13.11 Binding Effect; Assignment. Neither this Agreement nor any of
--------------------------
the rights or obligations hereunder may be assigned (including by operation of
law) by any party without the prior written consent of the other party, except
that Purchaser may, without such consent, assign any and all such rights and
obligations to any affiliate, provided that Purchasing Parties shall remain
liable for the discharge of such obligations. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
13.12 Joint and Several. HHCA hereby guarantees all of the
-----------------
obligations of Purchaser under the Employment Agreements. Notwithstanding
anything to the contrary herein contained or otherwise, the obligations of each
Selling Party, on the one hand, and each Purchasing Party, on the other hand,
under this Agreement, shall be joint and several.
13.13 Beneficiaries of Agreement. The representations, warranties,
--------------------------
covenants and agreements expressed in this Agreement are for the sole benefit of
the other party hereto and are not intended to benefit, and may not be relied
upon or enforced by, any other party as a third party beneficiary or otherwise,
except with respect to any third party who acquires substantially all of the
stock or assets of Purchaser or HHCA.
13.14 Counterparts; Facsimile Signatures. This Agreement may be
----------------------------------
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute one and the same
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<PAGE>
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
Facsimile signatures on this Agreement and any of the agreements and documents
executed in connection herewith shall be deemed original signatures.
13.15 Exhibits and Schedules. The Exhibits and Schedules are a
----------------------
part of this Agreement as if fully set forth herein. All references herein to
Sections, subsections, clauses, Exhibits and Schedules shall be deemed
references to such parts of this Agreement, unless the context shall otherwise
require.
13.16 Formation of Purchaser. As promptly as possible after the
----------------------
date hereof, HHCA shall cause Articles of Incorporation to be filed for the
Purchaser and shall take such other action as may be required to cause the
formation of Purchaser as a corporation in the State New Hampshire. The
representations and warranties regarding the Purchaser shall take effect as of
the date of the Purchaser's incorporation
-51-
<PAGE>
13.17 Headings. The headings in this Agreement are for reference
--------
only, and shall not affect the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
PURCHASING PARTIES:
HHCA New Hampshire, Inc.
By:______________________________________
Name:
Title:
Home Health Corporation of America, Inc.
By:______________________________________
Name:
Title:
SELLING PARTIES:
RSD Management, Inc.
By:______________________________________
Name: Randy DiSalvo
Title: President
Nursing Services Home Care, Inc.
By:______________________________________
Name: Randy DiSalvo
Title: President
Signatures Continued on Next Page
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<PAGE>
Nursing Services Home Care, Ltd.
By:______________________________________
Name: Randy DiSalvo
Title: President
Nursing Services Staffing of N. H., Inc.
By:______________________________________
Name: Randy DiSalvo
Title: President
Nursing Services, Inc.
By:______________________________________
Name: Randy DiSalvo
Title: President
_________________________________________
Randy DiSalvo, individually
-53-
<PAGE>
Exhibit 11.1
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
Computation Of Primary and Fully-diluted Earnings Per Share
For the three month periods ended September 30, 1996 and 1995
The following calculation is submitted in accordance with the Securities Act of
1934:
<TABLE>
<CAPTION>
1995 1996
---------------------------- ---------------------------
Primary Fully-diluted Primary Fully-diluted
----------- --------------- ----------- --------------
(amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Net income.................... $391 $391 $1,406 $1,406
Dividends on preferred stock 16 16 - -
----------- --------------- ----------- --------------
Net income available to common
stockholders............... $375 $375 $1,406 $1,406
=========== =============== =========== ===============
Weighted average number of
maximum shares outstanding
during quarter............. 3,567 3,567 8,024 8,024
Weighted average number of
maximum shares subject to
exercise under outstanding
stock options and warrants. 136 136 513 513
Less treasury shares assumed
repurchased from assumed
exercise of outstanding
options and warrants....... (38) (38) (355) (338)
----------- --------------- ----------- --------------
Weighted average number of
common and common equivalent
shares outstanding after
assumed exercise of stock
options and warrants....... 3,665 3,665 8,182 8,199
=========== =============== =========== ===============
Net income per share.......... $0.10 $0.10 $0.17 $0.17
=========== =============== =========== ===============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1996 AND THE RELATED STATEMENT OF INCOME FOR THE THREE
MONTH PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,041
<SECURITIES> 0
<RECEIVABLES> 30,870
<ALLOWANCES> 2,345
<INVENTORY> 1,584
<CURRENT-ASSETS> 688
<PP&E> 13,770
<DEPRECIATION> 4,586
<TOTAL-ASSETS> 74,989
<CURRENT-LIABILITIES> 10,665
<BONDS> 0
500
0
<COMMON> 34,400
<OTHER-SE> 6,034
<TOTAL-LIABILITY-AND-EQUITY> 74,989
<SALES> 25,302
<TOTAL-REVENUES> 25,302
<CGS> 12,226
<TOTAL-COSTS> 22,566
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 431
<INCOME-PRETAX> 2,305
<INCOME-TAX> 899
<INCOME-CONTINUING> 1,406
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,406
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
