<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1998
REGISTRATION NO. 333 -
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
NEW AMERICAN HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
TENNESSEE 8062 62-1612155
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
109 WESTPARK DRIVE, SUITE 440
BRENTWOOD, TENNESSEE 37027
TELEPHONE: (615) 221-5070
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------------
ROBERT M. MARTIN
109 WESTPARK DRIVE, SUITE 440
BRENTWOOD, TENNESSEE 37027
TELEPHONE: (615) 221-5070
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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ERNEST E. HYNE, II J. VAUGHAN CURTIS
HARWELL HOWARD HYNE GABBERT & MANNER, P.C. ALSTON & BIRD LLP
1800 FIRST AMERICAN CENTER ONE ATLANTIC CENTER
NASHVILLE, TENNESSEE 37238 1201 WEST PEACHTREE STREET
(615) 256-0500 ATLANTA, GEORGIA 30309-3424
(404) 881-7000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE
TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------
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Common stock, $0.01 par value $115,000,000 $33,925
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(1) Estimated in accordance with Rule 457(o) solely for the purpose of
calculating the registration fee.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 1998
PROSPECTUS
, 1998
SHARES
(NEW AMERICAN HEALTHCARE LOGO)
COMMON STOCK
All of the shares of common stock, $0.01 par value per share (the
"Common Stock"), offered hereby are being sold by New American Healthcare
Corporation ("New American" or the "Company"). Up to additional shares
will be offered by a stockholder of the Company (the "Selling Stockholder") if
the Underwriters exercise the over-allotment option. The Company will not
receive any of the proceeds from the sale of shares by the Selling Stockholder.
See "Principal and Selling Stockholder" and "Underwriting."
Prior to this offering (the "Offering") there has been no public market for
the Common Stock. It is presently estimated that the initial public offering
price will be between $ and $ per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. Application has been made to list the Common Stock for trading
on the New York Stock Exchange ("NYSE") under the symbol "NAH."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Share................................ $ $ $
Total(3)................................. $ $ $
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(1) The Company and the Selling Stockholder have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $2,100,000.
(3) The Selling Stockholder has granted the Underwriters an option, exercisable
within 30 days hereof, to purchase up to an aggregate additional
shares of Common Stock at the price to the public less underwriting
discounts and commissions for the purpose of covering over-allotments, if
any. If the Underwriters exercise such option in full, the total Price to
the Public, Underwriting Discounts and Commissions, Proceeds to the Company
and proceeds to the Selling Stockholder will be $ , $ , $ and
$ , respectively. See "Principal and Selling Stockholders" and
"Underwriting."
------------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain prior conditions including the right of the Underwriters to
reject orders in whole or in part. It is expected that delivery of such shares
will be made in New York, New York on or about , 1998.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
SUNTRUST EQUITABLE SECURITIES
<PAGE> 3
[PHOTOGRAPHS OF THE COMPANY'S NINE HOSPITALS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the Consolidated
Financial Statements and the related Notes thereto appearing elsewhere in this
Prospectus. References in this Prospectus to New American or the Company shall,
unless the context otherwise requires, refer to the Company together with its
wholly owned subsidiaries. Except where otherwise indicated, the information in
this Prospectus (i) assumes that the over-allotment option granted to the
Underwriters is not exercised and (ii) has been adjusted to give effect to the
Reincorporation (as herein after defined) that will occur immediately prior to
the consummation of the Offering. All references to years, unless otherwise
noted, refer to the Company's fiscal year, which ends on March 31 of each year.
Unless the context otherwise requires, "Common Stock" includes the Non-Voting
Common Stock issued in the Reincorporation. See "The Reincorporation."
THE COMPANY
New American acquires and operates acute care hospitals throughout the
United States. The Company was formed to capitalize on opportunities to be the
principal provider of health care services in the non-urban communities in which
it operates. Since acquiring its first hospital in August 1996, a non-urban
facility in Wentzville, Missouri, the Company has acquired seven additional
hospitals, including four that were purchased from a single party in January
1998. These eight acute care hospitals are located in six states and have a
total of 1,032 licensed beds. In addition, the Company has entered into a
definitive agreement to purchase a 160-bed acute care hospital in Tacoma,
Washington. Pro forma net operating revenues and pro forma earnings before
interest, tax, depreciation and amortization ("EBITDA") for the fiscal year
ended March 31, 1998 were $173.3 million and $15.0 million, respectively.
The Company's hospitals offer a wide range of inpatient and outpatient
medical and surgical services and also provide other health care services,
including general and geriatric psychiatry, rehabilitation and occupational
medicine. As part of developing a community health care delivery system, the
Company's hospitals also operate satellite clinics. All of the Company's
hospitals are accredited by either the Joint Commission on Accreditation of
Healthcare Organizations ("JCAHO"), the American Osteopathic Association ("AOA")
or both.
The Company believes non-urban hospitals are attractive acquisition
candidates for several reasons. Non-urban service areas have smaller populations
and are generally served by only one or two hospitals, resulting in less
competition. The relative dominance of the acute care hospitals in these smaller
markets may also limit the entry of competitive alternate site providers such as
outpatient surgery, rehabilitation or diagnostic imaging. The Company believes,
in general, the demographic characteristics and the relative negotiating
leverage of the local hospital also make such markets less attractive to health
maintenance organizations ("HMOs") and other managed care payors. In addition,
the Company believes non-urban communities are often characterized by high
levels of patient, physician and community loyalty that fosters cooperative
relationships among the local hospital, physicians, patients and employers.
The Company's business strategy is to acquire in a selective manner those
hospitals that meet the Company's investment criteria and to enhance revenues,
improve operating efficiencies and increase profitability at its hospitals. In
selecting its acquisition candidates, the Company targets non-urban hospitals
that are or can be positioned to be the focal point of a community's health care
delivery system. The Company believes more than 1,000 hospitals meet its
acquisition criteria. During the acquisition due diligence process, the Company
develops an action plan that provides a framework for identifying opportunities
to enhance the hospital's operating and financial performance, while improving
the quality of care. In developing the action plan, the Company leverages the
extensive experience of its senior management team.
Once a hospital is acquired, the Company implements the action plan
developed during the acquisition due diligence process. Key elements of the
Company's action plan include: (i) improving operating efficiencies; (ii)
recruiting additional physicians; (iii) expanding the number of services
offered; (iv) developing health care networks, where appropriate; and (v)
installing a standardized management
3
<PAGE> 5
information system. For the three hospitals owned for at least twelve months as
of May 31, 1998, and comparing the twelve months ended March 31, 1997 to the
comparable period in 1998, the EBITDA margin increased from 5.5% to 11.1%;
adjusted admissions increased by 6.0%; and emergency room visits increased by
7.5%. Additionally, since acquiring the three hospitals, the Company has
recruited eleven physicians at these three hospitals.
The Company's senior management team has extensive experience in hospital
operations, financial management and business development. This experience
enables management to analyze a hospital's business and identify opportunities
to improve its clinical and financial performance. The Company's senior
management team has an average of approximately 20 years of experience in the
health care sector. Robert M. Martin, Chairman, President and Chief Executive
Officer, and Dana C. McLendon, Jr., Senior Vice President of Finance and
Administration, are among several of the Company's senior executives who were
formerly senior executives of HealthTrust, Inc. -- The Hospital Company
("HealthTrust"), a nationwide operator of non-urban hospitals. During the
majority of his seven-year tenure at HealthTrust, Mr. Martin was responsible for
managing its largest region, that included 17 primarily non-urban hospitals. Mr.
McLendon spent over five years at HealthTrust and was responsible for developing
and implementing its integrated delivery systems linking hospitals, physicians
and payors. Other members of senior management have significant health care
experience and were formerly with Hospital Affiliates International ("HAI"),
Hospital Corporation of America ("HCA"), Quorum Health Group, Inc. ("Quorum")
and HealthTrust. Moreover, through their experience of operating hospitals,
management has developed an extensive network of contacts for identifying both
potential acquisition targets and potential management talent for both its
hospitals and corporate office. Currently, each local hospital management team
(consisting of a chief executive officer, a chief financial officer and a chief
nursing officer) has, on average, 39 years of collective hospital experience.
The Company's principal executive offices are located at 109 Westpark
Drive, Suite 440, Brentwood, Tennessee 37027, and its telephone number is (615)
221-5070. The Company was incorporated in August 1995.
THE OFFERING
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Common Stock offered hereby............................. shares
Common Stock to be outstanding after the Offering....... shares(1)
Use of proceeds......................................... To repay certain indebtedness, to make
cash payments in exchange for the Series A
Preferred Stock in the Reincorporation and
for general corporate purposes. See "Use
of Proceeds."
Proposed NYSE symbol.................................... "NAH"
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(1) Includes shares of Non-Voting Common Stock issued in connection
with the Reincorporation, but does not include shares of Common
Stock issuable upon the exercise of outstanding warrants at an exercise
price of $ or shares of Common Stock issuable upon the
exercise of outstanding options as of at a weighted average
exercise price of $ .
4
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SUMMARY CONSOLIDATED FINANCIAL AND STATISTICAL DATA
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PERIOD YEARS ENDED MARCH 31,
AUGUST 16, -------------------------------------------------
1995 PRO FORMA 1998
(INCEPTION) -----------------------------
THROUGH BEFORE PUGET INCLUDING
MARCH 31, SOUND PUGET SOUND
1996 1997 1998 HOSPITAL(1) HOSPITAL(1)(2)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENTS OF OPERATIONS DATA:
Revenues:
Net patient service revenue...... $ -- $10,737 $73,725 $139,374 $168,542
Other revenue.................... 17 350 1,924 4,181 4,804
----- ------- ------- -------- --------
Net operating revenues...... 17 11,087 75,649 143,555 173,346
Expenses:
Other operating expenses......... 385 10,958 68,805 132,766 158,380
Depreciation and amortization.... 5 783 2,836 5,322 6,510
Interest......................... 1 363 2,637 382 2,482
----- ------- ------- -------- --------
391 12,104 74,278 138,470 167,372
----- ------- ------- -------- --------
Income (loss) before income
taxes....................... (374) (1,017) 1,371 5,085 5,974
Income taxes........................ -- 66 579 2,136 2,509
----- ------- ------- -------- --------
Net income (loss).............. (374) (1,083) 792 2,949 3,465
Cumulative preferred dividend....... -- -- 617 -- --
----- ------- ------- -------- --------
Net income (loss) attributable
to common stockholders...... $(374) $(1,083) $ 175 $ 2,949 $ 3,465
===== ======= ======= ======== ========
Pro forma net income (loss) per
share-diluted(3)............ $ (0.18) $ $
======= ======== ========
Weighted average number of
shares and dilutive
equivalents-diluted......... 12,027
======= ======== ========
STATISTICAL DATA:
Hospitals owned or leased (at end of
period).......................... 1 8
Licensed beds (at end of period).... 94 1,032
Adjusted admissions................. 2,335 13,594
Emergency visits.................... 4,965 36,566
Adjusted patient days............... 9,951 75,852
EBITDA.............................. $ 129 $ 6,843
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AS OF MARCH 31, 1998
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PRO FORMA PRO FORMA
ACTUAL AFTER OFFERING(4) COMBINED(5)
(IN THOUSANDS)
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BALANCE SHEET DATA:
Working capital...................................... $ 15,306 $ $
Total assets......................................... 134,193
Long-term obligations, excluding current portion..... 67,184
Redeemable preferred stock........................... 25,617
Total stockholders' equity........................... 23,915
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(1) Gives effect to (i) the Reincorporation, (ii) the sale by the Company of
shares of Common Stock in the Offering at an assumed initial public
offering price of $ per share and the application of the net
proceeds therefrom and (iii) the acquisition of Memorial Hospital of Center,
Delta Medical Center -- Memphis, Dolly Vinsant Memorial Hospital, Davenport
Medical Center, Lander Valley Medical Center, Woodland Park Hospital and
Eastmoreland Hospital (the "Hospital Acquisitions"), as if they had occurred
on April 1, 1997. See "Pro Forma Condensed Combined Financial Information"
and "Use of Proceeds."
5
<PAGE> 7
(2) Gives effect to the pending acquisition of Puget Sound Hospital (the "Puget
Sound Acquisition"), as if it had occurred on April 1, 1997. See "Pro Forma
Combined Financial Information."
(3) Pro forma net income (loss) per share for the year ended March 31, 1998
gives effect to the Hospital Acquisitions as if they had occurred on April
1, 1997.
(4) Gives effect to the sale by the Company of shares of Common Stock in the
Offering at an assumed initial public offering price of $ per share
and the application of the net proceeds therefrom, as if such transactions
had occurred on March 31, 1998. See "Use of Proceeds."
(5) Gives effect to the Puget Sound Acquisition and the sale by the Company of
shares of Common Stock in the Offering at an assumed initial public offering
price of $ per share and the application of the net proceeds
therefrom, as if such transactions had occurred on March 31, 1998. See "Use
of Proceeds" and "Pro Forma Combined Financial Information."
6
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FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus Summary and under the captions "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business," and elsewhere in this Prospectus, constitute
forward-looking statements. Such forward-looking statements (which may be
identified by words such as "anticipate," "believe," "estimate," "expect,"
"intend" and similar expressions) involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of the Company or industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others: general economic
and business conditions, both nationally and in regions where the Company
operates; demographic changes; the effect of existing or future governmental
regulation and federal and state legislative and enforcement initiatives
affecting the Company's business, including the recently enacted Balanced Budget
Act of 1997; changes in Medicare and Medicaid reimbursement levels; the
Company's ability to implement successfully its acquisition and development
strategy and changes in such strategy; the availability and terms of financing
to fund the expansion of the Company's business, including the acquisition of
additional hospitals; the Company's ability to attract and retain qualified
management personnel and to recruit and retain physicians and other health care
personnel to the non-urban markets it serves; the effect of managed care
initiatives on the non-urban markets served by the Company's hospitals and the
Company's ability to enter into managed care provider arrangements on acceptable
terms; the effect of liability and other claims asserted against the Company;
the effect of competition in the markets served by the Company's hospitals; and
other factors referenced in this Prospectus. Certain of these factors are
discussed in more detail elsewhere in this Prospectus. There can be no assurance
that the forward-looking statements included in this Prospectus will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved. The Company
disclaims any obligation to update any such factors or to announce any revisions
to any of the forward-looking statements contained herein as a result of future
events or developments. See "Risk Factors."
As presented in this Prospectus, EBITDA represents the sum of income (loss)
from operations before provision for income taxes, interest expense,
depreciation and amortization, and EBITDA margin represents EBITDA as a
percentage of net operating revenue. Pro forma EBITDA gives effect to the
Hospital Acquisitions and the Puget Sound Acquisition as if they had occurred on
April 1, 1997. Management understands that industry analysts generally consider
EBITDA to be one measure of the financial performance of a company that is
presented to assist investors in analyzing the operating performance of the
Company and its ability to service debt. Management believes an increase in
EBITDA indicates an improved ability to service existing debt, to sustain
potential future increases in debt and to satisfy capital requirements. However,
EBITDA is not a measure of financial performance under generally accepted
accounting principles and should not be considered an alternative to (i) net
income as a measure of operating performance, or (ii) cash flows from operating,
investing, or financing activities as a measure of liquidity. Given that EBITDA
is not a measurement determined in accordance with generally accepted accounting
principles and is thus susceptible to varying calculations, EBITDA as presented
in this Prospectus may not be comparable to other similarly titled measures of
other companies.
7
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RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following information before
making an investment in the Common Stock offered hereby.
RISKS OF ACQUISITION STRATEGY
Timely Completion of Acquisitions. A key element of the Company's growth
strategy is the acquisition of acute care hospitals primarily in non-urban
markets. The Company faces competition for acquisition candidates primarily from
other for-profit health care companies, both private and public, that have also
targeted non-urban markets as well as not-for-profit entities. Some of the
Company's competitors have greater financial and other resources than the
Company and larger development staffs focused on identifying and completing
acquisitions. Increased competition for the acquisition of non-urban acute care
hospitals could have an adverse impact on the Company's ability to acquire such
hospitals on favorable terms and to acquire the planned number of such hospitals
during a period of time. The process of identifying suitable acquisition
candidates and proposing, negotiating and consummating a transaction on
favorable terms is lengthy and complex. There can be no assurance that the
Company will be able to acquire hospitals that meet its target criteria on
satisfactory terms, or at a pace consistent with its objectives. The failure to
complete acquisitions in a timely manner could have a material adverse effect on
the Company's business, financial conditions and results of operations.
Pending Acquisition. On December 22, 1997, New American entered into a
definitive purchase agreement to acquire substantially all of the assets of
Puget Sound Hospital, a 160-bed acute care hospital located in Tacoma,
Washington for $25.0 million, plus an amount equal to the book value of certain
working capital accounts. The Company does not intend to close the purchase
until the remediation of certain environmental contamination at the facility is
completed by the current owner or until the Company and the current owner have
made other arrangements satisfactory to the Company that provide for the current
owner to fund all costs of such remediation. There can be no assurance that the
Puget Sound Acquisition will be consummated. See "-- Environmental Regulations."
Integration of Acquisitions. The Company acquired seven of its eight
hospitals during the fiscal year ended March 31, 1998. In addition, the Company
intends to continue to acquire additional hospitals as part of its growth
strategy. These acquisitions have substantially increased the number of persons
employed by the Company, the number of facilities operated by the Company and
the geographic markets served by the Company. Although the Company believes it
can successfully integrate and operate acquired hospitals, there can be no
assurance that any completed acquisition or future acquisitions will be
integrated successfully into the Company's operations, that cost savings or
operating synergies will be realized to the extent anticipated by the Company or
that the acquired operations will achieve levels of profitability necessary to
justify the Company's investments therein. Moreover, there can be no assurance
that the results of the acquired operations will not be dilutive to the
Company's per share earnings. Acquisitions may result in adverse effects on the
Company's reported operating results, divert management's attention, create
difficulties in attracting, retaining and training key personnel, and introduce
risks associated with unanticipated problems or legal liabilities, some or all
of which could have a material adverse effect on the Company's business,
financial condition and results of operations.
Governmental Review of Certain Acquisitions. In recent years, several
states have expressed greater interest in transactions involving the sale of
hospitals by not-for-profit or governmental entities. Although the level of
interest varies from state to state, the trend is to provide for increased
governmental review, and in some cases approval, of transactions in which
not-for-profit entities sell a health care facility. Attorneys general in
certain states have been especially active in evaluating these transactions. In
some states these evaluations and reviews also apply to acquisitions from
for-profit entities. Although the Company has not yet been adversely affected as
a result of these trends, such increased scrutiny may increase the difficulty in
completing or prevent the completion of certain transactions in certain states
in the future.
8
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LIMITED OPERATING HISTORY
The Company was organized in 1995, and seven of the Company's eight
hospitals were acquired during the fiscal year ended March 31, 1998. The largest
single purchase, representing four of the Company's eight hospitals, was
completed in January 1998. The Company has operated only one hospital for a full
fiscal year and there is a very limited history of operation of the hospitals by
the Company. There can be no assurance that the Company will be able to achieve
satisfactory operating results.
HEALTH CARE INDUSTRY INVESTIGATIONS
Significant media and public attention has recently focused on the hospital
industry due to ongoing federal and state investigations reportedly related to
certain referral, cost reporting and billing practices, laboratory and home
health care services, and physician ownership of health care providers and joint
ventures involving, skilled nursing, rehabilitation and psychiatric hospitals.
As part of its hospital operations, the Company operates laboratories and
provides home health care services. The Company also has significant Medicare,
Medicaid and other governmental billings. The Company monitors its billing and
hospital practices and believes these practices are consistent with current
industry standards. However, applicable laws are complex and constantly
evolving, and there can be no assurance that government investigations will not
result in interpretations that are inconsistent with industry practices,
including the Company's practices. In public statements surrounding current
investigations, governmental authorities have taken positions on a number of
issues, including some for which little official interpretation has previously
been available. Certain of these positions appear to be inconsistent with
practices that have been common within the industry and which have not
previously been challenged in this manner. Moreover, in certain instances,
government investigations that have in the past been conducted under the civil
provisions of federal law are now being conducted as criminal investigation.
The Office of Inspector General ("OIG") of the United States Department of
Health and Human Services ("DHHS"), the United States Department of Justice
("DOJ") and other federal agencies have initiated hospital billing review
projects in certain states and are expected to extend such projects to
additional states, including states in which the Company does business. Many
state enforcement agencies have followed suit. These enforcement actions and the
increased enforcement activity of state and local authorities increase the
likelihood of governmental investigations of all health care facilities.
In April 1997, the DOJ, Eastern District of Texas, sent a demand letter to
the Company's hospital in Center, Texas, alleging improper laboratory billing
practices during periods prior to the Company's ownership of the hospital. The
Company settled this claim for approximately $18,000, and recovered its
settlement costs for this claim from the prior owner of the hospital pursuant to
an indemnification agreement.
In September 1997, the DOJ, Southern District of Texas, sent a demand
letter to the Company's hospital in San Benito, Texas alleging improper
laboratory billing for periods prior to the Company's ownership. The DOJ has
offered to settle the claim for approximately $20,000. The Company will seek
indemnification from prior owners for any liabilities with respect to this
matter and such prior owners have acknowledged their responsibility.
In November 1997, the DOJ, Eastern District of Missouri, sent a demand
letter to the Company's hospital in Wentzville, Missouri alleging improper
laboratory billing practices from approximately 1991 to 1997. No lawsuit has
been filed and the Company is engaged in discussions with representatives of the
DOJ. If the Company incurs any liability with respect to this matter
attributable to improper billing during periods prior to the Company's
acquisition of the hospital, the Company will attempt to recover such losses
pursuant to an indemnification agreement entered into as part of its purchase of
the hospital. There can be no assurance that such indemnification arrangement
will be adequate or that indemnification claims will be satisfied.
There can be no assurances that governmental entities will not initiate
similar investigations in the future at hospitals operated by the Company and
that such investigations will not result in significant fines and/or other
penalties to the Company. In addition, in certain instances, indemnity insurers
and other non-governmental payors have sought repayment from providers for
alleged overpayments. Any investigation of the
9
<PAGE> 11
Company or persons or entities with whom the Company does business could result
in adverse publicity concerning the Company and could limit the Company's
ability to make acquisitions. The positions taken by authorities in the current
investigations or any future investigations of the Company or other providers
and the liabilities or penalties that may be imposed could have a material
adverse effect on the Company's business, financial condition or results of
operations. See "-- Health Care Regulation" and "Business -- Hospitals --
Regulatory Compliance Program" and "-- Health Care Reform, Regulation and
Licensing."
EFFECT OF REIMBURSEMENT AND PAYMENT POLICIES; HEALTH CARE REFORM LEGISLATION
The Company's hospitals derive a substantial portion of their revenue from
governmental programs. Such programs are highly regulated and are subject to
frequent and substantial changes. In recent years, changes in Medicare and
Medicaid programs have resulted in limitations on, and reduced levels of,
payment and reimbursement for a substantial portion of hospital procedures and
costs. Congress recently enacted the Balanced Budget Act of 1997, which
establishes a plan to balance the federal budget by fiscal year 2002, and
includes significant additional reductions in spending levels for the Medicare
and Medicaid programs. These include, among others, payment reductions directly
affecting hospitals, establishment of prospective payment systems for skilled
nursing facilities and home health agencies under Medicare. This legislation
also repealed the federal payment standard (the "Boren Amendment") for hospitals
and nursing facilities under Medicaid, increasing states' discretion over the
administration of Medicaid programs.
Federal and state proposals are pending that would impose further
limitations on governmental payments to health care providers such as the
Company and increase patient co-payments and deductibles. In addition, a number
of states are considering legislation designed to reduce their Medicaid
expenditures and to provide universal coverage and additional care for certain
populations and/or to impose additional taxes on hospitals to help finance or
expand the states' Medicaid programs. Significant additional reductions in
payment levels could have a material adverse effect on the business, financial
condition and results of operations of the Company.
An increasing number of related legislative proposals have been introduced
or proposed in Congress and in some state legislatures that would effect major
structural reforms in the health care system, either nationally or at the state
level. Among the proposals under consideration or already enacted are price
controls on hospitals, insurance market reforms to increase the availability of
group health insurance coverage to small businesses and requirements that all
businesses offer health insurance coverage to their employees. While the Company
anticipates that payments to hospitals will be reduced as a result of future
federal and state legislation, it is uncertain at this time what health care
reform legislation may ultimately be enacted, if any, or whether other changes
in the administration or interpretation of governmental health care programs
will occur. There can be no assurance that future health care legislation or
other changes in the administration or interpretation of governmental health
care programs will not have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Health Care
Reform, Regulation and Licensing."
DEPENDENCE ON MANAGEMENT
The Company's success is largely dependent on the skills, experience and
efforts of its senior management team. The Company's operations are also
dependent on the efforts, ability and experience of key members of its hospital
management staffs. The loss of services of one or more members of the Company's
senior management team or of a significant portion of its hospital management
staff at one or more of its hospitals could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company does not maintain key man life insurance policies on any of its
officers. See "Management."
DEPENDENCE ON PHYSICIANS AND OTHER HEALTH CARE PROFESSIONALS
The success of the Company's hospitals is largely dependent upon the number
and quality of the physicians representing various specialties on the hospital's
medical staff. The Company is also largely
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<PAGE> 12
dependent on the maintenance of good relations between the Company and such
physicians. Hospital physicians are generally not employees of the Company and
most staff physicians have admitting privileges at hospitals other than those of
the Company. Only a limited number of physicians are interested in practicing in
the non-urban communities in which some of the Company's hospitals are located,
and the loss of physicians in these communities, or the inability of the Company
to recruit physicians to these communities, could have a material adverse effect
on the Company's business, financial condition and results of operations. The
operations of the Company's hospitals may also be affected by difficulties in
attracting and retaining nurses and certain other health care professionals in
these communities. See "Business -- Employees and Medical Staff."
YEAR 2000 COMPLIANT INFORMATION SYSTEMS
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field. By the year 2000, these
date code fields will need to accept four-digit entries to distinguish 21st
century dates from 20th century dates. Computer systems that do not accept
four-digit entries could fail or produce erroneous results and cause disruptions
of operations. As a result, many software and computer systems may need to be
upgraded or replaced in order to comply with such "Year 2000" requirements. The
Company is in the process of converting all of its hospitals to a new management
information system that the Company believes will be Year 2000 compliant. The
failure of the Company's management information system to be Year 2000 compliant
could have a material adverse effect on the Company's business, financial
conditions and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Various clinical and non-clinical equipment currently in use at the
Company's hospitals are also subject to Year 2000 issues. The Company is
examining such equipment in conjunction with its suppliers. The failure of such
equipment to be Year 2000 compliant could have a material adverse effect on the
Company's business, financial condition and results of operations.
In addition, the Company has ongoing relationships with third-party payors,
suppliers, vendors, and others that may have computer systems with Year 2000
problems that the Company does not control. There can be no assurance that the
fiscal intermediaries and governmental agencies with which the Company transacts
business and which are responsible for payment to the Company under the Medicare
and Medicaid programs, as well as other payors, will not experience significant
problems with Year 2000 compliance. According to testimony before a U.S. House
of Representatives subcommittee, the DHHS is far behind in remedying Year 2000
problems, which could delay payment of claims to providers. The failure of third
parties to remedy Year 2000 problems could have a material adverse effect on the
Company's business, financial condition and results of operations.
MIS CONVERSION
The Company relies on the accuracy, reliability and proper use of its
management information system. Each of the Company's hospitals has historically
operated under its own stand-alone system. On certain occasions, the Company has
experienced difficulties with such systems. For example, in November 1997, the
information system at Delta Medical Center -- Memphis failed, which prevented
the Company from accessing certain data and required the Company to maintain
manual records for approximately six weeks until the system and such data could
be restored. The Company is in the process of converting all of its hospitals to
a new management information system that integrates financial, clinical and
administrative functions. Although the Company believes the new management
information system will improve the efficiency of the Company, there can be no
assurance that the new system will work as expected or that the conversion will
be accomplished without interrupting the Company's business. In addition, while
the Company anticipates timely completion of the conversion of all of its
hospitals to the new management information system, there can be no assurance
that such conversion will be completed on schedule, that the cost of such
conversion will not exceed budgeted amounts or that the existing systems will
not experience additional problems prior to the completion of the conversion.
Failure to complete the conversion in a timely manner or within budgeted amounts
could have a material adverse effect on the Company's business, financial
11
<PAGE> 13
condition and results of operations. See "-- Year 2000 Compliant Information
Systems" and "Business -- Management Information System."
HEALTH CARE REGULATION
The health care industry is subject to extensive federal, state and local
laws and regulations relating to issues such as licensure, conduct of
operations, ownership of facilities, additional facilities and services, and
prices for services. These laws and regulations provide for periodic inspections
or other reviews by state and federal agencies to determine compliance with such
laws sufficient for continued licensing or participation in Medicare, Medicaid
or other governmental payor programs. Such laws and regulations are extremely
complex, and in many instances the industry has the benefit of little or no
regulatory or judicial interpretation. The Company is also subject to the
federal anti-kickback law and the Stark law, which covers financial and other
arrangements between and among health care providers. The anti-kickback law and
similar state laws have been broadly interpreted to make remuneration of any
kind, (including many types of business and financial arrangements such as
certain joint ventures, space and equipment rentals, management and personal
services contracts, and certain investment arrangements between and among
providers, suppliers and referral sources), potentially illegal if any purpose
of the remuneration or financial arrangement is to induce a referral. Sanctions
for violating the anti-kickback law include criminal penalties and civil
sanctions, including fines and possible exclusion from government programs such
as Medicare and Medicaid. Pursuant to the Medicare and Medicaid Patient and
Program Protection Act of 1987, the DHHS has issued regulations that describe
some of the conduct and business relationships that are not a basis for
exclusion from the Medicare program or criminal prosecution under the
Anti-kickback Amendments ("Safe Harbors"). The fact that a given business
arrangement does not fall within a Safe Harbor does not render the arrangement
per se illegal. However, business arrangements of health care service providers
that fail to satisfy the applicable Safe Harbor criteria risk increased scrutiny
by enforcement authorities. The Health Insurance Portability and Accountability
Act of 1996 broadened the scope of certain fraud and abuse laws and certain
related enforcement activities. See " -- Health Care Industry Investigations."
In addition, the Stark law restricts referrals by physicians and other
practitioners of Medicare and other government program patients to providers
when such practitioners have ownership or certain other financial arrangements
with such provider. Many states have adopted or are considering similar
legislative proposals, some of which prohibit the payment or receipt of
remuneration for the referral of patients regardless of the source of the
payment for the care. The Company's participation in and development of
financial relationships with physicians and others could be adversely affected
by the Stark law and similar state enactments.
The Company provides financial incentives to recruit physicians into the
communities served by its hospitals, including loans and minimum revenue
guarantees. The Company also enters into certain leases with physicians and is a
party to certain joint ventures with physicians. There can be no assurance that
regulatory authorities who enforce the anti-kickback law and the Stark law will
not determine that the Company's physician recruiting activities, other
physician arrangements or group purchasing activities violate the anti-kickback
law or other federal laws. Such a determination could subject the Company to
liability. DHHS has the authority to exclude from participation in the Medicare
and Medicaid programs those individuals and entities that engage in defined
prohibited activities, including, but not limited to, violations of state or
federal law. DHHS also has the authority to impose substantial civil monetary
penalties for certain prohibited activities, including those activities
prohibited by the anti-kickback law and the Stark law. See "Business -- Health
Care Reform, Regulation and Licensing."
Both federal and state government agencies have announced heightened and
coordinated civil and criminal enforcement efforts against health care providers
and other health care businesses. One federal initiative, Operation Restore
Trust, focused on investigating health care providers in the home health and
nursing home industries as well as medical suppliers to these providers in 17
states, including four states (Texas, Tennessee, Missouri and Washington) in
which the Company operates and a form of this initiative is still in place. DOJ
from time to time establishes enforcement initiatives that focus on specific
billing practices or other suspected areas of abuse. Current initiatives include
a focus on hospital billing for outpatient charges
12
<PAGE> 14
associated with inpatient services, as well as hospital laboratory billing
practices. Three of the Company's hospitals have been the subject of enforcement
efforts. See "-- Health Care Industry Investigations."
Some states require state approval under certificate of need laws for the
purchase, construction, renovation and expansion of health care facilities for
such services and facilities in the community. A finding of need may be required
prior to capital expenditures exceeding a prescribed amount, changes in bed
capacity or services and certain other matters as well as a requirement a
provider provide a certain amount of uncompensated care. There can be no
assurances that the Company will be able to obtain required certificates of
need.
The laws, rules and regulations described above are subject to considerable
interpretation and considerable discretion on the part of regulators and courts.
If a determination is made that the Company is in violation of such laws, rules
or regulations, or if further changes in the regulatory framework occur, any
such determination or changes could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Health Care Reform, Regulation and Licensing."
COMPETITION
Competition among hospitals and other health care providers in the United
States has intensified in recent years due to cost containment pressures,
changing technology, changes in government regulation and reimbursement, changes
in practice patterns (such as shifting from inpatient to outpatient treatments),
the impact of managed care organizations and other factors. The Company's
hospitals face competition for patients from larger tertiary care centers,
outpatient service providers and other local non-urban hospitals that provide
similar services to those offered by the Company's hospitals. Some of the
hospitals that compete with the Company have greater financial resources and/or
are owned by governmental agencies or not-for-profit corporations supported by
endowments and charitable contributions, and can finance capital expenditures on
a tax-exempt basis. The Company faces competition for acquisitions primarily
from for-profit hospital companies that have also targeted non-urban markets as
well as not-for-profit entities. Some of the Company's competitors have greater
financial and other resources than the Company and larger, more experienced
development staffs focused on identifying and completing acquisitions. See
"-- Risks of Acquisition Strategy -- Timely Completion of Acquisitions" and
"Business -- Competition."
ENVIRONMENTAL REGULATION
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under, or in such property. Such laws typically impose liability without
regard to whether the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. In connection with the ownership
or operation of hospitals, the Company may be potentially liable for such costs.
The Company is party to a pending agreement to purchase Puget Sound
Hospital in Tacoma, Washington. During its due diligence process, the Company
discovered certain environmental contamination involving underground storage
tanks no longer in use. Environmental consultants have developed a work plan to
remediate such existing contamination which must be approved by the Washington
State Department of Ecology. Once the work plan is approved, remediation may
begin. The Company does not intend to close the purchase of Puget Sound Hospital
until remediation efforts are successfully completed or until the Company and
the current owner have made other arrangements satisfactory to the Company that
provide for the current owner to fund all costs of such remediation. Although
the Company is not currently aware of any other material environmental claims
pending or threatened against it or any of its hospitals, no assurances can be
given that a material environmental claim will not be asserted against the
Company or against any of its hospitals. The costs of defending against claims
of liability, or of remediating a contaminated property, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "-- Risks of Acquisition Strategy -- Pending Acquisition."
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<PAGE> 15
NEED FOR ADDITIONAL CAPITAL
The Company's acquisition program requires substantial capital resources.
In addition, the operations of its existing hospitals require ongoing capital
expenditures for renovation, expansion and addition of costly medical equipment
and technology. The Company may incur indebtedness and may issue, from time to
time, debt or equity securities to fund any such expenditures. There can be no
assurance that sufficient financing will be available on terms satisfactory to
the Company, if at all. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Business -- Business Strategy."
RISKS RELATED TO INTANGIBLE ASSETS
The Company's acquisitions have resulted in the recording of a significant
amount of goodwill. As of March 31, 1998, the Company had goodwill of
approximately $16.7 million, which is being amortized over 40 years. The
Company's acquisition plan will likely cause the Company to record additional
goodwill. There can be no assurance that the value of goodwill or other
intangible assets will ever be realized by the Company. The Company periodically
reviews the recoverability of its intangible assets. Recoverability of
intangibles is determined based on the undiscounted future operating cash flows
from the related hospital. The amount of impairment, if any, that may require an
additional change to earnings, is measured based on discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds
or based on the fair value of the related hospital. The write-off of a
significant portion of unamortized intangible assets could have a material
adverse effect on the Company's business, financial condition and results of
operations. See Note 1 of Notes to Consolidated Financial Statements.
PROFESSIONAL LIABILITY
In recent years, physicians, hospitals and other health care providers have
become subject to an increasing number of lawsuits alleging malpractice, product
liability or related legal theories, many of which involve large claims and
significant defense costs. To cover certain claims arising out of the operations
of its hospitals, the Company maintains professional malpractice liability
insurance and general liability insurance in amounts that management believes to
be sufficient for its operations. However, some claims may exceed, or may not be
covered by the policy in effect. The cost of malpractice and other liability
insurance has risen significantly during the past few years. While the Company's
professional and other liability insurance has been adequate in the past to
provide for liability claims, there can be no assurance that adequate levels of
such insurance will continue to be available at reasonable cost to the Company.
EFFECTIVE CONTROL BY CERTAIN STOCKHOLDERS
Upon completion of the Offering, the Company's officers and directors and
their affiliates as a group, including shares held by Welsh, Carson, Anderson
and Stowe VII, L.P. ("WCAS") and its affiliates, will beneficially own
% of the outstanding shares of voting Common Stock, ( % if
the over-allotment option is exercised in full). As a result of such ownership,
these stockholders, if acting together, will effectively have the ability to
elect the Board of Directors and thereby control the affairs and management of
the Company. This may have the effect of delaying, deferring or preventing a
change in control of the Company. See "Management" and "Principal and Selling
Stockholders."
BENEFITS OF OFFERING TO CERTAIN STOCKHOLDERS
The Company will receive net proceeds of approximately $90.9 million from
the Offering (at an assumed initial public offering price of $ per share)
after deduction of the underwriting discounts and commissions and estimated
expenses of the Offering. Of this amount, approximately $26.0 million will be
paid in the Reincorporation in exchange for the Series A Preferred Stock,
including all accrued and unpaid dividends thereon, and $25.0 million plus
accrued interest will be used to repay Subordinated Debt. The Subordinated Debt
is held by an affiliate of WCAS and the Series A Preferred Stock is held by
WCAS, its affiliates and certain members of management. In addition, in the
event the Underwriters exercise their over-
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<PAGE> 16
allotment option in full, WCAS, as the Selling Stockholder, will receive net
proceeds of approximately $14.0 million. Additionally, the net tangible book
value of Common Stock per share will increase substantially for stockholders
owning shares prior to this Offering. See "Use of Proceeds," "Dilution,"
"Principal and Selling Stockholders" and "Certain Relationships and Related
Transactions."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be determined
by negotiations between the Company and the Representatives of the Underwriters
and may not be indicative of the market price for shares of the Common Stock
after the Offering. There can be no assurance that an active trading market will
develop or be maintained or as to the price at which the Common Stock will trade
if and when such a market develops. The Company has applied to list the Common
Stock for trading on the NYSE. The market price of the Common Stock may be
subject to significant fluctuations in response to variations in the Company's
operating results and other factors, including future acquisitions, market rates
of interest, changes in recommendations or earnings estimates of securities
analysts, developments affecting the health care industry generally, the
enactment of health care reform, reductions in payment rates and changes in
governmental regulation. In addition, the stock market in recent years has
experienced price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of companies, and the price of the
Common Stock could be affected by such fluctuations. See "Underwriting."
ABSENCE OF DIVIDENDS
The Company does not anticipate paying cash dividends in the foreseeable
future. In addition, the terms of the Company's bank credit agreement prohibit
the payment of cash dividends. Any future indebtedness incurred to refinance the
Company's existing indebtedness or to fund future growth may prohibit or limit
the Company's ability to pay dividends. See "Dividend Policy."
IMMEDIATE AND SUBSTANTIAL DILUTION
The existing stockholders of the Company acquired their shares of Common
Stock at an average cost substantially below the assumed initial public offering
price set forth on the cover page of this Prospectus. Therefore, purchasers of
Common Stock in the Offering will experience immediate and substantial dilution
in net tangible book value per share of approximately $ . See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of substantial amounts of the Common Stock in the public market, or
the perception that such sales could occur, could adversely affect the
prevailing market price for the Common Stock and could impair the Company's
ability to raise additional capital through the sale of equity securities. There
will be shares of Common Stock outstanding upon completion of the
Offering. All of the shares offered in the Offering ( shares if
the Underwriters' over-allotment option is exercised in full) will be eligible
for resale in the public market without restriction by persons other than
affiliates of the Company upon completion of the Offering. The remaining
shares of Common Stock ( shares if the Underwriters'
over-allotment option is exercised in full) are "restricted securities" as that
term is defined in Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"). Commencing 90 days after the completion of the Offering,
shares of Common Stock will be eligible for sale in the public market
pursuant to Rule 144. The remaining restricted shares of Common Stock will
become eligible for sale pursuant to Rule 144 thereafter. In addition, the
Company expects to register up to shares of Common Stock covered by
its Stock Option Plan following the Offering. The Company, its executive
officers and directors and substantially all of the other current stockholders
have agreed not to sell or otherwise dispose of any of the shares of Common
Stock owned by them in the public market for a period of 180 days after the date
of this Prospectus without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation. See "Management -- Stock Option Plan" and
"Description of Capital Stock" and "Shares Eligible for Future Sale."
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<PAGE> 17
The Company is a party to a registration agreement that provides certain
demand and piggyback registration rights to the holders of shares of
Common Stock. All but of such shares are subject to the 180-day
restrictions described above. See "Shares Eligible for Future
Sale -- Registration Rights Agreement."
ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK
Certain provisions of the Company's Certificate of Incorporation (the
"Certificate of Incorporation") and Bylaws (the "Bylaws") may be deemed to have
anti-takeover effects and may delay, defer or prevent a takeover attempt that a
stockholder might consider in its best interest. Such provisions of the
Certificate of Incorporation and Bylaws: (i) divide the Company's Board of
Directors into three classes, each of which will serve for different three-year
periods; (ii) provide that the stockholders may not take action by written
consent, but only at duly called annual or special meetings of stockholders;
(iii) provide that special meetings of the stockholders may be called only by
the Chairman of the Board of Directors, a majority of the entire Board of
Directors or the Chief Executive Officer; and (iv) establish certain advance
notice procedures for nomination of candidates for election as directors and for
stockholder proposals to be considered at annual stockholders' meetings. Such
provisions cannot be amended without the affirmative vote of at least 70% of the
combined voting power of the outstanding shares of capital stock. The
Certificate of Incorporation also authorizes the Board of Directors to determine
the rights, preferences, privileges and restrictions of unissued series of the
Company's authorized preferred stock and to fix the number of shares and the
designation of any such series, without any vote or action by stockholders.
Thus, the Board of Directors can authorize and issue shares of preferred stock
with voting or conversion rights that could adversely affect the voting or other
rights of holders of the Common Stock. Further, certain provisions of the
Delaware General Corporation Law ("DGCL") may have the effect of delaying,
deferring or preventing a change in control of the Company. See "Description of
Capital Stock -- Antitakeover Effects of provisions of the Company's Certificate
of Incorporation and Bylaws."
LABOR UNIONS; POTENTIAL WORK STOPPAGE
Approximately 150 employees at the Company's hospital located at Davenport,
Iowa are represented by a labor union. In addition, approximately 180 employees
at Puget Sound Hospital, a pending acquisition, are represented by labor unions.
A union contract covering approximately 80 Puget Sound Hospital employees
expires in September 1998. There can be no assurance that the Company will be
able to renew existing labor union contracts on acceptable terms. In addition,
employees could exercise their rights under labor union contracts, which could
include a strike or walk-out. In such cases, there are no assurances that the
Company would be able to staff sufficient employees for its short-term needs.
Any such labor strike or the inability of the Company to negotiate a
satisfactory contract upon expiration of the current agreements could have a
material adverse effect on the Company's business, financial condition or
results of operations.
THE REINCORPORATION
Immediately prior to the consummation of the Offering, the Company will
reincorporate as a Delaware corporation pursuant to a merger of New American
Healthcare Corporation, a Tennessee corporation, into New American Healthcare
Corporation, a Delaware corporation. The merger will not change the management
of the Company. However, as a result of the merger, the Company will: (i)
increase the authorized number of shares of Common Stock from 20,000,000 to
50,000,000 and create a class of Non-Voting Common Stock of authorized
shares; (ii) cause the outstanding Series B Preferred Stock held by WCAS to be
exchanged for an aggregate of shares of Common Stock and
shares of Non-Voting Common Stock and cause the outstanding Series B
Preferred Stock held by persons other than WCAS to be exchanged for an aggregate
of shares of Common Stock; (iii) cause the outstanding shares of Series A
Preferred Stock and all accrued and unpaid dividends to be exchanged for the
right to receive approximately $26.0 million in cash as of June 22, 1998 and
(iv) cause the outstanding shares of Common Stock to be exchanged for an
aggregate of shares of Common Stock (collectively, the "Reincorporation").
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USE OF PROCEEDS
The net proceeds to the Company from the Offering, after deducting
estimated underwriting discounts and commissions and offering expenses and
assuming an initial public offering price of $ per share, are estimated to
be approximately $90.9 million. Of this amount, approximately $31.6 million will
be used to reduce the outstanding revolving loan balance at June 22, 1998 under
the Credit Agreement dated as of January 30, 1998, among the Company and the
lenders named therein (the "Credit Agreement"); approximately $26.0 million as
of June 22, 1998 will be used to repay WCAS Capital Partners, III, L.P. ("WCAS
CP III") under the terms of a subordinated note (the "Subordinated Debt") in the
original principal amount of $25.0 million, plus accrued and unpaid interest;
and approximately $26.0 million as of June 22, 1998 will be paid in the
Reincorporation in exchange for the outstanding Series A Preferred Stock and all
accrued and unpaid dividends thereon.
Borrowings under the Credit Agreement bear interest at the prime rate, the
federal funds rate or London Interbank Offered Rate ("LIBOR"), plus, in each
case, a margin depending upon the Company's ratio of funded debt to EDITDA. As
of June 22, 1998, the effective interest rate on outstanding balances was 8.2%.
The Subordinated Debt bears interest at 10.0% per annum. The Subordinated
Debt was used to finance a portion of the acquisitions of Davenport Medical
Center, Woodland Park Hospital, Eastmoreland Hospital, and Lander Valley Medical
Center. See "Certain Relationships and Related Transactions -- Subordinated
Debt."
The Series A Preferred Stock accrues dividends at 7.0% per annum on the sum
of the liquidation value plus accumulated and unpaid dividends, which was
approximately $26.0 million as of June 22, 1998. See "Certain Relationships and
Related Transactions -- Series A Preferred Stock."
The Company intends to use the balance of the proceeds for working capital
and other general corporate purposes, including the possible acquisition of
other hospitals. Pending such uses, the Company intends to invest the net
proceeds of the Offerings in short-term, interest-bearing investment grade debt
securities, certificates of deposit, commercial paper, time deposits or direct
or guaranteed obligations of the United States.
Although the Company has had preliminary discussions from time to time
regarding possible acquisition opportunities, the Company has no agreements,
understandings or commitments with respect to any such opportunities, other than
as described elsewhere in this Prospectus, nor has the Company allocated any
portion of the net proceeds hereunder for any specific acquisition. There can be
no assurance that any future acquisition will be consummated.
DIVIDEND POLICY
The Company currently intends to retain its earnings for use in its
business and therefore does not anticipate declaring or paying any cash
dividends in the foreseeable future. In addition, the Credit Agreement prohibits
the payment of dividends by the Company. Any future determination to declare or
pay cash dividends will be made by the Board of Directors based on the Company's
earnings, financial position, capital requirements, credit agreements and such
other factors as the Board of Directors deems relevant at such time. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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CAPITALIZATION
The following table sets forth as of March 31, 1998: (i) the actual
capitalization of the Company; (ii) the pro forma capitalization of the Company
giving effect to the Reincorporation and the Puget Sound Acquisition and (iii)
the pro forma capitalization of the Company as adjusted to reflect the receipt
and application of the estimated net proceeds from the Offering (assuming an
initial public offering price of $ per share and after deducting
underwriting discounts and commissions and offering expenses). The table should
be read in conjunction with the Consolidated Financial Statements and the
related Notes thereto contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................. $ 6,119 $ 7,324 $ 6,326
======== ======== ========
Capital lease obligations, excluding current portion...... $ 4,865 $ 4,865 $ 4,865
Long-term debt............................................ 37,550 61,550 24,000
Subordinated notes payable to affiliates.................. 24,769 24,769 --
Redeemable preferred stock -- Series A, $.01 par value,
authorized: 250,000 shares; issued and outstanding:
250,000 shares actual; no shares pro forma and pro forma
as adjusted............................................. 25,617 25,617 --
Stockholders' equity:
Preferred stock -- Series B, $.01 par value, authorized:
235,000 shares; issued and outstanding: 235,000
shares actual; no shares pro forma and pro forma as
adjusted............................................. 2 -- --
Non-voting common stock, $0.01 par value, authorized:
shares; issued and outstanding: no shares
actual; shares pro forma and pro forma as
adjusted............................................. --
Common stock, $0.01 par value, authorized: 20,000,000
shares actual and 50,000,000 shares pro forma and pro
forma as adjusted; issued and outstanding: 8,026,500
shares actual;
shares pro forma and shares pro forma as
adjusted(1).......................................... 80 82 82
Additional paid-in capital.............................. 24,264 24,264 114,254
Common stock warrants................................... 235 235 235
Accumulated deficit..................................... (666) (666) (1,811)
-------- -------- --------
Total stockholders' equity......................... 23,915 23,915 112,760
-------- -------- --------
Total capitalization............................ $116,716 $140,716 $141,625
======== ======== ========
</TABLE>
- ------------------------------
(1) Does not include shares of Common Stock issuable upon the exercise
of outstanding warrants of the Company at an exercise price of $
or shares of Common Stock issuable upon the exercise of
outstanding options as of at a weighted average exercise price of
$ .
18
<PAGE> 20
DILUTION
The net tangible book value of the Company as of March 31, 1998 was
approximately $6.7 million, or $ per share of Common Stock. Net
tangible book value per share of Common Stock represents the amount of total
assets less total liabilities, mandatory redeemable preferred stock, and
intangible assets, divided by the number of shares of Common Stock outstanding
as of March 31, 1998. After giving effect to (i) the Reincorporation, (ii) the
Puget Sound Acquisition and (iii) the sale by the Company of the shares
of Common Stock offered hereby (at an assumed initial public offering price of
$ per share) and the application of the net proceeds as set forth under
"Use of Proceeds," the pro forma net tangible book value of the Company as of
March 31, 1998 would have been $ million, or $ per share of
Common Stock. This represents an immediate increase in pro forma net tangible
book value of $ per share of Common Stock to existing stockholders and
an immediate dilution of $ per share to purchasers in the Offering, as
illustrated by the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $
Net tangible book value per share before the
Offering(1).......................................... $
Decrease attributable to the Reincorporation and Puget
Sound Acquisition....................................
Pro forma net tangible book value prior to the
Offering.............................................
Increase resulting from the Offering....................
Pro forma net tangible book value per share after the
Offering(1).............................................
-------
Dilution per share to new investors(2).................... $
=======
</TABLE>
The following table summarizes certain differences between the existing
stockholders and the new investors with respect to the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid (based upon an assumed initial public offering
price of $ per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
----------------- ------------------- -------------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)................. % $ % $
New investors............................
------ ------ ------ ------
Total............................... 100.0% $ 100.0%
====== ====== ====== ======
</TABLE>
- ------------------------------
(1) Includes shares of Non-Voting Common Stock issued in the
Reincorporation, but excludes (i) shares of Common Stock issuable
upon the exercise of outstanding warrants of the Company at an exercise
price of $ per share; and (ii) shares of Common Stock
issuable upon the exercise of outstanding options pursuant to the Company's
Stock Option Plan at a weighted average exercise price of $ per
share. To the extent the warrants and options are exercised, there could be
additional dilution to the new investors. See "Management -- Stock Option
Plan" and "Description of Capital Stock."
(2) Dilution is determined by subtracting pro forma net tangible book value per
share after the Offering from the initial public offering price per share.
19
<PAGE> 21
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
The "New American After Offering" column set forth in the unaudited pro
forma condensed combined balance sheet of the Company as of March 31, 1998
assumes the Reincorporation and the application of the estimated net proceeds of
the Offering to be received by the Company had occurred on March 31, 1998. The
"New American Combined" column set forth in the unaudited pro forma condensed
combined balance sheet of the Company as of March 31, 1998 assumes that the
anticipated Puget Sound Hospital acquisition had occurred on March 31, 1998.
The "New American as Adjusted" column set forth in the unaudited pro forma
condensed combined statement of operations for the year ended March 31, 1998
assumes that the Hospital Acquisitions and the application of the estimated net
proceeds of the Offering to be received by the Company had occurred on April 1,
1997. The "New American Combined" column set forth in the unaudited pro forma
condensed combined statement of operations for the year ended March 31, 1998
assumes that the Hospital Acquisitions, the anticipated Puget Sound Hospital
acquisition and the application of the estimated net proceeds of the Offering to
be received by the Company had occurred on April 1, 1997.
The unaudited pro forma condensed combined financial information presented
herein are not necessarily indicative of the Company's combined financial
position or the results of operations that actually would have occurred if the
transactions had been consummated on such dates. In addition, they are not
intended to be a projection of results of operations that may be obtained in the
Company's future. The pro forma results of operations, which do not take into
account certain operational changes instituted by the Company upon acquisition
of its hospitals, are not necessarily indicative of the results that may be
expected from such hospitals. The unaudited pro forma condensed combined
financial information should be read in conjunction with the audited financial
statements, including the notes thereto, included elsewhere in this Prospectus.
20
<PAGE> 22
NEW AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
--------------------------------------------------------------------------
NEW
AMERICAN PUGET NEW
NEW AFTER SOUND PRO FORMA AMERICAN
AMERICAN OFFERING OFFERING HOSPITAL ADJUSTMENTS COMBINED
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.......................... $ 6,119 $ 1,205(2) $ 7,324 $ 2 $ (1,000)(4) $ 6,326
Patient accounts receivable... 19,906 -- 19,906 4,277 (1,802)(5) 22,381
Prepaid expenses and other
current assets.............. 5,420 -- 5,420 3,063 (890)(5) 6,585
(1,008)(3)
Total current assets 31,445 1,205 32,650 7,342 (4,700) 35,292
Property and equipment, net..... 84,403 -- 84,403 12,775 10,642(4) 107,820
Goodwill, net................... 16,672 -- 16,672 -- -- 16,672
Other assets, net............... 1,673 (914)(2) 759 359 -- 1,118
-------- -------- -------- ------- -------- --------
Total assets................ $134,193 $ 291 $134,484 $20,476 $ 5,942 $160,902
======== ======== ======== ======= ======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses.................... $ 14,522 $ (618)(2) $ 13,904 $ 2,868 $ (450)(5) $ 16,322
Estimated third party payor
settlements................. 1,091 -- 1,091 1,716 (1,716)(5) 1,091
Current portion of capital
lease obligations........... 525 -- 525 -- -- 525
-------- -------- -------- ------- -------- --------
Total current liabilities... 16,138 (618) 15,520 4,584 (2,166) 17,938
-------- -------- -------- ------- -------- --------
Capital lease obligations, less
current portion............... 4,865 -- 4,865 -- -- 4,865
Long-term debt.................. 37,550 (37,550)(2) -- -- 24,000(4) 24,000
Subordinated notes payable to
affiliates.................... 24,769 (24,769)(2) -- -- -- --
Deferred income taxes........... 1,339 -- 1,339 2,217 (2,217)(5) 1,339
Other........................... -- -- -- 3,842 (3,842)(5) --
Redeemable preferred stock...... 25,617 910(1) -- -- -- --
(26,527)(2)
Stockholders' equity:
Preferred stock............... 2 (2)(3) -- -- -- --
Common stock.................. 80 --(2) 82 1 (1)(5) 82
2(3)
Additional paid-in capital.... 24,264 (910)(1) 114,254 7,551 (7,551)(5) 114,254
90,900(2)
Common stock warrants......... 235 -- 235 -- -- 235
Accumulated earnings
(deficit)................... (666) (914)(2) (1,811) 2,281 (2,281)(5) (1,811)
(231)(2)
-------- -------- -------- ------- -------- --------
Total stockholders'
equity.................... 23,915 88,845 112,760 9,833 (9,833) 112,760
-------- -------- -------- ------- -------- --------
Total liabilities and
stockholders' equity...... $134,193 $ 291 $134,484 $20,476 $ 5,942 $160,902
======== ======== ======== ======= ======== ========
</TABLE>
21
<PAGE> 23
NEW AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(1) To record the accrual of cumulative preferred dividends in the amount of
$910 on Series A Preferred Stock at 7% per annum for the period from April
1, 1998 to the expected closing date of the Offering.
(2) To record the issuance of shares of Common Stock in the offering
for net proceeds of $90,900 based on an assumed initial public offering
price of $ per share and estimated underwriting discounts and
commissions and offering expenses of $9,100. Proceeds from the sale in the
amount of $25,000, $37,550, $26,527 and $618 will be used to pay down
subordinated notes payable, long-term debt, redeemable preferred stock and
accrued interest on long-term debt, respectively, with associated deferred
financing costs and discount on subordinated notes payable in the amounts of
$914 and $231 being written off. Such write-off has not been reflected as a
nonrecurring charge in the pro forma condensed combined statement of
operations. The balance of $1,205 will be retained to fund general corporate
purposes, including working capital and the Company's acquisition program.
(3) To record the Series B Preferred Stock exchange in connection with the
Reincorporation in the amount of $2 to preferred stock and Common Stock.
(4) To record the Puget Sound Acquisition for approximately $25,000 financed by
$24,000 of long-term debt and $1,000 of cash. The total purchase cost was
allocated as follows: property and equipment of $10,642 Common Stock of $1,
additional paid-in capital of $7,551 and accumulated earnings of $2,281.
(5) To exclude certain assets and liabilities that will not be acquired or
assumed by New American primarily related to government program patient
accounts receivable of $1,802, deferred tax assets of $890 intercompany
accounts receivable of $1,008, accrued expenses of $450, estimated
third-party payor settlements of $1,716, deferred income taxes of $2,217 and
other liabilities of $3,842.
22
<PAGE> 24
NEW AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1998
------------------------------------------------------------------------------------------
NEW NEW
NEW ACQUIRED PRO FORMA AMERICAN PUGET PRO FORMA AMERICAN
AMERICAN HOSPITALS(1) ADJUSTMENTS AS ADJUSTED SOUND ADJUSTMENTS COMBINED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net patient service
revenue........... $73,725 $65,649 $ -- $139,374 $29,168 $ -- $168,542
Other revenue....... 1,924 2,257 -- 4,181 623 -- 4,804
------- ------- -------- -------- ------- ------- --------
Net operating
revenues........ 75,649 67,906 -- 143,555 29,791 -- 173,346
------- ------- -------- -------- ------- ------- --------
Expenses:
Salaries and
benefits.......... 31,276 33,732 -- 65,008 13,362 -- 78,370
Professional fees... 8,608 8,065 -- 16,673 3,876 -- 20,549
Supplies............ 8,314 7,077 -- 15,391 2,176 -- 17,567
Provision for
doubtful
accounts.......... 7,837 4,513 -- 12,350 2,455 -- 14,805
Other............... 9,286 10,239 (570)(2) 18,955 3,962 (217)(9) 22,300
General and
administrative.... 3,484 -- 905(3) 4,389 -- -- 4,389
Depreciation and
amortization...... 2,836 3,634 (3,634)(4) 5,322 1,126 (1,126)(10) 6,510
2,486(4) 1,188(10)
Interest expense.... 2,637 2,983 (2,983)(5) 382 28 (28)(11) 2,482
4,131(5) 2,100(11)
(6,386)(6)
------- ------- -------- -------- ------- ------- --------
74,278 70,243 (6,051) 138,470 26,985 1,917 167,372
------- ------- -------- -------- ------- ------- --------
Income (loss)
before income
taxes........... 1,371 (2,337) 6,051 5,085 2,806 (1,917) 5,974
Income taxes.......... 579 (458) 2,015(7) 2,136 838 (465)(7) 2,509
------- ------- -------- -------- ------- ------- --------
Net income (loss)... 792 (1,879) 4,036 2,949 1,968 (1,452) 3,465
Cumulative preferred
dividends........... 617 -- (617)(8) -- -- -- --
------- ------- -------- -------- ------- ------- --------
Net income (loss)
attributable to
common
stockholders...... $ 175 $(1,879) $ 4,653 $ 2,949 $ 1,968 $(1,452) $ 3,465
======= ======= ======== ======== ======= ======= ========
Pro forma net income
per common shares... $ $
======== ========
Weighted average
shares
outstanding.........
======== ========
</TABLE>
23
<PAGE> 25
NEW AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
(1) To record the historical operations of the Hospital Acquisitions for the
period April 1, 1997 through the date of acquisition by the Company.
(2) To eliminate management fees in the amount of $570 that would not have been
incurred had the Hospital Acquisitions been consummated on April 1, 1997.
(3) To record estimated additional administrative salaries in the amount of
$905 that would have been incurred had the Hospital Acquisitions been
consummated on April 1, 1997.
(4) To record depreciation and amortization for the Hospital Acquisitions in
the amount of $2,486 as if they had been acquired on April 1, 1997 and
elimination of historical depreciation and amortization in the amount of
$3,634 recorded prior to the date of acquisition which had been recorded on
a higher cost basis.
(5) To record interest expense for the Hospital Acquisitions in the amount of
$4,131 relating to acquisition debt and capital leases as if they had been
incurred on April 1, 1997 and elimination of historical interest expense in
the amount of $2,983 recorded prior to the date of acquisition.
(6) To record the elimination of interest expense in the amount of $6,386 on
debt that will be paid off with a portion of the net proceeds of the
Offering, as if the Offering had occurred on April 1, 1997.
(7) To record tax expense at the expected combined income tax rate of 42%.
(8) To record the elimination of cumulative preferred dividends in the amount
of $617 on Series A Preferred Stock that will be converted into the right
to receive cash in the Reincorporation.
(9) To eliminate management fees in the amount of $217 that would not have been
incurred had Puget Sound Hospital been acquired on April 1, 1997.
(10) To record depreciation and amortization for the Puget Sound Acquisition in
the amount of $1,188 as if it had been acquired on April 1, 1997 and
elimination of historical depreciation and amortization in the amount of
$1,126 recorded prior to the date of acquisition.
(11) To record interest expense for the Puget Sound Acquisition in the amount of
$2,100 relating to acquisition debt as if it had been incurred on April 1,
1997 and elimination of historical interest expense in the amount of $28
recorded prior to the date of acquisition.
24
<PAGE> 26
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
The following selected consolidated financial data have been derived from
the audited consolidated financial statements of the Company and its
subsidiaries as of March 31, 1996 and for the period from August 16, 1995
(inception) through March 31, 1996 and as of and for the years ended March 31,
1997 and 1998. The data set forth below should be read in conjunction with the
Consolidated Financial Statements and related Notes thereto included elsewhere
in this Prospectus and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
PERIOD
AUGUST 16, YEARS ENDED
1995 (INCEPTION) MARCH 31,
TO MARCH 31, -----------------
1996 1997 1998
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Net patient service revenue............................ $ -- $10,737 $73,725
Other revenue.......................................... 17 350 1,924
------ ------- -------
Net operating revenues............................... 17 11,087 75,649
Expenses:
Salaries and benefits.................................. -- 4,117 31,276
Professional fees...................................... -- 620 8,608
Supplies............................................... -- 1,439 8,314
Provision for doubtful accounts........................ -- 534 7,837
Other.................................................. -- 2,377 9,286
General and administrative............................. 385 1,871 3,484
Depreciation and amortization.......................... 5 783 2,836
Interest............................................... 1 363 2,637
------ ------- -------
391 12,104 74,278
------ ------- -------
Income (loss) before income taxes.................... (375) (1,017) 1,371
Income taxes.............................................. -- 66 579
------ ------- -------
Net income (loss)...................................... (375) (1,083) 792
Cumulative preferred dividend............................. -- -- 617
------ ------- -------
Net income (loss) attributable to common
stockholders......................................... $ (375) $(1,083) $ 175
====== ======= =======
Pro forma loss per share -- basic and diluted(1).......... $ (0.18)
=======
Weighted average number of shares outstanding -- basic and
diluted................................................ 12,027
=======
AS OF MARCH 31,
------------------------------------
1996 1997 1998
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital........................................... $1,043 $ 522 $15,306
Total assets.............................................. 1,164 19,220 134,193
Long-term obligations, excluding current portion.......... 24 975 67,184
Redeemable preferred stock................................ -- -- 25,617
Total stockholders' equity................................ 1,088 15,005 23,915
</TABLE>
- ------------------------------
(1) Pro forma loss per share -- basic and diluted gives effect to the Hospital
Acquisitions as if they had occurred on April 1, 1997.
25
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related Notes thereto included elsewhere
in this Prospectus.
OVERVIEW
New American acquires and operates acute care hospitals throughout the
United States. The Company was formed to capitalize on opportunities to be the
principal provider of health care services in those non-urban communities in
which it operates.
The Company acquired its first hospital in August 1996 and since May 1997
has acquired seven additional hospitals. These eight acute care hospitals are
located in six states and have a total of 1,032 licensed beds.
GENERAL
An integral part of the Company's strategy is to acquire non-urban acute
care hospitals. See "Business -- Business Strategy." Because of the financial
impact of the Company's recent acquisitions, it is difficult to make meaningful
comparisons between the Company's financial statements for the fiscal periods
presented. In addition, due to the relatively small number of hospitals
currently operated, each hospital acquisition can materially effect the overall
operating margins of the Company. Upon the acquisition of a hospital, the
Company typically takes a number of steps intended to lower operating costs. See
"Business -- Hospital Operations." The impact of such actions may be offset by
the cost of revenue enhancing initiatives such as expanding services,
strengthening medical staff, and improving market position. The benefits of
these investments and of other activities to improve operating margins generally
do not occur immediately. Consequently, the financial performance of a newly
acquired hospital may initially have an adverse effect on the Company's overall
operating margins. The Company believes that the short-term negative impact on
overall margins will decrease with subsequent acquisitions as the Company
expands its financial base.
In August 1996, the Company acquired Doctors Hospital in Wentzville,
Missouri in an asset purchase transaction for $14.0 million. In May 1997 the
Company acquired Memorial Hospital of Center, Center, Texas in a stock purchase
transaction for $11.5 million. Also in May 1997, the Company purchased Eastwood
Hospital, Memphis, Tennessee (later renamed Delta Medical Center -- Memphis) in
an asset purchase transaction for $13.3 million. In August 1997, the Company
acquired Dolly Vinsant Memorial Hospital, San Benito, Texas in an asset purchase
for $8.1 million. In January 1998, the Company acquired in a single transaction
the assets of Lander Valley Medical Center, Lander, Wyoming; Davenport Medical
Center, Davenport, Iowa; Woodland Park Hospital, Portland, Oregon; and
Eastmoreland Hospital, Portland, Oregon for an aggregate purchase price of
approximately $57.0 million. Lander Valley Medical Center is built on property
subject to a 75-year ground lease from the City of Lander, which expires
December 31, 2073. Woodland Park Hospital is leased pursuant to a 31-year lease,
which expires December 31, 2029.
Hospital revenues are received primarily from Medicare, Medicaid and
commercial insurance. The Company's percentage of revenues received from the
Medicare program is expected to increase due to the general aging of the
population. The payment rates under the Medicare program for inpatients are
based on a prospective payment system ("PPS"), that is tied to the diagnosis of
the patient. While these payment rates historically have been annually adjusted
for inflation, the adjustments have lagged actual inflation rates. In addition,
numerous states, insurance companies and employers are actively negotiating
discounts to the Company's standard rates. The trend towards increased managed
care, including a shift in payor mix toward HMOs, preferred provider
organizations ("PPOs") and other managed care payors, may also adversely effect
payment rates for the Company's services and the Company's ability to achieve
targeted growth rates in net patient service revenue.
Net operating revenues are comprised of net patient service revenue and
other revenue. Net patient service revenue is reported net of contractual
adjustments and policy discounts. The adjustments principally
26
<PAGE> 28
result from differences between the hospitals' customary charges and payment
rates under the Medicare and Medicaid programs. Customary charges have generally
increased at a faster rate than the rate of increase for Medicare and Medicaid
payments. Other revenue includes cafeteria sales, medical office building rental
income and other miscellaneous revenue. Operating expenses primarily consist of
hospital related costs of operation and include salaries and benefits,
professional fees (includes medical professionals and consulting services),
supplies, provision for doubtful accounts, and other operating expenses
(principally consisting of utilities, insurance, property taxes, travel,
freight, postage, telephone, advertising, repairs and maintenance). General and
administrative expenses relate to corporate overhead.
RESULTS OF OPERATIONS
YEAR ENDED MARCH 31, 1997 COMPARED TO PERIOD AUGUST 16, 1995 (INCEPTION)
THROUGH MARCH 31, 1996
The results of operations for the period ended March 31, 1996 do not
include any hospital related revenues, given that the Company was formed on
August 16, 1995 and did not acquire its first hospital until August 1996.
Results for the period reflect start-up operations. As a consequence of owning
no hospitals in the period ended March 31, 1996, a detailed comparison of the
results of operations for such period to the year ended March 31, 1997 is not
meaningful.
YEAR ENDED MARCH 31, 1998 COMPARED TO YEAR ENDED MARCH 31, 1997
The results of operations for the year ended March 31, 1997 include the
results of operation for Doctors Hospital which was owned for eight months. The
results for the year ended March 31, 1998 include the full year results for
Doctors Hospital plus the partial results for seven hospitals acquired during
the year.
The seven hospitals acquired during fiscal 1998 include:
<TABLE>
<CAPTION>
MONTHS OPERATED
HOSPITAL DATE OF ACQUISITION IN FISCAL 1998
<S> <C> <C>
Memorial Hospital of Center (TX)...................... 5/1/97 11 months
Delta Medical Center-Memphis (TN)..................... 5/16/97 10 months
(formerly Eastwood Hospital)
Dolly Vinsant Memorial Hospital (TX).................. 8/1/97 8 months
Davenport Medical Center (IA)......................... 2/1/98 2 months
Lander Valley Medical Center (WY)..................... 2/1/98 2 months
Woodland Park Hospital (OR)........................... 2/1/98 2 months
Eastmoreland Hospital (OR)............................ 2/1/98 2 months
</TABLE>
Net operating revenues were $75.6 million for the year ended March 31,
1998, compared to $11.1 million for the year ended March 31, 1997, an increase
of $64.6 million. The majority of the increase was due to an increase in net
patient service revenue to $73.7 million for the year ended March 31, 1998,
compared to $10.7 million for the year ended March 31, 1997, an increase of
$63.0 million. Other revenue was $1.9 million for the year ended March 31, 1998,
compared to $0.3 million for the year ended March 31, 1997, an increase of $1.6
million. The increases primarily reflect the acquisition of the seven hospitals
mentioned above and the fact that Doctors Hospital was owned for the entire year
ended March 31, 1998 versus eight months for the year ended March 31, 1997.
Salaries and benefits were $31.3 million for the year ended March 31, 1998
compared to $4.1 million for the year ended March 31, 1997, an increase of $27.2
million.
Professional fees were $8.6 million for the year ended March 31, 1998
compared to $0.6 million for the year ended March 31, 1997, an increase of $8.0
million.
Supplies were $8.3 million for the year ended March 31, 1998 compared to
$1.4 million for the year ended March 31, 1997, an increase of $6.9 million.
Provision for doubtful accounts was $7.8 million for the year ended March
31, 1998 compared to $0.5 million for the year ended March 31, 1997, an increase
of $7.3 million.
27
<PAGE> 29
Other expenses were $9.3 million for the year ended March 31, 1998 compared
to $2.4 million for the year ended March 31, 1997, an increase of $6.9 million.
The increases in salaries and benefits, professional fees, supplies,
provision for doubtful accounts and other expenses primarily reflect to the
acquisition of the seven hospitals mentioned above and the fact that Doctors
Hospital was owned for the entire year ended March 31, 1998 versus eight months
for the year ended March 31, 1997.
General and administrative expenses were $3.5 million for the year ended
March 31, 1998 compared to $1.9 million for the year ended March 31, 1997, an
increase of $1.6 million. The increase in general and administrative expenses
reflect primarily the increase in corporate staff in association with the seven
hospitals acquired during the year ended March 31, 1998.
Depreciation and amortization expense was $2.8 million for the year ended
March 31, 1998 compared to $0.8 million for the year ended March 31, 1997, an
increase of $2.1 million. The increase is due to the additional depreciation and
amortization expense associated with the seven hospitals acquired during the
year ended March 31, 1998.
Interest expense was $2.6 million for the year ended March 31, 1998,
compared to $0.4 million for the year ended March 31, 1997, an increase of $2.3
million. The increase was due to the increase in average outstanding
indebtedness associated with the seven hospitals acquired during the year ended
March 31, 1998.
Income taxes were $0.6 million for the year ended March 31, 1998 compared
to $66,500 for the year ended March 31, 1997, an increase of $0.5 million.
Income tax expense in 1997 related to state taxes for the one owned hospital.
For 1998 taxes relate to both federal and state taxes at a combined rate of 42%.
During the year ended March 31, 1998, the Company issued the Series A
Preferred Stock and accrued a cumulative preferred dividend of $0.6 million. See
"Certain Relationships and Related Transactions -- Series A Preferred Stock."
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had working capital of $15.3 million,
including cash and cash equivalents of $6.1 million. Consistent with the
hospital industry, a major component of the Company's working capital is patient
accounts receivable. Payments on patient accounts receivable are made by third-
party payors (principally Medicare, Medicaid, and insurance plans) and directly
by patients.
The Company's cash requirements, excluding acquisitions, have historically
been funded by cash generated from operations. Cash provided by operations was
$3.8 million for the year ended March 31, 1998, compared to cash used in
operations of $0.7 million for the year ended March 31, 1997, an increase of
$4.5 million.
Cash used in investing activities for the year ended March 31, 1998 was
$92.5 million, compared with cash used in investing activities of $14.5 million
for the year ended March 31, 1997, an increase of $78.0 million. These amounts
principally related to acquisitions of hospitals and, to a lesser extent,
purchases of property and equipment. Capital expenditures for hospitals may vary
from year to year. The Company expects to make capital expenditures for the year
ended March 31, 1999 of approximately $9.0 million which includes (i)
approximately $4.0 million for management information systems software and
hardware and (ii) certain non-MIS costs associated with Year 2000 compliance.
The Company does not expect to incur any additional material Year 2000
compliance costs. In addition, the Company expects to spend approximately $0.4
million on management information systems on each hospital acquired in the
future.
Cash provided by financing activities totaled $94.2 million for the year
ended March 31, 1998, compared to cash provided by financing activities of $14.9
million for the year ended March 31, 1997, an increase of $79.3 million. These
amounts resulted from the proceeds of senior debt, Subordinated Debt and
warrants and the issuance of Series A and B Preferred Stock.
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The Company has entered into a definitive purchase agreement to acquire
Puget Sound Hospital in Tacoma, Washington. The cash purchase price will be
$25.0 million, plus the book value of certain working capital accounts. The
Company plans to finance approximately $24.0 million of the purchase price
through the Credit Agreement, with the remainder paid from the Company's cash.
See "Risk Factors -- Risks of Acquisition Strategy -- Pending Acquisition."
The Company's Credit Agreement provides for revolving credit facility in
the amount of $132.5 million. Borrowings under the facility bear interest of (i)
a base rate equal to the greater of the Prime Rate or the Federal Funds rate,
plus in either case, a margin of up to 1% or (ii) LIBOR as of the date of the
borrowing plus a margin of up to 2.5%. The applicable margin is determined by a
ratio of indebtedness to EBITDA calculated on a monthly basis. As of March 31,
1998, the Company had outstanding $37.6 million, bearing interest at a rate of
6.9%. The Credit Agreement is interest only payments until December 31, 2000, at
which time one-sixteenth of the aggregate outstanding balance will be due in
quarterly payments on the last day of each third month thereafter to and
including September 30, 2003, with a final lump sum payment due December 31,
2003. The revolving credit facility is secured by substantially all the
Company's assets. The Credit Agreement contains limitations on the Company's
ability to incur additional indebtedness, sell material assets, retire, redeem
or otherwise reacquire its capital stock, and pay dividends. The Credit
Agreement also requires the Company to maintain specified levels of net worth
and meet certain covenants and ratios.
The Company believes its future cash flow from operations, together with
borrowings available under the Credit Agreement and the proceeds of the Offering
will be sufficient to fund the Company's anticipated acquisition activities,
capital expenditures, debt service requirements and operating expenses for the
next twelve months. The Company may incur additional indebtedness in order to
finance certain large strategic acquisition opportunities. There can be no
assurance that such additional financing, if required, will be available on
terms acceptable to the Company.
INFLATION
The health care industry is labor intensive. Wages and other expenses
increase, especially during periods of inflation and labor shortages. In
addition, suppliers pass along rising costs to the Company in the form of higher
prices. The Company has implemented cost control measures to curb increases in
operating costs and expenses. In light of cost containment measures imposed by
government agencies and private insurance companies, the Company is unable to
predict its ability to offset or control future cost increases, or its ability
to pass on the increased costs associated with providing health care services to
patients insured by government or managed care payors.
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BUSINESS
OVERVIEW
New American acquires, and operates acute care hospitals throughout the
United States. The Company was formed to capitalize on opportunities to be the
principal provider of health care services in the non-urban communities in which
it operates. Since acquiring its first hospital in August 1996, a non-urban
facility in Wentzville, Missouri, the Company has acquired seven additional
hospitals, including four that were purchased from a single party in January
1998. These eight acute care hospitals are located in six states and have a
total of 1,032 licensed beds. In addition, the Company has entered into a
definitive agreement to purchase a 160-bed acute care hospital in Tacoma,
Washington. Pro forma net revenues and pro forma EBITDA for the fiscal year
ended March 31, 1998 were $ million and $ million, respectively.
The Company's hospitals offer a wide range of inpatient and outpatient
medical and surgical services and also provide other health care services,
including general and geriatric psychiatry, rehabilitation and occupational
medicine. As part of developing a community health care delivery system, the
Company's hospitals also operate satellite clinics. All of the Company's
hospitals are accredited by either JCAHO, AOA, or both.
The Company's business strategy is to acquire in a selective manner
hospitals that meet the Company's investment criteria and to enhance revenues,
improve operating efficiencies and increase profitability at its hospitals. In
selecting its acquisition candidates, the Company targets non-urban hospitals
that are or can be positioned to be the focal point of a community's health care
delivery system. The Company believes more than 1,000 hospitals meet its
acquisition criteria. During the acquisition due diligence process, the Company
develops an action plan that provides a framework for identifying opportunities
to enhance the hospital's operating and financial performance, while improving
the quality of care. In developing the action plan, the Company leverages the
extensive experience of its senior management team.
Once a hospital is acquired, the Company implements the action plan
developed during the acquisition due diligence process. Key elements of the
Company's action plan include: (i) improving operating efficiencies; (ii)
recruiting additional physicians; (iii) expanding the number of services
offered; (iv) developing health care networks, where appropriate; and (v)
installing a standardized management information system. For the three hospitals
owned for at least twelve months as of May 31, 1998, and comparing the twelve
months ended March 31, 1997 to the comparable period in 1998, EBITDA margin
increased from 5.5% to 11.1%; adjusted admissions increased by 6.0%; and
emergency room visits increased by 7.5%; for the comparable twelve months ended
March 31 1997 and 1998. Additionally, since acquiring the three hospitals, the
Company has recruited eleven physicians at these three hospitals.
The Company's senior management team has extensive experience in hospital
operations, financial management and business development. This experience
enables management to analyze a hospital's business and identify opportunities
to improve its clinical and financial performance. The Company's senior
management team has an average of approximately 20 years of experience in the
health care sector. Robert M. Martin, Chairman, President and Chief Executive
Officer, and Dana C. McLendon, Jr., Senior Vice President of Finance and
Administration are among several of the Company's senior executives who were
formerly senior executives of HealthTrust, a nationwide operator of non-urban
hospitals. During the majority of his seven-year tenure at HealthTrust, Mr.
Martin was responsible for managing its largest region, that included 17
primarily non-urban hospitals. Mr. McLendon spent over five years at HealthTrust
and was responsible for developing and implementing its integrated delivery
systems linking hospitals, physicians and payors. Other members of senior
management have significant health care experience and were formerly with
organizations including HAI, HCA, Quorum and HealthTrust. Moreover, through
their experience of operating hospitals, management has developed an extensive
network of contacts for identifying both potential acquisition targets and
potential management talent for both its hospitals and corporate offices.
Currently, each local hospital management team (consisting of a chief executive
officer, a chief financial officer and a chief nursing officer) has, on average,
39 years of collective hospital experience.
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INDUSTRY BACKGROUND
Hospital Management Industry. According to the Health Care Financing
Administration ("HCFA"), in 1996 health care expenditures comprised
approximately 13.6% of the United States Gross Domestic Product, or in excess of
$1 trillion. During 1996, health care expenditures at hospitals accounted for
approximately 34.6% or $358.5 billion, of total health care spending. In recent
years, the hospital industry has experienced (i) advances in medical treatments
and technologies that permit shorter inpatient stays, and (ii) cost containment
pressures by Medicare, Medicaid, HMOs, PPOs and insurers to reduce hospital
stays and provide services, where possible, on a less expensive outpatient
basis. As a result, the average length of stay in the acute care hospital has
dropped from approximately 7.6 days in 1981 to approximately 6.5 days in 1995.
At the same time, occupancy has decreased from 77.9% in 1981 to 65.7% in 1995.
In addition, cost containment pressures have led to the development of
alternative delivery sites, including skilled nursing facilities, home health
programs, outpatient surgery and emergency and diagnostic centers. To remain
competitive, many hospitals have become more vertically integrated through the
introduction of various ancillary and outpatient services. As a result, average
hospital outpatient visits have grown at an increasing rate. In 1981, hospital
outpatient visits increased over the prior year by 0.9% and in 1995 increased
over the prior year by 6.5%.
Non-Urban Health Care Market. According to the American Hospital
Association, in 1996 there were approximately 2,226 non-urban hospitals in the
United States, over 2,035 of which were controlled by not-for-profit or
governmental entities. The Company believes non-urban hospitals are attractive
acquisition candidates for several reasons. Non-urban service areas have smaller
populations and are generally served by only one or two hospitals, resulting in
less competition. The relative dominance of acute care hospitals in these
smaller markets may also limit the entry of competitive alternate site providers
such as outpatient surgery, rehabilitation or diagnostic imaging. The Company
believes, in general, the demographic characteristics and the relative
negotiating leverage of the local hospital also make such markets less
attractive to HMOs and other managed care payors. In addition, the Company
believes non-urban communities are often characterized by high levels of
patient, physician and community loyalty that fosters cooperative relationships
among the local hospital, physicians, patients and employers.
Although the characteristics of the non-urban health care market present a
number of opportunities, hospitals in such markets have been under considerable
pressure. In recent years, hospitals have been required to operate within the
reimbursement limitations imposed by the Medicare and Medicaid programs and
private insurance companies, while the cost of health care has increased
significantly. Non-urban hospitals have often experienced this pressure more
intensely. Frequently, non-urban hospitals are owned and operated by not-for-
profit and governmental entities that may have limited access to the capital
required to keep pace with advances in medical technology and to make needed
capital improvements. Such hospitals also may lack certain specialized
management resources to enable the hospital to control its operating expenses,
recruit and retain physicians and expand health care services. Collectively,
these factors frequently lead to poor operating performance, a decline in the
number of services offered, dissatisfaction by the community and physicians and
concerns about quality of care. As a result, patients migrate to, or are
referred by local physicians to, hospitals in larger urban markets. Patient
out-migration further increases the financial pressure on physicians and
hospitals within these markets, thereby limiting their ability to address the
issues which have led to these pressures.
BUSINESS STRATEGY
The Company's objective is to grow its business and to be a leading
provider of quality, cost-effective health care in the communities it serves
through the following strategies:
Acquire Hospitals in Select Markets. The Company intends to acquire
non-urban hospitals that are or can be positioned as the focal point of a
community's health care delivery system and that present the
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opportunity to improve financial performance and local market share. The
ideal market has a stable or growing population base and favorable
demographics that support or require additional health care services. The
Company intends to acquire two to three hospitals per year and estimates
that over 1,000 hospitals meet its acquisition criteria. See
"-- Acquisition Program."
Improve Operating Efficiencies. Following the acquisition of a
hospital, the Company implements an operating plan tailored to the facility
and its community. The local management team, with support from the
corporate office, seeks to improve financial performance by: (i)
implementing expense controls; (ii) proactively managing staffing levels
based on patient volume and acuity; (iii) reducing supply costs by
leveraging the Company's supply arrangements and renegotiating or
terminating vendor contracts; and (iv) improving admissions, billing and
collection procedures.
Recruit Additional Physicians. The Company believes recruiting
physicians is a key to expanding services offered and improving quality of
care. As the primary decision maker in the delivery of health care, the
physician is an important resource in directing patients to the Company's
hospitals, providing high quality health care and building relationships
between the community and the Company's hospitals. Prior to the acquisition
of a hospital, the Company evaluates the needs of the community for
additional primary care and specialty physicians. The Company then works
with the local hospital board, management and medical staff to define
further the physicians needed and assists the local management team in
identifying and recruiting specific physicians to meet those needs.
Expand Services Offered. By expanding its service capabilities, the
Company seeks to limit out-migration, increase local market share and
generally capture a greater proportion of health care expenditures made by
the communities. In addition, by providing a broader range of services, the
Company believes it can treat higher acuity patients, thereby further
increasing hospital revenues and profitability. These services may include
specialty inpatient services, outpatient services, occupational medicine
and rehabilitation. As part of developing a community health care delivery
system, the Company's hospitals also operate satellite clinics. The Company
also utilizes various mobile technologies to provide, on a cost-effective
basis, services otherwise available only at larger, urban facilities.
Develop or Join Health Care Networks. In markets where appropriate,
the Company seeks to develop or join networks of providers with an emphasis
on primary care physicians. Such networks are increasingly important for
directing patients to particular health care providers. Further, these
networks help to position the Company's hospitals as the focal points of
their respective community's health care delivery system. Additionally, the
Company seeks affiliations with regional tertiary care providers in order
to access services not provided by the Company's hospitals.
Implement Standardized Information System. The delivery of high
quality and cost-effective health care depends to an increasing extent on
an effective clinical, financial and administrative information system. The
Company is presently installing an integrated management information system
designed for small and mid-size hospitals. The conversion of each hospital
will provide the Company's corporate office and hospital management teams
with standardized and integrated clinical, financial and administrative
information. Management believes this new system will allow the Company to
manage better all aspects of its business. The Company plans to have
converted all of its existing hospitals to this system by March 1999 and
will continue to convert the systems of new hospitals as acquired.
ACQUISITION PROGRAM
In evaluating acquisition candidates, the Company develops an action plan
that provides a framework for identifying opportunities to enhance the
hospital's operating and financial performance while improving the quality of
care. The Company also evaluates the market to determine competitive dynamics
and the potential for revenue growth, including demographic characteristics and
opportunities to capture additional health care expenditures. Acquisition
candidates targeted by the Company: (i) are typically located in non-urban
markets that exhibit favorable demographic trends and a population base
sufficient to support such a facility; (ii) provide opportunities to increase
revenue, profitability, market share and improve quality of service; (iii) are
or can be positioned as the focal point of a community's health delivery system;
and (iv) can be
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acquired at acceptable multiples of net revenue and EBITDA which are consistent
with the Company's investment criteria.
In addition to responding to requests for proposals from entities that are
seeking to sell or lease hospitals, the Company proactively identifies potential
acquisition targets. The Company's senior management and development officers
utilize their extensive contacts within the industry to develop attractive
acquisition opportunities. The Company also screens acquisition candidates
utilizing databases which provide details regarding hospital operating
statistics, market demographics and the competitive environment. The Company
further evaluates the potential to recruit physicians to target markets and
state certificate of need requirements. Once it is determined that a specific
hospital meets the Company's investment criteria, management contacts hospital
owners, community boards and administrators to introduce the Company and to
discuss the benefits to the community of a possible acquisition by the Company.
The Company believes it typically takes six to nine months to consummate an
acquisition after a hospital owner accepts an offer in principle. Prior to
entering into a definitive purchase agreement, the Company undertakes a thorough
due diligence process to review the target's operations and management. During
this process, the Company reviews operating trends, opportunities for
improvements, Medicare/Medicaid reimbursement, purchasing, fraud and abuse
compliance, litigation, capital requirements, environmental issues, and
interviews the local management teams. Based on its findings during the due
diligence review, the Company develops the action plan for improving the
hospital's operating and financial performance. The Company works closely with
community decision-makers in order to enhance both the community's understanding
of the Company's operating capabilities as well as the Company's understanding
of the Community's needs.
HOSPITAL OPERATIONS
Following the acquisition of a hospital, the Company implements a 30-, 60-,
90-day action plan that it began developing during its due diligence review.
Additionally, during the first 90 days, a more comprehensive analysis is
completed to identify longer-term opportunities. The Company works in concert
with hospital management to formulate a "strategic blueprint" designed to
capitalize on these opportunities. Hospital management is responsible for the
implementation of the blueprint. The Company's senior management meets with
local managers monthly to review the hospital's performance versus a new
operating budget. Management meets annually to reassess opportunities and
reformulate strategic blueprints.
Each hospital management team is comprised of a chief executive officer,
chief financial officer and chief nursing officer. The quality of the local
hospital management team is critical to the hospital's success. During the due
diligence process, the Company reviews the performance and abilities of existing
members of the hospital's management teams and replaces or supplements members
as necessary. The Company believes that its network of contacts assists it in
locating and hiring qualified hospital managerial talent. The Company has
implemented a hospital management compensation program based upon the
achievement of the financial and clinical goals set forth in the operating plan.
The Company also generally grants members of each local management team stock
options as an additional incentive. Currently, the three-person hospital
management teams have, on average, approximately 39 years of collective hospital
operating experience. See "Risk Factors -- Dependence on Management."
While the hospital management team is responsible for the day-to-day
operations of the hospitals, the Company's corporate staff provides support
services to each hospital, including purchasing, corporate compliance,
reimbursement advice, standardized information systems, human resources,
accounting, cash management, tax and insurance support. Financial controls are
maintained through utilization of standardized policies and procedures which
will be supported by a company-wide management information system. The Company
promotes communication among its hospitals and with the corporate office through
a wide area network and video conferencing so that local expertise and
improvements can be readily shared, additional training can be performed, and
new policies and procedures can be implemented.
As part of the Company's efforts to improve access to quality health care,
the Company evaluates the needs of the community and adds appropriate services
at its hospitals. Services added may include specialty
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inpatient services, such as cardiology, geriatric psychiatry, rehabilitation and
subacute care, and outpatient services such as same-day surgery, imaging,
occupational medicine and physical therapy. Management believes quality
emergency services and OB/GYN services are particularly important because they
are typically the most visible services provided to the community. The Company
also makes capital investments in technology and facilities, where appropriate,
in order to increase the quality and breadth of services available to the
community. These capital investments are undertaken on a project-by-project
basis and must meet financial benchmarks. The Company believes these added
services improve access to health care and the hospitals' reputation in each
community and will in turn increase patient volume and revenue.
In order to add new services which meet the needs of the community, the
Company's corporate staff assists the hospital management team in identifying
and recruiting physicians to the hospital's medical staff. The majority of
physicians who relocate their practices to the communities served by the
Company's hospitals are identified by local management and the medical staff.
The Company supplements these efforts with independent recruiting firms. When
recruiting a physician who is new to the community, the Company generally enters
into a contract to guarantee the physician a minimum level of income during a
limited initial period and assists the physician with his or her transition to
the community. The Company generally requires the physician to repay some or all
of the amounts expended for such assistance in the event the physician leaves
the community prior to the expiration of the contract. The Company generally
does not employ physicians. See "Risk Factors -- Dependence on Physicians and
Other Health Care Professionals" and "-- Health Care Regulation."
In markets where appropriate, the Company seeks to develop or join networks
of providers with an emphasis on primary care physicians in order to be
attractive to managed care payors, self insured employers and various government
sponsored programs. Further, these networks help to position the Company's
hospitals as the focal point of their respective community's health care
delivery system. Regardless of other network development activity, the Company
seeks affiliations with regional tertiary care providers to access services not
offered by the Company's hospitals. Further, these alliances help enhance the
image of the Company's hospitals.
HOSPITALS
GENERAL
The Company currently operates eight acute care hospitals with 1,032
licensed beds located in Iowa, Missouri, Oregon, Tennessee, Texas and Wyoming
and has entered into a definitive agreement to purchase another hospital in
Washington State with 160 licensed beds. See "Risk Factors -- Risks of
Acquisition Strategy -- Pending Acquisition."
The Company's hospitals offer a wide range of inpatient medical services,
such as surgical procedures, intensive care, laboratory, imaging and emergency
services, as well as outpatient services, such as same-day surgery, laboratory,
imaging, occupational medicine and physical therapy. Some of the Company's
hospitals provide, where cost effective, certain other services, including
adolescent and geriatric psychiatry, rehabilitation, OB/GYN, orthopedics,
chemical dependency, skilled nursing and home health services. The Company's
hospitals do not provide highly specialized surgical services, such as organ
transplants and open heart surgery, and are not engaged in extensive medical
research or educational programs, although two of the hospitals have family
practice residency programs. The Company's hospitals are generally involved in
the local community through various activities such as participation in health
fairs and sponsorship of educational programs.
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The following table sets forth certain information with respect to each of
the Company's hospitals:
<TABLE>
<CAPTION>
DATE OF LICENSED
HOSPITAL ACQUISITION BEDS OWNED/LEASED
<S> <C> <C> <C>
Doctors Hospital
Wentzville, MO............................................ 8/1/96 94 owned
Memorial Hospital of Center
Center, TX................................................ 5/1/97 54 owned
Delta Medical Center -- Memphis
Memphis, TN............................................... 5/16/97 243 owned
Dolly Vinsant Memorial Hospital
San Benito, TX............................................ 8/1/97 81 owned
Davenport Medical Center
Davenport, IA............................................. 1/31/98 149 owned
Lander Valley Medical Center(1)
Lander, WY................................................ 1/31/98 102 leased
Woodland Park Hospital(2)
Portland, OR.............................................. 1/31/98 209 leased
Eastmoreland Hospital
Portland, OR.............................................. 1/31/98 100 owned
Puget Sound Hospital
Tacoma, WA................................................ pending 160 to be owned
</TABLE>
- ------------------------------
(1) The Lander Valley Medical Center is subject to a ground lease from the City
of Lander, Wyoming which expires December 31, 2073, with no option to renew.
The current annual rent is $8,415. The Company is responsible for paying
real estate taxes assessed against the buildings, personal property taxes
and license taxes.
(2) Woodland Park Hospital is leased pursuant to a lease which expires December
31, 2029 with no option to renew. The current rental is $27,295 per month
with a 3% annual increase each January 1. The Company is responsible for
paying all operating expenses including all real and personal property taxes
and assessments, insurance utilities and repair costs.
HOSPITAL DESCRIPTIONS
Doctors Hospital is a 94-bed acute care hospital located in Wentzville,
Missouri, approximately 40 miles west of St. Louis, which serves a population
base of approximately 150,000. The hospital's 43-acre campus includes a medical
office building and is located approximately five miles from the nearest
hospital. The hospital offers a range of services that includes acute inpatient
and outpatient care, surgery, intensive care, emergency, OB/GYN, imaging,
laboratory, geriatric psychiatry, skilled nursing, occupational medicine and
home health services. The medical staff of over 140 physicians provides primary
care services and specialty services such as cardiology, neurology, urology and
orthopedics.
Since being purchased by the Company, the hospital has opened an eight-bed
geriatric psychiatric unit, and has recruited to the hospital five physicians
and a local, established emergency physician group. In response to the
significant residential development that has attracted first-time home buyers to
the surrounding area, the hospital has also recruited two obstetricians who will
begin practice in August 1998.
Memorial Hospital of Center is a 54-bed acute care hospital located in
eastern Texas, 50 miles southwest of Shreveport, Louisiana, is the only hospital
located in Shelby County and serves a population base of approximately 23,000.
The hospital is situated on a 17-acre campus, approximately 20 miles from the
nearest hospital. Memorial Hospital offers a range of services, that includes
acute inpatient and outpatient care, surgery, emergency, OB/GYN, imaging,
laboratory, skilled nursing and home health services. The medical staff of over
30 physicians provides primary care services and consulting services for
audiology, urology, orthopedics, and ophthalmology. The hospital has the only
trauma designated emergency services department in an eight county area.
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Since being purchased by the Company, the hospital has recruited one
primary care physician, expanded physical therapy services and added
occupational and speech therapies. Emergency department coverage has been
improved through a new physician staffing company agreement. In addition, the
hospital is adding a new radiology and fluoroscopy suite that is scheduled for
completion in August 1998. As part of its ongoing efforts to reduce
out-migration, the hospital is redecorating and updating the patient rooms and
improving the hospital's appearance in general.
Delta Medical Center -- Memphis is a 243-bed acute care hospital located in
southeast Memphis, serves a population base of approximately 300,000, and draws
patients from rural Mississippi and Arkansas. The hospital is on a 20-acre
campus that includes a 110,000 square foot medical office building and is
located approximately five miles from the nearest hospital. The hospital offers
a range of services that includes acute inpatient and outpatient care, surgery,
intensive care, emergency, imaging, laboratory, geriatric and adolescent
psychiatry, chemical dependency and occupational medicine services. The medical
staff of over 350 physicians provides primary care services and specialty
services such as cardiology, neurology, urology and orthopedics. Delta Medical
Center -- Memphis operates Total Care, a hospital-based PPO, that enhances the
ability of the hospital to access managed care patients.
Since being purchased by the Company, the hospital has been granted
separate certificates of need for an 18-bed skilled nursing unit and a ten-bed
physical rehabilitation unit. Both are expected to be in operation by April
1999. In addition, the hospital has recruited an orthopedic surgeon, an
oncologist and a neurologist during the past year.
Dolly Vinsant Memorial Hospital is an 81-bed acute care hospital in San
Benito, Texas serving a population base of approximately 50,000. The hospital is
located in the southernmost county of Texas on a seven-acre campus and is six
miles from the nearest hospital. Dolly Vinsant offers a range of services that
includes acute inpatient and outpatient care, surgery, emergency, imaging,
laboratory and home health services. The medical staff of over 160 physicians
provides primary care services and specialty services such as urology,
orthopedics, ophthalmology, and general surgery.
Since being purchased by the Company, the hospital has recruited an
orthopedic surgeon and has begun providing arthroscopic surgery services. The
hospital plans to add a three-bed special care unit, one additional operating
room (bringing the total to three), and OB/GYN services to meet the needs of the
community.
Davenport Medical Center is an 149-bed acute care facility located in
Davenport, Iowa, one of the Quad cities and serves a population base of
approximately 150,000. The hospital and its medical office building are located
on an 18-acre campus and is approximately two miles from the nearest hospital.
The hospital offers a range of services that includes acute inpatient and
outpatient care, surgery, intensive care, emergency, OB/GYN, imaging,
laboratory, and skilled nursing services. The medical staff of approximately 220
physicians provides primary care services and specialty services such as
urology, orthopedics and pulmonology. The hospital participates in a residency
program for osteopathic physicians and opened an eleven-bed skilled nursing unit
in January 1998.
Since being purchased by the Company, the hospital has successfully
recruited a primary care physician and a cardiologist who will begin practice in
August 1998.
Lander Valley Medical Center is an 102-bed acute care hospital located in
Lander, Wyoming, approximately 120 miles west of Casper and approximately 180
miles southeast of Jackson. The hospital serves a population base of
approximately 17,000 and is located on a 25-acre campus approximately 27 miles
from the nearest hospital. The hospital offers a range of services that includes
acute inpatient and outpatient care, surgery, intensive care, emergency, OB/GYN,
imaging, laboratory, geriatric and adolescent psychiatry, skilled nursing and
home health services. The medical staff of over 40 physicians provides primary
care services as well as specialty services such as orthopedics, urology,
ophthalmology, and general surgery.
The hospital has recruited a child psychiatrist and is actively recruiting
an OB/GYN, a urologist and an ophthalmologist.
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Woodland Park Hospital is a 209-bed acute care neighborhood hospital
located in the northeastern Portland, Oregon area, serving a population base of
approximately 150,000. The hospital and its attached medical office building are
located on a six-acre campus approximately three miles from the nearest
hospital. The hospital offers a range of services that includes acute inpatient
and outpatient care, surgery, intensive care, emergency services, OB/GYN,
imaging, laboratory, geriatric and adolescent psychiatry and occupational
medicine services. Home health services are provided in partnership with
Eastmoreland Hospital. The medical staff of over 190 physicians provides primary
care services and specialty services such as orthopedics, plastic surgery,
ophthalmology, and general surgery.
Since being purchased by the Company, the hospital opened its adolescent
psychiatric unit. Two physicians will also be joining the medical staff by
September 1998, including an OB/GYN and an orthopedic surgeon. The hospital also
intends to expand its geriatric psychiatric services.
Eastmoreland Hospital is an 100-bed acute care neighborhood hospital
located in the southeast Portland, Oregon area, serving a population base of
approximately 175,000. The hospital is located on a six-acre campus with five
medical office buildings on or adjacent to the campus and is approximately four
miles from the nearest hospital. The hospital offers a range of services that
includes acute inpatient and outpatient care, surgery, intensive care,
emergency, imaging, laboratory, rehabilitation, geriatric psychiatry and
occupational medicine services. The hospital also has a residency program for
osteopathic physicians. Home health services are provided in partnership with
Woodland Park Hospital. The medical staff of over 30 physicians provides primary
care services and specialty services such as orthopedic surgery, plastic
surgery, ophthalmology, otolaryngology, gynecology, and general surgery.
Since being purchased by the Company, the hospital has recruited a
gynecologist who will be joining the medical staff by September 1998.
PENDING ACQUISITION
Puget Sound Hospital is an 160-bed acute care hospital located in Tacoma,
Washington that serves a population base of approximately 360,000. On December
22, 1997, the Company entered into a definitive purchase agreement to acquire
substantially all of the assets of Puget Sound Hospital, which is pending
closing. The hospital is located on a five-acre campus approximately twelve
miles from the nearest hospital. The hospital provides a range of services that
includes acute inpatient and outpatient care, surgery, intensive care,
emergency, imaging, laboratory, geriatric and adolescent psychiatry and chemical
dependency treatment. The medical staff of over 85 physicians provides primary
care services and specialty services such as orthopedics, ophthalmology,
urology, podiatry and general surgery. See "Risk Factors -- Risks of Acquisition
Strategy -- Pending Acquisition" and "-- Environmental Regulation."
37
<PAGE> 39
OPERATING STATISTICS
The following table sets forth certain operating statistics for the
Company's hospitals for each of the periods presented. The data for the periods
presented are not strictly comparable due to the significant effect that
acquisitions have had on the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED
MARCH 31,
--------------------
1997 1998
<S> <C> <C>
Hospitals owned or leased (at end of period)................ 1 8
Licensed beds (at end of period)............................ 94 1,032
Beds in service (at end of period).......................... 94 697
Occupancy rate (% of licensed beds)(1)...................... 14.1% 12.2%
Occupancy rate (% of beds in service)(2).................... 14.1% 18.0%
Admissions.................................................. 1,086 7,790
Adjusted admissions(3)...................................... 2,335 13,594
Emergency visits............................................ 4,965 36,566
Surgeries................................................... 1,078 4,630
Average length of stay (days)(4)............................ 4.5 5.9
Patient days................................................ 4,854 45,782
Adjusted patient days(5).................................... 9,951 75,852
Net patient service revenue (in thousands).................. $10,737 $73,725
Gross outpatient service revenue (in thousands)............. $ 8,857 $42,658
</TABLE>
- ------------------------------
(1) Percentages are calculated by dividing average daily census by average
licensed beds.
(2) Percentages are calculated by dividing average daily census by average beds
in service.
(3) Adjusted admissions are calculated as admissions for the period multiplied
by the ratio obtained by dividing gross patient service revenue by gross
inpatient service revenue.
(4) Average length of stay is calculated as the number of patient days divided
by the number of admissions.
(5) Adjusted patient days have been calculated based on an industry-accepted
revenue-based formula (multiplying actual patient days by the sum of gross
inpatient revenue and gross outpatient revenue and dividing the result by
gross inpatient revenue for each hospital) to reflect an approximation of
the volume of service provided to inpatients and outpatients by converting
total patient revenues to equivalent patient days.
SOURCES OF REVENUE
The Company receives payments for patient care from private insurance
carriers, federal Medicare programs for elderly and disabled patients, state
Medicaid programs, Indian Health Services ("INS"), HMOs, the Civilian Health and
Medical Program of the Uniformed Services ("CHAMPUS"), employers and patients
directly.
The following table sets forth the percentage of gross patient revenue of
the Company's hospitals from various payors for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1997(1) 1998(1)
<S> <C> <C>
Medicare.................................................... 49.0% 51.5%
Medicaid.................................................... 20.0 18.4
Private and other sources................................... 31.0 30.1
</TABLE>
- ------------------------------
(1) The data for the periods presented are not strictly comparable due to the
significant effect that acquisitions have had on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
38
<PAGE> 40
QUALITY ASSURANCE
The Company's hospitals implement quality assurance procedures to help
ensure quality care. Each hospital has clinical department review committees
comprised of medical staff members that supervise individuals and are
responsible for the quality of medical care provided in their respective
department. In addition, each hospital has a medical advisory committee
comprised of physicians which review the professional credentials of physicians
applying for medical staff privileges at the hospital. Medical advisory
committees also review and monitor surgical outcomes along with procedures
performed and the quality of the logistical, medical and technological support
provided to physicians. Further, the board of trustees of the hospital reviews
the actions and patient outcomes of the medical staff. The Company periodically
surveys patients either during their stay at the hospital or subsequently by
mail or telephone to identify potential areas for improvement. All of the
Company's hospitals are accredited by either JCAHO or AOA or both.
REGULATORY COMPLIANCE PROGRAM
With the help of a consulting firm, the Company has developed and
implemented a corporate-wide compliance program. The Company's compliance
program focuses on various areas of regulatory compliance, including physician
recruitment, reimbursement and cost reporting practices and laboratory and home
health care operations. Mr. McLendon currently serves as the Corporate
Compliance Officer and, together with an executive compliance committee,
monitors adherence to the compliance program. This consulting firm has conducted
training programs on the Company's corporate compliance program at all of the
Company's hospitals and has been retained to provide ongoing training. The
compliance program includes a 24-hour reporting hotline to encourage employees
and others to report any potential compliance issues. The Company also conducts
substantial due diligence on each hospital prior to its acquisition regarding
such hospital's regulatory compliance. See "Risk Factors -- Health Care Industry
Investigations" and "-- Health Care Regulation."
MANAGEMENT INFORMATION SYSTEM
The Company relies on the functionality, accuracy, reliability and proper
use of its management information system. Historically, each of the Company's
hospitals has operated under its own stand-alone systems. Having different
systems throughout its hospitals has made the collection and standardization of
financial and clinical data more difficult. The Company has recently entered
into an agreement with Healthcare Management Systems, Inc. ("HMS") to license
its HMS Monitor System, which the Company believes will be a Year 2000
compliant, fully-integrated financial, clinical and administrative management
information system. The Company believes this system will enable it to monitor,
on a cost-effective basis, the operations of its hospitals and allow it to
generate consistent data at each of its hospitals.
The new system provides a full platform of software, including patient
accounting, billing and collection, materials management, payroll/personnel
system, accounts payable, fixed assets, general ledger, DRG/case mix management
and medical records. The Company is in the process of converting all of its
current hospitals to this management information system and plans to have all
hospitals converted by March 1999. The license agreement allows for additional
hospitals to be added onto the network and provides that in the event HMS
discontinues the maintenance and support of the software (and certain other
events), the Company will be entitled to a perpetual license to the source code
for the software including all updates and modifications.
In addition, the Company has linked all of its hospitals to each other and
to corporate headquarters through a wide area network and video conferencing
equipment. These tools promote communication among its hospitals so that local
expertise and improvements can be readily shared, additional training can be
performed and new policies and procedures can be implemented.
39
<PAGE> 41
COMPETITION
MEDICAL SERVICES
The primary bases of competition among hospitals are the quality and scope
of medical services, location, strength of referral network, appearance of the
facility and, to a lesser extent, price. The Company's hospitals compete with
other hospitals, some of which may be more established, better equipped, offer a
wider range of services or have financial resources greater than those of the
Company. In addition, certain of these competing hospitals are owned by
tax-supported government agencies or by tax-exempt, not-for-profit corporations
that may be supported by endowments and charitable contributions and can finance
capital expenditures on a tax-exempt basis. Those hospitals located in non-urban
areas generally face less competition in their immediate patient service areas
for the delivery of general acute care services than would be expected in larger
communities. However, even in areas where the Company's hospitals are the only
provider of health care services, such hospitals continue to face competition
from larger tertiary care centers that attract patients for certain services
either not offered or perceived to be inferior at the local hospital, thereby
contributing to out-migration.
ACQUISITIONS
The Company believes that recently, there has been increased competition
for hospital acquisitions among for-profit hospital companies as well as
not-for-profit entities. Some of the Company's competitors have greater
financial and other resources than the Company and larger development staffs
focused on identifying and completing acquisitions. Increased competition for
the acquisition of acute care hospitals targeted by the Company could have an
adverse impact on the Company's ability to acquire such hospitals on favorable
terms or at a pace consistent with its objectives.
EMPLOYEES AND MEDICAL STAFF
As of June 22, 1998, the Company had 1,723 "full-time equivalent"
employees, 19 of whom were corporate headquarters personnel. The remaining
employees, most of whom are nurses, other clinical, dietary, housekeeping and
office personnel, work at the Company's hospitals. A total of 329 of the
employees of Davenport Medical Center and Puget Sound Hospital (a pending
acquisition) are covered by collective bargaining agreements. The Company
considers relations with its employees to be good.
The Company typically does not employ physicians and, as of March 31, 1998,
the Company employed only 11 practicing physicians. Certain of the Company's
hospital services, including emergency room coverage, radiology, pathology and
anesthesiology services, may be provided through independent contractor
arrangements with physicians or contracts with companies specializing in
providing such services.
GOVERNMENT REIMBURSEMENT
Medicare payments for general hospital inpatient care are based on a
prospective payment system ("PPS"). Under the PPS, a hospital receives a fixed
amount for operating costs based on the established fixed payment amount per
discharge for categories of hospital treatment, commonly known as a diagnosis
related group ("DRG"), for each Medicare inpatient. DRG payments do not consider
a specific hospital's costs, but are adjusted for area wage differentials. The
DRG payments do not include reimbursement for capital costs. Psychiatric
services, long-term care, rehabilitation, pediatric services and certain
designated research hospitals, and distinct parts of rehabilitation and
psychiatric units within hospitals, are currently exempt from PPS and are
reimbursed on a cost-based system, subject to specific reimbursement caps. While
skilled nursing facilities and units are currently exempt from PPS, beginning,
with cost report periods beginning on or after July 1, 1998, a new system of PPS
will be implemented for such facilities and units. For the year ended March 31,
1998, the Company had only 10 units, 4 of which are skilled nursing units that
were exempt from PPS.
For several years, the percentage increases to the DRG rates have been
lower than the percentage increases in the cost of goods and services purchased
by general hospitals. The index used to adjust the DRG
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<PAGE> 42
rates is based on the cost of goods and services purchased by hospitals as well
as those purchased by non-hospitals (the "Market Basket"). The historical Market
Basket rates of increase were 1.5% and 2.0% for federal fiscal years 1996 and
1997, respectively, and the Market Basket may be subject to further adjustment
from year to year. The Company anticipates that future legislation may decrease
the future rate of increase for DRG payments, but is unable to predict the
amount of the final reduction.
The Company anticipates that future legislation may reduce the aggregate
reimbursement received, but is unable to predict the amount of the final
reduction.
Each state has its own Medicaid program that is funded jointly by the state
and federal government. Federal law governs how each state manages its Medicaid
program, but there is wide latitude for states to customize Medicaid programs to
fit the needs and resources of their citizens. As a result, each state Medicaid
plan has its own payment formula and recipient eligibility criteria.
In recent years, changes in Medicare and Medicaid programs have resulted in
limitations on, and reduced levels of, payment and reimbursement for a
substantial portion of hospital procedures and costs. Congress recently enacted
the Balanced Budget Act of 1997, which establishes a plan to balance the federal
budget by fiscal year 2002, and includes significant additional reductions in
spending levels for the Medicare and Medicaid programs.
The Medicare, Medicaid and CHAMPUS programs are subject to statutory and
regulatory changes, administrative rulings, interpretations and determinations,
requirements for utilization review and new governmental funding restrictions,
all of which may materially increase or decrease program payments as well as
affect the cost of providing services and the timing of payment to facilities.
The final determination of amounts earned under the programs often requires many
years, because of audits by the program representatives, providers' rights of
appeal and the application of numerous technical reimbursement provisions.
Management believes adequate provision has been made for such adjustments. Until
final adjustment, however, significant issues remain unresolved and previously
determined allowances could become either inadequate or more than ultimately
required.
HEALTH CARE REFORM, REGULATION AND LICENSING
CERTAIN BACKGROUND INFORMATION
Health care, as one of the largest industries in the United States,
continues to attract much legislative interest and public attention. Medicare,
Medicaid, and other public and private hospital cost-containment programs,
proposals to limit health care spending, proposals to limit prices and industry
competitive factors are among the many factors which are highly significant to
the health care industry. In addition, the health care industry is governed by a
framework of federal and state laws, rules and regulations that are extremely
complex and for which the industry has the benefit of only limited regulatory or
judicial interpretation. Although the Company believes it is in compliance in
all material respects with such laws, rules and regulations, if a determination
is made that the Company was in violation of such laws, rules or regulations,
its business, financial condition and results of operations could be materially
adversely affected.
There continue to be federal and state proposals that would, and actions
that do, impose more limitations on government and private payments to providers
such as the Company and proposals to increase co-payments and deductibles
required to be paid by patients. The Company's facilities also are affected by
controls imposed by government and private payors designed to reduce admissions
and lengths of stay. Such controls, including what is commonly referred to as
"utilization review," have resulted in fewer of certain treatments and
procedures being performed. Utilization review entails the review of the
admission and course of treatment of a patient by a third party. Utilization
review by third-party peer review organizations ("PROs") is required in
connection with the provision of care paid for by Medicare and Medicaid.
Utilization review by third parties is also required under many managed care
arrangements.
Many states have enacted, or are considering enacting, measures that are
designed to reduce their Medicaid expenditures and to make certain changes to
private health care insurance. Various states have applied, or are considering
applying, for a federal waiver from current Medicaid regulations to allow them
to serve some of their Medicaid participants through managed care providers.
These proposals also may attempt
41
<PAGE> 43
to include coverage for some people who presently are uninsured, and generally
could have the effect of reducing payments to hospitals, physicians and other
providers for the same level of service provided under Medicaid.
CERTIFICATE OF NEED REQUIREMENTS
Some states require approval under certificate of need laws for the
purchase, construction, renovation and expansion of health care facilities and
services. Certificates of need ("CON"), which are issued by governmental
agencies with jurisdiction over health care facilities, are at times required
for capital expenditures exceeding a prescribed amount, changes in bed capacity
for services and certain other matters. A CON may also require a provider to
commit to provide a certain level of uncompensated care. However, in Texas,
where the Company operates two of its eight hospitals, and in Wyoming where the
Company operates one hospital do not currently require certificates of need for
hospital construction or changes in the mix of services. Tennessee requires a
CON before the construction, development or establishment of any type of health
care institution or where modifications require capital expenditure greater than
$2.0 million, except in the case of a hospital. Tennessee also requires a CON
when redistributing or increasing the number of licensed beds. Missouri requires
a CON before offering or developing a new institutional health service within
the state. Oregon requires CONs for new hospital, skilled nursing facility, or
intermediate care service and substance abuse programs only. Iowa requires CON
when offering a new institutional health service. Although to date the Company
has been successful in obtaining CON's for needed projects, the Company is
unable to predict whether it will be able to obtain any CON that may be
necessary to accomplish its business objectives in any jurisdiction where such
CONs are required.
ANTI-KICKBACK AND SELF-REFERRAL REGULATIONS
Sections of the Anti-Fraud and Abuse Amendments to the Social Security Act,
commonly known as the "anti-kickback" statute (the "Anti-kickback Amendments"),
prohibit certain business practices and relationships that might affect the
provision and cost of health care services reimbursable under Medicare and
Medicaid, including the payment or receipt of remuneration for the referral of
patients whose care will be paid for by Medicare or other government programs.
Sanctions for violating the Anti-kickback Amendments include criminal penalties
and civil sanctions, including fines and possible exclusion from government
programs such as the Medicare and Medicaid programs. Pursuant to the Medicare
and Medicaid Patient and Program Protection Act of 1987, the U.S. Department of
Health and Human Services has issued regulations that create Safe Harbors under
the Anti-kickback Amendments. A given business arrangement which does not fall
within a Safe Harbor is not per se illegal; however, business arrangements of
health care service providers that fail to satisfy the applicable Safe Harbor
criteria risk increased scrutiny by enforcement authorities. The "Health
Insurance Portability and Accountability Act of 1996," which became effective
January 1, 1997 broadened the scope of certain fraud and abuse laws, such as the
Anti-kickback Amendments and certain related enforcement activities.
The Company provides financial incentives to recruit physicians into the
communities served by its hospitals, including loans and minimum revenue
guarantees. No Safe Harbor for physician recruitment is currently in force.
Although the Company is not subject to the Internal Revenue Service Revenue
Rulings and related authority addressing recruitment activities by tax-exempt
facilities, management believes such IRS authority tends to set the industry
standard for acceptable recruitment activities. The Company believes its
recruitment policies are being conducted in accordance with the IRS authority
and industry practice. The Company also enters into certain leases with
physicians and is a party to certain joint ventures with physicians. The Company
also participates in a group purchasing joint venture. The Company believes
these arrangements do not violate the Anti-kickback Amendments. There can be no
assurance that regulatory authorities who enforce the Anti-kickback Amendments
will not determine that the Company's physician recruiting activities, other
physician arrangements, or group purchasing activities violate the Anti-kickback
Amendments or other federal laws. Such a determination could subject the Company
to liabilities under the Social Security Act, including exclusion of the Company
from participation in Medicare and Medicaid. See "Business -- Health Care
Reform, Regulation and Licensing."
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<PAGE> 44
The Company's operations necessarily involve financial relationships with
physicians on the medical staff. Such arrangements include professional services
agreements for services at its hospitals and physician recruitment incentives to
encourage physicians to establish private practices in markets served by the
Company's owned or leased hospitals. Although the Company believes these
arrangements are lawful, no safe harbor provisions apply to physician
recruitment arrangements not involving physician employment. Evolving
interpretations of current, or the adoption of new, federal or state laws or
regulations could affect these arrangements.
There is increasing scrutiny by law enforcement authorities, the Office of
Inspector General ("OIG") of the Department of Health and Human Services
("HHS"), the courts, and Congress of arrangements between health care providers
and potential referral sources to ensure that the arrangements are not designed
as a mechanism to exchange remuneration for patient care referrals and
opportunities. Investigators have also demonstrated a willingness to look behind
the formalities of a business transaction to determine the underlying purpose of
payments between health care providers and potential referral sources.
Enforcement actions have increased, as evidenced by recent highly publicized
enforcement investigations of certain hospital activities. Although, to its
knowledge, the Company is not currently the subject of any investigation which
is likely to have a material adverse effect on its business, financial condition
or results of operations, there can be no assurance that the Company and its
hospitals will not be the subject of investigations or inquiries in the future.
See "Risk Factors -- Health Care Industry Investigations."
In addition to investigations and enforcement actions initiated by
governmental agencies, health care companies may also be the subject of qui tam
actions brought under the False Claims Act by private individuals on behalf of
the government. Furthermore, actions under the False Claims Act, commonly known
as "whistleblower" lawsuits are generally filed under seal to allow the
government adequate time to investigate and determine whether it will intervene
in the action, and defendant health care providers are often without knowledge
of such actions until the government has completed its investigation and the
seal is lifted.
In addition, provisions of the Social Security Act restrict referrals by
physicians of Medicare and other government-program patients to providers of a
broad range of designated health services with which they have ownership or
certain other financial arrangements (the "Stark Laws"). A person making a
referral, or seeking payment for services referred, in violation of Stark would
be subject to the following sanctions: (i) civil money penalties of up to
$15,000 for each service; (ii) assessments equal to twice the dollar value for
each service; and/or (iii) exclusion from participation in the Medicare Program
and any other governmental reimbursement program. Further, if any physician or
entity enters into an arrangement or scheme that the physician or entity knows
or should know has the principal purpose of assuring referrals by the physician
to a particular entity, and the physician directly made referrals to such
entity, then such physician or entity could be subject to a civil money penalty
of up to $100,000. Many states have adopted or are considering similar
legislative proposals, some of which extend beyond the Medicaid program to
prohibit the payment or receipt of remuneration for the referral of patients and
physician self-referrals regardless of the source of the payment for the care.
The Company's contracts with physicians on the medical staff of its hospitals
and its participation in and development of joint ventures and other financial
relationships with physicians could be adversely affected by these amendments
and similar state enactments.
The Company is unable to predict the future course of federal, state and
local regulation or legislation, including Medicare and Medicaid statutes and
regulations. Further changes in the regulatory framework or in the
interpretation of these laws, rules and regulations could have a material
adverse effect on the Company's business, financial condition and results of
operations.
RECENT INVESTIGATIONS
In April 1997, the DOJ, Eastern District of Texas, sent a demand letter to
the Company's hospital in Center, Texas, alleging improper laboratory billing
practices during periods prior to the Company's ownership of the hospital. The
Company settled this claim for approximately $18,000, and recovered its
settlement costs for this claim from the prior owner of the hospital pursuant to
an indemnification agreement.
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<PAGE> 45
In September 1997, the DOJ, Southern District of Texas, sent a demand
letter to the Company's hospital in San Benito, Texas alleging improper
laboratory billing for periods prior to the Company's ownership. The DOJ has
offered to settle the claim for approximately $20,000. The Company will seek
indemnification from prior owners for any liabilities with respect to this
matter and such prior owners have acknowledged their responsibility.
In November 1997, DOJ, Eastern District of Missouri, sent a demand letter
to the Company's hospital in Wentzville, Missouri alleging improper laboratory
billing practices from approximately 1991 to 1997. No lawsuit has been filed and
the Company is engaged in discussions with representatives of the DOJ. If the
Company incurs any liability with respect to this matter attributable to
improper billing during periods prior to the Company's acquisition of the
hospital, the Company will attempt to recover such losses pursuant to an
indemnification agreement entered into as part of its purchase of the hospital.
There can be no assurance that such indemnification will be adequate or that
indemnification claims will be satisfied.
ENVIRONMENTAL REGULATIONS
The Company's health care operations generate medical waste that must be
disposed of in compliance with federal, state and local environmental laws,
rules and regulations. The Company's operations, as well as the Company's
purchases and sales of facilities, are also subject to various other
environmental laws, rules and regulations.
Although the Company is not aware of any material environmental claims
pending or threatened against its currently owned or operated hospitals, it is
aware that certain environmental problems are present at Puget Sound Hospital, a
hospital for which the Company has entered into a definitive purchase agreement.
The seller is legally and financially responsible for the cleanup, its external
environmental consultants completed a work plan for the removal of the
contamination. New American does not intend to complete the acquisition until
the seller has completed the removal of the contamination in accordance with a
plan approved by the Washington State Department of Ecology.
HEALTH CARE FACILITY LICENSING AND CERTIFICATION REQUIREMENTS
The Company's health care facilities are subject to extensive federal,
state and local legislation and regulation. In order to maintain their operating
licenses and continue to be eligible for participation in the Medicare program,
health care facilities must comply with strict standards concerning a variety of
areas, including, but not limited to, medical care, written policies and
procedures, record-keeping, equipment and hygiene. Various licenses and permits
also are required in order to dispense narcotics, operate pharmacies, handle
radioactive materials and operate certain equipment. The Company believes its
health care facilities hold all material governmental approvals, licenses and
permits. All licenses, provider numbers and other permits or approvals required
to perform the Company's business operations are held by subsidiaries of the
Company. Each of the Company's facilities is fully accredited by the Joint
Commission on Accreditation of Health Care Organizations and/or the American
Osteopathic Association.
UTILIZATION REVIEW COMPLIANCE AND HOSPITAL GOVERNANCE
The Company's health care facilities are subject to and comply with various
forms of utilization review. In addition, under the Medicare prospective payment
system, each state must have a PRO to carry out a federally mandated system of
review of Medicare patient admissions, treatments and discharges in general
hospital. Medical and surgical services and practices are extensively supervised
by committees of staff doctors at each health care facility, are overseen by
each health care facility's local governing board, the primary voting members of
which are physicians and community members, and are reviewed by the Company's
quality assurance personnel. The local governing boards also help maintain
standards for quality care, develop long-range plans, establish, review and
enforce practices and procedures and approve the credentials and disciplining of
medical staff members.
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<PAGE> 46
GOVERNMENTAL DEVELOPMENTS REGARDING SALES OF NOT-FOR-PROFIT HOSPITALS
In recent years, the legislatures and attorneys general of several states
have shown a heightened level of interest in transactions involving the sale of
non-profit hospitals. Although the level of interest varies from state to state,
the trend is to provide for increased governmental review, and in some cases
approval, of transactions in which not-for-profit corporations sell a health
care facility. Attorneys general in certain states have been especially active
in evaluating these transactions. Although the Company has not yet been
adversely affected as a result of these trends, such increased scrutiny may
increase the difficulty or prevent the completion of transactions with
not-for-profit organizations in certain states in the future.
PROFESSIONAL LIABILITY
As part of its business, the Company is subject to claims of liability for
events occurring in the ordinary course of hospital operations. To cover these
claims, the Company maintains professional malpractice liability insurance and
general liability insurance in amounts which management believes to be
sufficient for its operations, although some claims may exceed the scope of the
coverage in effect. The Company also maintains umbrella coverage. At various
times in the past, the cost of malpractice and other liability insurance has
risen significantly. Therefore, there can be no assurance that adequate levels
of such insurance will continue to be available at a reasonable price.
LEGAL PROCEEDINGS
The Company is, from time to time, subject to claims and suits arising in
the ordinary course of business, including claims for damages for personal
injuries, breach of contracts or for wrongful restriction of or interference
with physician's staff privileges. In certain of these actions, plaintiffs
request punitive or other damages that may not be covered by insurance. The
Company is currently not a party to any proceeding which, in management's
opinion, would have a material adverse effect on the Company's business,
financial condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Robert M. Martin......................... 49 President, Chief Executive Officer and
Chairman of the Board of Directors
Dana C. McLendon, Jr..................... 55 Senior Vice President of Finance and
Administration, Secretary, Treasurer and
Director
Craig B. Watson.......................... 51 Senior Vice President of Operations
Timothy S. Hill.......................... 36 Vice President and Controller
Neil G. McLean........................... 49 Vice President of Acquisitions and
Development
Christopher W. Dux....................... 47 Regional Vice President
Richard H. Stowe (1)(2).................. 54 Director
James B. Hoover (2)...................... 43 Director
David A. Jensen (1)...................... 53 Director
Jeptha W. Dalston, Ph.D.(2).............. 67 Director
Paul B. Queally (1)(2)................... 34 Director
</TABLE>
- ------------------------------
(1) Member of Compensation Committee.
(2) Member of Compliance, Audit and Ethics Committee.
Mr. Martin has served as the President, Chief Executive Officer and
Chairman of the Board of Directors of the Company since its formation in 1995.
From 1991 to 1995, Mr. Martin was Regional Vice President of the Eastern Region
of HealthTrust, a region which included 17 hospitals in six states. From 1990 to
1991, Mr. Martin was Regional Vice President of HealthTrust Central Region,
which included nine hospitals in two states. Mr. Martin holds a BA in business
administration from Drury College, Springfield, Missouri and an MBA from Temple
University, Philadelphia, Pennsylvania.
Mr. McLendon has served as the Senior Vice President of Finance and
Administration, Secretary, Treasurer and as a Director of the Company since its
formation in 1995. From 1991 to 1995 he served as Director, and then Vice
President -- Delivery System Integration at HealthTrust. Mr. McLendon was
President and Chief Executive Officer of First American Bank from 1988 to 1990.
Prior to 1988, Mr. McLendon held various positions with First Union National
Bank, including Regional Executive Vice President. Mr. McLendon holds a BS in
business administration and an MBA from the University of South Carolina.
Mr. Watson has served as the Senior Vice President of Operations of the
Company since its formation in 1995. From 1991 to 1995, he served as Chief
Executive Officer of Gulf Coast Medical Center formerly a HealthTrust hospital.
Mr. Watson served as Chief Executive Officer of a non-profit home health company
from 1985 to 1991. Mr. Watson has an MBA in finance from the University of
Houston and is a certified public accountant ("CPA").
Mr. Hill has served as the Vice President and Controller of the Company
since its formation in 1995. From 1987 to 1995, Mr. Hill was with HealthTrust,
Inc., where he served in a variety of accounting, audit, reimbursement and
financial positions. Mr. Hill served as Director of Financial Reporting for
Columbia/HCA in 1995. Mr. Hill holds a BS in accounting from Tennessee
Technological University and is a CPA.
Mr. McLean has served as Vice President of Acquisitions and Development of
the Company since January 1996. From November 1989 to January 1996, he served as
Group Vice President for Quorum and was responsible for 13 managed hospitals in
the states of Georgia and North Carolina. Mr. McLean has an MBA from Mercer
University and is a CPA.
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<PAGE> 48
Mr. Dux has served as Regional Vice President of the Company since May
1998. From June 1997 to May 1998 he served as Chief Executive Officer of
Parkridge Medical Center, Chattanooga, Tennessee. From March 1992 until June
1997 he was the Chief Executive Officer of Pulaski Community Hospital, Pulaski,
Virginia. Mr. Dux is a graduate of Belmont Abbey College and of the Duke
Endowment Program for Hospital Administrators.
Mr. Stowe has served as a director of the Company since January 1996. Since
May 1979, he has been a general partner of WCAS and its predecessors. Mr. Stowe
has served as a director of Health Management Systems, Inc. as well as several
private companies since April 1979 and The Cerplex Group, Inc. since 1996.
Mr. Hoover has served as a director of the Company since January 1996.
Since June 1998, Mr. Hoover has been a managing member of Dauphin Capital
Partners, a healthcare venture capital firm. Mr. Hoover was a general partner of
WCAS from November 1992 to May 1998. Mr. Hoover has served as a director of
Housecall Medical Resources, Inc. since June 1994, of Centennial Healthcare
Corporation since January 1996 and U.S. Physical Therapy, Inc. since February
1993.
Mr. Jensen has served as a director of the Company since September 1996.
Since December 1996, Mr. Jensen has been President and Chief Executive Officer
of Blue Cross and Blue Shield of New Hampshire. Mr. Jensen served as Acting
Chief Executive Officer of the Foundation for Informed Medical Decision Making
from August 1994 to November 1996; and President of Healthsource Management,
Inc., a subsidiary of an HMO company, from January 1991 to May 1994. Mr. Jensen
is also a director of the Business and Industry Association of New Hampshire.
Mr. Dalston has served as a director of the Company since September 1996.
From 1993 to 1996 he served as a director of the University of Houston Graduate
Program in Health Administration. Mr. Dalston has been a professor and member of
the faculty since 1993. Since 1993, Mr. Dalston has served as President and
Chief Executive Officer of Health Exec, Inc.
Mr. Queally has served as a director of the Company since January 1998.
Since February 1996 he has been a general partner of WCAS. Mr. Queally joined
the Sprout Group in September 1986 holding various positions, most recently a
general partner until February 1996. Since 1995, Mr. Queally has served as a
director for Concentra Managed Care, Inc., a managed workers compensation
company.
STAGGERED BOARD
After the Reincorporation, the Board of Directors will be divided into
three classes. The Class 1 directors' initial term will expire at the 1999
annual meeting of stockholders, the Class 2 directors' initial term will expire
at the 2000 annual meeting of stockholders and the Class 3 directors' initial
term will expire at the 2001 annual meeting of stockholders. After the initial
term, each class will serve for a three-year term. The initial Class 1 directors
will be: Mr. Dalston, Mr. Hoover and Mr. Jensen. The initial Class 2 directors
will be: Mr. Queally and Mr. Stowe. The initial Class 3 directors will be: Mr.
McLendon and Mr. Martin.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors currently has two committees: the Compliance, Audit
and Ethics Committee and the Compensation Committee. The Compensation Committee
makes recommendations concerning salaries and incentive compensation for
executives of the Company. Mr. Stowe is the chairman of the Compensation
Committee, which also includes Mr. Jensen and Mr. Queally. The Compliance, Audit
and Ethics Committee reviews and approves the annual report of the Company's
independent auditors and monitors adherence to the Company's compliance program.
Mr. Queally is the chairman of the Compliance, Audit and Ethics Committee, which
also includes Mr. Dalston, Mr. Hoover and Mr. Stowe.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee is currently composed of Mr. Stowe,
Mr. Jensen and Mr. Queally. No executive officer of the Company serves as a
member of the compensation committee or as a director of any other entity whose
executive officer(s) serves as a director of the Company.
47
<PAGE> 49
DIRECTOR COMPENSATION
Directors of the Company who are employees of the Company or its
subsidiaries are not entitled to receive any fees for serving as directors;
however, such directors are reimbursed for out-of-pocket expenses incurred with
respect to the Company's business. In addition, non-employee directors of the
Company will be eligible to participate in the Company's Stock Option Plan. For
the year ended March 31, 1998, non-employee directors did not receive any
compensation other than reimbursement for out-of-pocket expenses.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by the Company for the
periods described to the Company's chief executive officer and the Company's
four other most highly compensated executive officers at March 31, 1998
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION(1) COMPENSATION(2)
<S> <C> <C> <C> <C>
Robert M. Martin
President, Chief Executive Officer
and Chairman of the Board of
Directors...................... 263,750 127,500 12,756 3,571
Dana C. McLendon, Jr.
Senior Vice President of Finance
and Administration, Secretary,
Treasurer and Director......... 179,167 67,988 11,339 3,712
Craig B. Watson
Senior Vice President of
Operations..................... 162,917 59,920 8,125 18,613
Timothy S. Hill
Vice President and Controller..... 123,750 40,188 8,125 2,617
Neil G. McLean
Vice President of Acquisitions and
Development.................... 148,747 41,064 8,125 3,161
</TABLE>
- ------------------------------
(1) Represents automobile allowance of $8,125. Also includes insurance premiums
of $4,631 and $3,214 for Mr. Martin and Mr. McLendon, respectively.
(2) Represents Company 401(k) contributions, life insurance premiums paid by the
Company and reimbursed moving expenses, as follows:
<TABLE>
<CAPTION>
401(K) INSURANCE MOVING
OFFICER CONTRIBUTIONS PREMIUMS EXPENSES
<S> <C> <C> <C>
Robert M. Martin.................................... 3,200 371.40 --
Dana C. McLendon, Jr................................ 3,200 511.80 --
Craig B. Watson..................................... 3,200 412.95 15,000
Timothy S. Hill..................................... 2,376 241.35 --
Neil G. McLean...................................... 2,822 339.10 --
</TABLE>
STOCK OPTION PLAN
Under the Company's Stock Option Plan, as amended (the "Stock Option
Plan"), options to purchase shares of Common Stock are available for grant to
consultants, advisors, directors and employees of the Company, providing an
equity interest in the Company and additional compensation to such grantees
based on appreciation of the value of such stock.
48
<PAGE> 50
The Stock Option Plan allows for options to purchase in the aggregate up to
shares of Company Common Stock to be granted by the Board of
Directors. The Board of Directors may, in its discretion, grant incentive stock
options ("ISO's") or non-qualified stock options.
The Stock Option Plan provides that the exercise price of an ISO option
must not be less than the fair market value of the Common Stock on the trading
day next preceding the date of the grant. The exercise price of a non-qualified
stock option may be determined by the Board of Directors. Payment for shares of
Common Stock to be issued upon exercise of an option may be made either in cash,
Common Stock or any combination thereof, at the discretion of the Board of
Directors. Options are nontransferable, other than by will, the laws of descent
and distribution or pursuant to certain domestic relations orders. Shares
subject to options granted under the Stock Option Plan that expire, terminate or
are canceled without having been exercised in full become available again for
option grants. Shares acquired pursuant to the exercise of an option, if
repurchased by the Company, will again become available for option grants.
The Stock Option Plan is administered by the Board of Directors, or, at the
discretion of the Board of Directors, a committee of directors. Subject to
certain limitations, the Board and its committee have the authority to determine
the recipients, as well as the exercise prices, exercise periods, length and
other terms of stock options granted pursuant to the Stock Option Plan. In
making such determinations, the Board may take into account the nature of the
services rendered or to be rendered by option recipients, and their past,
present or potential contributions to the Company.
The number of shares of Common Stock that may be granted under the Stock
Option Plan or under any outstanding options granted thereunder will be
proportionately adjusted, to the nearest whole share, in the event of any stock
dividend, stock split, share combination or similar recapitalization involving
the Common Stock or any spin-off, spin-out or other significant distribution of
the Company's assets to its stockholders for which the Company receives no
consideration.
Generally, in the event an ISO holder is terminated as an employee by
reason of disability or death, the holder or his or her representative may
exercise the option for a period of twelve months following such termination
unless the Board of Directors elects, in its sole discretion, to extend the
exercise period. In the event the ISO holder is terminated as an employee for
any reason other than disability, death or cause, the holder may exercise his or
her option for a period of three months following termination, unless extended
by agreement of the Company. The Board of Directors may, but need not, cause
ISOs to provide that if the employment of an ISO holder is terminated for
"cause," as defined in the Stock Option Plan, the unexercised options expire.
Unless stated otherwise in a non-qualified stock option agreement, for a
period of 60 days following the date the employment of a non-qualified stock
option holder terminates, the Company has the right to purchase such
participant's vested options at a price equal to the difference between the
exercise price of such options and the fair market value of the underlying
shares of Common Stock.
No federal income tax consequences occur to either the Company or the
optionee upon the Company's grant or issuance of a non-qualified stock option.
Upon an optionee's exercise of a non-qualified stock option, the optionee will
recognize ordinary income in an amount equal to the difference between the fair
market value of the Common Stock purchased pursuant to the exercise of the
option and the exercise price of the option. However, if the Common Stock
purchased upon exercise of the option is not transferable or is subject to a
substantial risk of forfeiture, then the optionee will not recognize income
until the stock becomes transferable or is no longer subject to such a risk of
forfeiture (unless the optionee makes an election under Internal Revenue Code
Section 83(b) to recognize the income in the year of exercise, which election
must be made within 30 days of the option exercise). The Company will be
entitled to a deduction in an amount equal to the ordinary income recognized by
the optionee in the year in which such income is recognized by the optionee.
Upon a subsequent disposition of the shares of Common Stock, the optionee will
recognize a capital gain to the extent the sales proceeds exceed the optionee's
cost of the shares plus the previously recognized ordinary income.
Options granted under the Stock Option Plan are intended to qualify for
favorable tax treatment under Internal Revenue Code Section 422. No individual
may be granted incentive stock options under the Stock Option Plan exercisable
for the first time during any calendar year and having an aggregate fair market
value
49
<PAGE> 51
in excess of $100,000. If the recipient of an incentive stock option disposes of
the underlying shares before the end of certain holding periods (essentially the
later of one year after the exercise date or two years after the grant date), he
or she will generally recognize ordinary income in the year of disposition in an
amount equal to the difference between his or her purchase price and the fair
market value of the Common Stock on the exercise date. If a disposition does not
occur until after the expiration of the holding periods, the recipient will
generally recognize a capital gain equal to the excess of the disposition price
over the price paid by tax deduction for compensation expense on account of the
original sales to employees, but may be entitled to deduction if a participant
disposes of stock received upon exercise of an incentive stock option under the
Stock Option Plan prior to the expiration of the holding periods.
As of , 1998, the Board of Directors has granted options to
purchase shares under the Stock Option Plan; of which were
granted to Mr. Martin, each to Mr. McLendon and Mr. Watson and
each to Mr. Hill and Mr. McLean.
EMPLOYEE STOCK PURCHASE PLAN
The Company has established an Employee Stock Purchase Plan ("Employee
Stock Purchase Plan") for employees and reserved an aggregate of
shares of Common Stock for issuance thereunder. Pursuant to the Employee Stock
Purchase Plan, eligible employees may use payroll deductions to purchase shares
of Common Stock at a price equal to 85% of the closing price of the stock as
reported in The Wall Street Journal on either the first trading day or the last
trading day of each plan year, whichever is lower. At the end of each plan year,
funds accumulated in the employee's account will be used to purchase the maximum
number of shares of the Common Stock at the above price. The Company makes no
contribution to the purchase price.
All employees (including officers and directors) may elect to participate
in the Employee Stock Purchase Plan if they meet minimum employment
requirements. The maximum payroll deduction is 10% of an employee's normal pay.
Participating employees' rights under the Employee Stock Purchase Plan are
nontransferable. Prior to the end of a plan year, a participant may elect to
withdraw from the Employee Stock Purchase Plan and the amount accumulated as a
result of such employee's payroll deductions shall be returned to the
withdrawing employee without interest. Any employee whose employment with the
Company is terminated for any reason other than death, retirement or long-term
disability immediately ceases to be a participant and also receives the balance
of his or her prior contributions. In the event an employee dies, retires or
becomes long-term disabled during a plan year, such employee or their legal
representative may withdraw such employee's contribution account balance. In the
event such withdrawal election is not timely made, such employee's account
balance will be used to purchase Common Stock in accordance with the employee
stock purchase plan.
In no event may a participant in the Employee Stock Purchase Plan purchase
thereunder during a calendar year, Common Stock having a fair market value more
than $25,000. The Company intends to register the shares issued under the
Employee Stock Purchase Plan so that the shares purchased pursuant to the
Employee Stock Purchase Plan are freely tradeable, except for any shares held by
an "affiliate" of the Corporation, which would be subject to the limitations of
Rule 144 under the Securities Act.
401(K) PLAN
The Company and its affiliates offer a 401(k) Plan for all eligible
employees who are over 20 1/2 years of age and have six months service with the
Company. The Company may make matching discretionary contributions and the Board
of Directors has authorized a matching contribution for 1997 of 100% of each
participant's contributions up to a maximum two percent of each participant's
annual gross wages. No employee may contribute more than 20% of wages to the
401(k) Plan, and for 1997 are limited to a contribution of no more than $9,500.
Pursuant to certain tax requirements certain "highly compensated" employees may
be further limited in the amount of contribution. Matching funds vest in the
participant's account over a period of five years of vesting service. A total of
$115,482 was contributed to the Plan as matching contributions for 1997.
50
<PAGE> 52
NON-COMPETE AND SEVERANCE AGREEMENTS
In 1995, the Company entered into Employment Agreements with each of Mr.
Martin, Mr. McLendon, Mr. Watson, Mr. Hill and Mr. McLean that included
non-compete and severance provisions. As of July , 1998, the Company and each
of the above executives replaced the Employment Agreements with Non-Compete and
Severance Agreements. The Non-Compete and Severance Agreements prohibit the
executive from (i) competing with the Company in any venture involving the
ownership or management of for-profit general acute care hospitals, (ii)
soliciting the Company's employees, or (iii) interfering with the Company's
business, in each case for a period of time following termination of employment
equal to the period during which the executive is entitled to severance;
provided that the severance provisions do not apply in the case of termination
due to death, disability, or for cause (as defined in the Non-Compete and
Severance Agreement). The non-compete and severance period for each of Mr.
Martin and Mr. McLendon is 24 months and for each of Mr. Watson, Mr. Hill, and
Mr. McLean is 12 months.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SERIES A PREFERRED STOCK
The Company has 250,000 shares of Series A Preferred Stock issued and
outstanding which will be exchanged for the right to receive approximately $26.0
million in cash (as of June 22, 1998) in the Reincorporation from the net
proceeds of the Offering. WCAS and its affiliates and certain executive officers
of the Company own all 250,000 shares of Series A Preferred Stock. Holders of
Series A Preferred Stock are entitled to receive dividends at the rate of $7.00
per share per annum. The dividends are cumulative and accrue from date of issue
and equaled $617,000 as of March 31, 1998. Pursuant to the Reincorporation, WCAS
will receive $24.3 million; WCAS Healthcare Partners, L.P. will receive
approximately $382,000; Mr. Martin will receive approximately $51,200; Mr.
McLendon will receive approximately $51,200; Mr. Watson will receive
approximately $25,600; Mr. Hill will receive approximately $7,700; Mr. McLean
will receive approximately $25,600; Mr. Hoover will receive approximately
$25,400; and Mr. Stowe will receive approximately $76,400. Mr. Martin and Mr.
McLendon are limited partners of WCAS Healthcare Partners, L.P. See "Use of
Proceeds."
SERIES B PREFERRED STOCK
The Company has 235,000 shares of Series B Preferred Stock issued and
outstanding. The Series B Preferred Stock held by WCAS will be exchanged for an
aggregate of shares of Common Stock and shares of Non-Voting Common Stock
and Series B Preferred Stock held by persons other than WCAS will be exchanged
for an aggregate shares of Common Stock. WCAS and its affiliates and certain
executive officers of New American own all 235,000 shares of Series B Preferred
Stock.
REGISTRATION RIGHTS AGREEMENT
In connection with the original investment in the Company by WCAS in
December 1995, WCAS and certain of its affiliates (the "Purchasers") and certain
executive officers of the Company (the "Stockholders") entered into a
Registration Rights Agreement. The Registration Rights Agreement provides for
demand registration rights for the Purchasers and the Stockholders. These demand
registration rights can be exercised (subject to certain restrictions) by either
(i) a majority of the Purchasers on up to two occasions, or (ii) a majority of
the Stockholders on only one occasion. Notwithstanding the foregoing, the
Registration Rights Agreement provides for unlimited demand registration rights
for the Purchasers and the Stockholders with respect to registrations on Form
S-3 (if the Company is entitled to use Form S-3), so long as the reasonably
anticipated aggregate price to the public of such offering is at least $1.5
million. Demand registrations under this agreement on Form S-3 are limited to
once every 180 days. Certain other conditions also must be met before the
Company may be required to honor a demand registration request by the
Stockholders or Purchasers. The Company is required to pay all expenses of any
registration pursuant to the Registration Rights Agreement, subject to certain
limitations provided in the agreement.
51
<PAGE> 53
The Registration Rights Agreement also provides that, subject to certain
limitations including the discretion of the managing underwriter in an
underwritten offering, the Purchasers and Stockholders may request inclusion of
their shares in a registration of securities by the Company. If a Purchaser or
Stockholder does not elect to participate in such an underwritten offering, such
a holder may sell his stock on or after the 90th day following the effective
date of the registration statement or, if later, on or after the expiration of
any contractual "lockup" provisions imposed by the underwriters. Such "lockup"
provisions cannot exceed 180 days. All of the parties to the Registration Rights
Agreement have waived any right to participate in this Offering except that WCAS
will sell up to Shares in the event the underwriters exercise their over-
allotment option.
STOCKHOLDERS' AGREEMENT
In connection with the original investment in the Company by WCAS in
December 1995, WCAS and certain of its affiliates ("WCAS Stockholders") as well
as the executive officers that were stockholders at that time ("Founder
Stockholders") entered into a Stockholders' Agreement (the "Stockholders'
Agreement"). During the term of the Stockholders' Agreement, the WCAS
Stockholders and the Founder Stockholders agree to vote their shares of Common
Stock and to use their best efforts to elect up to seven Directors; (i) two of
whom shall be designated by a majority in interest of the Founder Stockholders
(so long as the Founder Stockholders in the aggregate own a designated amount of
Stock), (ii) two of whom shall be designated by a majority in interest of the
WCAS Stockholders (so long as the WCAS Stockholders in the aggregate own a
designated amount of Stock), and (iii) up to three of whom shall be individuals
mutually agreed on and nominated for Stockholder approval by the Founder
Stockholders' and the WCAS Stockholders' designees described above. None of the
mutually agreed on Directors described in (iii) above may be nominated unless
there are an equal number of Founder Stockholder designees and WCAS designees
present. Once elected, no Founder Stockholder Designee or WCAS Stockholder
Designee shall be removed without the approval of a majority in interest of the
Founder Stockholders or the WCAS Stockholders, as the case may be.
WCAS reserves the right to sell any or all of its Stock to any person at
any time, but it agrees to endeavor, when practicable, in its sole discretion,
to notify the Founder Stockholders in advance if WCAS decides to make such a
sale in order to allow the Founder Stockholders to consider acquiring the Shares
to be sold. The Stockholders' Agreement also provides for Co-Sale Rights
pursuant to which if WCAS proposes to reduce its Common Stock and Series B
Preferred Stock holdings below a certain amount, WCAS shall give New American a
written notice describing the proposed terms of the disposition. The
Stockholders' Agreement shall terminate in its entirety upon the consummation of
the Offering.
RESTRICTED STOCK AGREEMENT
In connection with the initial capitalization of the Company, certain
executive officers of the Company entered into a Restricted Stock Agreement in
December 1995 with respect to the shares of the Company's common stock held by
such officers. Under the Restricted Stock Agreement, the officers' common stock
vests over a period of four years beginning in September 1995. Unvested shares
are subject to repurchase by the Company if the officers' employment with the
Company terminates for any reason. The Restricted Stock Agreement provides that
upon a "change of control" (as defined in the Restricted Stock Agreement) all
unvested shares become vested and no longer subject to the Company's repurchase
rights. As of , 1998, shares of Common Stock remain subject
to restrictions.
In June 1998, the Restricted Stock Agreement was amended to, among other
things, provide for accelerated vesting upon an officers' death or disability.
SUBORDINATED DEBT
On January 30, 1998, WCAS CP III loaned the Company $25.0 million pursuant
to a subordinated note. The Subordinated Debt bears interest at 10% and is due
January 30, 2008 with interest payable semiannually in arrears on June 30 and
December 31 of each year commencing June 30, 1998. Upon New American's written
notice to WCAS CP III at least 10 days, and no more than 60 days, in advance,
New American may
52
<PAGE> 54
prepay all or any portion of the Subordinated Debt. The Company intends to pay
off the Subordinated Debt and accrued interest in full with the proceeds of this
Offering. See "Use of Proceeds."
The Company is required to make certain mandatory prepayments of the
Subordinated Debt in the event that certain prepayments of senior debt are
required under the Credit Agreement. In addition, a prepayment is required if at
any time while the Subordinated Debt is outstanding, (i) the Company merges or
consolidates with or into another entity (subject to certain exceptions), or
(ii) the Company sells or otherwise disposes of substantially all of its assets
to a third-party, or (iii) a third-party purchaser acquires a majority of the
Company's outstanding capital stock. In such event, as a condition to
consummating such sale of the Company, New American shall take such action as is
necessary to obtain consent and to provide funds sufficient to prepay the
Subordinated Debt in full.
WARRANT
In connection with the Subordinated Debt, the Company issued a warrant to
purchase Common Stock of the Company (the "Warrant"). The Warrant entitles WCAS
CP III to purchase up to shares (number subject to adjustment) of the
Common Stock at $ per share (price subject to adjustment). The Warrant
expires January 30, 2008 and is not exercisable as to fractional shares of
Common Stock. The provisions of the Registration Rights Agreement described
above are applicable to the registration of the shares issuable upon exercise of
the Warrant.
WCAS CP III may make payment in respect of the Warrant's exercise by (i)
cash or check, (ii) surrender to the Company of any of the Subordinated Debt (or
any other obligations issued by the Company), (iii) delivery to the Company of
any other securities issued by New American, (iv) an election to receive shares
having an aggregate fair market value equal to the Warrant's fair market value,
upon which election the Company will issue shares of Common Stock to the holder
("Net Issue Exercise"), or (v) any combination of the other four payment
methods.
In the event the Company issues or sells any shares of Common Stock or
securities convertible into Common Stock or grants options or other rights at a
price per share or with an exercise or conversion price per share less than the
Warrant's exercise price, the Warrant's exercise price shall be reduced
according to a formula set forth in the Warrant. In addition, the Warrant
includes provisions for the following events: change in option price or
conversion rate; stock dividend declaration; issuance or sale of common stock,
options or convertible securities for cash; record date determination;
disposition of Treasury Shares; subdivision or combination of stock; and
adjustment of Warrant provisions by New American's Board of Directors. The
Warrant's exercise price shall not be adjusted in the case of (i) issuance of
shares of Common Stock upon conversion of the Series B Convertible Preferred
Stock or (ii) issuance of Common Stock reserved for issuance to New American's
employees.
If (i) any capital reorganization or reclassification of New American's
capital stock, (ii) any consolidation or merger of New American, or (iii) a sale
of substantially all of New American's assets is effected in such a way as to
entitle holders of Common Stock to receive stock, securities or assets with
respect to or in exchange for Common Stock, then each Warrant holder shall have
the right to receive in lieu of such shares of Common Stock such shares of
stock, securities, or assets (including cash) as would have been issued or
payable in exchange for the stock had the reorganization, reclassification,
consolidation, merger or sale not taken place.
53
<PAGE> 55
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of , 1998 and immediately following
the Offering by: (i) each person who is known by the Company to own beneficially
more than five percent of the Common Stock; (ii) each director and Named
Executive Officer of the Company; and (iii) all directors and executive officers
of the Company as a group. To the knowledge of the Company, each of the persons
named in the table has sole voting and investment power as to the shares shown
unless otherwise noted. Unless otherwise noted, the address of each holder of
five percent or more of the Common Stock is the Company's corporate address.
Footnote 3 also sets forth certain information with respect to the beneficial
ownership of the Selling Stockholder, assuming the Underwriters exercise their
over-allotment option in full.
<TABLE>
<CAPTION>
PERCENTAGE OF
BENEFICIAL OWNERSHIP
SHARES -------------------------
BENEFICIALLY BEFORE AFTER
NAME OWNED OFFERING(1) OFFERING(1)
<S> <C> <C> <C>
Welsh, Carson, Anderson & Stowe VII, L.P.(2)(3).............
Robert M. Martin(4).........................................
Dana C. McLendon, Jr.(5)....................................
Craig B. Watson(6)..........................................
Timothy S. Hill(7)..........................................
Neil G. McLean(8)...........................................
Richard H. Stowe(9).........................................
James B. Hoover.............................................
David A. Jensen(10).........................................
Jeptha W. Dalston(11).......................................
Paul B. Queally(9)..........................................
All directors and officers as a group (11 persons)(12)......
</TABLE>
- ------------------------------
* Indicates less than one percent
(1) The percentages shown are based on shares of Common Stock
outstanding prior to the Offering and shares of Common Stock
(including Non-Voting Common Stock) outstanding after the Offering. Pursuant
to Rule 13d-3 under the Securities Exchange Act of 1934 (the "Exchange
Act"), shares of Common Stock which a person has the right to acquire
pursuant to the exercise of stock options and warrants held by such holder
that are exercisable within sixty (60) days of such date are deemed
outstanding for the purpose of computing the percentage ownership of such
person, but are not deemed outstanding for computing the percentage
ownership of any other person.
(2) Includes shares of Common Stock by WCAS Healthcare Partners, L.P., a
warrant to purchase shares of Common Stock held by WCAS CP III and
shares of Non-Voting Common Stock held by WCAS. WCAS Healthcare Partners,
L.P. is a limited partnership with two general partners: Russell L. Carson
and Patrick J. Welsh. Welsh, Carson, Anderson & Stowe VII, L.P. is a limited
partnership with twelve general partners which include both Mr. Carson and
Mr. Welsh. WCAS CP III is a limited partnership with ten general partners
which also include both Mr. Carson and Mr. Welsh.
(3) If the Underwriters exercise their over-allotment option in full, Welsh,
Carson, Anderson & Stowe VII, L.P. would sell shares of Common
Stock and would beneficially own shares ( %) of the Common Stock
outstanding.
(4) Includes restricted shares pursuant to a restricted stock
agreement.
(5) Includes restricted shares pursuant to a restricted stock
agreement.
(6) Includes restricted shares pursuant to a restricted stock
agreement.
(7) Includes restricted shares pursuant to a restricted stock
agreement.
(8) Includes restricted shares pursuant to a restricted stock
agreement.
(9) Includes those shares held directly and indirectly by WCAS. See footnote 2.
Mr. Stowe and Mr. Queally are each a director of the Company. Mr. Stowe and
Mr. Queally are both general partners of WCAS. Mr. Stowe and Mr. Queally
each disclaim beneficial ownership of the shares owned by WCAS.
(10) Includes shares issuable upon exercise of options at $ per
share.
(11) Includes shares issuable upon exercise of options at $ per
share.
(12) Includes shares issuable upon exercise of options and
shares restricted pursuant to the restricted stock agreement.
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<PAGE> 56
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, par value $0.01 per share, shares of non-voting Common
Stock, par value $0.01 per share ("Non-Voting Common Stock") and shares
of Preferred Stock, par value $0.01 per share. Upon the completion of the
Reincorporation, there were shares of Common Stock, shares of
Non-Voting Common Stock and no shares of Preferred Stock outstanding. Upon
completion of the Offering and after giving effect to the use of proceeds
therefrom, shares of Common Stock will be issued and outstanding,
shares of Non-Voting Common Stock will be issued and outstanding and no shares
of Preferred Stock will be outstanding. The following summary of certain
provisions of the Company's capital stock describes all material provisions of,
but does not purport to be complete, and is subject to, and qualified in its
entirety by, the Certificate of Incorporation and the Bylaws of the Company that
are included as exhibits to the Registration Statement of which this Prospectus
forms a part and by the provisions of applicable law.
COMMON STOCK
The issued and outstanding shares of Common Stock are, and the shares of
Common Stock being offered will be upon payment therefor, validly issued, fully
paid and nonassessable. Subject to the prior rights of the holders of any
Preferred Stock, the holders of outstanding shares of Common Stock are entitled
to receive dividends out of assets legally available therefor at such time and
in such amounts as the Board of Directors may from time to time determine. See
"Dividend Policy." The shares of Common Stock are not redeemable or convertible,
and the holders thereof have no preemptive or subscription rights to purchase
any securities of the Company. Upon liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive pro rata the
assets of the Company that are legally available for distribution after payment
of all debts and other liabilities and subject to the prior rights of any
holders of Preferred Stock then outstanding. Each outstanding share of Common
Stock is entitled to vote on all matters submitted to a vote of stockholders.
Application has been made to list the Common Stock for trading on the NYSE
under the symbol "NAH."
NON-VOTING COMMON STOCK
The issued and outstanding shares of Non-Voting Common Stock are held by
WCAS and its affiliates and are validly issued, fully paid and nonassessable.
Subject to the prior rights of the holders of any Preferred Stock, and on a pro
rata basis with the holders of Common Stock, the holders of outstanding shares
of Non-Voting Common Stock are entitled to receive dividends out of assets
legally available therefor at such time and in such amounts as the Board of
Directors may from time to time determine. See "Dividend Policy." The shares of
Non-Voting Common Stock are convertible into Common Stock at any time provided
that WCAS and its affiliates will not own 50% or more of the Common Stock after
such conversion. In the event WCAS or its affiliates sell any Non-Voting Common
Stock to third parties, such shares shall automatically convert to Common Stock.
The holders of Non-Voting Common Stock have no preemptive or subscription rights
to purchase any securities of the Company. Upon liquidation, dissolution or
winding up of the Company, and on a pro rata basis with the holders of Common
Stock, the holders of Non-Voting Common Stock are entitled to receive pro rata
the assets of the Company that are legally available for distribution after
payment of all debts and other liabilities and subject to the prior rights of
any holders of Preferred Stock then outstanding. Holders of outstanding shares
of Non-Voting Common Stock will not be entitled to vote such shares on any
matter submitted to a vote of stockholders.
PREFERRED STOCK
The Board may, without any further vote or action by the Company's
stockholders, from time to time, direct the issuance of shares of Preferred
Stock in one or more series with such designations, rights, preferences and
limitations as the Board may determine, including the consideration received
therefor. The Board also has the authority to determine the number of shares
comprising each series, dividend rates,
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redemption provisions, liquidation preferences, sinking fund provisions,
conversion rights and voting rights without the approval by the holders of
Common Stock. Although it is not possible to state the effect that any issuance
of Preferred Stock will have on the rights of holders of Common Stock, the
issuance of Preferred Stock may have one or more of the following effects: (i)
to restrict Common Stock dividends if Preferred Stock dividends have not been
paid; (ii) to dilute the voting power and equity interest of holders of Common
Stock to the extent that any series of Preferred Stock has voting rights or is
convertible into Common Stock; or (iii) to prevent current holders of Common
Stock from participating in the distribution of the Company's assets upon
liquidation until any liquidation preferences granted to holders of Preferred
Stock are satisfied. In addition, the issuance of Preferred Stock may, under
certain circumstances, have the effect of discouraging a change in control of
the Company by, for example, granting voting rights to holders of Preferred
Stock that require approval by the separate vote of the holders of Preferred
Stock for any amendment to the Company's Certificate of Incorporation or any
reorganization, consolidation, merger or other similar transaction involving the
Company. As a result, the issuance of the Preferred Stock may discourage bids
for the Common Stock at a premium over the market price therefor, and could have
a materially adverse effect on the market value of the Common Stock. Upon
consummation of the Offering and the redemption in full of the Senior Preferred
Stock and conversion of the Junior Preferred Stock, there will be no shares of
Preferred Stock outstanding. The Board of Directors does not presently intend to
issue any shares of Preferred Stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
BYLAWS
General. Certain provisions of the Certificate of Incorporation and Bylaws
could discourage potential acquisition proposals and could delay or prevent a
change in control of the Company. These provisions are intended to enhance the
likelihood of continuity and stability in the composition of the Board of
Directors and in the policies formulated by the Board of Directors and to
discourage certain types of transactions that may involve an actual or
threatened change of control of the Company. These provisions are designed to
reduce the vulnerability of the Company to an unsolicited acquisition proposal
and to discourage certain tactics that may be used in proxy fights. However,
such provisions may discourage third parties from making tender offers for the
Company's shares. As a result, the market price of the Common Stock may not
benefit from any premium which might occur in anticipation of a threatened or
actual change in control. Such provisions also may have the effect of preventing
changes in the management of the Company. See "Risk Factors -- Antitakeover
Provisions; Possible Issuance of Preferred Stock." For purposes of the following
discussion, the term "Company" refers only to New American.
Board of Directors. The Certificate of Incorporation and Bylaws provide
for the Board of Directors of the Company to be divided into three classes, as
nearly equal in number as possible. The term of the Class I directors will
expire at the 1999 annual meeting of stockholders; the term of the Class 2
directors will expire at the 2000 annual meeting of stockholders; and the term
of the Class 3 directors will expire at the 2001 annual meeting of stockholders
(and in all cases when their respective successors are duly elected and
qualified). At each annual meeting of stockholders, successors to the class of
directors whose term expires at such meeting will be elected to serve for
three-year terms or until their successors are duly elected and qualified.
Directors may be removed by the stockholders only for cause. See
"Management -- Executive Officers and Directors."
The Certificate of Incorporation and Bylaws provide that the Board of
Directors shall consist of no less than six nor more than fifteen members
(except that such maximum number may be increased from time to time to reflect
the rights of holders of Preferred Stock) with the actual number set from time
to time by resolution adopted by a majority of the Board of Directors. Upon the
closing of the Offering, the Board of Directors will consist of seven members.
The Certificate of Incorporation and the Bylaws provide that the Board of
Directors is authorized to create additional directorships (up to the maximum
number permitted) and to elect additional directors thereto to serve for the
full term of the class of directors in which such directorship was created. The
provisions of the DGCL, the Certificate of Incorporation and the Bylaws relating
to the removal of directors and the filling of vacancies on the Board of
Directors will preclude a third party from removing incumbent directors without
cause and simultaneously gaining control of the Board of Directors by filling,
with its own nominees, the vacancies created by removal. These provisions also
reduce the
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power of stockholders generally, even those with a majority voting power in the
Company, to remove incumbent directors without cause and to fill vacancies on
the Board of Directors.
Stockholder Action and Special Meetings. The Certificate of Incorporation
and Bylaws provide that any action of the Common stockholders must he effected
at a duly called meeting and not by a consent in writing.
The Bylaws do not permit stockholders of the Company to call special
meetings of stockholders. A special meeting of stockholders may only be called
by the President or the Board of Directors.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Bylaws establish an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election as directors (the "Nomination
Procedure") as well as for other stockholder proposals to be considered at
stockholders' meetings. Notice to the Company from a stockholder who proposes to
nominate a person at a meeting for election as a director must contain: (i) the
name and residence address of the stockholder who intends to make the nomination
and the name, age and address of the nominee; (ii) the principal occupation and
business address of the nominee; (iii) the class and number of shares held of
record, beneficially and by proxy, by the stockholder and the nominee as of the
record date of such meeting (if such record date is publicly available) and as
of the date of such notice; and (iv) such other information regarding each
nominee proposed by such stockholder as would be required to be included in a
proxy statement or otherwise required pursuant to Regulation 14A under the
Exchange Act, including the consent of each nominee to serve as a director of
the Company if so elected. The presiding officer of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
Nomination Procedure. The purpose of requiring advance notice is to afford the
Board of Directors an opportunity to consider the qualifications of the proposed
nominees or the merits of other stockholder proposals and, to the extent deemed
necessary or desirable by the Board of Directors, to inform stockholders about
those matters. Although the advance notice provisions do not give the Board of
Directors any power to approve or disapprove of stockholder nominations or
proposals for action by the Company, they may have the effect of precluding a
contest for the election of directors or the consideration of stockholder
proposals if the procedures established by the Bylaws are not followed and of
discouraging or deterring a third party from conducting a solicitation of
proxies to elect its own slate of directors or to approve its own proposals,
without regard to whether consideration of such nominees or proposals might be
harmful or beneficial to the Company and its stockholders.
Amendment of the Certificate of Incorporation. The Certificate of
Incorporation requires the affirmative vote of the holders of at least 70% of
the outstanding shares of the Company's capital stock entitled to vote thereon
and 70% of the members of the Board of Directors in order to amend certain of
its provisions. These voting requirements will make it more difficult for
stockholders to make changes in the Certificate of Incorporation which would be
designed to facilitate the exercise of control over the Company. In addition,
the requirement for approval by at least a 70% stockholder vote will enable the
holders of a minority of the voting securities of the Company to prevent the
holders of a majority or more of such securities from amending these provisions
of the Certificate of Incorporation.
DELAWARE TAKEOVER STATUTE
The Company is subject to Section 203 of the DGCL ("Section 203") which,
subject to certain exceptions, prohibits a Delaware corporation from engaging in
any business combination with an interested stockholder for a period of three
years following the date that such stockholder became an interested stockholder,
unless: (i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder; (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those shares owned
(x) by persons who are directors and also officers, and (y) by employee stock
plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) on or subsequent to such date the
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<PAGE> 59
business combination is approved by the board of directors and authorized at an
annual or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 70% of the outstanding voting stock which is not
owned by the interested stockholder.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such an entity or person. Section 203 defines business combination
to include: (i) any merger or consolidation involving the corporation and the
interested stockholder; (ii) any sale, transfer, pledge or other disposition
involving the interested stockholder of 10% or more of the assets of the
corporation; (iii) subject to certain exceptions, any transaction which results
in the issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder; (iv) any transaction involving the corporation
which has the effect of increasing the proportionate share of the stock of any
class or series of the corporation beneficially owned by the interested
stockholder; or (v) the receipt by the interested stockholder of the benefit of
any loans, advances, guarantees, pledges or other financial benefits provided by
or through the corporation.
LIMITATION ON DIRECTORS' LIABILITY
The DGCL permits corporations to limit or terminate the personal liability
of directors to corporations and their stockholders for monetary damages for
breach of the directors' fiduciary duties of care. The duty of care requires
that, when acting on behalf of the corporation, directors must exercise informed
business judgment based on all material information reasonably available to
them. Absent the limitations now authorized by such legislation, directors are
accountable to corporations and their stockholders for monetary damages for
conduct constituting gross negligence in the exercise of their fiduciary duties
of care. Although the DGCL does not change the directors' duties of care, it
enables corporations to limit available relief to equitable remedies such as
injunction or rescission.
The Certificate of Incorporation limits the liability of directors (in
their capacity as directors but not in their capacity as officers) to the
Company or its stockholders to the fullest extent permitted by the DGCL, as so
amended. Specifically, no director of the Company will be personally liable for
monetary damages for breach of the director's fiduciary duty as a director,
except for liability: (i) for any breach of the director's duty of loyalty to
the Company or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the DGCL, which relates to unlawful payments of dividends or
unlawful stock repurchases or redemptions; or (iv) for any transaction from
which the director derived an improper personal benefit. The inclusion of this
provision in the Certificate of Incorporation may have the effect of reducing
the likelihood of derivative litigation against directors, and may discourage or
deter stockholders or management from bringing a lawsuit against directors for
breach of their duty of care, even though such an action, if successful, might
otherwise have benefitted the Company and its stockholders. See "Management."
INDEMNIFICATION AND INSURANCE
Under the Certificate of Incorporation, and in accordance with Section 145
of the DGCL, the Company will indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than a "derivative" action by or in the right of the Company) by reason
of the fact that such person is or was a director or officer of the Company,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement in connection with such action, suit or proceeding if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe was unlawful.
A similar standard of care is applicable in the case of derivative actions,
except that indemnification only extends to expenses (including attorneys' fees)
incurred in connection with the defense or settlement of such an action and
then, where the person is adjudged lobe liable to the Company, only if and to
the extent that the Court of Chancery of the Slate of Delaware or the court in
which such action was brought determines that such person is fairly and
reasonably entitled to such indemnity and then only for such expenses as the
court deems proper.
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The Certificate of Incorporation provides that the Company will pay for the
expenses incurred by an indemnified director or officer in defending the
proceedings specified above in advance of their final disposition, provided
that, if the DGCL so requires, such person agrees to reimburse the Company if it
is ultimately determined that such person is not entitled to indemnification.
The Certificate of Incorporation so provides that the Company may, in its sole
discretion, indemnify any person who is or was one of its employees and agents
or any person who is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise to the same degree as the foregoing indemnification of
directors and officers. In addition, the Company may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Company or another corporation, partnership, joint venture, trust
or other enterprise against any liability asserted against and incurred by such
person in such capacity, or arising out of the person's status as such whether
or not the Company would have the power or obligation to indemnify such person
against such liability under the provisions of the DGCL. The Company maintains
insurance for the benefit of the Company's officers and directors insuring such
persons against certain liabilities, including liabilities under the securities
laws. See "Management."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is First Union
National Bank of North Carolina.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have shares of
Common Stock outstanding. Of these shares, the shares of Common Stock sold in
the Offering ( shares if the Underwriters' over-allotment option is
exercised in full) will be tradeable without restriction under the Securities
Act, except for any such shares which may be acquired by an "affiliate" of the
Company (an "Affiliate"), as that term is defined in Rule 144 under the
Securities Act, which shares will be subject to the resale limitations of Rule
144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, if a period of at least one year has elapsed since
the later of the date the "restricted securities" (as that phrase is defined in
Rule 144) were acquired from the Company and the date they were acquired from an
Affiliate, then the holder of such restricted securities (including an
Affiliate) is entitled to sell a number of shares within any three-month period
that does not exceed the greater of 1% of the then outstanding shares of the
Common Stock (approximately shares immediately after this Offering) or
the average weekly reported volume of trading of the Common Stock on the NYSE
during the four calendar weeks preceding such sale. The holder may only sell
such shares through unsolicited brokers' transactions. Sales under Rule 144 are
also subject to certain requirements pertaining to the manner of such sales,
notices of such sales and the availability of current public information
concerning the Company. Affiliates may sell shares not constituting restricted
shares in accordance with the foregoing volume limitations and other
requirements but without regard to the one-year period. Commencing 90 days after
the completion of the Offering, shares of Common Stock will be
eligible for sale in the public market under Rule 144, subject to the volume
limitations and other requirements described above, without consideration of the
contractual restrictions described below.
Under Rule 144(k), if a period of at least two years has elapsed between
the later of the date restricted shares were acquired from the Company or the
date they were acquired from an Affiliate, as applicable, a holder of such
restricted shares who is not an Affiliate at the time of the sale and has not
been an Affiliate for at least three months prior to the sale would be entitled
to sell the shares immediately without regard to the volume limitations and
other conditions described above. Ninety days after the date of this Prospectus,
shares of Common Stock will be eligible for sale without restriction
under Rule 144(k).
Notwithstanding the foregoing, the Company, its executive officers and
directors, and the holders of shares of Common Stock outstanding
immediately have agreed that for a period of 180 days after the date of the
Offering they will not, without the prior written consent of Donaldson, Lufkin &
Jenrette
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Securities Corporation, offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock except pursuant to the Underwriting Agreement. Of
the approximately shares of Common Stock otherwise eligible for sale
as discussed above, shares are subject to such agreements.
Prior to the offering there has been no market for the Common Stock. The
Company can make no predictions as to the effect, if any, that sales of shares
or the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of significant amounts of the Common
Stock in the public market, or the perception that such sales may occur, could
adversely affect prevailing market prices. See "Risk Factors -- Shares Eligible
for Future Sale; Registration Rights."
STOCK OPTIONS
At , 1998, options to purchase a total of shares of
Common Stock pursuant to the Company's Stock Option Plan were outstanding. Of
the shares subject to options, are subject to lock-up agreements. Upon
completion of this Offering, an additional shares of Common Stock will
be available for future option grants under the Company's Stock Option Plan. The
Company intends to file a registration statement on Form S-8 under the
Securities Act to register shares of Common Stock subject to outstanding stock
options and Common Stock issuable pursuant to the Option Plan, with respect to
options that were granted, or are to be granted, to employees of the Company.
The Company expects to file these registration statements promptly following the
consummation of this Offering, and such registration statements are expected to
become effective upon filing. Shares covered by these registration statements
will thereupon be eligible for sale in the public markets, subject to the
lock-up agreements, to the extent applicable.
REGISTRATION RIGHTS AGREEMENT
Following the consummation of this Offering and subject to the lock-up
agreements, certain stockholders will be entitled to require the Company to
register under the Securities Act a total of shares of outstanding
Common Stock (the "Registrable Shares"). In addition, in the event the Company
proposes to register any of its securities under the Securities Act, either for
its own account or for the account of a security holder, such stockholders may
be entitled to include the Registrable Shares in such registration, subject to
certain limitations on the number of shares to be included in the registration
by the underwriter of such Offering. See "Certain Relationships and Related
Transactions -- Registration Rights Agreement."
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UNDERWRITING
Subject to the terms and certain conditions contained in the Underwriting
Agreement dated , 1998 (the "Underwriting Agreement"), the
underwriters named below, who are represented by Donaldson, Lufkin & Jenrette
Securities Corporation, Bear, Stearns & Co. Inc., Credit Suisse First Boston and
SunTrust Equitable Securities Corporation (the "Representatives"), have
severally agreed to purchase from the Company the respective number of shares of
Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
Bear, Stearns & Co. Inc.....................................
Credit Suisse First Boston Corporation......................
SunTrust Equitable Securities Corporation...................
---------
Total.............................................
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, to certain
other dealers a concession not in excess of $ per share. After the initial
offering of the Common Stock, the public offering price and other selling terms
may be changed by the Representatives at any time without notice. The
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The Selling Stockholder has granted to the Underwriters an option,
exercisable within 30 days after the date of this Prospectus, to purchase, from
time to time, in whole or in part, up to an aggregate of additional
shares of Common Stock at the initial public offering price less underwriting
discounts and commissions. The Underwriters may exercise such option solely to
cover overallotments, if any, made in connection with the Offering. To the
extent that the Underwriters exercise such option, each Underwriter will become
obligated, subject to certain conditions, to purchase its pro rata portion of
such additional shares based on such Underwriter's percentage underwriting
commitment as indicated in the preceding table.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
Each of the Company, its executive officers and directors, the Selling
Stockholder and certain stockholders of the Company has agreed, subject to
certain exceptions, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or (ii) enter into any swap
or other arrangement that transfers all or a portion of the economic
consequences associated with the ownership of any Common Stock (regardless of
whether any of the transactions described in clause (i) or (ii) is to be settled
by the delivery of Common Stock, or such other securities, in cash or otherwise)
for a period of 180 days after the date of this Prospectus without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation. In
addition, during such period, the Company has also agreed not to file any
registration statement with respect to, and each of its executive officers,
directors and certain stockholders of the Company has agreed not to make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation.
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<PAGE> 63
Prior to the Offering, there has been no established trading market for the
Common Stock. The initial public offering price for the shares of Common Stock
offered hereby will be determined by negotiation among the Company and the
Representatives. The factors to be considered in determining the initial public
offering price include the history of and the prospects for the industry in
which the Company competes, the past and present operations of the Company, the
historical results of operations of the Company, the prospects for future
earnings of the Company, the recent market prices of securities of generally
comparable companies and the general condition of the securities markets at the
time of the Offering.
Application will be made to list the Common Stock on the NYSE. In order to
meet the requirements for listing the Common Stock on the NYSE, the Underwriters
have undertaken to sell lots of 100 or more shares to a minimum of 2,000
beneficial owners.
Other than in the United States, no action has been taken by the Company,
or the Underwriters that would permit a public offering of the shares of Common
Stock offered hereby in any jurisdiction where action for that purpose is
required. The shares of Common Stock offered hereby may not be offered or sold,
directly or indirectly, nor may this Prospectus or any other offering material
or advertisements in connection with the offer and sale of any such shares of
Common Stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this Prospectus
comes are advised to inform themselves about and to observe any restrictions
relating to the Offering and the distribution of this Prospectus. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any shares of Common Stock offered hereby in any jurisdiction in which such
an offer or a solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the Offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members and selected
dealers if they repurchase previously distributed Common Stock in syndicate
covering transactions, in stabilizing transactions or otherwise. These
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Harwell Howard Hyne Gabbert & Manner, P.C., Nashville,
Tennessee. Certain legal matters will be passed upon for the Underwriters by
Alston & Bird LLP, Atlanta, Georgia.
EXPERTS
The consolidated financial statements and schedule of New American
Healthcare Corporation as of March 31, 1998 and 1997, and for the years ended
March 31, 1998 and 1997 and period August 16, 1995 (inception) through March 31,
1996, have been included herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The financial statements of Doctors Hospital for the period January 1, 1996
through July 31, 1996 and year ended December 31, 1995, have been included
herein and in the registration statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
The financial statements of Center Hospital, Inc. for the year ended April
30, 1997, and period June 28, 1995 through April 30, 1996, have been included
herein and in the registration statement in reliance upon the
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report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of Eastwood Hospital, Inc. for the period January
1, 1997 through May 15, 1997 and years ended December 31, 1996 and 1995, have
been included herein and in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The combined financial statements of Woodland Park Hospital, Eastmoreland
Hospital, Lander Valley Medical Center and Davenport Medical Center for the
periods June 1, 1997 through January 31, 1998, and September 1, 1996 through May
31, 1997, year ended August 31, 1996 and period July 1, 1995 through August 31,
1995, have been included herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The financial statements of Puget Sound Hospital as of March 31, 1998 and
March 31, 1997, and for the ten months ended March 31, 1998, the nine months
ended May 31, 1997, the twelve months ended August 31, 1996 and the three months
ended August 31, 1995, have been included herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-l pursuant to the Securities
Act with respect to the Common Stock offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
items of which are omitted as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
contract, agreement or other document filed with the Registration Statement as
exhibits are necessarily summaries of such documents, and each such statement is
qualified in its entirety by reference to the copy of the applicable document
filed as an exhibit to the Registration Statement. For further information about
the Company and the securities offered hereby, reference is made to the
Registration Statement and to the consolidated financial statements, schedules
and exhibits filed as a part thereof.
Upon completion of the Offering, the Company will be subject to the
information requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, will file reports and other
information with the Commission. The Registration Statement, the exhibits and
schedules forming a part thereof and the reports and other information filed by
the Company with the Commission in accordance with the Exchange Act may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following regional offices of the Commission: 7 World Trade Center, Suite 1300,
New York, New York 10048; and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60661-2511. Copies of such materials or
any part thereof may also be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission also maintains an Internet web site at http://www.sec.gov that
contains reports, proxy statements and other information.
63
<PAGE> 65
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NEW AMERICAN HEALTHCARE CORPORATION
Independent Auditors' Report................................ F-3
Consolidated Balance Sheets as of March 31, 1998 and 1997... F-4
Consolidated Statements of Operations for years ended March
31, 1998 and 1997, and period August 16, 1995 (inception)
through March 31, 1996.................................... F-5
Consolidated Statements of Stockholders' Equity for years
ended March 31, 1998 and 1997, and period August 16, 1995
(inception) through March 31, 1996........................ F-6
Consolidated Statements of Cash Flows for years ended March
31, 1998 and 1997, and period August 16, 1995 (inception)
through March 31, 1996.................................... F-7
Notes to Consolidated Financial Statements.................. F-8
DOCTORS HOSPITAL
Independent Auditors' Report................................ F-19
Statements of Operations for the period January 1, 1996
through July 31, 1996 and the year ended December 31,
1995...................................................... F-20
Statements of Cash flows for the period January 1, 1996
through July 31, 1996 and the year ended December 31,
1995...................................................... F-21
Notes to Financial Statements............................... F-22
CENTER HOSPITAL, INC. (MEMORIAL HOSPITAL OF CENTER)
Independent Auditors' Report................................ F-25
Statements of Operations for the year ended April 30, 1997,
and period June 28, 1995 through April 30, 1996........... F-26
Statements of Cash Flows for the year ended April 30, 1997,
and period June 28, 1995 through April 30, 1996........... F-27
Notes to Financial Statements............................... F-28
EASTWOOD HOSPITAL, INC. (NOW DELTA MEDICAL CENTER --MEMPHIS)
Independent Auditors' Report................................ F-31
Statements of Operation for the period January 1, 1997
through May 15, 1997 and years ended December 31, 1996 and
1995...................................................... F-32
Statements of Cash Flows for the period January 1, 1997
through May 15, 1997 and years ended December 31, 1996 and
1995...................................................... F-33
Notes to Financial Statements............................... F-34
THE HOSPITALS (WOODLAND PARK HOSPITAL, EASTMORELAND
HOSPITAL, LANDER VALLEY MEDICAL CENTER AND DAVENPORT
MEDICAL CENTER)
Independent Auditors' Report................................ F-37
Combined Statements of Operations for the periods June 1,
1997 through January 31, 1998 and September 1, 1996
through May 31, 1997, year ended August 31, 1996 and
period July 1, 1995 through August 31, 1995............... F-38
Combined Statements of Cash Flows for the periods June 1,
1997 through January 31, 1998 and September 1, 1996
through May 31, 1997, year ended August 31, 1996 and
period July 1, 1995 through August 31, 1995............... F-39
Notes to Combined Financial Statements...................... F-40
PSH, INC. (PUGET SOUND HOSPITAL)
Independent Auditors' Report................................ F-45
Balance Sheets as of March 31, 1998 and May 31, 1997........ F-46
</TABLE>
F-1
<PAGE> 66
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Statements of Income for the ten months ended March 31,
1998, nine months ended May 31, 1997 year ended August 31,
1996 and three months ended August 31, 1995............... F-47
Statements of Stockholder's Equity for the ten months ended
March 31, 1998, the nine months ended May 31, 1997, the
twelve months ended August 31, 1996, and the three months
ended August 31, 1995..................................... F-48
Statements of Cash Flows for the ten months ended March 31,
1998, the nine months ended May 31, 1997, the twelve
months ended August 31, 1996, and the three months ended
August 31, 1995........................................... F-49
Notes to Financial Statements............................... F-50
</TABLE>
F-2
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
The Board of Directors
New American Healthcare Corporation:
We have audited the accompanying consolidated balance sheets of New
American Healthcare Corporation and subsidiaries (the Company), as of March 31,
1998 and 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended March 31, 1998 and 1997,
and period August 16, 1995 (inception) through March 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of New American
Healthcare Corporation and subsidiaries as of March 31, 1998 and 1997, and the
results of their operations and their cash flows for the years ended March 31,
1998 and 1997 and period August 16, 1995 (inception) through March 31, 1996 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Nashville, Tennessee
June 25, 1998
F-3
<PAGE> 68
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,119,056 $ 697,144
Patient accounts receivable, net of allowance for doubtful
accounts of $9,172,000 and $582,000 in 1998 and 1997,
respectively........................................... 19,905,665 2,259,661
Other receivables......................................... 1,290,536 234,021
Inventory................................................. 2,720,446 348,952
Prepaid expenses and other current assets................. 1,408,598 221,900
------------ -----------
Total current assets.............................. 31,444,301 3,761,678
Property and equipment, net................................. 84,403,448 13,074,084
Goodwill, net of accumulated amortization of $298,332 and
$68,651 in 1998 and 1997, respectively.................... 16,672,114 1,476,001
Other assets................................................ 1,672,661 908,257
------------ -----------
Total assets...................................... $134,192,524 $19,220,020
============ ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 14,521,490 $ 1,592,894
Estimated third party payor settlements................... 1,091,471 1,351,232
Current portion of capital lease obligations.............. 525,044 295,253
------------ -----------
Total current liabilities......................... 16,138,005 3,239,379
Capital lease obligations, excluding current portion........ 4,864,698 225,473
Long-term debt.............................................. 37,550,000 750,000
Subordinated notes payable to affiliates.................... 24,769,075 --
Deferred income taxes....................................... 1,338,970 --
Redeemable preferred stock -- Series A, $.01 par value,
250,000 shares authorized, 250,000 shares issued and
outstanding in 1998....................................... 25,617,104 --
Stockholders' equity:
Preferred stock, Series B, $.01 par value, 235,000 shares
authorized, 235,000 and 150,000 shares issued and
outstanding in 1998 and 1997, respectively. Convertible
into 4,000,000 shares of common stock.................. 2,350 1,500
Common stock, $.01 par value, 20,000,000 shares
authorized; 8,026,500 shares issued and outstanding.... 80,265 80,265
Additional paid-in capital................................ 24,263,268 16,381,222
Common stock warrants..................................... 234,838 --
Accumulated deficit....................................... (666,049) (1,457,819)
------------ -----------
Total stockholders' equity........................ 23,914,672 15,005,168
------------ -----------
Commitments and contingencies
Total liabilities and stockholders' equity........ $134,192,524 $19,220,020
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 69
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
AUGUST 16, 1995
(INCEPTION)
YEAR ENDED MARCH 31, THROUGH
------------------------- MARCH 31,
1998 1997 1996
<S> <C> <C> <C>
Revenues:
Net patient service revenue.......................... $73,724,580 $10,737,283 $ --
Other revenue........................................ 1,923,953 349,418 16,584
----------- ----------- ---------
Net operating revenues....................... 75,648,533 11,086,701 16,584
----------- ----------- ---------
Expenses:
Salaries and benefits................................ 31,276,200 4,116,559 --
Professional fees.................................... 8,607,524 619,901 --
Supplies............................................. 8,314,018 1,439,047 --
Provision for doubtful accounts...................... 7,836,565 534,292 --
Other................................................ 9,286,251 2,377,019 --
General and administrative........................... 3,484,091 1,870,491 384,647
Depreciation and amortization........................ 2,835,788 783,100 5,180
Interest............................................. 2,637,126 363,090 1,278
----------- ----------- ---------
74,277,563 12,103,499 391,105
----------- ----------- ---------
Income (loss) before income taxes............ 1,370,970 (1,016,798) (374,521)
Income taxes........................................... 579,200 66,500 --
----------- ----------- ---------
Net income (loss)............................ 791,770 (1,083,298) (374,521)
Cumulative preferred dividend.......................... 617,104 -- --
----------- ----------- ---------
Net income (loss) attributable to common
stockholders............................... $ 174,666 $(1,083,298) $(374,521)
=========== =========== =========
Pro Forma:
Net loss............................................. $ (395,000)
Net loss attributable to common stockholders......... (2,145,000)
Net loss per share:
Basic............................................. (0.18)
Diluted........................................... (0.18)
Weighted average number of shares and dilutive share
equivalents outstanding:
Basic............................................. 12,026,500
Diluted........................................... 12,026,500
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 70
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED ADDITIONAL COMMON TOTAL
STOCK COMMON PAID-IN STOCK ACCUMULATED STOCKHOLDERS'
SERIES B STOCK CAPITAL WARRANT DEFICIT EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balances as of August 16,
1995 (inception)........... $ -- $ -- $ -- $ -- $ -- $ --
Issuance of 8,026,500
shares of common
stock................... -- 80,265 1,382,722 -- -- 1,462,987
Net loss................... -- -- -- -- (374,521) (374,521)
------ ------- ----------- -------- ----------- -----------
Balances as of March 31,
1996....................... -- 80,265 1,382,722 -- (374,521) 1,088,466
Issuance of 150,000 shares
of preferred stock,
Series B................ 1,500 -- 14,998,500 -- -- 15,000,000
Net loss................... -- -- -- -- (1,083,298) (1,083,298)
------ ------- ----------- -------- ----------- -----------
Balance as of March 31,
1997....................... 1,500 80,265 16,381,222 -- (1,457,819) 15,005,168
Issuance of 85,000 shares
of preferred stock,
Series B................ 850 -- 8,499,150 -- -- 8,500,000
Cumulative dividends on
Series A preferred
stock................... -- -- (617,104) -- -- (617,104)
Issuance of common stock
warrants................ -- -- -- 234,838 -- 234,838
Net income................. -- -- -- -- 791,770 791,770
------ ------- ----------- -------- ----------- -----------
Balances as of March 31,
1998....................... $2,350 $80,265 $24,263,268 $234,838 $ (666,049) $23,914,672
====== ======= =========== ======== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 71
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
AUGUST 16, 1995
YEAR ENDED MARCH 31, (INCEPTION) THROUGH
--------------------------- MARCH 31,
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ 791,770 $ (1,083,298) $ (374,521)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 2,835,788 783,100 5,180
Amortization of deferred financing costs............... 164,323 75,000 --
Provision for doubtful accounts........................ 7,836,565 534,292 --
Deferred tax expense................................... 241,127 -- --
Changes in operating assets and liabilities, net of
acquisitions:
Patient accounts receivable.......................... (12,125,169) (1,594,021) --
Other receivables.................................... (626,350) (234,021) --
Inventory............................................ (185,862) 95,848 (1,305)
Prepaid expenses and other current assets............ 2,761 (102,064) (6,080)
Other assets......................................... (294,114) (61,683) (1,238)
Accounts payable and accrued expenses................ 5,159,397 (513,135) 26,490
Estimated third party payor settlements.............. (45,503) 1,351,232 --
------------ ------------ ----------
Net cash provided by (used in) operating
activities...................................... 3,754,733 (748,750) (351,474)
------------ ------------ ----------
Cash flows from investing activities:
Purchase of property and equipment....................... (2,944,998) (261,259) (17,355)
Sale of property......................................... 166,857 -- --
Cash paid for acquisitions............................... (89,744,239) (14,003,878) --
Deferred acquisition costs............................... -- (242,285) --
Organization costs incurred.............................. -- -- (4,684)
------------ ------------ ----------
Net cash used in investing activities............. (92,522,380) (14,507,422) (22,039)
------------ ------------ ----------
Cash flows from financing activities:
Proceeds from the issuance of long-term debt............. 64,065,162 750,000 --
Repayment of long-term debt.............................. (2,500,000) -- --
Repayment of capital lease obligations................... (680,441) (197,016) (3,415)
Issuance of common stock................................. -- -- 1,462,987
Issuance of common stock warrant......................... 234,838 -- --
Issuance of redeemable preferred stock................... 25,000,000 -- --
Issuance of preferred stock.............................. 8,500,000 15,000,000 --
Deferred financing costs................................. (430,000) (685,727) --
------------ ------------ ----------
Net cash provided by financing activities......... 94,189,559 14,867,257 1,459,572
------------ ------------ ----------
Net increase (decrease) in cash................... $ 5,421,912 $ (388,915) $1,086,059
Cash and cash equivalents at beginning of period........... 697,144 1,086,059 --
------------ ------------ ----------
Cash and cash equivalents at end of period................. $ 6,119,056 $ 697,144 $1,086,059
============ ============ ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest................. $ 1,891,167 $ 78,662 $ 1,277
Cash paid during the period for income taxes............. $ 203,684 $ -- $ --
============ ============ ==========
Noncash investing and financing activities:
Assets and liabilities assumed in hospital acquisitions:
Receivables............................................ $ 13,787,565 $ 1,199,932 $ --
Inventory.............................................. 2,185,632 443,495 --
Prepaid expense and other assets....................... 1,137,270 113,756 --
Accounts payable and accrued expenses.................. (8,066,714) (2,079,539) --
Estimated third-party payor settlements................ 213,258 -- --
Capital lease obligations.............................. (5,274,817) (668,878) --
Capital lease obligations incurred to acquire
equipment.............................................. 274,640 -- 52,279
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 72
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1998 AND 1997, AND
PERIOD AUGUST 16, 1995 (INCEPTION) THROUGH MARCH 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. DESCRIPTION OF BUSINESS
New American Healthcare Corporation (the Company) acquires and operates
acute care hospitals throughout the United States. The Company was formed to
capitalize on opportunities to be the principal provider of health care services
in the non-urban communities in which it operates. The Company operates eight
acute care hospitals located in six states. The Company's hospitals offer a wide
range of inpatient and outpatient medical and surgical services and also provide
other health care services, including general and geriatric psychiatry,
rehabilitation, and occupational medicine. As part of developing a community
health care delivery system, the Company's hospitals also operate satellite
clinics. All of the Company's hospitals are accredited by either the Joint
Commission on Accreditation of Healthcare Organizations (JCAHO), the American
Osteopathic Association (AOA) or both.
B. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
New American Healthcare Corporation and all wholly owned subsidiaries. All
significant intercompany transactions and balances have been eliminated in the
consolidation.
C. USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities and the reported amounts of revenues and
expenses to prepare these consolidated financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
D. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents. The Company
generally invests its excess cash in U.S. Government securities and U.S.
Government agency instruments.
E. PATIENT ACCOUNTS RECEIVABLE
Patient accounts receivable consist of amounts owed by various governmental
agencies, insurance companies and private patients. The Company regularly
reviews its accounts receivable to provide an appropriate allowance for
uncollectible accounts. See note 2.
F. INVENTORY
Inventory is composed primarily of drugs and medical supplies and is stated
at the lower of cost, determined on a first-in, first-out basis, or market.
G. PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Routine maintenance and
repairs are charged to expense as incurred. Expenditures for major improvements
that extend useful lives or increase values are capitalized. Equipment under
capital leases is stated at the present value of the minimum lease payments.
Depreciation is computed on straight-line basis over the estimated useful life
of each class of depreciable assets as follows:
F-8
<PAGE> 73
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
land improvements -- 10 years; buildings and improvements -- 20 to 40 years;
equipment and fixtures -- 4 to 20 years. Equipment under capital leases is
amortized using the straight line method over the shorter of the lease term or
the estimated useful life of the equipment. Such amortization is included in
depreciation and amortization in the accompanying consolidated financial
statements.
H. GOODWILL AND OTHER ASSETS
Goodwill represents the excess of purchase price over net assets acquired.
Amortization is provided on a straight-line basis over the estimated useful life
of 40 years. Other assets consist of deferred financing costs, a non-compete
agreement, and deferred acquisition costs. Deferred financing costs incurred in
conjunction with the revolving credit agreement are being amortized on a
straight-line basis over the life of the agreement. The non-compete agreement is
amortized over the two year life of the related contract. Deferred acquisition
costs consist of direct costs incurred in the process of acquiring hospitals.
Such costs are included in the cost of the acquisition of hospitals, if the
acquisition is completed, or written off as a charge to earnings if a proposed
acquisition is abandoned.
The Company periodically reviews the recoverability of its intangible
assets. Recoverability of intangibles is determined based on the undiscounted
future operating cash flows from the related hospital. The amount of impairment,
if any, is measured based on discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds or based on the
fair value of the related hospital.
I. IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets.
J. NET PATIENT SERVICE REVENUE
Net patient service revenue is reported at the estimated net realizable
amounts from patients, third-party payors and others for services rendered,
including estimated retroactive adjustments under reimbursement agreements with
third-party payors. Retroactive adjustments are accrued on an estimated basis in
the period the related services are rendered and adjusted in future periods as
final settlements are determined.
K. INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized as income in the
period that includes the enactment date.
L. STOCK OPTION PLAN
The Company accounts for its compensation and stock option plan in
accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock-Based Compensation. For options issued to
employees, SFAS 123 allows entities to apply the provision of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees. As such, compensa-
F-9
<PAGE> 74
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tion expense would be recorded on the date of grant only if the fair value of
the underlying stock exceeded the exercise price. The Company provides pro forma
net income (loss) and pro forma earnings (loss) per share disclosures for
employee stock option grants made in 1996 and future years as if the
fair-value-based method defined in SFAS 123 had been applied.
M. PRO FORMA NET LOSS PER SHARE
Pursuant to the rules of the Securities and Exchange Commission, only pro
forma net loss per share has been included in the consolidated financial
statements as historical net loss per share is not considered relevant due to
the significant changes in the Company's operations. Pro forma net loss per
share combines the results of operations of the Company with acquired hospitals
as if the acquisitions had been consummated as of April 1, 1997 and is computed
by dividing the pro forma net loss, after deducting dividends on preferred
stock, by the weighted average number of common and dilutive share equivalents
outstanding adjusted for the automatic conversion of Series B preferred stock
into 4,000,000 shares of common stock upon completion of an initial public
offering.
N. FINANCIAL INSTRUMENTS
The Company has financial instruments consisting of cash and cash
equivalents, patient accounts receivable, accounts payable, and long-term debt.
The fair value of the Company's financial instruments based on current market
indicators approximates their carrying amount.
2. NET PATIENT SERVICE REVENUE
The Company has agreements with third-party payors that provide for
payments to the Company at amounts different from its established rates. A
summary of the payment arrangements with major third-party payors follows:
Medicare
Inpatient acute care services rendered to Medicare program
beneficiaries are paid at prospectively determined rates per discharge.
These rates vary according to a patient classification system that is based
on clinical, diagnostic, and other factors. Inpatient nonacute services and
certain outpatient services related to Medicare beneficiaries are paid
based on a cost reimbursement methodology. The Company is reimbursed for
cost reimbursable items at a tentative rate with final settlement
determined after submission of an annual cost report by the Company and
audit thereof by the Medicare fiscal intermediary. The Company's
classification of patients under the Medicare program and the
appropriateness of their admission are subject to an independent review by
a peer review organization under contract with the Company.
Medicaid
The Company operates under Medicaid programs in six states which
generally provide that inpatient services rendered to Medicaid
beneficiaries are paid at prospectively determined rates per day for a
covered period of days. Certain outpatient services are reimbursed based
upon a cost reimbursement methodology. Final reimbursement rates and
amounts for these services will be determined after submission of annual
cost reports by the Company and audits by third-party intermediaries. Other
outpatient services are reimbursed based on a fee schedule.
F-10
<PAGE> 75
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other
The Company has also entered into payment agreements with certain
insurance carriers, health maintenance organizations, and preferred
provider organizations. The basis for payment to the Corporation under
these agreements includes prospectively determined rates per discharge,
discounts from established charges, and prospectively determined daily
rates.
Final determination of amounts earned under the Medicare and Medicaid
programs often occur in subsequent years because of audits by the programs,
rights of appeal and the application of numerous technical provisions.
Business and Credit Concentrations
In the course of providing health care services through its inpatient
and outpatient care facilities, the Company grants credit to patients and
generally does not require collateral or other security in extending
credit; however, it routinely obtains assignment of (or is otherwise
entitled to receive) patients' benefits payable under their health
insurance programs, plans or policies (e.g., Medicare, Medicaid, Blue
Cross, health maintenance organizations, preferred provider organizations
and commercial insurance policies).
As of March 31, 1998, the Company had net receivables from Medicare
and Medicaid of $8,641,173 and $6,563,302, respectively. Approximately 63%
and 47% of net patient service revenues are from participation in the
Medicare and state sponsored Medicaid programs for the years ended March
31, 1998 and 1997, respectively.
3. ACQUISITIONS
During the years ended March 31, 1998 and 1997, the Company acquired the
following hospitals:
<TABLE>
<CAPTION>
HOSPITAL EFFECTIVE DATE LOCATION
<S> <C> <C>
1998:
Memorial Hospital of Center............... May 1, 1997 Center, Texas
Delta Medical Center -- Memphis........... May 16, 1997 Memphis, Tennessee
Dolly Vinsant Hospital.................... August 1, 1997 San Benito, Texas
Woodland Park Hospital(a)................. February 1, 1998 Portland, Oregon
Eastmoreland Hospital(a).................. February 1, 1998 Portland, Oregon
Lander Valley Medical Center(a)........... February 1, 1998 Lander, Wyoming
Davenport Medical Center(a)............... February 1, 1998 Davenport, Iowa
1997:
Wentzville,
Doctors Hospital.......................... August 1, 1996 Missouri
</TABLE>
- ---------------
(a) Hospitals were acquired in a single transaction for an aggregate purchase
price of $57,000,000.
The Company has acquired hospitals primarily in exchange for cash and
assumption of associated liabilities for the years ended March 31 as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Purchase price............................................. $90,000,000 $14,000,000
Add liabilities assumed.................................... 13,342,000 2,748,000
Less assets acquired....................................... 87,916,000 15,203,000
----------- -----------
Costs in excess of net assets acquired........... $15,426,000 $ 1,545,000
=========== ===========
</TABLE>
F-11
<PAGE> 76
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisitions were accounted for as purchases and the accompanying
consolidated financial statements include the results of their operations from
the respective dates of the acquisitions.
The following unaudited pro forma results of operations for the years ended
March 31, 1998 and 1997 give effect to the acquisitions as if the respective
transactions had occurred as of April 1, 1996. The unaudited pro forma results
are not necessarily indicative of what actually might have occurred if the
acquisitions had been completed as of April 1, 1996. In addition, they are not
intended to be a projection of future results of operations and do not reflect
any of the synergies that might be achieved in hospital operations.
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net revenues................................................ $143,555,000 $140,414,000
Net loss.................................................... (395,000) (556,000)
Net loss attributable to common stockholders................ (2,145,000) (2,306,000)
Pro forma net loss per share -- basic and diluted........... $ (0.18) $ --
============ ============
</TABLE>
Additionally, the Company has entered into a definitive agreement to
purchase a hospital in Tacoma, Washington for a purchase price of approximately
$25,000,000 to be funded primarily through borrowings.
4. PROPERTY AND EQUIPMENT
A summary of property and equipment as of March 31, is as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land........................................................ $ 7,249,143 $ 700,000
Land improvements........................................... 545,006 106,592
Buildings and improvements.................................. 60,918,433 8,953,368
Equipment and fixtures...................................... 18,313,956 3,945,917
Leasehold improvements...................................... 143,843 75,473
----------- -----------
87,170,381 13,781,350
Less accumulated depreciation and amortization.............. 2,766,933 707,266
----------- -----------
$84,403,448 $13,074,084
=========== ===========
</TABLE>
Included in buildings and improvements and equipment and fixtures are
buildings and equipment held under capital leases of $5,697,912 and $768,386 as
of March 31, 1998 and 1997, respectively. Related accumulated amortization was
$630,398 and $120,446 as of March 31, 1998 and 1997, respectively.
F-12
<PAGE> 77
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LEASE OBLIGATIONS
The Company leases various equipment under lease agreements that have been
capitalized and office space under a noncancellable operating lease. In
addition, one hospital has been leased under an agreement that has been
capitalized. A summary of future minimum lease payments and the present value of
future minimum lease payments for the capitalized leases and payments due under
the operating leases as of March 31, 1998, is as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31, CAPITAL OPERATING
<S> <C> <C>
1999.................................................. $ 907,622 $ 390,952
2000.................................................. 555,041 216,715
2001.................................................. 442,871 174,066
2002.................................................. 362,212 103,128
2003.................................................. 371,414 39,313
Thereafter............................................ 15,376,578 220,866
----------- ----------
18,015,738 $1,145,040
==========
Less: Interest at rates ranging from 4.4% to 15.0%....... 12,625,996
-----------
Capital lease obligations................................ 5,389,742
Less: Current portion.................................... 525,044
-----------
Capital lease obligations, excluding current portion..... $ 4,864,698
===========
</TABLE>
Rent expense was approximately $1,202,375, $160,831 and $24,246 for the
years ended March 31, 1998 and 1997 and period August 16, 1995 through March 31,
1996, respectively.
Capital lease obligations consist primarily of a lease on Woodland Park
Hospital at March 31, 1998 for $4,884,273 at 7.1%.
6. LONG-TERM DEBT
On September 30, 1996, the Company entered into a revolving credit
agreement with a consortium of banks to provide funding for acquisitions of
health care facilities and related businesses, and for general corporate
purposes including working capital. The revolving credit limit was set at
$85,000,000. As of March 31, 1997, the Company had borrowings under this
facility of $750,000, bearing interest at prime plus 0.5% (9.0% as of March 31,
1997), payable in quarterly installments of $62,500 plus accrued interest
beginning December 31, 1999, with the remaining unpaid principal due in
September 2001.
On January 30, 1998, the Company amended and restated its credit agreement,
increasing its revolving credit limit to $132,500,000. Borrowings under the
facility bear interest of (i) a base rate equal to the greater of the Prime Rate
or the Federal Funds rate, plus in either case, a margin of up to 1% or (ii)
London InterBank Offered Rate as of the date of the borrowing plus a margin of
up to 2.5%. The applicable margin is determined by a ratio of indebtedness to
EBITDA calculated on a monthly basis. As of March 31, 1998, the Company had
outstanding $37,550,000, bearing interest at a rate of 6.9%. The Credit
Agreement is interest only payments until December 31, 2000, at which time
one-sixteenth of the aggregate outstanding balance will be due in quarterly
payments on the last day of each third month thereafter to and including
September 30, 2003, with a final lump sum payment due December 31, 2003. The
revolving credit facility is secured by substantially all the Company's assets.
The Credit Agreement contains limitations on the Company's ability to incur
additional indebtedness, sell material assets, retire, redeem or otherwise
reacquire its capital stock, and pay dividends. The Credit Agreement also
requires the Company to maintain specified levels of net worth and meet certain
covenants and ratios.
F-13
<PAGE> 78
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Commitment fees between 0.25% and 0.38% are charged on the unused portion
of the revolving credit facility. Total commitment fees during the years ended
March 31, 1998 and 1997 was $349,334 and $209,428, respectively, and is included
in interest expense in the accompanying statements of operations.
On January 30, 1998, WCAS Capital Partners III, L.P., an affiliate of a
principal shareholder of the Company, issued subordinated debt to the Company in
the amount of $25,000,000. The subordinated debt bears interest at a rate of
10.0% and is due January 30, 2008 with interest payable semiannually on June 30
and December 31 of each year. The debt was issued at a discount of $234,838
related to the fair value of the associated common stock warrant. The discount
is being amortized through charges to interest expense using the straight line
method over the life of the subordinated debt. As of March 31, 1998, the
discount was $230,925. The Company is required to make certain mandatory
prepayments of the subordinated debt in the event that certain prepayments of
senior debt are required under the credit agreement. In addition, a prepayment
is required if at any time while the subordinated debt is outstanding, (i) the
Company merges or consolidates with or into another entity (subject to certain
exceptions), or (ii) the Company sells or otherwise disposes of substantially
all of its assets to a third party, or (iii) a third party purchaser acquires a
majority of the Company's outstanding capital stock.
The aggregate maturities of long-term debt as of March 31, 1998 are as
follows:
<TABLE>
<S> <C>
1999........................................................ $ --
2000........................................................ --
2001........................................................ 4,693,750
2002........................................................ 9,387,500
2003........................................................ 9,387,500
Thereafter.................................................. 39,081,250
-----------
$62,550,000
===========
</TABLE>
7. REDEEMABLE PREFERRED STOCK
Redeemable preferred stock consists of 250,000 authorized shares of Series
A non-convertible cumulative preferred, $.01 par value (Series A preferred
stock). The Series A preferred stock is entitled to dividends equaling $7.00 per
share per annum. The Company is required to redeem all Series A preferred stock
on April 1, 2006 for $100 per share plus any unpaid dividends. The Series A
preferred stock is required to be redeemed at face value in the event of any
qualified initial public offering of the Company's common stock to the public.
The Company issued 250,000 shares of Series A preferred stock in 1998 for
$25,000,000. The proceeds were used to finance hospital acquisitions.
8. STOCKHOLDERS' EQUITY
PREFERRED STOCK
Preferred stock consists of Series B convertible preferred (Series B
preferred stock). The Series B preferred stock is not entitled to a dividend
unless a dividend is declared for the common stock. Series B preferred stock
requires 7.0% cumulative dividends beginning on April 1, 2008. The Series B
preferred stock is convertible to common stock at the holder's discretion by
multiplying the number of shares of Series B preferred stock by $100 and
dividing by the conversion price of $5.875 per share. The Series B preferred
stock automatically converts in the event of a public offering of the Company's
common stock at a price of at least $10 per share and net proceeds in excess of
$20,000,000.
F-14
<PAGE> 79
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company issued 85,000 and 150,000 shares of Series B preferred stock
for $8,500,000 and $15,000,000 in 1998 and 1997, respectively. The proceeds were
used to finance hospital acquisitions. As of March 31, 1998, 4,000,000 shares of
common stock have been reserved for issuance upon conversion of the Series B
preferred stock.
STOCK OPTIONS
In 1996, the Company adopted a stock option plan (the Plan) pursuant to
which the Company has reserved 1,500,000 shares of common stock for stock option
grants to directors, key employees and shareholders with exercise prices equal
to the estimated fair market value of the Company's common stock on the date of
grant. Stock options generally vest ratably over a period of five years and are
exercisable for ten years from grant date. As of March 31, 1998, there were
approximately 1,329,500 shares available for grant under the Plan. In May 1998,
the Company increased reserved shares by 600,000 shares to 2,100,000 shares.
The per share weighted-average fair value of stock options granted during
the years ended March 31, 1998 and 1997 was $0.82 and $0.86, respectively, on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions: an expected dividend yield and volatility of 0.0% for
both years, risk-free interest rate ranging from 5.5% to 6.0% in 1998 and 5.5%
in 1997, and an expected life of 4 years for both years.
The Company applies the intrinsic value method as defined by APB Opinion
No. 25 in accounting for its Plan and, accordingly, no compensation cost has
been recognized for its stock options in the accompanying consolidated financial
statements. Had the Company determined compensation cost based on the fair value
at the grant date for its stock options under SFAS No. 123, the Company's net
income would have been reduced by $22,998 and net loss would have increased by
$28,132 for the years ended March 31, 1998 and 1997, respectively.
Stock option activity during the period is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Balance as of March 31, 1996................................ -- $ --
Granted................................................... 50,000 4.33
------- -----
Balance as of March 31, 1997................................ 50,000 4.33
Granted................................................... 132,000 4.33
Forfeited................................................. (11,500) 4.33
------- -----
Balance as of March 31, 1998................................ 170,500 $4.33
======= =====
</TABLE>
As of March 31, 1998, the number of options exercisable was 10,000 and the
weighted average exercise price was $4.33. No options were exercisable at March
31, 1997.
As of March 31, 1998, the exercise price and weighted-average remaining
contractual life of outstanding options was $4.33 and 9.7 years, respectively.
F-15
<PAGE> 80
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECONCILIATION OF PRO FORMA INCOME PER SHARE CALCULATION
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for net earnings:
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
FOR THE YEAR ENDED MARCH 31, 1998 (NUMERATOR) (DENOMINATOR) AMOUNT
- --------------------------------- ----------- ------------- ---------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Pro forma net loss................................. $ 395,000
Cumulative preferred dividend...................... 1,750,000
----------
Pro forma net loss attributable to common
stockholders 2,145,000 12,026,500 $0.18
---------- ---------- -----
EFFECT OF DILUTIVE SECURITIES
Options............................................ -- --
Warrants........................................... -- --
Convertible preferred stock........................ -- --
---------- ----------
DILUTED EARNINGS PER SHARE
Pro forma net loss attributable to common
stockholders $2,145,000 12,026,500 $0.18
========== ========== =====
</TABLE>
All options and warrants to purchase common stock have been excluded from
the computation of diluted EPS because they are antidilutive.
WARRANT
In connection with the subordinated debt discussed in note 6, the Company
issued a warrant to purchase up to 565,000 shares of common stock at $4.33 per
share. The warrant expires January 30, 2008.
9. RETIREMENT PLAN
The Company sponsors a 401(k) plan for its employees. All employees who
have been employed at least six months and are at least 20 1/2 years of age are
eligible for the plan. The Company may match employee contributions at the
discretion of the Board of Directors. Total pension expense for the years ended
March 31, 1998 and 1997 was $115,483 and $30,202, respectively.
10. INCOME TAXES
There was no income tax expense for the period ended March 31, 1996. The
components of income tax expense for the years ended March 31, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
1998
------------------------------
CURRENT DEFERRED TOTAL
-------- -------- --------
<S> <C> <C> <C>
Federal................................................ $247,878 $238,575 $486,453
State.................................................. 90,195 2,552 92,747
-------- -------- --------
$338,073 $241,127 $579,200
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1997
-----------------------------
CURRENT DEFERRED TOTAL
-------- -------- -------
<S> <C> <C> <C>
Federal.................................................. $ -- $ -- $ --
State.................................................... 66,500 -- 66,500
-------- ------- -------
$ 66,500 $ -- $66,500
======== ======= =======
</TABLE>
F-16
<PAGE> 81
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The actual income tax expense differs from the "expected" tax expense
(computed by applying the U.S. federal corporate income tax rate of 34% to
earnings before income taxes) as a result of the following:
<TABLE>
<CAPTION>
PERIOD
AUGUST 16,
1995
(INCEPTION)
YEAR ENDED MARCH 31, THROUGH
--------------------- MARCH 31,
1998 1997 1996
<S> <C> <C> <C>
Computed "expected" tax expense........................... $ 466,130 $(345,711) $(127,337)
Increase (reduction) in income taxes resulting from:
State income taxes, net of federal income tax benefit... 61,213 3,728 (14,831)
Nondeductible goodwill amortization..................... 47,488 -- --
Change in valuation allowance........................... -- 435,561 142,350
Other................................................... 4,369 (27,078) (182)
--------- --------- ---------
$ 579,200 $ 66,500 $ --
========= ========= =========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset as of March 31, 1998 and 1997, are presented
below:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 390,056 $ 202,159
Accrued vacation.......................................... 275,758 55,674
AMT credit carryforward................................... 247,878 --
Operating loss carryforward............................... 122,789 252,073
Deferred costs due to differences in amortization and
write-off for tax purposes............................. 74,147 22,390
Property and equipment, principally due to differences in
depreciation........................................... -- 45,615
Other..................................................... 162,725 --
---------- ---------
Total gross deferred tax asset.................... 1,273,353 577,911
Less: Valuation allowance......................... -- (577,911)
---------- ---------
Net deferred tax asset............................ 1,273,353 --
Deferred tax liability:
Property and equipment, principally due to differences in
depreciation........................................... 1,812,995 --
---------- ---------
Net deferred tax liability........................ $ 539,642 $ --
========== =========
</TABLE>
The valuation allowance as of March 31, 1997 was charged to goodwill in
connection with the stock acquisition of one of the Company's hospitals. As of
March 31, 1998, the Company had approximately $360,000 of net operating loss
carryforwards which begin to expire in 2011. Included in prepaid expenses and
other current assets is $799,328 of current deferred tax assets.
11. CONTINGENCIES
LIABILITY INSURANCE
The Company is insured for professional liability based on a claims-made
policy. The provision for professional liability and comprehensive general
liability claims includes estimates of the ultimate costs for claims incurred
but not reported, in accordance with actuarial projections based on past
experience.
F-17
<PAGE> 82
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management is aware of no professional liability claims whose settlement would
have a material adverse effect on the Company's financial position, results of
operations or liquidity.
LITIGATION
The Company is subject to various claims, legal actions and regulatory
investigations which arise in the ordinary course of business, certain of which
could be material. In the opinion of management, the ultimate resolution of such
matters will be adequately covered by insurance and will not have a material
adverse effect on the Company's financial position, results of operations or
liquidity.
12. SUBSEQUENT EVENTS (UNAUDITED)
PUBLIC OFFERING OF COMMON STOCK AND REINCORPORATION
The Company is currently in the process of an initial public offering of
its common stock (the "Offering"). The net proceeds from the Offering are
planned to be used primarily to reduce outstanding indebtedness and redeem
Series A preferred stock.
The Company intends to reincorporate as a Delaware corporation from a
Tennessee corporation immediately prior to the consummation of the anticipated
Offering. The reincorporation will result in an increase in the authorized
shares of common stock to 50,000,000 shares, exchange of Series B preferred
stock for voting or non-voting shares of the Company's common stock and an
exchange of the Company's existing common stock at a yet to be determined ratio
for either voting or non-voting common stock.
F-18
<PAGE> 83
INDEPENDENT AUDITORS' REPORT
The Board of Trustees
Doctors Hospital:
We have audited the accompanying statements of operations and cash flows of
Doctors Hospital (the Hospital) for the period January 1, 1996 through July 31,
1996 and year ended December 31, 1995. These financial statements are the
responsibility of the Hospital's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of the
Hospital for the period January 1, 1996 through July 31, 1996 and year ended
December 31, 1995 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Nashville, Tennessee
May 22, 1998
F-19
<PAGE> 84
DOCTORS HOSPITAL
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, 1996 YEAR
THROUGH ENDED
JULY 31, DECEMBER 31,
1996 1995
<S> <C> <C>
Revenues:
Net patient service revenue............................... $ 8,743,858 $14,550,166
Other revenue............................................. 193,848 277,122
----------- -----------
Net operating revenues............................ 8,937,706 14,827,288
----------- -----------
Expenses:
Salaries and benefits..................................... 3,468,991 6,275,868
Professional fees......................................... 1,013,199 1,534,645
Supplies.................................................. 1,371,120 2,078,746
Provision for doubtful accounts........................... 1,054,340 1,231,098
Other..................................................... 1,963,191 2,926,474
Depreciation and amortization............................. 544,408 907,989
Interest.................................................. 607,520 1,116,325
----------- -----------
10,022,769 16,071,145
----------- -----------
Net loss.......................................... $(1,085,063) $(1,243,857)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE> 85
DOCTORS HOSPITAL
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, 1996 YEAR
THROUGH ENDED
JULY 31, DECEMBER 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(1,085,063) $ (1,243,857)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 544,408 907,989
Provision for doubtful accounts........................ 1,054,340 1,231,098
Loss on disposal of property and equipment............. -- 6,245
Increase (decrease) in cash due to changes in:
Patient accounts receivable.......................... (1,031,432) (805,002)
Other receivables.................................... (401,219) (300,324)
Inventory............................................ (35,693) (20,405)
Prepaid expenses and other assets.................... 28,409 89,572
Accounts payable and accrued expenses................ 3,226,308 774,125
Estimated third party payor settlements.............. 624,262 584,551
----------- ------------
Net cash provided by operating activities......... 2,924,320 1,223,992
----------- ------------
Cash flows from investing activities -- acquisition of
property and equipment.................................... (89,702) (218,144)
----------- ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.................. 8,327,174 14,115,403
Payments on long-term debt................................ (8,819,619) (15,231,495)
Capital distribution...................................... (1,800,000) --
Cash overdrafts........................................... (494,106) 110,244
----------- ------------
Net cash used by financing activities............. (2,786,551) (1,005,848)
----------- ------------
Net increase in cash.............................. 48,067 --
Cash at beginning of period................................. -- --
----------- ------------
Cash at end of period....................................... $ 48,067 $ --
=========== ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.................. $ 622,776 $ 1,161,345
=========== ============
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE> 86
DOCTORS HOSPITAL
NOTES TO FINANCIAL STATEMENTS
PERIOD JANUARY 1, 1996 THROUGH JULY 31, 1996
AND YEAR ENDED DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. DESCRIPTION OF BUSINESS
Doctors Hospital (the Hospital) is a 94-bed general acute care hospital
which provides inpatient, outpatient, home health, skilled nursing, psychiatric
and occupational health services.
On August 1, 1996, New American Healthcare Corporation (New American)
purchased the Hospital from Doctors Hospital-Wentzville, L.P. for approximately
$14.0 million.
B. USE OF ESTIMATES
Management of the Hospital has made a number of estimates and assumptions
relating to the reported amounts of revenues and expenses to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
C. DEPRECIATION
Depreciation is provided over the estimated useful life of each class of
depreciable asset and is computed using the straight-line method. The estimated
useful lives of property and equipment are as follows: land improvements -- 20
to 30 years; buildings and improvements -- 20 to 40 years; equipment and
furniture -- 10 to 20 years. Equipment under capital lease obligations is
amortized on the straight-line method over the shorter period of the lease term
or the estimated useful life of the equipment. Such amortization is included in
depreciation and amortization in the financial statements.
D. AMORTIZATION
Other assets consist of organization costs and loan costs. Organization
costs are amortized over 5 years using the straight-line method. Loan costs are
amortized over the term of the loan agreement.
E. LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
F. NET PATIENT SERVICE REVENUE
Net patient service revenue is reported at the estimated net realizable
amounts from patients, third-party payors, and others for services rendered,
including estimated retroactive adjustments under reimbursement agreements with
third-party payors. Retroactive adjustments are accrued on an estimated basis in
the period the related services are rendered and adjusted in future periods, as
final settlements are determined.
G. INCOME TAXES
The Hospital operates as a partnership as provided by the Internal Revenue
Code. The effect of this election resulted in all of the Hospital's taxable
income or losses being passed through to the partners in the partnership. Had
the Hospital accounted for income taxes under the asset and liability method
required under Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes, no tax expense or
F-22
<PAGE> 87
DOCTORS HOSPITAL
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
benefit would have been recognized because it is not more likely than not that
deferred tax assets would be recognized.
2. NET PATIENT SERVICE REVENUE
The Hospital has agreements with third-party payors that provide for
payments to the Hospital at amounts different from its established rates. A
summary of the payment arrangements with major third-party payors follows:
Medicare
Inpatient acute care services rendered to Medicare program
beneficiaries are paid at prospectively determined rates per discharge.
These rates vary according to a patient classification system that is based
on clinical, diagnostic, and other factors. Inpatient nonacute services and
certain outpatient services related to Medicare beneficiaries are paid
based on a cost reimbursement methodology. The Hospital is reimbursed for
cost reimbursable items at a tentative rate with final settlement
determined after submission of an annual cost report by the Hospital and
audit thereof by the Medicare fiscal intermediary. The Hospital's
classification of patients under the Medicare program and the
appropriateness of their admission are subject to an independent review by
a peer review organization under contract with the Hospital. The Hospital's
Medicare cost reports have been audited by the Medicare fiscal intermediary
through 1996.
Medicaid
Inpatient acute care services rendered to Medicaid program
beneficiaries are paid based on a prospectively determined rate per day.
Outpatient services rendered to beneficiaries are reimbursed under a cost
reimbursement methodology. The Hospital is reimbursed for outpatient
services at a tentative rate with final settlement determined after
submission of annual cost reports by the Hospital and audits by the
Medicaid fiscal intermediary. The Hospital's Medicaid cost reports have
been audited by the Medicaid fiscal intermediary through 1996.
Other
The Hospital has also entered into payment agreements with certain
insurance carriers, health maintenance organizations, and preferred
provider organizations. The basis for payment to the Hospital under these
agreements includes prospectively determined rates per discharge, discounts
from established charges, and prospectively determined daily rates.
Business and Credit Concentrations
In the course of providing health care services, the Hospital grants
credit to patients and generally does not require collateral or other
security in extending credit; however, the Hospital routinely obtains
assignment of (or are otherwise entitled to receive) patients' benefits
payable under their health insurance programs, plans or policies (e.g.,
Medicare, Medicaid, Blue Cross, health maintenance organizations, preferred
provider organizations and commercial insurance policies).
Approximately 52% and 54% of net patient service revenue are from
participation in the Medicare and Medicaid programs for the period January
1, 1996 through July 31, 1996 and the year ended December 31, 1995,
respectively.
F-23
<PAGE> 88
DOCTORS HOSPITAL
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. LEASES
The Hospital leases various equipment under lease agreements that have been
capitalized and under noncancellable operating leases.
As of the date of sale to New American, all capital and operating leases
were either assumed by New American or paid off shortly thereafter.
Rent expense was approximately $119,994 and $183,478 for the period January
1, 1996 through July 31, 1996 and year ended December 31, 1995, respectively.
4. CONTINGENCIES
LIABILITY INSURANCE
The Hospital is insured for professional liability based on a claims-made
policy. The provision for professional liability and comprehensive general
liability claims includes estimates of the ultimate costs for claims incurred
but not reported, in accordance with actuarial projections based on past
experience. Management is aware of no professional liability claims whose
settlement would have a material adverse effect on the Hospital's financial
position, results of operations or liquidity.
LITIGATION
The Hospital is subject to various claims, legal actions and regulatory
investigations which arise in the ordinary course of business, certain of which
could be material. In the opinion of management, the ultimate resolution of such
matters will be adequately covered by insurance and will not have a material
adverse effect on the Hospital's financial position, results of operations or
liquidity.
5. RETIREMENT PLAN
The Hospital sponsors a 401(k) plan for Hospital employees. All employees
who have six months of experience and are at least 20 1/2 years of age are
eligible for the plan. The Hospital may match employee contributions at the
discretion of the Board of Trustees. The Hospital incurred no pension expense
for the period January 1, 1996 through July 31, 1996 and year ended December 31,
1995.
F-24
<PAGE> 89
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Center Hospital, Inc.:
We have audited the accompanying statements of operations and cash flows of
Center Hospital, Inc. d/b/a Memorial Hospital of Center (the Hospital) (a wholly
owned subsidiary of Southeastern Hospital Corporation) for the year ended April
30, 1997, and period June 28, 1995 through April 30, 1996. These financial
statements are the responsibility of the Hospital's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the operations and cash flows of the
Hospital for the year ended April 30, 1997, and period June 28, 1995 through
April 30, 1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Nashville, Tennessee
June 12, 1998
F-25
<PAGE> 90
CENTER HOSPITAL, INC.
D/B/A MEMORIAL HOSPITAL OF CENTER
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
JUNE 28, 1995
YEAR ENDED THROUGH
APRIL 30, APRIL 30,
1997 1996
<S> <C> <C>
Revenues:
Net patient service revenue............................... $ 9,306,009 $ 6,947,543
Other revenue............................................. 169,515 160,275
----------- -----------
Net operating revenues............................ 9,475,524 7,107,818
----------- -----------
Expenses:
Salaries and benefits..................................... 4,164,062 3,295,228
Professional fees......................................... 1,082,706 648,660
Supplies.................................................. 886,391 862,246
Provision for doubtful accounts........................... 982,459 811,267
Other..................................................... 840,333 648,984
Depreciation and amortization............................. 458,675 384,911
Interest.................................................. 245,865 222,219
Management fees........................................... 1,898,996 1,638,606
----------- -----------
10,559,487 8,512,121
----------- -----------
Net loss.......................................... $(1,083,963) $(1,404,303)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE> 91
CENTER HOSPITAL, INC.
D/B/A MEMORIAL HOSPITAL OF CENTER
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
JUNE 28, 1995
YEAR ENDED THROUGH
APRIL 30, APRIL 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(1,083,963) $(1,404,303)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 458,675 384,911
Provision for doubtful accounts........................ 982,459 811,267
Increase (decrease) in cash due to changes in:
Patient accounts receivable.......................... (820,475) (672,017)
Other receivables.................................... 136,852 (131,966)
Inventory............................................ 22,998 25,596
Prepaid expenses and other assets.................... 8,686 17,814
Accounts payable and accrued expenses................ 248,557 399,952
Estimated third-party payor settlements.............. (789,062) (106,273)
----------- -----------
Net cash used in operating activities............. (835,273) (675,019)
----------- -----------
Cash flows from investing activities -- purchase of property
and equipment............................................. (458,831) (101,762)
----------- -----------
Cash flows from financing activities:
Changes in intercompany account........................... 1,482,694 903,995
Repayment of long-term debt............................... (6,093) (5,529)
Repayment of capital lease obligations.................... (124,844) (107,534)
----------- -----------
Net cash provided by financing activities......... 1,351,757 790,932
----------- -----------
Net increase in cash.............................. 57,653 14,151
Cash at beginning of period................................. 70,199 56,048
----------- -----------
Cash at end of period....................................... $ 127,852 $ 70,199
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.................. $ 104,104 $ 49,021
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 92
CENTER HOSPITAL, INC.
D/B/A MEMORIAL HOSPITAL OF CENTER
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED APRIL 30, 1997, AND
PERIOD JUNE 28, 1995 THROUGH APRIL 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. DESCRIPTION OF BUSINESS
Center Hospital, Inc. d/b/a Memorial Hospital of Center (Hospital), a
wholly owned subsidiary of Southeastern Hospital Corporation (Southeastern) is a
54-bed general acute care hospital providing a full compliment of acute care
services including emergency services to the residents of Center, Texas and
adjoining counties in Louisiana and Texas. The Hospital also has a 10-bed
transitional care unit.
On May 1, 1997, New American Healthcare Corporation (New American)
purchased the Hospital from Southeastern for approximately $11,500,000.
B. USE OF ESTIMATES
Management of the Hospital has made a number of estimates and assumptions
relating to the reported amounts of revenues and expenses to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
C. DEPRECIATION
Depreciation is provided over the estimated useful life of each class of
depreciable asset and is computed using the straight-line method. The estimated
useful lives of property and equipment are as follows: land improvements -- 40
years; buildings and improvements -- 40 years; equipment and furniture -- 3 to
10 years. Equipment under capital lease obligations is amortized using the
straight-line method over the shorter of the lease term or the estimated useful
life of the equipment. Such amortization is included in depreciation and
amortization in the accompanying financial statements.
D. LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
E. NET PATIENT SERVICE REVENUE
Net patient service revenue is reported at the estimated net realizable
amounts from patients, third-party payors, and others for services rendered,
including estimated retroactive adjustments under reimbursement agreements with
third-party payors. Retroactive adjustments are accrued on an estimated basis in
the period the related services are rendered and adjusted in future periods, as
final settlements are determined.
F. INCOME TAXES
The Hospital is not a separate taxable entity but has been included in the
consolidated return of its parent for all periods presented. However, Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes, requires
that the consolidated current and deferred tax expense be allocated among
members of a consolidated group which issue separate financial statements. The
allocation of consolidated tax expense is based on what the Hospital's current
and deferred tax expense would have been had the Hospital filed a separate tax
return.
F-28
<PAGE> 93
CENTER HOSPITAL, INC.
D/B/A MEMORIAL HOSPITAL OF CENTER
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized as income in the
period that includes the enactment date. No income tax expense or benefit has
been recorded in the accompanying financial statements as a valuation allowance
has been recorded for deferred tax assets as it is not more likely than not that
such deferred tax assets will be realized.
2. NET PATIENT SERVICE REVENUE
The Hospital has agreements with third-party payors that provide for
payments to the Hospital at amounts different from its established rates. A
summary of the payment arrangements with major third-party payors follows:
Medicare
Inpatient acute care services rendered to Medicare program
beneficiaries are paid at prospectively determined rates per discharge.
These rates vary according to a patient classification system that is based
on clinical, diagnostic, and other factors. Inpatient nonacute services and
certain outpatient services related to Medicare beneficiaries are paid
based on cost reimbursement methodologies. The Hospital is reimbursed for
cost reimbursable items at tentative rates, with final settlement
determined after submission of an annual cost report by the Hospital and
audit thereof by the Medicare fiscal intermediary. The Hospital's
classification of patients under the Medicare program and the
appropriateness of their admission are subject to an independent review by
a peer review organization under contract with the Hospital. The Hospital's
cost reports have been audited and final-settled for all filing years
through 1995.
Medicaid
Inpatient services rendered to Medicaid beneficiaries are generally
paid at prospectively determined rates per day for a covered period of
days. Certain outpatient services are reimbursed based upon a cost
reimbursement methodology. Final reimbursement rates and amounts for these
services will be determined after submission of annual cost reports by the
Hospital and audits by the state. Other outpatient services are reimbursed
based on a fee schedule.
Other
The Hospital has also entered into payment agreements with certain
insurance carriers, health maintenance organizations, and preferred
provider organizations. Payment methodologies under these agreements
include prospectively determined rates per discharge, discounts from
established charges, and prospectively determined daily rates.
Business and Credit Concentrations
In the course of providing health care services, the Hospital grants
credit to patients and generally does not require collateral or other
security in extending credit; however, the Hospital routinely obtains
assignment of (or are otherwise entitled to receive) patients' benefits
payable under their health insurance programs, plans or policies (e.g.,
Medicare, Medicaid, Blue Cross, health maintenance organizations, preferred
provider organizations and commercial insurance policies).
F-29
<PAGE> 94
CENTER HOSPITAL, INC.
D/B/A MEMORIAL HOSPITAL OF CENTER
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Approximately 43% of net patient service revenue are from
participation in the Medicare and Medicaid programs for the year ended
April 30, 1997 and period June 28, 1995 through April 30, 1996.
3. LEASES
The Hospital leases various equipment under lease agreements that have been
capitalized and under noncancellable operating leases.
As of the date of sale to New American, substantially all capital and
operating leases were either assumed by New American or paid off shortly
thereafter.
Rent expense was approximately $82,006 and $90,947 for the year ended April
30, 1997 and period June 28, 1995 through April 30, 1996, respectively.
4. MANAGEMENT FEES
The Hospital operates under a management agreement with Southeastern.
According to the management agreement, monthly management fees were calculated
at 8% of gross revenues earned by the Hospital. During 1997, Southeastern
retroactively increased the management fee to 12% of gross revenues plus
interest on the entire calculated balance at a rate of 11% for the year ended
April 30, 1997 and period June 28, 1995 through April 30, 1996.
5. CONTINGENCIES
LIABILITY INSURANCE
The Hospital is insured for professional and general liability based on a
claims-made policy. The provision for professional liability and comprehensive
general liability claims includes estimates of the ultimate costs for claims
incurred but not reported, in accordance with actuarial projections based on
past experience. Management is aware of no professional liability claims whose
settlement would have a material adverse effect on the Hospital's financial
position, results of operations or liquidity.
LITIGATION
The Hospital is subject to various claims, legal actions, and regulatory
investigations which arise in the ordinary course of business, certain of which
could be material. In the opinion of management, the ultimate resolution of such
matters will be adequately covered by insurance and will not have a material
adverse effect on the Hospital's financial position, results of operations or
liquidity.
F-30
<PAGE> 95
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Eastwood Hospital, Inc.
We have audited the accompanying statements of operations and cash flows of
Eastwood Hospital, Inc. (the Hospital) for the period January 1, 1997 through
May 15, 1997 and years ended December 31, 1996 and 1995. These financial
statements are the responsibility of the Hospital's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the operations and cash flows of the
Hospital for the period January 1, 1997 through May 15, 1997 and years ended
December 31, 1996 and 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Jackson, Mississippi
May 29, 1998
F-31
<PAGE> 96
EASTWOOD HOSPITAL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, 1997 YEAR ENDED
THROUGH DECEMBER 31,
MAY 15, -------------------------
1997 1996 1995
<S> <C> <C> <C>
Revenues:
Net patient service revenue.......................... $10,578,931 $30,349,479 $30,215,082
Other revenue........................................ 348,351 878,976 1,388,043
----------- ----------- -----------
Net operating revenues....................... 10,927,282 31,228,455 31,603,125
----------- ----------- -----------
Expenses:
Salaries and benefits................................ 5,002,945 12,845,069 12,873,585
Professional fees.................................... 719,980 2,818,093 1,079,953
Supplies............................................. 1,095,825 3,152,821 2,549,744
Provision for doubtful accounts...................... 1,213,715 3,647,674 3,033,497
Other................................................ 3,881,903 10,131,143 12,244,687
Depreciation and amortization........................ 285,266 780,585 544,787
----------- ----------- -----------
12,199,634 33,375,385 32,326,253
----------- ----------- -----------
Net loss..................................... $(1,272,352) $(2,146,930) $ (723,128)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE> 97
EASTWOOD HOSPITAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, 1997 YEAR ENDED
THROUGH DECEMBER 31,
MAY 15, -------------------------
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................. $(1,272,352) $(2,146,930) $ (723,128)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization..................... 285,266 780,585 544,787
Provision for doubtful accounts................... 1,213,715 3,647,674 3,033,497
Increase (decrease) in cash due to changes in:
Patient accounts receivable..................... (1,184,075) (1,070,429) (4,296,309)
Other receivables............................... (58,941) (981,277) (1,229,470)
Inventory....................................... 100,984 (117,852) 56,211
Prepaid expenses and other assets............... (69,962) (43,684) (56,699)
Accounts payable and accrued expenses........... (336,066) (27,492) 1,130,762
----------- ----------- -----------
Net cash provided by (used in) operating
activities................................. (1,321,431) 40,595 (1,540,349)
----------- ----------- -----------
Cash flows from investing activities -- purchase of
property and equipment............................... (127,500) (400,352) (807,958)
----------- ----------- -----------
Cash flows from financing activities:
Changes in intercompany account...................... 817,416 695,575 3,067,514
Cash overdrafts...................................... 1,044,847 (143,061) (26,229)
Repayment of capital lease obligations............... (82,156) (206,992) (96,160)
----------- ----------- -----------
Net cash provided by financing activities.... 1,780,107 345,522 2,945,125
----------- ----------- -----------
Net increase (decrease) in cash.............. 331,176 (14,235) 596,818
Cash at beginning of period............................ 641,616 655,851 59,033
----------- ----------- -----------
Cash at end of period.................................. $ 972,792 $ 641,616 $ 655,851
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............. $ 26,257 $ 92,806 $ 74,362
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE> 98
EASTWOOD HOSPITAL, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD JANUARY 1, 1997 THROUGH MAY 15, 1997
AND YEARS ENDED DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. DESCRIPTION OF BUSINESS
Eastwood Hospital, Inc. (Eastwood) is a provider of psychiatric and acute
health care, licensed for approximately 240 beds, located in Memphis, Tennessee.
Through May 15, 1997, the Hospital was a wholly owned subsidiary of
HealthCare America, Inc. On May 16, 1997, New American Healthcare Corporation
(New American) purchased the Hospital for approximately $13,300,000. Subsequent
to the purchase, the Hospital began doing business as Delta Medical
Center -- Memphis.
B. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make estimates and
assumptions affecting the reported amounts of assets, liabilities, revenues and
expenses, as well as disclosure of contingent assets and liabilities. Actual
results could differ from those estimates.
C. DEPRECIATION
Depreciation is provided over the estimated useful life of each class of
depreciable asset and is computed using the straight-line method. Estimated
useful lives approximate the following: land improvements -- 10 years; buildings
and improvements -- 20 to 30 years; equipment and furniture -- 4 to 20 years.
Equipment under capital lease obligations is amortized using the straight-line
method over the shorter of the lease term or the estimated useful life of the
equipment. Such amortization is included in depreciation and amortization in the
accompanying financial statements.
D. LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
E. NET PATIENT SERVICE REVENUE
Net patient service revenue is reported at the estimated net realizable
amounts from patients, third-party payors, and others for services rendered,
including estimated retroactive adjustments under reimbursement agreements with
third-party payors. Retroactive adjustments are accrued on an estimated basis in
the period the related services are rendered and adjusted in future periods, as
final settlements are determined.
F. INCOME TAXES
While the Hospital was included in the consolidated income tax returns of
its parent, it accounts for income taxes in these financial statements as if it
filed stand-alone income tax returns. Income taxes are accounted for under the
asset and liability method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in
F-34
<PAGE> 99
EASTWOOD HOSPITAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized as income in the period that includes the enactment date.
The Hospital has experienced operating losses since inception of its
ownership by HealthCare America, Inc. Because of uncertainties regarding the
ultimate realization of related tax operating loss carryforwards, the Hospital
has not recognized any net deferred tax asset in the accompanying financial
statements.
2. NET PATIENT SERVICE REVENUE
The Hospital has agreements with third-party payors that provide for
payments to the Hospital at amounts different from its established rates. A
summary of the payment arrangements with major third-party payors follows:
Medicare
Inpatient acute care services rendered to Medicare program
beneficiaries are paid at prospectively determined rates per discharge.
These rates vary according to a patient classification system that is based
on clinical, diagnostic, and other factors. Inpatient nonacute services and
certain outpatient services related to Medicare beneficiaries are paid
based on cost reimbursement methodologies. The Hospital is reimbursed for
cost reimbursable items at tentative rates, with final settlement
determined after submission of an annual cost report by the Hospital and
audit thereof by the Medicare fiscal intermediary. The Hospital's
classification of patients under the Medicare program and the
appropriateness of their admission are subject to an independent review by
a peer review organization under contract with the Hospital. The Hospital's
cost reports have been audited and final-settled for all filing years
through 1995.
Tenncare
Inpatient and outpatient services rendered to Tenncare program
(Tennessee's Medicaid program) beneficiaries are reimbursed based upon
prospective reimbursement methodologies established by the participating
third-party payors.
Other
The Hospital has also entered into payment agreements with certain
insurance carriers, health maintenance organizations, and preferred
provider organizations. Payment methodologies under these agreements
include prospectively determined rates per discharge, discounts from
established charges, and prospectively determined daily rates.
Business and Credit Concentrations
The Hospital grants credit without collateral to its patients, most of
whom are local residents and are insured under third-party payor
agreements. Revenues related to the Medicare program, the Hospital's most
significant third-party payor, comprised approximately 42%, 50% and 45% of
the Hospital's net patient service revenue for the period January 1, 1997
through May 15, 1997 and years ended December 31, 1996 and 1995,
respectively.
3. LEASES
The Hospital leases various equipment under lease agreements that have been
capitalized and under noncancellable operating leases.
F-35
<PAGE> 100
EASTWOOD HOSPITAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of the date of sale to New American, all capital and operating leases
were either assumed by New American or paid off shortly thereafter.
Rent expense was approximately $664,000, $2,483,000 and $3,562,000 for the
period January 1, 1997 through May 15, 1997 and years ended December 31, 1996
and 1995, respectively. Included in such rentals is the cost of a year-to-year
operating lease with Healthcare America, Inc. for real estate related to the
Hospital's principal operating facilities, totaling approximately $450,000,
$1,950,000 and $3,000,000 for the period January 1, 1997 through May 15, 1997
and years ended December 31, 1996 and 1995, respectively.
4. MANAGEMENT FEES
Through May 15, 1997, the Hospital operated under management arrangements
with its parent, HealthCare America, Inc. Management services provided by the
parent included auditing, accounting, personnel and other related services. The
cost of these management services is included in other expenses in the
accompanying statements of operations, and approximated $585,000, $1,563,000 and
$1,560,000 for the period January 1, 1997 through May 15, 1997 and years ended
December 31, 1996 and 1995, respectively.
5. CONTINGENCIES
LIABILITY INSURANCE
The Hospital is insured for professional liability based on a claims-made
policy. The provision for professional liability and comprehensive general
liability claims includes estimates of the ultimate costs for claims incurred
but not reported, in accordance with actuarial projections based on past
experience. Management is aware of no professional liability claims whose
settlement would have a material adverse effect on the Hospital's financial
position, results of operations or liquidity.
LITIGATION
The Hospital is subject to various claims, legal actions and regulatory
investigations which arise in the ordinary course of business, certain of which
could be material. In the opinion of management, the ultimate resolution of such
matters will be adequately covered by insurance and will not have a material
adverse effect on the Hospital's financial position, results of operations or
liquidity.
6. RETIREMENT PLAN
Through May 15, 1997, the Hospital participated in a 401(k) plan sponsored
by Healthcare America, Inc. for participating Hospital employees. Employees
meeting related age and tenure requirements were generally eligible for
participation in the plan. The Hospital's direct cost of participation in this
multi-employer plan cannot be determined as they are not separately allocated
from corporate.
F-36
<PAGE> 101
INDEPENDENT AUDITORS' REPORT
The Board of Directors
New American Healthcare Corporation:
We have audited the accompanying combined statements of operations and cash
flows of Woodland Park Hospital, Eastmoreland Hospital, Lander Valley Medical
Center and Davenport Medical Center ("The Hospitals") for the periods June 1,
1997 through January 31, 1998 and September 1, 1996 through May 31, 1997, year
ended August 31, 1996 and period July 1, 1995 through August 31, 1995. These
combined financial statements are the responsibility of The Hospitals'
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
The Hospitals for the periods June 1, 1997 through January 31, 1998 and
September 1, 1996 through May 31, 1997, year ended August 31, 1996 and period
July 1, 1995 through August 31, 1995 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Nashville, Tennessee
June 23, 1998
F-37
<PAGE> 102
THE HOSPITALS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD PERIOD PERIOD
JUNE 1, 1997 SEPTEMBER 1, YEAR JULY 1, 1995
THROUGH 1996 THROUGH ENDED THROUGH
JANUARY 31, MAY 31, AUGUST 31, AUGUST 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Net patient service revenue.............. $46,646,155 $ 54,309,301 $74,086,740 $11,907,020
Other revenue............................ 1,696,102 2,121,343 2,242,891 447,710
----------- ------------ ----------- -----------
Net operating revenues 48,342,257 56,430,644 76,329,631 12,354,730
----------- ------------ ----------- -----------
Expenses:
Salaries and benefits.................... 24,341,492 26,581,905 34,553,590 5,417,507
Professional fees........................ 5,387,526 5,066,867 7,064,049 1,382,861
Supplies................................. 4,793,401 6,078,956 8,080,685 1,262,867
Provision for doubtful accounts.......... 3,182,476 2,690,181 3,842,824 538,509
Other.................................... 7,332,955 9,153,027 11,224,677 1,844,633
Depreciation and amortization............ 2,327,610 3,252,963 4,143,239 668,705
Interest................................. 2,295,468 2,845,101 3,886,113 671,106
Management fees.......................... -- 1,609,876 1,567,620 261,270
Merger and other corporate expenses...... -- 10,575,873 -- --
----------- ------------ ----------- -----------
49,660,928 67,854,749 74,362,797 12,047,458
----------- ------------ ----------- -----------
Income (loss) before income
taxes.......................... (1,318,671) (11,424,105) 1,966,834 307,272
Income tax benefit (expense)............... 467,000 1,690,000 (801,000) (145,000)
----------- ------------ ----------- -----------
Net income (loss)................ $ (851,671) $ (9,734,105) $ 1,165,834 $ 162,272
=========== ============ =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-38
<PAGE> 103
THE HOSPITALS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD PERIOD PERIOD
JUNE 1, 1997 SEPTEMBER 1, YEAR JULY 1, 1995
THROUGH 1996 THROUGH ENDED THROUGH
JANUARY 31, MAY 31, AUGUST 31, AUGUST 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................... $ (851,671) $(9,734,105) $ 1,165,834 $ 162,272
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization.......... 2,327,610 3,252,963 4,143,239 668,705
Provision for doubtful accounts........ 3,182,476 2,690,181 3,842,824 538,509
Provision for loss on impairment....... -- 9,942,633 -- --
Deferred income taxes.................. (292,000) (2,016,000) 109,000 (67,000)
Changes in operating assets and
liabilities:
Patient accounts receivable.......... (4,368,129) (3,568,657) (4,874,163) (101,038)
Other receivables.................... 56,176 252,619 252,507 (127,840)
Inventory............................ (37,113) 11,220 9,934 89,185
Prepaid expenses and other assets.... (151,621) 24,454 (144,006) 60,969
Accounts payable and accrued
expenses.......................... (2,164,794) 2,872,211 1,359,429 837,828
Estimated third-party payor
settlements....................... 4,318,006 (613,425) (216,497) 42,852
----------- ----------- ----------- -----------
Net cash provided by operating
activities...................... 2,018,940 3,114,094 5,648,101 2,104,442
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment........ (2,954,997) (2,243,181) (3,249,302) (410,147)
Acquisition of minority interests......... (2,739,699) -- (461,531) --
----------- ----------- ----------- -----------
Net cash used in investing
activities...................... (5,694,696) (2,243,181) (3,710,833) (410,147)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Changes in intercompany account........... 4,556,970 (1,294,540) (1,263,722) (1,092,325)
Repayment of long-term debt............... (585,586) (190,276) (213,548) (17,459)
Repayment of capital lease obligations.... (100,217) (168,882) (336,146) (59,099)
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities............ 3,871,167 (1,653,698) (1,813,416) (1,168,883)
----------- ----------- ----------- -----------
Net increase (decrease) in cash... 195,411 (782,785) 123,852 525,412
Cash at beginning of period................. 159,342 942,127 818,275 292,863
----------- ----------- ----------- -----------
Cash at end of period....................... $ 354,753 $ 159,342 $ 942,127 $ 818,275
=========== =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-39
<PAGE> 104
THE HOSPITALS
NOTES TO COMBINED FINANCIAL STATEMENTS
PERIODS JUNE 1, 1997 THROUGH JANUARY 31, 1998 AND SEPTEMBER 1, 1996
THROUGH MAY 31, 1997, YEAR ENDED AUGUST 31, 1996 AND
PERIOD JULY 1, 1995 THROUGH AUGUST 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
On January 31, 1998, New American Healthcare Corporation (New American)
entered into an Asset Purchase Agreement with Tenet Healthcare Corporation
(Tenet), whereby New American acquired four hospitals (The Hospitals) from Tenet
for a purchase price of approximately $57,000,000. The four Tenet hospitals are
Woodland Park Hospital and Eastmoreland Hospital, located in Portland, Oregon,
Lander Valley Medical Center, located in Lander, Wyoming, and Davenport Medical
Center, located in Davenport, Iowa.
The accompanying combined financial statements reflect the historical
accounts of The Hospitals for the periods presented which represent the fiscal
year ends of The Hospitals' various parent companies through the date of
acquisition. The Hospitals were owned by Ornda Healthcare Corporation (Ornda),
which had an August 31 fiscal year end, until February 1997 at which time Tenet
completed a pooling-of-interest with Ornda and the fiscal year end changed to
May 31. The combined financial statements include allocations for certain
periods of general and administrative and other expenses from the corporate
office. Such corporate office expense allocations are based on determinations
that management believes to be reasonable. However, as Ornda and Tenet operated
certain other businesses and provided certain services, including financial,
legal and other professional services, human resources and information system
services, to the Tenet Hospitals and others; such expense allocations to The
Hospitals may not be representative of the costs of such services to be incurred
in the future.
B. USE OF ESTIMATES
Management of The Hospitals has made a number of estimates and assumptions
relating to the reported amounts of revenues and expenses to prepare these
combined financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
C. DEPRECIATION
Depreciation is computed on straight-line basis over the estimated useful
life of each class of depreciable assets as follows: land improvements -- 10
years; buildings and improvements -- 20 to 40 years; equipment and fixtures -- 4
to 20 years. Equipment under capital leases is amortized using the straight-line
method over the shorter of the lease term or the estimated useful life of the
equipment. Such amortization is included in depreciation and amortization in the
accompanying combined financial statements.
D. GOODWILL
Goodwill represents the excess of purchase price over net assets acquired.
Amortization is provided on a straight-line basis over the estimated useful life
of 40 years.
Recoverability of intangible assets is periodically reviewed.
Recoverability of intangibles is determined based on the undiscounted future
operating cash flows from the related hospital. The amount of impairment, if
any, is measured based on discounted future operating cash flows using a
discount rate reflecting Tenet's average cost of funds or based on the fair
value of the related hospital.
E. IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is
F-40
<PAGE> 105
THE HOSPITALS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
measured by comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets.
F. NET PATIENT SERVICE REVENUE
Net patient service revenue is reported at the estimated net realizable
amounts from patients, third-party payors, and others for services rendered,
including estimated retroactive adjustments under reimbursement agreements with
third-party payors. Retroactive adjustments are accrued on an estimated basis in
the period the related services are rendered and adjusted in future periods as
final settlements are determined.
G. INCOME TAXES
The Hospitals are not separate taxable entities but have been included in
the consolidated return of their parent for all periods presented. However,
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, requires that the current and deferred tax expense be allocated among
members of a company which issue separate financial statements.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized as income in the
period that includes the enactment date. Valuation allowances are recorded for
deferred tax assets when it is more likely than not that such deferred tax
assets will not be realized.
2. NET PATIENT SERVICE REVENUE
The Hospitals have agreements with third-party payors that provide for
payments to The Hospitals at amounts different from its established rates. A
summary of the payment arrangements with major third-party payors follows:
Medicare
Inpatient acute care services rendered to Medicare program
beneficiaries are paid at prospectively determined rates per discharge.
These rates vary according to a patient classification system that is based
on clinical, diagnostic, and other factors. Inpatient nonacute services and
certain outpatient services related to Medicare beneficiaries are paid
based on a cost reimbursement methodology. The Hospitals are reimbursed for
cost reimbursable items at a tentative rate with final settlement
determined after submission of an annual cost report by The Hospitals and
audit thereof by the Medicare fiscal intermediary. The Hospitals'
classification of patients under the Medicare program and the
appropriateness of their admission are subject to an independent review by
a peer review organization under contract with The Hospitals.
Medicaid
Inpatient services rendered to Medicaid beneficiaries are generally
paid at prospectively determined rates per day for a covered period of
days. Certain outpatient services are reimbursed based upon a cost
reimbursement methodology. Final reimbursement rates and amounts for these
services will be determined after submission of annual cost reports by The
Hospitals and audits by third-party intermediaries. Other outpatient
services are reimbursed based on a fee schedule.
F-41
<PAGE> 106
THE HOSPITALS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Other
The Hospitals have also entered into payment agreements with certain
insurance carriers, health maintenance organizations, and preferred
provider organizations. The basis for payment to The Hospitals under these
agreements includes prospectively determined rates per discharge, discounts
from established charges, and prospectively determined daily rates.
Business and Credit Concentrations
In the course of providing health care services through their
inpatient and outpatient care facilities, The Hospitals grant credit to
patients and generally do not require collateral or other security in
extending credit; however, they routinely obtain assignment of (or are
otherwise entitled to receive) patients' benefits payable under their
health insurance programs, plans or policies (e.g., Medicare, Medicaid,
Blue Cross, health maintenance organizations, preferred provider
organizations and commercial insurance policies).
Approximately 47%, 49%, 48% and 43% of net patient service revenue are
from participation in the Medicare and state sponsored Medicaid programs
for the periods June 1, 1997 through January 31, 1998, and September 1,
1996 through May 31, 1997, year ended August 31, 1996 and period July 1,
1995 through August 31, 1995, respectively.
3. LEASE OBLIGATIONS
The Hospitals lease various equipment under lease agreements that have been
capitalized and have other noncancellable operating leases primarily for
equipment. Additionally, Woodland Park Hospital is leased under a lease
agreement that has been capitalized.
As of the date of sale to New American, all capital and operating leases
were either assumed by New American or paid off shortly thereafter.
Rent expense was approximately $823,679, $957,544, $1,292,319 and $216,353
for the periods June 1, 1997 through January 31, 1998, and September 1, 1996
through May 31, 1997, year ended August 31, 1996 and period July 1, 1995 through
August 31, 1995, respectively.
4. MANAGEMENT FEES
Through February 1997, The Hospitals operated under management arrangements
with their parent, Ornda. Services provided by Ornda included auditing,
accounting, personnel and other related services. Tenet did not charge
management fees. However, Tenet provided a similar level of administrative
support services.
5. IMPAIRMENT OF LONG-LIVED ASSETS
In the period September 1, 1996 through May 31, 1997, it was determined
that an impairment had occurred with respect to certain long-lived assets of
Davenport Medical Center based on its position in the market, overall loss of
its market share and expected undiscounted net cash flows from hospital
operations. Fair value was determined based on a combination of expected
discounted net cash flows and expected selling price determined by comparable
earnings before income taxes, depreciation and amortization multiples. An
impairment charge of $9,942,633 was recorded and is included in merger and other
corporate costs in the accompanying combined statements of operations.
6. MERGER EXPENSES
Certain expenses relating primarily to conforming accounting policies and
other corporate charges associated with the merger of Ornda and Tenet were
allocated to The Hospitals. These costs totaled $633,240
F-42
<PAGE> 107
THE HOSPITALS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
and are included in merger and other corporate expenses in the accompanying
combined statements of operations for the period September 1, 1996 through May
31, 1997.
7. RETIREMENT PLAN
Through January 31, 1998, The Hospitals participated in a 401(k) plan
sponsored by Tenet for participating employees. Employees meeting related age
and tenure requirements were generally eligible for participation in the plan.
The Hospitals' direct cost of participation in this multi-employer plan cannot
be determined as they are included in management fees or not allocated from
Tenet.
8. INCOME TAXES
Income tax benefit (expense) consists of the following:
<TABLE>
<CAPTION>
PERIOD JUNE 1, 1997 THROUGH JANUARY 31, 1998
----------------------------------------------
CURRENT DEFERRED TOTAL
------------ ------------- -------------
<S> <C> <C> <C>
Federal........................................ $ 175,000 $ 250,000 $ 425,000
State.......................................... -- 42,000 42,000
--------- ---------- ----------
$ 175,000 $ 292,000 $ 467,000
========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
PERIOD SEPTEMBER 1, 1996 THROUGH MAY 31, 1997
----------------------------------------------
CURRENT DEFERRED TOTAL
------------ ------------- -------------
<S> <C> <C> <C>
Federal........................................ $(306,000) $1,702,000 $1,396,000
State.......................................... (20,000) 314,000 294,000
--------- ---------- ----------
$(326,000) $2,016,000 $1,690,000
========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1996
-------------------------------------
CURRENT DEFERRED TOTAL
--------- ---------- ----------
<S> <C> <C> <C>
Federal........................................ $(627,000) $ (121,000) $ (748,000)
State.......................................... (65,000) 12,000 (53,000)
--------- ---------- ----------
$(692,000) $ (109,000) $ (801,000)
========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
PERIOD JULY 1, 1995 THROUGH AUGUST 31, 1995
-------------------------------------------
CURRENT DEFERRED TOTAL
----------- ------------ ------------
<S> <C> <C> <C>
Federal........................................ $(162,000) $ 53,000 $ (109,000)
State.......................................... (50,000) 14,000 (36,000)
--------- ---------- ----------
$(212,000) $ 67,000 $ (145,000)
========= ========== ==========
</TABLE>
F-43
<PAGE> 108
THE HOSPITALS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The actual income tax expense differs from the "expected" tax benefit
(expense) (computed by applying the U.S. federal corporate income tax rate of
34% to earnings before income taxes) as a result of the following:
<TABLE>
<CAPTION>
PERIOD PERIOD PERIOD
JUNE 1, 1997 SEPTEMBER 1, YEAR JULY 1, 1995
THROUGH 1996 THROUGH ENDED THROUGH
JANUARY 31, MAY 31, AUGUST 31, AUGUST 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
Computed "expected" tax expense......... $448,348 $ 3,884,195 $(668,724) $(104,472)
Increase (reduction) in income taxes
resulting from:
State income taxes, net of federal
income tax benefit................. 28,000 194,000 (35,000) (24,000)
Write off of goodwill................. -- (2,312,000) -- --
Other................................. (9,348) (76,195) (97,276) (16,528)
-------- ----------- --------- ---------
$467,000 $ 1,690,000 $(801,000) $(145,000)
======== =========== ========= =========
</TABLE>
9. CONTINGENCIES
LIABILITY INSURANCE
The Hospitals are insured for professional and general liability based on a
claims-made policy. The provision for professional liability and comprehensive
general liability claims includes estimates of the ultimate costs for claims
incurred but not reported, in accordance with actuarial projections based on
past experience. Management is aware of no professional liability claims whose
settlement would have a material adverse effect on The Hospitals' financial
position, results of operations or liquidity.
LITIGATION
The Hospitals are subject to various claims, legal actions and regulatory
investigations which arise in the ordinary course of business, certain of which
could be material. In the opinion of management, the ultimate resolution of such
matters will be adequately covered by insurance and will not have a material
adverse effect on The Hospitals' financial position, results of operations or
liquidity.
F-44
<PAGE> 109
INDEPENDENT AUDITORS' REPORT
The Board of Directors
PSH, Inc.:
We have audited the accompanying balance sheets of PSH, Inc., as of March
31, 1998 and May 31, 1997, and the related statements of income, stockholder's
equity and cash flows for the ten months ended March 31, 1998, the nine months
ended May 31, 1997, the year ended August 31, 1996 and the three months ended
August 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PSH, Inc. at March 31, 1998
and May 31, 1997, and the results of its operations and its cash flows for the
ten months ended March 31, 1998, the nine months ended May 31, 1997, the year
ended August 31, 1996 and the three months ended August 31, 1995 in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Seattle, Washington
June 25, 1998
F-45
<PAGE> 110
PSH, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, MAY 31,
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 2,226 $ 1,936
Patient accounts receivable, net of allowance for doubtful
accounts of $646,280 in 1998 and $1,155,924 in 1997.... 4,276,580 4,897,315
Due from parent........................................... 1,007,696 --
Other receivables, net.................................... 809,224 625,459
Inventories............................................... 281,681 285,208
Deferred income taxes..................................... 704,448 870,309
Prepaid expenses.......................................... 74,348 48,679
----------- -----------
Total current assets.............................. 7,156,203 6,728,906
Property and equipment, net................................. 12,774,585 12,834,879
Intangible assets, net of accumulated amortization of
$213,430 in 1998 and $99,917 in 1997...................... 358,770 445,083
Other assets................................................ -- 4,900
----------- -----------
Total assets...................................... $20,289,558 $20,013,768
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Bank overdraft............................................ $ 111,297 $ 301,970
Accounts payable and other accrued expenses............... 1,505,382 1,633,183
Accrued salaries and benefits............................. 1,250,834 1,270,324
Due to parent............................................. -- 2,398,162
Estimated third-party payor settlements................... 1,716,370 1,001,612
----------- -----------
Total current liabilities......................... 4,583,883 6,605,251
Deferred income taxes....................................... 2,217,359 2,253,059
Payable to parent for income taxes.......................... 3,587,773 2,880,330
Stockholder's equity:
Common stock, par value $100; authorized 2,500 shares,
issued and outstanding 10 shares....................... 1,000 1,000
Additional paid-in capital................................ 7,551,000 7,551,000
Retained earnings......................................... 2,348,543 723,128
----------- -----------
Total stockholder's equity........................ 9,900,543 8,275,128
Commitments and contingencies...............................
----------- -----------
Total liabilities and stockholder's equity........ $20,289,558 $20,013,768
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-46
<PAGE> 111
PSH, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
TEN MONTHS NINE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED ENDED
MARCH 31, MAY 31, AUGUST 31, AUGUST 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Net patient service revenue............... $24,334,212 $22,084,726 $28,869,640 $8,358,881
Other revenue............................. 536,240 504,544 528,668 163,085
----------- ----------- ----------- ----------
Net operating revenues............ 24,870,452 22,589,270 29,398,308 8,521,966
----------- ----------- ----------- ----------
Expenses:
Salaries and benefits..................... 11,121,259 10,181,673 12,415,928 2,867,121
Professional fees......................... 3,250,705 2,891,612 3,390,418 859,315
Supplies.................................. 1,820,600 1,743,844 2,720,045 598,783
Provision for doubtful accounts........... 2,130,381 1,609,537 1,352,890 632,478
Other..................................... 3,164,350 3,659,986 4,673,128 1,050,665
Depreciation and amortization............. 919,340 727,358 994,572 288,775
Interest.................................. 798 3,582 103,807 109,519
----------- ----------- ----------- ----------
24,407,433 20,817,592 25,650,788 6,406,656
----------- ----------- ----------- ----------
Income before income tax expense....... 2,463,019 1,771,678 3,747,520 2,115,310
Provision for income taxes.................. 837,604 601,983 1,276,248 719,000
----------- ----------- ----------- ----------
Net income............................. $ 1,625,415 $ 1,169,695 $ 2,471,272 $1,396,310
=========== =========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-47
<PAGE> 112
PSH, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
COMMON PAID-IN EARNINGS STOCKHOLDER'S
STOCK CAPITAL (DEFICIT) EQUITY
<S> <C> <C> <C> <C>
Balances as of May 31, 1995...................... $1,000 $7,551,000 $(4,314,149) $3,237,851
Net income....................................... -- -- 1,396,310 1,396,310
------ ---------- ----------- ----------
Balances as of August 31, 1995................... 1,000 7,551,000 (2,917,839) 4,634,161
Net income....................................... -- -- 2,471,272 2,471,272
------ ---------- ----------- ----------
Balances as of August 31, 1996................... 1,000 7,551,000 (446,567) 7,105,433
Net income....................................... -- -- 1,169,695 1,169,695
------ ---------- ----------- ----------
Balances as of May 31, 1997...................... 1,000 7,551,000 723,128 8,275,128
Net income....................................... -- -- 1,625,415 1,625,415
------ ---------- ----------- ----------
Balances as of March 31, 1998.................... $1,000 $7,551,000 $ 2,348,543 $9,900,543
====== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-48
<PAGE> 113
PSH, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTHS NINE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED ENDED
MARCH 31, MAY 31, AUGUST 31, AUGUST 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $1,625,415 $1,169,695 $2,471,272 $1,396,310
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 919,340 727,358 994,572 288,775
Provision for doubtful accounts......... 2,130,381 1,609,537 1,352,890 632,478
Provision for income taxes.............. 837,604 601,983 1,276,248 719,000
Changes in operating assets and
liabilities:
Patient accounts receivable.......... (1,509,646) (2,005,991) (1,197,426) (722,443)
Other receivables.................... (183,765) (201,254) 90,909 (48,938)
Inventories.......................... 3,527 (36,137) 27,711 (35,656)
Prepaid expenses..................... (25,669) 147,589 (174,763) 56,173
Accounts payable and other accrued
expenses........................... (117,828) 184,954 214,839 (218,963)
Accrued salaries and benefits........ (19,490) 202,026 61,435 (105,186)
Estimated third-party payor
settlements........................ 714,758 (177,878) (92,788) (516,299)
Due from or to Parent................ (3,405,858) (1,382,001) (3,873,044) (1,330,996)
Other................................ 4,900 -- (4,507) 3,259
---------- ---------- ---------- ----------
Net cash provided by operating
activities......................... 973,669 839,881 1,147,348 117,514
---------- ---------- ---------- ----------
Cash flows from investing activities:
Purchase of property and equipment........... (745,533) (892,218) (575,586) (232,027)
Purchase of intangible assets................ (27,200) -- (545,000) --
---------- ---------- ---------- ----------
Net cash used in investing
activities......................... (772,733) (892,218) (1,120,586) (232,027)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Repayments of notes payable.................. -- (10,209) (40,136) (10,622)
Bank overdraft............................... (190,673) 54,714 29,574 102,124
Other........................................ (9,973) (10,688) (17,258) --
---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities............... (200,646) 33,817 (27,820) 91,502
---------- ---------- ---------- ----------
Net increase (decrease) in cash...... 290 (18,520) (1,058) (23,011)
Cash at beginning of period.................... 1,936 20,456 21,514 44,525
---------- ---------- ---------- ----------
Cash at end of period.......................... $ 2,226 $ 1,936 $ 20,456 $ 21,514
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-49
<PAGE> 114
PSH, INC.
NOTES TO FINANCIAL STATEMENTS
TEN MONTHS ENDED MARCH 31, 1998, THE NINE
MONTHS ENDED MAY 31, 1997, THE YEAR ENDED
AUGUST 31, 1996 AND THE THREE MONTHS ENDED AUGUST 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
PSH Inc. (the Company), a wholly owned subsidiary of Tenet Healthcare
Corporation (the Parent), owns and operates a general hospital serving the
Tacoma and surrounding Pierce County, Washington community. The hospital,
licensed for 160 beds, including 49 medical/surgical, 49 psychiatric, 54
chemical dependency and 8 intensive care beds, offers a wide range of
inpatient and outpatient medical services and also provides specialty
services including psychiatry, chemical dependency treatment, beriatric
surgery, home health and hospice care.
(B) PATIENT ACCOUNTS RECEIVABLE
Patient accounts receivable consists of amounts owed by various
governmental agencies, insurance companies and private patients. The
Company regularly reviews its accounts receivable to provide an appropriate
allowance for uncollectible accounts.
(C) INVENTORIES
Inventories are comprised primarily of drugs and medical supplies and are
stated at the lower of cost, determined on a first-in, first-out basis, or
market.
(D) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Routine maintenance and
repairs are charged to expense as incurred. Expenditures for major
improvements that extend useful lives or increase values are capitalized.
Depreciation and amortization are provided on the straight-line method over
the estimated useful lives of the assets as follows: land
improvements -- 15 years; buildings -- 20 to 30 years; building
improvements -- 5 to 20 years; equipment and fixtures -- 3 to 15 years.
(E) INTANGIBLE ASSETS
Intangible assets consist primarily of patient charts acquired in the
purchase of medical practices. Amortization is provided on the
straight-line method over estimated useful lives of 5 years.
(F) IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets, including intangible assets, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed
the fair value of the assets.
(G) NET PATIENT SERVICE REVENUE
Net patient service revenue is reported at the estimated net realizable
amounts from patients, third-party payors and others for services rendered,
including estimated retroactive adjustments under reimbursement agreements
with third-party payors. Retroactive adjustments are accrued on an
estimated basis in
F-50
<PAGE> 115
PSH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the period the related services are rendered and adjusted in future periods
as final settlements are determined.
The Company provides care to patients who meet certain criteria under its
charity care policy without charge or at amounts less than its established
rates. Because the Company does not pursue collection of amounts determined
to qualify as charity care, they are not reported as patient service
revenue.
(H) INCOME TAXES
The Company and its Parent file a consolidated federal income tax return.
Income taxes are provided as if the Company was a separate taxpaying entity
and these income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates
is recognized as income in the period that includes the enactment date.
(I) FINANCIAL INSTRUMENTS
The Company has financial instruments consisting of cash, patient accounts
receivable, accounts payable, and amounts due from and to parent. The fair
value of these financial instruments approximates their carrying amount
based upon their short term nature.
(J) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of expenses during the
reporting periods. Actual results could differ from those estimates.
(2) NET PATIENT SERVICE REVENUE
The Company has agreements with third-party payors that provide for
payments to the Company at amounts different from its established rates. A
summary of the payment arrangements with major third-party payors follows:
MEDICARE
Inpatient acute care services rendered to Medicare program beneficiaries
are paid at prospectively determined rates per discharge. These rates vary
according to a patient classification system that is based on clinical,
diagnostic, and other factors. Inpatient nonacute services and certain
outpatient services related to Medicare beneficiaries are paid based on a
cost reimbursement methodology. The Company is reimbursed for cost
reimbursable items at a tentative rate with final settlement determined
after submission of an annual cost report by the Company and audit thereof
by the Medicare fiscal intermediary. The Company's classification of
patients under the Medicare program and the appropriateness of their
admission are subject to an independent review by a peer review
organization under contract with the Company.
F-51
<PAGE> 116
PSH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MEDICAID
Inpatient services rendered to Medicaid beneficiaries are paid at
prospectively determined rates per day for a covered period of days.
Certain outpatient services are reimbursed based upon a cost reimbursement
methodology. Final reimbursement rates and amounts for these services are
determined after submission of annual cost reports by the Company and
audits by third-party intermediaries. Other outpatient services are
reimbursed based on a fee schedule.
OTHER
The Company has payment agreements with certain commercial insurance
carriers, health maintenance organizations, and preferred provider
organizations. The basis for payment to the Company under these agreements
includes prospectively determined rates per discharge, discounts from
established charges, and prospectively determined daily rates.
BUSINESS AND CREDIT CONCENTRATIONS
In the course of providing health care services through its inpatient and
outpatient care facilities, the Company grants credit to patients and
generally does not require collateral or other security in extending
credit; however, it routinely obtains assignment of (or is otherwise
entitled to receive) patients' benefits payable under their health
insurance programs, plans or policies (e.g., Medicare, Medicaid, Blue
Cross, health maintenance organizations, preferred provider organizations
and commercial insurance policies).
Net receivables from Medicare, Medicaid and managed care organizations
amounted to $1,057,063, $744,826 and $1,499,102 as of March 31, 1998 and
$1,324,570, $1,252,476 and $1,551,561 as of May 31, 1997, respectively.
Approximately 52%, 58%, 58% and 56% of net patient service revenue are from
participation in the Medicare and state sponsored Medicaid programs for the
ten months ended March 31, 1998, the nine months ended May 31, 1997, the
year ended August 31, 1996 and the three months ended August 31, 1995,
respectively.
(3) PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
<CAPTION>
MARCH 31, MAY 31,
1998 1997
<S> <C> <C>
Land and improvements..................................... $ 1,108,349 $ 1,108,349
Buildings and improvements................................ 14,801,235 14,846,376
Equipment and fixtures.................................... 11,326,798 10,536,124
----------- -----------
27,236,382 26,490,849
Less accumulated depreciation and amortization............ 14,461,797 13,655,970
----------- -----------
$12,774,585 $12,834,879
=========== ===========
</TABLE>
(4) LEASE OBLIGATIONS
The Company leases office space and various equipment under noncancelable
operating lease agreements expiring at various dates through August 31, 2001.
Rent expense, including short-term rentals and expenditures in lieu of rent, was
$654,208, $645,603, $809,801 and $202,536 for the ten months ended March 31,
1998, the nine months ended May 31, 1997, the year ended August 31, 1996 and the
three months ended
F-52
<PAGE> 117
PSH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
August 31, 1995, respectively. A summary of future minimum lease payments due
under the operating leases as of March 31, 1998, is as follows:
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
<S> <C>
1999...................................................... $350,377
2000...................................................... 210,466
2001...................................................... 64,105
2002...................................................... 20,620
--------
$645,568
========
</TABLE>
The Company leases a portion of the facility and office space under
operating leases expiring at various dates through October 14, 2001. Approximate
minimum future rental receipts due under the operating leases as of March 31,
1998, is as follows:
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
<S> <C>
1999...................................................... $221,576
2000...................................................... 87,576
2001...................................................... 87,576
2002...................................................... 47,437
--------
$444,165
========
</TABLE>
(5) RETIREMENT PLAN
The Company has a 401(k) plan available for employees through the
sponsorship of the Parent. All employees who have completed one year of service
are eligible for the plan. Company contributions under the plan are provided at
specified rates according to the rate of employee contributions. Total expense
under the plan was $69,469, $132,159, $111,582, $2,836 for the ten months ended
March 31, 1998, the nine months ended May 31, 1997, the year ended August 31,
1996 and the three months ended August 31, 1995, respectively.
(6) INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
NINE
TEN MONTHS MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED ENDED
MARCH 31, MAY 31, AUGUST 31, AUGUST 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
Current.............................. $ 707,443 $919,100 $1,125,878 $709,000
Deferred............................. 130,161 (317,117) 150,370 10,000
---------- -------- ---------- --------
$ 837,604 $601,983 $1,276,248 $719,000
========== ======== ========== ========
</TABLE>
F-53
<PAGE> 118
PSH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
MARCH 31, MAY 31,
1998 1997
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 219,735 $ 393,014
Net intangibles........................................... 51,208 22,648
Accrued vacation.......................................... 262,553 255,135
Other accrued expenses.................................... 221,000 221,000
Other..................................................... 1,160 1,160
----------- -----------
Total deferred tax assets......................... 755,656 892,957
Deferred tax liabilities --
property and equipment.................................... (2,268,567) (2,275,707)
----------- -----------
Net deferred tax liability........................ $(1,512,911) $(1,382,250)
=========== ===========
</TABLE>
(7) RELATED PARTY TRANSACTIONS
As a wholly owned subsidiary of the Parent, expenses such as employee
benefits, insurance coverage, information systems, legal fees, interest and
other costs are allocated to the Company by the Parent. Total expenses paid by
the Parent and allocated to the Company were $2,746,720, $2,368,012, $3,110,766
and $698,949 for the ten months ended March 31, 1998, the nine months ended May
31, 1997, the year ended August 31, 1996 and the three months ended August 31,
1995, respectively. During the periods ended May 31, 1997, August 31, 1996 and
August 31, 1995, the Company was also charged a management fee by the Parent.
The management fees charged to the Company were $971,710, $1,203,788 and
$344,699 for the nine months ended May 31, 1997, the year ended August 31, 1996
and the three months ended August 31, 1995, respectively. There were no
management fees charged to the Company for the ten months ended March 31, 1998.
The Company maintains cash accounts for depository and cash disbursement
purposes. The Parent sweeps daily deposits from the Company's cash accounts and
funds the daily disbursement requirements. The due from and due to parent
balances result from the cash sweep, cash funding and expense allocation
activity.
(8) CONTINGENCIES
The Company has environmental soil contamination resulting from leakage of
oil storage tanks located on the Company's property. Environmental consultants
have developed a workplan to remediate existing contamination which must be
approved by the Washington State Department of Ecology. Once the workplan is
approved, remediation may begin. Full remediation of the contamination cannot
take place as the oil storage tanks are located under one of the Company's main
buildings. Based on discussions with the State of Washington, the Company will
be required to complete a partial remediation of the affected area with a full
clean up upon demolition of the building or conversion of the property for a
purpose other than hospital operations.
Management believes that the Company's probable, non discounted net
liability for partial remediation ranges from $450,000 to $700,000 of which
$450,000 has been accrued in the accompanying financial statements. The total
estimated cost of full remediation is currently not estimable due to the
location of the contaminated area.
The Company is subject to various other claims and legal actions which
arise in the ordinary course of business, certain of which could be material. In
the opinion of management, the ultimate resolution of such
F-54
<PAGE> 119
PSH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
matters will be adequately covered by the insurance and will not have a material
adverse effect on the Company's financial position, results of operations or
liquidity.
(9) SALE OF ASSETS
In December 1997, the Company entered into a definitive agreement to sell
substantially all of its assets to New American Healthcare Corporation for
$25,000,000, plus an amount equal to the book value of selected working capital
accounts. This sale is contingent upon the resolution of the environmental
remediation discussed in note 8.
F-55
<PAGE> 120
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH COMMON STOCK IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
The Reincorporation................... 17
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Pro Forma Condensed Combined Financial
Information......................... 21
Selected Historical Financial and
Operating Data...................... 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 27
Business.............................. 31
Management............................ 47
Certain Relationships and Related
Transactions........................ 52
Principal and Selling Stockholders.... 55
Description of Capital Stock.......... 56
Shares Eligible for Future Sale....... 60
Underwriting.......................... 62
Legal Matters......................... 63
Experts............................... 63
Additional Information................ 64
Index to Financial Statements......... F-1
</TABLE>
------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
SHARES
(NEW AMERICAN HEALTHCARE LOGO)
COMMON STOCK
------------------
PROSPECTUS
------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
SUNTRUST EQUITABLE SECURITIES
, 1998
======================================================
<PAGE> 121
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated costs and expenses (all of
which will be paid by the Registrant) in connection with the Offering described
in the Registration Statement.
<TABLE>
<S> <C>
Commission Registration Fee................................. $ 33,925
NASD Filing Fee............................................. 12,000
New York Stock Exchange Listing Fee......................... 91,600
Blue Sky Fees and Expenses.................................. 10,000
Printing and Engraving Expenses............................. 205,000
Legal Fees and Expenses..................................... 500,000
Auditors' Fees and Expenses................................. 1,200,000
Transfer Agent and Registrar Fees and Expenses.............. 11,500
Miscellaneous............................................... 35,975
----------
Total....................................................... $2,100,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) The Delaware General Corporation Law (the "DGCL") provides that a
corporation may indemnify any of its directors against liability incurred in
connection with a proceeding if (i) the director acted in good faith, (ii) the
director reasonably believed that his or her conduct was not opposed to the best
interest of the corporation, and (iii) in connection with any criminal
proceeding, the director had no reasonable cause to believe that his or her
conduct was unlawful. In actions brought by or in the right of the corporation,
however, the DGCL provides that if the director was adjudged to be liable to the
corporation, only the Court of Chancery of the State of Delaware or the court in
which such action was brought may approve such indemnity.
(b) Article Ten of the Certificate of Incorporation of the Registrant sets
forth the extent to which officers or directors of the Registrant may be insured
or indemnified against any liabilities which they may incur. The general effect
of such provision is that any person made a party to any action, suit or
proceeding by reason of the fact that he or she is or was a director or officer
of the Registrant will be indemnified by the Registrant against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding, to the fullest extent permitted under the laws of the State
of Delaware. In addition, such provision provides that, in the Registrant's sole
discretion, the Registrant may indemnify employees or agents against such
expenses, judgments, fines and amounts paid in settlement. The Company intends
to purchase a policy of directors' and officers' insurance that would in certain
instances provide the funds necessary for the Registrant to meet its obligations
under its Certificate of Incorporation.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the original capitalization of the Company, on August
28, 1995 and October 9, 1995, the Company sold an aggregate of 2,500,000 and
300,000, respectively, shares of its Common Stock to certain members of
management. In order to obtain working and acquisition capital, on December 27,
1995, the Company sold an aggregate of 5,026,500 shares of its Common Stock to
Welsh, Carson, Anderson & Stowe VII, L.P., WCAS Healthcare Partners, L.P.,
certain members of management and certain other investors. In order to obtain
working capital and induce management ownership, on February 8, 1996, the
Company sold 200,000 shares of its Common Stock to Neil G. McLean. The aggregate
purchase price for all such purchases was approximately $1,607,950.
In order to obtain working and acquisition capital, on July 31, 1996, the
Company sold an aggregate of 150,000 shares of its Series B Convertible
Preferred Stock ("Series B Preferred Stock") to Welsh, Carson,
II-1
<PAGE> 122
Anderson & Stowe VII, L.P., certain members of management and certain other
investors. In order to obtain working and acquisition capital, on April 2, 1997,
the Company sold 11,185.5 shares of its Series B Preferred Stock to Welsh,
Carson, Anderson & Stowe VII, L.P., certain members of management and certain
other investors. In order to obtain acquisition capital, on April 30, 1997 and
May 16, 1997, the Company sold an aggregate of 57,500 and 16,314.5 shares,
respectively, of its Series B Preferred Stock to Welsh, Carson, Anderson & Stowe
VII, L.P. and certain other investors. The aggregate purchase price for all such
purchases was approximately $23,500,000.
In order to obtain working capital, on April 2, 1997, the Company sold an
aggregate of 1,575 shares of Series A Non-convertible Cumulative Preferred Stock
(Series A Preferred Stock) to certain members of management. In order to obtain
acquisition capital, on May 16, 1997, July 31, 1997 and January 30, 1998, the
Company sold an aggregate of 51,185.5, 20,000, and 177,239.5 shares,
respectively of Series A Preferred Stock to Welsh, Carson, Anderson & Stowe VII,
L.P. and certain other investors. The aggregate purchase price for all such
purchases was approximately $25,000,000.
In connection with the issuance of the $25,000,000 of Subordinated Debt, on
January 30, 1998, the Company issued a Warrant to purchase 565,000 shares of
Common Stock to WCAS Capital Partners III, L.P.
All of the sales described above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) thereof, as transactions not
involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
1 -- Form of Underwriting Agreement.
*3.1 -- Articles of Incorporation of the Registrant.
*3.2 -- Bylaws of the Registrant.
4.1 -- Provisions of Articles of Incorporation defining the rights
of security holders. See Exhibit 3.1.
*4.2 -- Form of Common Stock certificate.
*5 -- Opinion of Harwell Howard Hyne Gabbert & Manner, P.C.
*10.1 -- Form of Executive Non-Compete and Severance Agreements.
10.2 -- Lease Agreement dated May 22, 1996 between New American
Healthcare Corporation, as Tenant, and James W. Ayers, as
Landlord, as amended by First Amendment to Lease dated
October 10, 1996 between Highwoods/Forsyth Ltd. Partnership
(as successor to James W. Ayers) and New American Healthcare
Corporation and further amended by Second Amendment to Lease
dated June 10, 1998 between Highwoods/Forsyth Ltd.
Partnership (as successor to James W. Ayers) and New
American Healthcare Corporation for the office space located
in Brentwood, Tennessee.
10.3 -- Securities Purchase Agreement dated as of January 30, 1998
among the Registrant and WCAS Capital Partners III, L.P.
10.4 -- 10% Senior Subordinated Note due January 30, 2008 made by
the Registrant in favor of WCAS Capital Partners III, L.P.
in the principal amount of $25 million.
10.6 -- Stock Subscription Warrant dated January 30, 1998 from the
Registrant to WCAS Capital Partners III, L.P.
10.7 -- Securities Purchase Agreement dated as of December 19, 1995
among the Registrant, Welsh, Carson, Anderson & Stowe VII,
L.P. and the several other purchasers named in Annex I, as
amended.
10.8 -- Registration Rights Agreement dated December 19, 1995 by and
among the Registrant, Welsh, Carson, Anderson & Stowe VII,
L.P. and the several purchasers named in Annex I, as
amended.
</TABLE>
II-2
<PAGE> 123
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
10.9 -- Stockholders Agreement dated December 19, 1995 by and among
the Registrant, Welsh, Carson, Anderson & Stowe VII, L.P.
and several parties named in Schedule I, as amended.
10.10 -- Restricted Stock Agreement dated December 19, 1995 by and
among the Registrant, Welsh, Carson, Anderson & Stowe VII,
L.P. the several other investors named in Annex I and the
several individuals named in Annex II.
10.11 -- Asset Purchase Agreement effective August 1, 1996, between
Doctors Hospital - Wentzville, L.P., as Seller, and NAHC of
Missouri, Inc., as Buyer.
10.12 -- Consulting Agreement dated August 1, 1996 between Jack B.
Bailey and New American Healthcare Corporation.
10.13 -- Amended and Restated Credit Agreement dated as of January
30, 1998 between New American Healthcare Corporation,
Toronto Dominion (Texas), Inc. for itself and as Agent on
behalf of the Banks and the Issuing Bank.
10.14 -- Promissory Note dated January 30, 1998 in the amount of
$30,000,000 made by the Company in favor of Toronto Dominion
(Texas), Inc.
10.15 -- Promissory Note dated January 30, 1998 in the amount of
$25,000,000 made by the Company in favor of NationsBank,
N.A.
10.16 -- Promissory Note dated January 30, 1998 in the amount of
$10,000,000 made by the Company in favor of AmSouth Bank of
Tennessee.
10.17 -- Promissory Note dated January 30, 1998 in the amount of
$15,000,000 made by the Company in favor of Corestates Bank,
N.A.
10.18 -- Promissory Note dated January 30, 1998 in the amount of
$10,000,000 made by the Company in favor of Banque Paribas.
10.19 -- Promissory Note dated January 30, 1998 in the amount of
$12,500,000 made by the Company in favor of First American
National Bank.
10.20 -- Promissory Note dated January 30, 1998 in the amount of
$15,000,000 made by the Company in favor of National City
Bank, Kentucky.
10.21 -- Promissory Note dated January 30, 1998 in the amount of
$15,000,000 made by the Company in favor of BankOne, N.A.
10.22 -- Amended and Restated Security Agreement dated January 30,
1998 by and between the Company and Toronto Dominion
(Texas), Inc. as Agent.
10.23 -- Amended and Restated Stock Pledge Agreement dated as of
January 30, 1998 between New American Healthcare Corporation
and Toronto Dominion (Texas), Inc. for itself and as Agent
on behalf of the Banks and the Issuing Bank.
10.24 -- Form of Subsidiary Security Agreement dated as of January
30, 1998 between each of the Company's subsidiaries and
Toronto Dominion (Texas), Inc. for itself and as Agent on
behalf of the Banks and the Issuing Bank.
10.25 -- Form of Subsidiary Guaranty dated as of January 30, 1998
between each of the Company's subsidiaries and Toronto
Dominion (Texas), Inc. for itself and as Agent on behalf of
the Banks and the Issuing Bank.
10.26 -- Stock Purchase Agreement effective May 1, 1997 among Larry
F. McFall, Phil Sanderson, D.L. Patterson, Charles F.
Daniel, Sam C. Yeager, Mack R. Choplin, David R. Carver and
Timothy L. Yeager, as Shareholders, Southeastern Hospital
Corporation, Park Healthcare Company (Southeastern and Park,
as Sellers) and New American Healthcare Corporation with
respect to the stock of Center Hospital, Inc. d/b/a Memorial
Hospital of Center.
10.27 -- Asset Purchase Agreement dated May 1, 1997 among Eastwood
Hospital, Inc., as Seller, the Shareholder of Seller, and
NAHC of Tennessee, Inc., as Buyer, and New American
Healthcare Corporation, as Parent.
10.28 -- Interim Management Agreement dated May 16, 1997 between
Eastwood Hospital, Inc. and NAHC of Tennessee, Inc. with
respect to the mental health outpatient facility located at
3960 Knight Arnold Road, Suite 303, Memphis, Tennessee
38118.
</TABLE>
II-3
<PAGE> 124
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
10.29 -- Asset Purchase Agreement effective August 1, 1997 by and
among The Dolly V L.C., as Seller, the Members of Seller,
and NAHC II of Texas, Inc., as Buyer (Dolly Vinsant Memorial
Hospital).
*10.30 -- Asset Sale Agreement dated as of December 22, 1997 among New
American Healthcare Corporation, as Buyer, and Davenport
Medical Center, Inc., EGH, Inc., Qualicare of Wyoming, Inc.
and Woodland Park Hospital, Inc. (collectively, Seller), as
assigned to the respective subsidiaries of NAHC by that
certain Assignment of Asset Sale Agreement dated January 30,
1998.
10.31 -- Assignment and Assumption of Lease (Lander Valley Medical
Center) effective February 1, 1998 between Qualicare of
Wyoming, Inc. and NAHC of Wyoming, Inc. with respect to that
certain Lease dated July 10, 1982 between the City of
Lander, as lessor, and Lander Valley Regional Medical
Center, as lessee, as modified by Amendment No. One to Lease
dated April 24, 1985 and the First Amendment to Lease dated
July 1, 1991.
10.32 -- Assignment and Assumption of Lease (Woodland Park Hospital)
effective February 1, 1998 between Woodland Park Hospital,
Inc. (Assignor) and NAHC of Oregon, Inc. (Assignee) with
respect to that certain Lease dated December 27, 1968
between Woodland Park Corporation (predecessor-in-interest
to The Les Ashbar Trust; Ernest B. Martin, The Connie L.
McNight Trust dated April 6, 1993; David L. Harris as
Successor Trustee FBO Joan K. Bailey (nka Joan K. Ayala),
Marti Ridout and Jan L. Schilded; A.E. Brim; Milton Zusman,
Melvin Weinstein; Melvin Weinstein and Anne Weinstein,
Trustees U/T/A dated April 7, 1992, Michael Zusman, Steven
Zusman, Bruce Weinstein and Lisa Marie Weinstein) and
W.P.H., Inc. (Assignor's predecessor-in-interest), as
amended by Amendment to Lease dated March 4, 1971, as
assigned by Notice of Assignment of Lease and Authorization
for Payment of Lease Rentals dated April 1, 1972 and as
further amended by Second Amendment to Lease dated January
30, 1998.
10.33 -- License Agreement (Pulse Health Services) dated as of
January 31, 1998 among Tenet HealthSystem HealthCorp, NAHC
of Oregon, Inc. and New American Healthcare Corporation.
10.34 -- License Agreement (Pulse Home Health) dated as of January
31, 1998 among Tenet HealthSystem HealthCorp, NAHC of Iowa,
Inc. and New American Healthcare Corporation.
10.35 -- Asset Sale Agreement dated as of December 22, 1997 between
New American Healthcare Corporation, as Buyer, and PSH,
Inc., as Seller.
10.36 -- Agreement dated March 23, 1998 between Healthcare Management
Systems, Inc. and New American Healthcare Corporation
(management information systems).
*10.37 -- New American Healthcare Corporation Stock Option Plan.
*10.38 -- New American Stock Purchase Plan.
*11 -- Statement re Computation of Common Stock Pro Forma Income
Per Share.
21 -- Subsidiaries of the Registrant.
23.1 -- Consents of KPMG Peat Marwick LLP.
23.2 -- Consent of Harwell Howard Hyne Gabbert & Manner, P.C.
(included in Exhibit 5)
24.1 -- Power of Attorney (included on page II-6).
27.1 -- Financial Data Schedule (for SEC use only).
</TABLE>
- ------------------------------
* To be filed by amendment
(b) Financial Statement Schedules and Reports
Schedule II -- Valuation and Qualifying Accounts
II-4
<PAGE> 125
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted against the Registrant by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 126
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Brentwood, State of
Tennessee, on June 26, 1998.
NEW AMERICAN HEALTHCARE CORPORATION
By: /s/
--------------------------------------
Robert M. Martin
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature to the Registration Statement appears below
hereby appoints Robert M. Martin and Dana C. McLendon, Jr., and each of them,
any one of whom may act without the joinder of the other, as his
attorney-in-fact to execute in the name and on behalf of any such person,
individually and in the capacity stated below, and to file all amendments and
post-effective amendments to this Registration Statement, and including any
registration statement for the same offering that is to be effective upon filing
pursuant to rule 462(b) under the Securities Act, as amended, which amendment or
amendments may make such changes and additions in this Registration Statement as
such attorney-in-fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Chief Executive Officer, June 26, 1998
- ----------------------------------------------------- President, Chairman of the
Robert M. Martin Board (Principal Executive
Officer).
/s/ Senior Vice President of June 26, 1998
- ----------------------------------------------------- Finance and Administration,
Dana C. McLendon, Jr. Director (Principal Financial
and Accounting Officer)
/s/ Director June 26, 1998
- -----------------------------------------------------
Richard H. Stowe
/s/ Director June 26, 1998
- -----------------------------------------------------
James B. Hoover
/s/ Director June 26, 1998
- -----------------------------------------------------
David A. Jensen
/s/ Director June 26, 1998
- -----------------------------------------------------
Jeptha W. Dalston
/s/ Director June 26, 1998
- -----------------------------------------------------
Paul B. Queally
</TABLE>
II-6
<PAGE> 127
NEW AMERICAN HEALTHCARE CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
---------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE(1) DESCRIBE(2) PERIOD
----------- ---------- ---------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended March 31, 1997:
Allowance for doubtful accounts... -- 534,292 3,031,918 (2,984,210) 582,000
Year Ended March 31, 1998:
Allowance for doubtful accounts... 582,000 7,836,565 4,761,368 (4,007,933) 9,172,000
</TABLE>
- ------------------------------
(1) Represents allowance for doubtful accounts acquired in acquisitions.
(2) Accounts written off, net of recoveries.
<PAGE> 1
EXHIBIT 1
__________ Shares
NEW AMERICAN HEALTHCARE CORPORATION
Common Stock
UNDERWRITING AGREEMENT
__________, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
SUNTRUST EQUITABLE SECURITIES CORPORATION
As representatives of the several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
New American Healthcare Corporation, a Delaware corporation (the
"Company"), proposes to issue and sell to the several Underwriters named in
Schedule I hereto (the "Underwriters") ____________ shares of the common stock,
$.01 par value per share, of the Company (the "Firm Shares"), all of which are
to be issued and sold by the Company. The Company also proposes to issue and
sell to the several Underwriters not more than an additional _________ shares of
its common stock, $.01 par value per share (the "Additional Shares"), if
requested by the Underwriters as provided in Section 2 hereof. The Firm Shares
and the Additional Shares are hereinafter collectively referred to as the
"Shares". The shares of common stock of the Company to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the "Common Stock".
Section 1. Registration Statement and Prospectus. The Company has prepared
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1, including a prospectus, relating
to the Shares. The registration
<PAGE> 2
statement, as amended at the time it became effective, including the information
(if any) deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to as
the "Registration Statement"; and the prospectus in the form first used to
confirm sales of Shares is hereinafter referred to as the "Prospectus". If the
Company has filed or is required pursuant to the terms hereof to file a
registration statement pursuant to Rule 462(b) under the Act registering
additional shares of Common Stock (a "Rule 462(b) Registration Statement"),
then, unless otherwise specified, any reference herein to the term "Registration
Statement" shall be deemed to include such Rule 462(b) Registration Statement.
Section 2. Agreements to Sell and Purchase and Lock-Up Agreements. On
the basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, (i) the Company agrees to issue and sell to
the Underwriters __________ Firm Shares and (ii) each Underwriter agrees,
severally and not jointly, to purchase from the Company at a price per Share of
$______ (the "Purchase Price") the number of Firm Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Firm Shares to be sold by the Company as
the number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I hereto bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell the Additional Shares and the Underwriters shall have the right to
purchase, severally and not jointly, up to _______ Additional Shares from the
Company at the Purchase Price. Additional Shares may be purchased solely for the
purpose of covering over-allotments made in connection with the offering of the
Firm Shares. The Underwriters may exercise their right to purchase Additional
Shares in whole or in part from time to time by giving written notice thereof to
the Company within 30 days after the date of this Agreement. You shall give any
such notice on behalf of the Underwriters and such notice shall specify the
aggregate number of Additional Shares to be purchased pursuant to such exercise
and the date for payment and delivery thereof, which date shall be a business
day (i) no earlier than two business days after such notice has been given (and,
in any event, no earlier than the Closing Date (as hereinafter defined)) and
(ii) no later than ten business days after such notice has been given. If any
Additional Shares are to be purchased, each Underwriter, severally and not
jointly, agrees to purchase from the Company the number of Additional Shares
(subject to such adjustments to eliminate fractional shares as you may
determine) which bears the same proportion to the total number of Additional
Shares to be purchased from the Company as the number of Shares set forth
opposite the name of such Underwriter in Schedule I bears to the total number of
Firm Shares.
The Company hereby agrees not to (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable
-2-
<PAGE> 3
for Common Stock or (ii) enter into any swap or other arrangement that transfers
all or a portion of the economic consequences associated with the ownership of
any Common Stock (regardless of whether any of the transactions described in
clause (i) or (ii) is to be settled by the delivery of Common Stock, or such
other securities, in cash or otherwise), except to the Underwriters pursuant to
this Agreement, for a period of 180 days after the date of the Prospectus
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. Notwithstanding the foregoing, during such period (i) the Company
may grant stock options pursuant to the Company's existing stock option plan and
(ii) the Company may issue shares of Common Stock upon the exercise of an option
or warrant or the conversion of a security outstanding on the date hereof. The
Company also agrees not to file any registration statement with respect to any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock for a period of 180 days after the date of the
Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation. The Company shall, prior to or concurrently with the
execution of this Agreement, deliver an agreement executed by (i) each of the
directors and officers of the Company and (ii) each stockholder listed on Annex
I hereto to the effect that such person will not, during the period commencing
on the date such person signs such agreement and ending 180 days after the date
of the Prospectus, without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation, (A) engage in any of the transactions described
in the first sentence of this paragraph or (B) make any demand for, or exercise
any right with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock.
Section 3. Terms of Public Offering. The Company is advised by you that
the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
Section 4. Delivery and Payment. The Shares shall be represented by
definitive certificates and shall be issued in such authorized denominations and
registered in such names as Donaldson, Lufkin & Jenrette Securities Corporation
shall request no later than two business days prior to the Closing Date or the
applicable Option Closing Date (as defined below), as the case may be. The
Shares shall be delivered by or on behalf of the Company, with any transfer
taxes thereon duly paid by the Company, to Donaldson, Lufkin & Jenrette
Securities Corporation through the facilities of The Depository Trust Company
("DTC"), for the respective accounts of the several Underwriters, against
payment to the Company of the Purchase Price therefore by wire transfer of
Federal or other funds immediately available in New York City. The certificates
representing the Shares shall be made available for inspection not later than
9:30 A.M., New York City time, on the business day prior to the Closing Date or
the applicable Option Closing Date (as defined below), as the case may be, at
the office of DTC or its designated custodian (the "Designated Office"). The
time and date of delivery and payment for the Firm Shares shall be 9:00 A.M.,
New York City time, on ________, 1998 or such other time on the same or such
other date as Donaldson, Lufkin & Jenrette Securities Corporation
-3-
<PAGE> 4
and the Company shall agree in writing. The time and date of delivery of the
Firm Shares are hereinafter referred to as the "Closing Date". The time and date
of delivery and payment for any Additional Shares to be purchased by the
Underwriters shall be 9:00 A.M., New York City time, on the date specified in
the applicable exercise notice given by you pursuant to Section 2 or such other
time on the same or such other date as Donaldson, Lufkin & Jenrette Securities
Corporation and the Company shall agree in writing. Each time and date of
delivery of any Additional Shares is hereinafter referred to as an "Option
Closing Date."
The documents to be delivered on the Closing Date or any Option Closing
Date on behalf of the parties hereto pursuant to Section 8 of this Agreement
shall be delivered at the offices of Alston & Bird LLP, One Atlantic Center,
1201 West Peachtree Street, Atlanta, Georgia 30309-3424 and the Shares shall be
delivered at the Designated Office, all on the Closing Date or such Option
Closing Date, as the case may be.
Section 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, (iii) when any amendment to the
Registration Statement becomes effective, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, when the Rule 462(b) Registration Statement has become effective and
(v) of the happening of any event during the period referred to in Section 5(d)
below which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires any additions to or changes
in the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will use
its best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
(b) To furnish to you five (5) signed copies of the Registration
Statement as first filed with the Commission and of each amendment to it,
including all exhibits, and to furnish to you and each Underwriter designated by
you such number of conformed copies of the Registration Statement as so filed
and of each amendment to it, without exhibits, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which shall
be satisfactory to you, and to file the Prospectus in such form with the
Commission within the applicable period specified in Rule 424(b) under the Act;
during the period specified in Section 5(d) below, not to file any further
amendment to the Registration Statement and not to make any amendment or
supplement to the Prospectus of which you
-4-
<PAGE> 5
shall not previously have been advised or to which you shall reasonably object
after being so advised; and, during such period, to prepare and file with the
Commission, promptly upon your reasonable request, any amendment to the
Registration Statement or amendment or supplement to the Prospectus which may be
necessary or advisable in connection with the distribution of the Shares by you,
and to use its best efforts to cause any such amendment to the Registration
Statement to become promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first business
day after the date of this Agreement and from time to time thereafter for such
period as in the opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish in New York City to each Underwriter and any dealer as many
copies of the Prospectus (and of any amendment or supplement to the Prospectus)
as such Underwriter or dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event shall
occur or condition shall exist as a result of which, in the opinion of counsel
for the Underwriters, it becomes necessary to amend or supplement the Prospectus
in order to make the statements therein, in the light of the circumstances when
the Prospectus is delivered to a purchaser, not misleading, or if, in the
opinion of counsel for the Underwriters, it is necessary to amend or supplement
the Prospectus to comply with applicable law, forthwith to prepare and file with
the Commission an appropriate amendment or supplement to the Prospectus so that
the statements in the Prospectus, as so amended or supplemented, will not in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with applicable law, and to furnish to each
Underwriter and to any dealer as many copies thereof as such Underwriter or
dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with
you and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may request, to continue such registration or qualification in effect so
long as required for distribution of the Shares and to file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification; provided, however, that the Company shall
not be required in connection therewith to qualify as a foreign corporation in
any jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation other than
as to matters and transactions relating to the Prospectus, the Registration
Statement, any preliminary prospectus or the offering or sale of the Shares, in
any jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders as soon
as practicable an earnings statement covering the twelve-month period ending
September 30, 1999 that shall satisfy the provisions of Section 11(a) of the
Act, and to advise you in writing when such statement has been so made
available.
-5-
<PAGE> 6
(h) During the period of three years after the date of this
Agreement, to furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of Common Stock or furnished to
or filed with the Commission or any national securities exchange on which any
class of securities of the Company is listed and such other publicly available
information concerning the Company and its subsidiaries as you may reasonably
request.
(i) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of its obligations under this Agreement,
including: (i) the fees, disbursements and expenses of the Company's counsel and
the Company's accountants in connection with the registration and delivery of
the Shares under the Act and all other fees and expenses in connection with the
preparation, printing, filing and distribution of the Registration Statement
(including financial statements and exhibits), any preliminary prospectus, the
Prospectus and all amendments and supplements to any of the foregoing, including
the mailing and delivering of copies thereof to the Underwriters and dealers in
the quantities specified herein, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) all costs of printing or producing this
Agreement and any other agreements or documents in connection with the offering,
purchase, sale or delivery of the Shares, (iv) all expenses in connection with
the registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the several states and all costs of printing or
producing any Preliminary and Supplemental Blue Sky Memoranda in connection
therewith (including the filing fees and fees and disbursements of counsel for
the Underwriters in connection with such registration or qualification and
memoranda relating thereto), (v) the filing fees and disbursements of counsel
for the Underwriters in connection with the review and clearance of the offering
of the Shares by the National Association of Securities Dealers, Inc., (vi) all
fees and expenses in connection with the preparation and filing of the
registration statement on Form 8-A relating to the Common Stock and all costs
and expenses incident to the listing of the Shares on the NYSE, (vii) the cost
of printing certificates representing the Shares, (viii) the costs and charges
of any transfer agent, registrar and/or depositary, and (ix) all other costs and
expenses incident to the performance of the obligations of the Company hereunder
for which provision is not otherwise made in this Section.
(j) To use its best efforts to list, subject to notice of issuance,
the Shares on the NYSE and to maintain the listing of the Shares on the NYSE for
a period of three years after the date of this Agreement.
(k) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior to
the Closing Date or any Option Closing Date, as the case may be, and to satisfy
all conditions precedent to the delivery of the Shares.
-6-
<PAGE> 7
(l) If the Registration Statement at the time of the effectiveness
of this Agreement does not cover all of the Shares, to file a Rule 462(b)
Registration Statement with the Commission registering the Shares not so covered
in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the date of
this Agreement and to pay to the Commission the filing fee for such Rule 462(b)
Registration Statement at the time of the filing thereof or to give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
Section 6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other than any
Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement); any Rule 462(b) Registration Statement filed
after the effectiveness of this Agreement will become effective no later than
10:00 P.M., New York City time, on the date of this Agreement; and no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or threatened by the Commission.
(b)(i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement), when it became effective, did not contain and, as amended, if
applicable, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement (other than
any Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement) and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the Act,
(iii) if the Company is required to file a Rule 462(b) Registration Statement
after the effectiveness of this Agreement, such Rule 462(b) Registration
Statement and any amendments thereto, when they become effective (A) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (B) will comply in all material respects with the Act and (iv)
the Prospectus does not contain and, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in the Registration Statement or the Prospectus based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and
-7-
<PAGE> 8
did not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in this
paragraph do not apply to statements or omissions in any preliminary prospectus
based upon information relating to any Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use therein.
(d) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has the corporate power and
authority to carry on its business as described in the Prospectus and to own,
lease and operate its properties, and each is duly qualified and is in good
standing as a foreign corporation authorized to do business in each jurisdiction
in which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified would
not have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole.
(e) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens granted or
issued by the Company or any of its subsidiaries relating to or entitling any
person to purchase or otherwise to acquire any shares of the capital stock of
the Company or any of its subsidiaries, except as otherwise disclosed in the
Registration Statement.
(f) All the outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid, non-assessable and
not subject to any preemptive or similar rights; and the Shares have been duly
authorized and, when issued and delivered to the Underwriters against payment
therefor as provided by this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights.
(g) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature.
(h) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(i) Neither the Company nor any of its subsidiaries is in violation
of its respective charter or by-laws or in default in the performance of any
obligation, agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is material to
the Company and its
-8-
<PAGE> 9
subsidiaries, taken as a whole, to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or their
respective property is bound.
(j) The execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not (i) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company or any of its subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement or instrument that
is material to the Company and its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or their respective property is bound, (iii) violate or
conflict with any applicable law or any rule, regulation, judgment, order or
decree of any court or any governmental body or agency having jurisdiction over
the Company, any of its subsidiaries or their respective property or (iv) result
in the suspension, termination or revocation of any Authorization (as defined
below) of the Company or any of its subsidiaries or any other impairment of the
rights of the holder of any such Authorization.
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is or could be a
party or to which any of their respective property is or could be subject that
are required to be described in the Registration Statement or the Prospectus and
are not so described; nor are there any statutes, regulations, contracts or
other documents that are required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement that
are not so described or filed as required.
(l) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), any provisions of the
Employee Retirement Income Security Act of 1974, as amended, or any provisions
of the Foreign Corrupt Practices Act, or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not have a material adverse effect on the business, prospects, financial
condition or results of operation of the Company and its subsidiaries, taken as
a whole.
(m) Each of the Company and its subsidiaries has such permits,
licenses, consents, exemptions, franchises, authorizations and other approvals
(each, an "Authorization") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals (including, without limitation, such Authorizations
as are required (i) under any applicable Environmental Laws, (ii) under such
federal and state health care laws as are applicable to the Company and its
subsidiaries, and (iii) with respect to those facilities
-9-
<PAGE> 10
operated by the Company or any of its subsidiaries that participate in Medicare,
Medicaid and/or any other similar federal or state governmental program, to
receive reimbursement thereunder) as are necessary to own, lease, license and
operate its respective properties and to conduct its business, except where the
failure to have any such Authorization or to make any such filing or notice
would not, singly or in the aggregate, have a material adverse effect on the
business, prospects, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole. Each such Authorization is valid and in
full force and effect and each of the Company and its subsidiaries is in
compliance with all the terms and conditions thereof and with the rules and
regulations of the authorities and governing bodies having jurisdiction with
respect thereto; and no event has occurred (including, without limitation, the
receipt of any notice from any authority or governing body) which allows or,
after notice or lapse of time or both, would allow, revocation, suspension or
termination of any such Authorization or results or, after notice or lapse of
time or both, would result in any other impairment of the rights of the holder
of any such Authorization; and such Authorizations contain no restrictions that
are burdensome to the Company or any of its subsidiaries; except where such
failure to be valid and in full force and effect or to be in compliance, the
occurrence of any such event or the presence of any such restriction would not,
singly or in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(n) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any Authorization, any related constraints on operating activities and
any potential liabilities to third parties) which would, singly or in the
aggregate, have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole.
(o) This Agreement has been duly authorized, executed and delivered
by the Company.
(p) KPMG Peat Marwick LLP are independent public accountants with
respect to the Company and its subsidiaries as required by the Act.
(q) The consolidated financial statements included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), together with related schedules and notes, present fairly the
consolidated financial position, results of operations and changes in financial
position of the Company and its subsidiaries on the basis stated therein at the
respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, except as disclosed therein; the supporting schedules, if any,
included in the Registration Statement present fairly in accordance with
generally accepted accounting principles the information required to be stated
therein; and the other financial and
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statistical information and data set forth in the Registration Statement and the
Prospectus (and any amendment or supplement thereto) are, in all material
respects, accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the Company.
(r) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be, an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended.
(s) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities of
the Company or to require the Company to include such securities with the Shares
registered pursuant to the Registration Statement.
(t) Since the respective dates as of which information is given in
the Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there has not occurred any material adverse change or any development involving
a prospective material adverse change in the condition, financial or otherwise,
or the earnings, business, management or operations of the Company and its
subsidiaries, taken as a whole, (ii) there has not been any material adverse
change or any development involving a prospective material adverse change in the
capital stock or in the long-term debt of the Company or any of its subsidiaries
and (iii) neither the Company nor any of its subsidiaries has incurred any
material liability or obligation, direct or contingent.
(u) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be deemed to
be a representation and warranty by the Company to the Underwriters as to the
matters covered thereby.
(v) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in the Prospectus or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its subsidiaries; and
any real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries, in each case except as described in the Prospectus.
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(w) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which they
are engaged; and neither the Company nor any of its subsidiaries (i) has
received notice from any insurer or agent of such insurer that substantial
capital improvements or other material expenditures will have to be made in
order to continue such insurance or (ii) has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers at a cost that would
not have a material adverse effect on the business, prospects, financial
conditions or results of operations of the Company and its subsidiaries, taken
as a whole.
(x) No relationship, direct or indirect, exists between or among
the Company or any of its subsidiaries on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Company or any of its
subsidiaries on the other hand, which is required by the Act to be described in
the Registration Statement or the Prospectus which is not so described.
(y) The pro forma financial statements of the Company and its
subsidiaries and the related notes thereto set forth in the Registration
Statement and the Prospectus (and any supplement or amendment thereto) have been
prepared on a basis consistent with the historical financial statements of the
Company and its subsidiaries, give effect to the assumptions used in the
preparation thereof on a reasonable basis and in good faith and present fairly
the historical and proposed transactions contemplated by the Registration
Statement and the Prospectus. Such pro forma financial statements have been
prepared in accordance with the applicable requirements of Rule 11-02 of
Regulation S-X promulgated by the Commission. The other pro forma financial and
statistical information and data set forth in the Registration Statement and the
Prospectus (and any supplement or amendment thereto) are, in all material
respects, accurately presented and prepared on a basis consistent with the pro
forma financial statements.
(z) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(aa) The business conducted by the Company and its subsidiaries and
the contractual relationships between (i) the Company or any of its subsidiaries
and the health care payors with which it contracts and (ii) the Company or any
of its subsidiaries and the health care providers with which it contracts, do
not violate any federal or state health care laws and regulations, or any
federal or state patient confidentiality laws and
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<PAGE> 13
regulations or any federal or state insurance laws and regulations (including
but not limited to those governing health maintenance organizations and
preferred provider organizations) in such jurisdictions in which the Company and
any of its subsidiaries are operating that are applicable to such business and
such relationships, including those laws governing insurance risk and risk
allocation, corporate practice of medicine, medical practices, professional
corporations, fee splitting, fraud and abuse and self-referral, except for
violations that would not have a material adverse effect on the conditions
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise and except as
disclosed in the Prospectus.
(bb) During the period for which financial statements are included
in the Prospectus, denials by third party payers of claims for reimbursement for
services rendered by the Company have not had a material adverse effect on the
business, prospects, financial condition or results of operation of the Company
and its subsidiaries, taken as a whole, and any such denials are either under
appeal or the Company has ceased seeking reimbursement for the services or
supplies to which they relate. The accounts receivable of the Company and its
subsidiaries have been and will continue to be adjusted to reflect reimbursement
policies of third party payors such as Medicare, Medicaid, Blue Cross/Blue
Shield, private insurance companies, health maintenance organizations, preferred
provider organizations, managed care systems and other third party payors. The
accounts receivable relating to such third party payors do not and shall not
exceed amounts the Company and its subsidiaries are entitled to receive, subject
to adjustments to reflect reimbursement policies of third party payors and
normal discounts in the ordinary course of business.
(cc) None of the Company nor any of its officers, directors or
stockholders, or to the knowledge of the Company, any employee or other agent of
the Company, has engaged on behalf of the Company in any of the following: (i)
knowingly and willfully making or causing to be made a false statement or
representation of a material fact in any applications for any benefit or payment
under the Medicare or Medicaid program or from any third party; (ii) knowingly
and willfully making or causing to be made any false statement or representation
of a material fact for use in determining rights to any benefit or payment under
the Medicare or Medicaid program or from any third party; or (iii) failing to
disclose knowledge by a claimant of the occurrence of any event affecting the
initial or continued right to any benefit or payment under the Medicare or
Medicaid program or from any third party on its own behalf or on behalf of
another, with intent to secure such benefit or payment fraudulently.
(dd) Neither the Company nor any of its subsidiaries has failed to
file with applicable regulatory authorities any statement, report, information
or form required by any applicable law, regulation or order (including, without
limitation, filings required to obtain payment or reimbursement for services or
supplies), except where the failure to be so in compliance could not reasonably
be expected to, individually or in the aggregate, have a material adverse effect
on the business, prospects, financial condition or results of operation of the
Company and its subsidiaries, taken as a whole; all such filings were in
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<PAGE> 14
material compliance with applicable laws and regulations (including, without
limitation, applicable billing and other policies and procedures of such
regulatory authorities or their fiscal intermediaries, carriers or other
administrative agents) when filed and no material deficiencies have been
asserted by any regulatory commission, agency or authority, or by any fiscal
intermediary, carrier or other administrative agent, with respect to any such
filings or submissions.
(ee) The Company or its subsidiaries have title insurance on all
properties and assets described in the Prospectus as owned by the Company or any
of its subsidiaries in an amount at least equal to the greater of (i) the cost
of acquisition of such property or asset or (ii) the cost of construction of the
improvements located on such properties.
(ff) ______________________, which prepared environmental inspection
reports with respect to seven of the Company's eight owned or leased hospitals
(as described in the Prospectus), was neither employed for such purpose on a
contingent basis nor has any substantial interest in the Company or any of its
subsidiaries. Neither the Nick's Group, Inc. nor any of its directors, officers
or employees is connected with the Company or any of its subsidiaries as a
promoter, selling agent, voting trustee, director, officer or employee.
Section 7. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Underwriter, its directors, its officers and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all losses, claims, damages, liabilities and
judgments (including, without limitation, any legal or other expenses incurred
in connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), the Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriter furnished in writing to the Company by such Underwriter
through you expressly for use therein; provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter who failed to deliver a Prospectus (as then
amended or supplemented, provided by the Company to the several Underwriters in
the requisite quantity and on a timely basis to permit proper delivery on or
prior to the Closing Date) to the person asserting any losses, claims, damages
and liabilities and judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus, or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
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<PAGE> 15
misleading, if such material misstatement or omission or alleged material
misstatement or omission was cured in such Prospectus and such Prospectus was
required by law to be delivered at or prior to the written confirmation of sale
to such person.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the
same extent as the foregoing indemnity from the Company to such Underwriter but
only with reference to information relating to such Underwriter furnished in
writing to the Company by such Underwriter through you expressly for use in the
Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 7(a) or 7(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 7(a) and 7(b), the Underwriter shall not be required to assume
the defense of such action pursuant to this Section 7(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
such Underwriter). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all indemnified parties and all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be designated
in writing by Donaldson, Lufkin & Jenrette Securities Corporation, in the case
of parties indemnified pursuant to Section 7(a), and by the Company, in the case
of parties indemnified pursuant to Section 7(b). The indemnifying party shall
indemnify and hold harmless the indemnified party
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<PAGE> 16
from and against any and all losses, claims, damages, liabilities and judgments
by reason of any settlement of any action (i) effected with the indemnifying
party's written consent or (ii) effected without its written consent if the
settlement is entered into more than twenty business days after the indemnifying
party shall have received a request from the indemnified party for reimbursement
for the fees and expenses of counsel (in any case where such fees and expenses
are at the expense of the indemnifying party) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this Section 7
is unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Shares or (ii) if the allocation provided by clause 7(d)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 7(d)(i) above but also the
relative fault of the Company on the one hand and the Underwriters on the other
hand in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (after deducting
underwriting discounts and commissions, but before deducting expenses) received
by the Company, and the total underwriting discounts and commissions received by
the Underwriters, bear to the total price to the public of the Shares, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault of the Company on the one hand and the Underwriters on the other hand
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of
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<PAGE> 17
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or
judgments referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
incurred by such indemnified party in connection with investigating or defending
any matter, including any action, that could have given rise to such losses,
claims, damages, liabilities or judgments. Notwithstanding the provisions of
this Section 7, no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 7(d) are several in
proportion to the respective number of Shares purchased by each of the
Underwriters hereunder and not joint.
(e) The remedies provided for in this Section 7 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
Section 8. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained
in this Agreement shall be true and correct on the Closing Date with the same
force and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York City
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate dated
the Closing Date, signed by Robert M. Martin and Dana C. McLendon, Jr., in their
capacities as the Chief Executive Officer and Senior Vice President of the
Company, confirming the matters set forth in Sections 6(t), 8(a) and 8(b) and
that the Company has complied with all of the agreements and satisfied all of
the conditions herein contained and required to be complied with or satisfied by
the Company on or prior to the Closing Date.
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<PAGE> 18
(d) Since the respective dates as of which information is given in
the Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole, (ii) there shall not have been any change or any development involving
a prospective change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 8(d)(i),
8(d)(ii) or 8(d)(iii), in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(e) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Harwell Howard Hyne Gabbert & Manner, P.C., counsel for the Company, to the
effect that:
(i) the Company and each of its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has the corporate power and
authority to carry on its business as described in the Prospectus and to own,
lease and operate its properties;
(ii) the Company and each of its subsidiaries is duly qualified
and is in good standing as a foreign corporation authorized to do business in
each jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure to be
so qualified would not have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole;
(iii) all the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid, non-assessable
and not subject to any preemptive or similar rights pursuant to the Company's
charter or the Delaware General Corporation Law or, to such counsel's knowledge,
any contractual arrangements;
(iv) the Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor as provided by this
Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar rights
pursuant to the Company's charter or the Delaware General Corporation Law or, to
such counsel's knowledge, any contractual arrangements;
(v) all of the outstanding shares of capital stock of each of
the Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or
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<PAGE> 19
more subsidiaries, and, to such counsel's knowledge, are free and clear of any
security interest, claim, lien, encumbrance or adverse interest of any nature;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) the authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the Prospectus;
(viii) the Registration Statement has become effective under the
Act, no stop order suspending its effectiveness has been issued and no
proceedings for that purpose are, to the best of such counsel's knowledge after
due inquiry, pending before or contemplated by the Commission;
(ix) the statements under the captions "Risk Factors - Effect
of Reimbursement and Payment Policies; Health Care Reform Legislation," "Risk
Factors - Health Care Industry Investigations," "Risk Factors - Health Care
Regulatory," "Risk Factors - Environmental Regulation," "Business - Government
Reimbursement," "Business - Health Care Reform, Regulation and Licensing,"
"Business Legal Proceedings," "Description of Capital Stock" and "Underwriting"
in the Prospectus and Items 14 and 15 of Part II of the Registration Statement,
insofar as such statements constitute a summary of the legal matters, documents
or proceedings referred to therein, fairly present the information called for
with respect to such legal matters, documents and proceedings;
(x) neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws and, to the best of such
counsel's knowledge after due inquiry, neither the Company nor any of its
subsidiaries is in default in the performance of any obligation, agreement,
covenant or condition contained in any indenture, loan agreement, mortgage,
lease or other agreement or instrument that is material to the Company and its
subsidiaries, taken as a whole, to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or their
respective property is bound, which default might result, singly or in the
aggregate, in a material adverse effect on the business, prospects, financial
condition or results of operation of the Company and its subsidiaries, taken as
a whole;
(xi) the execution, delivery and performance of this Agreement
by the Company, the compliance by the Company with all the provisions hereof and
the consummation of the transactions contemplated hereby will not (A) require
any consent, approval, authorization or other order of, or qualification with,
any court or governmental body or agency (except such as may be required under
the securities or Blue Sky laws of the various states), (B) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company or any of its subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement or instrument
known to such counsel that is material to the Company and its subsidiaries,
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<PAGE> 20
taken as a whole, to which the Company or any of its subsidiaries is a party or
by which the Company or any of its subsidiaries or their respective property is
bound, (C) violate or conflict with any applicable law or any rule, regulation,
judgment, order or decree of any court or any governmental body or agency having
jurisdiction over the Company, any of its subsidiaries or their respective
property or (D) result in the suspension, termination or revocation of any
Authorization of the Company or any of its subsidiaries or result in any other
impairment of the rights of the holder of any such Authorization;
(xii) after due inquiry, such counsel does not know of any
legal or governmental proceedings pending or threatened to which the Company or
any of its subsidiaries is or could be a party or to which any of their
respective property is or could be subject that are required to be described in
the Registration Statement or the Prospectus and are not so described, or of any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not so described or filed as
required;
(xiii) each of the Company and its subsidiaries has such
Authorizations of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole; each such Authorization is valid and in full
force and effect and each of the Company and its subsidiaries is in compliance
with all the terms and conditions thereof and with the rules and regulations of
the authorities and governing bodies having jurisdiction with respect thereto;
and no event has occurred (including, without limitation, the receipt of any
notice from any authority or governing body) which allows or, after notice or
lapse of time or both, would allow, revocation, suspension or termination of any
such Authorization or results or, after notice or lapse of time or both, would
result in any other impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company or any of its subsidiaries; except where such failure
to be valid and in full force and effect or to be in compliance, the occurrence
of any such event or the presence of any such restriction would not, singly or
in the aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole;
(xiv) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be, an "investment company" as such term
is defined in the Investment Company Act of 1940, as amended;
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<PAGE> 21
(xv) to the best of such counsel's knowledge after due
inquiry, there are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities of
the Company or to require the Company to include such securities with the Shares
registered pursuant to the Registration Statement; and
(xvi) (A) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for the financial statements and other
financial data included therein as to which no opinion need be expressed) comply
as to form with the Act, (B) such counsel has no reason to believe that at the
time the Registration Statement became effective or on the date of this
Agreement, the Registration Statement and the prospectus included therein
(except for the financial statements and other financial data as to which such
counsel need not express any belief) contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading and (C) such counsel
has no reason to believe that the Prospectus, as amended or supplemented, if
applicable (except for the financial statements and other financial data, as
aforesaid) contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and
(xvii) the business conducted by the Company and its
subsidiaries and the material contractual relationships between (A) the Company
or any of its subsidiaries and the health care payors with which it contracts
and (B) the Company or any of its subsidiaries and the health care providers
with which it contracts do not violate any federal, state or local health care
laws or regulations in the jurisdictions in which the Company or any of its
subsidiaries is doing business that are applicable to such business and such
relationships, including those laws governing insurance risk, risk allocation,
corporate practice of medicine, professional corporations, fee splitting, client
confidentiality, self-referral and fraud and abuse.
The opinion of Harwell Howard Hyne Gabbert & Manner, P.C. described in
Section 8(e) above shall be rendered to you at the request of the Company and
shall so state therein.
(f) You shall have received on the Closing Date an opinion, dated
the Closing Date, of Alston & Bird LLP, counsel for the Underwriters, as to the
matters referred to in Sections 8(e)(iv), 8(e)(vi), 8(e)(ix) (but only with
respect to the statements under the caption "Description of Capital Stock" and
"Underwriting") and 8(e)(xvi).
In giving such opinions with respect to the matters covered by Section
8(e)(xvi) counsel for the Company and counsel for the Underwriters may state
that their opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and any amendments or
supplements thereto and review and
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<PAGE> 22
discussion of the contents thereof, but are without independent check or
verification except as specified.
(g) You shall have received, on each of the date hereof and the
Closing Date, a letter dated the date hereof or the Closing Date, as the case
may be, in form and substance satisfactory to you, from KPMG Peat Marwick LLP,
independent public accountants, containing the information and statements of the
type ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(h) The Company shall have delivered to you the agreements specified
in Section 2 hereof which agreements shall be in full force and effect on the
Closing Date.
(i) The Shares shall have been duly listed, subject to notice of
issuance, for quotation on the NYSE.
(j) The Company shall not have failed on or prior to the Closing
Date to perform or comply with any of the agreements herein contained and
required to be performed or complied with by the Company on or prior to the
Closing Date.
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as they may reasonably request with respect to
the good standing of the Company, the due authorization and issuance of such
Additional Shares and other matters related to the issuance of such Additional
Shares.
Section 9. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Company if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company on any exchange or in the
over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental
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<PAGE> 23
authority which in your opinion materially and adversely affects, or will
materially and adversely affect, the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole, (v)
the declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in your
opinion has a material adverse effect on the financial markets in the United
States.
If on the Closing Date or on an Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase the Firm
Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each
non-defaulting Underwriter shall be obligated severally, in the proportion which
the number of Firm Shares set forth opposite its name in Schedule I bears to the
total number of Firm Shares which all the non-defaulting Underwriters have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the number of Shares which any Underwriter
has agreed to purchase pursuant to Section 2 hereof be increased pursuant to
this Section 9 by an amount in excess of one-ninth of such number of Shares
without the written consent of such Underwriter. If on the Closing Date any
Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the
aggregate number of Firm Shares with respect to which such default occurs is
more than one-tenth of the aggregate number of Firm Shares to be purchased by
all Underwriters and arrangements satisfactory to you and the Company for
purchase of such Firm Shares are not made within 48 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Underwriter and the Company. In any such case which does not
result in termination of this Agreement, either you or the Company shall have
the right to postpone the Closing Date, but in no event for longer than seven
days, in order that the required changes, if any, in the Registration Statement
and the Prospectus or any other documents or arrangements may be effected. If,
on an Option Closing Date, any Underwriter or Underwriters shall fail or refuse
to purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased on such date, the non-defaulting
Underwriters shall have the option to (i) terminate their obligation hereunder
to purchase such Additional Shares or (ii) purchase not less than the number of
Additional Shares that such non-defaulting Underwriters would have been
obligated to purchase on such date in the absence of such default. Any action
taken under this paragraph shall not relieve any defaulting Underwriter from
liability in respect of any default of any such Underwriter under this
Agreement.
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<PAGE> 24
Section 10. Miscellaneous. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (i) if to the Company, to New American
Healthcare Corporation, 109 Westpark Drive, Suite 440, Brentwood, Tennessee
37027, Attention: President, and (ii) if to any Underwriter or to you, to you
c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New
York, New York 10172, Attention: Syndicate Department, or in any case to such
other address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company and the several Underwriters set
forth in or made pursuant to this Agreement shall remain operative and in full
force and effect, and will survive delivery of and payment for the Shares,
regardless of (i) any investigation, or statement as to the results thereof,
made by or on behalf of any Underwriter, the officers or directors of any
Underwriter, any person controlling any Underwriter, the Company, the officers
or directors of the Company or any person controlling the Company, (ii)
acceptance of the Shares and payment for them hereunder and (iii) termination of
this Agreement.
If for any reason the Shares are not delivered by or on behalf of the
Company as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 9), the Company agrees to reimburse the several
Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) incurred by them. Notwithstanding any termination of
this Agreement, the Company shall be liable for all expenses which it has agreed
to pay pursuant to Section 5(i) hereof. The Company also agrees to reimburse the
several Underwriters, their directors and officers and any persons controlling
any of the Underwriters for any and all fees and expenses (including, without
limitation, the fees disbursements of counsel) incurred by them in connection
with enforcing their rights hereunder (including, without limitation, pursuant
to Section 7 hereof).
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Underwriters, the
Underwriters' directors and officers, any controlling persons referred to
herein, the Company's directors and the Company's officers who sign the
Registration Statement and their respective successors and assigns, all as and
to the extent provided in this Agreement, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include a purchaser of any of the Shares from any of the
several Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
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<PAGE> 25
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
NEW AMERICAN HEALTHCARE CORPORATION
By:
---------------------------------
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
SUNTRUST EQUITABLE SECURITIES
CORPORATION
Acting severally on behalf
of themselves and the several
Underwriters named in Schedule I
hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
---------------------------------
Title:
-25-
<PAGE> 26
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm
Underwriters Shares to be Purchased
------------ ----------------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation
Bear, Stearns & Co. Inc.
Credit Suisse First Boston
SunTrust Equitable Securities Corporation
</TABLE>
-26-
<PAGE> 27
ANNEX I
[Insert names of stockholders of the Company
who will be required to sign lock up]
<PAGE> 1
Exhibit 10.2
LEASE AGREEMENT
THIS LEASE AGREEMENT made and entered into this 22nd day of May, 1996
between James W. Ayers (hereinafter referred to as "Landlord"), and New American
Healthcare Corporation (hereinafter called "Tenant").
WITNESSETH:
In consideration of mutual covenants, agreements and undertakings, it is
agreed:
1. PREMISES AND TERMS: Landlord hereby leases to Tenant, and Tenant
leases from Landlord, certain floor space on the fourth Floor, better known as
Suite 440 in a certain building known as the Harpeth on the Green II,
hereinafter referred to as the "Building" located at 109 Westpark Drive, city of
Brentwood, County of Williamson, Tennessee, said space being outlined in red
upon a drawing of said floor of the building which is attached to this Lease as
Exhibit A and is incorporated herein by reference (the "Premises"), for a term
to commence on the 1st day of December, 1996, and to the end at 6:00 p.m. on the
last day of November, 2001 (the "Term").
2. DEFINITIONS: For purposes of this lease, the following meanings shall
apply:
(a) "Base Year" the calendar year 1996.
(b) "Operational Year" shall be those years, or portions thereof, in which
the tenant occupies the leased premises under the terms and conditions of this
lease.
(c) "Landlord's Operating Expenses" shall be deemed to mean all expenses
incurred by Landlord with respect to the operation, maintenance, management, and
repair of the land and building on which the Premises are located, determined on
an accrual basis, in accordance with generally accepted accounting principles,
including, without limitation, insurance (fire, extended coverage, rent, war
risk, comprehensive public liability, etc.); utilities, licenses, permit and
inspection fees, janitorial costs, wages and salaries of operating personnel,
including, among others, maids, janitors, and security guards. Together with all
payrolls, social security, unemployment and other taxes levied thereon; repairs
and maintenance to the Building, ad valorem taxes levied by all governmental
authorities having jurisdiction over the Building (and the land upon which it is
located), and all other expenses of a nature customarily incurred in the
reasonable and prudent operation of a first class office building, together with
an allowance for the general overhead of the Landlord in the provision of such
services, not to exceed 15% of the aggregate amount of the same.
(d) Tenant's Proportionate Share shall be 6.95%.
3. RENT AND ADJUSTMENT FOR OPERATING EXPENSES:
(a) Tenant shall pay the Landlord or its designees in writing, rental at
the rate of Ninety Thousand Ninety & 00/100 ($90,090.00), U.S. dollars per year
(hereinafter called "Base Rental"), payable in equal monthly installments of
Seven Thousand Five Hundred Seven & 50/100 ($7,507.50) U.S. dollars in
advance, without demand, deduction or set-off on the first day of each calendar
month during the term of this lease. All payments shall be made to Centennial
Incorporated or at such other place as may, from time to time, be designated by
the Landlord in writing.
Other remedies for non-payment of rent under paragraph 31 or elsewhere
herein notwithstanding a service charge of fifteen (15%) percent of the rent
shall become due and payable in addition to the regular rent owned under this
lease if the monthly rent payment is not received by Landlord or Landlord's
Agent's office by the fifth (5th) day of the month for which said rent is due.
A pro-rata monthly installment shall be due for the first and last month
of the term should the term begin or end on other than the first or last day of
the calendar month. In accordance with paragraph 36 of this lease Tenant's
leasable area is calculated to be 5460 square feet.
(b) Commencing as early as practical with the first whole calendar year
in which the tenant shall occupy the leased premises, the tenant shall pay
Additional rent to Landlord to cover tenant's pro-rata share of the Landlord's
operating expense increases incurred during the time tenant occupies the leased
premises, calculated as follows:
(i) Within ten days from written demand served upon Tenant by Landlord,
tenant shall pay a lump sum to Landlord for the tenant's pro-rata
share of the increase, if any, in Landlord's operating expenses
incurred in the first operational year over the base year.
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<PAGE> 2
(ii) From the first month forward for each succeeding month after the
demand for the lump sum is made the tenant's rent shall be
calculated by dividing the tenant's pro-rata share of the increases
in Landlord's operating expense as determined in the previous
operational year or portion thereof into the months of that
operational year in which tenant shall occupy the leased premises,
and increasing the tenant's monthly rent to absorb that increase
accordingly.
(iii) Rent in each succeeding operational year shall be increased
accordingly, as set forth in subsection (ii) of this paragraph. A
lump sum to absorb the new annual increases in Landlord's operating
expenses shall also be due and payable within ten days of demand at
the beginning of each succeeding operational year as set forth in
subsection (i) of this paragraph.
Landlords failure during the term of this lease to prepare and deliver any of
the tax bills, statements, notices or bills referred to in this article, or
Landlords failure to demand payment of additional rent provided for hereunder,
shall not in any way cause Landlord to forfeit or surrender its right to collect
any additional rent which may have become due during the term of this lease.
(c) Tenants Proportionate Share of such increases in Landlords Operating
Expenses shall, for the purpose of the default provisions hereof, be deemed as
additional rental due from Tenant and shall entitle Landlord to all remedies
provided herein at law or equity on account of Tenant's failure to pay rent.
(d) Tenant shall also pay, to Landlord upon demand, in addition to the
rent and additional rent mentioned, the full amount of any sales, use or other
tax (excepting income tax) that may be levied upon this lease, the leasehold
estate of Tenant, or the rents reserved herein, it is being understood that any
sales tax on rent shall be added to the rents payable hereunder and shall be
paid by Tenant, all to the end that the rents payable by Tenant hereunder shall
be received by Landlord net of any tax payable to any governmental authority
other than Landlord's income tax. If Tenant fails to pay such tax, Landlord
shall be entitled to all remedies hereunder in the same manner and to the same
extent as in the case of any other default hereunder. This provision is in
addition to any monies owned by Tenant under the provisions of Paragraph 3(b) of
this lease.
4. DELIVERY OF POSSESSION TO TENANT BY LANDLORD:
(a) Tenant agrees to accept the premises in its "as is condition" and
Landlord shall not be obligated to perform any work or spend any monies in
connection with preparing the same for Tenant's use in occupancy except those
provided in paragraph 44(a) and 44(e).
(b) In the event this lease involves the construction of space for Tenant
by Landlord, the commencement date shall be the date upon which improvements
constituting Premises have been substantially completed in accordance with plans
and specifications approved by both parties. The taking of possession by Tenant
shall conclusively establish that said improvements have been completed in
accordance with approved plans and specifications therefore and that the
Premises are in good and satisfactory condition at the time possession is taken.
The Premises should be deemed substantially completed when only minor or
insubstantial details of construction, adjustment, or decoration remain to be
performed, the noncompletion of which does not materially interfere with Tenants
use of Premises.
(c) If Landlord is unable to give Tenant possession of the Premises on the
commencement date for any reason whatsoever, Landlord shall be subject to no
liability therefore and the validity of the lease shall not be impaired thereby,
nor shall the same be construed in anyway to extend the term of this lease, but
the rent payable hereunder shall be abated (provided Tenant is not responsible
directly for the inability to obtain possession) until Landlord has given notice
to Tenant that the Premises are ready for the Tenants occupancy. If Landlord
gives Tenant permission to enter into possession of or upon the Premises prior
to the commencement date, such possession or occupancy shall be deemed to be
upon all the terms, covenants and conditions of this lease.
5. REPAIRS BY TENANT AND REMOVAL OF IMPROVEMENTS AND ALTERATIONS UPON
TERMINATION:
(a) In furtherance of the provisions of Paragraph 4 hereof, Tenant's
acceptance of the Premises in their condition at the commencement of the Term
shall be deemed to be Tenant's acknowledgment that they are suited for the use
intended by Tenant. Tenant will, at Tenant's expense take good care of Premises
and the fixtures and appurtenances therein, and will suffer no active or
permissive waste or injury thereof, and Tenant shall, at Tenant's expense, but
under the direction of
2
<PAGE> 3
Landlord, promptly repair any injury or damage to Premises of Building caused
by the misuse or neglect thereof by Tenant, whether ordinary or extraordinary,
structural or not structural, interior or exterior, or by persons permitted on
Premises by Tenant, or Tenant moving in or out of Premises.
(b) Tenant will not, without Landlord's written consent, which shall not
be unreasonably withheld, make any alterations, additions or improvements in or
about the Premises. Tenant will not do anything to or on the Premises which
will increase the rate of fire or other insurance on the Building or the
Premises subjecting such insurance to being void or suspended. In the event
that Tenant's action, omissions or occupancy of Premises shall cause the rate of
fire or other insurance on the Building and/or Premises to be increased, Tenant
shall pay, as additional rent, the amount of any such increase promptly upon
demand by Landlord. The foregoing to the contrary notwithstanding, Tenant shall
not use or permit the Premises to be used in violation of the prohibitions of
the Rules and Regulations attached hereto and made a part hereof.
(c) All alterations, additions or improvements (including, but not
limited to, carpets, draperies and drapery hardware) made or installed by
Tenant in or to the Premises shall become the property of Landlord at the
expiration of this lease. Landlord reserves the right to require Tenant to
remove any improvements or additions made to the Premises by Tenant, at Tenants
cost, and Tenant further agrees to do so prior to the expiration of the Term.
(d) No later than the last day of the Term, Tenant will remove all
Tenant's personal property and repair all injury done by or in connection with
installation or removal of said property and surrender the Premises (together
with all keys to the Premises) in as good a condition as they were at he
beginning of the Term, reasonable wear and damage by fire, the elements or
casualty excepted. All property of Tenant remaining on the Premises after
expiration of the Term shall be deemed conclusively abandoned and may be
removed by Landlord, and Tenant shall reimburse Landlord for the cost of
removing the same, subject, however, to Landlord's right to require Tenant to
remove any improvements or additions made to Premises by Tenant pursuant to
preceding Subparagraph (b). Without limiting the generality of the foregoing,
it is specially understood that damages to floor covering caused by lack of
protective mats under chairs or lack of casters on chairs shall not be
considered "reasonable wear" under the terms of this Subparagraph (d).
(e) In doing work of any nature in, to or about the Premises, Tenant will
use only contractors or workmen approved by Landlord, which approval shall not
be unreasonably withheld. Tenant shall provide Landlord with a waiver or lien
release prior to commencement of any Tenant initiated changes. Tenant shall
within 30 days pay and discharge any and all licenses, impost, liens or other
charges arising out of or in connection with the performances or any act
required of or permitted Tenant hereunder and shall keep Premises free and
clear from any and all such liens and charges. In furtherance thereof, Tenant
agrees to indemnify and hold Landlord harmless from and against any and all
losses, costs, damages or liabilities resulting from or attributable to any
liens or claims of lien promptly upon notice from Landlord, or upon any prior
notice of such lien or claim of lien.
(f) In the performance of any acts required of or permitted Tenant under
Paragraph 9 or any other provisions of this lease, Tenant shall obey and comply
with all requirements, rules, regulations and ordinances of all legally
constituted authorities existing at any time during the continuance of such
performance which in any way affects the Premises or the use of the Premises by
Tenant. Such compliance shall include compliance by Tenant with requirements of
the Occupational Safety and Health Act and the Americans with Disabilities Act
and all amendments thereto, as the same applies to Tenant's use of the
Premises. Should such act require any alteration or addition to the Premises,
Tenant shall perform same at its expense, provided that Landlord first approves
in writing all plans and specifications prepared in connection with such
performance.
6. MAINTAINING FOOD OR DRINK MACHINES ON PREMISES: Tenant shall
maintain no food or drink coin operating or vending machines within the
Premises or the Building without the written consent of Landlord; such consent
shall not preclude Landlord from charges Tenant for utility costs therefor
pursuant to Paragraph 10(b) hereof.
7. TENANT RISK: Landlord shall not be liable to Tenant for any theft of
or damage to any personal property brought into the Building or the Premises by
Tenant, its employees, agents, contractors, licensees or invitees. The word
"Damage" as used herein specifically includes, without limitation water damage
from sprinkler leakage, sprinkler flow, or other water damage of any nature.
3
<PAGE> 4
8. REPAIRS BY LANDLORD: Landlord, at its expense, shall keep and
maintain the building and its fixtures, appurtenances, systems and facilities
serving the Premises, in working order, except for those repairs for which
Tenant is responsible pursuant to any other provisions of this lease. Landlord
shall have no liability to Tenant by reason of any inconvenience, annoyance,
interruption or injury to business arising from Landlord's making any repairs
or changes which Landlord is required or permitted by this Lease, or required by
law, to make in or to any portion of the Building or the Premises, or the
fixtures, equipment or appurtenances thereof, provided that Landlord shall use
diligence and shall perform such work, except in case of any emergency, in a
manner which will not materially interfere with Tenant's use of the Premises.
9. PURPOSE: Tenant shall use and occupy Premises for office use only
and for no other purpose. Tenant's use of Premises shall not violate any
ordinance, law or regulation or any governmental body or the "Rules and
Regulations" of Landlord, as made a part hereof. Moreover, Tenant agrees to
conduct its business in the manner of and according to the generally accepted
written or unwritten code of ethics or business principles or the business
profession in which Tenant is engaged, and in case of breach of this covenant,
Tenant agrees that Landlord may terminate either this lease or Tenant's right
to possession hereunder by giving Tenant sixty (60) days notice to vacate.
If any governmental license or permit, including without limitation a
certificate of occupancy, or any amendment thereto shall be required for the
proper and lawful conduct of Tenants business in the Premises, or any part
thereof, and a failure to secure such license or permit would in any way affect
Landlord, Tenant, at its expense, shall duly procure and maintain such license
or permit and shall submit the same to Landlord for inspection.
10. SERVICES - ELEVATOR, WATER, CLEANING AND ELECTRICITY:
(a) Landlord shall furnish the following services without charge at the
proper season during reasonable hours (8:00 a.m. to 6:00 p.m. Monday through
Friday inclusive) on normal business days, except legal holidays normally
observed in Nashville, Tennessee.
(i) Elevator service, where applicable.
(ii) Air conditioning and Heat sufficient, in Landlord's judgment (subject
to compliance with all applicable federal, state and local energy
laws and regulations) to cool or heat the Premises.
(iii)Common use restrooms.
(iv) Cleaning service (which shall not be performed during business hours).
(b) Landlord shall also furnish electric current on the Premises for
lighting and for the operations of small business machinery (e.g. typewriters,
adding machines and other small office equipment) using 110-volt, 20-amp
circuits. Additional business machinery using 220-volt, (e.g. data processing
machines and the like) may be installed with Landlord's prior consent but not
otherwise, it being understood in giving or withholding its consent, Landlord
may consider the extent of the load of such equipment upon the Building's
electrical distribution systems the weight or size of the equipment, the noise
which electrical equipment generates, and other relevant factors. No electrical
equipment may be installed which, in Landlord's opinion will overload the
wiring installations of the Building or interfere with the reasonable use of
such wiring, or of the Building itself, by other tenants. Should Landlord grant
consent for the installation of any additional equipment, all additional
circuits and/or equipment required therefor shall be provided by Landlord and
the cost of installation (and any additional cost of electrical usage) shall be
paid by Tenant upon Landlord's demand.
(c) If Tenant uses any of the services or electrical current enumerated
in the Paragraph 10 in an amount or for a period in excess of that provided for
herein, the Landlord reserves the right to charge Tenant as additional rent a
reasonable sum as reimbursement for the direct cost of such added services. In
the event of disagreement as to reasonableness of such charge, the opinion of
the appropriate local utility company or a local independent professional
engineer shall prevail.
(d) Landlord shall in no way be liable for cessation of any of the above
services caused by strike, accident or breakdown, or any other cause beyond
Landlord reasonable control, nor shall Landlord be liable for damages from the
stopping of elevators or elevator service, or any of the fixtures or equipment
in the Building being out of repair, for injury to person or property,
caused by any defects in the electrical equipment, heating, ventilating and air
conditioning system, elevators or water apparatus, or for any damage arising
out of failure to furnish the services enumerated in the Paragraph 10.
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<PAGE> 5
11. DESTRUCTION OR DAMAGE TO PREMISES: If the Building in which the
Premises are located is totally destroy, (or so substantially damaged as to be
untenatable, in the opinion of Landlord) by storm, fire, earthquake, or other
casualty, the lease, shall at the option of either party by giving notice
within thirty (30) days of such destruction or damage, terminate as of the date
of such destruction or damage, and rental shall be accounted for as between
Landlord and Tenant as of that date. If the Premises, but not the entire
Building, are damaged but are not rendered wholly untenantable by any insured
casualty, rental shall abate in proportion to the area of the premises which
cannot be used or occupied by Tenant as a result of such casualty and Landlord
shall restore the Premises to their condition immediately preceding the
casualty, excluding any improvements and betterments made by Tenant; provided
such repairs can, in the judgment of Landlord, be completed within one-hundred
twenty (120) days from the date of settlement of its insurance claim. Landlord
shall have no duty to repair any damage caused by a casualty in excess of
insurance proceeds actually received. In no event shall rent abate if damage or
destruction to Premises is the result of negligence of Tenant, its agencies or
employees, or if Tenant is in default at time of such damage or destruction.
12. RULES AND REGULATIONS: Tenant shall observe and comply with the
"Rules and Regulations" attached hereto and made a part hereof, and such
further reasonable rules and regulations as Landlord may prescribe, on written
notice to Tenant, for the safety, care and cleanliness of the Building, and the
comfort, quietness and convenience of other occupants of the building.
13. DEFAULT: If Tenant defaults by failing to pay rent or other
charges as due hereunder and does not cure such default within five (5) days
after the due date of the same, or if Tenant defaults in performing any other of
Tenant's obligations hereunder and fails to cure such default within thirty (30)
days after written notice from Landlord, or if Tenant files for or is
adjudicated a bankrupt, or if a receiver of trustee is appointed for Tenant's
property including Tenant's interest in Premises, and such receiver or tustee is
not removed within sixty (60) days, or if, whether voluntarily or involuntarily,
Tenant takes advantage of any debtor relief proceedings under any present or
future law, whereby the rent or any part thereof is, or is proposed to be
reduced or payment thereof deferred, or if Tenant makes an assignment for
benefit of creditors, or if the Premises or Tenant's effects or interest therein
should be levied upon or attached under process against Tenant, not satisfied or
dissolved within thirty (30) days after written notice from Landlord to Tenant
to obtain satisfaction thereof, then, and in any said events, all rental and
other charges then due or reserved herein shall immediately be due and payable
by Tenant unless the parties hereto agree to the contrary in writing. Landlord
may, at its option, at once or at any time thereafter (but only during
continuance of such default or condition terminate this lease by written notice
to Tenant. Upon such termination by Landlord, Tenant will at once surrender
possession of Premises to Landlord and remove all of Tenant's effects therefrom;
and Landlord may forthwith re-enter the Premises and repossess himself thereof,
and remove all persons and effects therefrom, using such force as may be
necessary, without being guilty of trespass, forcible entry or detainer or other
tort.
14. RELETTING BY LANDLORD: Landlord as Tenant's agent may without
termination of this lease, upon Tenant's breach of this lease as defined
hereinabove, at Landlord's option, enter upon and rent the Premises at any
price that Landlord, in its sole discretion shall deem advisable by private
negotiations and for any term Landlord deemed proper. Such actual rents obtained
by Landlord in reletting the premises shall be deemed to be prima facia
evidence of all the rental value of the premises. Tenant shall be liable to
Landlord for the deficiency, if any, between all rent received hereunder and
the total rental applicable to the Term hereof obtained by Landlord on
reletting, or for Landlord's expenses in restoring Premises and all costs
incident to such reletting.
15. EARLY TERMINATION: No termination of this lease prior to the normal
ending thereof by the lapse of time other otherwise shall affect Landlord's
right to collect rent and all other charges due.
16. ASSIGNMENT AND SUBLETTING: Tenant may not, without the prior written
consent of Landlord, which shall not be unreasonably withheld, assign this
lease or any interest hereunder, or sublet Premises or any part hereof, or
permit the use of the Premises by any party other than Tenant.
In the event that at any time or from time to time during the term of
this lease, Tenant desires to sublet all or part of the demised Premised,
Tenant shall notify the Landlord in writing (hereinafter referred to as "Sublet
Notice") of the terms of the proposed subletting and the area so
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proposed to be sublet and shall give the Landlord the option to sublet from
Tenant such space (hereinafter referred to as "Sublet Space") at a rental rate
not to exceed the annual base rent plus adjustment of rent and additional rent
which Tenant is required to pay to Landlord under this lease for the same space.
Such option shall be exercised by Landlord in writing within thirty (30) days
after receipt of the sublet notice.
Consent to one assignment of sublease shall not destroy or waive this
provision, and all later assignments and sublease shall likewise be made only
upon prior written consent of Landlord, which shall not be unreasonably
withheld. Subtenants or assignees shall become liable directly to landlord for
all obligations of Tenant hereunder without relieving Tenant's liability;
provided that Landlord may, at its option, lease the whole or any portion of
Premises directly to Tenant's prospective subtenant or assignee; in which event
Tenant shall be released from all liability with respect to the portion of the
Premises so leased.
17. EMINENT DOMAIN: If all or any substantial part of the land on which
the Building stands or any estate therein is taken by virtue of eminent domain
or is conveyed or leased in lieu of such taking, the lease shall expire on the
date when title shall vest, or the term of such lease shall commence, and any
rent paid for any period beyond said date shall be repaid to Tenant. Widening
of street abutting the land on which the Building stands shall not affect this
lease, provided no part of Building is taken. Tenant shall not be entitled to
any part of any condemnation award or any payment in lieu thereof, whether paid
for the value of the land and building taken, or conveyed as severance damages
to the remainder, or otherwise.
18. ENTRY: Landlord may enter Premises from time to time at reasonable
hours to show Premises to mortagees, or prospective purchasers or tenants, or
to inspect Premises, or to make repairs required of Landlord under the terms
hereof or repairs or improvements to adjoining space within the Building. Such
entry by Landlord shall not entitle Tenant to any rent abatement.
19. TRANSFER OF TENANTS: In the event the Premises rented to Tenant are
less than 2000 square feet in area, Landlord reserves the right, at its option
and upon giving thirty (30) days written notice in advance to Tenant, to
transfer and remove Tenant from the Premises to any other available rooms and
offices of substantially equal size and area and equivalent rental in Building
of which the Premises are a part. Landlord shall bear the expense of said
removal as well as the expense of any renovations or alterations necessary to
make the new space substantially conform in layout and appointment with the
original Premises.
20. WAIVER OF SUBROGATION: Anything in this Lease to the contrary
notwithstanding, to the extent such a waiver does not void any applicable
insurance coverage, Lessor and Lessee each hereby waive any and all rights of
recovery, claim, action or cause of action, against the other, its agents,
officers, or employees for any loss or damage that may occur to the Leased
Premises, or any improvements thereto, or to the Building of which the Leased
Premises are a part, or any improvements thereto, or any personal property of
such party therein, by reason of fire, the elements, or any other cause to the
extent that such rights of recovery, claim, action or cause of action is
covered by insurance, regardless of cause or origin, including negligence of
the other party hereto, its agents, officers or employees, and covenants that
no insurer shall have any right of subrogation against such party.
21. LIABILITY INSURANCE: Lessee shall maintain comprehensive general
public liability insurance against claims for bodily injury, death or property
damage occurring in, on or about the parking areas, Building or the Leased
Premises in a combined single limit of not less than One Million Dollars
($1,000,000.00). Such insurance shall be effected under policies satisfactory to
Lessor that shall name Lessor as an additional insured. Lessee shall furnish
Lessor with a certificate evidencing such coverage that shall contain an
undertaking by the insurer to give Lessor ten (10) days prior written notice of
any modification or cancellation of the coverage afforded by such insurance.
22. SUBORDINATION AND ATTORNMENT: This lease, and all rights of Tenant
hereunder, are and shall be subject and subordinate in all respects to all
present and future ground leases, operating leases, superior leases, overriding
leases, and underlying leases of the land and the building or any portion
thereof now or hereafter existing and to all mortgages which may nor or
hereafter affect the
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land, the building or any of such leases, whether or not such mortgages shall
also cover other lands or buildings, to each and every advance made or hereafter
to made under mortgages, and to all renewals, modifications, replacements and
extensions and such leases and such mortgages and spreaders and consolidations
of such mortgages. This section shall be self-operative and no further
instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall promptly execute and deliver at its own expense any
instrument that Landlord, the lessor of any such lease or the holder of any such
mortgage or any of their respective successors in interest may reasonably
request to evidence such subordination; and if Tenant fails to execute,
acknowledge or deliver any such instrument within ten (10) days after request,
Tenant hereby irrevocably constitutes and appoints Landlord as Tenants attorney
in fact, coupled with the interest, to execute, acknowledge and deliver any such
instruments for and on behalf of Tenant.
23. INDEMNITY AND HOLD HARMLESS: Tenant hereby on behalf of itself and
any party holding by, through or under Tenant agrees to indemnify and hold
harmless, Landlord, its agents, contractors and employees in the following
manner:
(a) Against any default under this lease by Tenant and any party holding
by, through or under Tenant for any and all damages, costs, claims or
liabilities of whatsoever nature sustained by Landlord or any party holding by,
through or under Landlord as a result of such default or failure.
(b) Against any and all claims, damages, losses and liabilities whatsoever
their nature, cause or origin, attributable in any manner to the negligence of
Tenant, its agents, contractors, employees, or to the use and occupancy of
Premises or Building by Tenant, its agents, contractors, employees, licensees
or invitees.
Further, Tenant waives and relinquishes any claim against Landlord, on
account of any of the following:
Any and all losses or damages to any property or person occasioned by
fire, act of God, public enemy, injunction, riot, strike, insurrection, war,
court order, requisition, or order of governmental body of authority, or other
matter beyond the reasonable control of Landlord.
24. FIRE AND EXTENDED INSURANCE COVERAGE AND WAIVER OF SUBROGATION
THEREUNDER: Tenant shall carry fire and extended coverage insurance insuring its
interest in Tenant's improvements in Premises and its interest in its office
furniture, equipment and supplies, which insurance shall cover Tenant to the
full insurable value thereof against damages to all such property and
improvements caused by or attributable to water damage, including but not
limited to sprinkler leakage or sprinkler flow. Tenant hereby waives any rights
of action against Landlord for loss or damage covered by such insurance and
Tenant covenants and agrees with Landlord that it will obtain a waiver from the
carrier of such insurance releasing such carrier's subrogation rights as against
Landlord. Tenant shall within twenty (20) days following notice from Landlord,
deposit with Landlord the policy or policies of such insurance of a certificate
or certificates thereof. the instrument or instruments deposited with Landlord
hereunder shall be evidence that such insurance is in full force and effect,
that such insurance will not be terminated or canceled without ten (10) days
prior notice to Landlord by the carrier of such insurance, and that the carrier
of such insurance waives all rights of recovery by way of action against Tenant
for loss or damage covered by any insurance Landlord carries on the Premises and
Landlord covenants and agrees with Tenant that it will obtain a waiver from the
carrier of any such insurance releasing such carrier's subrogation right as
against Tenant. Any additional premium imposed on account of the waivers
provided for in this Paragraph shall be paid by the party benefiting from the
same.
25. REMEDIES CUMULATIVE: The rights given to Landlord herein are in
addition to any rights that may be given to Landlord by any statute or
otherwise.
26. HOLDING OVER: If Tenant remains in possession of Premises or any part
thereof after expiration of the Term hereof, with or without Landlord's
acquiescence and without any written agreement between the parties, Tenant shall
be a tenant at will and such tenancy shall be subject to all provisions hereof
and there shall be no renewal of this lease by operation of law. Nothing in this
Paragraph shall be construed as a consent by Landlord to the possession of
Premises by Tenant after the expiration of the Term other than as Tenant at
will.
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27. NO WAIVER OF CHARGES: The failure of either party to insist in any
instance on strict performance of any covenant or condition hereof, or to
exercise any option herein contained, shall not be construed as a waiver of
such covenant, condition or option in any other instance. This lease cannot be
changed or terminated orally.
28. MARGINAL NOTATIONS: The marginal notation in this lease are
included for convenience only and shall not be taken into consideration in any
construction or interpretation of this lease or any of its provisions.
29. NOTICE:
(a) Any notice by either party to the other shall be valid only if in
writing and shall be deemed to be duly given only if delivered personally or
sent by registered or certified mail addressed (a) if to Tenant, at the
Building, and (b) if to Landlord, at Landlord's address, or at such other
address for either party as that party may designate by notice to the other;
notice shall be deemed given, if delivered personally, upon delivery, and if
mailed, upon the mailing thereof.
(b) Tenant hereby appoints as its agent to receive service of all
dispossessory or distraint proceedings, the person occupying Premises; and if
there is no person occupying the same, then such service may be made by
attachment thereof on the main entrance to Premises.
TO TENANT: New American Healthcare Corporation
109 Westpark Drive
Suite 440
Brentwood, TN 37027
TO LANDLORD: Mr. James W. Ayers
Citizen's Bank Building, 2nd Floor
131 West Main Street
P. O. Box 217
Parsons, TN 38363
ATTN: Mr. James W. Ayers
TO MANAGING
AGENT: Centennial, Inc.
2300 West End
Nashville, TN 37203
ATTN: Sandra Neilson
30. HEIRS AND ASSIGNS: The provisions of this lease shall bind and inure
to the benefit of Landlord and Tenant, and their respective successors, heirs,
legal representatives and where permitted assigns, it being understood that the
term "Landlord", as used in this lease, means only the owner, or the lessee for
the time being of the land and Building of which the Premises are a part, so
that in the event of any sale, or sales of said property or of any lease
thereof, the Landlord named herein shall be and hereby is entirely freed and
relieved of all covenants and obligations of Landlord hereunder accruing
thereafter, and it shall be deemed without further agreement that the purchaser
or the lessee, as the case may be, has assumed and agreed to carry out any and
all covenants and obligations of Landlord hereunder during the period such
party has possession of the Building. Should the land and the entire Building
be severed as to ownership by sale and/or lease, then the owner of the entire
Building or lessee of the entire Building that has the right to lease the space
in Building to tenants shall be deemed the "Landlord". Tenant shall be bound to
any succeeding party Landlord for all the terms, covenants and conditions
hereof and shall execute any attornment agreement not in conflict herewith at
the request of any succeeding party Landlord.
31. ENTIRE AGREEMENT AND ENFORCEABILITY: This lease contains the
entire agreement between Landlord and Tenant and no representations,
inducements, promises or agreements, oral or otherwise, between Landlord and
Tenant not embodied herein, oral or otherwise, shall be of any force
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or effect. If any term or provision of this lease shall be invalid or
unenforceable, the remaining terms and provisions hereof shall not be affected
thereby; if the application of any term or provision of this lease to any person
or circumstances shall to any extent be invalid or unenforceable, such term or
provision shall remain applicable as to those persons or circumstances shall to
any extent be invalid or unenforceable, such term or provision shall remain
applicable as to those persons or circumstances to which it shall be valid and
enforceable; and each term and provision of this lease shall be valid and
enforceable to the fullest extent permitted by law.
32. SECURITY DEPOSIT: Tenant has this day deposited with Landlord the
sum of $7,507.50 as security for the performance by Tenant of all of the terms,
covenants and conditions of this lease upon Tenant's part to be performed,
which sum shall be returned to Tenant after the expiration of the term hereof,
provided Tenant has fully performed hereunder. Landlord shall have the right to
apply any part of said deposit to cure any default of Tenant and if Landlord
does so, Tenant shall upon demand deposit with Landlord the amount so applied
so that Landlord shall have the full deposit on hand at all times during the
term of this lease. In the event of a sale of the Building, or a lease of the
Building, subject to this lease, Landlord shall have the right to transfer the
security deposit to the vendee or lessee and Landlord shall thereupon be
released from all liability for the return of such security deposit and Tenant
shall look solely to the new Landlord for the return of said security and this
provision shall apply to every transfer or assignment made of the security to a
new Landlord. The security deposit under this lease shall not be assigned or
encumbered by Tenant and any attempted assignment or encumbrance by Tenant
shall be void.
33. ATTORNEY'S FEES: Any amounts payable hereunder by Tenant to
Landlord which are not paid on or before the date due shall bear interest at
the maximum effective rate of interest then permitted by applicable law from
said due date. The party that breaches this contract agrees to pay reasonable
attorney's fees.
34. GENDER: The parties "Landlord", "Tenant", and "Broker" and pronouns
relating thereto, as used herein, shall include male, female, singular and
plural, corporation, partnership, or individual, as may fit the particular
parties.
35. NO ESTATE IN LAND: It is understood and agreed that the interest of
Tenant in this lease and in the Premises is not subject to levy or sale and may
not be encumbered by Tenant and that no estate shall pass out of Landlord to
Tenant hereunder with Tenant's rights to use the Premises being solely
contractual.
36. LANDLORD'S LIABILITY: If Landlord shall be an individual, joint
venture, Tenant in common, partnership, unincorporated association, or other
incorporated aggregate of individuals and or entities or corporation, Tenant
shall look only to such Landlord's estate and properties in the Premises (or
the proceeds thereof) and, where expressly so provided in this lease to offset
against the rents payable under this lease, for the satisfaction of Tenant's
remedies for collection of a judgment (or other judicial process) requiring
the payment of money by Landlord in the event of any default by Landlord
hereunder, and no other property or assets of such Landlord or any partner,
member, or also a director thereof, disclosed or undisclosed shall be subject to
levy, execution or other enforcement procedure with the satisfaction of
Tenant's remedies under or with respect to this lease, the relationship with
Landlord and Tenant hereunder to Tenant's use or occupancy of the demised
Premises.
37. TIME OF ESSENCE: Time of the essence of this agreement.
38. THE MEASUREMENT OF LEASABLE AREA: The measurement of leasable area
shall be according to ANSIZ 65.1 - 1980 Titled: "Methods of Measuring Floor
Areas in Office Buildings," (BOMA STANDARD) plus 12.5% for Tenants that occupy
less than a full floor, which represents Tenant's pro-rata share of corridors,
lobbies, restrooms, closets, and other public space.
39. BROKER: Tenant covenants, warrants and represents that no broker or
finder except Centennial Incorporated (the Broker) was instrumental in
consummating this lease and that no conversations or negotiations were had with
any broker or finder except Broker concerned with renting of the Premises.
Tenant agrees to hold Landlord harmless against any claims for brokerage
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commission or other compensation arising out of any conversations or
negotiations stated by Tenant with any broker or finder other than Broker.
40. SEVERABILITY: If any provision of this lease or the application
thereof to any party to this lease or any circumstances shall be invalid or
unenforceable to any extent, the remainder of this lease or circumstances shall
not be affected thereby and shall be enforced to the extent permitted by law.
41. GOVERNING LAW: This lease and the rights and obligations of Landlord,
Tenant and Broker hereunder shall be interpreted, construed and enforced in
accordance with the laws of the State of Tennessee.
42. COUNTERPARTS: This lease may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall comprise but a single instrument.
43. ESTOPPEL CERTIFICATE: Each party agrees, at any time from time to
time, as requested by the other party, upon not less than ten (10) days' prior
notice, to execute and deliver to the other a statement certifying (a) that
this Lease is unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications) and whether any options granted to Tenant pursuant to the
provisions of this Lease have been exercised, (b) certifying the dates to which
the Fixed Rent and Additional Rent have been paid and the amounts thereof, and
stating whether or not, to the best knowledge of the singer, the other party is
in default in performance of any of its obligations under this Lease, and, if
so, specifying each such default of which the signer may have knowledge, it
being intended that any such statement delivered pursuant hereto may be
relied upon by others with whom the party requesting such certificate may be
dealing.
At the request of Landlord, Landlord and Tenant shall promptly
execute, acknowledge and deliver a memorandum with respect to this Lease
sufficient for recording. Such memorandum shall not in any circumstances be
deemed to change or otherwise affect any of the obligations or provisions of
this Lease. Tenant shall not record this Lease or any memorandum thereof
without the prior written consent of Landlord.
44. SPECIAL STIPULATIONS: (a) Landlord agrees to provide a buildout
allowance of up to $8.00 per square foot to be
used to retrofit the existing space.
(b) Tenant shall have the right to renew
this renew this lease for one (1) five (5)
year at then current market rates with 180
days prior written notice to Landlord.
(c) At such time as R.R. Donnelley, or any
other subsequent tenant, shall vacate the
space currently occupied by R.R. Donnelley
that is contiguous to the space contemplated
by this lease and a floor plan attached
hereto as "Exhibit B", Tenant shall have the
first right of refusal of such space on the
same terms and conditions acceptable to
Landlord and a third party. Tenant's right
of first refusal shall not preclude R.R.
Donnelley from exercising renewal or
extension rights it now has under its
present lease, nor shall it preclude
Landlord from entering into a lease with a
subsequent new tenant for the same space,
but the first right of refusal does preclude
Landlord from offering any extension or
renewal options to such new tenant beyond
the initial term of such new tenant's lease.
This first right of refusal also precludes
Landlord offering extension or renewals to
R.R. Donnelley beyond those it now has.
(d) Landlord will provide Tenant a
non-disturbance agreement from the mortgage
holder.
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(e) At such time as Tenant instructs
Landlord to commence construction of tenant
improvements, Tenant shall fund the amount
of $43,680.00 into an interest bearing escrow
under the control of Landlord or Landlord's
agent. Landlord may draw upon such escrow
for purposes of paying the aforementioned
tenant improvement expense. At such time as
Tenant provides certifiable evidence that it
has obtained an equity capital infusion of
at least $10,000,000, provided no default
exists under the lease, the Landlord will
reimburse the Tenant any funds remaining in
the escrow account and will also reimburse
the Tenant for the expenditures to date paid
from the escrow account for tenant
improvements.
(f) If Tenant elects to have the tenant
improvements prior to occupancy of the space
rent shall commence on December 1, 1996 or as
soon thereafter as Landlord delivers the
space to Tenant complete with a use and
occupancy certificate. If Tenant elects to
delay construction of Tenant improvements,
rent shall commence on December 1, 1996 and
will be abated for the period of time
necessary to build out the space when Tenant
elects to do so.
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RULES AND REGULATIONS
(which are referred to within Lease and made a part thereof)
1. The stairwells in the Building shall be for emergency use only and
shall not be obstructed by or otherwise used by Tenants or their employees.
2. The sidewalks, halls, passages, electric closets, and elevators shall
not be obstructed by Tenants or their employees or use for any other purposes
than for ingress and egress from and to offices of Tenants. The roof, service
areas, and such other areas in and about the Building as may from time to time
be designated by Landlord are not for the use of the general public and
Landlord shall in all cases retain the right to control and prevent access
thereto.
3. Lavatories, janitor's closets and other water apparatus shall not be
used for any purpose other than those for which they were constructed, and no
sweepings, rubbish, rags, ashes, chemicals or refuse or other injurious
substances, shall be thrown therein. Any damage resulting from such misuse or
abuse shall be borne and immediately paid by the Tenant by whom or by whose
employees it shall have been caused.
4. No advertisement, sign or other notice ("Sign") shall be inscribed,
painted or affixed on any part of the outside or inside of Building without the
Lessor's express written consent to the sign and its location. No awnings or
window tint shall be place upon the Building.
5. No Tenant shall do or permit to be done in Building, or being or keep
anything thereon, which shall in any way obstruct or interfere with the rights
of other tenants, or in any way injure or annoy them, or conflict with the laws
relating to fires, or with the regulations of the Fire Department, or any part
thereof, or conflict with any of the rules and ordinances of the Board of
Health. Tenants, their invitees and employees shall maintain order in the
Building, shall not make or permit any improper noise in Building or interfere
at any time without permission of landlord. No part of Building shall be used
or in any way appropriated for gambling, immoral or other unlawful practices.
No intoxicating liquor or liquors shall be sold in Building by Tenant without
Landlord's permission.
6. Tenants shall not employ any persons other than the janitors of
Landlord (who will be provided with passkeys into the offices) for the purposes
of cleaning or taking care of Premises.
7. No animals, birds, bicycles or other vehicles shall be allowed into
the offices, halls, corridors, elevators or elsewhere in the Building.
8. Tenants shall not cause unnecessary labor by reason of carelessness
and indifference to the preservation of good order and cleanliness in the
Premises and in the Building.
9. Tenants and their employees shall not throw, sweep, drop or otherwise
place any objects, dirt, refuse or other substance out of the Premises into the
corridors, stairwells, lobbies, elevators or other areas in or about the
Building
10. Tenants shall not use or keep in the Building any explosives,
kerosene, gasoline, benzine, camphene, burning fluid or other flammable
material.
11. No painting shall be done, nor shall any alteration be made, to any
part of Building by painting up or changing any particulars, doors or windows,
nor shall there be any nailing, boring or screwing into the woodwork or
plastering nor shall any connection be made to the electric wires or gas or
electric fixtures, without the consent in writing on each occasion of Landlord
or its agent. All glass, locks and trimmings in or upon the doors and windows
of Building shall be kept whole, and when any part thereof shall be broken, the
same shall immediately be replaced or repaired and put in order under the
direction and to the satisfaction of Landlord, or its agents, and shall be left
whole and in good repair. Tenants shall not deface Buidling, the woodwork of
the walls of Premises.
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12. No more than two keys will be furnished Tenants without charge.
Tenants shall not, under any circumstances, have any duplicate keys made. No
additional locks or latches shall be put upon any door without the written
consent of Landlord. Tenant at the termination of their Lease of Premises shall
return to Landlord all keys to doors in Building.
13. Landlord in all cases shall prescribe the method and manner in which
any merchandise, heavy furniture, large packages or safes shall be brought in
or taken out of the Building, and also the hours at which moving shall be done.
All damages done to the Building by taking in or out of such merchandise, heavy
furniture, large packages or safes or any damage done to the Building by
reason of said property being therein, shall be made good and paid for by the
Tenant by, through or under whom the said damage may have been done. All
furniture, safes or fixtures shall be provided with supports, glides or casters
that will meet the approval of Landlord.
14. If Tenants require wiring for a bell or buss system, such wiring
shall be done at Tenant's expense and by the electrician of Building only and
no outside wiring men shall be allowed to do work of this kind unless by the
written permission of Landlord. If telegraphic or telephonic services are
desired, the wiring for same shall be done as directed by the electrician of
Building or by some employee of Landlord who may be instructed by the
superintendent of Building to supervise them, and no boring or cutting for
wiring shall be done unless approved by Landlord or its agents.
15. Landlord reserves all vending rights.
16. Landlord shall not be responsible to any Tenant for the non-observance
or violation of any of these Rules and Regulations by any other Tenant(s).
Landlord reserves the right to make such other reasonable rules and regulations
as in his judgment may from tie to time be needed for the safety, care and
cleanliness of Premises, and for the preservation of good order therein.
Regulations shall be biding upon the parties hereto the same as if they had
been inserted at time of execution.
17. Landlord may refuse admission to the Building outside of ordinary
business hours to any person not known to the watchman in charge or not having a
pass issued by Tenant or not properly identified, and may require all persons
admitted to or leaving the Building outside of ordinary business hours to
register.
18. No noise, including the playing of any musical instruments, radio or
television, which, in the judgment of the Landlord, might disturb other Tenants
in the Building, shall be made or permitted by any Tenant, and no cooking shall
be done in the tenants premises, except as expressly approved by the Landlord.
Nothing shall be done or permitted in any tenant premises, and nothing shall be
brought into or kept in any tenant premises, which would impair or interfere
with any of the Building services or the proper and economic heating, cleaning
or other servicing of the Building or the premises, or the use or enjoyment by
any other tenant of any other premises, nor shall there be installed by any
tenant any ventilating, air conditioning, electrical or other equipment of any
kind which the judgment of the Landlord, might cause any such impairment or
interference.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals, in
quadruplicate, the day and year first above written.
TENANT: New American Healthcare Corporation
by /s/ Dana C. McLendon Jr. Witness:/s/
-------------------------- --------------------------
Authorized Signature
(Corporate Capacity)
SVP - Fin. & Admin.
void
-------------------------- Witness: N/A
---------------------------
void
-------------------------- Witness: N/A
---------------------------
LANDLORD:
/s/
--------------------------
Authorized Signature
Witness:
/s/
--------------------------
Authorized Signature
14
<PAGE> 15
[FLOORPLAN]
<PAGE> 16
[FLOORPLAN]
<PAGE> 17
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE Agreement, made and entered into this 10 day of
October, 1996, by and between Highwoods/Forsyth Ltd. Partnership, as "Landlord"
and New American Healthcare Corporation, as "Tenant".
WHEREAS, James W. Ayers and Tenant entered into a certain OFFICE LEASE
AGREEMENT dated May 22, 1996, (hereinafter referred to as the "Lease"),
providing for the demise by Lessor to Lessee of office space in a certain
building now commonly known and designated as Harpeth on the Green II, 109
Westpark Drive, Brentwood, Tennessee (the "Building"), and as more specifically
set forth in aforesaid Lease; and
WHEREAS, Highwoods/Forsyth Ltd. Partnership is the successor in interest to
James W. Ayers under the LEASE, pursuant to Highwood/Forsyth Ltd. Partnership
purchase of the premises that were the subject of the LEASE:
NOW, THEREFORE, in consideration of mutual covenants and undertakings
hereinafter set forth by and between the parties hereto, THE OFFICE LEASE
AGREEMENT IS HEREBY AMENDED AS FOLLOWS:
1. Square Footage: The square footage will be increased to 6349 reflecting
the addition of 889 square feet as shown on the attached exhibit.
2. The base rental for the leased premises, adjusted to reflect the addition
of 889 square feet bringing the total square footage to 6349 and prorata
share to 8.11%, effective the first day of December, 1996 will be as
follows:
<TABLE>
<CAPTION>
Base Monthly Annual Base
Period Rental Rental
- ------ ------------ -----------
<S> <C> <C>
12/1/96 to 11/30/97 $8,729.88 $104,758.50
12/1/97 to 11/30/98 $8,766.55 $105,198.56
12/1/98 to 11/30/99 $8,803.96 $105,647.50
12/1/99 to 11/30/00 $8,843.22 $106,118.67
12/1/00 to 11/30/01 $8,883.23 $106,598.73
</TABLE>
3. Tenant Improvements: Landlord to provide up to $8.00 psf on the additional
889 square feet for buildout of the space along with the allowance on the
5460 square feet as provided in the original lease.
<PAGE> 18
4. Landlord and Tenant hereby acknowledge that the Lease and all amendments
thereto constitute the entire agreement and that no other agreements
written or oral exist. All other provisions of the Lease and previous
amendments not hereby amended shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment to
Lease Agreement by proper person thereunto authorized so to do on the day and
year first written above.
WITNESS: LANDLORD: Highwoods/Forsyth Ltd. Partnership
By: Highwoods Properties, Inc.
General Partner
By: /s/ Jeff Williams By: /s/ Bruce Reanes
--------------------- ---------------------
Its: Its: Vice President
--------------------- ---------------------
Date: 10/16/96 Date: 10/16/96
-------------------- --------------------
TENANT: New American Healthcare Corporation
By: /s/ Neil G. M. Len By: /s/Dana C. McLendon Jr.
--------------------- -----------------------
Its: V. P. Its: SVP
--------------------- ----------------------
Date: 10/10/96 Date: 10/10/96
-------------------- ----------------------
<PAGE> 19
[FLOORPLAN]
<PAGE> 20
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE AGREEMENT (hereinafter the "Second Amendment") is
made and entered into this 10th day of June, 1998, by and between W. FRED
WILLIAMS, TRUSTEE FOR THE BENEFIT OF HIGHWOODS/TENNESSEE HOLDINGS, L.P (herein
called "Landlord" and successor-in-interest to James W. Ayers) and New American
Healthcare Corporation (herein called "Tenant").
WHEREAS, Landlord and Tenant entered into a certain Lease Agreement dated May
22, 1996 (the "Lease"), providing for the demise by Landlord to Tenant of office
space in a certain office building now commonly known as Harpeth on the Green
II, 109 Westpark Drive, Brentwood, Tennessee (the "Building"), all as more
specifically set forth in the Lease; and
WHEREAS, Landlord and Tenant amended the terms of the Lease on October 10, 1996;
and
WHEREAS, Landlord and Tenant now desire to further amend the terms of the Lease
to be effective June 1, 1998.
Now, THEREFORE, in consideration of mutual convenants and undertakings
hereinafter set forth by and between the parties hereto, the Lease is hereby
amended as follows:
1. Commencing June 1, 1998, Tenant shall lease and occupy an additional 10,393
rentable square feet represented by Suite 190 (2,802 rsf) on the first
floor of the Building and Suite 430 (7,591 rsf) on the fourth floor of the
Building. The Leased Premises will now contain a total of 16,742 rentable
square feet. Tenant's proportionate share for the purpose of calculating
additional rent associated with operating expenses shall be 21.40%.
2. The Term of the Lease is hereby extended by an additional thirty-six (36)
months. The new expiration date of the Lease shall be November 30, 2004.
The extension of the Term shall only apply to Tenant's fourth floor space
(13,940 rsf) and will not include Suite 190 (2,802 rsf) located on the
first floor of the Building. Thus, during the extension period, the Leased
Premises will contain a total of 13,940 rentable square feet located
entirely on the fourth floor of the Building. Tenant's new proportionate
share during the extension period shall be 17.82%.
3. Amended to reflect the additional square footage and extension of the Term,
Base Rental shall be paid by Tenant according to the following schedule:
(a) As to Suite 190:
<TABLE>
<CAPTION>
From Through Rate/SF Monthly Annually
---- ------- ------- ------- --------
<S> <C> <C> <C> <C>
6/1/98 11/30/01 $17.50 $ 4,086.25 $ 49,035.00
</TABLE>
(b) As to Suite 430 and Suite 440 (combined):
<TABLE>
<CAPTION>
From Through Rate/SF Monthly Annually
---- ------- ------- ------- --------
<S> <C> <C> <C> <C>
6/1/98 11/30/98 $16.53 $19,204.17 (6 months)
12/1/98 11/30/99 $16.56 $19,241.58 $230,898.96
12/1/99 11/30/00 $16.60 $19,280.85 $231,370.20
12/1/00 11/30/01 $16.63 $19,320.85 $231,850.20
12/1/01 11/30/02 $19.08 $22,164.60 $265,975.20
12/1/02 11/30/03 $19.61 $22,780.28 $273,363.36
12/1/03 11/30/04 $20.20 $23,465.67 $281,588.04
</TABLE>
1
<PAGE> 21
4. Landlord shall provide Tenant an allowance of $124,593 (the "Allowance") to
make improvements solely to the Leased Premises. The Allowance shall
include all architectural fees and any necessary repairs or "patching"
required in the common corridors as a result of the tenant work.
5. Tenant shall have the right to affix signage at the existing monument sign
located in front of the Building at Westpark Drive. The design of such
signage shall be consistent with the current signage already in place, and
the cost of the signage, including installation, shall be deducted from the
Allowance specified in Section 4 above.
6. Per Section 44 (c) of the Lease, Tenant has a Right of Refusal on Suite
410. This Second Amendment shall also provide Tenant additional Rights of
First Refusal on Suite 400 and Suite 480, subordinate however, to existing
tenant rights, if any, on these spaces. If Tenant elects to exercise its
Rights of First Refusal on these spaces, the following base rental rates
and notice dates shall apply:
<TABLE>
<CAPTION>
Suite Square Feet Rate/SF(First year) Notice Date
----- ----------- ------------------- ------------
<S> <C> <C> <C>
410 1,680 $18.50 March 1,1999
480 3,223 $18.50 June 1, 1999
400 2,374 $19.08 July 1, 2001
</TABLE>
The base rental rates specified above for the Right of First Refusal Spaces
shall apply only to the first year of the term. For each subsequent year of
term, the base rental rates shall increase by three percent (3%) annually
for each space respectively.
If Tenant elects to exercise its Right of First Refusal on any of these
spaces, Landlord shall provide a tenant improvement allowance of $2.00 per
rentable square feet for each year of lease term, provided that such term
is a minimum of three (3) years. For any partial year of term, the tenant
improvement allowance shall be prorated accordingly.
7. Definitions and terms used in this Second Amendment shall have the same
definitions as set forth in the Lease.
8. This Second Amendment shall be incorporated into and made a part of the
Lease and all provisions of the Lease not expressly modified or amended
shall remain in full force and effect.
2
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment by proper person thereunto authorized to do so on the day and year
first written above.
LANDLORD:
W. FRED WILLIAMS, TRUSTEE FOR THE BENEFIT OF
HIGHWOODS/TENNESSEE HOLDINGS, L.P
By: /s/ W. Brian Reames
--------------------------------------
W. Brian Reames or John W. Eakin,
as Authorized Agent for W. Fred
Williams, Trustee, under that certain
Amended and Restated Trust Agreement
effective as of November 27, 1996, by
and between Highwoods/Tennessee
Holdings, L.P and W. Fred Williams
Title: Vice President
Date: June 10, 1990
TENANT:
NEW AMERICAN HEALTHCARE CORPORATION
By: /s/ Robert M. Martin
-------------------------------
Title: President
Date: June 4, 1998
3
<PAGE> 1
Exhibit 10.3
================================================================================
SECURITIES PURCHASE AGREEMENT
Among
NEW AMERICAN HEALTHCARE CORPORATION
and
WCAS CAPITAL PARTNERS III, L.P.,
Dated as of January 30, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I THE SECURITIES .............................................................................................. 2
SECTION 1.01 Purchase and Sale of the Securities .................................................... 2
SECTION 1.02 Closing Date ........................................................................... 2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY .............................................................. 2
SECTION 2.01 Organization, Qualifications and Corporate Power........................................ 3
SECTION 2.02 Authorization of Agreements, Etc. ...................................................... 3
SECTION 2.03 Validity ............................................................................... 4
SECTION 2.04 Capital Stock .......................................................................... 4
SECTION 2.05 Financial Statements ................................................................... 5
SECTION 2.06 Events Subsequent to November 30, 1997 ................................................. 5
SECTION 2.07 Actions Pending ........................................................................ 6
SECTION 2.08 Governmental Approvals ................................................................. 6
SECTION 2.09 Offering of the Securities ............................................................. 6
SECTION 2.10 Other Contracts and Commitments ........................................................ 7
SECTION 2.11 Compliance With Law .................................................................... 7
SECTION 2.12 Use of Proceeds ........................................................................ 7
SECTION 2.13 Disclosure ............................................................................. 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS .......................................................... 8
ARTICLE IV CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS ............................................................ 8
SECTION 4.01 Conditions to Closing .................................................................. 8
ARTICLE V CONDITIONS TO THE OBLIGATIONS OF THE COMPANY ............................................................... 11
ARTICLE VI COVENANTS ................................................................................................. 11
ARTICLE VII MISCELLANEOUS ............................................................................................ 12
SECTION 7.01 Expenses .............................................................................. 12
SECTION 7.02 Survival of Agreements ................................................................ 12
SECTION 7.03 Brokerage.............................................................................. 13
SECTION 7.04 Parties in Interest ................................................................... 13
SECTION 7.05 Notices ............................................................................... 13
SECTION 7.06 Law Governing ......................................................................... 14
SECTION 7.07 Entire Agreement ...................................................................... 14
SECTION 7.08 Counterparts .......................................................................... 14
SECTION 7.09 Amendments; Waivers ................................................................... 14
TESTIMONIUM .......................................................................................................... 15
</TABLE>
<PAGE> 3
INDEX TO EXHIBITS
Exhibit Description
- ------- -----------
EXHIBIT A Form of Senior Subordinated Note
EXHIBIT B Form of Warrant
EXHIBIT C Form of Registration Rights Amendment
<PAGE> 4
SECURITIES PURCHASE AGREEMENT, dated as of January 30, 1998, between
NEW AMERICAN HEALTHCARE CORPORATION, a Tennessee corporation (the "Company"),
and WCAS CAPITAL PARTNERS III, L.P., a Delaware limited partnership (the
"Purchaser").
WHEREAS, pursuant to the Securities Purchase Agreement, dated as of
December 19, 1995, as amended (the "1995 Purchase Agreement"), among New
American Healthcare Corporation, Welsh, Carson, Anderson & Stowe VII, L.P., the
several other purchasers named in Annex I thereto and the founders named in
Annex II thereto, and in order to obtain funds for the acquisition (the
"Acquisition") of certain Facilities (as such term is defined in the 1995
Purchase Agreement) to be purchased on or about the Closing Date (as hereinafter
defined), on the Closing Date the Company shall sell to the Purchasers under the
1995 Purchase Agreement an aggregate 177,239.5 shares of the Company's Series A
Non-Convertible Cumulative Preferred Stock, $.01 par value ("Series A Preferred
Stock") (the closing of such purchase and sale transaction being referred to
herein as the "Preferred Stock Closing"); and
WHEREAS, subject to and simultaneously with the closing of the
transactions contemplated by this Agreement, the parties to the Credit
Agreement, dated as of September 30, 1996 among the Company, Toronto Dominion
(Texas), Inc. as Agent and The Toronto-Dominion Bank, as Issuing Bank and the
financial institutions named therein as Banks (the "Existing Credit Agreement")
have agreed to amend and restate the Existing Credit Agreement (as so amended
and restated, the "Amended Credit Agreement") to (i) increase the amount
available for borrowing by the Company thereunder, (ii) permit the Company to
incur the indebtedness evidenced by the Notes (as hereinafter defined), and
(iii) make such other changes therein as the parties thereto deem desirable or
necessary; and
WHEREAS, subject to and simultaneously with the Preferred Stock Closing
and the closing of the transactions contemplated by the Amended Credit Agreement
and subject to the other terms and conditions set forth herein, in order to
obtain additional funds for the Acquisition, the Company wishes to sell to the
Purchaser units (the "Units") consisting of $25,000,000 aggregate principal
amount of 10% Senior Subordinated Notes Due 2008 of the Company substantially in
the form of Exhibit A hereto (the "Notes") and Warrants to subscribe to 565,000
shares of Common Stock, $.01 par value ("Common Stock"), of the Company,
substantially in the form of Exhibit B hereto (the "Warrants"); and
WHEREAS as a material inducement to Purchaser to enter into this
Agreement and to consummate the transactions contemplated hereby, the Company
and the other parties thereto desire
<PAGE> 5
to amend the Registration Rights Agreement dated as of December 19, 1995 to
include the Warrants to be sold to the Purchaser hereunder as "Restricted
Securities" thereunder;
WHEREAS the Purchaser wishes to purchase the Units, all on the terms
and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereby agree as follows:
I.
THE SECURITIES
SECTION 1.01 Purchase and Sale of the Securities. (a) Subject to the
terms and conditions set forth herein, the Company shall issue and sell to the
Purchaser, and the Purchaser shall purchase from the Company on the Closing
Date, the number of Units consisting of Notes and Warrants (such Notes and
Warrants being sometimes referred to herein, collectively, as the "Securities")
set forth opposite the name of the Purchaser on Annex I hereto for $1,000 per
Unit, or an aggregate purchase price of $25,000,000. The Company shall execute
and deliver to the Purchaser Notes in the aggregate principal amount of
$25,000,000 and Warrants, registered in the name of WCAS CP III, to subscribe
for an aggregate 565,000 shares of Common Stock.
(b) As payment in full for the Units being purchased by it hereunder,
and against delivery thereof as aforesaid, on the Closing Date the Purchaser
shall transfer to the account of the Company by wire transfer the amount set
forth opposite the Purchaser's name on Schedule I hereto under the caption
"Total Price."
SECTION 1.02 Closing Date. The closing of the sale and purchase of the
Units to the Purchaser shall take place at the offices of Reboul, MacMurray,
Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, New York 10111, at 10
a.m., New York time, on January 30, 1998, or at such other date and time as may
be mutually agreed upon between the Purchaser and the Company (such date and
time of closing being herein called the "Closing Date").
2
<PAGE> 6
II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to, and agrees with, each Purchaser
as follows:
SECTION 2.01 Organization, Qualifications and Corporate Power. (a) The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Tennessee and is duly licensed or
qualified to do business as a foreign corporation and is in good standing in
each other jurisdiction in which the nature of business transacted by it makes
such licensing or qualification necessary and where the failure to so qualify
would in the aggregate have a material adverse effect on the Company. The
Company has the corporate power and authority to own and hold its properties, to
carry on its business as currently conducted and to execute, deliver and perform
this Agreement and Amendment No. 2 to Registration Rights Agreement,
substantially in the form attached hereto as Exhibit C (the "Registration Rights
Amendment") amending the Registration Rights Agreement dated as of December 19,
1995 (the "Registration Rights Agreement") among the Company and the persons
named on Annexes I and II thereto and to issue, sell and deliver the Securities.
(b) Except as set forth on Schedule 2.01(b) hereto, the Company does
not own of record or beneficially, directly or indirectly, (i) any shares of
outstanding capital stock or securities convertible into capital stock of any
other corporation or (ii) any participating interest in any partnership, joint
venture or other non-corporate business enterprise.
SECTION 2.02 Authorization of Agreements, Etc. (a) The execution and
delivery by the Company of this Agreement and the Registration Rights Agreement,
the performance by the Company of its obligations hereunder and thereunder and
the issuance, sale and delivery of the Securities have been duly authorized by
all requisite corporate action and will not violate any provision of law, any
order of any court or other agency of government, the Charter or By-laws of the
Company, or any provision of any indenture, agreement or other instrument by
which the Company or any of its properties or assets is bound or affected, or
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument,
or result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever upon any of the properties or assets of the Company or
Acquisition.
3
<PAGE> 7
(b) The shares ("Warrant Shares") of Common Stock issuable upon
exercise of the Warrants have been duly authorized and reserved for issuance by
the Company and, when sold and paid for upon such exercise in accordance
therewith, will be validly issued, fully paid and nonassessable shares of Common
Stock, free and clear of all liens, charges, taxes, pledges, security interests,
adverse claims or other encumbrances or restrictions on transfer (other than any
restrictions under the Securities Act of 1933, as amended, and state securities
laws). The Notes have been duly authorized and when delivered in accordance with
this Agreement, will constitute the legal, valid and binding obligation of the
Company, enforceable in accordance with their terms. The issuance, sale and
delivery of the Securities to the Purchasers hereunder are not subject to any
preemptive rights of stockholders of the Company or to any right of first
refusal or other similar right in favor of any person.
SECTION 2.03 Validity. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms.
The Notes, the Warrants and the Registration Rights Amendment, when executed and
delivered by the Company as provided in this Agreement, will constitute legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms.
SECTION 2.04 Capital Stock. (a) The authorized capital stock of the
Company consists of (x) 20,000,000 shares of Common Stock of which 8,026,500
shares are validly issued and outstanding, fully paid and non-assessable,
4,000,000 shares have been duly reserved for issuance upon conversion of the
Series B Convertible Preferred Stock, $.01 par value (the "Series B Preferred
Stock") , of the Company and 565,000 shares will, as of the Closing Date, have
been duly reserved for issuance upon exercise of the Warrants, (y) 485,000
shares of Preferred Stock, $.01 par value, of the Company of which (1) 250,000
shares have been designated as Series A Preferred Stock, of which 72,760.5
shares are validly issued and outstanding, fully paid and non-assessable and of
which a further 177,239.5 shares will, upon consummation of the Preferred Stock
Closing on the Closing Date, be validly issued and outstanding, fully paid and
non-assessable and (2) 235,000 shares have been designated as Series B Preferred
Stock all OF which are validly issued and outstanding, fully paid and
non-assessable.
(b) Except as contemplated by this Agreement, the 1995 Purchase
Agreement and the employee stock purchase and stock option plans duly adopted
by the Company, (A) no subscription, warrant, option, convertible security or
other right (contingent or other) to purchase or acquire any shares of any class
of capital stock of the Company is authorized or outstanding,
4
<PAGE> 8
(B) there is no commitment of the Company to issue any shares, warrants,
options or other such rights or to distribute to holders of any class of its
capital stock any evidences of indebtedness or assets and (C) the Company has no
obligation (contingent or other) to purchase, redeem or otherwise acquire any
shares of its capital stock or any interest therein or to pay any dividend or
make any other distribution in respect thereof.
SECTION 2.05 Financial Statements. The Company has heretofore furnished
to the Purchaser: (i) the audited consolidated balance sheets of the Company and
its subsidiaries as of March 31, 1997 and the related consolidated statements of
operations, stockholders' equity and cash flows for the fiscal year then ended,
certified by KPMG Peat Marwick, LLP, the independent certified public
accountants of the Company and (ii) the unaudited consolidated balance sheet of
the Company and its subsidiaries as of November 30, 1997, and the related
unaudited consolidated statements of operations, stockholders' equity and cash
flows for the eight-month period then ended, certified by the principal
financial officer of the Company. All such financial statements (including any
related schedules and/or notes, if any) are complete and correct in all material
respects and have been prepared in accordance with generally accepted accounting
principles consistently applied and consistent with prior periods. Each such
balance sheet fairly presents the financial position of the Company and its
subsidiaries as of its date, and each of said statements of operations,
stockholders' equity and cash flows fairly presents the results of operations of
the Company and its subsidiaries for the period covered thereby, subject, in the
case of unaudited financial statements, to normal year-end adjustments. There
has been no material adverse change in the operations or condition (financial or
other) of the Company and its subsidiaries since November 30, 1997.
SECTION 2.06 Events Subsequent to November 30, 1997. Since November 30,
1997, except as contemplated by this Agreement and the 1995 Purchase Agreement
and the Amended Credit Agreement and as set forth in Schedule 2.06 hereto, the
Company has not (i) issued any stock, bonds or other corporate securities, (ii)
borrowed any amount or incurred any liabilities (absolute or contingent), except
current liabilities incurred, and liabilities under contracts entered into, in
the ordinary course of business, (iii) discharged or satisfied any lien or
incurred or paid any obligation or liability (absolute or contingent) other than
current liabilities shown on the balance sheet as of November 30, 1997 referred
to in Section 2.05 hereof and current liabilities incurred since that date in
the ordinary course of business, (iv) declared or made any payment or
distribution to stockholders or purchased or redeemed any shares of its capital
stock or other securities, (v) mortgaged, pledged or subjected to lien any of
its assets, tangible or intangible, other than liens of current real property
taxes not yet due and payable,
5
<PAGE> 9
(vi) sold, assigned or transferred any of its tangible assets or canceled any
debts or claims, except in the ordinary course of business, (vii) sold, assigned
or transferred any patents, trademarks, trade names, copyrights, trade secrets
or other intangible assets, (viii) suffered any losses of property, or waived
any rights of substantial value, whether or not in the ordinary course of
business, (ix) made any changes in officer compensation, except in the ordinary
course of business and consistent with past practice, or (x) entered into any
transaction except in the ordinary course of business or as otherwise
contemplated hereby.
Between the date hereof and the Closing Date, the Company will not do
any of the things listed in clauses (i) through (x) above without the consent of
the Purchaser.
SECTION 2.07 Actions Pending. Except as set forth in Schedule 2.07
hereto: (i) there is no action, suit, investigation or proceeding pending or, to
the best knowledge and belief of the Company, threatened against the Company or
any subsidiary which, if adversely determined, might have a material adverse
effect on the business, operations or financial condition of, the Company or its
Subsidiaries, taken as a whole, or any of their respective properties or rights,
before any court or by or before any governmental body or arbitration board or
tribunal; and (ii) to the best knowledge and belief of the Company, there does
not exist any basis for any such action, suit, investigation or proceeding that,
if adversely determined, might materially, adversely affect the business,
operations or financial condition of the Company or its subsidiaries, taken as a
whole, or any of their properties or assets. The foregoing includes, without
limiting its generality, actions pending or threatened (or any basis therefor
known to the Company) involving the prior employment of any employees or
prospective employees of the Company or their use, in connection with the
Company's business, of any information or techniques which might be alleged to
be proprietary to their former employer(s).
SECTION 2.08 Governmental Approvals. Assuming the accuracy of the
representations and warranties of the Purchasers in Article III hereof, no
registration or filing with, or consent or approval of, or other action by, any
federal, state or other governmental agency or instrumentality is at this time
necessary for the valid execution, delivery and performance of this Agreement or
the issuance, sale and delivery by the Company of the Securities.
SECTION 2.09 Offering of the Securities. Neither the Company nor any
person authorized or employed by the Company as agent, broker, dealer or
otherwise in connection with the offering or sale of the Securities or any
similar security of the Company has offered the Securities or any such security
for sale
6
<PAGE> 10
to, or solicited any offers to buy the Securities or any similar security of the
Company from, or otherwise approached or negotiated with respect thereto with,
any person or persons other than the Purchasers and neither the Company nor any
person acting on its behalf has taken or will take any action (including,
without limitation, any offer, issuance or sale of any security of the Company
under circumstances which require the integration of such security with the
Securities under the Securities Act of 1933, as amended (the "Securities Act"),
or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder) which might subject the offering, issuance or sale of
the Securities to the registration provisions of the Securities Act.
SECTION 2.10 Other Contracts and Commitments. The Company is not in
default in the performance, observance or fulfillment of any of the material
obligations, covenants or conditions contained in any material agreement or
instrument to which it is a party and no event or condition has occurred which,
with the giving of notice or lapse of time, or both, would constitute such a
default, which could reasonably be expected to result in a material adverse
change in the business, operations or financial condition of the Company.
SECTION 2.11 Compliance With Law. The Company is not in default under
any order of any court, governmental authority or arbitration board or tribunal
to which the Company is or was subject or in violation of any laws, ordinances,
governmental rules or regulations to which the Company is or was subject, which
default or violation could reasonably be expected to have a material adverse
effect on its business, operations or financial condition. The business of the
Company is being conducted in compliance with all laws, ordinances, rules and
regulations applicable to it, the failure to comply with which would or could
reasonably be expected to have a material adverse effect on its business
operations or financial condition. The Company has not failed to obtain any
licenses, permits, franchises or other governmental authorizations necessary to
the ownership of the respective properties of the Company or to the conduct of
the business of the Company which, if not so obtained, would, or could
reasonably be expected to have a material adverse effect on its business,
operations or financial condition.
SECTION 2.12 Use of Proceeds. The Company will apply the proceeds of
the issuance and sale of the Securities to finance the acquisition and operation
of the Facilities described in the Additional Investment Request as defined in
and delivered pursuant to the 1995 Purchase Agreement delivered in connection
with the Preferred Stock Closing. Such use of proceeds will not violate or
result in a violation of Regulations G, T and X of the Board of Governors of the
Federal Reserve System, and none of such proceeds from the sale of the
Securities to the Purchaser will be used to purchase or carry (or refinance any
borrowings
7
<PAGE> 11
the proceeds of which were used to purchase or carry) any "margin security"
within the meaning of said Regulation G.
SECTION 2.13 Disclosure. None of this Agreement or any agreement,
document, certificate or written statement furnished or to be furnished to the
Purchasers by or on behalf of the Company in connection with the transactions
contemplated hereby, taken together on the date hereof contains, and taken
together on the Closing Date will contain, any untrue statement of material fact
or omits to state any material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances under which they are
made, not misleading. There is no fact known to the Company which could
reasonably be expected to materially adversely affect the business, properties,
assets, condition or prospects, financial or otherwise, of the Company which has
not been disclosed herein or therein.
III.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
The Purchaser represents and warrants to the Company that it is
acquiring the Securities for its own account for the purpose of investment and
not with a view to or for sale in connection with any distribution thereof. Each
Purchaser further represents that it understands that (i) neither the Securities
nor the Warrant Shares issuable upon exercise of the Warrants have been
registered under the Securities Act by reason of their issuance in a transaction
exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) or 4(6) thereof, (ii) the Securities and the Warrant Shares must be
held indefinitely unless a subsequent disposition thereof is registered under
the Securities Act or is exempt from such registration, (iii) the Securities and
the Warrant Shares will bear a legend to such effect and (iv) the Company will
make a notation on its transfer books to such effect. The Purchaser further
understands that the exemption from registration afforded by Rule 144 under the
Securities Act depends on the satisfaction of various conditions and that, if
applicable, Rule 144 affords the basis of sales of the Securities and the
Warrant Shares in limited amounts under certain conditions. The Purchaser
acknowledges that it has had a full opportunity to request from the Company and
to review and has received all information which it deems relevant in making a
decision to purchase the Securities hereunder. The Purchaser is an "accredited
investor" within the meaning of Rule 501(a) of the Securities Act. The Purchaser
has all requisite power and authority to enter into this Agreement and to
perform its obligations hereunder.
8
<PAGE> 12
IV.
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
SECTION 4.01 Conditions to the Closing. The obligations of the
Purchaser to purchase and pay for the Securities on the Closing Date hereunder
are, at their option, subject to the satisfaction, on or before such date, of
the following conditions:
(a) Satisfaction of Preferred Stock Closing Conditions. All conditions
to the Preferred Stock Closing shall have been satisfied or waived.
(b) Satisfaction of Conditions to the Closing of the Amended Credit
Agreement. All conditions to the closing of the transactions contemplated by the
Amended Credit Agreement shall have been satisfied without material amendment or
waiver.
(c) Satisfaction of Acquisition Conditions. All conditions to the
consummation of the transactions contemplated by the Acquisition shall have been
satisfied without material amendment or waiver.
(d) Representations and Warranties to Be True and Correct. The
representations and warranties contained in Article II hereof shall be true and
correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and the
Company shall have certified to such effect to the Purchaser in writing.
(e) Performance. The Company shall have performed and complied with all
agreements and conditions contained herein required to be performed or complied
with by it prior to or at the Closing Date, and the Company shall have certified
to such effect to the Purchaser in writing.
(f) All Proceedings to Be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Purchasers, and the Purchaser shall have received all
such counterpart originals or certified or other copies of such documents as
they may reasonably request.
(g) Opinion of Counsel. The Purchasers shall have received from Harwell
Howard Hyne Gabbert & Manner, P.C., counsel for the Company (or such other
counsel for the Company as shall be designated by the Company and reasonably
satisfactory to the Purchaser) an opinion dated the Closing Date in form and
substance reasonably satisfactory to the Purchaser.
9
<PAGE> 13
(h) Registration Rights Amendment. The Registration Rights Amendment
shall have been executed and delivered by the Company and by the holders of at
least 66 2/3% of the Restricted Stock and Existing Stock, as each such term is
defined in the Registration Rights Agreement.
(i) Supporting Documents. The Purchaser and its counsel shall have
received copies of the following supporting documents:
(i) (1) copies of the Charter of the Company, and all
amendments thereto, certified as of a recent date by the Secretary of
State of the State of Tennessee and (2) a certificate of said Secretary
dated as of a recent date as to the due incorporation and good standing
of the Company and listing all documents of the Company on file with
said Secretary;
(ii) a certificate of the Secretary or an Assistant Secretary
of the Company dated the Closing Date and certifying (1) that attached
thereto is a true and complete copy of the By-laws of the Company as in
effect on the date of such certification and at all times since
December 19, 1995; (2) that attached thereto is a true and complete
copy of resolutions adopted by the Board of Directors of the Company
authorizing the execution, delivery and performance of this Agreement,
the Registration Rights Amendment, the issuance, sale and delivery of
the Notes and the Warrants and the reservation, issuance and delivery
of the Warrant Shares, and that all such resolutions are still in full
force and effect and are all the resolutions adopted in connection with
the transactions contemplated by this Agreement, the Registration
Rights Amendment and the Securities; (3) that the Charter of the
Company has not been amended since the date of the last amendment
referred to in the certificate delivered pursuant to clause (i)(2)
above; and (4) as to the incumbency and specimen signature of each
officer of the Company executing this Agreement, the Registration
Rights Amendment and the Securities and any certificate or instrument
furnished pursuant hereto, and a certification by another officer of
the Company as to the incumbency and signature of the officer signing
the certificate referred to in this paragraph (ii); and
(iii) such additional supporting documents and other
information with respect to the operations and affairs of the Company
as the Purchasers or their counsel may reasonably request.
All such documents shall be reasonably satisfactory in form and
substance to the Purchaser and its counsel.
10
<PAGE> 14
(j) No Defaults. No event or events which constitute or which with
notice or lapse of time or both would constitute an Event of Default, as such
term is defined in the Notes, shall occur upon issuance and delivery of the
Notes as contemplated hereby.
V.
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
The obligation of the Company to issue and deliver the Securities being
sold by it on the Closing Date hereunder is, at its option, subject to the
satisfaction, on or before such date, of the following conditions:
(a) Representations and Warranties to Be True and Correct. The
representations and warranties contained in Article III hereof made by the
Purchaser on such Closing Date shall be true and correct on and as of such
Closing Date with the same effect as though such representations and warranties
had been made on as of such date.
(b) Performance. The Purchaser shall have performed and complied with
all agreements and conditions contained herein as required to be performed or
complied with by it prior to or at such Closing Date.
Vi.
COVENANTS
SECTION 6.01 Financial Statements, Reports, Etc. So long as any of the
Notes shall remain outstanding, the Company shall furnish to the Purchaser and
any subsequent holder of the Notes:
(a) within 90 days after the end of each fiscal year of the Company, a
consolidated balance sheet of the Company and its subsidiaries as of the end of
such fiscal year and the related statements (or consolidated statements) of
income, changes in stockholders' equity and cash flows of the Company and its
subsidiaries for the fiscal year then ended, together with supporting notes
thereto, certified without limitation AS to scope of audit by KPMG Peat Marwick,
LLP or such other firm of independent public accountants of recognized national
standing selected by the Company and reasonably acceptable to the Purchaser;
(b) commencing with the fiscal quarter ending March 31, 1998, within 45
days after the end of each fiscal quarter in each fiscal year (other than the
last fiscal quarter in each
11
<PAGE> 15
fiscal year), a consolidated balance sheet of the Company and its subsidiaries
and the related consolidated statements of income and cash flows of the Company
and its subsidiaries, unaudited but certified by the principal financial officer
of the Company, such balance sheet to be as of the end of such fiscal quarter
and such statements of income and cash flows to be for such fiscal quarter, for
the corresponding fiscal quarter of the immediately preceding fiscal year, for
the period from the beginning of the fiscal year to the end of such fiscal
quarter and for the period from the beginning of the immediately preceding year
to the end of the corresponding fiscal quarter in such fiscal year, in each case
subject to normal year-end adjustments;
(c) commencing with the month ending February 28, 1998, within 30 days
after the end of each month in each fiscal year (other than the last month in
each fiscal year), a consolidated balance sheet of the Company and its
subsidiaries and the related consolidated statement of income, unaudited but
certified by the principal financial officer of the Company, such balance sheets
to be as of the end of such month and such statements of income to be for such
month and for the period from the beginning of the fiscal year to the end of
such month, in each case subject to normal year-end adjustments;
(d) within 30 days prior to the commencement of each fiscal year of the
Company (and with respect to any revision thereof, promptly after such revision
has been prepared), a proposed operating budget for the Company and its
subsidiaries including projected monthly income statements, cash flow statements
during such fiscal year and a projected balance sheet as of the end of such
fiscal year, and each monthly financial statement furnished pursuant to
subparagraph (c) above shall reflect variances from such operating budget, as
the same may from time to time be revised;
(e) promptly upon filing, copies of all registration statements,
prospectuses, periodic reports and other documents filed by the Company with the
Securities Exchange Commission; and
(f) promptly, from time to time, such other information regarding the
operations, business, affairs and financial condition of the Company or any
subsidiary as the Purchaser or such other holders may reasonably request (the
term "subsidiary" as used herein being defined to mean any corporation or other
business entity a majority of whose outstanding voting stock entitled to vote
for the election of directors is at the time owned by the Company and/or one or
more other subsidiaries).
12
<PAGE> 16
VII.
MISCELLANEOUS
SECTION 7.01 Expenses. Each party hereto shall pay its own expenses.
SECTION 7.02 Survival of Agreements. All covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the issuance, sale and delivery of the Securities
pursuant hereto, and all statements contained in any certificate or other
instrument delivered by the Company hereunder shall be deemed to constitute
representations and warranties made to the Company.
SECTION 7.03 Brokerage. Each party hereto will indemnify and hold
harmless the other party hereto against and in respect of any claim for
brokerage or other commissions relative to this Agreement or to the transactions
contemplated hereby, based in any way on agreements, arrangements or
understandings made or claimed to have been made by such party with any third
party. Each party hereto represents and warrants that no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement.
SECTION 7.04 Parties in Interest. All covenants and agreements
contained in this Agreement by or on behalf of any party hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto whether so expressed or not.
SECTION 7.05 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be personally delivered
or mailed by first-class registered mail, postage prepaid, or sent by a
recognized courier service, addressed as follows:
(a) if to the Company, at:
New American Healthcare Corporation
109 Westpark Drive
Suite 440
Brentwood, Tennessee 37027
Attention: Mr. Robert M. Martin
13
<PAGE> 17
with a copy to:
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
Attention: Ernest E. Hyne, II, Esq.
Telecopy No.: (615) 251-1058
(b) if to the Purchaser, at the address set forth on Annex I
hereto,
with a copy to:
William J. Hewitt, Esq.
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
and
(c) if to any subsequent holder of Securities, to such holder
at its address appearing on the stock transfer records of the Company.
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 7.06 Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7.07 Entire Agreement. This Agreement constitutes the entire
Agreement of the parties with respect to the subject matter hereof and may not
be modified or amended except in writing.
SECTION 7.08 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 7.09 Amendments; Waivers. This Agreement may be amended, and
compliance by the Company with any of the provisions of this Agreement may be
waived, by written instrument signed by the Company and the Purchasers.
14
<PAGE> 18
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the day and year first above written.
NEW AMERICAN HEALTHCARE CORPORATION
By
----------------------------------------
Name:
Title:
WCAS CAPITAL PARTNERS III, L.P., By
WCAS CP III Associates L.L.C.,
General Partner
By
----------------------------------------
Managing Member
<PAGE> 19
ANNEX I
The Purchaser
The Units
<TABLE>
<CAPTION>
Number Principal Purchase
of Amount Number of Price of
Name and Address Units of Notes($) Warrant Shares Units ($)
- ---------------- ----- ----------- -------------- ---------
<S> <C> <C> <C> <C>
WCAS Capital 25,000 25,000,000 565,000 25,000,000
Partners III, L.P.
320 Park Avenue
Suite 2500
New York, NY 10022
</TABLE>
16
<PAGE> 20
Schedule 2.01(b)
New American Healthcare Corporation owns all of the issued and outstanding stock
of the following corporations:
NAHC Management Company
NAHC Financial, Inc.
NAHC of Missouri, Inc.
NAHC of Texas, Inc.
NAHC of Tennessee, Inc.
NAHC 11 of Texas, Inc.
NAHC of Wyoming, Inc.
NAHC of Iowa, Inc.
NAHC of Oregon, Inc.
NAHC II of Oregon, Inc.
NAHC of Washington, Inc.
<PAGE> 21
Schedule 2.04(b)
NONE
<PAGE> 22
Schedule 2.06
NONE
<PAGE> 23
Schedule 2.07
1. NAHC of Missouri, Inc. has been named in a complaint entitled Michelle
Henningfield vs. Doctor's Hospital - Wentzville, L.P., and NAHC of
Missouri, Inc., United States District Court, Eastern District of
Missouri, Eastern Division, Civil Action No.: 4-96CV02115CDP.
2. NAHC of Tennessee, Inc. has been named in a Complaint for Wrongful
Death entitled Charles Pegram. Jr., for the Use and Benefit of the
Heirs at Law of Charles Pegram, Sr., Deceased vs. Samir Abd-El-Wahid,
M.D.; Russell Proctor, M.D.; Wilkins Dedwylder, Jr., M.D.; Howard
Chuang. M.D.; Debbie Jones, R.N.; Karen Edwards, R.N.; Eastwood
Hospital, Inc.; and New American Health Care of Tennessee, Inc. d/b/a
Delta Medical Center, Circuit Court of Tennessee, Thirtieth Judicial
District at Memphis, Civil Action No.: 88918 T.D. 8, filed July 11,
1997.
3. NAHC of Missouri, Inc. has received a copy of a demand letter from
certain limited partners of Doctors Hospital-Wentzville, L.P. ("LP"),
the former owner of Doctors Hospital-Wentzville. The demand letter
threatens a suit against the general partner of the LP seeking damages
and recission of the Asset Purchase Agreement. New American has put the
LP on notice that it intends to seek indemnification in the event it
incurs any damages as a result of this claim.
4. New American Healthcare Corporation has settled a potential claim by
the U.S. Attorney for the Eastern District of Texas regarding Medicare
claims submitted by Memorial Hospital in Center, Texas. Indemnification
was sought from the hospital's prior owner and the prior owner has paid
the settlement amount.
5. NAHC of Missouri, Inc. has received a letter from the U.S. Attorney for
the Eastern District of Missouri suggesting that Doctors
Hospital-Wentzville may have submitted Medicare and Medicaid claims
that are alleged to have been unbundled, double billed or otherwise
improperly submitted. The letter offered the hospital an opportunity to
participate in a self disclosure program. No official claim or
proceeding has been made to date. Indemnification has been sought from
the hospital's prior owner.
<PAGE> 1
Exhibit 10.4
NEW AMERICAN HEALTHCARE CORPORATION
10% Senior Subordinated Note
Due January 30, 2008
Registered New York, New York
R-001 January 30, 1998
$25,000,000
NEW AMERICAN HEALTHCARE CORPORATION, a Tennessee corporation
(hereinafter called the "Company"), for value received, hereby promises to pay
to WCAS Capital Partners III, L.P., or its registered assigns, the principal sum
of TWENTY-FIVE MILLION DOLLARS ($25,000,000), in one installment on January 30,
2008 and interest (computed on the basis of a 360-day year consisting of twelve
30-day months) from the date hereof on the unpaid principal amount hereof at the
rate of 10% per annum, payable semiannually in arrears on June 30 and December
31 in each year (each said day being an "Interest Payment Date"), commencing on
June 30, 1998 until the principal amount hereof shall have become due and
payable, whether at maturity or by acceleration or otherwise, and thereafter at
the rate of 12% per annum on any overdue principal amount and (to the extent
permitted by applicable law) on any overdue interest, until paid.
All payments of principal and interest on this Note shall be in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for payment of public and private debts, and shall be made at
the office of the person deemed the holder hereof in accordance with Section 4
below at the address for such person appearing in the register maintained
pursuant to paragraph (a) of Section 10.
For purposes of this Note, "Business Day" shall mean any day other than
a Saturday, Sunday or a legal holiday under the laws of the State of New York.
If any payment of principal or interest on this Note is due on day which is note
a Business Day, it shall be due on the next succeeding Business Day.
1. NOTES. This Note, together with any Note or Notes issued upon
exchange or transfer thereof pursuant to Section 2 hereof, is one of a duly
authorized issue of Notes (herein called the "Notes") made or to be made by the
Company in the aggregate principal amount of $25,000,000, maturing on January
30, 2008 and bearing interest payable at the same rate and on the same dates as
the interest on the principal amount of this Note. This Note
<PAGE> 2
is issued pursuant to and is subject to the terms and provisions of the
Securities Purchase Agreement dated as of January 30, 1998 (the "Purchase
Agreement"), between the Company and WCAS Capital Partners III, L.P., a Delaware
limited partnership and the terms of this Note include those stated in the
Purchase Agreement.
2. TRANSFER, ETC. OF NOTES. The Company shall keep at its office or
agency maintained as provided in paragraph (a) of Section 10 a register in which
the Company shall provide for the registration of Notes and for the registration
of transfer and exchange of Notes. The holder of this Note may, at its option,
and either in person or by duly authorized attorney, surrender the same for
Registration of transfer or exchange at the office or agency of the Company
maintained as provided in paragraph (a) of Section 10, and, without expense to
such holder (except for taxes or governmental charges imposed in connection
therewith), receive in exchange therefor a Note or Notes each in such
denomination or denominations as such holder may request, dated as of the date
to which interest has been paid on the Note or Notes so surrendered for transfer
or exchange, for the same aggregate principal amount as the then unpaid
principal amount of the Note or Notes so surrendered for transfer or exchange,
and registered in the name of such person or persons as may be designated by
such holder. Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed, or shall be accompanied by a written instrument
of transfer, satisfactory in form to the Company, duly executed by the holder of
such Note or his attorney duly authorized in writing. Every Note so made and
delivered in exchange for this Note shall in all other respects be in the same
form and have the same terms as this Note. No transfer or exchange of any Note
shall be valid unless made in the foregoing manner at such office or agency.
Upon any registration of transfer as provided herein, the transferee shall with
respect to the Note or any portion thereof so transferred to it become subject
to all of the terms and provisions of, and obligations of a holder under, such
Note (or portion) and the transferor shall have no further rights, obligations
or liabilities with respect thereto other than any which arose prior to the date
of transfer.
3. LOSS, THEFT, DESTRUCTION OR MUTILATION OF NOTE. Upon receipt of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and, in the case of any such loss, theft or
destruction, upon receipt of an affidavit of loss and indemnity from the holder
hereof reasonably satisfactory to the Company, or, in the case of any such
mutilation, upon surrender and cancellation of this Note, the Company will make
and deliver, in lieu of this Note, a new Note of like tenor and unpaid principal
amount and dated as of the date to which interest has been paid on this Note.
<PAGE> 3
4. PERSONS DEEMED OWNERS; HOLDERS. The Company may deem and treat the
person in whose name any Note is registered as the owner and holder of such Note
for the purpose of receiving payment of principal of and interest on such Note
and for all other purposes whatsoever, whether or not such Note shall be
overdue. with respect to any Note at any time outstanding, the term "holder", as
used herein, shall be deemed to mean the person in whose name such Note is
registered as aforesaid at such time.
5. PREPAYMENTS. Subject to any restrictions then applicable to the
Company under (i) the Amended and Restated Credit Agreement, dated as of January
30, 1998 (the "Credit Agreement") among the Company, Toronto Dominion (Texas),
Inc., as Agent (the "Agent"), The Toronto-Dominion Bank, as Issuing Bank and the
financial institutions named therein as Banks (collectively, the "Senior
Lenders"), (ii) the Intercreditor Agreement, dated as of January 30, 1998 (the
"Subordination Agreement" among the Company, the Agent and WCAS Capital Partners
III, L.P., or (iii) any other agreement of the Company with the holders of
indebtedness of the Company:
(a) Optional Prepayment. Upon notice given as provided in
Section 6 the Company may, at its option, prepay all or any portion of
the Notes, at the principal amount thereof so to be prepaid, together
with interest accrued thereon to the date fixed for such prepayment.
(b) Mandatory Prepayment.
(i) Credit Agreement Mandatory Prepayments. If at any
time while any of the Notes shall be outstanding, the Company
shall be required, under clause I of Section 2.3(c)(iv)(B) of
the Credit Agreement, as in effect on the date hereof, to make
a prepayment of the Loans out of Net Cash Proceeds (as each
such term is defined therein) in an amount equal to 25% of
such Net Cash Proceeds, then the Company shall, simultaneously
with such prepayment of the Loans (or waiver thereof by the
Senior Lenders), apply 25% of such Net Cash Proceeds to prepay
the principal amount of the Notes (to the extent thereof),
plus interest accrued thereon through the date of prepayment.
(ii) Sale of the Company. If at any time while any of
the Notes shall be outstanding, (x) the Company shall merge or
consolidate with or into any other entity (other than a merger
or consolidation in which (A) at least 50% of the voting
capital stock of the Company (or the surviving or resulting
entity, if other than the Company) outstanding immediately
after the effective date of such merger or consolidation is
owned of record or beneficially by persons who owned voting
<PAGE> 4
capital stock of the Company immediately prior to such merger
or consolidation and in substantially the same proportions in
which such stock was held immediately prior to such merger or
consolidation, and (B) no Event of Default (as hereinafter
defined) shall have occurred as a result of the consummation
thereof), or (y) the Company shall sell, lease or otherwise
dispose of all or substantially all of its assets and
properties as an entirety in a single transaction or in a
series of related transactions to an unaffiliated third party
purchaser, or (z) a majority of the outstanding capital stock
of the Company shall be acquired by an unaffiliated third
party in a single transaction or series of related
transactions (any transaction described in clauses (x), (y) or
(z) above being referred to herein as a "Sale of the
Company"), then, as a condition to consummating such Sale of
the Company, the Company shall (A) take such action as may be
necessary to provide funds sufficient to, and obtain any
consent necessary to, prepay all of the Notes in full, and (B)
prepay 100% of the principal amount of the Notes, plus
interest accrued thereon through the date of prepayment.
(iii) Prepayment to Avoid High-Yield OID. On any
Interest Payment Date on or after January 30, 2003, the
Company shall pay such amount of accrued original issue
discount on this Note and any other Note as shall be necessary
to ensure that no such Note shall be considered an "applicable
high yield discount obligation" within the meaning of Section
163(i) of the Internal Revenue Code of 1986, as amended, or
any successor provision. The amount of principal payable on
any such Note shall be reduced by the amount of any accrued
original issue discount that is paid on such Note under this
Section 5(b)(iii).
Any prepayments made pursuant to this Section 5 shall be in addition to
any other payments of principal to be made on the Notes and shall be
credited to principal in inverse order of maturity.
6. NOTICE OF PREPAYMENT AND OTHER NOTICES. The Company shall give
written notice of any prepayment of this Note or any portion hereof pursuant to
Section 5 not less than 10 nor more than 60 days prior to the date fixed for
such prepayment. Such notice of prepayment and all other notices to be given to
any holder of this Note shall be given by registered or certified mail to the
person in whose name this Note is registered at its address designated on the
register maintained by the Company on the date of mailing such notice of
prepayment or other notice. Upon notice of prepayment being given as aforesaid,
the Company
<PAGE> 5
covenants and agrees that it will prepay, on the date therein fixed for
prepayment, this Note or the portion hereof, as the case may be, so called for
prepayment, at the principal amount thereof so called for prepayment together
with interest accrued thereon to the date fixed for such prepayment.
Notwithstanding the foregoing, any notice of a prepayment pursuant to Section
5(b)(i) or (ii) may specify that the obligation to make such prepayment is
conditional upon the closing of the transaction requiring such prepayment, in
which event no prepayment shall be required unless and until such transaction is
consummated.
7. ALLOCATION OF PREPAYMENT. In the event of any prepayment, purchase,
redemption or retirement of less than all of the outstanding Notes, the Company
will allocate the principal amount so to be prepaid, purchased, redeemed or
retired to each Note in proportion, as nearly as may be, to the aggregate
principal amount of all Notes then outstanding.
8. INTEREST AFTER DATE FIXED FOR PREPAYMENT. If this Note or a portion
hereof is called for prepayment as herein provided, this Note or such portion
shall (unless the provisions of the last sentence of Section 6 become
applicable) cease to bear interest on and after the date fixed for such
prepayment unless, upon presentation for the purpose, the Company shall fail to
pay this Note or such portion, as the case may be, in which event this Note or
such portion, as the case may be, and, so far as may be lawful, any overdue
installment of interest, shall bear interest on and after the date fixed for
such prepayment and until paid at the rate per annum provided herein for overdue
principal.
9. SURRENDER OF NOTES; NOTATION THEREON. As a condition to obtaining
any payment of all or any portion of the principal amount of this Note, the
Company may require the holder hereof to surrender this Note, and in such event
the Company will execute and deliver at the expense of the Company, upon such
surrender, a new Note registered in the name of such person or persons as may be
designated by such holder for the principal amount of this Note then remaining
unpaid, dated as of the date to which interest has been paid on the principal
amount of this Note then remaining unpaid, or may require the holder to present
this Note to the Company for notation hereon of the payment of the portion of
the principal amount of this Note so repaid.
10. COVENANTS. The Company covenants and agrees that, so long as any
Note shall be outstanding:
(a) Maintenance of Office. The Company will maintain an
office or agency in such place in the United States of America as the
Company may designate in writing to the registered holder hereof, where
the Notes may be presented for registration of transfer and exchange as
herein
<PAGE> 6
provided, where notices and demands to or upon the Company in respect
of the Notes may be served and where the Notes shall be presented for
payment. Until the Company otherwise notifies the holders of Notes,
said office shall be the office of the Company at 109 Westpark Drive,
Suite 440, Brentwood, Tennessee 37027.
(b) Payment of Taxes. The Company will promptly pay and
discharge or cause to be paid and discharged, before the same shall
become in default, all lawful taxes and assessments imposed upon the
Company or any subsidiary or upon the income and profits of the Company
or any subsidiary, or upon any property, real, personal or mixed,
belonging to the Company or any subsidiary, or upon any part thereof by
the United States or any State thereof, as well as all lawful claims
for labor, materials and supplies, which, if unpaid, would become a
lien or charge upon such property or any part thereof, provided,
however, that neither the Company nor any subsidiary shall be required
to pay and discharge or to cause to be paid and discharged any such
tax, assessment, charge, levy or claim so long as (i) the Company or a
subsidiary shall be contesting the validity thereof in good faith or
(ii) the Company shall, in its good faith judgment, deem the validity
thereof to be questionable and the party to whom such tax, assessment,
charge, levy or claim is allegedly owed shall not have made written
demand for the payment thereof.
(c) Corporate Existence. The Company will do or cause to be
done all things necessary and lawful to preserve and keep in full force
and effect its corporate existence, rights and franchises and the
corporate existence, rights and franchises of each of its subsidiaries;
provided, however, that nothing in this paragraph (c) shall prevent the
abandonment or termination of any rights or franchises of the Company,
or the liquidation or dissolution of, or a sale, transfer or
disposition (whether through merger, consolidation, sale or otherwise)
of all or any substantial part of the property and assets of, any
subsidiary or the abandonment or termination of the corporate
existence, rights and franchises of any subsidiary if such abandonment,
termination, liquidation, dissolution, sale, transfer or disposition
is, in the good faith business judgment of the Company, in the best
interests of the Company and is not disadvantageous in any material
respect to the holders of the Notes.
(d) Maintenance of Property. The Company will at all times
maintain and keep, or cause to be maintained and kept, in good repair,
working order and condition all significant properties of the Company
and its subsidiaries used in the conduct of the business of the Company
and its subsidiaries,
<PAGE> 7
and will from time to time make or cause to be made all needful and
proper repairs, renewals, replacements, betterments and improvements
thereto, so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however,
that nothing in this paragraph (d) shall require (i) the making of any
repair or renewal or (ii) the continuance of the operation and
maintenance of any property or (iii) the retention of any assets if
such action (or inaction) is, in the good faith business judgment of
the Company, in the best interests of the Company and is not
disadvantageous in any material respect to the holders of the Notes.
(e) Insurance. The Company will, and will cause each of its
subsidiaries, at all times, either to (i) (x) keep adequately insured,
by financially sound and reputable insurers, all property of a
character usually insured by corporations engaged in the same or a
similar business similarly situated against loss or damage of the kinds
customarily insured against by such corporations and (y) carry, with
financially sound and reputable insurers, such other insurance
(including, without limitation, liability insurance) in such amounts
as are available at reasonable expense and to the extent believed
necessary in the good faith business judgment of the Board of Directors
of the Company; or (ii) subject to the approval of said Board of
Directors, implement and maintain a self-insurance program to protect
the Company from such risks of loss as would otherwise be required to
be insured against under subclause (i) above.
(f) Keeping of Books. The Company will at all times keep, and
cause each of its subsidiaries to keep, proper books of record and
account in which proper entries will be made of its transactions in
accordance with generally accepted accounting principles.
(g) Transactions with Affiliates. The Company shall not enter
into, or permit any subsidiary to enter into, any transaction with any
of its or any subsidiary's officers, directors, employees or any person
related by blood or marriage to any such person or any entity in which
any such person owns any beneficial interest, except for (i) normal
employment arrangements, benefit programs and employee incentive option
programs on reasonable terms, (ii) any transaction approved by the
board of directors of the Company in accordance with the provisions of
Section 144 of the Delaware General Corporation Law, or otherwise
permitted by such Section, (iii) customer transactions in the ordinary
course of business and (iv) the transactions contemplated by the
Purchase Agreement.
<PAGE> 8
(h) Notice of Default. If any one or more events which
constitute, or which with notice or lapse of time or both would
constitute, an Event of Default under Section 12 of this Note shall
occur, or if the holder of any Note shall demand payment or take any
other action permitted upon the occurrence of any such Event of
Default, the Company shall, immediately after it becomes aware that any
such event has occurred or that such demand has been made or that any
such action has been taken, give notice to all holders of the Notes,
specifying the nature of such event or of such demand or action, as the
case may be; provided, however, that if such event, in the good faith
judgment of the Company, will be cured within ten days after the
Company has knowledge that such event would, with or without notice or
lapse of time or both, constitute such an Event of Default, no such
notice need be given if such Event of Default shall be cured within
such ten-day period.
(i) Payment of Principal and Interest on the Notes. The
Company will use its best efforts, subject to the provisions of
applicable credit arrangements and contractual obligations of the
Company and/or its subsidiaries and any applicable law restricting the
same, to provide funds from its subsidiaries to the Company, by
dividend, advance or otherwise, sufficient to permit payment by the
Company of the principal of and interest on the Notes in accordance
with their terms.
(j) Merger or Consolidation. If the Company shall effect a
merger or consolidation in which it is not the surviving entity and
either such transaction is not a Sale of the Company under the
provisions of Section 5(b)(ii) of this Note requiring mandatory
prepayment of the Notes or such mandatory prepayment of the Notes shall
not occur for any reason whatsoever, then the Company shall take such
action as may be necessary, as a condition to consummating such
transaction, to cause the surviving entity to assume all of the
Company's obligations under the Notes, as if such entity had been the
original issuer thereof, and such entity shall acknowledge in writing
its obligation to fully and timely honor the Company's obligations
under the Notes.
11. MODIFICATION BY HOLDERS; WAIVER. Subject to any
restrictions then applicable under the Credit Agreement or the Subordination
Agreement, the Company may, with the written consent of the holders of not less
than 66 2/3% in principal amount of the Notes then outstanding, modify the terms
and provisions of the Notes or the rights of the holders of the Notes or the
obligations of the Company thereunder, and the observance by the Company of any
term or provision of the Notes may be waived with the written consent of the
holders of not less than
<PAGE> 9
66 2/3% in principal amount of the Notes then outstanding; provided, however,
that no such modification or waiver shall:
(a) change the maturity of any Note or reduce the principal
amount thereof or reduce the rate or extend the time of payment of
interest thereon without the consent of the holder of each Note
so-affected; or
(b) give any Note any preference over any other Note; or
(c) reduce the percentage of Notes, the consent of the holders
of which is required for any such modification.
Any such modification or waiver shall apply equally to all the holders
of the Notes and shall be binding upon them, upon each future holder of any Note
and upon the Company, whether or not such Note shall have been marked to
indicate such modification or waiver, but any Note issued thereafter shall bear
a notation referring to any such modification or waiver. Promptly after
obtaining the written consent of the holders as herein provided, the Company
shall transmit a copy of such modification or waiver to all the holders of the
Notes at the time outstanding.
12. EVENTS OF DEFAULT. If any one or more of the following events,
herein called "Events of Default", shall occur, for any reason whatsoever, and
whether such occurrence shall, on the part of the Company or any subsidiary, be
voluntary or involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of a court of
competent jurisdiction or any order, rule or regulation of any administrative or
other governmental authority, and such Event of Default shall be continuing:
(a) default shall be made in the payment of the principal of
any Note when and as the same shall become due and payable, whether at
maturity or at a date fixed for prepayment or by acceleration or
otherwise; or
(b) default shall be made in the payment of any installment
of interest on any Note according to its terms when and as the same
shall become due and payable and such default shall continue for a
period of 10 Business Days; or
(c) default shall be made in the due observance or
performance of any other covenant, condition or agreement on the part
of the Company to be observed or performed pursuant to the terms
hereof, of the Purchase Agreement or the Registration Rights Agreement
referred to in the Purchase Agreement, and any such default shall
continue for 30 days after written notice thereof, specifying such
default and
<PAGE> 10
requesting that the same be remedied, shall have been given to the
Company by the holder or holders of at least 25% of the principal
amount of the Notes then outstanding (the Company to give forthwith to
all other holders of Notes at the time outstanding written notice of
the receipt of such notice specifying the default referred to
therein); or
(d) any representation or warranty made by the Company herein
or in the Purchase Agreement (taken singly or together with other
representations and warranties made by the Company herein or therein)
shall prove to have been false or incorrect in any material respect on
the date on or as of which made; or
(e) the entry of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Company or any
subsidiary of the Company in an involuntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy, insolvency or other similar
laws, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of the Company or any such
subsidiary or for any substantial part of any of their property, or
ordering the winding-up or liquidation of any of their affairs and the
continuance of any such decree or order unstayed and in effect for a
period of 60 consecutive days; or
(f) the commencement by the Company or any subsidiary of the
Company of a voluntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or any other applicable federal or
state bankruptcy, insolvency or other similar laws, or the consent by
any of them to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other
similar official) of the Company or any such subsidiary for any
substantial part of their property, or the making by any of them of any
assignment for the benefit of creditors, or the failure of the Company
or any such subsidiary generally to pay its debts as such debts become
due, or the taking of corporate action by the Company or any such
subsidiary in furtherance of or which might reasonably be expected to
result in any of the foregoing; or
(g) default as defined in any instrument evidencing or under
which the Company or any domestic subsidiary has outstanding at the
time any indebtedness for money borrowed in excess of $2,500,000 in
aggregate principal amount shall occur and as a result thereof the
maturity of any such indebtedness shall have been accelerated so that
the same shall have become due and payable prior to the date on which
the same would otherwise have become due and payable and such
acceleration shall not have been rescinded or annulled within 30 days;
or
<PAGE> 11
(h) final judgment for the payment of money in excess of an
amount equal to the sum of $2,5OO,000 and the proceeds of insurance or
other third party indemnification payments actually collected by the
Company shall be rendered against the Company or a subsidiary of the
Company and the same shall remain undischarged for a period of 30 days
during which execution shall not be effectively stayed;
then, subject to any restrictions then applicable under the Credit Agreement or
the Subordination Agreement, the holder or holders of a least 25% in aggregate
principal amount of the Notes at the time outstanding may, at its or their
option, by notice to the Company, declare all the Notes to be, and all the Notes
shall thereupon be and become, forthwith due and payable together with interest
accrued thereon without presentment, demand, protest or further notice of any
kind, all of which are expressly waived to the extent permitted by law.
At any time after any declaration of acceleration as to all of the
Notes has been made as provided in this Section 12, the holders of at least
66 2/3% in principal amount of the Notes then outstanding may, by notice to the
Company, rescind such declaration and its consequences, if (i) the Company has
paid all overdue installments of interest on the Notes and all principal that
has become due otherwise than by such declaration of acceleration and (ii) all
other defaults and Events of Default (other than nonpayments of principal and
interest that have become due solely by reason of acceleration) shall have been
remedied or cured or shall have been waived pursuant to this paragraph;
provided, however, that no such rescission shall extend to or affect any
subsequent default or Event of Default or impair any right consequent thereon.
13. SUITS FOR ENFORCEMENT. In case any one or more of the Events of
Default specified in Section 12 of this Note shall occur and be continuing, the
holder of this Note may proceed to protect and enforce its rights by suit in
equity, action at law and/or by other appropriate proceeding, whether for the
specific performance of any covenant or agreement contained in this Note or in
aid of the exercise of any power granted in this Note, or may proceed to enforce
the payment of this Note or to enforce any other legal or equitable right of the
holder of this Note.
In case of any default under any Note, the Company will pay to the
holder thereof such amounts as shall be sufficient to cover the reasonable costs
and expenses of such holder due to said default, including, without limitation,
collection costs and reasonable attorneys' fees, to the extent actually
incurred.
14. REMEDIES CUMULATIVE. No remedy herein conferred upon the holder of
this Note is intended to be exclusive of any other remedy and each and every
such remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or
<PAGE> 12
now or hereafter existing at law or in equity or by statute or otherwise.
15. REMEDIES NOT WAIVED. No course of dealing between the Company and
the holder of this Note or any delay on the part of the holder hereof in
exercising any rights hereunder shall operate as a waiver of any right of any
holder of this Note.
16. SUBORDINATION. (a) Anything in this Note to the contrary
notwithstanding, the obligation of the Company to pay the principal of and
interest on this Note and to discharge all of its other obligations hereunder,
shall be subordinate and junior in right of payment to the prior payment in full
of the obligations of the Company under the Credit Agreement, to the extent set
forth in the Subordination Agreement.
17. COVENANTS BIND SUCCESSORS AND ASSIGNS. All the covenants,
stipulations, promises and agreements in this Note contained by or on behalf of
the Company shall bind its successors and assigns, whether so expressed or not.
18. GOVERNING LAW. This Note shall be governed and construed in
accordance with the laws of the State of New York.
19. HEADINGS. The headings of the Sections and paragraphs of this Note
are inserted for convenience only and do not constitute a part of this Note.
<PAGE> 13
IN WITNESS WHEREOF, NEW AMERICAN HEALTHCARE CORPORATION has caused this
Note to be signed in its corporate name by one of its officers thereunto duly
authorized and to be dated as of the day and year first above written.
NEW AMERICAN HEALTHCARE CORPORATION
By
--------------------------------
Name: Robert M. Martin
Title: President
<PAGE> 1
Exhibit 10.6
THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE
HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS
WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
NEW AMERICAN HEALTHCARE CORPORATION
Stock Subscription Warrant
Warrant to Subscribe January 30, 1998
for 565,000 shares of
Common Stock, $.01 par value
Void After January 30, 2008
THIS CERTIFIES that, for value received, WCAS CAPITAL PARTNERS III,
L.P., a Delaware limited partnership, or its registered assigns, is entitled to
subscribe for and purchase from NEW AMERICAN HEALTHCARE CORPORATION, a Tennessee
corporation (hereinafter called the "Corporation"), at the price of $4.33 per
share (such price as from time to time to be adjusted as hereinafter provided
being hereinafter called the "Warrant Exercise Price"), at any time prior to
January 30, 2008, up to 565,000 (subject to adjustment as hereinafter provided)
fully paid and nonassessable shares of Common Stock, $.01 par value, of the
Corporation (hereinafter called the "Common Stock"), subject, however, to the
provisions and upon the terms and conditions hereinafter set forth. This Warrant
and any warrant or warrants subsequently issued upon exchange or transfer hereof
are hereinafter collectively called the "Warrants."
Section 1. Exercise of Warrant.
(a) Method of Exercise. The rights represented by this Warrant
may be exercised by the holder hereof, in whole at any time or from
time to time in part, but not as to a fractional share of Common Stock,
by the surrender of this Warrant (properly endorsed) at the office of
the Corporation as it may designate by notice in writing to the holder
hereof at the address of such holder appearing on the books of the
Corporation, and by payment as provided in paragraph (b) hereof.
<PAGE> 2
(b) The holder may make payment in respect of the exercise of
this Warrant as follows:
i) Cash Exercise. By payment to the Corporation of
the Warrant Exercise Price in cash or by certified or official
bank check, for each share being purchased;
ii) Notes Exercise. By surrender to the Corporation
of any of the Senior Subordinated Notes (as defined in the
Note and Warrant Purchase Agreement between the Corporation
and WCAS Capital Partners III, L.P. or any other promissory
notes or other obligations issued by the Corporation, with all
such notes or other obligations of the Corporation so
surrendered being credited against the Warrant Exercise Price
in an amount equal to the principal amount thereof plus the
amount of any interest thereon to the date of such surrender;
iii) Securities Exercise. By delivery to the
Corporation of any other securities issued by the Corporation,
with such securities being credited against the Warrant
Exercise Price in an amount equal to the fair market value
thereof;
iv) Net Issue Exercise. By an election to receive
shares the aggregate fair market value of which as of the date
of exercise is equal to the fair market value of this Warrant
(or the portion thereof being exercised) on such date, in
which event the Corporation, upon receipt of notice of such
election, shall issue to the holder hereof a number of shares
of Common Stock equal to (A) the number of shares of Common
Stock acquirable upon exercise of all or any portion of this
Warrant being exercised, as at such date, multiplied by (B)
the balance remaining after deducting (x) the Warrant Exercise
Price, as in effect on such date, from (y) the fair market
value of one share of Common Stock as at such date and
dividing the result by (C) such fair market value; or
v) Combined Payment Method. By satisfaction of the
Warrant Exercise Price for each share being acquired in any
combination of the methods described in clauses (i) through
(iv) above.
(c) Definition of Fair Market Value. For the purposes of
paragraph (b) above, the fair market value of the Common Stock shall be
determined as follows: if the Common Stock is listed or admitted to
trading on one or more national securities exchanges, the average of
the last reported sales
2
<PAGE> 3
prices per share regular way or, in case no such reported sales takes
place on any such day, the average of the last reported bid and asked
prices per share regular way, in either case on the principal national
securities exchange on which the Common Stock is listed or admitted to
trading, for the twenty (20) trading days immediately preceding the
date upon which the fair market value is determined (the "Determination
Date"); if the Common Stock is not listed or admitted to trading on a
national securities exchange but is quoted by the NASDAQ Stock Market
("NASDAQ"), the average of the last reported sales prices per share
regular way or, in case no reported sale takes place on any such day or
the last reported sales prices are not then quoted by NASDAQ, the
average for each such day of the last reported bid and asked prices per
share, for the twenty (20) trading days immediately preceding the
Determination Date as furnished by the National Quotation Bureau
Incorporated or any similar successor organization; and if the Common
Stock is not listed or admitted to trading on a national securities
exchange or NASDAQ or any other nationally recognized quotation
service, the fair market value shall be the fair value thereof
determined jointly by the Board of Directors of the Corporation
(exclusive of any member of such Board of Directors that directly or
indirectly controls any holder of Warrants) and the holders of Warrants
outstanding representing a majority of the shares of Common Stock
acquirable upon exercise of the Warrants; provided, however, that if
such parties are unable to reach agreement within a reasonable time,
the fair market value shall be determined in good faith by an
independent investment banking firm selected jointly by the Board of
Directors of the Corporation (exclusive of any member of such Board of
Directors that directly or indirectly controls any holder of Warrants)
and the holders of Warrants outstanding representing a majority of the
shares of Common Stock issuable upon exercise of the Warrants or, if
that selection cannot be made within fifteen (15) days, by an
independent investment banking firm selected by the American
Arbitration Association in accordance with its rules. Anything in this
paragraph (c) to the contrary notwithstanding, the fair market value of
this Warrant or any portion thereof as of any Determination Date shall
be equal to (i) the fair market value of the shares of Common Stock
issuable upon exercise of this Warrant (or such portion thereof),
determined in accordance with the foregoing provisions of this
paragraph (c), minus (ii) the aggregate Warrant Exercise Price of the
Warrant (or such portion thereof).
(d) Delivery of Certificates, Etc. In the event of any
exercise of the rights represented by this Warrant, a certificate or
certificates for the shares of Common Stock
3
<PAGE> 4
so purchased, registered in the name of the holder, shall be delivered
to the holder hereof within a reasonable time, not exceeding ten (10)
days, after the rights represented by this Warrant shall have been so
exercised; and, unless this Warrant has expired, a new Warrant
representing the number of shares (except a remaining fractional
share), if any, with respect to which this Warrant shall not then have
been exercised shall also be issued to the holder hereof within such
time. The person in whose name any certificate for shares of Common
Stock is issued upon exercise of this Warrant shall for all purposes be
deemed to have become the holder of record of such shares on the date
on which the warrant was surrendered and payment of the warrant
exercise price and any applicable taxes was made, except that, if the
date of such surrender and payment is a date on which the stock
transfer books of the Corporation are closed, such person shall be
deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books
are open.
Section 2. Adjustment of Number of Shares. Upon each adjustment of the
Warrant Exercise Price as provided in Section 3, the holder of this Warrant
shall thereafter be entitled to purchase, at the Warrant Exercise Price
resulting from such adjustment, the number of shares (calculated to the nearest
tenth of a share) obtained by multiplying the Warrant Exercise Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Warrant Exercise Price resulting from such adjustment.
Section 3. Adjustment of Price Upon Issuance of Common Stock. If and
whenever the Corporation shall issue or sell any shares of its Common Stock for
a consideration per share less than the Warrant Exercise Price in effect
immediately prior to the time of such issue or sale, then, forthwith upon such
issue or sale the Warrant Exercise Price shall be reduced to the price
(calculated to the nearest $.01) determined by dividing (i) an amount equal to
the sum of (a) the number of shares of Common Stock outstanding immediately
prior to such issue or sale (including as outstanding all shares of Common Stock
issuable upon conversion or exercise of all outstanding convertible securities,
options and warrants) multiplied by the then existing Warrant Exercise Price and
(b) the consideration, if any, received by the Corporation upon such issue or
sale, by (ii) the total number of shares of Common Stock outstanding immediately
after such issue or sale (including as outstanding all shares of Common Stock
issuable upon conversion or exercise of all outstanding convertible securities,
warrants or options).
4
<PAGE> 5
For purposes of this Section 3, the following paragraphs
(a) to (o), inclusive, shall also be applicable:
(a) Issuance of Rights or Options. In case at any time the
Corporation shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any stock
or securities convertible into or exchangeable for Common Stock (such
rights or options being herein called "Options", and such convertible
or exchangeable stock or securities being herein called "Convertible
Securities") whether or not such Options or the right to convert or
exchange any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such
Convertible Securities (determined by dividing (i) the total amount, if
any, received or receivable by the Corporation as consideration for the
granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Corporation upon the exercise
of all such Options, plus, in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon the conversion or exchange of all
such Convertible Securities issuable upon the exercise of such Options)
shall be less than the Warrant Exercise Price in effect immediately
prior to the time of the granting of such Options, then the total
maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon conversion or exchange of the total maximum amount
of such Convertible Securities issuable upon the exercise of such
Options shall be deemed to have been issued for such price per share as
of the date of granting of such Options and thereafter shall be deemed
to be outstanding. Except as otherwise provided in paragraph (c), no
adjustment of the Warrant Exercise Price shall be made upon the actual
issue of such Common Stock or of such Convertible Securities upon
exercise of such Options or upon the actual issue of such Common Stock
upon conversion or exchange of such Convertible Securities.
(b) Issuance of Convertible Securities. In case the
Corporation shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert thereunder
are immediately exercisable, and the price per share for which Common
Stock is issuable upon such conversion or exchange (determined by
dividing (i) the total
5
<PAGE> 6
amount received or receivable by the Corporation as consideration for
the issue or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange of all such Convertible
Securities by (ii) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible
Securities) shall be less than the Warrant Exercise Price in effect
immediately prior to the time of such issue or sale, then the total
maximum number of shares of Common Stock issuable upon conversion or
exchange of all such Convertible Securities shall be deemed to have
been issued for such price per share as of the date of the issue or
sale of such Convertible Securities and thereafter shall be deemed to
be outstanding, provided that (i) except as otherwise provided in
paragraph (c) below, no adjustment of the Warrant Exercise Price shall
be made upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities, and (ii) if any such issue or
sale of such Convertible Securities is made upon exercise of any Option
to purchase any such Convertible Securities for which adjustments of
the Warrant Exercise Price have been or are to be made pursuant to
other provisions of this Section 3, no further adjustment of the
Warrant Exercise Price shall be made by reason of such issue or sale.
(c) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if (i) the purchase
price provided for in any Option referred to in paragraph (a), (ii) the
additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in paragraph (a) or
(b) or (iii) the rate at which any Convertible Securities referred to
in paragraph (a) or (b) are convertible into or exchangeable for Common
Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution), the Warrant Exercise
Price in effect at the time of such event shall forthwith be readjusted
to the Warrant Exercise Price which would have been in effect at such
time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially granted,
issued or sold; and on the expiration of any such Option or the
termination of any such right to convert or exchange such Convertible
Securities, the Warrant Exercise Price then in effect hereunder shall
forthwith be increased to the Warrant Exercise Price which would have
been in effect at the time of such expiration or termination had such
Option or Convertible Security, to the extent outstanding immediately
prior to such expiration or termination,
6
<PAGE> 7
never been issued, and the Common Stock issuable thereunder shall no
longer be deemed to be outstanding.
If the purchase price provided for in any such Option referred to in
paragraph (a) or the rate at which any Convertible Securities referred
to in paragraph (a) or (b) are convertible into or exchangeable for
Common Stock, shall be reduced at any time under or by reason of
provisions with respect thereto designed to protect against dilution,
then in case of the delivery of Common Stock upon the exercise of any
such Option or upon conversion or exchange of any such Convertible
Security, the Warrant Exercise Price then in effect hereunder shall
forthwith be adjusted to such respective amount as would have been
obtained had such Option or Convertible Security never been issued as
to such Common Stock and had adjustments been made upon the issuance of
the shares of Common Stock delivered as aforesaid, but only if as a
result of such adjustment the Warrant Exercise Price then in effect
hereunder is thereby reduced.
(d) Stock Dividends. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the
Corporation payable in Common Stock, Options or Convertible Securities,
any Common Stock, Options or Convertible Securities, as the case may
be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
(e) Consideration for Stock. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor, without deduction
therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith.
In case any shares of Common Stock, Options or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Corporation shall
be deemed to be the fair value of such consideration as determined by
the Board of Directors of the Corporation, without deduction of any
expenses incurred or any underwriting commissions or concessions paid
or allowed by the Corporation in connection therewith. In case any
Options shall be issued in connection with the issue and sale of other
securities of the Corporation, together comprising one integral
transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have
been issued without consideration.
7
<PAGE> 8
(f) Record Date. In case the Corporation shall take a record
of the holders of its Common Stock for the purpose of entitling them
(i) to receive a dividend or other distribution payable in Common
Stock, Options or Convertible Securities, or (ii) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase,
as the case may be, provided that such shares of Common Stock shall in
fact have been issued or sold.
(g) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by
or for the account of the Corporation, and the disposition of any such
shares shall be considered an issue or sale of Common Stock for the
purposes of this Section 3.
(h) Subdivision or Combination of Stock. In case the
Corporation shall at any time subdivide its outstanding shares of
Common Stock into a greater number of shares, the Warrant Exercise
Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding shares
of Common Stock of the Corporation shall be combined into a smaller
number of shares, the Warrant Exercise Price in effect immediately
prior to such combination shall be proportionately increased.
(i) Reorganization, Reclassification, Consolidation, Merger or
Sale. If any capital reorganization or reclassification of the capital
stock of the Corporation or any consolidation or merger of the
Corporation with another corporation, or the sale of all or
substantially all of its assets to another corporation shall be
effected in such a way that holders of Common Stock shall be entitled
to receive stock, securities or assets with respect to or in exchange
for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provisions shall be made whereby each holder of the Warrants shall
thereafter have the right to receive upon the basis and upon the terms
and conditions specified herein and in lieu of the shares of Common
Stock of the Corporation immediately theretofore receivable upon the
exercise of such Warrants, such shares of stock, securities or assets
(including cash) as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of
8
<PAGE> 9
such stock immediately theretofore so receivable had such
reorganization, reclassification, consolidation, merger or sale not
taken place, and in any such case appropriate provision shall be made
with respect to the rights and interests of such holder to the end that
the provisions hereof (including without limitation provisions for
adjustments of the Warrant Exercise Price) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise of such
exercise rights (including an immediate adjustment, by reason of such
reorganization or reclassification, of the Warrant Exercise Price to
the value for the Common Stock reflected by the terms of such
reorganization or reclassification if the value so reflected is less
than the Warrant Exercise Price in effect immediately prior to such
reorganization or reclassification). In the event of a merger or
consolidation of the Corporation as a result of which a greater or
lesser number of shares of common stock of the surviving corporation
are issuable to holders of Common Stock of the Corporation outstanding
immediately prior to such merger or consolidation, the Warrant Exercise
Price in effect immediately prior to such merger or consolidation shall
be adjusted in the same manner as though there were a subdivision or
combination of the outstanding shares of Common Stock of the
Corporation. The Corporation will not effect any such consolidation,
merger or any sale of all or substantially all of its assets of
properties, unless prior to the consummation thereof the successor
corporation (if other than the Corporation) resulting from such
consolidation or merger or the corporation purchasing such assets shall
assume by written instrument executed and mailed or delivered to each
holder of the Warrants at the last address of such holder appearing on
the books of the Corporation, the obligation to deliver to such holder
such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to receive.
(j) Certain Issues of Common Stock Excepted. Anything herein
to the contrary notwithstanding, the Corporation shall not make any
adjustment of the Exercise Price in the case of (i) the issuance of
shares of Common Stock upon conversion of the Series B Convertible
Preferred Stock, $.01 par value, of the Corporation and (ii) the
issuance of up to 1,500,000 shares of Common Stock reserved or to be
reserved for issuance to employees of the Corporation either directly
or pursuant to stock options, in either case pursuant to plans approved
by the Board of Directors of the Corporation and as such number of
Shares is increased, as approved by the non-management members of the
Board of Directors of the Corporation. The holders of Warrants
9
<PAGE> 10
outstanding representing a majority of the shares of Common Stock
acquirable upon exercise of the Warrants at the time outstanding may,
by written consent, waive any adjustment to the Exercise Price in the
case of an issuance of shares of capital stock of the Corporation in
connection with the acquisition of one or more healthcare businesses as
approved by the Board of Directors of the Corporation.
(k) Notice of Adjustment. Upon any adjustment of the Warrant
Exercise Price, then and in each such case, the Corporation shall give
written notice thereof, by first class mail, postage prepaid, addressed
to each holder of the Warrants at the address of such holder as shown
on the books of the Corporation, which notice shall state the Warrant
Exercise Price resulting from such adjustment, setting forth in
reasonable detail the method of calculation and the facts upon which
such calculation is based.
(l) Certain Events. If any event occurs as to which in the
opinion of the Board of Directors of the Corporation the other
provisions of this Section 3 are not strictly applicable or if strictly
applicable would not fairly protect the exercise rights of this
Warrant, in accordance with the essential intent and principles of such
provisions to protect against dilution, then such Board of Directors
shall in good faith make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so
as to protect such exercise rights as aforesaid.
(m) Stock to Be Reserved. The Corporation will at all times
reserve and keep available out of its authorized Common Stock or its
treasury shares, solely for the purpose of issue upon the exercise of
this Warrant as herein provided, such number of shares of Common Stock
as shall then be issuable upon the exercise of this Warrant. The
Corporation covenants that all shares of Common Stock which shall be so
issued shall be duly and validly issued and fully paid and
nonassessable and free from all taxes, liens and charges with respect
to the issue thereof, and, without limiting the generality of the
foregoing, the Corporation covenants that it will from time to time
take all such action as may be requisite to assure that the par value
per share of the Common Stock is at all times equal to or less than the
effective Warrant Exercise Price. The Corporation will take all such
action as may be necessary to assure that all such shares of Common
Stock may be so issued without violation of any applicable law or
regulation, or of any requirements of any national securities exchange
upon which the Common Stock of the Corporation may be listed. The
Corporation will not take any action which results in any adjustment of
the
10
<PAGE> 11
Warrant Exercise Price if the total number of shares of Common Stock
issued and issuable after such action upon exercise of this Warrant
would exceed the total number of shares of Common Stock then authorized
by the Corporation's Articles of Incorporation. The Corporation has not
granted and will not grant any right of first refusal with respect to
shares issuable upon exercise of this Warrant, and there are no
preemptive rights associated with such shares.
(n) Issue Tax. The issuance of certificates for shares of
Common Stock upon exercise of the Warrants shall be made without charge
to the holders of such Warrants for any issuance tax in respect thereof
provided that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of
any holder of the Warrants.
(o) Closing of Books. The Corporation will at no time close
its transfer books against the transfer of the shares of Common Stock
issued or issuable upon the exercise of this Warrant in any manner
which interferes with the timely exercise of this Warrant.
(p) Definition of Common Stock. As used herein the term
"Common Stock" shall mean and include the Common Stock, $.01 par value,
of the Corporation as constituted on January 30, 1998, and also any
capital stock of any class of the Corporation hereinafter authorized
which shall not be limited to a fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends or in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided, however, that
the shares purchasable pursuant to this Warrant shall include only
shares designated as Common Stock, $.01 par value, of the Corporation
on January 1, 1998, or shares of any class or classes resulting from
any reclassification or reclassifications thereof which are not limited
to any such fixed sum or percentage and are not subject to redemption
by the Corporation and, in case at any time there shall be more than
one such resulting class, the shares of each class then so issuable
shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to
the total number of shares of all such classes resulting from all such
reclassifications.
11
<PAGE> 12
Section 4. Notices of Record Dates. In the event of
(1) any taking by the Corporation of a record of the holders
of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution
(other than cash dividends out of earned surplus), or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other
right, or
(2) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation or any transfer of all or substantially all the assets of
the Corporation to or consolidation or merger of the Corporation with
or into any other corporation, or
(3) any voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation,
then and in each such event the Corporation will give notice to the holder of
this Warrant specifying (i) the date on which any such record is to be taken for
the purpose of such dividend, distribution or right and stating the amount and
character of such dividend, distribution or right, and (ii) the date on which
any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock will be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up. Such notice shall be given at least twenty (20) days and not more
than ninety (90) days prior to the date therein specified, and such notice shall
state that the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") or to a favorable vote of stockholders, if either
is required.
Section 5. Registration Rights. The rights of the holder hereof with
respect to the registration under the Securities Act of the shares of Common
Stock issuable upon the exercise of this Warrant are set forth in the
Registration Rights Agreement, dated as of December 19, 1995, as amended as of
the date hereof, among the Corporation and the several parties thereto.
Section 6. No Stockholder Rights or Liabilities. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a stockholder
of the Corporation. No provision
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<PAGE> 13
hereof, in the absence of affirmative action by the holder hereof to purchase
shares of Common Stock, and no mere enumeration herein of the rights or
privileges of the holder hereof, shall give rise to any liability of such holder
for the Warrant Exercise Price or as a stockholder of the Corporation, whether
such liability is asserted by the Corporation or by creditors of the
Corporation.
Section 7. Investment Representation and Legend. The holder, by
acceptance of the Warrant, represents and warrants to the Corporation that it is
acquiring the Warrant and the shares of Common Stock (or other securities)
issuable upon the exercise hereof for investment purposes only and not with a
view towards the resale or other distribution thereof and agrees that the
Corporation may affix upon this Warrant the following legend:
"This Warrant has been issued in reliance upon the
representation of the holder that it has been acquired for investment
purposes and not with a view towards the resale or other distribution
thereof. Neither this Warrant nor the shares issuable upon the exercise
of this Warrant have been registered under the Securities Act of 1933,
as amended."
The holder, by acceptance of this Warrant, further agrees that the Corporation
may affix the following legend to certificates for shares of Common Stock issued
upon exercise of this Warrant:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED
UNDER THE ACT OR UNLESS IN THE OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION AN EXEMPTION FROM REGISTRATION IS AVAILABLE."
Section 8. Lost, Stolen, Mutilated or Destroyed Warrant. If this
Warrant is lost, stolen, mutilated or destroyed, the Corporation may, on such
terms as to indemnity or otherwise as it may in its discretion reasonably impose
(which shall, in the case of a mutilated Warrant, include the surrender
thereof), issue a new Warrant of like denomination and tenor as the Warrant so
lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an
original contractual obligation of the Corporation, whether or not the allegedly
lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.
Section 9. Notices. All notices, requests and other communications
required or permitted to be given or delivered hereunder shall be in writing,
and shall be delivered, or shall be sent by certified or registered mail,
postage prepaid and addressed, (i) if to the Corporation, to it at 109 Westpark
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<PAGE> 14
Drive, Suite 440, Brentwood, Tennessee, 37027, attention: President or at such
other address as shall have been furnished to the holder by notice from the
Corporation or (ii) if to the holder to such holder at the address shown on such
holder's Warrant or Warrant Shares or at such other address as shall have been
furnished to the Corporation by notice from such holder.
14
<PAGE> 15
IN WITNESS WHEREOF, NEW AMERICAN HEALTHCARE CORPORATION has executed
this Warrant on and as of the day and year first above written.
NEW AMERICAN HEALTHCARE CORPORATION
By:
------------------------------------
Chief Executive Officer
<PAGE> 16
SUBSCRIPTION AGREEMENT
To:
Dated:
The undersigned, pursuant to the provisions of the Stock Subscription
Warrant (the "Warrant") issued by New American Healthcare Corporation (the
"Corporation") and held by the undersigned, hereby agrees to subscribe for and
purchase ___ shares of Common Stock covered by such Warrant, and
[ ] i) makes cash payment herewith in full therefor at the price
per share provided by such Warrant;
[ ] ii) surrenders to the Company [its 10% Senior Subordinated
Notes due 2008] or such other promissory notes or other obligations
issued by the Corporation, in accordance with Section 1(b)(ii) of such
Warrant, as payment herewith in full therefor at the price per share
provided by such Warrant;
[ ] iii) delivers to the Company other securities issued by the
Corporation, in accordance with Section 1(b)(iii) of such Warrant, as
payment herewith in full therefor at the price per share provided by
such Warrant; and/or
[ ] iv) elects Net Issue Exercise as provided in Section 1(b)(iv)
of such Warrant.
(Check any combination of (i) through (iv) above.)
Name of Holder:
----------------------------------
Signature:
----------------------------------
Address:
----------------------------------
----------------------------------
<PAGE> 1
Exhibit 10.7
================================================================================
SECURITIES PURCHASE AGREEMENT
Among
NEW AMERICAN HEALTHCARE CORPORATION,
WELSH, CARSON, ANDERSON & STOWE VII, L.P.,
THE OTHER SEVERAL PURCHASERS NAMED IN ANNEX I HERETO
and
THE FOUNDERS NAMED IN ANNEX II HERETO
Dated as of December 19, 1995
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. THE SHARES ...................................................... 2
SECTION 1.01 Sales and Purchases of Initial Shares.................... 2
SECTION 1.02 First Closing Date ...................................... 2
SECTION 1.03 Additional Investment Requests by Company;
Purchaser's Right to Require Sales of
Additional Shares...................................... 2
SECTION 1.04 Purchase and Sale of Additional Shares .................. 6
SECTION 1.05 Subsequent Closing Dates................................. 6
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................... 7
SECTION 2.01 Organization, Qualification and Corporate Power.......... 7
SECTION 2.02 Authorization of Agreement, Etc.......................... 8
SECTION 2.03 Validity................................................. 8
SECTION 2.04 Capital Stock............................................ 9
SECTION 2.05 Actions Pending.......................................... 9
SECTION 2.06 Third Party Agreements, Etc.............................. 10
SECTION 2.07 Governmental Approvals................................... 10
SECTION 2.08 Use of Proceeds.......................................... 10
SECTION 2.09 Disclosure............................................... 10
SECTION 2.10 Offering of Shares....................................... 11
SECTION 2.11 Contracts and Commitments................................ 11
SECTION 2.12 No Liabilities........................................... 11
SECTION 2.13 Compliance with Law...................................... 11
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF PURCHASERS AND FOUNDERS ..... 12
ARTICLE IV. CONDITIONS TO THE OBLIGATIONS OF PURCHASERS..................... 13
SECTION 4.01 Conditions to the Obligations of Purchasers with
Respect to First Closing............................... 13
SECTION 4.02 Conditions to the Obligations of Purchasers with
Respect to Each Subsequent Closing..................... 17
ARTICLE V. COVENANTS........................................................ 19
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE VI. MISCELLANEOUS .................................................. 23
SECTION 6.01 Expenses................................................. 23
SECTION 6.02 Survival of Agreements; Limitation on Customer
Liabilities............................................ 23
SECTION 6.03 Brokerage................................................ 23
SECTION 6.04 Parties in Interest...................................... 23
SECTION 6.05 Notices.................................................. 23
SECTION 6.06 GOVERNING LAW............................................ 24
SECTION 6.07 Entire Agreement......................................... 24
SECTION 6.08 Counterparts............................................. 25
SECTION 6.09 NOTICE FOR PENNSYLVANIA RESIDENTS........................ 25
</TABLE>
ii
<PAGE> 4
INDEX TO ANNEXES
Description
-----------
ANNEX I Purchasers
ANNEX II Founders
ANNEX III Additional Shares
INDEX TO EXHIBITS
Description
-----------
EXHIBIT A Form of Registration Rights Agreement
EXHIBIT B Form of Stockholders Agreement
EXHIBIT C Form of Restricted Stock Agreement
EXHIBITS D-1 Forms of Employment Agreements
through D-4
EXHIBIT E Form of Amended and Restated Charter
INDEX TO SCHEDULES
Description
-----------
2.01(b) Subsidiaries, Partnership Interests and Joint Ventures
2.04 Capitalization
2.05 Actions Pending
2.06 Third Party Agreements, Etc.
2.11 Contracts and Commitments
2.12 Liabilities
iii
<PAGE> 5
SECURITIES PURCHASE AGREEMENT, dated as of December 19, 1995, among NEW
AMERICAN HEALTHCARE CORPORATION, a Tennessee corporation (the "Company"),
WELSH, CARSON, ANDERSON & STOWE VII, L.P., a Delaware limited partnership
("WCAS VII"), the several persons named in Annex I hereto (collectively, with
WCAS VII, the "Purchasers") and the persons named in Annex II hereto
(collectively, the "Founders").
WHEREAS, the Company has been formed for the purpose of acquiring, managing
and operating rural hospitals;
WHEREAS, in order to obtain funds for acquisitions of rural hospitals, the
Company wishes to issue and sell to the Purchasers and the Founders (i) on the
First Closing Date (as hereinafter defined) an aggregate 5,026,500 shares of
Common Stock, $0.01 par value ("Common Stock"), of the Company (the "Initial
Shares") and (ii) subject to the provisions of Sections 1.03, 1.04 and 1.05
hereof, from time to time over a five-year period after the First Closing Date,
up to (A) an aggregate 250,000 shares of the Company's Series A Non-Convertible
Cumulative Preferred Stock, $0.01 par value ("Series A Preferred"), and (B) an
aggregate 235,000 shares of the Company's Series B Convertible Preferred Stock,
$0.01 par value ("Series B Preferred"); and
WHEREAS, the Founders own all the presently issued and outstanding shares
of Common Stock and wish the Company to be able to issue and sell to the
Purchasers and the Founders hereunder the Initial Shares and the shares of
Series A Preferred and Series B Preferred as provided above and, in order to
induce such purchases by the Purchasers, are willing to make the covenants and
agreements on their part contained herein and in the other agreements to be
executed and delivered by them as contemplated hereby; and
WHEREAS, the Purchasers and the Founders, severally and not jointly, are
willing to purchase, on the terms and subject to the conditions hereinafter set
forth, their respective proportions of the Initial Shares and, if WCAS VII so
determines from time to time as hereinafter provided, of the Series A Preferred
and the Series B Preferred;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
<PAGE> 6
I.
THE SHARES
SECTION 1.01 Sales and Purchases of Initial Shares. (a) Subject to the
terms and conditions set forth herein, the Company shall issue and sell to each
Purchaser or Founder, as the case may be, and each Purchaser or Founder, as the
case may be, shall purchase from the Company, on the First Closing Date (as
hereinafter defined), the number of Initial Shares set opposite the name of such
Purchaser in annex I or such Founder in Annex II hereto at a purchase price of
$0.30 per share, and the Company shall on the First Closing Date issue and
deliver to each Purchaser or Founder, as the case may be, a stock certificate or
certificates in definitive form, registered in the name of such Purchaser or
Founder, as the case may be, evidencing the number of Initial Shares being
purchased by it hereunder.
(b) As payment in full for the number of Initial Shares being purchased by
a Purchaser or a Founder hereunder, and against delivery of the certificate or
certificates therefor as aforesaid, such Purchaser or Founder, as the case may
be, shall deliver to the Company on the First Closing Date a certified or
official bank check, payable to the order of the Company, in the amount set
opposite the name of such Purchaser or Founder, as the case may be, in Annex I
or Annex II hereto, as applicable, under the heading "Purchase Price of Initial
Shares", or shall transfer such sum to the account of the Company by wire
transfer; provided, however, that in the case of WCAS VII, such payment by it
shall be made by wire transfer of immediately available funds.
SECTION 1.02 First Closing Date. The closing of the sales and purchases
described in Section 1.01 shall take place at the offices of Reboul, MacMurray,
Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, New York 10111, at 10
a.m., New York time on December 26, 1995; provided, however, that if WCAS VII
shall not as of such date have made its initial investment in an operating
company, then at such later date and time within 5 business days after the date
of such initial investment as may be mutually agreed upon among the Purchasers,
the Founders and the Company (such date and time of closing being herein called
the "First Closing Date").
SECTION 1.03 Additional Investment Requests by Company; Purchaser's Right
to Require Sales of Additional Shares. (a) The Additional Shares. (i) There
shall be reserved for issuance pursuant to this Section 1.03 (i) 250,000 shares
of Series A Preferred and (ii) 235,000 shares of Series B Preferred (the shares
of Series A Preferred and Series B Preferred being hereinafter referred to
collectively as the "Additional Shares" and, together with the Initial Shares,
the "Shares").
2
<PAGE> 7
(ii) The respective maximum numbers of shares of Series A Preferred and
Series B Preferred which are subject to purchase by each Purchaser pursuant to
this Section 1.03 are set forth opposite the name of such Purchaser in Annex III
hereto under the respective headings "Maximum Number of Series A Preferred
Shares" and "Maximum Number of Series B Preferred Shares". The aggregate number
of Additional Shares purchased by the Purchasers on a Subsequent Closing Date
(as hereinafter defined) shall (after deduction of the number of Additional
Shares to be purchased by the Founders on such Subsequent Closing Date pursuant
to Section 1.03(b)(iii)) be allocated pro rata among the Purchasers in
proportion to the respective maximum numbers of Additional Shares so set forth,
except for Horizon Investment Associates, I and David F. Bellet, who shall each
purchase the entire amount of Series B Preferred so set forth on the first
Subsequent Closing Date. The maximum aggregate number of Additional Shares
subject to purchase by each Purchaser on any Subsequent Closing Date shall be
reduced by the aggregate number of Additional Shares purchased by such Purchaser
on all previous Subsequent Closing Dates. On the Termination Date (as defined in
subparagraph (iii) below) no further Additional Shares shall be subject to
purchase hereunder, except as provided in Section 1.03(c). The purchase price
for Additional Shares shall in all cases be $100 per share.
(iii) For purposes of this Section 1.03, the term "Termination Date" means
the earliest of (A) the fifth anniversary of the First Closing Date, (B) the
completion of an Initial Public Offering (as defined below) and (C) the date on
which the proceeds of issuance of the Initial Shares shall have been fully
expended, unless prior thereto the first Subsequent Closing Date shall have
occurred. The term "Initial Public Offering" means the first to occur of either
(x) a firm commitment public offering of Common Stock of the Company registered
pursuant to the Securities Act of 1933, as amended, and the rules and
regulations of the Securities and Exchange Commission thereunder (the
"Securities Act") (i) at a price to the public of not less than $10.00 per share
and (ii) resulting in proceeds to the Company of not less than $20,000,000,
after deduction of underwriting discounts and commissions but before deduction
of other expenses of issuance and (y) the merger or consolidation by the Company
with or into a company which has capital stock which is publicly traded and
which throughout the Relevant Time Period (as hereinafter defined) has a public
float of at least $30,000,000 and which merger or consolidation is on terms
whereby shares of Common Stock are exchanged for publicly traded stock, and the
fair market value of the consideration to be received for each share of Common
Stock is equal to or greater than $10.00. The term "Relevant Time Period" means
the ten consecutive trading days commencing two trading days after the public
announcement of the terms of the proposed merger or consolidation.
3
<PAGE> 8
(b) Company's Right to Request Purchases of Additional Shares. (i) From
time to time prior to the Termination Date, the Company may, if it proposes to
acquire a rural hospital (a "Facility"), and in any event prior to the execution
of a letter of intent with respect thereto, request that the Purchasers consider
the purchase by them of all or any portion of the Additional Shares which then
remain subject to purchase hereunder, but not more in the aggregate than shall
be required to provide (A) funds to finance the acquisition of such Facility,
(B) provide working capital therefor and (C) provide for capital expenditures of
up to $500,000 for such Facility. Such request (an "Additional Investment
Request") shall be in writing and shall set forth (w) the terms of the proposed
acquisition of the Facility, supported in reasonable detail, including
appropriate historical and projected financial information, (x) the number of
Additional Shares (the "Requested Securities") that the Company wishes to issue
to the Purchasers and the Founders in connection therewith, and (y) the
anticipated Subsequent Closing Date for the share purchase transaction, which
shall be the date on which the acquisition of the Facility is consummated. The
Requested Securities shall consist entirely of Series B Preferred until such
time as all Series B Preferred have been issued and sold to the Purchasers and
Founders in accordance with this Agreement, at which time the Requested
Securities shall be Series A Preferred. No Subsequent Closing Date shall be
scheduled to occur less than 10 or more than the number of days acceptable to a
majority of the Board of Directors of the Company after the date of the
Additional Investment Request to which it relates. Until such time as the first
Additional Investment Request has been affirmatively accepted by WCAS VII as
provided in subparagraph (ii) below, each Additional Investment Request shall
also include an accounting of the proceeds of the sale of the Initial Shares by
the Company to the Purchasers and the Founders.
(ii) Within five business days after receipt of an Additional Investment
Request pursuant to subparagraph (i) above, WCAS VII shall (x) determine in its
sole discretion whether it believes that the proposed acquisition is appropriate
for the Company and (y) notify the Company in writing of the results of such
determination. If such notice from WCAS VII shall state that it has made such
determination affirmatively, then the Purchasers shall purchase the Requested
Securities, less the amount thereof to be purchased by the Founders as provided
in subparagraph (iii) below, in accordance with Section 1.04 below unless, prior
to the Subsequent Closing Date specified in the Additional Investment Request,
the Company determines that it is unable for any reason, or it would not be in
the best interests of the Company (in each case as reasonably determined by the
Board of Directors of the Company), to proceed with the acquisition of any
Facility as contemplated by the Additional Investment Request relating thereto,
in which case it shall
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promptly notify the Purchasers and Founders of such determination, and the
obligation of the Purchasers and Founders to purchase, and of the Company to
issue and sell, the Requested Securities shall thereupon cease and the
Additional Investment Request relating thereto shall be of no further force or
effect. If such notice from WCAS VII shall not state that it has made such
determination affirmatively, the related Additional Investment Request shall,
for all purposes hereof, be deemed to be terminated, and such Additional
Investment Request shall be of no further force or effect.
(iii) If WCAS VII affirmatively accepts an Additional Investment Request in
accordance with sub-paragraph (ii) above, each of the Founders shall purchase on
the relevant Subsequent Closing Date a portion of the Requested Securities equal
to the product of (A) the aggregate number of Requested Securities to be sold on
such Subsequent Closing Date and (B) a fraction, the numerator of which is as
follows:
Mr. Martin 100,000
Mr. McLendon 100,000
Mr. Watson 50,000
Mr. Hill 15,000
and the denominator of which is 50,000,000.
(c) WCAS Right to Purchase Additional Shares. Not later than sixty (60)
days after the Termination Date (unless the Termination Date occurs by reason of
an Initial Public Offering), the Purchasers shall have the option to require the
Company to issue and sell, on the terms and conditions set forth herein, all or
any portion of the Additional Shares then remaining available for purchase
hereunder, by an instrument in writing (a "Purchase Notice"), executed on behalf
of the Purchasers by WCAS VII, notifying the Company of the Purchasers'
intention to purchase such Additional Shares; provided, however, that such
option shall not be available if WCAS VII shall not have purchased on a
Subsequent Closing Date any Additional Securities which it has agreed to
purchase on such date pursuant to Section (b)(ii) above other than by reason of
the Company's withdrawal of the relevant Additional Investment Request or the
non-satisfaction of any of the conditions to WCAS VII's obligation to purchase
such securities on such date set forth in Section 4.02; provided, further, that
such options shall be available only to accredited investors within the meaning
of Rule 501 of the Securities Act. The Purchase Notice shall specify the number
of Additional Shares to be acquired from the Company, the Subsequent Closing
Date for such transaction, which date shall be not less than 20 days after the
date of the Purchase Notice. Such Purchase Notice shall be effective upon
delivery thereof. The Company shall notify the Founders upon its receipt of the
Purchase Notice and each of them
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shall have the option to purchase a number of the Additional Shares proposed to
be purchased by the Purchasers equal to the product of (A) the aggregate number
of Additional Shares proposed to be so purchased by the Purchasers and (B) a
fraction, the numerator of which is as follows:
Mr. Martin 100,000
Mr. McLendon 100,000
Mr. Watson 50,000
Mr. Hill 15,000
and the denominator of which is 50,000,000.
SECTION 1.04 Purchase and Sale of Additional Shares. (a) If either (i) the
Company shall have delivered an Additional Investment Request pursuant to
Section 1. 03 (b) (i) above which shall have become effective pursuant to
Section 1.03(b)(ii) above or (ii) WCAS VII shall have delivered a Purchase
Notice pursuant to Section 1.03(c) above, then, subject to the other terms and
conditions of this Agreement, on the Subsequent Closing Date specified in such
Additional Investment Request or Purchase Notice, as the case may be, the
Company shall issue and sell to the Purchasers and the Founders, and the
Purchasers and the Founders shall purchase from the Company, the number of
Additional Shares specified in the Additional Investment Request or the Purchase
Notice, as the case may be, subject to compliance with applicable securities
laws, at a purchase price per share of $100, and the Company shall issue and
deliver to the Purchasers and the Founders stock certificates in definitive
form, registered in the names of the respective Purchasers and Founders,
evidencing the Additional Shares purchased by them hereunder.
(b) As payment in full for the Additional Shares being purchased by it
hereunder, and against delivery of the certificate or certificates therefor as
aforesaid, each Purchaser or Founder, as the case may be, shall pay to the
Company on each Subsequent Closing Date the purchase price for the Additional
Shares to be purchased by such Purchaser or Founder, as the case may be, on such
Subsequent Closing Date, in accordance with the procedures established pursuant
to Section 1.05 below.
SECTION 1.05 Subsequent Closing Dates. Each closing of a sale and purchase
of Additional Shares shall take place at the offices of Harwell Howard Hyne
Gabbert & Manner, P.C. at 10 a.m., Nashville time, on such date (which shall not
be a day on which banking institutions in New York State or the State of
Tennessee are required or authorized to close) as shall be specified in any
Additional Investment Request or Purchase Notice, as the case may be, or at such
other date and time as may be mutually agreed upon between the Purchasers, the
Founders and
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the Company (each such date and time of closing being herein called a
"Subsequent Closing Date"). The Company and WCAS VII agree that they will
cooperate in good faith to establish procedures, including, where appropriate,
mutually acceptable escrow arrangements, for Subsequent Closing Dates so as to
permit funding of the acquisition of the applicable Facility while minimizing
the related costs and inconvenience to the Purchaser, it being understood that
no purchaser other than WCAS VII shall be required to pay the purchase price for
the Additional Shares acquired by it by wire transfer.
II.
REPRESENTATIONS AND WARRANTIES OF COMPANY
The Company represents and warrants to, and agrees with, the Purchasers as
follows:
SECTION 2.01 Organization, Qualification and Corporate Power. (a) The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Tennessee, and is licensed or qualified
to do business as a foreign corporation and is in good standing in each other
jurisdiction in which it owns or leases any real property or in which the nature
of business transacted by it makes such licensing or qualification necessary and
where the failure to be so licensed or qualified would have a material adverse
effect on the business, operations or financial condition of the Company. The
Company has the corporate power and authority to own and hold its properties and
to carry on its business as currently conducted, to execute, deliver and perform
this Agreement, the Registration Rights Agreement annexed hereto as Exhibit A
(the "Registration Rights Agreement"), the Stockholders Agreement among the
Company, the Founders and the Purchasers annexed hereto as Exhibit B (the
"Stockholders Agreement"), the Restricted Stock Agreement between the Company,
the Purchasers and each of the Founders annexed hereto as Exhibit C (the
"Restricted Stock Agreement") and the Employment Agreements between the Company
and each of Robert M. Martin, Dana C. McLendon, Jr., Craig B. Watson and
Timothy S. Hill in the respective forms annexed hereto as Exhibits D-1, D-2, D-3
and D-4 (collectively, the "Employment Agreements").
(b) Except as set forth on Schedule 2.01(b) hereto, the Company does not
own of record or beneficially, directly or indirectly, (i) any shares of
outstanding capital stock or securities convertible into capital stock of any
other corporation or (ii) any participating interest in any partnership, joint
venture or other non-corporate business enterprise.
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SECTION 2.02 Authorization of Agreement, Etc. (a) The execution, delivery
and performance by the Company of this Agreement, the Registration Rights
Agreement, the Shareholders Agreement and the Restricted Stock Agreement, and
the issuance, sale and delivery of the Shares have been duly authorized by all
requisite corporate action and will not violate any provision of law (assuming
the accuracy of the representations of the persons purchasing securities
contained in Article III), any order of any court or other agency of government,
the Charter or By-laws of the Company, or any provision of any indenture,
agreement or other instrument by which the Company or any of its properties or
assets is bound or affected, or conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Company.
(b) The Initial Shares have been duly authorized and, when issued and
delivered in accordance with this Agreement, will be validly issued and
outstanding, fully paid and nonassessable shares of Common Stock. The Additional
Shares have been duly authorized and reserved for issuance upon Subsequent
Closing Dates and, when so issued and paid for in accordance with the terms of
this Agreement, will be duly authorized, validly issued and outstanding, fully
paid and nonassessable shares of Series A Preferred or Series B Preferred, as
the case may be (assuming the accuracy of the representations and warranties of
the persons purchasing securities under this Agreement). The issuance, sale and
delivery of the Shares is not subject to any preemptive rights of stockholders
of the Company or to any right of first refusal or other similar right in favor
of any person which has not been waived in its entirety.
SECTION 2.03 Validity. This Agreement has been duly executed and delivered
by the Company and the Founders and constitutes the legal, valid and binding
agreement of the Company and the Founders, enforceable in accordance with its
terms (subject, as to enforcement of remedies to applicable bankruptcy,
reorganization, insolvency and similar laws, to moratorium laws from time to
time in effect and to general principles of equity). Each of the Registration
Rights Agreement, the Stockholders Agreement, the Employment Agreements and the
Restricted Stock Agreement, when executed and delivered in accordance with this
Agreement, will constitute the legal, valid and binding obligation of the
Company and the Founders (or, in the case of each Employment Agreement, the
Company and the respective Founder), enforceable in accordance with its terms
(subject, as to enforcement of remedies to applicable bankruptcy,
reorganization, insolvency and similar laws, to moratorium laws
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from time to time in effect and to general principles of equity).
SECTION 2.04 Capital Stock. As of the date hereof, the authorized capital
stock of the company consists of (i) 500,000,000 shares of Common Stock of which
2,800,000 shares are validly issued and outstanding, fully paid and
nonassessable and no other shares have ever been issued and (ii) 500,000,000
shares of Preferred Stock, none of which have been issued. As of the Initial
Closing Date, the authorized capital stock of the Company will consist of (x)
20,000,000 shares of Common Stock of which 2,800,000 shares (prior to giving
effect to the transactions to occur on the Initial Closing Date) will be validly
issued and outstanding, fully paid and non-assessable and 4,000,000 shares will
have been duly reserved for issuance upon conversion of Series B Preferred and
(y) 485,000 shares of Preferred Stock, of which 250,000 shares will have been
designated as Series A Preferred and 235,000 shares will have been designated as
Series B Preferred. As of the date hereof, the Founders are the sole
stockholders of the Company and the number of shares of Common Stock owned by
each of them are as set forth in Schedule 2.04 hereto. Except as contemplated or
permitted by this Agreement, (A) no subscription, warrant, option, convertible
security or other right (contingent or other) to purchase or acquire any shares
of any class of capital stock of the Company is authorized or outstanding, (B)
there is no commitment of the Company to issue any shares, warrants, options or
other such rights or to distribute to holders of any class of its capital stock
any evidences of indebtedness or assets and (C) the Company has no obligation
(contingent or other) to purchase, redeem or otherwise acquire any shares of its
capital stock or any interest therein or to pay any dividend or make any other
distribution in respect thereof.
SECTION 2.05 Actions Pending. Except as set forth in Schedule 2.05 hereto:
(i) there is no action, suit, investigation or proceeding pending or, to the
best knowledge and belief of the Company, threatened against the Company or any
subsidiary which, if adversely determined, might have a material adverse effect
on the business, operations or financial condition of, the Company or its
Subsidiaries, taken as a whole, or any of their respective properties or rights,
before any court or by or before any governmental body or arbitration board or
tribunal; and (ii) to the best knowledge and belief of the Company, there does
not exist any basis for any such action, suit, investigation or proceeding that,
if adversely determined, might materially, adversely affect the business,
operations or financial condition of the Company or its subsidiaries, taken as a
whole, or any of their properties or assets. The foregoing includes, without
limiting its generality, actions pending or threatened (or any basis therefor
known to the Company) involving the prior employment of any employees or
prospective employees of the
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Company or their use, in connection with the Company's business, of any
information or techniques which might be alleged to be proprietary to their
former employer(s).
SECTION 2.06 Third Party Agreements, Etc. Except as set forth on Schedule
2.06 hereto, none of the Founders or any other person affiliated with the
Company is party to any employment, non-compete, confidentiality or other
agreement with a third party that would materially restrict the ability of such
person to own Common Stock of, or perform services for, the Company, assuming
for these purposes that the Company shall carry on its business as such business
is intended to be conducted as contemplated in the Business Plan (as hereinafter
defined). No third party has claimed that any of the Founders or any other
person affiliated with the Company has, in respect of his activities to date,
violated any of the terms or conditions of any such contract with such third
party, or disclosed or utilized any trade secrets or proprietary information or
documentation of such third party, or interfered in the employment relationship
between such third party and any of its employees. None of the Founders or any
other person affiliated with the Company has employed or will employ any trade
secrets or any information or documentation proprietary to any former employer,
and no such person has violated any confidential relationship which such person
may have had with any third party, in connection with the development or
operation of the Company's business.
SECTION 2.07 Governmental Approvals. Assuming the accuracy of the
representations by the Purchasers and the Founders in Article III, no
registration or filing with, or consent or approval of, or other action by, any
Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance of this Agreement
and the execution and delivery of the Registration Rights Agreement, or the
issuance, sale and delivery of the Shares, except that compliance with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), may be required in connection with the issuance, sale and delivery of the
Additional Shares.
SECTION 2.08 Use of Proceeds. The Company will apply the proceeds of the
issuance and sale of the Additional Shares to finance the acquisition and
operation of Facilities.
SECTION 2.09 Disclosure. The Company has furnished to the Purchasers a copy
of the Company's proposed business objectives, revised as of September 26, 1995
(the "Business Plan") and all of the schedules and underlying agreements listed
on any Schedules hereto.
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SECTION 2.10 Offering of Shares. Neither the Company nor any person
authorized or employed by the Company as agent, broker, dealer or otherwise in
connection with the offering or sale of the Shares or any similar security of
the Company has offered the Shares or any such security for sale to, or
solicited any offers to buy the Shares or any similar security of the Company
from, or otherwise approached or negotiated with respect thereto with, any
person or persons other than the Purchasers and not more than 20 other persons
or groups of persons (treating for this purpose an investment fund and the
partners, employees and affiliates thereof as a single group), and neither the
Company nor any person acting on its behalf has taken or will take any action
(including, without limitation, any offer, issuance or sale of any security of
the Company under circumstances which might require the integration of such
offer, issuance or sale with the offer, issuance and sale of the Shares under
the Securities Act) which might subject the offering, issuance or sale of the
Shares to the registration provisions of the Securities Act.
SECTION 2.11 Contracts and Commitments. Except as set forth in this
Agreement or in Schedule 2.11 hereto, the Company is not a party to any
contract, lease or commitment (or group of related contracts, leases or
commitments). The Company is not in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
agreement or instrument to which it is a party which may result in any material
adverse change in the business, operations or financial condition of the
Company.
SECTION 2.12 No Liabilities. The Company has not engaged in any material
business activities other than those incident to its incorporation and the sale
of its equity and has no absolute, accrued or contingent liabilities other than
those listed in Schedule 2.12 hereof.
SECTION 2.13 Compliance with Law. The Company is not in default under any
order of any court, governmental authority or arbitration board or tribunal to
which the Company is subject or in violation of any laws, ordinances,
governmental rules or regulations (including, but not limited to, those relating
to environmental, safety, building, product safety or health standards or
employment matters) to which the Company is or was subject, in each case, that
would have a material adverse effect on the business, operations or financial
condition of the Company or its subsidiaries, taken as a whole, or any of its
properties or assets. The business of the Company or its subsidiaries, taken as
a whole, is being conducted in compliance with all applicable laws, ordinances,
rules and regulations applicable to it, non-compliance with which would have a
material, adverse effect on the business, operations or financial condition of
the
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Company or its subsidiaries, taken as a whole, or any of its properties or
assets. The Company has not failed to obtain any licenses, permits, franchises
or other governmental authorizations necessary to the ownership of their
respective properties or to the conduct of the business of the Company, which
failure would have a material, adverse effect on the business, operations or
financial condition of the Company or its subsidiaries, taken as a whole, or any
of its properties or assets.
III.
REPRESENTATIONS AND WARRANTIES OF PURCHASERS AND FOUNDERS
Each Purchaser represents and warrants to the Company that such Purchaser
is acquiring the Initial Shares and will acquire any Additional Shares purchased
by it hereunder for such Purchaser's own account for the purpose of investment
and not with a view to or for sale in connection with any distribution or other
allocation thereof. Each Founder represents and warrants to the Company that
such Founder is acquiring the Initial Shares and will acquire any Additional
Shares purchased by such Founder hereunder for such Founder's own account for
the purpose of investment and not with a view to or for sale in connection with
any distribution or other allocation thereof. Each Purchaser and Founder further
represents, as to itself, that such Purchaser or Founder, as the case may be,
understands that (i) the Shares have not been registered under the Securities
Act by reason of their issuance in a transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) or 4(6) or
Regulation D thereof and have not been registered under any state securities
laws, (ii) the Shares must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or is exempt from such
registration, (iii) the Shares will bear a legend to such effect and (iv) the
Company will make a notation on its transfer books to such effect. Each
Purchaser and Founder further understands that the exemption from registration
afforded by Rule 144 under the Securities Act depends on the satisfaction of
various conditions and that the Company does not currently meet those conditions
and no assurance can be made that the Company will be able to meet those
conditions in the foreseeable future, and that, if applicable, Rule 144 affords
the exemptions of sales of the Shares only in limited amounts under certain
conditions. Each Purchaser and Founder (A) has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of its purchase and is able to bear the substantial economic risks of the
investment and can afford a complete loss in its investment, (B) acknowledges
that such Purchaser or Founder, as the case may be, has had a full opportunity
to request from the Company and to review and has received
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all information which it deems relevant in making a decision to purchase the
Shares being purchased or to be purchased by it or him hereunder and (C) will
comply with the applicable restrictions on transferability of the Shares
contained in the Registration Rights Agreement, Restricted Stock Agreement and
Stockholders Agreement. Each Purchaser and Founder, severally and not jointly,
further represents and covenants as to itself that it is, and will be at each
Subsequent Closing Date, an "accredited investor" within the meaning of Rule
501(a) of the Securities Act and will advise the Company if its state of
residence indicated on Annex III hereto shall hereafter change.
IV.
CONDITIONS TO OBLIGATIONS OF PURCHASERS
SECTION 4.01 Conditions to Obligations of Purchasers with Respect to First
Closing. The obligation of the Purchasers to purchase and pay for the Initial
Shares being purchased by them on the First Closing Date is, at their option,
subject to the satisfaction, on or before such date, of the following
conditions:
(a) Opinion of Counsel. Each Purchaser shall have received from Harwell
Howard Hyne Gabbert & Manner, P.C., counsel for the Company, an opinion
dated the First Closing Date, in form and substance satisfactory to WCAS
VII and its counsel, Reboul, MacMurray, Hewitt, Maynard & Kristol (and the
parties agree that the opinion shall be governed by and interpreted in
accordance with the legal opinion accord of the ABA Section of Business Law
(1991) the "Accord"), to the effect that:
(i) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Tennessee, and is
duly licensed or qualified to do business as a foreign corporation and is
in good standing in each other jurisdiction in which it owns or leases
any real property. The Company has the corporate power and authority to
own and hold its properties and to carry on its business as currently
conducted, to acquire, own, operate and manage acute care hospitals, to
execute, deliver and perform this Agreement, the Registration Rights
Agreement, the Stockholders Agreement, the Employment Agreements and the
Restricted Stock Agreement, and to issue, sell and deliver the Initial
Shares.
(ii) The authorized capital stock of the Company is as set forth in
Section 2.04.
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(iii) The execution, delivery and performance by the Company of
this Agreement, the Registration Rights Agreement, the Stockholders
Agreement, the Employment Agreements and the Restricted Stock
Agreement have been duly authorized by all requisite corporate action,
and each has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company and
the Founders, enforceable in accordance with its terms (subject, as to
enforcement of remedies, to applicable bankruptcy, reorganization,
insolvency and similar laws, to moratorium laws from time to time in
effect and to general equity principles), except that such counsel
need express no opinion as to the indemnification and contribution
provisions of any of the agreements nor the availability of the remedy
of specific performance nor the enforceability of any noncompetition
or nonsolicitation provisions in any such agreement.
(iv) The execution, delivery and performance by the Company of this
Agreement, the Registration Rights Agreement, the Stockholders
Agreement, the Employment Agreements and the Restricted Stock
Agreement, and the issuance, sale and delivery of the Initial Shares
will not violate any provision of law, or, to the Opinion Giver's
Actual Knowledge (as defined in the Accord), any order of any court or
other agency of government, the Charter or By-laws of the Company, or,
to the Opinion Giver's Actual Knowledge, after review of the
agreements listed on Schedule 2.11, any provision of any indenture,
agreement or other instrument by which the Company or any of its
properties or assets is bound or affected, or result in a breach of or
constitute (with due notice or lapse of time or both) a default under
any such indenture, agreement or other instrument.
(v) The Initial Shares have been issued and sold by the Company
pursuant to this Agreement and are duly authorized, validly issued and
outstanding, fully paid and nonassessable shares of Common Stock. The
issuance and delivery of the Additional Shares upon Subsequent Closing
Dates (and the shares of Common Stock issuable upon conversion of the
Series B Preferred) have been duly authorized by all requisite
corporate action and have been duly reserved for issuance upon
Subsequent Closing Dates (or upon such conversion) and, if and when so
issued and paid for in accordance with the provisions of this
Agreement pursuant to an Additional Investment Request or a Purchase
Notice (or when so issued upon such conversion in accordance with the
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Charter), provided that the Board of Directors of the Company has not
rescinded its authorization thereof, will be duly authorized, validly
issued and outstanding, fully paid and nonassessable shares of Series
A Preferred, Series B Preferred or Common Stock, as the case may be.
The issuance, sale and delivery of the Shares (or Common Stock
issuable upon conversion thereof) are not subject to any statutory
preemptive rights of stockholders of the Company or, to the best
knowledge and belief of such counsel, after inquiry of officers of the
Company to any contractual right of first refusal or other similar
right in favor of any person.
(vi) The issuance, sale and delivery of the Initial Shares to the
Purchasers and the Founders on the First Closing Date, under the
circumstances contemplated by this Agreement, are exempt from the
registration requirements of the Securities Act. For purposes of the
opinions expressed in Sections 4.01(a)(v) and (vi), counsel can assume
the veracity of the representations and warranties of all purchasers
of all securities pursuant to this Agreement and compliance by such
purchasers with all covenants and agreements hereunder and can assume
that there is no subsequent action taken by the Company, the Founders
or the Purchasers which would cause the exemption to be lost.
(b) Representations and Warranties to Be True and Correct. The
representations and warranties contained in Article II hereof shall be true and
correct on and as of the First Closing Date with the same effect as if made on
and as of such date, and the Company shall have certified to such effect to the
Purchasers in writing.
(c) Performance. The Company shall have performed and complied with
all agreements and conditions contained herein required to be performed or
complied with by it prior to or at the First Closing Date, and the Company shall
have certified to such effect to the Purchasers in writing.
(d) All Proceedings to Be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to WCAS VII and its counsel, Reboul,
MacMurray, Hewitt, Maynard & Kristol, and WCAS VII and said counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
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(e) Registration Rights Agreement. The Company shall have executed and
delivered the Registration Rights Agreement.
(f) Stockholders Agreement. The Company and the Founders shall have
executed and delivered the Stockholders Agreement.
(g) Restricted Stock Agreement. The Company and the Founders shall
have executed and delivered the Restricted Stock Agreement.
(h) Employment Agreements. The Company and each of Robert M. Martin,
Dana C. McLendon, Jr., Craig B. Watson and Timothy S. Hill shall have executed
and delivered an Employment Agreement.
(i) Founders' Certificates. Messrs. Martin and McLendon shall each
have executed and delivered to the Purchasers a certificate and undertaking in
the form agreed to be given by them prior to the date of this Agreement.
(j) Amended and Restated Charter. The Charter of the Company shall
have been amended and restated as provided in Exhibit E annexed hereto, and such
Amended and Restated Charter shall have become effective.
(k) Supporting Documents. on or prior to the First Closing Date, the
Purchasers and their counsel shall have received copies of the following
supporting documents:
(i) (1) copies of the Charter of the Company, and all amendments
thereto, certified as of a recent date by the Secretary of State of
the State of Tennessee and (2) a certificate of said Secretary dated
as of a recent date as to the due incorporation and good standing of
the Company and listing all documents of the Company on file with said
Secretary;
(ii) a certificate of the Secretary or an Assistant Secretary of
the Company dated the First Closing Date and certifying (1) that
attached thereto is a true and complete copy of the By-laws of the
Company as in effect on the date of such certification and at all
times since December 1, 1995; (2) that attached thereto is a true and
complete copy of resolutions adopted by the Board of Directors of the
Company authorizing the execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Employment
Agreements, the Restricted Stock Agreement, and the
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Stockholders Agreement, the issuance, sale and delivery of the Initial
Shares and the reservation, issuance and delivery of the Additional
Shares, and that all such resolutions are still in full force and
effect and are all the resolutions adopted in connection with the
transactions contemplated by this Agreement, the Registration Rights
Agreement, the Restricted Stock Agreement and the Stockholders
Agreement; (3) that the Charter of the Company has not been amended
since the date of the last amendment referred to in the certificate
delivered pursuant to clause (i)(2) above; and (4) as to the
incumbency and specimen signature of each officer of the Company
executing this Agreement, the Registration Rights Agreement, the
Employment Agreements, the Restricted Stock Agreement, and the
Stockholders Agreement, the stock certificates representing the
Initial Shares and any certificate or instrument furnished pursuant
hereto, and a certification by another officer of the Company as to
the incumbency and signature of the officer signing the certificate
referred to in this paragraph (ii); and
(iii) such additional supporting documents and other information
with respect to the operations and affairs of the Company as the
Purchasers or their counsel may reasonably request.
All such documents shall be reasonably satisfactory in form and
substance to WCAS VII and its counsel.
SECTION 4.02 Conditions to Obligations of Purchasers with Respect to Each
Subsequent Closing. The obligation of the Purchasers to purchase and pay for the
Additional Shares being purchased by them on each Subsequent Closing Date is, at
their option, subject to the satisfaction, on or before such date, of the
following conditions:
(a) Consummation of First Closing and Each Prior Subsequent Closing. On the
First Closing Date the Purchasers shall have purchased and paid for the
Initial Shares, and on each previous Subsequent Closing Date, the Purchasers
and Founders shall have purchased and paid for the Additional Shares being
issued and sold on such Subsequent Closing Date unless, in each case, the
non-occurrence of such event shall have been caused by a breach of this
Agreement by the Purchasers or by an election by the Company not to proceed
with the acquisition of the related Facility pursuant to Section 1.03(b)(ii)
hereof.
(b) Additional Investment Request or Purchase Notice. An Additional
Investment Request given pursuant to Section
17
<PAGE> 22
1.03(b)(i) above shall have become effective pursuant to Section 1.03(b)(ii)
above or a Purchase Notice shall have been given pursuant to Section 1.03 above.
(c) Opinion of Company's Counsel. If, on such Subsequent Closing Date, the
Additional Shares to be purchased consist exclusively of Requested Securities,
the Purchasers shall have received from Harwell Howard Hyne Gabbert & Manner,
P.C., counsel for the Company (or such other counsel for the Company as shall be
designated by the Company and reasonably satisfactory to WCAS VII) an opinion
dated such Subsequent Closing Date, in form and substance reasonably
satisfactory to WCAS VII and its counsel, confirming (other than the opinion
described in clause (iii) of Section 4.01(a) hereof and with such other changes
as may be required as a result of transactions contemplated by this Agreement)
the opinion delivered by such counsel in accordance with said Section 4.01,
except that the opinion described in clause (vi) of Section 4.01(a) hereof shall
be revised to apply to such Additional Shares.
(d) Representations and Warranties. The representations and warranties
contained in Sections 2.01 (other than paragraph (b) thereof), 2.02 and 2.03 (to
the extent that such representation pertains to the validity and binding effect
upon a Founder of any Agreement referenced therein, such representation shall
apply only as to the provisions thereof to which such Founder remains subject)
hereof shall be true and correct on and as of such Subsequent Closing Date, and
the representations and warranties contained in Sections 2.05, 2.06, 2.07, 2.08,
2.11 (last sentence) and 2.13 hereof shall be true on and as of such Subsequent
Closing Date (except as disclosed in writing to the Purchasers on or prior to
the date on which the relevant Additional Investment Request is delivered), and
the Company shall have certified to such effect to the Purchasers in writing.
(e) No Material Adverse Change. Since the Subsequent Closing Date next
preceding such Subsequent Closing Date (or, in the case of the first Subsequent
Closing Date, since the Initial Closing Date) there shall have been no material
adverse change in the business, operations or financial condition of the Company
and its Subsidiaries, taken as a whole, and the Company shall have certified to
such effect to the Purchasers in writing.
18
<PAGE> 23
(f) Performance. The Company shall have performed and complied with
all agreements and conditions contained herein required to be performed or
complied with by it prior to or at such Subsequent Closing Date, and the Company
shall have certified to such effect to the Purchasers in writing.
(g) All Proceedings to Be Satisfactory. All corporate and other proceedings
to be taken by the Company in connection with the Subsequent Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to WCAS VII and its counsel, Reboul, MacMurray, Hewitt, Maynard &
Kristol, and WCAS VII and said counsel shall have received all such counterpart
originals or certified or other copies of such documents as they may reasonably
request.
(h) Supporting Documents. On or prior to such Subsequent Closing Date the
Purchasers and their counsel shall have received copies of the supporting
documents referred to in Section 4.01(k) above as if such Subsequent Closing
Date were the First Closing Date.
(i) Closing of Facilities Acquisition. The acquisition described in the
relevant Additional Investment Request shall occur concurrently therewith,
substantially on the terms set forth in such Request, and all matters incident
thereto shall be reasonably satisfactory to WCAS VII and its counsel.
All such documents shall be reasonably satisfactory in form and substance
to WCAS VII and its counsel.
In the event that the Charter and/or By-laws of the Company shall not have
been amended since the First Closing Date, the Company may, in lieu of
furnishing such documents, cause the certificate with respect thereto
contemplated by paragraph (g) above to be replaced by a certificate as to the
fact that such documents were previously furnished and as to the absence of any
amendments thereto.
V.
COVENANTS
The Company covenants and agrees as follows:
(a) Financial Statements, Reports, Etc. Until the occurrence of an Initial
Public Offering, so long as WCAS VII shall hold 25% or more of the Shares
acquired by it pursuant to this Agreement, the Company shall furnish to
19
<PAGE> 24
WCAS VII and, so long as the Company is not subject to the reporting
requirements of the Securities Exchange Act of 1934, the Company shall furnish
to (x) any other Purchaser holding 25% or more of the Shares acquired by it
pursuant to this Agreement and (y) any subsequent holder of Shares holding 25%
of more of the Shares:
(i) within 90 days after the end of each fiscal year of the
Company, a balance sheet of the Company (or a consolidated balance
sheet of the Company and its subsidiaries, as the case may be) as of
the end of such fiscal year and the related statements (or consolidated
statements) of income, changes in stockholders' equity and cash flows
of the Company (or of the Company and its subsidiaries) for the fiscal
year then ended, together with supporting notes thereto, certified
without limitation as to scope of audit by KPMG Peat Marwick, LLP or
such other firm of independent public accountants of recognized
national standing selected by the Company and reasonably acceptable to
WCAS VII;
(ii) commencing with the fiscal quarter ending March 31, 1996,
within 45 days after the end of each fiscal quarter in each fiscal year
(other than the last fiscal quarter in each fiscal year), a balance
sheet of the Company (or a consolidated balance sheet of the Company
and its subsidiaries, as the case may be) and the related statements
(or consolidated statements) of income and cash flows of the Company
(or of the Company and its subsidiaries), unaudited but certified by
the principal financial officer of the Company, such balance sheet to
be as of the end of such fiscal quarter and such statements of income
and cash flows to be for such fiscal quarter, for the corresponding
fiscal quarter of the immediately preceding fiscal year, for the period
from the beginning of the fiscal year to the end of such fiscal quarter
and for the period from the beginning of the immediately preceding year
to the end of the corresponding fiscal quarter in such fiscal year, in
each case subject to normal year-end adjustments;
(iii) commencing with the month ending January 31, 1996, within
30 days after the end of each month in each fiscal year (other than the
last month in each fiscal year), a balance sheet of the Company (or a
consolidated balance sheet of the Company and its subsidiaries, as the
case may be) and the related statement (or consolidated statement) of
income, unaudited but certified by the principal financial officer of
the Company, such balance sheets to be as of
20
<PAGE> 25
the end of such month and such statements of income to be for such
month and for the period from the beginning of the fiscal year to the
end of such month, in each case subject to normal year-end adjustments;
(iv) within 30 days prior to the commencement of each fiscal
year of the Company (and with respect to any revision thereof, promptly
after such revision has been prepared), a proposed operating budget for
the Company (or of the Company and its subsidiaries, as the case may
be) including projected monthly income statements, cash flow statements
during such fiscal year and a projected balance sheet as of the end of
such fiscal year, and each monthly financial statement furnished
pursuant to subparagraph (iii) above shall reflect variances from such
operating budget, as the same may from time to time be revised;
(v) promptly upon filing, copies of all registration
statements, prospectuses, periodic reports and other documents filed by
the Company with the Commission; and
(vi) promptly, from time to time, such other information
regarding the operations, business, affairs and financial condition of
the Company or any subsidiary as the Purchasers or such other holders
may reasonably request (the term "subsidiary" as used herein being
defined to mean any corporation or other business entity a majority of
whose outstanding voting stock entitled to vote for the election of
directors is at the time owned by the Company and/or one or more other
subsidiaries).
(b) Change of Business. Prior to the Termination Date, unless the
holders of a majority of the shares of Common Stock at the time outstanding
shall otherwise agree in writing (treating for purposes of such computation the
holders of the Series B Preferred as holders of the number of shares of Common
Stock then issuable upon conversion of such shares), the Company shall not enter
into, or permit any subsidiary of the Company to enter into, the ownership,
active management or operation of any business other than the businesses
contemplated to be conducted by the Business Plan and such other activities as
are reasonably incidental thereto;
(c) Compliance with HSR Act. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its best efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things
21
<PAGE> 26
necessary, proper or advisable to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings that may be
required under the HSR Act and submissions of information requested by
governmental authorities in connection with all transactions contemplated
hereby; provided that the foregoing shall not require any party to make any
divestiture of assets in order to obtain any such waiver, consent or approval.
(d) Issuance of Equity Securities. (i) Prior to the Termination Date, the
Company shall not issue and sell any Equity Securities (as hereinafter defined)
except (A) pursuant to the terms of this Agreement, (B) such issuances and sales
as shall have been approved by holders of a majority of the shares of Common
Stock at the time outstanding (treating for purposes of such computation the
holders of the Series B Preferred as holders of the number of shares of Common
Stock then issuable upon conversion of such shares), (C) the issuance of up to
1,500,000 shares of Common Stock to be reserved for issuance to employees of the
Company either directly or pursuant to stock options, in either case pursuant to
a plan approved by the Board of Directors of the Company and as such number of
shares may be increased upon the approval of the non-management members of the
Board of Directors of the Company, (D) the issuance of up to 200,000 shares of
Common Stock to be reserved for issuance to a future Vice President -
Acquisition and Development of the Company and (E) upon the approval of the
non-management members of the Board of Directors of the Company, the issuance of
shares of capital stock of the Company in connection with acquisitions of one or
more Facilities as incentives (as opposed to as primary consideration for the
acquisition of a Facility or shares of the entity owning the same) to selected
individuals in connection with the acquisition of a Facility.
(ii) The term "Equity Securities" shall mean (A) Common Stock, rights,
options or warrants to purchase Common Stock, (B) any equity security other than
Common Stock having voting rights in the election of the Board of Directors not
contingent upon a failure to pay dividends, (C) any security convertible into or
exchangeable for any of the foregoing and (D) any agreement or commitment to
issue any of the foregoing.
22
<PAGE> 27
VI.
MISCELLANEOUS
SECTION 6.01 Expenses. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, that the Company shall pay
the reasonable documented fees and disbursements of the Purchasers' counsel,
Reboul, MacMurray, Hewitt, Maynard & Kristol in connection with the Initial
Closing and any Subsequent Closings. In addition, the Company will pay any
filing fees that any Purchaser may be required to pay from time to time in order
to comply with the HSR Act in connection with any of the transactions
contemplated hereby or any acquisition by the Company of any Facility.
SECTION 6.02 Survival of Agreements; Limitation on Customer Liabilities.
Except as otherwise expressly provided in Article V hereof with respect to
certain covenants, all covenants, agreements, representations and warranties
made herein shall survive the execution and delivery of this Agreement and the
issuance, sale and delivery of the Shares pursuant hereto until the earlier to
occur of (i) the Termination Date and (ii) the second anniversary of the last
Subsequent Closing Date, and all statements contained in any certificate or
other instrument delivered by the Company hereunder shall be deemed to
constitute representations and warranties made by the Company.
SECTION 6.03 Brokerage. Each party hereto will indemnify and hold harmless
the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
SECTION 6.04 Parties in Interest. All covenants and agreements contained in
this Agreement by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not.
SECTION 6.05 Notices. All notices which are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and (i) delivered personally,
(ii) mailed by certified or registered mail, return receipt requested and
postage prepaid, (iii) sent via a nationally recognized overnight courier or
(iv) sent via facsimile confirmed in writing to the recipient, in each case as
follows:
23
<PAGE> 28
(a) if to the Company, at
New American Healthcare Corporation
229 Ward Circle, Suite C-12
P.O. Box 3689
Brentwood, Tennessee 37024
Attention: Robert M. Martin
Dana C. McLendon, Jr.
Telecopy No.: (615) 221-5009
with a copy to:
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
Attention: Ernest E. Hyne, II, Esq.
Telecopy No.: (615) 251-1058
(b) if to any Purchaser, at the address for such Purchaser set forth in
Annex I hereto, with a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, N.Y. 10111
Attention: William J. Hewitt, Esq.
Telecopy No.: (212) 841-5725
(c) if to any subsequent holder of Shares, to such holder at its address
appearing on the stock transfer records of the Company;
(d) if to any Founder at the address for such Founder set forth in Annex II
hereto;
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 6.06 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES OF SUCH STATE.
SECTION 6.07 Entire Agreement. This Agreement, together with the other
agreements referred to herein, constitutes the entire Agreement of the parties
with respect to the subject matter hereof and may not be modified or amended
except in writing.
24
<PAGE> 29
SECTION 6.08 Counterparts. This Agreement may be executed in one or more
counterparts and by the parties hereto on separate counterparts, each of which
shall be deemed an original, and all of which together shall constitute one and
the same instrument.
SECTION 6.09 NOTICE FOR PENNSYLVANIA RESIDENTS. OFFERS TO PURCHASE THE
SECURITIES ISSUED HEREUNDER THAT ARE MADE TO PENNSYLVANIA RESIDENTS WILL BE MADE
ONLY TO PENNSYLVANIA RESIDENTS WHO ARE ACCREDITED INVESTORS AS DEFINED IN
REGULATION D UNDER THE SECURITIES ACT OF 1933.
EACH PENNSYLVANIA RESIDENT WHO PURCHASES ANY OF THE SECURITIES ISSUED
HEREUNDER HEREBY AGREES NOT TO SELL THE SECURITIES PURCHASED FOR A PERIOD OF
TWELVE MONTHS FROM THE DATE OF PURCHASE UNLESS THE PURCHASER'S SECURITIES ARE
SUBSEQUENTLY REGISTERED UNDER THE PENNSYLVANIA SECURITIES ACT OF 1972 OR UNDER
THE SECURITIES ACT OF 1933, OR OTHERWISE IN ACCORDANCE WITH REGULATION 204.011
OF THE PENNSYLVANIA CODE.
PURSUANT TO SECTION 207(M) OF THE PENNSYLVANIA SECURITIES ACT OF 1972, EACH
PERSON WHO ACCEPTS AN OFFER TO PURCHASE SECURITIES EXEMPTED FROM REGISTRATION BY
SECTION 203(D) OF THE PENNSYLVANIA SECURITIES ACT OF 1972 DIRECTLY FROM AN
ISSUER OR AN AFFILIATE OF AN ISSUER SHALL HAVE THE RIGHT TO WITHDRAW HIS OR HER
ACCEPTANCE, WITHOUT INCURRING ANY LIABILITY TO THE SELLER, UNDERWRITER (IF ANY)
OR ANY OTHER PERSON, WITHIN TWO BUSINESS DAYS FROM THE DATE OF RECEIPT BY THE
ISSUER OF HIS OR HER WRITTEN BINDING CONTRACT OF PURCHASE OR, IN THE CASE OF A
TRANSACTION IN WHICH THERE IS NO WRITTEN BINDING CONTRACT OF PURCHASE, WITHIN
TWO BUSINESS DAYS AFTER HE OR SHE MAKES THE INITIAL PAYMENT FOR THE SECURITIES
BEING OFFERED. TO ACCOMPLISH THIS WITHDRAWAL, THE PURCHASER NEED ONLY SEND A
LETTER OR TELEGRAM TO THE COMPANY INDICATING HIS OR HER INTENTION TO WITHDRAW.
SUCH LETTER OR TELEGRAM SHOULD BE SENT AND POSTMARKED PRIOR TO THE END OF THE
AFOREMENTIONED SECOND BUSINESS DAY. IF THE PURCHASER IS SENDING A LETTER, IT IS
PRUDENT TO SEND IT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ENSURE THAT
IT IS RECEIVED AND ALSO TO EVIDENCE THE TIME WHEN IT WAS MAILED. SHOULD THE
PURCHASER MAKE THE REQUEST ORALLY, THE PURCHASER SHOULD ASK FOR WRITTEN
CONFIRMATION THAT SUCH REQUEST HAS BEEN RECEIVED.
25
<PAGE> 30
IN WITNESS WHEREOF, the Company, the Founders and the
Purchasers have executed this Securities Purchase Agreement as of the day and
year first above written.
NEW AMERICAN HEALTHCARE CORPORATION
By
---------------------------------
Robert M. Martin
Chairman, President and CEO
PURCHASERS:
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
By WCAS VII Partners, General Partner
By
----------------------------------
General Partner
WCAS Healthcare Partners, L.P.
By WCAS HP Partners, General Partner
By
----------------------------------
General Partner
----------------------------------
Patrick J. Welsh
----------------------------------
Russell L. Carson
----------------------------------
Bruce K. Anderson
----------------------------------
Richard H. Stowe
<PAGE> 31
----------------------------------
Andrew M. Paul
----------------------------------
Thomas E. McInerney
----------------------------------
Laura VanBuren
----------------------------------
James B. Hoover
----------------------------------
Robert A. Minicucci
----------------------------------
Anthony J. de Nicola
DAVID F. BELLET - TRUSTEE
PROFIT SHARING PLAN DLJSC -
CUSTODIAN FBO DAVID F. BELLET
By
-------------------------------
HORIZON INVESTMENTS ASSOCIATES, I
By
-------------------------------
<PAGE> 32
FOUNDERS:
----------------------------------
Robert H. Martin
----------------------------------
Dana C. McLendon, Jr.
----------------------------------
Craig B. Watson
----------------------------------
Timothy S. Hill
<PAGE> 33
ANNEX I
The Purchasers
<TABLE>
<CAPTION>
Number of Purchase Price
Name and Address Initial Shares of Initial Shares
- ---------------- -------------- -----------------
<S> <C> <C>
Welsh, Carson, Anderson & 4,778,500 $1,433,550
Stowe VII, L.P.
One World Financial Center
New York, NY 10281
Telecopy No. (212) 945-2016
WCAS Healthcare Partners, L.P. 75,000 $ 22,500
One World Financial Center
New York, NY 10281
Telecopy No. (212) 945-2016
Patrick J. Welsh 25,000 $ 7,500
Russell L. Carson 50,000 $ 15,000
Bruce K. Anderson 30,000 $ 9,000
Richard H. Stowe 15,000 $ 4,500
Andrew M. Paul 5,000 $ 1,500
Thomas E. McInerney 7,500 $ 2,250
Laura VanBuren 2,000 $ 600
James B. Hoover 5,000 $ 1,500
Robert A. Minicucci 4,000 $ 1,200
Anthony J. de Nicola 3,000 $ 900
In care of
WCAS Management Corporation
One World Financial Center
New York, NY 10281
Telecopy No. (212) 945-2016
David F. Bellet - Trustee
0 0
Profit Sharing Plan DLJSC-Custodian
FBO David F. Bellet
125 East 72nd Street
New York, New York 10021-4250
copy to:
Ms. Ann-Marie Baka Sieczka
Sales Associate
Donaldson, Lufkin & Jenrette
Investment Services Group
140 Broadway
New York, New York 10005-1281
HORIZON INVESTMENTS ASSOCIATES, I 0 0
c/o R.A. Ortenzio
Continental Medical Systems, Inc.
600 Wilson Lane
Mechanicsburg, Pennsylvania 17055
--------- ----------
TOTAL 5,000 000 $1,500,000
========= ==========
</TABLE>
<PAGE> 34
ANNEX II
Founders
<TABLE>
<CAPTION>
Purchase Price Aggregate
Number of of Purchase Price
Name and Address Initial Shares Initial Shares (Common & Preferred)
- ---------------- -------------- -------------- --------------------
<S> <C> <C> <C>
Robert M. Martin
919 Stuart Lane
Brentwood, TN 37017 10,000 $3,000 $100,000
Dana C. McLendon, Jr.
One Strawberry Hill
Nashville, TN 37215 10,000 $3,000 $100,000
Craig B. Watson
10803 Briar Branch
Houston, TX 77024 5,000 $1,500 $ 50,000
Timothy S. Hill
604 Davidson Road
Nashville, TN 37025 1,500 $ 450 $ 15,000
- -------------------- ------ ------ --------
Total 26,500 $7,950 $265,000
</TABLE>
<PAGE> 35
ANNEX III
Additional Shares
<TABLE>
<CAPTION>
Maximum Number Maximum
Number of Number of
Series A Series B
Name and Address Preferred Shares Preferred Shares
- ---------------- ---------------- ----------------
<S> <C> <C>
PURCHASERS:
- ----------
Welsh, Carson, Anderson & 238,641 222,389
Stowe VII, L.P.
320 Park Avenue, Suite 2500
New York, NY 10022-6815
WCAS Healthcare Partners, L.P. 3,513 3,762
320 Park Avenue, Suite 2500
New York, NY 10022-6815
Patrick J. Welsh (NJ)* 1,254 1,171
Russell L. Carson (NY) 2,508 2,342
Bruce K. Anderson (NJ) 1,505 1,405
Richard H. Stowe (NY) 752 703
Andrew M. Paul (NY) 251 234
Thomas E. McInerney (NY) 376 351
Laura VanBuren (NY) 100 94
James B. Hoover (NY) 251 234
Robert A. Minicucci (CT) 201 187
Anthony J. de Nicola (NJ) 150 141
In care of
WCAS Management Corporation
320 Park Avenue, Suite 2500
New York, NY 10022-6815
David F. Bellet - Trustee (NY) 0 500
Profit Sharing Plan DLJSC
- Custodian
FBO David F. Bellet
125 East 72nd Street
New York, New York 10021-4250
copy to:
Ms. Nicole Primack
Sales Associate
Donaldson, Lufkin & Jenrette
Investment Services Group
140 Broadway
New York, New York 10005-1281
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
<S> <C> <C>
HORIZON INVESTMENTS
ASSOCIATES, I (PA) 0 1,000
c/o R.A. Ortenzio
Continental Medical Systems, Inc.
600 Wilson Lane
Mechanicsburg, Pennsylvania 17055
Patrick T. Ryan 0 500
109 Westpark Drive, Suite 420
Brentwood, TN 37024
PURCHASERS TOTAL: 250,000** 235,000**
FOUNDERS
- --------
Robert M. Martin (TN) 500 470
Dana C. McLendon, Jr. (TN) 500 470
Craig B. Watson (TX) 250 235
Timothy S. Hill (TN) 75 70.5
Neil McLean (TN) 250 235
- ------- ------- -------
FOUNDERS TOTAL: 1,575 1480.5
======= =======
* State of Residence
** Less shares purchased by Founders
</TABLE>
<PAGE> 37
ANNEX III
Additional Shares
<TABLE>
<CAPTION>
Maximum Number Maximum
Number of Number of
Series A series B
Name and Address Preferred Shares Preferred Shares
- ---------------- ---------------- ----------------
<S> <C> <C>
PURCHASERS:
- ----------
Welsh, Carson, Anderson & 238,891 223,124
Stowe VII, L.P.
One World Financial Center
New York, NY 10281
WCAS Healthcare Partners, L.P. 3,513 3,762
One World Financial Center
New York, NY 10281
Patrick J. Welsh (NJ)* 1,254 1,171
Russell L. Carson (NY) 2,508 2,342
Bruce K. Anderson (NJ) 1,505 1,405
Richard H. Stowe (NY) 752 703
Andrew M. Paul (NY) 251 234
Thomas E. McInerney (NY) 376 351
Laura VanBuren (NY) 100 94
James B. Hoover (NY) 251 234
Robert A. Minicucci (CT) 201 187
Anthony J. de Nicola (NJ) 150 141
In care of
WCAS Management Corporation
One World Financial Center
New York, NY 10281
David F. Bellet - Trustee (NY) 0 500
Profit Sharing Plan DLJSC
- Custodian
FBO David F. Bellet
125 East 72nd Street
New York, New York 10021-4250
copy to:
Ms. Nicole Primack
Sales Associate
Donaldson, Lufkin & Jenrette
Investment Services Group
140 Broadway
New York, New York 10005-1281
HORIZON INVESTMENTS
ASSOCIATES, I (PA) 0 1,000
c/o R.A. Ortenzio
Continental Medical Systems, Inc.
600 Wilson Lane
Mechanicsburg, Pennsylvania 17055
PURCHASERS TOTAL: 235,000** 250,000**
</TABLE>
<PAGE> 38
<TABLE>
<CAPTION>
<S> <C> <C>
FOUNDERS
- --------
Robert M. Martin (TN) 500 470
Dana C. McLendon, Jr. (TN) 500 470
Craig B. Watson (TX) 250 235
Timothy S. Hill (TN) 75 70.5
- -------- ------- -------
FOUNDERS TOTAL: 1,325 1245.5
======= =======
</TABLE>
* State of Residence
** Less shares purchased by Founders
<PAGE> 1
Exhibit 10.8
REGISTRATION RIGHTS AGREEMENT
December 19, 1995
To the several persons named
at the foot hereof
Ladies and Gentlemen:
This will confirm that (a) with respect to the several individuals and
entities named as Purchasers in the Securities Purchase Agreement dated as of
December , 1995 (the "Purchase Agreement") among New American Healthcare
Corporation, a Tennessee corporation (the "Company"), Welsh, Carson, Anderson &
Stowe VII, L.P., a Delaware limited partnership ("WCAS VII") and the other
several purchasers named in Schedule I thereto (WCAS VII and such other several
purchasers shall hereinafter be called, collectively, the "Purchasers"), in
consideration of (i) the purchase by the Purchasers on the date hereof of an
aggregate 5,000,000 shares of Common Stock, $.01 par value, of the Company
("Common Stock") and (ii) the possible future purchases by the Purchasers of (A)
up to an aggregate 250,000 shares of Series A Non-Convertible Cumulative
Preferred Stock, $.01 par value, of the Company ("Series A Preferred Stock") and
(B) up to an aggregate 235,000 shares of Series B Convertible Preferred Stock,
$.01 par value, of the Company ("Series B Preferred Stock"), and as an
inducement to the Purchasers to consummate the transactions contemplated by the
Purchase Agreement, and (b) with respect to the several shareholders of the
Company named in Annex I hereto who hold an aggregate 2,800,000 shares of Common
Stock and one additional executive officer of the Company to be designated as
contemplated by Section 3.7 of the Restricted Stock Agreement who will have the
right to purchase 200,000 shares of Common Stock (collectively, the
"Stockholders"), which Stockholders (other than such additional executive
officer) acquired certain rights under the Purchase Agreement to purchase
securities of the Company, in consideration of your consent to the transactions
contemplated by the Purchase Agreement including without limitation the
execution of this Registration Rights Agreement as a condition to the closing
thereof, the Company hereby covenants and agrees with each of you. and with
each subsequent holder of Restricted Stock (as such term is defined herein), as
follows:
<PAGE> 2
1. Certain Definitions. As used herein, the following terms shall
have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Common Stock" means the Common Stock, $.01 par value, of the
Company, as constituted as of the date of this Agreement, subject to
adjustment pursuant to the provisions of Section 10 hereof.
"Conversion Stock" means shares of Common Stock issuable upon
conversion of the Series B Preferred Stock.
"Exchange Act" means the Securities Exchange Act of 1934 or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Existing Stock" means the 3,000,000 shares of Common Stock owned by
the Stockholders as of the date hereof and to be issued to the additional
executive officer of the Company referred to in the preamble to this
Agreement.
"Registration Expenses" means the expenses so described in Section 8
hereof.
"Restricted Stock" means (i) the aggregate 5,000,000 shares of Common
Stock to be sold and delivered to the Purchasers pursuant to the Purchase
Agreement, (ii) the Series B Preferred Stock, (iii) the Conversion Stock,
and (iv) any securities issued upon exchange, adjustment or transfer of any
such shares referred to in (i), (ii) or (iii) above the certificates for
which are required to bear the legend set forth in Section 2 hereof.
"Securities Act" means the Securities Act of 1933 or any similar
federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" means the expenses so described in Section 8
hereof.
2. Restrictive Legend. Each certificate representing the Restricted
Stock, the Series A Preferred Stock and the Existing Stock and each certificate
issued upon exchange or transfer thereof, other than in a public sale or as
otherwise permitted by the last paragraph of Section 3 hereof, shall be stamped
or otherwise imprinted with a legend substantially in the following form:
<PAGE> 3
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER THAT ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE."
3. Notice of Proposed Transfer. Prior to any proposed transfer of any
Restricted Stock, Series A Preferred Stock or Existing Stock, as the case may be
(other than under the circumstances described in Sections 4, 5 or 6 hereof), the
holder thereof shall give written notice to the Company of its intention to
effect such transfer. Each such notice shall describe the manner of the proposed
transfer and, if requested by the Company, shall be accompanied, at the expense
of the proposed transferor, by an opinion of counsel addressed to the Company
and reasonably satisfactory to the Company (it being agreed that Reboul,
MacMurray, Hewitt, Maynard & Kristol and Harwell Howard Hyne Gabbert & Manner,
P.C. shall be satisfactory) to the effect that the proposed transfer of the
Restricted Stock, Series A Preferred Stock or Existing Stock, as the case may
be, may be effected without registration under the Securities Act, whereupon the
holder of such Restricted Stock, Series A Preferred Stock or Existing Stock, as
the case may be, shall be entitled to transfer such Restricted Stock, Series A
Preferred Stock or Existing Stock, as the case may be in accordance with the
terms of its notice. Each certificate for Restricted Stock, Series A Preferred
Stock or Existing Stock, as the case may be, transferred as above provided shall
bear the legend set forth in Section 2, unless (i) such transfer is in
accordance with the provisions of Rule 144 (or any other rule permitting public
sale without registration under the Securities Act) or (ii) the opinion of
counsel referred to above is to the further effect that the transferee and any
subsequent transferee (other than an affiliate of the Company) would be entitled
to transfer such securities in a public sale without registration under the
Securities Act.
The foregoing restrictions on transferability of Restricted Stock,
Series A Preferred Stock and Existing Stock shall terminate as to any particular
shares of Restricted Stock or Existing Stock when such shares shall have been
effectively registered under the Securities Act and sold or otherwise disposed
of in accordance with the intended method of disposition by the seller or
sellers thereof set forth in the registration statement concerning such shares.
Whenever a holder of Restricted Stock or Existing Stock is able to demonstrate
to the Company (and its counsel), in a manner reasonably acceptable to the
Company, that the provisions of Rule 144(k) of the Securities Act are available
to such holder without limitation, such holder of Restricted Stock or Existing
Stock shall be entitled to
<PAGE> 4
receive from the Company, without expense for the same, a new certificate not
bearing the restrictive legend set forth in Section 2.
4. Required Registration.
(a) At any time after two (2) years from the date of this agreement
either (i) the holders of at least a majority of the shares of Restricted
Stock at the time outstanding or (ii) subject to the provisions of Section
4(d) below, the holders of Existing Stock constituting at least a majority
of the shares of Existing Stock at the time outstanding may request the
Company to register under the Securities Act all or any portion of the
Restricted Stock (and, in the case of holders of Existing Stock, Existing
Stock) held by such requesting holder or holders for sale in the manner
specified in such notice provided, however, that the only securities which
the Company shall be required to register pursuant hereto shall be shares
of Common Stock, provided, further, however, that in any such case the
reasonably anticipated price to public of the shares so requested to be
registered shall not be less than $10 million. For the purposes of
calculating the number of shares of Restricted Stock outstanding, holders
of Series B Preferred Stock shall be treated as the holders of the number
of shares of Conversion Stock then issuable upon conversion of such shares.
(b) Promptly following receipt of any notice under this Section 4, the
Company shall immediately notify (i) in the case of a request received
pursuant to clause (i) of Section 4(a), any holders of Restricted Stock
purchased by the Purchasers from whom notice has not been received and (ii)
in the case of a request received pursuant to clause (ii) of Section 4(a),
holders of Existing Stock from whom notice has not been received, and shall
use its reasonable best efforts to register under the Securities Act, for
public sale in accordance with the method of disposition specified in such
notice from such requesting holders, in the case of clause (i), the number
of shares of Restricted Stock specified in such notice (and in any notices
received from other such holders of Restricted Stock within 20 days after
their receipt of such notice from the Company) and, in the case of clause
(ii), the number of shares of Existing Stock specified in notices received
from holders of Existing Stock within 20 days after their receipt of such
notice from the Company; provided, however, that if the proposed method of
disposition specified by the requesting holders shall be an underwritten
public offering, the number of shares to be included in such an offering
may be reduced pro rata among the requesting holders based on the number of
shares requested to be registered if and to the extent that the managing
underwriter shall be of the opinion that such
<PAGE> 5
inclusion would adversely affect the marketing of the Restricted Stock
and/or Existing Stock to be sold. If such method of disposition shall be an
underwritten public offering, the Company may designate the managing
underwriter of such offering, subject to the approval of the selling
holders of a majority of the Restricted Stock and/or Existing Stock
included in the offering, which approval shall not be unreasonably
withheld. Notwithstanding anything to the contrary contained herein, the
obligation of the Company under this Section 4 shall be deemed satisfied
only when a registration statement covering all shares of Restricted Stock
and Existing Stock specified in notices received as aforesaid, for sale in
accordance with the method of disposition specified by the requesting
holder, shall have become effective and, if such method of disposition is a
firm commitment underwritten public offering, all such shares shall have
been sold pursuant thereto, provided, however, that if such notice is given
and a registration statement covering the shares so requested to be
registered is filed under the Securities Act and the registration is
thereafter terminated for any reason other than determination by the
Company not to proceed with the same, then, unless the requesting holders
shall pay all Registration Expenses in connection therewith, such attempted
registration shall count as a required registration by the holders of
Restricted Stock or Existing Stock, as the case may be, requesting the same
for purposes of paragraph (d) below, in which event, the Company will
permit such parties an additional registration in which all Registration
Expenses (as well as all Selling Expenses) will be paid by the sellers.
(c) The Company shall be entitled to include in any registration
statement referred to in this Section 4, for sale in accordance with the
method of disposition specified by the requesting holders, shares of Common
Stock to be sold by the Company for its own account, except as and to the
extent that, in the opinion of the managing underwriter (if such method of
disposition shall be an underwritten public offering), such inclusion would
adversely affect the marketing of the Restricted Stock or Existing Stock,
as applicable, to be sold. Except as provided in this paragraph (c), and
except for registration statements on Form S-8 or another form available
exclusively to employee benefit plans, the Company will not effect any
other registration of its Common Stock, whether for its own account or that
of other holders, from the date of receipt of a notice from requesting
holders pursuant to this Section 4 until the completion of the period of
distribution of the registration contemplated thereby.
(d) Notwithstanding anything to the contrary contained herein, the
Company shall be obligated to register
<PAGE> 6
Restricted Stock or Existing Stock pursuant to this Section 4 (i) at the
request of the holders of Restricted Stock, on two occasions only and (ii)
at the request of the holders of Existing Stock, on one occasion only,
provided, however, that the Company shall be obligated to register shares
pursuant to a request of the holders of Existing Stock only after (A) the
Purchasers, as a group, shall have sold shares of Restricted Stock yielding
net proceeds to them equal in the aggregate to the aggregate purchase price
paid for all Restricted Stock purchased by them, or (B) if there is a
public market for the Common Stock, based on the average trading price of
the Common Stock during the prior twelve (12) months, the aggregate fair
market value of all the Restricted Stock exceeds three (3) times the
aggregate purchase price paid for all Restricted Stock.
5. Form S-3 Registration.
(a) If the Company shall receive from any holder or holders of
Restricted Stock or Existing Stock, a written request or requests that the
Company effect a registration on Form S-3 and any related qualification or
compliance with respect to Restricted Stock or Existing Stock, as the case may
be, owned by such holder or holders, the reasonably anticipated aggregate price
to the public of which would exceed $1,500,000 (provided that the distribution
of shares pursuant to such registration is to involve only states in which
registration is not required, whether by reason of the Common Stock being listed
on the a registered securities exchange or the NASDAQ national market or
otherwise), the Company will:
(i) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other holders of Restricted
Stock and Existing Stock; and
(ii) as soon as practicable, use its reasonable best efforts to effect
such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualifications
under applicable blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the Securities Act and
any other government requirements or regulations) as may be so requested
and as are required to permit the sale and distribution of all or such
portion of such holder's or holders' Restricted Stock or Existing Stock, as
the case may be, as are specified in such request, together with all or
such portion of the Restricted Stock or Existing Stock of any holder or
holders joining in such request as are specified in a written request given
within thirty (30) days after receipt of such written notice from the
Company, provided, however, that the Company shall not be obligated to
effect any such registration,
<PAGE> 7
qualification or compliance pursuant to this Section 5 (A) more than once
in any 180-day period, or (B) if the Company is not entitled to use Form
S-3 or if registration is required under state securities laws as noted
above, provided, further, however, that the only securities which the
Company shall be required to register pursuant hereto shall be shares of
Common Stock. Subject to the foregoing, the Company shall file a
registration statement covering the Restricted Stock and Existing Stock so
requested to be registered as soon as reasonably practicable after receipt
of the request or requests of the holders of the Restricted Stock and
Existing Stock, as the case may be.
(b) Registrations effected pursuant to this Section 5 (i) shall not
be counted as requests for registration effected pursuant to Section 4 and (ii)
unless the Company shall otherwise agree, shall not involve a firm commitment
underwriting.
6. Incidental Registration. If the Company at any time (other than
pursuant to Section 4 or 5 hereof) proposes to register any of its Common Stock
under the Securities Act for sale to the public, whether for its own account or
for the account of other security holders or both (except with respect to
registration statements on Form S-4 or S-8 or another form not available for
registering the Restricted Stock for sale to the public), it will give written
notice at such time to all holders of outstanding Restricted Stock and Existing
Stock of its intention to do so. Upon the written request of any such holder,
given within 20 days after receipt of any such notice by the Company, to
register any of its Restricted Stock or Existing Stock or both, as the case may
be, (which request shall state the intended method of disposition thereof), the
Company will use its reasonable best efforts to cause the Restricted Stock or
Existing Stock or both, as the case may be, as to which registration shall have
been so requested to be included in the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
requisite to permit the sale or other disposition by the holder (in accordance
with its written request) of such Restricted Stock or Existing Stock, as the
case may be, so registered, provided, however, that nothing herein shall prevent
the Company from abandoning or delaying such registration at any time. In the
event that any registration pursuant to this Section 6 shall be, in whole or in
part, an underwritten public offering of Common Stock, any request by a holder
pursuant to this Section 6 to register Restricted Stock or Existing Stock, as
the case may be, shall specify that either (i) such Restricted Stock or Existing
Stock, as the case may be, is to be included in the underwriting on the same
terms and conditions as the shares of Common Stock otherwise being sold through
underwriters under such registration or (ii) subject to the final undesignated
paragraph of this Section 6, such Restricted Stock or Existing Stock, as the
case may be, is to be sold in the open market without any underwriting, on terms
and
<PAGE> 8
conditions comparable to those normally applicable to offerings of common stock
in reasonably similar circumstances. The number of shares of Restricted Stock or
Existing Stock or both, as the case may be, to be included in such an
underwriting may be reduced (first, pro rata among the requesting holders of
Existing Stock based upon the number of shares of Existing Stock so requested to
be registered and, second, pro rata among the requesting holders of Restricted
Stock based upon the number of shares of Restricted Stock so requested to be
registered) if and to the extent that the managing underwriter shall be of the
opinion that such inclusion would adversely affect the marketing of the
securities to be sold by the Company therein, provided, however, that such
number of shares of Restricted Stock or Existing Stock or both, as the case may
be, shall not be reduced if any shares are to be included in such underwriting
for the account of any other person other than the Company or the pro rata
portion of the Restricted Stock permitted by the underwriter.
Notwithstanding anything to the contrary contained in this Section 6,
in the event that there is a firm commitment underwritten public offering of
securities of the Company pursuant to a registration covering Restricted Stock
or Existing Stock or both, as the case may be, and a holder of Restricted Stock
or Existing Stock, as the case may be, does not elect to sell his Restricted
Stock or Existing Stock, as the case may be, to the underwriters of the
Company's securities in connection with such offering, such holder shall refrain
from selling such Restricted Stock or Existing Stock, as the case may be, so
registered pursuant to this Section 6 during the period of distribution of the
Company's securities by such underwriters and the period in which the
underwriting syndicate participates in the after market, provided, however, that
such holder shall, in any event, be entitled to sell its Restricted Stock or
Existing Stock, as the case may be, commencing on the 90th day after the
effective date of such registration statement or, if later, on such date (but in
no event later than the 180th day after such effective date) as contractual
"lockup" restrictions imposed by the underwriters shall expire or be released.
7. Registration Procedures. If and whenever the Company is required by
the provisions of Section 4, 5 or 6 hereof to use its reasonable best efforts to
effect the registration of any of the Restricted Stock or Existing Stock or
both, as the case may be, under the Securities Act, the Company will, as
expeditiously as possible:
(a) prepare (and afford counsel for the selling holders reasonable
opportunity to review and comment thereon) and file with the Commission a
registration statement (which, in the case of an underwritten public
offering pursuant to Section 4 hereof, shall be on Form S-1 or another form
of general applicability satisfactory to the
<PAGE> 9
managing underwriter selected as therein provided) with respect to such
securities and use its reasonable best efforts to cause such registration
statement to become and remain effective for the period of the distribution
contemplated thereby (determined as hereinafter provided);
(b) prepare (and afford counsel for the selling holders reasonable
opportunity to review and comment thereon) and file with the Commission
such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective for the period specified in paragraph (a)
above and as comply with the provisions of the Securities Act with respect
to the disposition of all Restricted Stock or Existing Stock or both, as
the case may be, covered by such registration statement in accordance with
the sellers' intended method of disposition set forth in such registration
statement for such period;
(c) furnish to each seller and to each underwriter such reasonable
number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons may
reasonably request in order to facilitate the public sale or other
disposition of the Restricted Stock or Existing Stock or both, as the case
may be, covered by such registration statement;
(d) use its reasonable best efforts to register or qualify the
Restricted Stock or Existing Stock or both, as the case may be,
covered by such registration statement under the securities or
blue sky laws of such jurisdictions as the sellers of Restricted
Stock or Existing Stock or both, as the case may be, or, in the
case of an underwritten public offering, the managing
underwriter, shall reasonably request (provided that the Company
will not be required to (i) qualify generally to do business in
any jurisdiction where it would not otherwise be required to
qualify but for this paragraph (d), (ii) subject itself to
taxation in any such jurisdiction or (iii) consent to general
service of process in any jurisdiction);
(e) immediately notify each seller under such registration statement
and each underwriter, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus contained in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state any
<PAGE> 10
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, provided, if the untrue statement of a material fact or omission
relates to information provided by a selling holder, the Company shall
immediately notify each Seller when it becomes aware of the happening of
such event;
(f) use its reasonable best efforts (if the offering is underwritten)
to furnish, at the request of any seller, on the date that Restricted Stock
or Existing Stock or both, as the case may be, is delivered to the
underwriters for sale pursuant to such registration: (i) an opinion of
counsel representing the Company for the purposes of such registration,
addressed to the underwriters and to such seller and dated such date,
stating that such registration statement has become effective under the
Securities Act and that (A) to the best knowledge of such counsel, no stop
order suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act, (B) the registration statement, the
related prospectus, and each amendment or supplement thereof, comply as to
form in all material respects with the requirements of the Securities Act
and the applicable rules and regulations of the Commission thereunder
(except that such counsel need express no opinion as to financial
statements, the notes thereto, and the financial schedules and other
financial and statistical data contained therein) and (C) to such other
effects as may reasonably be requested by counsel for the underwriters or
by the majority in interest of such Sellers or their counsel, and (ii) a
letter dated such date from the independent public accountants retained by
the Company, addressed to the underwriters, stating that they are
independent public accountants within the meaning of the Securities Act and
that, in the opinion of such accountants, the financial statements of the
Company included in the registration statement or the prospectus, or any
amendment or supplement thereof, comply as to form in all material respects
with the applicable accounting requirements of the Securities Act, and such
letter shall additionally cover such other financial matters (including
information as to the period ending no more than five business days prior
to the date of such letter) with respect to the registration in respect of
which such letter is being given as such underwriters or the majority in
interest of the Seller may reasonably request; and
(g) make available for inspection by each seller, any underwriter
participating in any distribution pursuant to such registration statement,
and any attorney, accountant or other agent retained by such seller or
underwriter, all financial and other records, pertinent corporate documents
<PAGE> 11
and properties of the Company, and cause the Company's officers, directors
and employees to supply all available information reasonably requested by
any such seller, underwriter, attorney, accountant or agent in connection
with such registration statement and permit such seller, attorney,
accountant or agent to participate in the preparation of such registration
statement.
For purposes of paragraphs (a) and (b) above and of Section 4(c) hereof, the
period of distribution of Restricted Stock or Existing Stock or both, as the
case may be, in a firm commitment underwritten public offering shall be deemed
to extend until each underwriter has completed the distribution of all
securities purchased by it, and the period of distribution of Restricted Stock
or Existing Stock or both, as the case may be, in any other registration shall
be deemed to extend until the earlier of the sale of all Restricted Stock or
Existing Stock or both, as the case may be, covered thereby or six months after
the effective date thereof.
In connection with each registration hereunder, the selling holders
of Restricted Stock and Existing Stock, if applicable, will promptly when
requested furnish to the Company in writing such information with respect to
themselves and the proposed distribution by them (including without limitation
executed stock powers) as shall be reasonably necessary in order to assure
compliance with federal and applicable state securities laws. In the event any
selling holder fails to deliver any of such information within five (5) days of
a second written request by the Company, the Company may proceed with the
registration and exclude from the registration such selling holder's Restricted
Stock or Existing Stock.
In connection with each registration pursuant to Sections 4, 5 and 6
hereof covering an underwritten public offering, the Company agrees to enter
into a written agreement with the managing underwriter selected in the manner
herein provided in such form and containing such provisions as are customary in
the securities business for such an arrangement between major underwriters and
companies of the Company's size and investment stature, provided, however, that
such agreement shall not contain any such provision applicable to the Company
which is inconsistent with the provisions hereof and provided, further, however,
that the time and place of the closing under said agreement shall be as mutually
agreed upon among the Company, such managing underwriter and the selling holders
of Restricted Stock and Existing Stock, if applicable.
8. Expenses. All expenses incurred by the Company in complying with
Sections 4, 5 and 6 hereof, including without limitation all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees of the National Association
of
<PAGE> 12
Securities Dealers, Inc., fees of transfer agents and registrars and reasonable
and documented fees and expenses of one counsel for the sellers of Restricted
Stock and the sellers of Existing Stock (or, if there shall be no sellers of
Restricted Stock, one counsel for the sellers of Existing Stock), but excluding
any Selling Expenses, are herein called "Registration Expenses". All
underwriting discounts and selling commissions and transfer taxes applicable to
the sale of Restricted Stock or Existing Stock or both, as the case may be, are
herein called "Selling Expenses".
The Company will pay all Registration Expenses in connection with each
registration statement filed pursuant to Section 4, 5 or 6 hereof, except as
expressly provided in section 4(b). All Selling Expenses in connection with any
registration statement filed pursuant to Section 4, 5 or 6 hereof, and any other
expense specifically provided in this Agreement to be borne by the participating
sellers, shall be borne by the participating sellers in proportion to the number
of shares sold by each, or by such persons other than the Company (except to the
extent the Company shall be a seller) as they may agree.
9. Indemnification. In the event of a registration of any of the
Restricted Stock or Existing Stock or both, as the case may be, under the
Securities Act pursuant to Section 4, 5 or 6 hereof, the Company will indemnify
and hold harmless each seller of such Restricted Stock or Existing Stock, as the
case may be, thereunder and each underwriter of Restricted Stock or Existing
Stock or both, as the case may be, thereunder and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or several, to which
such seller or underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such Restricted Stock or Existing Stock
or both, as the case may be, was registered under the Securities Act pursuant to
Section 4, 5 or 6, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each such seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that (i) the Company will not be liable
in any such case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by such seller, such underwriter or such
<PAGE> 13
controlling person in writing specifically for use in such registration
statement or prospectus and (ii) the Company shall not be liable to any such
seller (in the case of a non-underwritten sale pursuant to a shelf registration)
such underwriter or person who controls such underwriter within the meaning of
the Securities Act to the extent that any such loss, claim, damage, liability or
expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any preliminary prospectus to
the extent that any such loss, claim, damage, liability or expense of such
seller (in the case of a non-underwritten sale pursuant to a shelf registration)
such underwriter or controlling person results from the fact that (A) such
underwriter or seller (in the case of a non-underwritten sale pursuant to a
shelf registration) failed to send or deliver a copy of the prospectus with or
prior to the delivery of written confirmation of the sale of Restricted Stock or
Existing Stock, or both, as the case may be, (B) the prospectus would have
completely corrected such untrue statement or omission and (C) the Company had
previously furnished copies thereof to such underwriter; and provided, further,
that the Company shall not be liable to any such seller (in the case of a
non-underwritten sale pursuant to a shelf registration) such underwriter or
person who controls such underwriter within the meaning of the Securities Act to
the extent that any such loss, claim, damage, liability or expense arises out of
or is based upon any untrue statement or alleged untrue statement or omission or
alleged omission in the prospectus, if such untrue statement or alleged untrue
statement or omission or alleged omission is completely corrected in an
amendment or supplement to the prospectus and if, having previously been
furnished by or on behalf of the Company with copies of the prospectus as so
amended or supplemented, such seller (in the case of a non-underwritten sale
pursuant to a shelf registration) or such underwriter thereafter fails to
deliver such prospectus as so amended or supplemented, prior to or concurrently
with the sale or delivery of written confirmation of the sale of Restricted
Stock or Existing Stock, or both, as the case may be, to the person asserting
such loss, claim, damage, liability or expense, or purchase of such Restricted
Stock or Existing Stock, or both, as the case may be, which is the subject
thereof from such holder.]
In the event of a registration of any of the Restricted Stock or
Existing Stock or both, as the case may be, under the Securities Act pursuant to
Section 4, 5 or 6 hereof, each seller of such Restricted Stock or Existing
Stock, as the case may be, thereunder, severally and not jointly, will indemnify
and hold harmless the Company and each person, if any, who controls the Company
within the meaning of the Securities Act, each officer of the Company who signs
the registration statement, each director of the Company, each underwriter and
each person who controls any underwriter within the meaning of the Securities
Act, against all losses, claims, damages or liabilities, joint or several, to
which the Company or such officer or director or underwriter or
<PAGE> 14
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement under
which such Restricted Stock or Existing Stock or both, as the case may be, was
registered under the Securities Act pursuant to Section 4, 5 or 6, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company and each such officer, director, underwriter and controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that such seller will be liable hereunder in any such case if
and only to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with information
pertaining to such seller, as such, furnished in writing to the Company by such
seller specifically for use in such registration statement or prospectus;
provided, further, however, that the liability of each seller hereunder shall be
limited to the proceeds (net of underwriting discounts and commissions) received
by such seller from the sale of Restricted Stock or Existing Stock, as the case
may be, covered by such registration statement.
Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party other than under this Section 9. In case any such action
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified party
of its election so to assume and undertake the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this Section 9 for any
legal expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation and of
liaison with counsel so selected; provided, however, that, if the defendants in
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it
<PAGE> 15
which are different from or additional to those available to the indemnifying
party, or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified party
shall have the right to select a separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
reasonable and documented expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.
Notwithstanding the foregoing, any indemnified party shall have the
right to retain its own counsel in any such action, but the fees and
disbursements of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party shall have failed to retain counsel for the
indemnified person as aforesaid or (ii) the indemnifying party and such
indemnified party shall have mutually agreed to the retention of such counsel.
It is understood that the indemnifying party shall not, in connection with any
action or related actions in the same jurisdiction, be liable for the fees and
disbursements of more than one separate firm qualified in such jurisdiction to
act as counsel for the indemnified party. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
If the indemnification provided for in the first two paragraphs of
this Section 9 is unavailable or insufficient to hold harmless an indemnified
party under such paragraphs in respect of any losses, claims, damages or
liabilities or actions in respect thereof referred to therein, then each
indemnifying party shall in lieu of indemnifying such indemnified party
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or actions in such proportion as
appropriate to reflect the relative fault of the Company, on the one hand, and
the underwriters and the sellers of such Restricted Stock or Existing Stock, as
the case may be, on the other, in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or actions as well
as any other relevant equitable considerations, including the failure to give
any notice under the third paragraph of this Section 9. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact relates to information supplied by the
Company, on the one hand, or the underwriters and the sellers of such Restricted
Stock or Existing Stock, as the case may be, on the other, and to the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and each of you agree that it
would not be just and equitable if
<PAGE> 16
contributions pursuant to this paragraph were determined by pro rata allocation
(even if all of the sellers of such Restricted Stock were treated as one entity
for such purpose) or by any other method of allocation which did not take
account of the equitable considerations referred to above in this paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or action in respect thereof, referred to above in
this paragraph, shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim, subject to the limitations set forth
above. Notwithstanding the provisions of this paragraph, the sellers of such
Restricted Stock or Existing Stock, as the case may be, shall not be required to
contribute any amount in excess of the amount, if any, by which the total price
at which the Common Stock sold by each of them was offered to the public exceeds
the amount of any damages which they would have otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission. No person
guilty of fraudulent misrepresentations (within the meaning of Section 11(f) of
the Securities Act), shall be entitled to contribution from any person who is
not guilty of such fraudulent misrepresentation.
10. Changes in Common Stock. If, and as often as, there are any
changes in the Common Stock by way of stock split, stock dividend, combination
or reclassification, or through merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof, as may be required, so that the rights and privileges
granted hereby shall continue with respect to the Common Stock as so changed.
11. Representations and Warranties of the Company. The Company
represents and warrants to you as follows:
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and
will not violate any provision of law, any order of any court or other
agency of government, the Certificate of Incorporation or By-laws of the
Company, or any provision of any indenture, agreement or other instrument
to which it or any of its properties or assets is bound, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or
both) a default under any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever upon any of the properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance
<PAGE> 17
with its terms, subject to considerations of public policy in the case of
the indemnification provisions hereof.
12. Rule 144 Reporting. The Company agrees with you as follows:
(a) The Company shall make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities
Act, at all times from and after the date it is first required to do so
under the Securities Act, unless waived by a majority in interest of the
Purchasers.
(b) The Company shall file with the Commission in a timely manner all
reports and other documents as the Commission may prescribe under Section
13(a) or 15(d) of the Exchange Act at any time after the Company has become
subject to such reporting requirements of the Exchange Act.
(c) The Company shall furnish to such holder of Restricted Stock
forthwith upon request (i) a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time from
and after the date it first becomes subject to such reporting requirements)
and of the Securities Act and the Exchange Act (at any time from and after
it has become subject to such reporting requirements), (ii) a copy of the
most recent annual or quarterly report of the Company, and (iii) such other
reports and documents previously filed with the Commission as a holder may
reasonably request to avail itself of any rule or regulation of the
Commission allowing a holder of Restricted Stock or Existing Stock to sell
any such securities without registration.
13. Miscellaneous.
(a) This Agreement and all rights and obligations provided pursuant to
this Agreement shall terminate on the tenth anniversary of the date
hereof.
(b) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto whether so
expressed or not. Without limiting the generality of the foregoing, the
registration rights conferred herein on the holders of Restricted Stock and
Existing Stock shall inure to the benefit of any and all subsequent holders
from time to time of the Restricted Stock or Existing Stock, as the case
may be, for so long as the certificates representing the Restricted Stock
or Existing Stock, as the case may be, shall be required to bear the legend
specified in Section 2 hereof.
<PAGE> 18
(c) All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly given: (a) if
delivered personally or sent by facsimile, on the date received, (b) if
sent by overnight courier, on the day after sending, and (c) if mailed,
five (5) days after mailing, postage prepaid, to the parties at the
following addresses or at such other addresses as shall be specified by the
parties by like notice:
if to the Company, to it at
New American Healthcare Corporation
229 Ward Circle
Suite C-12
P.O. Box 3689
Brentwood, Tennessee 37024
Attention: Mr. Robert M. Martin
with a copy to
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, TN 37238
Attention: Ernest E. Hyne II, Esq.
if to any holder of Restricted Stock, to it at its address as set
forth in Annex II hereto;
if to any Stockholder, to it at its address as set forth in Annex I
hereto;
if to any subsequent holder of Restricted Stock or Existing Stock, to
it at such address as may have been furnished to the Company in writing by
such holder.
(D) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
(e) This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof. Without limiting the generality
of the foregoing, all other Registration Rights Agreements currently in
effect between the Company and the Existing Stockholders are hereby
terminated and superseded in their entirety by this Agreement. This
Agreement may not be modified or amended except in writing signed by the
Company and the holders of not less than 66 2/3% of the Applicable
Restricted Stock and Existing Stock then outstanding, provided that no
modification or amendment shall deprive any holder of Restricted Stock or
Existing Stock of any material right
<PAGE> 19
under this Agreement without such holder's consent. The Company will not
grant any registration rights to any other person without the written
consent of the holders of 66 2/3% of the Applicable Restricted Stock and
Existing Stock then outstanding if such rights could reasonably be expected
to conflict with, or be on a parity with, the rights of holders of
Restricted Stock and Existing Stock granted under this Agreement.
(f) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
<PAGE> 20
Please indicate your acceptance of the foregoing by signing and
returning the enclosed counterpart of this letter, whereupon this letter (herein
sometimes called "this Agreement") shall be a binding agreement between the
Company and you.
Very truly yours,
NEW AMERICAN HEALTHCARE CORPORATION
By
-----------------------------------
Title:
-------------------------------
AGREED TO AND ACCEPTED
as of the date first
above written.
PURCHASERS:
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
By WCAS VII PARTNERS, L.P.,
General Partner
By
------------------------------------
General Partner
WCAS Healthcare Partners, L.P.
By WCAS WP PARTNERS, L.P.,
General Partner
By
------------------------------------
General Partner
- --------------------------------------
Patrick J. Welsh
- --------------------------------------
Russell L. Carson
- --------------------------------------
Bruce K. Anderson
<PAGE> 21
- --------------------------------------
Richard H. Stowe
- --------------------------------------
Andrew M. Paul
- --------------------------------------
Thomas E. McInerney
- --------------------------------------
Laura VanBuren
- --------------------------------------
James B. Hoover
- --------------------------------------
Robert A. Minicucci
- --------------------------------------
Anthony J. de Nicola
DAVID F. BELLET - TRUSTEE
PROFIT SHARING PLAN DLJSC -
CUSTODIAN FBO DAVID F. BELLET
By
------------------------------------
HORIZON INVESTMENTS ASSOCIATES, I
By
------------------------------------
<PAGE> 22
STOCKHOLDERS:
- --------------------------------------
Robert M. Martin
- --------------------------------------
Dana C. McLendon, Jr.
- --------------------------------------
Craig B. Watson
- --------------------------------------
Timothy S. Hill
<PAGE> 23
Exhibit B-2
Annex II
Purchasers
Name and Address
- -----------------
Welsh, Carson Anderson
& Stowe VII, L.P.
320 Park Avenue, Suite 2500
New York, NY 10022-6815
WCAS Healthcare Partners, L.P.
320 Park Avenue, Suite 2500
New York, NY 10022-6815
Patrick J. Welsh
Russell L. Carson
Bruce K. Anderson
Richard H. Stowe
Andrew M. Paul
Thomas E. McInerney
Laura VanBuren
James B. Hoover
Robert A. Minicucci
Anthony J. de Nicola
In care of WCAS Management Corporation
320 Park Avenue, Suite 2500
New York, NY 10022-6815
David F. Bellet - Trustee
Profit Sharing Plan DLJSC-Custodian
FBO David F. Bellet
125 East 72nd Street
New York, New York 10021-4250
copy to:
Ms. Nicole Primack
Sales Associate
Donaldson, Lufkin & Jenrette
Investment Services Group
140 Broadway
New York, New York 10005-1281
HORIZON INVESTMENTS ASSOCIATES, I
c/o R.A. Ortenzio
Continental Medical Systems, Inc.
600 Wilson Lane
Mechanicsburg, Pennsylvania 17055
Patrick T. Ryan
109 Westpark Drive, Suite 420
Brentwood, TN 37024
<PAGE> 24
As contemplated by Section 1 of that certain Registration Rights
Agreement dated December 19, 1995 among New American Healthcare Corporation,
(the "Company") Welsh, Carson Anderson & Stowe VII, L.P. ("WCAS VII"), the
several other investors named in Annex I thereto (the "Purchasers") and the
several individuals named in Annex II thereto (the "Stockholders"), (the
"Registration Rights Agreement"), the undersigned acknowledges that he is a new
executive officer and hereby becomes a party to the Registration Rights
Agreement as a Stockholder and agrees to be bound by such agreement as if a
party to the original Registration Rights Agreement.
--------------------------
Neil G. McLean
<PAGE> 25
Annex I
STOCKHOLDERS
Name and Address
- ----------------
Robert M. Martin
919 Stuart Lane
Brentwood, TN 37027
Dana C. McLendon, Jr.
One Strawberry Hill
Nashville, TN 37215
Craig B. Watson
10803 Briar Branch
Houston, TX 77024
Timothy S. Hill
604 Davidson Road
Nashville, TN 37205
Neil G. McLean
502 Mulberry Ct.
Marietta, GA 30068
<PAGE> 1
Exhibit 10.9
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT dated as of December 19, 1995 by and among New
American Healthcare Corporation, a Tennessee corporation (the "Company"), Welsh,
Carson, Anderson & Stowe VII, L.P. ("WCAS VII") and the several parties named in
Schedule I hereto (collectively, the "WCAS Stockholders"), and the several
parties named in Schedule II hereto (collectively, the "Founder Stockholders").
The WCAS Stockholders and the Founder Stockholders are herein collectively
referred to as the "Stockholders" and individually as a "Stockholder".
WHEREAS, the Company has entered into a Securities Purchase Agreement dated
as of December 19, 1995 (the "Purchase Agreement"), with the Stockholders
pursuant to which (i) the WCAS Stockholders and certain of the Founder
Stockholders will on the Initial Closing Date (as defined therein) purchase
5,026,500 shares of the Company's Common Stock, $0.01 par value (the "Common
Stock"), and (ii) the WCAS Stockholders and certain of the Founder Stockholders
may in the future purchase (a) up to 250,000 shares of the Company's Series A
Non-Convertible Cumulative Preferred Stock, $0.01 par value (the "Series A
Preferred Stock"), and (b) up to 235,000 shares of the Company's Series B
Convertible Preferred Stock, $0.01 par value (the "Series B Preferred Stock"
and, together with the Series A Preferred Stock, the "Preferred Stock");
WHEREAS, If all of the Preferred Stock were to be purchased pursuant to the
Purchase Agreement, the WCAS Stockholders and the Founder Stockholders would own
the respective numbers of shares of Common Stock, Series A Preferred Stock and
Series B Preferred Stock appearing opposite their respective names in Schedules
I and II hereto; and
WHEREAS, all of the Stockholders believe that it is in the best interests
of the Company that certain arrangements be made among themselves with respect
to the election of directors of the Company and with respect to certain other
matters;
NOW, THEREFORE, in consideration of the premises and the covenants herein
contained, the parties hereto hereby agree as follows:
SECTION 1. Designated Directors. (a) For the period specified in clause (c)
below, the Stockholders will vote all shares of voting capital stock of the
Company held by them and will otherwise use their best efforts to cause to be
elected to the Board of Directors of the Company up to a maximum of seven
individuals, of whom (i) so long as the Founder Stockholders, in the aggregate,
own at least 50% of the Common Stock owned by them on the First Closing Date (as
defined in the Purchase Agreement) or subsequently acquired by them pursuant to
the Purchase Agreement (treating for purposes of such computation each holder
of Series B Preferred Stock as the holder of the number of shares of
<PAGE> 2
Common Stock at the time issuable upon conversion of such shares), two shall be
designated by a majority in interest (based upon voting power) of the Founder
stockholders (the "Founder Stockholders Designees"), Robert M. Martin and Dana
C. McLendon, Jr. being initially so designated, (ii) so long as the WCAS
Stockholders, in the aggregate, own at least 50% of the Common Stock acquired by
them on the First Closing Date or subsequently acquired by them pursuant to the
Purchase Agreement (treating for purposes of such computation each holder of
Series B Preferred Stock as the holder of the number of shares of Common Stock
at the time issuable upon conversion of such shares), two shall be designated by
a majority in interest (based upon voting power) of the WCAS Stockholders (the
"WCAS Stockholders Designees"), Richard H. Stowe and James B. Hoover being
initially so designated, and (iii) up to three shall be individuals (the "Mutual
Designees") mutually agreed upon and nominated for shareholder approval by the
Founder Stockholders Designees and the WCAS Stockholders Designees. No Mutual
Designee may be nominated at a board meeting unless there are an equal number of
Founder Stockholder Designees and WCAS Stockholder Designees present. The
Company shall pay all reasonable out-of-pocket expenses incurred by any such
individual or individuals in attending meetings of the Company's Board of
Directors and committee meetings thereof.
(b) A majority in interest (based upon voting power) of the WCAS
Stockholders or the Founder Stockholders, as the case may be, may from time to
time choose any or all of the persons who are to be WCAS Stockholder Designees
or Founders Stockholder Designees, as the case may be, and shall have the right
to cause the removal or replacement of any of their respective designees. If any
WCAS Stockholder Designee or Founder Stockholder Designee, as the case may be,
shall cease to be a member of the Board of Directors of the Company by reason of
resignation, death, disability or removal or otherwise, then a majority in
interest (based upon voting power) of the WCAS Stockholders or the Founding
Stockholders, as the case may be, shall designate a successor to such person as
a WCAS Stockholder Designee or Founder Stockholder Designee, as the case may be.
A majority of interest (based upon voting power) of either the WCAS Stockholders
or the Founder Stockholders shall have the right, in their sole discretion, to
cause the removal of any Mutual Designee. If any Mutual Designee shall cease to
be a member of the Board of Directors of the Company by reason of resignation,
death, disability or removal or otherwise, then any successor Director shall be
nominated and appointed only pursuant to Section l(a) hereof. The Company, the
Founder Stockholders and the WCAS Stockholders agree that, once elected, no
Founder Stockholder Designee or WCAS Stockholder Designee shall be removed
without the approval of a majority of interest (based upon voting power) of the
Founder Stockholders or the WCAS Stockholders, as the case may be.
(c) The obligation of the Founder Stockholders and the WCAS Stockholders
contained in this Section 1 shall terminate on
2
<PAGE> 3
the earlier to occur of (i) the fifth anniversary of this Agreement and an
Initial Public Offering. The term "Initial Public Offering" means the earlier to
occur of (x) a firm commitment public offering of Common Stock of the Company
registered pursuant to the Securities Act of 1933 and the rules and regulations
of the Securities and Exchange Commission thereunder (the "Securities Act") (A)
at a price to the public of not less than $10.00 per share and (B) resulting in
proceeds to the Company of not less than $20,000,000, after deduction of
underwriting discounts and commissions but before deduction of other expenses of
issuance, or (y) the merger or consolidation by the Company with or into a
company which has capital stock which is publicly traded and which throughout
the Relevant Time Period (as hereinafter defined) has a public float of at least
$30,000,000 and which merger or consolidation is on terms whereby shares of
Common Stock are exchanged for publicly traded stock, and the fair market value
of the consideration to be received for each share of Common Stock is equal to
or greater than $10.00. The term "Relevant Time Period" means the ten
consecutive trading days commencing two trading days after the public
announcement of the terms of the proposed merger or consolidation.
SECTION 2. Change of Control: Amendment of By-Laws or Charter. In addition
to any other requirements imposed by applicable law or the terms of the
Preferred Stock, until the earlier to occur of the fifth anniversary of this
Agreement and an Initial Public Offering, provided that the WCAS Stockholders
(in the aggregate) and the Founders (in the aggregate) own at least 50% of the
Common Stock of the Company owned by them on the First Closing Date or
subsequently acquired by them pursuant to the Purchase Agreement (treating for
purposes of each such computation each holder of Series B Preferred Stock as the
holder of the number of shares of Common Stock at the time then issuable upon
conversion of such shares), the approval of both of (i) not less than a majority
in interest (based upon voting power) of the WCAS Stockholders and their
successors (if any) and (ii) one or more of the Founder Stockholders owning, in
the aggregate, at least two percent (2.0%) of the outstanding Common Stock of
the Company (treating for purposes of such computation each holder of Series B
Preferred Stock as the holder of the number of shares of Common Stock at the
time issuable upon conversion of such shares) shall be required to approve the
following:
(a) a transaction whereby the Company shall merge or consolidate with or
into another entity (other than the consolidation or merger of a wholly-owned
subsidiary with or into the Company and other than a merger involving the
Company in which the holders of at least 51% of the outstanding Common Stock, on
fully diluted basis, immediately prior to such merger hold at least 51% of the
outstanding capital stock of the surviving entity in any such merger or
consolidation, on a fully diluted basis in substantially the same proportions,
immediately after the merger);
3
<PAGE> 4
(b) the sale of more than 33% of the Company's assets; and
(c) any amendment of the Charter or By-laws of the Company.
SECTION 3. Notice of Certain Sales. To the extent that WCAS VII determines,
in its sole discretion, that so notifying the Founder Stockholders is
practicable under the circumstances and will not in any way be adverse to its
interests, it intends to endeavor to notify the Founder Stockholders of its
intention to sell any of the shares of Common Stock or Preferred Stock owned by
it for the purpose of allowing the Founder Stockholders the opportunity to
consider the acquisition of all such shares, it being understood that WCAS VII
reserves the right to sell any or all of the shares of Common or Preferred Stock
owned by it to any person and at any time and under any terms and conditions as
it shall determine in its sole discretion to be in its own best interest. This
Section 3 shall not be deemed to create a contractual obligation on the part of
WCAS VII or right of first refusal requiring WCAS VII to offer the shares to the
Founder Stockholders.
SECTION 4. Co-Sale Rights. (a) If WCAS VII proposes to sell, exchange or
otherwise dispose of (other than in a manner permitted by Section 4(e) below)
any shares of Common Stock or Series B Preferred Stock held by it in a single
transaction or in a series of related transactions and the effect of such sale
would be to reduce or further reduce the aggregate number of shares of Common
Stock (assuming for this purpose that all shares of Series B Preferred Stock
owned by WCAS VII has been converted into Common Stock) then held by WCAS VII to
less than 66 2/3% of the sum of (i) the aggregate number of shares of Common
Stock purchased by WCAS VII on the Initial Closing Date (as defined in the
Purchase Agreement) and (ii) the aggregate number of shares Common Stock into
which the aggregate number of shares of Series B Preferred Stock theretofore
purchased by WCAS VII pursuant to the Purchase Agreement have been or could be
converted, WCAS VII shall give written notice (a "Co-Sale Notice") to the
Company setting forth the terms and conditions of such proposed transaction.
Upon receipt of such Co-Sale Notice, the Company shall promptly forward a copy
thereof to each Founder Stockholder that then holds shares of Common Stock or
Series B Preferred Stock (collectively, the "Eligible Founders"), together with
a statement setting forth (i) the total number of shares of Common Stock then
owned by all Eligible Founders (treating all Series B Preferred Stock owned by
them as having been converted) and (ii) the Group Total (as defined in Section
4(b) below).
(b) The Eligible Founders shall have the right, exercisable by any Eligible
Founder wishing to participate therein only by written notice from such Eligible
Founder to the Company (within ten (10) business days after receipt of any
4
<PAGE> 5
Co-Sale Notice) of such Founder's election to sell (on the terms and conditions
set forth in such Co-Sale Notice), its pro rata portion of the aggregate number
of shares of Common Stock or Series B Preferred Stock or both, as the case may
be, to be sold by all Eligible Founders at that time (the "Group Total"), such
amount to be equal to the aggregate number of shares of Common Stock or Series B
Preferred Stock or both, as the case may be, to be sold multiplied by a
fraction, the numerator of which is the aggregate number of shares of Common
Stock or Series B Preferred Stock or both, as the case may be, then owned by all
Eligible Founders and the denominator of which is the aggregate number of shares
of Common Stock or Series B Preferred Stock or both, as the case may be, then
owned by the Eligible Founders and WCAS VII. Each Eligible Founder shall be
entitled to elect to sell a number of shares of the applicable security (its
"Shares") obtained by multiplying the Group Total by a fraction, the numerator
of which is the number of shares of such security owned by such Eligible Founder
and the denominator of which is the aggregate number of shares of such security
owned by all Eligible Founders. The failure by an Eligible Founder to sell
shares pursuant to the co-sale rights hereunder on any occasion shall not affect
its right to sell shares pursuant to the co-sale rights hereunder on any
subsequent occasion.
(c) If the acquiror is acquiring shares of Common Stock or Series B
Preferred Stock or both, as the case may be, in a single transaction or in a
series of related transactions, (i) the price per share of each such security to
be purchased from the Eligible Founders shall be the weighted average of the
prices paid to WCAS VII by the acquiror for such securities, and all other
terms and conditions of the transaction(s) shall be no less favorable, taken as
a whole, to the Eligible Founders than the terms and conditions offered by the
acquiror to WCAS VII for such securities and (ii) the form of consideration to
be paid to each Eligible Founder shall be proportionately the same as that for
all shares of such security transferred by WCAS VII in such transaction or
series of transactions.
(d) Each Eligible Founder participating in the proposed disposition shall
deliver to the Company, as agent for such Eligible Founder, for transfer to the
proposed acquiror, one or more certificates, properly endorsed for transfer or
accompanied by stock transfer powers duly endorsed for transfer, with all stock
transfer taxes paid and stamps affixed, which shares shall be free and clear of
any liens, encumbrances, charges, security interests, pledges or any other
restrictions whatsoever and with signatures thereon guaranteed by a national
bank, which represent the number of shares of Common Stock that such Eligible
Founder is disposing of in such proposed disposition pursuant to this Section 4.
The stock certificate or certificates so delivered by an Eligible Founder to the
Company shall be transferred by the Company to the acquiror at the time of the
consummation of the disposition of the Common Stock pursuant to the terms and
condi-
5
<PAGE> 6
tions specified in the related Co-Sale Notice and the Company shall promptly
thereafter remit to such Eligible Founder that portion of the proceeds of
disposition received by the Company to which such Eligible Founder is entitled
by reason of such participation.
(e) Anything herein to the contrary notwithstanding, no co-sale rights
shall apply hereunder with respect to (i) any sale pursuant to an Initial
Public-Offering or (ii) a distribution by WCAS VII to its partners. It is
expressly understood by the parties hereto that shares of Common Stock or Series
B Preferred Stock transferred by WCAS VII shall not remain subject to any
co-sale rights hereunder.
SECTION 5. Legend on Stock Certificates. Each certificate representing
shares of Common Stock and Series B Preferred Stock held by any Stockholder
shall conspicuously bear the following legend until such time as the shares
represented thereby are no longer subject to the provisions hereof:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A STOCKHOLDERS AGREEMENT, DATED AS OF DECEMBER 19, 1995, AMONG
NEW AMERICAN HEALTHCARE CORPORATION (THE "COMPANY") AND CERTAIN HOLDERS OF
SHARES OF THE OUTSTANDING CAPITAL STOCK OF THE COMPANY. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF
RECORD OF THIS CERTIFICATE TO THE COMPANY.
The Company covenants that it will keep a copy of this Agreement on file at
the address specified in, or pursuant to, Section 10 for the purpose of
furnishing copies hereof to the holders of record of shares of Common Stock.
SECTION 6. Duration of Agreement. This Agreement shall terminate in its
entirety upon the consummation of an Initial Public Offering.
SECTION 7. Representations and Warranties. (a) of the Company and each
Stockholder represents and warrants, severally and not jointly, to the Company
and the other Stockholders as follows:
(i) The execution, delivery and performance of this Agreement by the
Company or such Stockholder, as the case may be, will not violate in any
material respect any provision of law, any order of any court or other agency
of government, or any provision of any indenture, agreement or other
instrument to which the Company or such Stockholder or any of its, his or
her, as the case may be, properties or assets is bound, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or
both) a
6
<PAGE> 7
default under any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company or such
Stockholder (other than those arising hereunder).
(ii) This Agreement has been duly executed and delivered by the Company or
such Stockholder, as the case may be, and constitutes the legal, valid and
binding obligation of the Company or such Stockholder, enforceable against
the Company or such Stockholder in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting the
enforcement of creditors' rights, and except that the availability of the
equitable remedies of specific performance and injunctive relief may be
subject to the discretion of the court before which any proceeding may be
brought.
(b) Each Stockholder represents and warrants, severally and not jointly,
to the Company and the other Stockholders that the shares of Common Stock listed
on Schedule I or II hereto opposite the name of such Stockholder constitute the
entire ownership interest of such Stockholder in the capital stock of the
Company as of the date hereof.
SECTION 8. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Tennessee.
SECTION 9. Successors and Assigns. This Agreement shall be binding upon
the parties hereto and their respective successors and assigns (which become
such by operation of law), legal representatives and heirs.
SECTION 10. Notices. All notices which are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and (i) delivered personally,
(ii) mailed by certified or registered mail, return receipt requested and
postage prepaid, (iii) sent via a nationally recognized overnight courier or
(iv) sent via facsimile confirmed in writing to the recipient, in each case as
follows:
7
<PAGE> 8
if to the Company,
New American Healthcare Corporation
229 Ward Circle, Suite C-12
P.O. Box 3689
Brentwood, Tennessee 37024
Attention: Mr. Robert M. Martin
Mr. Dana C. McLendon, Jr.
Telecopy No.: (615) 221-5009
With a copy to,
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
Attention: Mr. Ernest E. Hyne, II, Esq.
Telecopy No.: (615) 251-1058
or if to any Stockholder at its address
set forth in Schedule I or II attached hereto.
SECTION 11. Modification. Except as otherwise provided herein, neither
this Agreement nor any provision hereof may be modified, changed, discharged or
terminated except by the agreement of (i) holders of not less than a majority of
the shares of Common Stock (treating all shares of Series B Preferred Stock at
the time outstanding as having been converted into Common Stock) at the time
held by WCAS Stockholders and (ii) holders of not less than a majority of shares
of Common Stock (determined by so treating all shares of Series B Preferred so
outstanding as having been so converted) at the time held by Founder
Stockholders; provided, however, that no modification or amendment shall be
effective to reduce the requisite percentages of holdings of Common Stock
required under this Section 11 without the written approval of each of the
Stockholders, and provided, further, that no amendment may apply to less than
all holders referred to in clause (i) or all holders referred to in clause (ii),
without the written approval of each Stockholder referred to in the applicable
clause whose interest would be adversely affected.
SECTION 12. Severability. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein shall, for any reason, be held to be invalid, illegal or unenforceable,
such illegality, invalidity or unenforceability shall not affect any other
provisions of this Agreement.
SECTION 13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same instrument.
8
<PAGE> 9
SECTION 14. Entire Agreement. This Agreement, together with the Restricted
Stock Agreement and the Employment Agreements (in each case, as defined in the
Purchase Agreement), supersedes all previous agreements between one or more
Founder Stockholders and the Company, including, without limitation, the
Shareholders' Agreement, dated August 28, 1995, by and among Robert M. Martin,
Dana C. McLendon, Jr., Craig B. Watson, Timothy S. Hill and the several
shareholders named on the Shareholder Exhibits attached thereto, an Employment
Agreement, dated October 15, 1995, between the Company and Robert M. Martin, an
Employment Agreement, dated October 15, 1995, between the Company and Dana C.
McLendon, Jr., an Employment Agreement, dated October 15, 1995, between the
Company and Craig B. Watson, an Employment Agreement, dated October 15, 1995,
between the Company and Timothy S. Hill, a Noncompetition Agreement, dated
October 15, 1995, between the Company and Dana C. McLendon, Jr., a
Noncompetition Agreement, dated October 15, 1995, between the Company and Craig
B. Watson, and a Noncompetition Agreement, dated October 15, 1995, between the
Company and Timothy S. Hill. In the event of any conflict between this Agreement
and any other agreement or instrument with respect to the subject matter hereof
(other than the Restricted Stock Agreement), the provisions of this Agreement
shall control.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement as of the day and year first above written.
NEW AMERICAN HEALTHCARE CORPORATION
By /s/ Robert M. Martin
-----------------------------------------
Robert M. Martin
Chairman, President and CEO
PURCHASERS:
WELSH, CARSON, ANDERSON & STOWE VII, L.P
By WCAS VII Partners, General Partner
By /s/
-----------------------------------------
General Partner
WCAS Healthcare Partners, L.P
By WCAS HP Partners, General Partner
By /s/
-----------------------------------------
General Partner
/s/ Patrick J. Welsh
-------------------------------------------
Patrick J. Welsh
/s/ Russell L. Carson
-------------------------------------------
Russell L. Carson
/s/ Bruce K. Anderson
-------------------------------------------
Bruce K. Anderson
/s/ Richard H. Stowe
-------------------------------------------
Richard H. Stowe
<PAGE> 11
/s/ Andrew M. Paul
----------------------------------
Andrew M. Paul
/s/ Thomas E. McInerney
----------------------------------
Thomas E. McInerney
/s/ James B. Hoover
----------------------------------
James B. Hoover
/s/ Robert A. Minicussi
----------------------------------
Robert A. Minicussi
/s/ Anthony J. de Nicola
----------------------------------
Anthony J. de Nicola
DAVID F. BELLET - TRUSTEE
PROFIT SHARING PLAN DLJSC -
CUSTODIAN FBO DAVID F. BELLET
By /s/ David E. Bellet
--------------------------------
HORIZON INVESTMENTS ASSOCIATES, I
By /s/ R. A. Ortez
--------------------------------
<PAGE> 12
FOUNDERS:
/s/ Robert M. Martin
----------------------------------
Robert M. Martin
/s/ Dana C. McLendon, Jr.
----------------------------------
Dana C. McLendon, Jr.
/s/ Craig B. Watson
----------------------------------
Craig B. Watson
/s/ Timothy S. Hill
----------------------------------
Timothy S. Hill
<PAGE> 13
EXHIBIT C-1
SCHEDULE I
WCAS Stockholders
-----------------
<TABLE>
<CAPTION>
Number of Shares of
Common Stock to be Maximum Number of Shares of
Acquired on Initial Preferred Stock to be Acquired on
Name Closing Date Subsequent Closing Dates
- ---- ------------------- ---------------------------------
Series B Series A
-------- ---------
<S> <C> <C> <C>
Welsh, Carson, Anderson 4,778,500 222,389 238,641
& Stowe VII, L.P.
320 Park Avenue, Suite 2500
New York, NY 10022-6815
WCAS Healthcare Partners, L.P. 75,000 3,513 3,762
320 Park Avenue, Suite 2500
New York, NY 10022-6815
Patrick J. Welsh 25,000 1,171 1,254
Russell L. Carson 50,000 2,342 2,508
Bruce K. Anderson 30,000 1,405 1,505
Richard H. Stowe 15,000 703 752
Andrew M. Paul 5,000 234 251
Thomas E. McInerney 7,500 351 376
Laura VanBuren 2,000 94 100
James B. Hoover 5,000 234 251
Robert A. Minicucci 4,000 187 201
Anthony J. de Nicola 3,000 141 150
Care of WCAS Management
Corporation
320 Park Avenue, Suite 2500
New York, NY 10022-6815
David F. Bellet - Trustee 0 500 0
Profit Sharing Plan DLJSC - Custodian
FBO David F. Bellet
125 East 72nd Street
New York, New York 10021-4250
</TABLE>
copy to:
Ms. Nicole Primack
<PAGE> 14
<TABLE>
<S> <C> <C> <C>
Sales Associate
Donaldson, Lufkin & Jenrette
Investment Services Group
140 Broadway
New York, New York 10005-1281
HORIZON INVESTMENTS ASSOCIATES, I 0 1000 0
c/o R.A. Ortenzio
Continental Medical Systems, Inc.
600 Wilson Lane
Mechanicsburg, Pennsylvania 17055
Patrick T. Ryan 0 500 0
109 Westpark Drive, Suite 440
Brentwood, TN 37024
--------- ------- -------
Total 5,000,000 235,000 250,000
</TABLE>
<PAGE> 15
SCHEDULE I
WCAS Stockholders
-----------------
<TABLE>
<CAPTION>
Number of Shares of
Common Stock to be Maximum Number of Shares of
Acquired on Initial Preferred Stock to be Acquired on
Name Closing Date Subsequent Closing Dates
- ---- ------------------- ---------------------------------
Series B Series A
-------- ---------
<S> <C> <C> <C>
Welsh, Carson, Anderson 4,778,500 223,124 238,891
& Stowe VII, L.P.
One World Financial Center
200 Liberty Street
Suite 3601
New York, New York 10281
WCAS Healthcare Partners, L.P. 75,000 3,513 3,762
One World Financial Center
New York, New York 10281
Patrick J. Welsh 25,000 1,171 1,254
Russell L. Carson 50,000 2,342 2,508
Bruce K. Anderson 30,000 1,405 1,505
Richard H. Stowe 15,000 703 752
Andrew M. Paul 5,000 234 251
Thomas E. McInerney 7,500 351 376
Laura VanBuren 2,000 94 100
James B. Hoover 5,000 234 251
Robert A. Minicucci 4,000 187 201
Anthony J. de Nicola 3,000 141 150
Care of WCAS Management
Corporation
One World Financial Center
New York, New York 10281
David F. Bellet - Trustee 0 500 0
Profit Sharing Plan DLJSC - Custodian
FBO David F. Bellet
125 East 72nd Street
New York, New York 10021-4250
</TABLE>
<PAGE> 16
copy to:
<TABLE>
<S> <C> <C> <C>
Ms. Nicole Primack
Sales Associate
Donaldson, Lufkin & Jenrette
Investment Services Group
140 Broadway
New York, New York 10005-1281
HORIZON INVESTMENTS ASSOCIATES, I 0 1000 0
c/o R.A. Ortenzio
Continental Medical Systems, Inc.
600 Wilson Lane
Mechanicsburg, Pennsylvania 17055
--------- ------- -------
Total 5,000,000 235,000 250,000
</TABLE>
<PAGE> 17
EXHIBIT C-2
SCHEDULE II
Founder Stockholders
<TABLE>
<CAPTION>
Number of Common Number of Shares Which May Be Acquired Pursuant To
Name Shares Currently Owned Purchase Agreement
- ---- ---------------------- --------------------------------------------------
Common
Shares Series B Series A
------ -------- --------
<S> <C> <C> <C> <C>
Robert M. Martin 1,479,000 10,000 470 500
Dana C. McLendon, Jr. 677,000 10,000 470 500
Craig B. Watson 392,000 5,000 235 250
Neil McLean 200,000 0 235 250
Timothy S. Hill 252,000 1,500 70.5 75
- --------------------- --------- ------ ------- -----
Total 3,000,000 26,500 1,480.5 1,575
</TABLE>
<PAGE> 18
EXHIBIT C-2
SCHEDULE II
Founder Stockholders
--------------------
<TABLE>
<CAPTION>
Number of Common Number of Shares Which May Be Acquired Pursuant To
Name Shares Currently Owned Purchase Agreement
- ---- ---------------------- --------------------------------------------------
Common
Shares Series B Series A
<S> <C> <C> <C> <C>
Robert M. Martin 1,479,000 10,000 470 500
Dana C. McLendon, Jr. 677,000 10,000 470 500
Craig B. Watson 392,000 5,000 235 250
Timothy S. Hill 252,000 1,500 70.5 75
- --------------- --------- ------ ------ -----
Total 2,800,000 26,500 1,245.5 1,575
</TABLE>
<PAGE> 19
EXECUTION COPY
ASSET SALE AGREEMENT
* * * *
DAVENPORT MEDICAL CENTER, INC.
EGH, INC.
QUALICARE OF WYOMING, INC.
WOODLAND PARK HOSPITAL, INC.
collectively, as Seller
AND
NEW AMERICAN HEALTH CARE CORPORATION
as Buyer
Dated: December 22, 1997
<PAGE> 20
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Paragraph Description Page
- --------- ----------- ----
<S> <C> <C> <C>
Preamble ................................................................................... 1
Recitals ................................................................................... 1
1. Transfer of Assets ............................................................... 1
1.1 Transferred Assets ........................................................ 1
1.2 Retained Assets ........................................................... 4
2. Purchase Price ................................................................... 5
2.1 Amount .................................................................... 5
2.2 Closing Schedule and Determination of Purchase Price ...................... 5
2.3 Payment of Purchase Price ................................................. 6
3. Assumption of Obligations of Seller .............................................. 7
3.1 Obligations Assumed ....................................................... 7
3.2 Obligations Not Assumed ................................................... 8
4. Disclosure Statement ............................................................. 10
5. Representations and Warranties of Seller ......................................... 11
5.1 Organization of Seller .................................................... 11
5.2 Authority ................................................................. 11
5.3 Financial ................................................................. 12
5.4 Title to Transferred Assets ............................................... 12
5.5 Third Parry Rights ........................................................ 12
5.6 Governmental Consents ...................................................... 13
5.7 Hazardous Substances ....................................................... 13
5.8 Litigation ................................................................. 13
5.9 Licenses and Permits ....................................................... 14
5.10 Compliance with Laws ....................................................... 14
5.11 Employee Relations ......................................................... 14
5.12 Personnel .................................................................. 15
5.13 Assumed Contracts .......................................................... 15
5.14 Brokerage and Finder's Fees ................................................ 15
5.15 U.S. Persons ............................................................... 15
5.16 Inventory .................................................................. 16
5.17 Changes Since Interim Statements ........................................... 16
5.18 Cost Reports, Third Party Receivables and Conditions of Participation ...... 17
5.19 Medical Staff .............................................................. 17
5.20 Hill-Burton Care ........................................................... 17
5.21 Taxes ...................................................................... 18
</TABLE>
i--
<PAGE> 21
<TABLE>
<CAPTION>
<S> <C> <C> <C>
5.22 ERISA Plans ................................................................ 18
5.23 No Negotiations with Third Parties ......................................... 18
5.24 Miscellaneous Representations Relating to Real Property..................... 18
5.25 Motor Vehicles ............................................................. 19
6. Obligations and Covenants of Seller ............................................... 19
6.1 Conduct of Business ........................................................ 19
6.2 Access and Information ..................................................... 21
6.3 Encumbrances ............................................................... 21
6.4 Consent of Others .......................................................... 22
6.5 No Transfer of Assets ...................................................... 22
6.6 Seller's Efforts to Close .................................................. 22
6.7 Monthly Statements ......................................................... 23
7. Representations and Warranties of Buyer ........................................... 23
7.1 Organization and Good Standing ............................................... 23
7.2 Authority .................................................................... 23
7.3 Brokerage and Finder's Fees .................................................. 24
7.4 Permits and Accreditations ................................................... 24
7.5 No Knowledge of Seller's Breach .............................................. 24
7.6 No Assurance ................................................................. 25
8. Obligations and Covenants of Buyer ................................................ 25
8.1 Consent of Others ............................................................ 25
8.2 Inspection ................................................................... 25
8.3 Buyer's Efforts to Close ..................................................... 26
8.4 Waiver of Bulk Sales Law Compliance .......................................... 26
8.5 Ability to Perform ........................................................... 26
9. Conditions Precedent to Obligations of Buyer ...................................... 27
9.1 Accuracy of Warranties and Representations ................................... 27
9.2 Performance of Obligations ................................................... 27
9.3 Approval of Inspection ....................................................... 27
9.4 Third Party Consents ......................................................... 27
9.5 Permits and Program Participation ............................................ 28
9.6 Tax Matters .................................................................. 28
9.7 Title Insurance .............................................................. 28
9.8 Instruments of Transfer ...................................................... 28
9.9 Officer's Certificate ........................................................ 29
9.10 Certified Resolutions ........................................................ 29
9.11 Hart-Scott-Rodino Act ........................................................ 29
9.12 Adverse Action ............................................................... 29
9.13 Parent Guaranty .............................................................. 30
9.14 Opinion of Seller's Counsel .................................................. 30
</TABLE>
ii--
<PAGE> 22
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10. Conditions Precedent to Obligations of Seller ..................................... 30
10.1 Accuracy of Warranties and Representations ................................. 30
10.2 Performance of Obligations ................................................. 31
10.3 Payment of Purchase Price .................................................. 31
10.4 Officer's Certificate ...................................................... 31
10.5 Certified Resolutions ...................................................... 31
10.6 Hart-Scott-Rodino Act ...................................................... 31
10.7 Adverse Action ............................................................. 32
10.8 Continued Existence of Commitment Letter ................................... 32
10.9 Opinion of Buyer's Counsel ................................................. 32
11. Closing ........................................................................... 32
11.1 Pre-Closing ................................................................ 33
11.2 Escrow ..................................................................... 33
11.3 Deliveries at Closing ...................................................... 33
12. "AS IS" Purchase .................................................................. 34
13. Exclusivity Fee ................................................................... 35
14. Additional Covenants .............................................................. 35
14.1 Further Documentation or Action ............................................ 36
14.2 Preservation of and Access to Records ...................................... 36
14.3 Litigation Cooperation ..................................................... 38
14.4 Employee Benefit Plans ..................................................... 38
14.6 Confidentiality ............................................................ 39
14.7 Cure of Disapproved Items .................................................. 40
14.8 Excluded Assets and Receivables ............................................ 41
14.9 Cost Report Audits and Contests ............................................ 45
14.10 Filing Cost Reports; Amounts Due To or From Third Party Payors ............. 46
14.11 Employee Matters ........................................................... 46
14.12 Medical Staff Privileges/Bylaws ............................................ 49
14.13 Antitrust Laws Compliance .................................................. 49
14.14 Filing Tax Returns ......................................................... 50
14.15 Use of Controlled Substance Permits ........................................ 50
14.16 Limited Use of Manuals and Software ........................................ 50
14.17 Use of Name ................................................................ 51
14.18 Purchase of Supplies ....................................................... 52
15. Survival of Representations ....................................................... 52
16. Indemnification ................................................................... 52
16.1 Indemnification of Buyer By Seller ........................................... 52
16.2 Indemnification of Seller By Buyer ........................................... 52
16.3 Notification and Settlement of Claims ........................................ 53
</TABLE>
iii--
<PAGE> 23
<TABLE>
<CAPTION>
<S> <C> <C> <C>
16.4 Limitations on Indemnification Obligations ................................... 54
16.5 Time Limitations ............................................................. 54
16.6 Exclusive Remedy ............................................................. 55
17. Termination ....................................................................... 55
17.1 Termination Upon Certain Events .............................................. 55
17.2 Effect of Termination ........................................................ 56
18. Liquidated Damages. ............................................................... 56
19. General Provisions ................................................................ 57
19.1 Notices ................................................................ 57
19.2 Form of Instruments .................................................... 58
19.3 Attorneys' Fees ........................................................ 58
19.4 Remedies Not Exclusive ................................................. 59
19.5 Successors and Assigns ................................................. 59
19.6 Counterparts............................................................ 61
19.7 Captions and Paragraph Headings ........................................ 61
19.8 Entirety of Agreement; Amendments ...................................... 61
19.9 Expenses and Prorations ................................................ 62
19.10 Construction ........................................................... 62
19.11 Waiver ................................................................. 62
19.12 Severability ........................................................... 63
19.13 Certain Definitions .................................................... 63
19.14 Consents Not Unreasonably Withheld ..................................... 67
19.15 Time Is of the Essence ................................................. 68
19.16 Interest on Amounts Due ................................................ 68
19.17 Governing Law .......................................................... 68
19.18 Tax and Medicare Effect ................................................ 68
19.19 Casualty ............................................................... 69
19.20 Condemnation ........................................................... 69
19.21 Tax-Deferred Exchange .................................................. 69
Signatures................................................................................... 71
ANNEX I- LIST OF SCHEDULES .................................................................. 72
ANNEX II - LIST OF EXHIBITS.................................................................. 74
</TABLE>
iv--
<PAGE> 24
ASSET SALE AGREEMENT
THIS ASSET SALE AGREEMENT ("AGREEMENT") is made and entered into as of the
22nd day of December, 1997, by and between NEW AMERICAN HEALTHCARE CORPORATION,
a Tennessee corporation ("BUYER"), and DAVENPORT MEDICAL CENTER, INC., an Iowa
corporation, EGH, INC., an Oregon corporation, QUALICARE OF WYOMING, INC., a
Wyoming corporation and WOODLAND PARK HOSPITAL, INC., an Oregon corporation
(collectively, "SELLER"), with reference to the following facts:
A. Seller owns or leases the following acute-care general hospitals:
Davenport Medical Center, Eastmoreland Hospital, Lander Valley Regional Medical
Center and Woodland Park Hospital (collectively, the "HOSPITALS") and owns,
leases or operates the medical office buildings and other activities and
businesses related thereto (collectively, together with the Hospitals, the
"HOSPITAL BUSINESSES").
B. Buyer desires to purchase from Seller, and Seller desires to sell to
Buyer, the Hospital Businesses and all of the equipment, fixtures and other real
and personal property which are related to Seller's operation of the Hospital
Businesses and located at a Hospital as specified herein on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals, and the
representations, warranties and covenants herein contained, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto, intending to be legally bound, do hereby agree
as follows:
1. Transfer of Assets
1.1 Transferred Assets
At the Closing (as hereinafter defined in Paragraph 11), for the
consideration hereinafter provided and in reliance upon the representations and
warranties of the parties set forth herein, Seller shall sell, transfer, convey
and assign to Buyer, and Buyer shall purchase from Seller, all right, title and
interest of Seller in and to the following assets (the "TRANSFERRED ASSETS"):
1.1.1 The real property owned in fee by Seller upon which the
Hospitals or any medical office buildings included in the Hospital Businesses
are situated, and all other real property owned in fee by Seller including any
real property owned by Seller in the Hospitals' market areas, whether developed
or undeveloped, and whether or not contiguous (other than any Retained Assets)
(all of which real property is identified on SCHEDULE "1.1.1"), together with
all land improvements, the Hospitals, construction work-in-progress located at
any Hospital Businesses, the medical office buildings and any other
<PAGE> 25
buildings and other improvements thereon, and all rights, privileges and
easements appurtenant thereto (the "REAL PROPERTY").
1.1.2 The leasehold estates of Seller, as tenant, and the related
lease and sublease agreements (including, without limitation, that certain lease
dated July 10, 1982 between the City of Lander and Lander Valley Regional
Medical Center, as amended (the "LANDER LEASE") regarding the real property
comprising Lander Valley Regional Medical Center (the "LANDER PROPERTY") and
that certain lease dated December 27, 1968 between Woodland Park Corporation and
W.P.H., Inc., as amended (the "WOODLAND PARK LEASE") regarding the real property
comprising a portion of Woodland Park Hospital (the "WOODLAND PARK PROPERTY"))
(all such leases, including the Lander Lease and the Woodland Park Lease shall
collectively be referred to as the "REAL PROPERTY LEASES") with respect to the
Hospital Businesses, the real property upon which such Hospital Businesses are
situated and the other buildings and other improvements and fixtures thereon
(whether owned or leased), which Real Property Leases and the Lander Property
and Woodland Park Property are identified on SCHEDULE "1.1.2", together with all
construction work-in-progress in respect of the same and all rights privileges
and easements appurtenant thereto (the "LEASED REAL PROPERTY").
1.1.3 All tangible personal property (other than items of
tangible personal property that are consumed, disposed of or held for sale or
inventoried in the ordinary course of business) owned by Seller and located at
the Hospital Businesses, excluding, however, any such personal property which is
a Retained Asset (as hereinafter defined in Paragraph 1.2). The current list of
such tangible personal property is set forth on SCHEDULE "1.1.3".
1.1.4 All inventories of supplies, drugs, food, janitorial and
office supplies, maintenance and shop supplies, and other disposables which are
existing as of the Closing Date (the "PURCHASED INVENTORY").
1.1.5 All contracts, agreements and leases to which Seller is a
party at the Closing Date, other than the Real Property Leases, and all
other obligations, purchase orders, commitments or covenants to which Seller is
a party at the Closing Date (all such contracts, agreements, leases, other
obligations, purchase orders, commitments or covenants are collectively referred
to as the "CONTRACTS") including, but not limited to, the Contracts (a) that are
set forth on SCHEDULE "1.1.5", (b) pursuant to which a Seller paid or received
less than $15,000 during its last fiscal year or pursuant to which it expects to
pay or receive less than $15,000 during its current fiscal year, whether or not
listed on SCHEDULE "1.1.5", or (c) with respect to the Contracts which are
entered into after the date hereof, the requirements of Paragraph 6.1(d) have
been satisfied. SCHEDULE "1.1.5" shall include a listing of all Contracts
entered into prior to the date hereof and pursuant to which Seller paid more
than $15,000 during its last fiscal year and shall list such Contracts
alphabetically by appropriate categories (such as leases, service agreements,
affiliation agreements, provider agreements, and agreements with physicians).
Notwithstanding the foregoing, the Contracts shall not include any contract
-2-
<PAGE> 26
respecting an intercompany transaction between Seller, on the one hand, and an
Affiliate of Seller, on the other, whether or not such transaction relates to
the provision of goods and services, tax sharing arrangements, payment
arrangements, intercompany charges or balances, or the like (the "INTERCOMPANY
TRANSACTIONS"), except that transactions arising in connection with open
purchase orders where the Seller's Affiliates have acted as an intermediary for
Seller shall not be regarded as Intercompany Transactions.
1.1.6 To the extent lawfully transferable, all certificates of
need (including those that have been issued but have not been fully implemented
or that have been applied for), accreditations, registrations, licenses, permits
and other governmental consents or approvals necessary to or intended for the
operation of the Hospital Businesses as presently conducted by Seller.
1.1.7 Only those advance payments, prepayments, prepaid expenses,
deposits and the like (the "PREPAIDS") which are existing as of the Closing
Date, which were incurred by Seller solely with respect to Seller's operation of
the Hospital Businesses and which are determined by Buyer to be usable by and
transferrable to Buyer concurrently with Buyer's approval of the Disclosure
Statement pursuant to Paragraph 4 (the "PURCHASED PREPAIDS"), the current
categories and amounts of which are set forth on SCHEDULE "1.1.7".
1.1.8 All of Seller's right, title and interest in and to the
business names set forth in SCHEDULE "1.1.8".
1.1.9 All unexpired warranties and covenants not to compete that
are transferrable to Buyer which Seller has received from third parties with
respect to the Transferred Assets (but not directly or indirectly with respect
to any of the Retained Assets) including, without limitation, such warranties
and covenants as are set forth in any construction agreement, lease agreement,
equipment purchase agreement, consulting agreement, agreement for architectural
and engineering services or purchase and safe agreement.
1.1.10 All goodwill of the business evidenced by the Transferred
Assets.
1.1.11 All Hospital Records, including the personnel records of
the Hired Employees (as hereinafter defined in Paragraph 14.11), that are
maintained at the Hospitals in the ordinary course of business; provided that
Seller shall have the right of access thereto as set forth in Paragraph 14.2.
1.1.12 All Receivables (as hereinafter defined in Paragraph
19.13(a)), other than the Government Receivables (as hereinafter defined in
Paragraph 19.13(a)) (the "PURCHASED RECEIVABLES").
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1.1.13 All right, title and interest of Seller in and to any and
all joint ventures, partnerships, limited liability companies, the current list
of which is set forth on SCHEDULE "1.1.13", together with all of Seller's right,
title and interest in and to the joint venture, partnership or operating
agreements relating thereto and in and to all distributions and allocations
which Seller is entitled to receive as of the Closing.
1.2 RETAINED ASSETS
At the Closing, Seller shall retain all assets owned directly or
indirectly by Seller or any of its Affiliates, other than the Transferred
Assets, whether or not such assets are used in connection with or are necessary
for the operation of the Hospital Businesses. Without limiting the generality of
the foregoing, such retained assets (the "RETAINED ASSETS") shall include the
following:
1.2.1 Except for the Purchased Inventory, the Purchased Prepaids
and the Purchased Receivables, all assets constituting working capital, whether
cash, cash equivalents, securities or other current assets, all Government
Receivables and all claims, choses in action, rights of recovery, rights of set
off, rights to refunds and similar rights relating thereto.
1.2.2 Except for the business names referred to in Paragraph
1.1.8 and the Assumed Contracts and except for manuals relating to equipment and
other tangible property included in the Transferred Assets, all privileged or
proprietary materials, documents, information, media, methods and processes
owned by Seller, and any and all rights to use the same, including, but not
limited to, all intangible assets of an intellectual property nature, all
proprietary computer software, all clinical and policy and procedure manuals,
all promotional, marketing and recruiting materials (including all marketing
computer hardware and software and all telephone numbers) and the names Tenet",
OrNda" and any and all derivations, abbreviations and variations thereof.
1.2.3 Any and all rights respecting computer and data processing
hardware that is proprietary to Seller or any Affiliate of Seller, and any
computer and data processing hardware, whether or not located at a Hospital,
that is part of a computer system whether or not the central processing unit for
which is located at such Hospital.
1.2.4 All amounts due to Seller arising from Intercompany
Transactions or from Medicare or other Payors with respect to the cost reports
and other filings referred to in Paragraph 14.10.
1.2.5 All personnel records other than those of the Hired
Employees.
1.2.6 All assets of or dedicated to the Plans.
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1.2.7 Such other assets, if any, specifically described in
SCHEDULE "1.2.7."
Buyer acknowledges and agrees that Seller shall have the right to
remove, and may remove at any time prior to or within 30 days following the
Closing Date (at Seller's expense, but without charge by Buyer for storage),
from time to time all or any part of the Retained Assets; provided, however,
that such removal by Seller shall take place during normal business hours and
with reasonable prior written notice to Buyer of the time when such removal
shall take place. Seller's employees, representatives and agents shall conduct
themselves during such removal process in such a manner so that Buyer's normal
business activities shall not be unduly or unnecessarily disrupted thereby.
2. PURCHASE PRICE
2.1 AMOUNT
The purchase price (the "PURCHASE PRICE") to be paid by Buyer to
Seller for the Transferred Assets shall be equal to the sum of (a) $55,000,000
plus (b) an amount equal to the net book values of the Purchased Inventory, the
Purchased Prepaids and the Purchased Receivables as of the Closing Date, less
(c) 100% of the Paid Time Off of the Hired Employees which Buyer has assumed
pursuant to Paragraph 3.1(b), less (d) 20% of the Sick Pay of the Hired
Employees which Buyer has assumed pursuant to Paragraph 3.1(b), less (e) the net
book value of the Accrued Operating Expenses (as defined in Paragraph 3.1(d)) as
of the Closing Date, less (f) the net book value of the capitalized leases
outstanding as of the Closing Date.
2.2 CLOSING SCHEDULE AND DETERMINATION OF PURCHASE PRICE
As soon as practicable, but in no event later than 75 days after
the Closing Date, Seller shall cause a schedule (the "CLOSING SCHEDULE") to be
prepared and delivered to Buyer which shall calculate the Purchase Price and
include (a) a revised Schedule 1.1.7 showing the net book value of the Purchased
Prepaids as of the Closing Date, and (b) a schedule showing the net book value
of the Purchased Inventory, the Purchased Receivables and the Accrued Operating
Expenses (exclusive of the amounts set forth on SCHEDULE "3.1(b)"), all as of
the Closing Date, (c) a revised SCHEDULE "3.1(b)" showing as of the Closing Date
the amount of the Paid Time Off and Sick Pay of the Hired Employees assumed by
Buyer pursuant to Paragraph 3.1(b) and not paid to a Hired Employee by Seller,
and (d) a revised SCHEDULE "3.1(g)" showing as of the Closing Date the net book
value of the then outstanding capitalized leases calculated in accordance with
generally accepted accounting principles, consistently applied. If the Closing
Schedule as submitted by Seller is challenged by Buyer, then, unless otherwise
resolved by agreement of the parties within 30 days from the date of Buyer's
challenge or such later date as the parties may mutually agree, the Closing
Schedule shall be deemed in dispute, which dispute shall be resolved by the
independent certified public
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accountants of Buyer, on the one hand, and the independent certified public
accountants of Seller, on the other hand. If such accountants cannot resolve the
disagreement within 30 days of such submission, or such later date as the
parties may mutually agree upon, such disagreement shall be mutually submitted
by the parties to one of the so-called "big five" accounting firms (other than
the parties' respective independent certified public accountants) to be selected
by the mutual agreement of such parties' independent certified public
accountants, whose determination shall be final and binding and shall be
rendered within 30 days of the date on which the matter is submitted to such
firm. Any such selected accounting firm shall determine the issues in dispute
after following such procedures, consistent with the language of this Agreement,
as it deems appropriate to the circumstances and with reference to the amounts
at issue. No particular procedures are intended to be imposed upon such
accounting firm, it being the desire of the parties that any such dispute shall
be resolved as expeditiously and inexpensively as reasonably practicable. If
Buyer does not give written notice to Seller of its challenge of the Closing
Schedule within 30 days following Buyer's receipt of the Closing Schedule, Buyer
shall be deemed to have accepted the same. The Closing Schedule, either as
accepted by Buyer or as resolved in the manner herein provided, shall fix the
Purchase Price. The pendency of a dispute shall not affect the payment
obligation hereunder of either Buyer or Seller to the extent such payment is not
disputed.
2.3 PAYMENT OF PURCHASE PRICE
No less than three business days prior to the Closing, Seller
shall prepare and deliver to Buyer an estimate of the Closing Schedule (the
"ESTIMATED STATEMENT") based upon (and if determined by Seller to be reasonably
practicable, updated or estimated from) the books and records of Seller with
respect to the Hospital Businesses for the most recent month ending prior to the
Closing for which data is available and shall reflect on the Estimated Statement
the allocation of expenses and the prorations required by Paragraph 19.9. All
determinations made with respect to the Estimated Statement shall be based upon
the internal records of, and the valuations customarily used by, Seller and
shall be consistent with generally accepted accounting principles used by Seller
with respect to the recording and accruing of the types of assets, the Purchased
Inventory, the Purchased Prepaids, the Purchased Receivables, and the Accrued
Operating Expenses, and under no circumstances shall a physical inventory or
audit be required. The Purchase Price determined by reference to the Estimated
Statement (the "TENTATIVE PURCHASE PRICE") shall be paid to Seller by Buyer at
the Closing. The Purchase Price shall be paid at and after the Closing as
follows:
(a) Purchase Price Paid at Closing. At the Closing, the Purchase
Price shall be paid as follows:
(i) Buyer shall wire transfer immediately available funds to
one or more accounts designated by Seller prior to the Closing in an
amount equal to the Tentative Purchase Price (subject to payment of
Seller's obligations under 19.9); and
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(ii) Buyer shall assume Seller's liability under the Assumed
Obligations by delivering to Seller one or more Bills of Sale and
Assignment and Assumption of Assumed Obligations (the "BILL OF SALE")
substantially the form and substance of EXHIBIT "2.3(a)(ii)".
(b) Post Closing Purchase Price Adjustment. Within five business
days of the final determination of the amount of the Purchase Price as provided
in Paragraph 2.2, either Buyer shall pay to Seller or Seller shall pay to Buyer,
as the case may be, in immediately available funds, the amount by which the
Purchase Price as so finally determined is different from the Tentative Purchase
Price. The pendency of a dispute shall not affect the payment obligation
hereunder of either Buyer or Seller to the extent such payment is not disputed.
3. ASSUMPTION OF OBLIGATIONS OF SELLER
3.1 OBLIGATIONS ASSUMED
Buyer shall assume, effective as of the Closing and as part of
the Purchase Price, and shall pay, discharge and perform as and when due, each
of the following obligations of Seller (the "ASSUMED OBLIGATIONS"):
(a) (i) all obligations and liabilities of Seller which pertain
to or are to be performed during any period commencing on or after the Closing
Date and which arise under any contract, license, permit, agreement,
arrangement, understanding or undertaking included in the Transferred Assets,
including the Contracts, the Real Property Leases and the Permits, and any
obligation or liability of Seller's Affiliates which is in the nature of a
guaranty of any of the foregoing (including letters of credit and performance
bonds) and (ii) all obligations and inabilities of Seller under those open
purchase orders which were entered into by Seller in the ordinary course of
business with respect to the Hospital Businesses before the Closing Date and
which provide for the delivery of goods or services subsequent to the Closing
Date (collectively, the "ASSUMED CONTRACTS").
(b) All obligations and liabilities to the Hired Employees for
(i) accrued and earned paid time off or vacation pay of any kind whatsoever
through the Closing Date, whether or not the same has been recorded on the
financial records of Seller ("PAID TIME OFF") and (ii) accrued sick pay (both
regular sick pay and extended sick leave), whether or not the same has been
recorded on the financial records of Seller ("SICK PAY"). Schedule 3.1(b) is a
listing of accrued Paid Time Off and Sick Pay as of the date indicated thereon
with respect to all current employees of the Hospital Businesses, which schedule
includes all Paid Time Off accrued and earned by such employees as of such date,
whether or not the same has been recorded on the financial records of Seller.
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(c) All obligations and liabilities concerning employee matters
assumed by Buyer pursuant to Paragraph 14.11.
(d) Any accrued and unpaid liabilities (whether or not due) of
Seller in existence on the Closing Date, which were incurred in the ordinary
course of the operation of the Hospital Businesses, which are reasonably
acceptable to Buyer and which represent the following current liabilities
(collectively, the "ACCRUED OPERATING EXPENSES") (i) trade payables incurred to
suppliers of goods or services, (ii) water, gas, electricity and other utility
charges, (iii) license fees, (iv) rent, common area maintenance charges,
operating expenses and other charges arising under the Real Property Leases, (v)
insurance premiums but only with respect to policies that will be continued in
force by Buyer after the Closing, (vi) salaries and other payroll costs (but
only to the extent recorded by Seller on its financial statements in accordance
with generally accepted accounting principles) respecting Hired Employees
accrued in accordance with normal accounting practices of Seller (but not
including bonuses or other incentive compensation or accrued benefits with
respect to benefit plans that are not assumed by Buyer), and (vii) similar
liabilities incurred in the ordinary course of the operation of the Hospital
Businesses and customarily recorded as a current liability, other than the
current portion of long term liabilities and obligations, income taxes (whether
deferred or currently payable) and the obligations and liabilities specified in
Paragraph 3.2(a) through (f), but only up to the amount received as a credit
under Paragraph 2.1.
(e) Any obligation to make changes or improvements needed to the
Hospital Businesses for them to be in material compliance following the Closing
with safety, building, fire, land use, access (including, without limitation,
the Americans With Disabilities Act) or similar Laws respecting the physical
condition of the Hospitals.
(f) Any Tax liability of Seller incurred as a result of the sale
of the Transferred Assets hereunder to Buyer, and any Taxes imposed upon the
right or privilege of doing business from the Hospitals after the Closing.
(g) All obligations and liabilities of Seller with respect to
only those capitalized lease obligations and other recorded indebtedness set
forth on SCHEDULE "3.1(g)", but only to the extent of the amounts set forth
thereon as of the Closing Date and only up to the amount received as a credit
under Paragraph 2.1.
3.2 OBLIGATIONS NOT ASSUMED
Except for the Assumed Obligations, Buyer shall not assume or
become obligated with respect to any other obligation or liability of Seller or
any of its Affiliates of any nature whatsoever and Seller shall retain and shall
pay, discharge and perform such obligations and liabilities (whether express or
implied, fixed or contingent, liquidated or unliquidated, known or unknown, due
or to become due)(the "EXCLUDED LIABILITIES"), including, without limiting the
generality of the foregoing, the following:
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(a) Obligations or liabilities arising from the breach or default
(or any act or omission by Seller which, with or without notice or lapse of time
or both, would constitute a breach or default) by Seller on or prior to the
Closing of any term, covenant or provision of any of the Assumed Contracts.
(b) Obligations or liabilities of Seller now existing or which
may hereafter exist by reason of any liability to refund any payment or
reimbursement received by Seller from Medicare, Medicaid, CHAMPUS or any other
Payor which is attributable to any period of time ending on or prior to the
Closing (including, but not limited to, any liability to Medicare, Medicaid,
CHAMPUS or any other Payor resulting from the sale of the Transferred Assets by
Seller to Buyer hereunder, including any recapture or gain from sale liability).
(c) Amounts due from Seller arising from Intercompany
Transactions.
(d) Liabilities or obligations of Seller, or its Affiliates now
existing or which may hereafter exist by reason of any violation or alleged
violation of Law by Seller or any of its Affiliates, or by an employee or
independent contractor of any of the foregoing where any of the foregoing is
alleged to be responsible for the acts or omissions of any such person, relating
to the ownership, use or operation of the Transferred Assets on or prior to the
Closing Date (including any event or circumstance occurring or existing on or
prior to the Closing Date and which constituted a violation of Law on or prior
to the Closing Date).
(e) Liabilities of Seller either arising from or in connection
with (i) the litigation described in Paragraph 5.8, (ii) any other litigation
relating to events occurring prior to the Closing Date of which Seller has no
Knowledge, and (iii) any and all liabilities or obligations of Seller for claims
for personal injury (including sickness, trauma, disease, pain and suffering,
loss of future earnings, punitive damages and the like), property damage and any
other damage or injury in existence or arising out of an event which occurred at
or prior to the Closing Date whether or not any claim has been made or
litigation has been instituted with respect thereto and whether or not any such
claim is covered partially or fully by insurance.
(f) Except as expressly assumed under Paragraphs 3.1 or 14.11,
liabilities and obligations for benefits under the Plans or any penalties or
other amounts related thereto.
(g) All ERISA liabilities and obligations, and all obligations to
give notice of and to provide continuation health care coverage for employees
(other than the Hired Employees), former employees and their dependents or any
qualified beneficiary of such employees in accordance with the requirements of
COBRA, including, without limitation, all liabilities, taxes, sanctions,
interest and penalties imposed upon, incurred by or
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assessed against Buyer or any affiliated corporation within a controlled group
relationship with Buyer (as determined under Section 414 of the Code), and any
of their employees, arising by reason of or relating to any failure to provide
the COBRA coverage to all employees other than the Hired Employees, former
employees and their dependents or any qualified beneficiary of such employees.
The Excluded Liabilities shall remain the sole responsibility of
Seller. Buyer acknowledges and agrees that the ongoing operations of Buyer after
the Closing, including Buyer's operation of the Hospital Businesses and the
continuation by Buyer after the Closing of any Assumed Contract or practice or
procedure of Seller shall be the sole responsibility of Buyer and Seller shall
have no liability for such operation and such continuation.
4. DISCLOSURE STATEMENT
On or before January 12, 1998, Seller shall deliver to Buyer a disclosure
statement (the "DISCLOSURE STATEMENT") which includes the schedules described in
the List of Schedules attached hereto as Annex I (other than any schedules
intended to be provided by Buyer) and such other schedules as may be attached to
the Disclosure Statement and which includes the exhibits to this Agreement
described in the List of Exhibits attached hereto as Annex II. Notwithstanding
the subsequent delivery of the Disclosure Statement, Buyer and Seller agree that
Seller's representations and warranties set forth in this Agreement shall be
deemed modified as of the date of this Agreement by the information contained in
the Disclosure Statement. Within 15 business days after Buyer's receipt of the
Disclosure Statement, Buyer shall either approve the Disclosure Statement or
notify Seller that it disapproves the Disclosure Statement and thereby elects,
subject to the provisions of Paragraph 14.7, to terminate this Agreement. If
Buyer fails to give notice to Seller within such 15-day period that it
disapproves the Disclosure Statement or any portion thereof, then Buyer shall be
deemed to have approved the Disclosure Statement. After the execution of this
Agreement, Seller may amend any one or more of the schedules included in the
Disclosure Statement by the delivery of one or more supplemental disclosure
statements (the "SUPPLEMENTAL DISCLOSURE STATEMENTS") to Buyer, and Buyer and
Seller agree that Seller's representation and warranties set forth in this
Agreement shall be deemed modified as of the date of this Agreement by the
information contained in any of the Supplemental Disclosure Statements provided
that Seller shall promptly disclose such new information within five business
days of learning of such information. Seller hereby agrees not to intentionally
withhold information of which it has Knowledge which relates to any Schedule
previously delivered by Seller to Buyer. Upon receipt of a Supplemental
Disclosure Statement, Buyer shall have a period of ten business days either to
approve the Supplemental Disclosure Statement or to notify Seller that it
disapproves the Supplemental Disclosure Statement and thereby elects, subject to
the provisions of Paragraph 14.7, to terminate this Agreement. If such ten-day
period would expire after the date for the Closing specified in Paragraph 11 or
the date for termination specified in Paragraph 17.1(c), then each such date
shall be extended
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to coincide with the date on which such ten-day period expires. If Buyer shall
notify Seller within the time periods herein specified that it disapproves a
Supplemental Disclosure Statement, subject to the provisions of Paragraph 14.7,
this Agreement shall terminate without liability to Buyer or Seller and shall be
of no further force or effect, except as otherwise expressly provided herein. If
Buyer shall fail to give notice to Seller within the time periods herein
specified that it disapproves a Supplemental Disclosure Statement, then Buyer
shall be deemed to have approved the applicable Supplemental Disclosure
Statement.
5. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
5.1 ORGANIZATION OF SELLER
Each Seller is a corporation duly incorporated and validly
exiting under the laws of, and is authorized to exercise its corporate powers,
rights and privileges and is in good standing in, the state of its incorporation
and is in good standing and duly qualified to do business as a foreign
corporation in any jurisdiction in which the nature of its business requires it
to be so qualified (each of which is listed on SCHEDULE "5.1") and has full
corporate power to carry on its business as presently conducted and as will be
conducted through the Closing and to own or lease and operate its properties and
assets now owned or leased and operated by it, and is duly qualified to operate
its business and is in good standing under the Laws of the state of its
incorporation. Schedule 5.1 also contains a list of all subsidiaries of each
Seller.
5.2 AUTHORITY
Each Seller has the full corporate power and the authority to (i)
own, lease and operate its facilities and assets as presently owned, leased and
operated, (ii) carry on its business as it is now being conducted and (iii)
execute, deliver and perform the obligations and covenants set forth in this
Agreement and all other agreements contemplated hereby and to carry out the
transactions contemplated hereby. The execution and delivery of this Agreement
by each Seller and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of each
Seller. No further corporate action is necessary to make this Agreement valid
and binding upon and enforceable against each Seller in accordance with its
terms except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar Laws now or hereafter in effect
relating to creditors' rights generally and except that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding may be brought. Except as set forth in the Disclosure Statement, the
execution, delivery and performance of this Agreement and all other agreements
contemplated hereby or executed in connection herewith and the consummation of
the transactions contemplated hereby will not (a) violate
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any Law applicable to Seller, (b) violate or conflict with any provision of the
Articles of Incorporation or Bylaws of each Seller, or (c) violate any
applicable judgment, decree, order, regulation or rule of any court or
regulatory authority.
5.3 FINANCIAL STATEMENTS
(a) Financial Statements. SCHEDULE "5.3" contains (i) the
unaudited balance sheets of each Seller with respect to the Transferred Assets
as of May 31, 1997 and 1996 (and, if available, 1995) and the related statements
of income for each fiscal year then ended (the "PRIOR YEARS' STATEMENTS") and
(b) the unaudited balance sheet of each Seller with respect to the Transferred
Assets as of August 31, 1997 and the related statements of income for the three
months then ended (the "INTERIM STATEMENTS"). The Prior Years' Statements, the
Interim Statements and the Monthly Statements are collectively referred to as
the "FINANCIAL STATEMENTS". The Financial Statements have been prepared from,
and are in accordance with, the books and records of each Seller and in all
material respects present fairly the financial position and results of
operations of each Seller with respect to the Transferred Assets as of the dates
and for the periods indicated, in each case in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated.
(b) Qualification to Statements. Notwithstanding the
foregoing, the Financial Statements do not reflect all intercompany
eliminations, adjustments and accruals (which are not material, in the
aggregate), do not contain footnotes or other explanatory materials associated
with financial statements prepared in accordance with generally accepted
accounting principles and do not contain normal and recurring year-end
adjustments. The Financial Statements are to be read in conjunction with, and
are subject to, all notes and other explanatory materials, if any, set forth
therein.
5.4 TITLE TO TRANSFERRED ASSETS
Except for the Assumed Obligations and except as set forth
on SCHEDULE "5.4" (collectively, the "PERMITTED EXCEPTIONS"), Seller has good
and marketable fee simple title to the Real Property, good and marketable
leasehold title to the Lander Property and the Woodland Park Property, and good
and defensible title to the remaining Transferred Assets all of which are free
and clear of all liens, encumbrances (including security interests of any kind
whatsoever), covenants, conditions, restrictions, easements, encroachments,
rights of way, charges or other rights, claims or interests of any third party
whatsoever (collectively the "LIENS") which, to Seller's Knowledge, were created
by Seller or any of its Affiliates.
5.5 THIRD PARTY RIGHTS
Except for the governmental consents referred to in
Paragraph 5.6 and except as otherwise disclosed on SCHEDULE "5.5", as of the
Closing, Seller may transfer and
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assign to Buyer all of its right, title and interest in and to the Transferred
Assets without obtaining the consent or approval of any other Person or party.
5.6 GOVERNMENTAL CONSENTS
Except as disclosed on SCHEDULE "5.6" OR "5.9", no consent,
approval, authorization or order of, and no exemption by or filing with, any
court or governmental agency is required on behalf of Seller in connection with
the execution and delivery of this Agreement or any other agreement contemplated
hereby or executed in connection herewith or for the consummation and
fulfillment by Seller of the transactions contemplated hereby or thereby or
performance by Seller of each and every one of its obligations hereunder or
thereunder.
5.7 HAZARDOUS SUBSTANCES
(a) SCHEDULE "5.7" contains a list of all surveys or reports
obtained by or otherwise in the possession of Seller which relate to the
environmental condition of the Hospitals, the Real Property, the Lander Property
and the Woodland Park Property, and Seller has provided or will provide to Buyer
copies of all such reports and surveys. Except as disclosed by the Environmental
Survey or otherwise on SCHEDULE "5.7", to Seller's Knowledge: (a) the current
operations of the Hospitals are not in violation in any material respect of any
Environmental Regulations, (b) there are no Hazardous Materials present on the
premises of the Hospitals, on the Real Property, the Lander Property or the
Woodland Park Property in any manner which constitutes a violation in any
material respect of any Environmental Regulations, and (c) there is no
proceeding or action pending or threatended by any Person or governmental agency
regarding the environmental condition of the Hospitals, the Real Property, the
Lander Property or the Woodland Park Property.
(b) Seller has not received any written communication that
alleges that Seller is not or was not in compliance with all applicable
Environmental Regulations, and Seller shall promptly notify buyer in writing if
any such communications is received prior to Closing.
5.8 LITIGATION
Except as set forth on SCHEDULE "5.8", there are no actions,
suits, claims (other than medical or dental claims made by employees under any
self insurance program of Seller or any Affiliate of Seller) or proceedings
pending, or to Seller's Knowledge, threatened against or affecting the
Transferred Assets or relating to the operations of the Hospitals, at law or in
equity, or before or by any federal, state, municipal or other governmental
department, commission, agency or instrumentality.
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5.9 LICENSES AND PERMITS
Seller possesses all certificates of need, licenses,
permits, and other governmental consents and approvals (the "PERMITS") necessary
for Seller's operation of the Hospitals at the locations and in the manner
presently operated except where Seller's failure to have such Permit would not
materially adversely impact Seller's operations of the Hospitals at the
locations and in the manner presently operated. Except as otherwise disclosed on
SCHEDULE "5.9", the Hospitals are fully accredited by the Joint Commission on
Accreditation of Healthcare Organizations ("JCAHO"), is certified for
participation in the Medicare, Medicaid and, if applicable CHAMPUS programs, has
a current and valid provider contract with each such program and, to Seller's
Knowledge, is in substantial compliance with the material conditions of
participation in each such program and with the indigent care conditions, if
any, contained in or related to any Permits obtained in connection with the
Hospitals. SCHEDULE "5.9" contains a list of all Permits held or applied for by
Seller which have an effect on the operation of the Hospitals. Except as
described in SCHEDULE "5.9", no written notices have been received by Seller
with respect to complaints lodged with any regulatory authority or agency or
with respect to threatened, pending, or possible revocation, termination,
suspension or limitation of any of said licenses and permits, nor, to Seller's
Knowledge, are there any grounds for revocation, suspension or limitation.
5.10 COMPLIANCE WITH LAWS
To Seller's Knowledge and with respect solely to the
Transferred Assets and the operation of the Hospitals, except as disclosed on
SCHEDULE "5.10", Seller is in compliance in all material respects with all
material applicable Laws other than the Environmental Regulations (the
compliance with which is governed by Paragraph 5.7), including, but not limited
to, Laws relating to the employment of labor, including any provisions thereof
relating to wages, hours, collective bargaining and the payment of social
security and similar taxes, and Seller is not liable for any arrearages in wages
or any taxes or penalties for failure to comply with any of the foregoing.
5.11 EMPLOYEE RELATIONS
Except as disclosed on SCHEDULE "5.11", (a) neither Seller,
nor the Hospitals are a party to any agreement with any union, trade association
or other employee organization with respect to the employees of the Hospitals,
(b) no written demand has been made for recognition by a labor organization with
respect to any employees of the Hospitals, and (c) to Seller's Knowledge no
union organizing activities by or with respect to any such employees are taking
place.
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5.12 PERSONNEL
SCHEDULE "5.12" contains (a) a complete list of all of
Seller's current employees (by employee number) and rates of pay, fringe
benefits and written personnel policies, and (b) the date of hiring and job
title of each such person. Except as provided in SCHEDULE "1.1.5", Seller has no
employment agreements with any of the employees and all current employees are
employed on an "at will" basis. SCHEDULE "5.12" shall be revised as of the
Closing to reflect the employees who have been terminated within 90 days of the
Closing.
5.13 ASSUMED CONTRACTS
SCHEDULE "1.1.5" contains a true and correct list of all
Contracts other than those Contracts described in Paragraph 1.1.5(b). To
Seller's Knowledge, except as set forth on SCHEDULE "5.13", (a) there is no
default by Seller under any Assumed Contract, (b) Seller has not received
written notice that any Person intends to cancel or terminate any Assumed
Contract or exercise or not exercise any right, remedy or other option
thereunder, (c) all of the Assumed Contracts are in full force and effect
without amendment or modification, (d) the consummation of the transactions
contemplated by this Agreement will not constitute and, no event has occurred
which, with or without the passage of time or the giving of notice, would
constitute a breach or default by any party to any such Assumed Contract or
would cause the acceleration of any obligation of any party thereto or the
creation of any Lien upon any Transferred Asset, and (e) Seller has not waived
any material right under any Assumed Contract.
5.14 BROKERAGE AND FINDER'S FEES
None of Seller, its Affiliates or any of their officers or
directors has employed, contracted for the services of, or authorized any
broker, finder or investment banker with respect to the negotiations leading up
to the execution of this Agreement or the consummation of the transactions
contemplated hereby, and Seller shall be solely responsible for any fees or
commissions payable to any such broker, finder or investment banker by reason of
the actions (or alleged actions) of Seller, its Affiliates or any of their
officers or directors.
5.15 U.S. PERSONS
Seller is not a "foreign person" for purposes of Section
1445 of the Internal Revenue Code of 1986, as amended (the "CODE"), or any other
Laws requiring with holding of amounts paid to foreign Persons.
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5.16 INVENTORY
All of the Purchased Inventory will consist of items
actually on hand of a quality and quantity useable and saleable in the ordinary
course of business of the Hospitals as currently operated by Seller, consistent
with past practices.
5.17 CHANGES SINCE INTERIM STATEMENTS
From and after the date of the Interim Statements and until
the Closing Date, other than as contemplated or permitted by this Agreement,
Seller has conducted the Hospital Businesses only in the ordinary and normal
course, and except as shown on SCHEDULE "5.17", the institution or completion of
compliance programs, or events in anticipation of the divestiture of the
Hospital Businesses, there has not been:
(a) Any entry into or termination by Seller of any material
commitment, contract, agreement or transaction (including, without limitation,
any borrowing or lending transaction or capital expenditure) related to the
Hospital Businesses except for transactions in the ordinary course of business;
(b) Other than in the ordinary course of business, (i) any
sale or other disposition of any asset included in the Interim Statements having
net book value in excess of $75,000 (except to the extent such asset is replaced
by assets serving a similar purpose), or (ii) any material mortgage, pledge or
imposition of any lien or other encumbrances on any such asset, or (iii) any
sale or other disposition of Inventory included in the Interim Statements;
(c) Any change, or any request or application for a change
in, the provider numbers of the Hospitals, or any creation, modification or
termination of any agreement with any Payor, or any change in the method of
accounting with respect to the Hospitals; or
(d) Any general increase made in the compensation levels or
severance benefits of the employees of the Hospitals or rates charged by the
Hospitals, except in the ordinary course of business.
(e) Material adverse changes in the financial condition of
the Transferred Assets, the Hospital Businesses, or in the results of operations
of the Hospitals or Seller.
(f) Strikes, work stoppages or other labor disputes
adversely affecting the Hospitals.
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5.18 COST REPORTS, THIRD PARTY RECEIVABLES AND CONDITIONS OF
PARTICIPATION
Notices of Program Reimbursement have been issued by the
applicable fiscal intermediary with respect to the cost reports of the Hospitals
for Medicare, Medicaid (if required) and Blue Cross (if required) reimbursement
have been audited through the periods set forth in SCHEDULE "5.18." True and
correct copies of these cost reports and any cost reports since the date of the
last audited cost report have been provided to Buyer. Except as disclosed on
Schedule 5.18, the cost reports of the Hospitals for Blue Cross and Medicare
were filed when due in substantial compliance with the then existing Laws
pertaining thereto. Except as set forth in Schedule 5.18, to the Knowledge of
Seller, (a) Seller has not received notice of any adjustments, challenges,
intent to reopen, and/or material dispute between a Hospital and Blue Cross,
governmental authorities or the Medicare fiscal intermediary regarding such cost
reports for the periods subsequent to the period specified in Schedule 5.18
other than with respect to adjustments thereto made in the ordinary course of
business which do not involve individual amounts in excess of $50,000 per cost
report; (b) there are no pending or threatened material claims by any of such
programs against a Hospital or Seller; and (c) no Hospital or Seller has been
subject to loss of waiver of liability for utilization review denials with
respect to any such program during the past two years.
5.19 MEDICAL STAFF
Seller has previously delivered to Buyer, with respect to each
Hospital, (a) a true and correct copy of the blank forms generally used with
respect to medical staff privilege and membership application or delineation of
privilege; (b) all current medical staff bylaws, rules and regulations and
amendments thereto respecting the Hospitals; and (c) all written contracts with
physicians, physician groups, or other members of the medical staff of the
Hospitals. Except as disclosed in SCHEDULE "5.19," there are no material pending
or, to Seller's Knowledge, threatened disciplinary or corrective actions or
appeals therefrom involving physician applicants, acting medical staff members
or affiliated health professionals initiated by Seller.
5.20 HILL-BURTON CARE
Except as disclosed on SCHEDULE "5.20," neither the Hospitals
nor Seller has received any loans, grants or loan guarantees pursuant to the
Hill-Burton Act (42 U.S.C. Section 291a, et seq.), the Health Professions
Educational Assistance Act, the Nurse Training Act, the National Health Pharmacy
and Resources Development Act, and the Community Mental Health Centers Act, as
amended, or any other federal, state or local statute or regulation or
government program whatsoever and the transactions contemplated hereby will not
result in any obligation on the part of the Buyer to repay any such loans,
grants or loan guarantees or provide uncompensated care in consideration
thereof.
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5.21 TAXES
All tax returns of every kind (including, without limitation,
returns of all income taxes, franchise taxes, real and personal property taxes,
intangibles taxes, patient revenue or other health care taxes, withholding
taxes, employee compensation taxes and all other Taxes of any kind applicable to
Seller) that are due to have been filed in accordance with applicable Laws in
fact have been duly filed, and all taxes shown to be due and payable on such
returns and any other Taxes (whether or not evidenced by a return) have paid in
full and correctly reflect the liabilities of Seller for taxes for the period
covered by each tax return.
5.22 ERISA PLANS
For purposes of this Agreement, the term "PLANS" shall mean
(i) all "Employee Benefit Plans" (as such term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of which
Seller ever was a sponsor or participating employer or as to which Seller makes
contributions or is required to make contributions and (ii) any similar
employment, severance or other arrangement or policy of Seller (whether written
or oral) providing for insurance coverage (including self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits or retirement benefits, or for profit sharing, deferred
compensation, bonuses, stock options, stock appreciation or other forms of
incentive compensation or post-retirement insurance, compensation or benefits.
Notwithstanding any statement or indication in this Agreement to the contrary,
except as provided in Paragraph 3.1(b), there are no Plans as to which Buyer
will be required to make any contributions or with respect to which Buyer shall
have any obligation or liability whatsoever, whether on behalf of any of the
current employees of the Hospital Businesses after the Closing.
5.23 NO NEGOTIATIONS WITH THIRD PARTIES
Neither Seller nor its Affiliates have entered into any
negotiations, letters of intent, or understandings which are presently in
effect, with any Person (other than Buyer) with respect to the sale or other
disposition of any of the Transferred Assets (other than Inventory in the
ordinary course of business). Neither Seller nor its Affiliates is a party to
any presently effective executory agreement with any Person other than Buyer
with respect to any such sale or disposition.
5.24 MISCELLANEOUS REPRESENTATIONS RELATING TO REAL PROPERTY
(a) To Seller's Knowledge, the Hospitals are not in
material violation of applicable building code, safety, fire, land use or access
Laws.
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(b) No part of the Real Property is currently subject to
condemnation proceedings and, to Seller's Knowledge, no condemnation or taking
is threatened or contemplated.
(c) Seller has furnished to Buyer complete copies of all
mechanical and structural studies or reports or assessments, engineering plans,
architectural drawings, soil studies, surveys and other documents in Seller's
possession which have been prepared by or at the direction of Seller or its
Affiliates relating to any of the Transferred Assets.
5.25 MOTOR VEHICLES
All motor vehicles used in the business of Seller, identified
as owned or leased, are listed in SCHEDULE "5.25" hereto. All such vehicles are
properly licensed and registered in accordance with applicable Law.
6. OBLIGATIONS AND COVENANTS OF SELLER
Seller hereby covenants and agrees as follows:
6.1 CONDUCT OF BUSINESS
From the date hereof to the Closing Date, Seller agrees that,
with respect to the Hospital Businesses, unless Buyer otherwise consents in
writing and except for actions taken pursuant to Assumed Contracts in effect on
the date hereof or which arise from or are related to the anticipated transfer
of the Hospital Businesses or as otherwise contemplated by this Agreement,
Seller shall do or comply with each of the following:
(a) Subject to the limitations set forth in this
Paragraph 6.1, operate the Hospital Businesses as presently operated and only in
the ordinary course, and, consistent with such operation, will comply in all
material respects with all applicable legal and contractual obligations.
(b) Use its best efforts to preserve the business
organization of the Hospital Businesses intact and to preserve the Hospital
Businesses' relationships with doctors, patients, Payors, suppliers and others
having business relations with the Hospital Businesses.
(c) Not incur or commit to incur any obligation with
respect to purchase orders for the Hospital Businesses which exceed $40,000 for
any one purchase order or $150,000 for all such purchase orders per Hospital.
(d) Not enter into any contract or amendment of a
contract (other than a contract which is described in Paragraph 1.1.5(b)) unless
Buyer has failed to disapprove of such contract or amendment in a written notice
to Seller given within five business days of
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Seller's written notice to Buyer of such contract or amendment accompanied by a
copy thereof. Buyer's disapproval of such contract or amendment shall not be
unreasonable. Any contract or amendment entered into in compliance with this
Paragraph 6.1(d) shall constitute an Assumed Contract for all purposes of this
Agreement as if it were originally set forth on Schedule 1.1.5. Notwithstanding
the foregoing, Seller may enter into any contract which can be terminated
without cause, premium or payment within 90 days of the Closing Date or, if such
contract is a lease under which Seller is lessor, such contract contains terms
which are consistent with its past practices, are commercially reasonable and
not in violation of any Law or safe harbor therein contained.
(e) Not (i) purchase or sell, or make any contract for
the purchase or sale of, any assets or properties which would be included in the
Transferred Assets other than purchases in the thresholds set forth in
subparagraph (c) above unless concurrently with or within a reasonable time
before or after such sale, Seller replaces such asset with a similar item of
equal or greater value; or (ii) accelerate or delay the purchase of Inventory in
a manner inconsistent with past practice, except as required by subparagraph (c)
above.
(f) Not grant any general or uniform increase in the
rates of pay or benefits to the employees of the Hospital Businesses (or a class
thereof), except for compensation previously agreed to prior to the date hereof
and merit pay increases agreed to prior to the date hereof.
(g) Maintain, without change of coverage or insurance
carrier unless approved of in writing by the Buyer (which approval shall not be
unreasonably withheld or delayed), the existing insurance on the Transferred
Assets and the operations of the Hospitals.
(h) Timely file or cause to be filed all cost reports and
other reports of every kind, nature or description, required by law or by
contract to be filed with respect to the purchase of services by Payors prior to
Closing.
Nothing in this Paragraph 6.1 shall, without the mutual
written agreement of Buyer and Seller, obligate Seller to make expenditures
other than in the ordinary course of business or to make any commitment on
behalf of or which would be binding upon Buyer. Notwithstanding any provision
contained in this Agreement to the contrary, Seller may give notice of
termination or may terminate at any time prior to the Closing Date any contract
which is not an Assumed Contract, and any change in the operation of the
Hospital Businesses or the Hospital Businesses' relationships with the Persons
listed in subparagraph (b) above (including, without limitation, a loss of any
or all of the employees or patients of, or doctors of other professional
providing services to, the Hospital Businesses) as a result of such notice of
termination or termination or as a result of Seller's compliance with its
obligations under this Agreement shall not constitute a violation of this
Paragraph 6.1.
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6.2 ACCESS AND INFORMATION
Subject to the restrictions set forth in Paragraph 14.6 and
provided that Buyer has complied with each and every provision thereof, Seller
shall afford Buyer, any prospective lender of Buyer, and the counsel,
accountants and other representatives of Buyer and any such lender, reasonable
access, throughout the period from the date hereof to the Closing, to the
Transferred Assets and the employees, personnel and medical staff of the
Hospital Businesses and all the properties, books, contracts, commitments, cost
reports and records of the Hospital Businesses (regardless of where such
information may be located), including, without limitation, the right to conduct
an Environmental Survey (as such term is defined in Paragraph 8.2). Until the
first anniversary of the Closing Date, under no circumstances shall Buyer
directly or indirectly solicit the employment of any employees of Seller based
at any of the Hospitals, except as Hired Employees pursuant to the terms hereof
or except as may be permitted with the prior written consent of a responsible
officer of Seller. Such access shall be afforded after no less than 24 hours
prior notice, during normal business hours and only in such manner so as not to
disturb patient care or to interfere with the normal operations of the Hospital
Businesses; provided, however, that notwithstanding the foregoing and subject to
the provisions concerning nondisclosure as set forth in Paragraph 14.6, without
first obtaining the consent of Donald W. Thayer, neither Buyer, any prospective
lender of Buyer, nor their respective counsel, accountants and other
representative, shall tour or visit the Hospital Businesses or contact any of
the employees, personnel or medical staff of the Hospital Businesses and any
such tour, visit or contact during the Inspection Period shall take place only
during a period of time, not to exceed ten days, to be mutually agreed upon by
Buyer and Seller. Seller also shall furnish to Buyer all such information
concerning the affairs of the Hospital Businesses as is in the possession or
control of Seller and as Buyer may reasonably request, including the right to
have copies and/or extracts of pertinent records, documents and contracts. In
addition, Seller shall provide such written consents and authorizations as may
be necessary for Buyer to have access to materials on file with governmental
agencies. Nothing in this Agreement to the contrary shall in any manner restrict
the ability of Buyer to discuss the business and affairs of the Hospital
Businesses with any governmental agency having jurisdiction over the Hospital
and/or this transaction or the fiscal intermediaries administering the
Hospitals' Payor programs. Seller's covenants under this Paragraph 6.2 are made
with the understanding that Buyer and any other Person provided with access to
information under this Paragraph 6.2 shall use all such information in
compliance with all Laws. Neither Buyer nor any other Person shall have access
to employee records, Patient Records or any other records to the extent that the
disclosure of such records would be prohibited by any Law, accreditation
standards, or rule or agreement (express or implied) of confidentiality or
violate or breach any attorney-client privilege.
6.3 ENCUMBRANCES
From the date hereof and until the Closing, Seller shall not
create any new Lien to attach upon any of the Transferred Assets, except for
statutory liens for Taxes not
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delinquent as of Closing. The provisions of this Paragraph shall not apply to
any Liens resulting from acts or omissions of Buyer.
6.4 CONSENT OF OTHERS
Prior to the date hereof, Buyer has designated in writing
which Assumed Contracts Buyer desires the written consent to the assignment from
Seller to Buyer from the other party thereto (the "DESIRED CONSENTS"), the list
of which is attached hereto as SCHEDULE "6.4". As soon as reasonably practicable
after the date hereof, and in any event prior to the Closing, Seller shall use
its reasonable commercial efforts to obtain the Desired Consents; provided,
however, that it shall not be a condition precedent to Buyer's obligations
hereunder, that Seller obtain all of the Desired Consents (except for the
consents listed in Paragraph 9.4) prior to Closing. The foregoing
notwithstanding, it shall be the responsibility of Buyer to use its reasonable
commercial efforts to obtain any consents required in connection with the
Permits, participations, and accreditations referred to in Paragraph 9.5
(including Buyer's licensing requirements), provided, however, Seller shall
cooperate with Buyer in obtaining such consents so long as such cooperation is
at no cost to Seller. Seller shall have no liability to Buyer if, after using
its reasonable commercial efforts, it is unable to obtain any of the consents
referred to in the first sentence of this Paragraph.
6.5 NO TRANSFER OF ASSETS
Except as otherwise provided in Paragraph 6.1, from and after
the date hereof and until the Closing Date, Seller shall not, without the prior
written consent of Buyer: (a) offer for sale or other disposition (whether by
lease, merger or otherwise) the Transferred Assets (or any material portion
thereof) or any ownership interest in any entity owning any of the Transferred
Assets, (b) solicit offers to acquire (whether by lease, merger or otherwise)
the Transferred Assets (or any material portion thereof) or any ownership
interest in any entity owning any of the Transferred Assets, (c) hold
discussions with, or furnish any information to, any Person (other than Buyer)
looking toward such an offer or solicitation or looking toward a merger or
consolidation of any entity owning any of the Transferred Assets or (d) enter
into any agreement (including, but not limited to, any confidentiality or
similar agreement, letter of intent, memorandum or letter of understanding, or
definitive agreement) with any Person (other than Buyer) with respect to the
sale or other disposition (whether by lease, merger or otherwise) of the
Transferred Assets (or any material portion thereof) or any ownership interest
in any entity owning any of the Transferred Assets or with respect to any
merger, consolidation, or similar transaction involving any entity owning any of
the Transferred Assets.
6.6 SELLER'S EFFORTS TO CLOSE
Seller shall use its reasonable commercial efforts to satisfy
all of the conditions precedent set forth in Paragraphs 9 and 10 to its or
Buyer's obligations under this
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Agreement to the extent that Seller's action or inaction can control or
influence the satisfaction such conditions.
6.7 MONTHLY STATEMENTS
From the date hereof to the Closing, Seller shall deliver to
Buyer within 15 days after the end of each calendar month copies of the
unaudited balance sheet of the Transferred Assets and the related statement of
income for the immediately preceding calendar month (the "MONTHLY STATEMENTS").
7. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants the following:
7.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly incorporated, and validly existing
under the laws of, and is authorized to exercise its corporate powers, rights
and privileges and is in good standing in, the State of Tennessee and has full
corporate power to carry on its business as contemplated hereby and to own or
lease and operate its properties and assets now owned or leased and operated by
it.
7.2 AUTHORITY
Buyer has the full corporate power and authority to execute,
deliver and perform the obligations and covenants set forth in this Agreement
and to carry out the transactions contemplated herein. The execution, delivery
and performance of this Agreement by Buyer and the consummation of the
transactions contemplated herein have been duly authorized by the Board of
Directors of Buyer. No further corporate action is necessary on the part of
Buyer to make this Agreement binding upon and enforceable against Buyer in
accordance with its terms except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar Laws now or hereafter in
effect relating to creditors' rights generally and except that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding may be brought. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(a) violate any Law applicable to Buyer or (b) violate or conflict with any
provision of the Articles of Incorporation or Bylaws of Buyer.
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7.3 BROKERAGE AND FINDER'S FEES
As of the date hereof, none of Buyer, its Affiliates or any of
their officers or directors has employed, contracted for the services of or
authorized any broker, finder or investment banker with respect to the
negotiations leading up to the execution of this Agreement or the consummation
of the transactions contemplated hereby, and Buyer shall be solely responsible
for any fees or commissions payable to any such broker, finder or investment
banker by reason of the actions (or alleged actions) of Buyer, its Affiliates or
any of their officers or directors making a claim for such fees or commissions
whether pursuant to an agreement entered into after the date hereof or
otherwise.
7.4 PERMITS AND ACCREDITATIONS
There is no matter known to Buyer which would adversely affect
the obtaining by Buyer of any Permits or accreditations necessary for the
operation by Buyer of the Hospital Businesses as of the Closing in the same
manner as the Hospital Businesses are presently operated by Seller. Each of
Buyer and its Affiliates possess all Permits and accreditations necessary to
permit them to operate the health care facilities operated by them. All such
health care facilities have been accredited by the JCAHO. Neither Buyer nor any
of its affiliates has received any notice or has any knowledge of any matter
which would materially adversely effect the maintenance of any such Permits or
accreditations.
7.5 NO KNOWLEDGE OF SELLER'S BREACH
Neither Buyer nor any of its Affiliates has Knowledge of any
breach of any representation or warranty by Seller or of any other condition or
circumstance that would excuse Buyer from its timely performance of its
obligations hereunder. If any of Buyer's Designated Representatives (as defined
herein) shall have received or reviewed any written information (a "WRITTEN
STATEMENT") indicating that Seller has made a misstatement in or omission from
any representation or warranty of Seller under this Agreement before the Closing
Date (whether through Seller or otherwise), then for the purpose of Seller's
liability under the corresponding representations and warranties in this
Agreement after the Closing Date, the effect shall be as if the corresponding
representations and warranties were so modified in this Agreement as of the
Closing Date; provided, however, that (a) Buyer's opportunity to make an
investigation (including, but not limited to its due diligence investigation) of
the Transferred Assets shall not limit the express representations and
warranties of Seller made herein, unless any of Buyer's Designated
Representatives has received or reviewed a Written Statement, and (b) Buyer must
notify Seller within 48 hours (or promptly, if 15 days or less prior to the
Closing Date) if any such information comes to its attention before the Closing
Date, and Buyer's failure to so notify Seller shall constitute a waiver by Buyer
of Seller's breach, if any, of any representation or warranty to which such
Written Statement relates, or a waiver of such condition or circumstance insofar
as it would
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excuse Buyer from its timely performance of obligations. As used herein,
"BUYER'S DESIGNATED REPRESENTATIVES" shall mean Neil G. McLean and Dana C.
McLendon, Jr.
7.6 NO ASSURANCE
Buyer acknowledges and agrees that the rates or bases used in
calculating payments or reimbursements to it by any Payor (including but not
limited to Medicare) may differ from the rates and bases used in calculating
such payments or reimbursements to Seller; provided, however, that Seller will
notify Buyer of any changes in said rates arising prior to Closing of which
Seller has Knowledge.
8. OBLIGATIONS AND COVENANTS OF BUYER
Buyer hereby covenants and agrees as follows:
8.1 CONSENT OF OTHERS
As soon as reasonably practicable after the date of this
Agreement, and in any event prior to the Closing, Buyer shall use its reasonable
commercial efforts to obtain the consents required to be obtained by Buyer
hereunder of all necessary Persons and governmental agencies having jurisdiction
over this transaction to the consummation of the transactions contemplated
hereunder, including, without limitation, the Permits, participations and
accreditations referred to in Paragraph 9.5.
8.2 INSPECTION
Prior to the date of this Agreement, Buyer commenced its due
diligence investigation and inspection of the Transferred Assets (structural,
operational, environmental, title or otherwise) and of the business, prospects
and affairs of the Transferred Assets and the Hospital Businesses (the
"INSPECTION"). As Buyer has not completed the Inspection prior to the date of
this Agreement, Buyer hereby covenants and agrees that Buyer shall complete the
Inspection on or before the expiration of the Inspection Period referred to in
Paragraph 9.3, provided that Seller has fully and timely responded to all due
diligence requests made by Buyer or its representatives, and all costs and
expenses incurred in connection with the Inspection shall be borne by Buyer
except as otherwise specifically set forth herein. As part of the Inspection,
(i) Seller has obtained and delivered to Buyer (a) preliminary title reports
(the "PRELIMINARY TITLE REPORTS") issued by Chicago Title Insurance Company (the
"TITLE COMPANY") with respect to the Real Property, the Lander Property, and the
Woodland Park Property, together with true, correct and legible copies of all
instruments referred to therein as conditions or exceptions to title, (b) UCC
search reports covering each Seller (and, to Seller's Knowledge, all trade names
and d/b/a's used by the Hospitals and the Hospital Businesses ("UCC REPORTS"),
and (ii) Buyer has obtained (x) written environmental surveys of the Real
Property, the Lander Property and the Woodland Park Property (collectively, the
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"ENVIRONMENTAL SURVEY") prepared by an environmental consulting firm (the
"CONSULTANT"), and (y) ALTA surveys complying with the Minimum Standard Detail
Requirements for ALTA/ASCM Land Title Surveys (the "SURVEYS") for the Real
Property, the Lander Property and the Woodland Park Property, and Buyer has
delivered copies of the Environmental Survey (including the final reports and
all draft reports) and the Surveys to Seller. Buyer and Seller acknowledge and
agree that the Environmental Survey as of the date of this Agreement is only an
initial environmental site assessment (the "PHASE I ASSESSMENTS") but will
include, if subsequently determined by Buyer and the Consultant to be necessary
or prudent, and if Buyer thereafter directs the Consultant to undertake the same
(at Buyer's sole cost and expense) a further investigation with respect thereto
(the "PHASE II INVESTIGATION") of the Real Property, the Lander Property and/or
the Woodland Park Property and that thereafter all references in this Agreement
to the Environmental Survey shall mean both the Phase I Assessment and all Phase
II Investigations. The right of access granted to Buyer pursuant to Paragraph
6.2 shall include the right to inspect, sample, test or perform any other
service or procedure reasonably necessary for the preparation of the
Environmental Survey. Buyer shall give Seller no less than 24 hours' notice
before the Consultant enters onto the Real Property, the Lander Property or the
Woodland Park Property to conduct the Phase II Investigation, which shall be
conducted so as not to interfere with the normal operation of the Hospital
Businesses. Seller shall be permitted to have one of its employees present
during all inspections of and sample gatherings (including borings) from the
soil or any floor tile, insulation or other internal component of the Real
Property, the Lander Property and the Woodland Park Property.
8.3 BUYER'S EFFORTS TO CLOSE
Buyer shall use its reasonable commercial efforts to satisfy
all the conditions precedent set forth in Paragraphs 9 and 10 to its or Seller's
obligations under this Agreement to the extent that Buyer's action or inaction
can control or influence the satisfaction of such conditions.
8.4 WAIVER OF BULK SALES LAW COMPLIANCE
Subject to the indemnification provisions of Paragraph 16.1,
Buyer hereby waives compliance by Seller to the extent permitted by Law with the
requirements, if any, of Article 6 of the Uniform Commercial Code as in force in
any state in which the Transferred Assets are located and all other similar Laws
applicable to bulk sales and transfers.
8.5 ABILITY TO PERFORM
Attached hereto as EXHIBIT "8.5" is a letter from TD
Securities to Dana McLendon, Jr. dates December 10, 1997 (the "COMMITMENT
LETTER"), wherein TD Securities has listed the lenders who have committed
definitively to participate in Buyer's $132,500,000 Senior Secured Credit
Facility. Buyer hereby agrees from and after the date hereof, to take no
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action which would cause such lenders to withdraw their commitment to
participate in the Senior Secured Credit Facility.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are subject to the
satisfaction or Buyer's waiver in writing, at or prior to the Closing, of each
of the following additional conditions:
9.1 ACCURACY OF WARRANTIES AND REPRESENTATIONS
Each of the representations and warranties of Seller set forth
in this Agreement and in the Disclosure Statement delivered pursuant hereto
shall be true and correct in all material respects as of the date of this
Agreement and at and as of the Closing Date with the same force and effect as
though such representations and warranties had been made as of the Closing Date,
except as to changes occurring in the ordinary course of business of the
Hospital Businesses after the date of this Agreement and not materially
adversely affecting the business, properties or financial condition of the
Hospital.
9.2 PERFORMANCE OF OBLIGATIONS
Seller shall have performed in all material respects all
agreements and covenants required by this Agreement to be performed by it on or
prior to the Closing.
9.3 APPROVAL OF INSPECTION
Buyer shall have approved, subject to the provisions of
Paragraph 14.7, the results of the Inspection in the manner set forth in this
Paragraph 9.3. Buyer shall complete the Inspection on or before the date which
is ten days from the date hereof (the "INSPECTION PERIOD"). On or prior to the
expiration of the Inspection Period, Buyer shall give Seller written notice of
its approval or disapproval of the Inspection. If Buyer gives notice of its
disapproval of the Inspection, such notice must specify the items to which Buyer
objects which led Buyer to disapprove the Inspection and the satisfaction of the
requirements of this Paragraph 9.3 shall be governed by Paragraph 14.7. If Buyer
fails to deliver to Seller a proper and timely notice of disapproval of the
Inspection, Buyer shall be deemed to have approved the Inspection.
9.4 THIRD PARTY CONSENTS
Woodland Park Hospital, Inc. shall have entered into an
amendment to the Woodland Park Lease to extend the term of the Lease to December
31, 2019 and Buyer shall have received the consent to the assignment by Seller
of the Woodland Park Lease in a form reasonably acceptable to Buyer.
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9.5 PERMITS AND PROGRAM PARTICIPATION
Buyer shall have obtained (or received reasonable assurances
that it shall obtain) all Permits and accreditations required for the operation
of the Hospitals by Buyer following the Closing in substantially the same manner
as currently operated, and Buyer shall have obtained (or received reasonable
assurances that it shall obtain within a reasonable period of time after the
Closing) Medicare, Medicaid and CHAMPUS certification of the Hospitals and the
participation by the Hospitals in the program of any other Payor reasonably
determined by Buyer that will in each instance be effective as of the Closing
and that within a reasonable period of time after the Closing the Hospitals may
participate in or receive reimbursement from all such programs effective as of
the Closing.
9.6 TAX MATTERS
Seller shall have delivered to Buyer a duly executed
certificate of nonforeign status in the form required by Section 1445 of the
Code.
9.7 TITLE INSURANCE
At the Closing, Buyer shall have received either (a) ALTA (or
the local equivalent thereof) extended coverage owner's policies (or, with
respect to the Lander Property and the Woodland Park Property, a leasehold
owner's policy) of title insurance issued by the Title Company to Buyer insuring
title to the Real Property, the Lander Property and the Woodland Park Property
in an amount equal to the portion of the Purchase Price allocated to the Real
Property, the Lander Property and the Woodland Park Property pursuant to
Paragraph 14.5, showing good and marketable title to the Real Property and good
and marketable leasehold title to the Lander Property and the Woodland Park
Property vested in Buyer free and clear of all Liens except (i) statutory liens
not yet delinquent, (ii) the Permitted Exceptions, (iii) any matter that may be
disclosed by the Surveys, and (iv) all other matters and exceptions approved,
deemed approved or waived by Buyer during the Inspection Period (collectively
the "TITLE POLICY"), or (b) the written commitments or binders of the Title
Company to issue the Title Policy in the aforementioned condition within a
reasonable time after the Closing Date. Seller shall, at Buyer's expense,
execute and deliver such certificates and affidavits as may be reasonably
required to delete the standard printed exceptions which are capable of being
deleted from the Title Policy.
9.8 INSTRUMENTS OF TRANSFER
At the Closing, Seller shall have delivered to Buyer or Escrow
Agent (as hereinafter defined in Paragraph 11), as the case may be, such special
or limited warranty deeds for the Real Property, assignments of lease for the
Real Property Leases, Bills of Sale and other good and sufficient instruments of
transfer, conveyance and assignment as are reasonably requested by Buyer and
reasonably satisfactory to counsel for Buyer and Seller and
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which shall be effective to vest in Buyer title to the Transferred Assets in
accordance with SECTION "5.4". Seller shall also execute and deliver, at no
additional expense to Seller, such instruments as may be reasonably required by
the Title Company in order to issue any endorsements obtained by Buyer, at
Buyer's expense; provided, however, that the issuance of any such endorsements
shall not be a condition to Closing.
9.9 OFFICER'S CERTIFICATE
Seller shall have delivered to Buyer (a) a certificate, dated
the Closing, executed by its President, any Vice President or any authorized
signatory on behalf of Seller (and not in such person's individual capacity),
stating that as of the Closing (i) Seller knows of no facts except as
specifically disclosed in writing in such certificate which would cause Seller
to be in breach of any of its representations and warranties hereunder, (ii) to
Seller's Knowledge, Seller has duly performed in all material respects all
obligations and covenants to be performed by it hereunder and (b) good standing
certificates for each Seller from the Secretary's of State of their respective
states of incorporation, dated as of a date not earlier than ten business days
prior to the Closing Date.
9.10 CERTIFIED RESOLUTIONS
A copy of the following shall have been delivered to Buyer:
the resolutions of the Board of Directors of each Seller (and any shareholder of
Seller, if required) authorizing the execution of this Agreement and the
performance of the transactions contemplated hereby, together with an incumbency
certificate from each Seller, all of which shall be certified as true, correct
and effective as of the Closing Date by the Secretary or Assistant Secretary of
each Seller.
9.11 HART-SCOTT-RODINO ACT
Seller shall have complied with the Hart-Scott-Rodino
Antitrust Improvements Act of 1975 (15 U.S.C. Section 18A) and the rules
promulgated thereunder (said statute and rules are collectively referred to
hereinafter as the "PREMERGER RULES"), together with all other Laws concerning
antitrust and fair trade. The applicable waiting period required under the
Premerger Rules shall have expired without objection or shall have been waived,
and all other consents or approvals required by such other Laws shall have been
obtained.
9.12 ADVERSE ACTION
No bona fide action or proceeding shall be pending against
either Buyer or Seller wherein an unfavorable judgment, decree or order would
prevent or make unlawful the carrying out of the transactions contemplated by
this Agreement or would compel Buyer's divestiture of all or any part of the
Transferred Assets or otherwise restrict Buyer's operation
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of the Transferred Assets; and no governmental agency shall have notified either
Buyer or Seller that the consummation of the transactions by this Agreement
would constitute a violation of Laws of any jurisdiction or would compel Buyer's
divestiture of all or any part of the Transferred Assets or otherwise restrict
Buyer's operation of the Transferred Assets or that it has commenced or intends
to commence proceedings to restrain the consummation of the transactions
contemplated hereunder and such agency has not withdrawn such notice.
9.13 PARENT GUARANTY
At the Closing, Tenet Healthcare Corporation, a Nevada
corporation ("SELLER'S PARENT"), the ultimate parent of all entities comprising
Seller, shall have delivered to Buyer a guaranty of Seller's performance of its
obligations hereunder, which guaranty shall be substantially in the form of
EXHIBIT "9.13".
9.14 OPINION OF SELLER'S COUNSEL
Buyer shall have received an opinion from the general counsel,
associate general counsel or senior counsel of Seller, dated as of the Closing
Date and addressed to Buyer stating that (a) each Seller is a corporation
validly existing and in good standing under the laws of the state of its
incorporation and (b) this Agreement has been duly and validly authorized,
executed and delivered by each Seller and is not contrary to the Articles of
Incorporation or bylaws of such Seller. In rendering such opinion, such counsel
may rely upon certificates of governmental officials and may place reasonable
reliance upon certificates of officers of each Seller. The opinion of counsel
shall be limited, however, to California and federal laws and shall be subject
to such other customary conditions and limitations as are applicable.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller under this Agreement are subject to the
satisfaction or Seller's waiver in writing, at or prior to the Closing, of each
of the following additional conditions:
10.1 ACCURACY OF WARRANTIES AND REPRESENTATIONS
Each of the representations and warranties of Buyer set forth
in this Agreement shall be true and correct in all material respects as of the
date of this Agreement and at and as of the Closing Date with the same force and
effect as though such representations and warranties had been made as of the
Closing Date, except as to changes occurring in the ordinary course of business
of Buyer after the date of this Agreement and not materially adversely affecting
the business, properties or financial condition of the Buyer.
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10.2 PERFORMANCE OF OBLIGATIONS
Buyer shall have performed in all material respects all
agreements and covenants required by this Agreement to be performed by it on or
prior to the Closing.
10.3 PAYMENT OF PURCHASE PRICE
Buyer shall have delivered, or caused to be delivered, to
Seller at the Closing (a) the immediately available funds described in Paragraph
2.3(a)(i), (b) the Bills of Sale and (c) immediately available funds in an
amount equal to the costs to be reimbursed to Seller by Buyer pursuant to
Paragraph 19.9, net of amounts owed to third parties by Seller pursuant to
Paragraph 19.9.
10.4 OFFICER'S CERTIFICATE
Buyer shall have delivered to Seller (a) a certificate, dated
the Closing, executed by its President or any Vice President, on behalf of Buyer
(and not in such person's individual capacity), stating that as of the Closing
(i) Buyer knows of no facts except as specifically disclosed in writing in such
certificate which would cause Buyer to be in breach of any of its
representations and warranties hereunder (ii) to the best of Buyer's Knowledge,
Buyer has duly performed all obligations and covenants to be performed by it
hereunder and (b) good standing certificates for Buyer from the Secretary of
State of Tennessee, dated as of a date not earlier than ten business days prior
to the Closing Date.
10.5 CERTIFIED RESOLUTIONS
Copies of the following shall have been delivered to Seller:
(a) the resolutions of the Board of Directors of Buyer authorizing the execution
of this Agreement and the performance of the transactions contemplated hereby
which shall be certified as true, correct and effective as of the Closing Date
by the Secretary or Assistant Secretary of Buyer and (b) an incumbency
certificate of Buyer which shall be certified as true, correct and effective as
of the Closing Date by the Secretary or Assistant Secretary of Buyer.
10.6 HART-SCOTT-RODINO ACT
Buyer shall have complied with the Premerger Rules and all
other Laws concerning antitrust and fair trade. The applicable waiting period
required under the Premerger Rules and such other Laws shall have expired
without objection or shall have been waived, and all other consents or approvals
required by such other Laws shall have been obtained.
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10.7 ADVERSE ACTION
No bona fide action or proceeding shall be pending against
either Buyer or Seller wherein an unfavorable judgment, decree or order would
prevent or make unlawful the carrying out of the transactions contemplated by
this Agreement or would compel Buyer's divestiture of all or any part of the
Transferred Assets or otherwise restrict Buyer's operation of the Transferred
Assets; and no governmental agency shall have notified either Buyer or Seller
that the consummation of the transactions contemplated by this Agreement would
constitute a violation of Laws of any jurisdiction or would compel Buyer's
divestiture of all or any part of the Transferred Assets or otherwise restrict
Buyer's operation of the Transferred Assets or that it has commenced or intends
to commence proceedings to restrain the consummation of the transactions
contemplated hereunder and such agency has not withdrawn such notice.
10.8 CONTINUED EXISTENCE OF COMMITMENT LETTER
The Commitment Letter shall be in full force and effect and
all lenders listed therein shall have taken such action as is necessary to
enable them to fund Buyer's Senior Secured Credit Facility on or before the
Closing Date.
10.9 OPINION OF BUYER'S COUNSEL
Seller shall have received an opinion from Harwell Howard Hyne
Gabbert & Manner, P.C., counsel to Buyer, dated as of the Closing Date and
addressed to Seller stating that (a) Buyer (and each of Buyer's Subsidiaries if
Buyer's Subsidiaries will, pursuant to Paragraph 19.5, take title to the
Transferred Assets) is a corporation validly existing and in good standing under
the laws of the State Tennessee (and, with respect to each such Buyer's
Subsidiary, its respective state of incorporation) and (b) this Agreement has
been duly and validly authorized, executed and delivered by Buyer and is not
contrary to the Articles of Incorporation or bylaws of Buyer. In rendering such
opinion, such counsel may rely upon certificates of governmental officials and
may place reasonable reliance upon certificates of officers of Buyer. The
opinion of counsel shall be limited, however, to Tennessee and federal laws and
shall be subject to such other customary conditions and limitations as are
applicable.
11. CLOSING
The Closing shall take place on January 31, 1998, at a time and a place
mutually agreeable to the parties or, subject to the limitations set forth in
Paragraph 17.1(c), such later date as all conditions precedent to the parties'
obligations set forth in Paragraphs 9 and 10 shall have been satisfied, waived
or are capable of being performed as of such date. The date on which the Closing
actually occurs shall be referred to herein as the "CLOSING DATE". The Closing
shall be effective for all purposes as of 12:01 a.m. (determined by reference to
the local
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time zones in which the Hospital Businesses are located) on the day immediately
following the Closing. The term "CLOSING" as used in this Agreement shall mean
the meeting of Buyer and Seller at which (of, if an escrow is established with
Escrow Agent (as hereinafter defined in Paragraph 11.2), the actions of Escrow
Agent by which) the documents and instruments referred to in Paragraph 9.8 are
delivered to Buyer, the documents and funds referred to in Paragraph 10.3 are
delivered to Seller and the other actions required to be taken hereunder shall
have been taken.
11.1 PRE CLOSING
A pre-closing of the transactions contemplated hereunder may,
if either party so elects, be held at a time and place mutually agreeable to
counsel to each of the parties on the day preceding the Closing Date.
11.2 ESCROW
If either of the parties desires to consummate the Closing
through an escrow, an escrow shall be opened with (and the escrow agent shall
be) Chicago Title Company, an Affiliate of the Title Company ("ESCROW AGENT"),
by depositing a fully executed copy of this Agreement with Escrow Agent to serve
as escrow instructions. This Agreement shall be considered the primary escrow
instructions between the parties, but the parties shall execute such additional
standard escrow instructions as Escrow Agent shall require in order to clarify
the duties and responsibilities of Escrow Agent. In the event of any conflict
between this Agreement and such additional standard escrow instructions, this
Agreement shall prevail. On the Closing Date, Escrow Agent shall (a) cause the
special or limited warranty deeds for the Real Property, together with any other
documents which the parties hereto may mutually designate, to be recorded in the
official records of the appropriate county on the Closing Date, (b) issue and
deliver to Buyer the Title Policy, or the binding commitment of the Title
Company to issue the Title Policy, (c) deliver to Seller by wire transfer of
immediately available funds to the account or accounts designated by Seller the
Purchase Price referred to in Paragraph 2.3(a)(i) and the costs to be reimbursed
to Seller by Buyer pursuant to Paragraph 19.9 (net of the amount of costs to be
reimbursed to Buyer by Seller), (d) deliver to Buyer the other agreements,
documents and instruments set forth in Paragraph 11.3(a), and (e) deliver to
Seller the other agreements, documents and instruments set forth in Paragraph
11.3(b).
11.3 DELIVERIES AT CLOSING
At the Closing, Buyer shall cause the Purchase Price referred
to in Paragraph 2.3(a)(i) and the costs to be reimbursed to Seller by Buyer
pursuant to Paragraph 19.9 to be wired to the account or accounts designated by
Seller and, upon written confirmation from the sending bank that said wire
transfer has commenced (which written confirmation shall include the
confirmation number of such wire transfer), the parties shall
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take the actions set forth below; provided, however, that if the Closing is to
be consummated through Escrow Agent, then on or prior to the Closing Date, Buyer
shall cause such funds to be wired to the Escrow Agent and upon Escrow Agent's
confirmation of its receipt of such funds, the parties shall undertake such
actions by making the deliveries described below to Escrow Agent for recordation
and/or delivery on the Closing Date.
(a) Seller. Seller shall deliver to Buyer the deeds and
other instruments of transfer, conveyance and assignment as described in
Paragraph 9.8, the other agreements, documents and instruments referred to in
Paragraph 9.
(b) Buyer. Buyer shall deliver to Seller the agreements,
certificates, documents and instruments referred to in Paragraph 10.
12. "AS IS" PURCHASE
Buyer acknowledges and agrees (and upon which Seller shall have
materially relied in selling the Transferred Assets to Buyer at the Purchase
Price and on the other terms and conditions herein set forth) that prior to the
expiration of the Inspection Period Buyer shall have completed the Inspection
(including its full and complete inspection of the Transferred Assets) and upon
the Closing shall conclusively be deemed to have been satisfied with the results
of the Inspection and with any cure of any Disapproved Item by Seller pursuant
to Paragraph 14.7. Based on the Inspection, Buyer is purchasing the Transferred
Assets on an "AS IS" basis and in "WITH ALL FAULTS" condition and except as
otherwise specifically provided in this Agreement, Seller makes no
representation or warranty, whether expressed or implied, regarding the physical
condition of the Transferred Assets, their fitness or suitability for any
particular purpose, or their compliance with applicable local building codes,
safety, fire, land use or access laws (including, without limitation, the
Americans With Disabilities Act), or any similar Law.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, BUYER, BY ITS SIGNATURE BELOW,
HEREBY ACKNOWLEDGES THAT, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THIS
AGREEMENT, NEITHER SELLER, NOR ANY OF ITS OFFICERS, EMPLOYEES, AFFILIATES OR
AGENTS, HAS MADE ANY REPRESENTATION OR WARRANTY REGARDING THE TRANSFERRED
ASSETS, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF HABITABILITY OR WARRANTY
OF MERCHANTABILITY OR WARRANTY OF SUITABILITY FOR A PARTICULAR PURPOSE, AND
BUYER HEREBY EXPRESSLY DISCLAIMS THE IMPLIED WARRANTY OF HABITABILITY, THE
IMPLIED WARRANTY OF MERCHANTABILITY, THE IMPLIED WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE, AND ALL EXPRESSED OR IMPLIED WARRANTIES RELATING TO THE
QUALITY OF OR OTHERWISE RELATING TO THE PHYSICAL CONDITION OF THE TRANSFERRED
ASSETS.
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13. EXCLUSIVITY FEE
Prior to the execution of this Agreement, Buyer has deposited the sum
of $700,000 (the "EXCLUSIVITY FEE") into an escrow account (the "ESCROW") at the
Escrow Agent as consideration for Seller's covenants set forth in Paragraphs
6.2, 65, 8.2 and as a good faith deposit for Buyer's performance under this
Agreement. The Exclusivity Fee shall be held and administered by the Escrow
Agent pursuant to the terms of that certain Escrow Agreement dated September 18,
1997 among Buyer, Tenet Healthcare Corporation on behalf of Seller, and Escrow
Agent (as may be amended from time to time, the "ESCROW AGREEMENT"). The
Exclusivity Fee shall be distributed as follows:
13.1 If the transaction contemplated by this Agreement fails to
close because of (a) the breach by Buyer of its material representation,
warranties or obligations hereunder, or (b) the conditions precedent set forth
in Paragraphs 10.1, 10.2, 10.3, 10.4, 10.5, 10.6 or 10.9 have not been satisfied
by Buyer or waived by Seller, then, subject to the rights of the Escrow Agent
under the Escrow Agreement, all funds in the Escrow shall be distributed to
Seller.
13.2 If the transaction contemplated by this Agreement fails to
close for any reason other than (a) a breach by Buyer of its material
representations, warranties or obligations hereunder, or (b) the conditions
precedent set forth in Paragraphs 10.1, 10.2, 10.3, 10.4, 10.5, 10.6 or 10.9
have not been satisfied by Buyer or waived by Seller, then, subject to the
rights of the Escrow Agent under the Escrow Agreement, all funds in the Escrow
shall be distributed (x) first to Seller in an amount equal to the costs to be
reimbursed by Buyer pursuant to Paragraph 19.9, and (y) thereafter, to Buyer in
an amount equal to the balance of such funds.
13.3 If the transaction contemplated by this Agreement shall close,
then, subject to the rights of the Escrow Agent under the Escrow Agreement, all
funds in the Escrow shall be wire transferred on the Closing Date to Seller in
partial satisfaction of Buyer's obligation to pay the Purchase Price in
immediately available funds.
14. ADDITIONAL COVENANTS
The following provisions shall apply, and the following actions shall
be taken, on, before or after the Closing:
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14.1 FURTHER DOCUMENTATION OR ACTION
From time to time, at the request of either party, whether on
or after the Closing, without further consideration, either party, at its
expense and within a reasonable amount of time after request hereunder is made,
shall execute and deliver such further instruments of assignment and transfer
and take such other action as may be reasonably required to more effectively
assign and transfer the Transferred Assets to Buyer, deliver or make the payment
of the Purchase Price to Seller or any amounts due from one party to the other
pursuant to the terms of this Agreement or confirm Seller's ownership of the
Retained Assets or carry out the purposes of any provision of this Agreement.
Notwithstanding anything contained in this Agreement to the contrary, this
Agreement shall not constitute an agreement to assign any Transferred Asset, or
assume any Assumed Obligation, if the attempted assignment or assumption of the
same, as a result of the absence of a consent or authorization of a third party,
would constitute a breach or default under any lease, agreement or commitment or
would in any way adversely affect the rights, or increase the obligations, of
Buyer or Seller with respect thereto; provided, however, that the assignment of
any contract, including, without limitation Medicare, Medicaid and similar
provider agreements, which may lawfully be made subject to customary conditions
subsequent (such as need surveys, evaluations of Buyer or other determinations
by the counter parties to such agreements) shall be deemed not to constitute a
default under, or in any way adversely affect the rights or increase the
obligations of Buyer with respect to, such lease, agreement or commitment,
unless the counter party indicates prior to the Closing that such condition or
conditions subsequent are not likely to be met. If any such consent or
authorization is not obtained, or if an attempted assignment or assumption would
be ineffective or would adversely affect the rights or increase the obligations
of Seller or Buyer with respect to any such lease, agreement or commitment, so
that Buyer would not, in fact, receive all such rights, or assume the
obligations, of Seller with respect thereto as they exist prior to such
attempted assignment or assumption, then Seller and Buyer shall enter into such
reasonable cooperative arrangements as may be reasonably acceptable to both
Buyer and Seller (including, without limitation, sublease, agency, indemnity or
payment arrangements and enforcement at the cost and for the benefit of Buyer of
any and all rights of Seller against an involved third party) to provide for
Buyer the benefits of such Transferred Asset or to relieve Seller from the
obligations of such Assumed Obligation, and any transfer or assignment to Buyer
by Seller of any such Transferred Asset, or any assumption by Buyer of any such
Assumed Obligation, which shall require such consent or authorization of a third
party that is not obtained shall be made subject to such consent or
authorization being obtained.
14.2 PRESERVATION OF AND ACCESS TO RECORDS
(a) Owner of Hospital Records. The term "HOSPITAL
RECORDS" shall mean (a) all or any portion of the medical, clinical and other
records directly or indirectly associated with the admission, care and treatment
of patients (excluding, however, all billing, other financial and marketing
information related thereto) for periods ending on or prior to
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the Closing Date (the "PATIENT RECORDS") and (b) all or any portion of the
financial and other records and files of the Hospitals (including patient
billing, other financial and marketing information, whether or not included as
part of the "financial jacket" of the Patient Records) for periods ending on or
prior to the Closing Date (the "BUSINESS RECORDS") including, without limiting
the generality of the foregoing, any records, documents or other material (but
excluding any such privileged or confidential records, documents or other
materials that relate directly to the negotiation of this Agreement and the
consummation of the transactions contemplated hereby). As set forth in Paragraph
1.1, the Hospital Records are Transferred Assets. Notwithstanding the foregoing,
the parties shall cooperate in providing copies and access to the Hospital
Records as set forth below.
(b) Seller's Access. Buyer shall retain the Hospital
Records pertaining to a particular Hospital at such Hospital (or at such other
locations as Buyer shall determine from time to time provided Buyer has given
Seller written notice of such locations) at Buyer's cost, until the expiration
of five years from the Closing (and, if at the expiration thereof any tax or
Payor audit or judicial proceeding is in process or the applicable statute of
limitations has been extended or has not then expired or terminated, for such
longer period if such audit or proceeding is in process or such statutory period
is extended and for such longer period until such expiration or termination)
(the "DOCUMENT RETENTION PERIOD"). After the Closing, Buyer shall grant, and
Seller shall have, access to the Hospital Records (including any Patient
Records) as needed for any lawful purpose (including Seller's inspection and
copying of the same), and Seller shall have the same rights of access to inspect
and copy that Buyer had prior to the Closing; provided, however, that any
Hospital Records delivered to or made available to Seller and its
representatives will be treated as strictly confidential by Seller and its
representatives, will not be directly or indirectly divulged, disclosed or
communicated to any other Person other than Seller and its representatives who
are reasonably required to have access to such information (unless Seller is
compelled to disclose the same by judicial or administrative process), and will
be returned to Buyer when Seller's use therefor has terminated. Buyer shall
instruct the appropriate employees of the Hospital Businesses to cooperate in
providing access to such records to Seller and its authorized representatives as
contemplated herein. Access to such records shall be, wherever reasonably
possible, during normal business hours, with 24 hours' prior notice to Buyer of
the time when such access shall be needed. Seller's employees, representatives
and agents shall conduct themselves in such a manner so that Buyer's normal
business activities and patient care shall not be unduly or unnecessarily
disrupted. After the expiration of the aforementioned Document Retention Period,
Buyer shall not, without 90 days prior written notification to Seller (the
"DESTRUCTION NOTICE"), destroy any Hospital Records in its possession. Within 80
days after its receipt of the Destruction Notice, Seller shall have the right,
at its own expense, to require Buyer to deliver any such records to Seller and
Buyer shall thereupon deliver the same to Seller. Within ten business days
following the Closing, Buyer shall apprise the executive officers and such other
appropriate employees of the Hospital Businesses of, and shall instruct such
officers and employees to adopt and follow a records retention/destruction
policy with respect to the
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Hospital Records which complies with, the foregoing record maintenance and
destruction program for the Hospital Records.
(c) Buyer's Access. To the extent not included in the Hospital
Records, after Closing Seller shall (i) make its books and records available to
Buyer and Buyer's auditors on 24 hours' prior notice and in a manner so as no to
or unnecessarily interfere with Seller's operations, and (ii) otherwise
cooperate with Buyer in order to permit Buyer to conduct an audit of Seller's
financial statements for any period prior to Closing, provided that such audit
is conducted in accordance with generally accepted auditing principles.
14.3 LITIGATION COOPERATION
After the Closing, upon prior reasonable written request, each
party shall cooperate with the other, at the requesting party's expense (but
including only out-of-pocket expenses to third parties and not the costs
incurred by any party for the wages or other benefits paid to its officers,
directors or employees), in furnishing reasonably available information
testimony and other assistance in connection with any actions, tax or cost
report audits, proceedings, arrangements or disputes involving either of the
parties hereto (other than in connection with disputes between the parties
hereto) and based upon contracts, arrangements or acts of Seller or any of their
respective Affiliates which were in effect or occurred on or prior to the
Closing and which related to the Transferred Assets, including, without
limitation, arranging discussions with, and the calling as witnesses of,
officers, directors, employees, agents and representatives of Buyer.
14.4 EMPLOYEE BENEFIT PLANS
The parties hereto recognize and agree that Buyer is not assuming
any of the Plans and, except as provided in Paragraph 3.1(b), is not assuming
any obligation or liability related to the Plans. Seller (a) shall terminate as
of the Closing Date the active participation of all Hired Employees in all of
the Plans covering such employees, (b) shall cause the Plans to make timely
appropriate distributions, to the extent required, to the Hired Employees in
accordance with, and to the extent permitted by, the terms and conditions of
such Plans and (c) in connection with the termination of the active
participation of all Hired Employees in such Plans and the termination of
employment with Seller of all Hired Employees, shall comply, and shall cause
each Plan to comply, with all applicable Laws. Prior to the Closing, Seller
shall have delivered to Buyer, for information purposes only, forms of any
letters or other communications which Seller shall distribute to the employees
of the Hospital notifying such employees of their rights in respect of their
cessation of active participation in the Plans.
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14.5 ALLOCATION OF PURCHASE PRICE
The Purchase Price shall be allocated among each of the
Transferred Assets (or, where more practical, each category of Transferred
Assets) in accordance with SCHEDULE "14.5". Seller and Buyer hereby agree to
allocate the Purchase Price in accordance with Schedule 14.5, to be bound by
such allocations for all purposes, to account for and report the purchase and
sale of the Transferred Assets contemplated hereby for all purposes (including,
without limitation, financial, accounting, Medicare reimbursement (to the extent
required by applicable Law) and federal and state tax purposes) in accordance
with such allocations, and not to take any position (whether in financial
statements, cost reports, tax returns, cost report or tax audits, or otherwise)
unless required by applicable Law, which is inconsistent with such allocations
without the prior written consent of the other party.
14.6 CONFIDENTIALITY
The parties hereto recognize and agree that all information,
instruments, documents and details concerning the business of Buyer and Seller
are strictly confidential, and Seller and Buyer expressly covenant and agree
with each other that they will not, nor will they allow any of their respective
officers, directors, employees or agents (including professional advisors) to,
reproduce, distribute or disclose any matters relating to the business of the
other or relating to this Agreement, its negotiation, terms, provisions or
conditions, including Purchase Price (collectively, the "CONFIDENTIAL
INFORMATION"), except for disclosure to their respective professional advisors
(who shall agree not to reproduce, distribute or disclose the same) which is
reasonably necessary to effectuate the transactions contemplated hereby and in a
manner consistent with the provisions of this Agreement. Notwithstanding the
foregoing, (a) Buyer shall be entitled to disclose Confidential Information to
any prospective lender of Buyer, and nothing contained in this Paragraph 14.6
shall prohibit Buyer from disclosing, and Seller hereby consents to Buyer's
disclosure of, the transactions contemplated hereby to governmental agencies to
the extent reasonably necessary to obtain the Permits, participations and
accreditations contemplated by Paragraph 9.5, and (b) Buyer and Seller shall be
entitled to disclose to third parties such information regarding the
transactions contemplated hereby as is necessary to obtain such third parties'
consents to the assignment of any Assumed Contract. Without limiting the
generality of the foregoing, except as specifically permitted by this Paragraph
14.6, no public announcement or other disclosure of the proposed sale or
acquisition of the Transferred Assets or of this Agreement or its contents shall
be made by or on behalf of either party without the prior written consent of
other party and such other party's prior approval of the form and content of the
same, which consent and approval shall not be unreasonably withheld or delayed.
Except as specifically permitted by this Paragraph 14.6, each party shall keep
all Confidential Information obtained from the other either before or after the
date of this Agreement confidential, and neither party shall reveal such
information to, nor produce copies of any written information for, any Person
outside its management group or its professional advisors without the prior
written consent of the other party, unless such party is compelled to
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disclose such information by judicial or administrative process or by any other
requirements of Law. If the sale contemplated by this Agreement should fail to
close for any reason, each party shall return to the other as soon as possible
all originals and copies of written information provided to such party by or on
behalf of the other party and none of such information shall be used by either
party, or their employees, agents or representatives in the business operations
of any Person. Notwithstanding the foregoing, each party's obligations under
this Paragraph 14.6 shall not apply to any information or document which is or
becomes available to the public other than as a result of a disclosure by the
other party in violation of this Agreement or other obligation of
confidentiality under which such information may be held or becomes available to
the party on a non-confidential basis from a source other than the other party
or its officers, directors, employees or agents. The parties' obligations under
this Paragraph 14.6 shall survive the termination of this Agreement or the
Closing.
14.7 CURE OF DISAPPROVED ITEMS
If Buyer disapproves the Disclosure Statement, any Supplemental
Disclosure Statement or the Inspection within the time periods applicable
thereto (a "DISAPPROVED ITEM"), Seller shall have the right, but not the
obligation, within ten days following its receipt of notice of Buyer's
disapproval, to elect to cure such Disapproved Item by the delivery of an
appropriate written notice to Buyer. Seller's notice shall set forth its
proposed manner of cure of the Disapproved Item, which shall be subject to the
prior approval of Buyer, and the anticipated period of time necessary to
complete the cure. Buyer shall have five days after receipt to approve or
disapprove Seller's notice to cure. If Buyer fails to disapprove Seller's notice
to cure within said five day period, Buyer shall be deemed to have approved
Seller's notice to cure. If Seller elects to cure a Disapproved Item, Seller
shall commence the cure promptly following the delivery of its written notice to
Buyer (and Buyer's approval or deemed approval of the proposed manner of cure)
and thereafter shall diligently pursue the cure to completion, provided,
however, in all events any cure by Seller of a Disapproved Item must be
completed prior to the Closing. If Seller completes the cure of the Disapproved
Item to Buyer's reasonable satisfaction within the time period herein specified,
Buyer shall have no right to terminate this Agreement as a result of the
Disapproved Item. If Seller fails to give notice to Buyer within the time period
herein specified that it elects to cure the Disapproved Item, then, at the
election of either party, the parties shall negotiate in good faith the
resolution of the Disapproved Items (including Seller's cure of all or some of
the same). If the Disapproved Items cannot be so resolved within 30 days from
the date of such election and if Buyer does not within five days thereafter
withdraw its notice of disapproval of the Disclosure Statement, any Supplemental
Disclosure Statement or the Inspection or if, notwithstanding Seller's election
to cure, Seller fails to complete the cure within the time period herein
specified or Buyer timely disapproves Seller's notice to cure, this Agreement
shall terminate without liability to Buyer or Seller and shall be of no further
force or effect except as otherwise expressly provided herein and the
Exclusivity Fee shall be returned to Buyer; provided, however, that if Seller
fails to complete the cure before the
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Closing, Buyer, at its discretion, may elect to proceed with the Closing and
Seller shall promptly reimburse Buyer for, and indemnify and hold Buyer harmless
from and against, all Losses incurred by Buyer after the Closing with respect to
the cure of the Disapproved Items.
14.8 EXCLUDED ASSETS AND RECEIVABLES
(a) General Rule. Any asset (including all remittances and all
mail and other communications) that is determined by the parties' agreement, or,
absent such agreement, determined by litigation, to be or otherwise relate to a
Retained Asset (including, without limitation, the proceeds of the Government
Receivables) and that is or comes into the possession, custody or control of
Buyer or any of its Affiliates (or their successors in interest or assigns, or
their respective Affiliates) shall forthwith be transferred, assigned or
conveyed by Buyer and its Affiliates (or their respective successors in interest
or assigns and their respective Affiliates) to Seller, and until such transfer,
assignment and conveyance, Buyer and its Affiliates (and their respective
successors in interest and assigns and their respective Affiliates) shall not
have any right, title or interest in such asset but instead shall hold such
asset in trust for the benefit of Seller. Any asset (including all remittances
and mail and other communications) that is determined by the parties' agreement
or, absent such agreement, determined by litigation, to be or otherwise relate
to a Transferred Asset and that is or comes into the possession, custody or
control of Seller or any of their Affiliates (or their respective successors in
interest or assigns) shall forthwith be transferred, assigned and conveyed by
Seller and their Affiliates (or their respective successors in interest or
assigns) to Buyer and until such transfer, assignment and conveyance, Seller and
their Affiliates (and their respective successors in interest and assigns) shall
not have any right, title or interest in such asset, but instead shall hold such
asset in trust for the benefit of Buyer. Seller and its agents and
representatives shall have the right upon reasonable written notice and subject
to applicable privileges and confidentiality Laws, during regular business
hours, to examine and inspect all the books and records of Buyer and its
Affiliates and to have access to the Hospital or other locations from which
Buyer and its Affiliates conduct their business operations for the sole purpose
of investigating the existence of any Retained Asset in the possession of Buyer
or any of its Affiliates and of auditing Buyer's collection of the Receivables.
If, as a result of any dispute by Seller of any payments due from Buyer pursuant
to this Paragraph 14.8, an amount is due from Buyer to Seller in excess of
$5,000, then Buyer shall, in addition to all other obligations of Buyer
hereunder, reimburse Seller for all out-of-pocket costs and expenses incurred by
Seller in connection with such dispute, including, without limitation, the cost
and expense of any audit conducted by Seller.
(b) Straddle Patient Receivables. To compensate Seller for
services rendered and medicine, drugs and supplies provided through the Closing
Date with respect to patients ("STRADDLE PATIENTS") who were admitted to any
Hospital on or before the Closing Date and discharged by such Hospital after the
Closing Date, the following shall apply:
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(i) Cut-Off Billings. Seller shall prepare billings for all
Straddle Patients as of the close of business on the Closing Date. All
payments which are received by Buyer (or its successor in interest or
assigns) after the Closing Date with respect to Straddle Patients and which
relate to such cut-off billings shall constitute Receivables. All
Receivables relating to such cut-off billings which are not Government
Receivables shall be considered Purchased Receivables pursuant to Paragraph
1.1.12. All such cutoff billings which are Government Receivables shall
constitute a Retained Asset and shall immediately be paid to Seller in the
manner described in subparagraphs (a) above and (b)(iii) below.
(ii) Cut-Off Billings Not Accepted. If the Payor of any Straddle
Patient cannot for any reason accept cut-off billings, then Seller shall
deliver to Buyer a statement calculating the total charges made by Seller
for services rendered and medicine, drugs and supplies provided through the
Closing Date with respect to such Straddle Patient. Within ten days
following the discharge of each such Straddle Patient, Buyer shall deliver
to Seller a statement reflecting the total charges for the services rendered
and medicine, drugs and supplies billed to such Straddle Patient after the
Closing Date and the payments receivable (the "STRADDLE PATIENT PAYMENTS")
by Buyer with respect to such Straddle Patient (including any cost per
discharge limit imposed by TEFRA and all deductibles and co-insurance
payments). The prorata share of the Straddle Patient Payments to which
Seller shall be entitled for the services, medicine, drugs and supplies
provided by Seller to each such Straddle Patient through the Closing Date
shall be paid by Buyer to Seller in the manner herein provided and shall be
equal to the amount obtained by multiplying the Straddle Patient Payments by
a fraction, the numerator of which is the total charges made by Seller with
respect to such Straddle Patient through the Closing Date and the
denominator of which is the total charges made by Buyer and Seller with
respect to such Straddle Patient. Seller or Buyer, as may be applicable, may
have such statements as submitted by Buyer or Seller verified by their
respective independent certified public accountants within 30 days from
delivery. If such statements, as submitted by Buyer or Seller, are
acceptable, then such statements shall fix the value of the services,
medicine, drugs and supplies provided by Seller and Buyer to each such
Straddle Patient. If any such statement is challenged by Seller or Buyer,
then, unless otherwise resolved by agreement of the parties within 30 days
of any such challenge, such statement shall be deemed in dispute, which
dispute shall be resolved by the parties' independent certified public
accountants. If such accountants cannot resolve the matter within 30 days,
then it shall be submitted by them to a third accounting firm for resolution
in accordance with the procedures contained in Paragraph 2.2. If Seller or
Buyer does not give written notice to the party preparing the statement of
its challenge of such statement within the first said
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30 day period, the receiving party shall be deemed to have accepted the same.
Within five business days of the later of the final determination of the value
of the services, medicines, drugs and supplies provided by Seller and Buyer to
each such Straddle Patient or the date Buyer receives payment for such Straddle
Patient, Buyer shall pay to Seller such value in the manner described in
subparagraph (iii) below. The pendency of a dispute shall not effect the payment
obligation hereunder of Buyer to the extent such payment is not in dispute.
(iii) Payments. All payments to be made pursuant to the foregoing
subparagraphs of this Paragraph 14.8 shall be paid in immediately available
funds.
(c) Government Receivables. The following provisions shall apply
with respect to the collection and administration of the Government Receivables:
(i) Appointment of Collection Agent. Seller hereby appoints Buyer
as its agent to collect the Government Receivables, and Buyer hereby accepts
such appointment. As soon as possible after the Closing, Seller shall
deliver to Buyer a schedule of all Government Receivables outstanding as of
the Closing Date, which schedule shall show the amount due from each Payor,
patient or other third party and shall deliver to Buyer possession of the
Business Records pertaining to the Government Receivables.
(ii) Collection. Buyer shall exercise its reasonable commercial
efforts to collect the Government Receivables on behalf of and as agent for
Seller. Buyer shall not have any right, title or interest in the Government
Receivables, any proceeds received with respect to the Government
Receivables or in the Business Records pertaining to the Government
Receivables, but instead shall hold all such Government Receivables,
proceeds and Business Records in trust for the sole benefit of Seller. All
payments received by Buyer after the Closing Date from Payors, patients and
other third parties shall be applied to the oldest remaining Government
Receivables due from such Payor, patient or ocher third party in the order
in which they arose, unless otherwise indicated on or suggested by any
remittance advice from such Payor, patient or other third party which
accompanies the payment. Any Government Receivables settled or compromised
by Buyer without Seller's prior written consent shall be deemed to have been
collected in full by Buyer. All payments received by Buyer with respect to
the Government Receivables shall be paid by Buyer to Seller weekly
commencing on the first Monday following the Closing Date and covering the
seven day period ending on the immediately preceding Saturday. Buyer shall
promptly notify Seller if it receives notice from any Payor, or patient,
whether
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orally or in writing, stating that the amount of any Medicare Receivable is
in dispute, including in such notice, to the extent known, a reasonably
detailed description of the amount and nature of the dispute. Buyer shall
not be required to file any lawsuit or commence any other proceeding to
collect any Medicare Receivable.
(iii) Termination of Collection Efforts. Buyer's obligations under
this Paragraph 14.8(c) shall commence on the Closing Date and end on the
first anniversary of the Closing Date (the "COLLECTION PERIODS"). At any
time during the Collection Period, Seller may instruct Buyer to terminate
its efforts to collect any Medicare Receivable, whereupon Buyer shall
promptly transmit to Seller all records (including any Hospital Records)
pertaining to such Medicare Receivable. With respect to any Government
Receivables which have not been collected by the end of the Collection
Period or with respect to which Seller has instructed Buyer to terminate its
collection efforts, Seller and its Affiliates shall be free to institute
such collection efforts with respect thereto (including, without limitation,
instituting legal proceedings) as they in their sole discretion shall
determine.
(iv) Cooperation. Buyer agrees to cooperate with Seller and to
provide access to any and all records (including the Hospital Records) to
assist Seller in the collection, rebilling and auditing of the Government
Receivables or in the monitoring of Buyer's collection efforts hereunder.
Until all Government Receivables have been collected and paid over to
Seller, Buyer and Seller agree as follows: (A) Seller may, without charge,
locate one or more of its employees at the places of business where Buyer
then maintains the records relating to the Government Receivables or
otherwise exercises its efforts to collect the Government Receivables in
order to assist with and monitor Buyer's collection of the Government
Receivables and Seller's collection, rebilling and auditing of the
Government Receivables, (B) Buyer shall provide any such employees of
Seller, without charge, adequate and proper space to facilitate the
performance of such duties, and (C) Buyer shall provide the reasonable
assistance of its employees, without charge, in connection with the
performance of such duties by such employees of Seller.
(v) Security Interest. Buyer hereby grants to Seller a security
interest in the Government Receivables and all proceeds therefrom to secure
Buyer's performance of its obligations to distribute the proceeds of the
Government Receivables to Seller pursuant to this Paragraph 14.8. Buyer
shall execute and deliver to Seller at Closing a form UCC-1 Financing
Statement in each jurisdiction where a Hospital is located to perfect such
security interest in furtherance of the parties' intent that Seller shall
have all rights of a secured party under all applicable laws. Seller agrees
to terminate its security interest
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by filing a UCC-3 Termination Statement in each jurisdiction where a UCC-1
Financing Statement was filed as provided herein one year from the Closing
Date.
(vi) Cost Reports. Notwithstanding the foregoing to the contrary,
Buyer shall not have any responsibility for, and Buyer's obligations under
this Paragraph 14.8 shall not include, collecting or handling any pending or
administrative appeal, claim or contested settlement with Medicare, Medicaid
or any other Payor with respect to the cost reports and other filings
referred to in Paragraph 14.10.
14.9 COST REPORT AUDITS AND CONTESTS
(a) After the Closing and for the period of time necessary to
conclude any pending or potential audit or contest of any cost reports with
respect to the Hospital Businesses concerning periods ending on or before the
Closing Date, Buyer shall within five days of Buyer's receipt of the same,
forward to Seller all information received from Payors relating to periods prior
to and as of the Closing Date, including, without limitation, cost report
settlements, notices of program reimbursements, demand letters for payment and
proposed audit adjustments. Upon the reasonable request of Seller, Buyer shall
assist Seller (including by providing the reasonable support of its employees at
no cost to Seller) in obtaining information deemed by Seller to be necessary or
convenient in connection with any audit or contest of such reports.
(b) If any Payor determines that Seller is liable to refund any
payment or reimbursement received by Seller from such Payor which is
attributable to any period of time ending on or prior to the Closing and which
arises out of or by reason of the sale of the Transferred Assets hereunder
(including any such determination based on such Payor's disregard of the
provisions of Paragraph 14.5) and if Buyer (or its successors or assigns)
thereby realize an increase in its reimbursements from any such Payor
(including, without limitation, an increase by reason of a step up in the basis
of the Transferred Assets by Buyer, or its successors or assigns), then Buyer
and its successors and assigns shall pay to Seller an amount equal to all such
increases in reimbursements as such increases are received by Buyer, or its
successors or assigns, no less frequently than quarterly until such time as
Seller has received the full amount of such refund. Buyer and its successors and
assigns agree to seek from such Payor an increase in its reimbursements upon the
receipt from Seller of written notice stating that such an adverse determination
has been made by such Payor and the cost of pursuing such increased
reimbursement by Buyer shall be paid by Seller promptly on demand for such
payment by Buyer. Notwithstanding the foregoing, to the extent that the Health
Care Financing Administration promulgates regulations pursuant to Section 4404
of the Balanced Budget Act of 1997 that definitively remove any and all
obligation on the part of Seller to refund any payment or reimbursement received
by Seller pursuant to this
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subparagraph (b) from any Payor, then Buyer's obligations under this
subparagraph (b) shall terminate.
14.10 FILING COST REPORTS; AMOUNTS DUE TO OR FROM THIRD PARTY PAYORS
Seller shall prepare and timely file all cost reports (including,
without limitation, the terminated cost report) and all other filings which are
required to be filed with Medicare, any other Payors or any governmental agency
with respect to the operations of the Hospital Businesses for any and all
periods ending on or prior to the Closing Date. Buyer shall assist Seller in the
preparation of such cost reports and other filings by promptly completing and
returning to Seller the year end cost report package for the terminated cost
report which Seller delivers to Buyer. Seller shall retain all rights to any
amounts receivable from Medicare or other Payors with respect to such filed cost
reports or filings (as reflected thereon or as finally determined by the audit,
contest or other adjustment of such reports or filings) and shall remain
obligated for all amounts due Medicare with respect to such filed cost reports
or filings (as reflected thereon or as finally determined by the audit, contest
or other adjustment of such cost reports or filings) and the parties hereby
acknowledge and agree that Buyer is not being assigned or otherwise receiving
and is not hereby assuming any of the same. Buyer shall promptly notify Seller
of such amounts due to Medicare from Seller or any amounts due from Medicare to
Buyer which are being withheld by Medicare by reason of Seller's breach of its
obligations under this Paragraph 14.10 or by reason of any other event or
occurrence taking place or otherwise attributable to the operations of the
Hospital and the Transferred Assets on or prior to the Closing Date (including,
without limitation, any periodic interim payments governed by the provisions of
Paragraph 14.8(c)). On receipt of such notice, together with written evidence
from Medicare or such other Payors in support thereof, if any exist, Seller
shall remit all such amounts or comply with its obligations hereunder within
sufficient time to avoid the imposition of any interest charges or the
withholding of any payment due from Medicare or other Payors to Buyer; provided,
however, that if any such withholding has occurred, for whatever reason, Seller
shall reimburse Buyer for the full amount of all payments so withheld within
three business days of Buyer's written notice to Seller of the same.
14.11 EMPLOYEE MATTERS
(a) Retained Employees. Buyer shall offer to hire at the Closing
each of Seller's then active employees who are in good standing to perform
comparable services, in such position and for such compensation as is comparable
to the position such employee held with, and the compensation paid to such
employee by, Seller at the Closing, provided that Buyer shall not be obligated
to offer employment to Hospital based personnel who are on the corporate payroll
of an Affiliate of Seller (including each Hospital's Chief Executive Officer,
Chief Operating Officer, Chief Financial Officer, Director of Nursing and
Director of Development). For purposes of this Agreement, active employees in
good standing are those employees who are actually providing services to the
Hospital Businesses
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(including those employees who are temporarily absent due to vacation or other
routine matter in compliance with Law or Seller's policies pertaining to
employee matters), but shall exclude any employee whose employment status
currently is restricted, suspended or otherwise affected as a result of
disciplinary, corrective or other similar action. Seller has identified on only
those employees as of the date indicated thereon who meet the requirements of
the preceding sentence and who Buyer shall offer to hire (the "RETAINED
Employees"). The list of the Retained Employees shall be adjusted by Seller as
of the Closing Date to reflect changes in the employees of Seller, and Buyer
shall offer to hire the Persons identified by Seller on such adjusted list of
Retained Employees. Seller or its Affiliates shall have the right to employ or
offer to employ any Retained Employee (including, without limitation, the Chief
Executive Officer, the Chief Operating Officer, the Chief Financial Officer and
the Director of Nursing of each Hospital) who declines Buyer's offer of
employment, provided that neither Seller nor its Affiliates shall offer
employment to, or solicit such persons until Buyer has notified Seller that it
does not intend to offer employment to such Person(s) or such Person(s) has
declined Buyer's offer.
(b) Hiring of Retained Employees by Buyer. Buyer shall hire at
the Closing the Retained Employees who elect to accept employment with Buyer
(the "HIRED EMPLOYEES") and shall continue to employ the Hired Employees for a
period of no less than 90 days following the Closing Date, unless Buyer sooner
terminates the employment of any Hired Employee for cause or any Hired Employee
resigns or accepts another position with Buyer. Except as may be limited hereby
or by contract, the Hired Employees' employment with Buyer will be for no
definite term and the Hired Employees' positions and compensation levels will be
subject to Buyer's policies. Buyer agrees to give the Hired Employees full
credit for the Paid Time Off and Sick Pay of such employees as reflected on the
revised Schedule "3.1(b)", either by allowing such employees such Paid Time Off
or Sick Pay reflected on such revised Schedule "3.1(b)" as to which such
employees would have been entitled under the policies of Seller if such
employees had remained employees of Seller or, upon termination of employment,
by making full payment to such employees of the Paid Time Off that such
employees would have received had they taken such Paid Time Off. Buyer shall be
fully responsible for providing or paying Paid Time Off and, as applicable, Sick
Pay to any Hired Employee and for any unemployment compensation or any other
unemployment benefits payable to a Hired Employee whose employment is terminated
by Buyer and Buyer shall indemnify, and hold Seller harmless from and against
all Losses actually incurred, paid or required (including those required under
penalty of Law or by a governmental entity) to be paid by Seller resulting from
Buyer's termination of a Hired Employee and/or failure to provide or pay Paid
Time Off or, as applicable, Sick Pay.
(c) Health and Other Employee Benefits. Buyer shall provide the
Hired Employees the program of health care benefits that are made available to
its employees in general; provided, however, that such health care benefits
shall be immediately available to the Hired Employees as of the Closing Date who
were then participants of and entitled to receive benefits under Seller's health
care plans without any limitation with respect to
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preexisting conditions, and such Hired Employees shall become as of the Closing
Date participants without regard to any applicable waiting period or any
limitation with respect to preexisting conditions. Buyer shall give each other
Hired Employee credit for his or her prior service with Seller for purposes of
satisfying any waiting periods of Buyer's health care plans with respect to
eligibility to participate or preexisting conditions. Buyer shall also give each
Hired Employee credit for his or her prior service with Seller for those
purposes for which length of service may be considered in connection with
determining all other employee benefits of Buyer made available to its employees
in general, including without limitation, retirement, severance, Paid Time Off
ant Sick Pay. Buyer acknowledges and agrees that Buyer is a successor employer
for purposes of COBRA, that the Hired Employees will not, as a result, be deemed
to have had a termination of employment for purposes of COBRA and that any COBRA
notices or coverages required to be given or made available to any Hired
Employee shall be given or made by Buyer and not Seller. Seller shall be
responsible for COBRA notices and coverages with respect to any employees other
than the Hired Employees.
(d) Acknowledgment of Responsibility. Buyer acknowledges and
agrees that as of the date and time the Closing is effective pursuant to
Paragraph 11, Buyer is considered for purposes of the Worker Adjustment and
Retraining Notification Act, 29 U.S.C. Section 2101, et seq. (the "WARN ACT",)
the employer of the Retained Employees and that Buyer (and not Seller) shall
thereupon be responsible for complying with the WARN Act with respect to the
Retained Employees and that prior to such time none of the Retained Employees
shall be, nor shall they be deemed to be, terminated. Buyer shall indemnify and
hold Seller harmless from and against all losses, liabilities, fines, penalties,
charges, costs and expenses, including reasonable attorneys' fees (including a
reasonable estimate of the allocable costs of in-house counsel and staff)
actually incurred, paid or required under penalty of Law to be paid by Seller
(i) resulting from any compliance obligation (including, without limitation, the
obligation to give notice or pay money) Seller or Buyer has under the WARN Act
with respect to the termination of any Retained Employee whose name appears on
the adjusted list of Retained Employees on the Closing Date or (ii) resulting
from any claims of the Hired Employees (including, without limitation, claims
for health care coverage or benefits). Buyer's indemnification obligation
hereunder is separate and apart from and in addition to its indemnification
obligations under Paragraph 16.2.
(e) No Employment Contract. The understandings set forth in this
Paragraph 14.11 are solely for the purpose of defining the obligations between
Buyer and Seller with respect to the individuals employed in the operation of
the Hospital Businesses as of the Closing Date and shall not be construed as
creating any employment contract or other contract between either Buyer or
Seller, on the one hand, and any such employee, on the other, nor to create or
modify any Plan. All such employees shall remain terminable at will by Buyer or
Seller, as the case may be, except to the extent otherwise required by Law or
any preexisting employment or other contracts which have been specifically
assumed by Buyer hereunder.
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14.12 MEDICAL STAFF PRIVILEGES/BYLAWS
For a period of 30 days after the Closing, Buyer shall not
change or modify either (a) the medical staff privileges for physicians on staff
at the Hospitals on the Closing Date, or (b) the medical staff bylaws in effect
on the Closing Date for each Hospital.
14.13 ANTITRUST LAWS COMPLIANCE
The parties acknowledge that the transaction contemplated by this
Agreement is subject to the provisions of the Premerger Rules and other Laws
concerning antitrust and fair bate. Accordingly, the following provisions shall
apply:
(a) Initial Filings. Buyer and Seller shall promptly prepare and
file with the Federal Trade Commission ("FTC") and with the United States
Department of Justice ("JUSTICE DEPARTMENT") the notification and report forms
required under the provisions of the Premerger Rules and shall promptly make all
filings with any other governmental agencies as are required by any other Laws
pertaining to antitrust and fair trade. Each such filing shall not, to the
knowledge of the filing party, fail to conform to the requirements of the
Premerger Rules or such other Laws. The filing fee required with respect to each
such filing shall be paid by the party filing the same.
(b) Additional Filings. Buyer and Seller shall each promptly
notify the other of any request by the FTC, Justice Department or such other
governmental agencies for additional information with respect to such filings.
The party who receives such request shall promptly respond thereto and the other
party shall cooperate in supplying any information required to enable the
responding party to so comply. Each such filing shall not, to the knowledge of
the filing party, fail to conform to the requirements of the Premerger Rules or
such other Laws.
(c) Cooperation. All analyses, appearances, presentations,
memoranda, briefs, arguments, opinions and proposals made or submitted on behalf
of either party hereto in connection with the proceedings under or relating to
the Premerger Rules or any Law pertaining to antitrust or fair trade shall be
subject to the joint approval or disapproval and the joint control of Buyer and
Seller, acting with the advice of their respective counsel, it being the intent
of the foregoing that the parties hereto will consult and cooperate with one
another, and consider in good faith the views of one another, in connection with
any such analysis, presentation, memorandum, brief, argument, opinion or
proposal. Nothing herein shall prevent either party or their respective
Affiliates from making or submitting any such analysis, appearance,
presentation, memorandum, brief, argument, opinion or proposal in response to a
subpoena or other legal process or as otherwise required by Law or submitting
factual information to the Justice Department, FTC, any other governmental
agency or any court or administrative law judge in response to requests therefor
or as otherwise required by Law.
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14.14 FILING TAX RETURNS
Buyer shall cause its employees, at no cost to Seller, to assist
Seller, in the same manner and to the extent that employees of the Hospital
Businesses currently provide such assistance, in the preparation and filing of
all returns relating to taxes imposed upon the businesses operated through the
Transferred Assets that relates to periods ending on or prior to the Closing
Date but which are due after the Closing Date.
14.15 USE OF CONTROLLED SUBSTANCE PERMITS
To the extent permitted by Law, Buyer shall have the right, for a
period not to exceed 180 days following the Closing Date, to operate under the
Permits of Seller relating to controlled substances and the operations of
pharmacies, until Buyer is able to obtain such permits for itself; provided,
however, that nothing herein shall require Seller to renew any Permits which may
expire during such 180-day period. Seller shall execute and deliver to Buyer the
special limited powers of attorney substantially in the form and substance of
EXHIBIT "14.15" Buyer acknowledges that it shall apply for all such permits as
soon as reasonably possible before and after the Closing Date and shall
diligently pursue such applications. Buyer shall indemnify and hold Seller
harmless from and against all Losses actually incurred, paid or required under
penalty of Law to be paid by Seller resulting in whole or in part from the use
of such permits by Buyer. Buyer's indemnification application hereunder is
separate and apart from, and in addition to, its indemnification obligations
under Paragraph 16.2, which shall be subject to and governed by the provisions
of Paragraph 16.3.
14.16 LIMITED USE OF MANUALS AND SOFTWARE
Subject to obtaining any necessary consent or permission from
third-party vendors or licensors, Seller agrees to make available to Buyer,
solely in connection with Buyer's operation of the Hospitals: (i) the
royalty-free, nonexclusive right and license to use, for a period not to exceed
one year from the Closing Date, the clinical policy and procedure manuals of
Seller which are Retained Assets (the "MANUALS"); and (ii) information services
(the "SERVICES") using only the proprietary computer software and hardware
described in Exhibit 14.16 (the "SOFTWARE") presently used at the Hospitals for
a period not to exceed one year from the Closing Date, on the following terms
and conditions:
(a) Buyer shall accept the Manuals and Software in their present
condition, "AS IS" and "WITH ALL FAULTS" and without any representation or
warranty of any kind whatsoever, either expressed or implied, by Seller
including, but not limited to, any representation or warranty that the Manuals
or Software are adequate for Buyer's operation of the Hospitals after the
Closing or are in compliance with any Laws. Any and all fees, costs and expenses
incurred in connection with the transition by Buyer from the Software and
Manuals to other manuals, software and hardware shall be borne solely by
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Buyer, including, without limiting the generality of the foregoing, all fees,
costs and expenses incurred in creating extract files and reports in connection
with such transition.
(b) Buyer agrees that Seller shall have no obligation whatsoever
to update or otherwise revise the Manuals or the Software, even if Seller or its
Affiliates are revising similar manuals or software or hardware at other health
care facilities, as Buyer shall assume full responsibility therefor provided,
however, that Seller will provide to Buyer, for Buyer's use during the term of
the license granted by this Paragraph 14.16, any routine upgrade to base
operating systems licensed hereunder at the time and in the manner of Seller's
general distributions to its facilities using such systems.
(c) Buyer acknowledges and agrees that the Manuals and Software
are strictly confidential and proprietary information of Seller and its
Affiliates, and Buyer hereby expressly covenants and agrees that it will not
(nor will it allow any of its officers, directors, employees or agents to),
directly or indirectly, reproduce, distribute or disclose all or any part of the
Manuals or Software, unless Buyer's disclosure is compelled by judicial or
administrative process or except as may be required in the operation of the
Hospitals (including, but not limited to, as required by any Laws). Upon the
expiration of the license hereby granted to Buyer or the sooner termination of
Buyer's use of the Manuals and/or Software, Buyer shall return to Seller all
originals and copies of the Manuals and/or Software.
(d) As a material inducement to Seller's agreement to license the
Manuals and Software to Buyer, (i) Buyer hereby releases and forever discharges
Seller and its Affiliates from and against any and all claims, demands, debts,
liabilities, obligations and causes of action of every kind in law, equity or
otherwise, whether known or unknown, suspected or unsuspected, which Buyer or
its Affiliates now or may hereafter have against Seller or its Affiliates by
reason of the use by Buyer of the Manuals and/or Software and (ii) Buyer shall
indemnify and hold Seller and its Affiliates harmless from and against all
losses liabilities, fines, penalties, charges, costs and expenses, including
reasonable attorneys' fees (including a reasonable estimate of the allocable
costs of in-house counsel and staff) actually incurred, paid or required under
penalty of Law to be paid by Seller or its Affiliates resulting in whole or in
part from the use by Buyer of the Manuals and/or Software.
14.17 USE OF NAME
Buyer and Seller shall enter into one or more license agreements
(the "LICENSE AGREEMENTS") pursuant to which Seller or its Affiliate shall grant
to Buyer or Buyer's Subsidiary, the non-exclusive right to use the names "Pulse
Home Health" and "Pulse Health Services" solely in the manner and at the
Hospitals where such names currently are used, for a period of three years
commencing on the Closing Date. The License Agreements shall provide that Buyer
shall maintain certain standards of care and other matters as are specified in
the License Agreements.
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14.18 PURCHASE OF SUPPLIES
Buyer has asked to participate in Seller's Affiliate's group
purchasing organization called BuyPower for a period of two years from the
Closing Date. In connection therewith, at the Closing, Buyer shall execute a Buy
Power purchasing assistance agreement in the form attached hereto as Exhibit
"14.18" shall not be required to pay the base participation fee for the two
years that it participates in BuyPower.
15. SURVIVAL OF REPRESENTATIONS
Notwithstanding any investigation made by Seller or Buyer, any
distribution in liquidation or dissolution, or any voluntary or involuntary act
of Seller or Buyer, subject to the provisions of Paragraph 16.5, the
representations, warranties, covenants, agreements and indemnifications made by
the parties shall survive the Closing and shall be deemed to be material and to
have been relied upon by Buyer and Seller.
16. INDEMNIFICATION
16.1 INDEMNIFICATION OF BUYER BY SELLER
Subject to the provisions of Paragraphs 15, 16.3, 16.4, 16.5
and 16.6, each Seller shall indemnify and hold Buyer harmless from and against
claims incurred or asserted against and all losses, liabilities, damages, COSTS
and expenses, including reasonable attorneys' fees (including a reasonable
estimate of the allocable costs of in-house legal counsel and staff) (all such
claims, losses, liabilities, damages, costs and expenses shall collectively be
referred to as "LOSSES"), actually incurred, paid or required (including those
required under penalty of Law) to be paid by Buyer with respect to such Hospital
and the related Hospital Businesses, resulting from (a) any breach of any
representation, warranty, covenant or agreement made herein by such Seller with
respect to such Hospital and related Hospital Businesses, or (b) if the Closing
occurs, any obligation, liability or claim relating to (i) the Excluded
Liabilities relating to such Hospital and related Hospital Businesses, or (ii)
the Retained Assets relating to such Hospital and related Hospital Businesses;
provided, however, that except for personal injury claims made by third parties
for injuries occurring prior to the Closing Date and caused solely by the
condition of the Real Property, the Lander Property or the Woodland Park
Property, nothing in this Paragraph 16.1(b) shall obligate any Seller to
indemnify Buyer for any such obligation, liability or claim relating to the
physical condition of the Transferred Assets as Buyer is purchasing the
Transferred Assets "AS IS" and "WITH ALL FAULTS".
16.2 INDEMNIFICATION OF SELLER BY BUYER
Subject to the provisions of Paragraphs 15, 16.3, 16.4, 16.5
and 16.6, Buyer shall indemnify and hold each Seller harmless from and against
all Losses, actually incurred, paid or required (including those required under
penalty of Law) to be paid by each
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Seller with respect to Hospital and related Hospital Businesses sold by such
Seller pursuant to this Agreement, resulting in whole or in part from (a) any
breach of any representation, warranty, covenant or agreement made herein by
Buyer, (b) the activities of Buyer or its agents which arise in connection with
the Inspection or otherwise (including, without limitation, the compliance by
Seller or its agents with any request made by Buyer or its agents) of such
Hospital and related Hospital Businesses or (c) if the Closing occurs, any
obligation, liability or claim relating to (i) the Assumed Obligations relating
to such Hospital and related Hospital Businesses, or (ii) the Transferred Assets
relating to, or the operations of, such Hospital and related Hospital Businesses
to the extent such obligation, liability or claim is based upon acts or
omissions occurring after the Closing Date, and is not an Excluded Liability or
a Retained Asset, including the ongoing operations of the Transferred Assets
relating to such Hospital and related Hospital Businesses after the Closing Date
and the continuance or performance by Buyer after the Closing Date of any
agreement or practice of such Seller.
16.3 NOTIFICATION AND SETTLEMENT OF CLAIMS
Any party seeking indemnification hereunder (the
"INDEMNITEE") shall, (a) within 30 days from the date the Indemnitee received
actual knowledge of the claim (or by such earlier date after the Indemnitee has
received actual knowledge of the claim as may be necessary to avoid material
prejudice to the other party), notify the other party (the INDEMNITOR") of such
claim (the "INDEMNIFICATION NOTICE") and provide the Indemnitor with a copy of
such claim or other documents received, and (b) upon request, otherwise make
available to the Indemnitor all relevant information material to the defense of
such claim and within the Indemnitee's possession. The failure of the Indemnitee
to give the Indemnitor notice within the specified number of days shall not
relieve the Indemnitor of any of its obligations hereunder, but may create a
cause of action for breach for damages directly attributable to such delay. If
the Indemnitor notifies the Indemnitee in writing within ten days after an
Indemnification Notice is given to the Indemnitor that the Indemnitee is
entitled to indemnification hereunder or defense with respect to such claim
(subject, however, to any reservation of rights the Indemnitor may have to
contest the Indemnitee's right to indemnification hereunder), then the
Indemnitor shall have the right by notice given to the Indemnitee within 15 days
after the date of the Indemnification Notice to assume and control the defense
thereof, including the employment of counsel selected by the Indemnitor, and the
Indemnitor shall pay all expenses of such defense. The Indemnitee shall have the
right to employ separate counsel in any such proceeding and to participate in
(but not control) the defense of such claim, but the fees and expenses of such
counsel shall be borne by the Indemnitee unless the employment thereof has been
specifically authorized by the Indemnitor in writing; provided, however, that if
the named parties to any such proceeding (including any impleaded parties)
include both the Indemnitee and the Indemnitor, and if the Indemnitor requires
that the same counsel represent both the Indemnitee and the Indemnitor and if
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them, then the Indemnitee shall
have the right to retain
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its own counsel at the cost and expense of the Indemnitor. If the Indemnitor
shall have failed to assume the defense of any claim in accordance with the
provisions of this Paragraph 16.3, then the Indemnitee shall have the absolute
right to control the defense of such claim and, if and when it is finally
determined that the Indemnitee is entitled to indemnification from the
Indemnitor hereunder, the fees and expenses of the Indemnitee's counsel shall be
borne by the Indemnitor and paid by Indemnitor to Indemnitee within five
business days of written demand therefor, but the Indemnitor shall be entitled,
at its own expense, to participate in (but not control) such defense. The
Indemnitor shall have the right to settle or compromise any such claim in its
sole and absolute discretion and without consultation with the Indemnitee so
long as such settlement or compromise does not impose any obligations on the
Indemnitee (except with respect to providing releases of the third party). The
Indemnitee shall not settle or compromise the claim without satisfying one of
the following conditions (otherwise the Indemnitor shall be released from all
indemnification obligations hereunder to the Indemnitee with respect to such
claim): (a) the Indemnitee shall first obtain the written consent of the
Indemnitor or (b) the Indemnitor shall have failed, after written notice to it
of such suit, to take action to defend the same within the 15-day period
described above.
16.4 LIMITATIONS ON INDEMNIFICATION OBLIGATIONS
(a) Buffer and Deductible. Notwithstanding anything to the
contrary contained in this Paragraph 16, no claim for indemnification hereunder
shall be made by the Indemnitee against the Indemnitor with respect to a
particular Hospital until the aggregate amount of Losses resulting from such
claims by the Indemnitee against the Indemnitor with respect to such Hospital
shall exceed $300,000 but thereafter Indemnitee shall be entitled to recovery of
the full amount of all such Losses, including the first $300,000; provided,
however, that individual claims of less than $10,000 shall not be aggregated for
purposes of the foregoing $300,000 limitation. The provisions of this Paragraph
16.4 shall not apply to any claim based on the parties' obligations set forth in
Paragraphs 1, 2, 3 and 14.
(b) Maximum Limit on Seller's Indemnification Obligation. If
the Closing occurs, then in no event shall any Seller be liable to Buyer under
Paragraph 16.1 for amounts which, in the aggregate, exceed the portion of the
Purchase Price allocable to such Seller.
16.5 TIME LIMITATIONS
Seller shall not be liable for any breach of any
representation, warranty, covenant or agreement contained herein or made by
Seller under or in connection with this Agreement unless Buyer shall have given
written notice to Seller of the basis of its claim within two years of the
Closing. Buyer shall not be liable for any breach of any representation,
warranty, covenant or agreement contained herein or made by Buyer under or in
connection with this Agreement unless Seller shall have given written notice to
Buyer of the basis of its claim within two years of the Closing. The provisions
of this Paragraph 16.5
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shall not apply to any claim based on the parties' obligations set forth in
Paragraphs 2, 3 and 14.
16.6 EXCLUSIVE REMEDY
Absent fraud, the sole exclusive remedy for damages of a
party hereto for any breach of the representations, warranties, covenants and
agreements of the other party contained in this Agreement, or any document or
instrument delivered in connection herewith, shall be the remedies contained in
this Paragraph 16; provided, however, that the remedy for breaches of the
covenants set forth in Paragraph 14.6 shall not be limited to the remedies set
forth in this Paragraph 16 and shall include injunctive and other equitable
remedies, as appropriate. If the Closing occurs, Buyer shall not be entitled to
indemnity under Paragraph 16.1, and Seller shall not be entitled to indemnity
under Paragraph 16.2, except for out-of-pocket Losses actually suffered or
sustained by Buyer or Seller, as the case may be, and such indemnity shall not
include Losses in the nature of consequential damages, lost profits, diminution
in value, damage to reputation or goodwill, or the like. In computing Losses,
such amount shall be computed net of any related recoveries to which the
Indemnitee is entitled under insurance policies or other related payments
received or receivable from any other Person and net of any tax benefits
actually received by the Indemnitee, taking into account the income tax
treatment of the receipt of indemnification.
17. TERMINATION
17.1 TERMINATION UPON CERTAIN EVENTS
Either Buyer or Seller may, at or prior to the time set for
Closing, terminate this Agreement under any one of the following circumstances:
(a) If at the time for Closing (i) a bona fide action or
proceeding shall be pending against any party wherein an unfavorable judgment,
decree or order would prevent or make unlawful the carrying out of the
transactions contemplated by this Agreement or (ii) any governmental agency
shall have notified any party to this Agreement that the consummation of the
transactions contemplated by this Agreement would constitute a violation of the
Laws of any jurisdiction and that it has commenced or intends to commence
proceedings to restrain the consummation of the transactions contemplated
hereunder, and such agency has not withdrawn such notice prior to such
termination; provided, however, that, notwithstanding Paragraph 17.1(c) to the
contrary, the Closing shall be extended so long as either party hereto is
diligently attempting to obtain the dismissal of such action or proceeding or
cause such notice to be withdrawn; or
(b) If the conditions of this Agreement to be complied with
or performed by the other party at or before the Closing shall not have been
complied with or performed on or before the date specified for the Closing in
Paragraph 11 or, subject to
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Paragraph 17.1(c) below, such later date upon which the parties shall mutually
agree, and such noncompliance or nonperformance shall not have been waived by
the party giving notice of termination; or
(c) If for any reason the Closing shall not have occurred on
or before April 1, 1998.
17.2 EFFECT OF TERMINATION
If there has been a termination under this Paragraph 17, then
this Agreement shall be deemed terminated, and all further obligations of the
parties hereunder shall terminate except that those obligations set forth in
Paragraphs 13, 14.6, 16, and 18 shall survive. Any termination under this
Paragraph 17 shall be without liability to the parties hereto, except that such
termination shall be without prejudice to the rights and remedies which any
party seeking to terminate this Agreement may have if (a) a default shall be
made by the other party in the observance or in the due and timely performance
by such party of any of the covenants herein contained, or (b) there shall have
been a breach by the other party of any of the warranties and representations
herein contained, and except for fraudulent acts by a party, the remedies for
which shall not be limited by the provisions of this Agreement. Notwithstanding
the foregoing to the contrary, if Seller shall have made such default or breach,
then Buyer need not terminate this Agreement but may seek to specifically
enforce Seller's obligations hereunder.
18. LIQUIDATED DAMAGES
IN THE EVENT THAT THE TRANSACTIONS CONTEMPLATED HEREUNDER SHALL
FAIL TO CLOSE BECAUSE OF (A) THE BREACH BY BUYER OF ITS MATERIAL
REPRESENTATIONS, WARRANTIES OR OBLIGATIONS HEREUNDER, OR (B) THE CONDITIONS
PRECEDENT SET FORTH IN PARAGRAPHS 10.1, 10.2, 10.3, 10.4, 10.5, 10.6 OR 10.9
HAVE NOT BEEN SATISFIED BY BUYER OR WAIVED BY SELLER, THEN BUYER SHALL BE IN
DEFAULT, SELLER SHALL BE RELEASED FROM SELLER'S OBLIGATION TO SELL THE
TRANSFERRED ASSETS TO BUYER. THE PARTIES HEREBY EXPRESSLY AGREE THAT SELLER
SHALL RECEIVE AS SELLER'S LIQUIDATED DAMAGES AN AMOUNT EQUAL TO THE EXCLUSIVITY
FEE AND THE PARTIES EXPRESSLY AGREE THAT BECAUSE THE PRECISE AMOUNT OF SELLER'S
DAMAGES CAUSED BY BUYER'S DEFAULT WOULD BE EXTREMELY DIFFICULT TO CALCULATE
ACCURATELY, SUCH AMOUNT IS NOT UNREASONABLE UNDER THE CIRCUMSTANCES EXISTING AT
THE TIME THIS AGREEMENT IS ENTERED INTO. SELLER AND BUYER ACKNOWLEDGE AND AGREE
THAT THEY HAVE MADE A REASONABLE ENDEAVOR TO ESTIMATE THE ACTUAL DAMAGES SELLER
WOULD SUSTAIN AS A RESULT OF BUYER'S DEFAULT. HOWEVER, THE PROSPECTIVE
IMPRACTICABILITY
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AND EXTREME DIFFICULTY OF FIXING SELLER'S ACTUAL DAMAGES HAS REQUIRED THE
PARTIES TO ATTEMPT TO LIQUIDATE SELLER'S DAMAGES IN THE EVENT OF BUYER'S
DEFAULT, SINCE SELLER'S DAMAGES WILL RESULT FROM, AMONG OTHER THINGS, MARKET
FLUCTUATION, SELLER'S COSTS AND EXPENSES OF THIS TRANSACTION (INCLUDING, WITHOUT
LIMITATION, SELLER'S LEGAL AND OTHER EXPENSES INCURRED IN CONNECTION WITH THIS
AGREEMENT AND PREPARING FOR THE CLOSING), AND LOSSES WHICH WOULD RESULT FROM
SELLER HAVING REMOVED THE TRANSFERRED ASSETS FROM THE MARKET FOR ANY LENGTH OF
TIME. NOTWITHSTANDING ANY OTHER PROVISION HEREOF, RECEIPT OF LIQUIDATED DAMAGES
SHALL BE SELLER'S SOLE AND EXCLUSIVE REMEDY FOR BUYER'S FAILURE TO COMPLETE THE
PURCHASE OF THE TRANSFERRED ASSETS.
19. GENERAL PROVISIONS
19.1 NOTICES
All notices, requests, demands, waivers, consents and other
communications hereunder shall be in writing, shall be delivered either in
person, by telegraphic, facsimile or other electronic means, by overnight air
courier or by mail, and shall be deemed to have been duly given and to have
become effective (a) upon receipt if delivered in person or by telegraphic,
facsimile or other electronic means calculated to arrive on any business day
prior to 6:00 p.m. local time at the address of the addressee, or on the next
succeeding business day if delivered on a non-business day or after 6:00 p.m.
local time, (b) one business day after having been delivered to an air courier
for overnight delivery or (c) five business days after having been deposited in
the mails as certified or registered mail, return receipt requested, all fees
prepaid, directed to the parties or their assignees at the following addresses
(or at such other address as shall be given in writing by a party hereto):
If to Seller, addressed to:
c/o TENET HEALTHSYSTEM
14001 Dallas Parkway
Dallas, TX 75240
Attn: Donald W. Thayer
Facsimile: (972) 789-2318
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with a copy to counsel for Seller:
Tenet HealthSystem
14001 Dallas Parkway
Dallas, TX 75240
Attn: General Counsel
Facsimile: (972) 789-2370
and
Gary Q. Michel, Esq.
Ervin, Cohen & Jessup LLP
9401 Wilshire Blvd., 9th Floor
Beverly Hills, CA 90212-2974
Facsimile: (310) 859-2325
If to Buyer, addressed to:
NEW AMERICAN HEALTHCARE CORPORATION
109 Westpark Drive, Suite 440
Brentwood, TN 37024
Attn: Neil G. McLean
Facsimile: (615) 221-5009
with a copy to counsel for Buyer:
Michael R. Hill, Esq.
Harwell, Howard, Hyne, Gabbert & Manner
315 Deaderick Street
Nashville, TN 37238
Facsimile: (615) 251-1059
19.2 FORM OF INSTRUMENTS
To the extent that a form of any document to be delivered
hereunder is not included within the Disclosure Statement, such documents shall
be in form and substance, and shall be executed and delivered in a manner,
reasonably satisfactory to the recipient thereof and consistent with the
provisions of this Agreement.
19.3 ATTORNEYS' FEES
In any litigation or other proceeding relating to this
Agreement, including litigation with respect to any instrument, document or
agreement made under or in
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connection with this Agreement, the prevailing party shall be entitled to
recover its costs and reasonable attorneys' fees (including a reasonable
estimate of the allocable costs of in-house legal counsel and staff).
19.4 REMEDIES NOT EXCLUSIVE
Except as otherwise expressly set forth in this Agreement, no
remedy conferred by any of the specific provisions of this Agreement is intended
to be exclusive of any other remedy, and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise. The
election of any one or more remedies by a party shall not, except as otherwise
expressly provided for herein, constitute a waiver of the right to pursue other
available remedies.
19.5 SUCCESSORS AND ASSIGNS
(a) Buyer's Limited Right to Assign. Prior to the Closing
Date, Buyer, in its sole discretion, may assign any or all of its rights and
obligations with respect to the Transferred Assets and the Assumed Obligations
to a corporation, partnership, limited liability company or any other Person
which is not an individual in which Buyer and its Affiliates hold at least 80%
of the voting stock, partnership interests, membership interests or other
ownership interests ("BUYER'S SUBSIDIARY"), provided that no such assignment
shall relieve Buyer of any obligation or liability to Seller hereunder, and
provided further that the following shall apply:
(i) Buyer shall provide Seller of prompt written notice
of any such assignment.
(ii) No such assignment shall be effected if the making
of the assignment will result in Buyer's inability to obtain any consent,
approval or authorization required by Paragraph 9.4 or any Permit required
by Paragraph 9.5.
(iii) Buyer's Subsidiary shall irrevocably appoint Buyer
as its sole and exclusive representative and agent authorized to act for
and to receive notices and payments on its behalf in all matters arising
from or related to this Agreement.
(iv) As a condition to Seller's agreement to such
assignments, Buyer hereby agrees that prior to the Closing Buyer will be
the ultimate parent entity of the consolidated group of companies of which
Buyer is a group member or that, in the event of any reorganization
involving Buyer and its subsidiaries prior to the Closing, the ultimate
parent entity of the
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consolidated group of companies emerging from such reorganization that
includes Buyer and its successors and assigns shall, prior to any such
reorganization, execute such documents as are reasonably necessary to
confirm the assumption by such ultimate parent entity of Buyer's
obligations to Seller hereunder.
(v) Buyer shall remain jointly and severally liable to
Seller and to third parties with respect to any Assumed Obligations
transferred to Buyer's Subsidiary, and, without limiting the generality of
the foregoing, hereby absolutely and unconditionally guarantees the full,
prompt and faithful performance by Buyer's Subsidiary of all covenants and
obligations to be performed by Buyer's Subsidiary under this Agreement and
any agreement delivered in connection herewith which are assigned to
Buyer's Subsidiary, including but not limited to, the payment of all sums
stipulated to be paid by such Buyer's Subsidiary pursuant to such
assignment, it being understood that each such covenant and obligation
constitutes the direct and primary obligation of Buyer, is independent of
the covenants and obligations of Buyer's Subsidiary and that a separate
action or actions may be brought and prosecuted against Buyer whether
action is brought against Buyer's Subsidiary or whether Buyer's Subsidiary
is joined in any such action or actions (Buyer hereby waiving any right to
require Seller to proceed against Buyer's Subsidiary). Buyer hereby
authorizes Seller, without notice and without affecting Buyer's liability
hereunder, from time to time to (A) renew, compromise, extend, accelerate,
or otherwise change the terms of any obligation of Buyer's Subsidiary
hereunder with the agreement of Buyer's Subsidiary, (B) take and hold
security for the obligations guaranteed, and exchange, enforce, waive and
release any such security, and (C) apply such security and direct the
order or manner of sale thereof as Seller in its discretion may determine.
Buyer hereby further waives:
(I) Any right to subrogation, reimbursement,
exoneration or contribution or any other rights that would result
in Buyer being deemed a creditor of Buyer's Subsidiary under the
federal Bankruptcy Code or any other law, in each case arising
from the existence or performance of Buyer's guaranty of the
obligations of Buyer's Subsidiary hereunder,
(II) Any defense that may arise by reason of the
incapacity or lack of authority of Buyer's Subsidiary;
(III) Any defense based upon a statute or rule of law
which provides that the obligations of a surety must
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be neither larger in amount nor in other respects more
burdensome than those of the principal) and
(IV) Any duty on the part of Seller to disclose to
Buyer any facts that Seller may now or hereafter know about
Buyer's Subsidiary, since Buyer hereby acknowledges that it is
fully responsible for being and keeping informed of the financial
condition of Buyer's Subsidiary and all circumstances bearing on
the risk of non-payment of any obligations assigned to Buyer's
Subsidiary.
(b) No Third Party Rights. Subject to the provisions of
Paragraph 19.5(a), the rights under this Agreement shall not be assignable nor
the duties delegable by any party without the written consent of the other; and
nothing contained in this Agreement, express or implied, is intended to confer
upon any Person or entity, other than the parties hereto and their permitted
successors-in-interest and permitted assignees, any rights or remedies under or
by reason of this Agreement unless so seated to the contrary.
19.6 COUNTERPARTS
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
19.7 CAPTIONS AND PARAGRAPH HEADING
Captions and paragraph headings used herein are for
convenience only and are not a part of this Agreement and shall not be used in
construing it.
19.8 ENTIRETY OF AGREEMENT; AMENDMENT
This Agreement (including the Schedules hereto), the other
documents and instruments specifically provided for in this Agreement and the
letter agreement of even date herewith between Seller and Buyer regarding
Seller's remediation of certain environmental matters on the Real Property, the
Woodland Park Property and the Lander Property, contain the entire understanding
between the parties concerning the subject matter of this Agreement and such
other documents and instruments and, except as expressly provided for herein,
supersede all prior understandings and agreements, whether oral or written,
between them with respect to the subject matter hereof and thereof. There are no
representations, warranties, agreements, arrangements or understandings, oral or
written, between the parties hereto relating to the subject matter of this
Agreement and such other documents and instruments which are not fully expressed
herein or therein. This Agreement
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may be amended or modified only by an agreement in writing signed by all of the
parties hereto.
19.9 EXPENSES AND PRORATIONS
Each party shall bear and pay its own costs and expenses
relating to the transactions contemplated by, or the performance of or
compliance with any condition or covenant set forth in, this Agreement. In
determining the costs and expenses of each party hereunder, the following rules
shall apply: (a) all costs of the Preliminary Title Reports and each Title
Policy shall be paid by Seller up to an amount equal to the amount Seller would
have incurred if each Title Policy were a standard coverage owner's or leasehold
owner's policy of title insurance (without deletion of survey exceptions), and
the remaining costs of each Title Policy (including any endorsements required by
Buyer), if any, shall be borne by Buyer; (b) all costs of the Surveys, the
Environmental Survey and all UCC Reports shall be borne by Buyer; (c) all fees,
charges and costs of economists and other experts, if any, jointly retained by
Buyer and Seller in connection with the submissions made to any governmental
agency and advice in connection therewith respecting the approval of the
transactions contemplated hereby will be borne one-half by Seller and one-half
by Buyer except for all fees relating to the Hart-Scott-Rodino filing, which
fees shall be paid by Buyer; (d) all escrow charges and related fees shall be
borne one-half by Seller and one-half by Buyer; (e) if not properly reflected as
an Accrued Operating Expense as of the Closing Date, all real and personal
property taxes (including all special assessments and any installment payments
thereof) shall be prorated between Seller and Buyer as of the Closing Date based
on the assessed valuations of such property for the taxable year in which the
Closing occurs and the property tax rates for such taxable year of all
applicable taxing jurisdictions; and (f) all other costs, charges and expenses
shall, except as otherwise provided in this Agreement, be allocated between
Buyer and Seller in accordance with the customs of the county in which the Real
Property is located.
19.10 CONSTRUCTION
This Agreement and any documents or instruments delivered
pursuant hereto shall be construed without regard to the identity of the Person
who drafted the various provisions of the same. Each and every provision of this
Agreement and such other documents and instruments shall be construed as though
the parties participated equally in the drafting of the same. Consequently, the
parties acknowledge and agree that any rule of construction that a document is
to be construed against the drafting party shall not be applicable either to
this Agreement or such other documents and instruments.
19.11 WAIVER
The failure of any party to insist, in any one or more
instances, on performance of any of the terms, covenants and conditions of this
Agreement shall not be construed as a waiver or relinquishment of any rights
granted hereunder or of the future
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performance of any such term, covenant or condition, but the obligations of the
parties with respect thereto shall continue in full force and effect. No waiver
of any provision or condition of this Agreement by any party shall be valid
unless in writing and signed by such party or operational by the terms of this
Agreement. A waiver by one party of the performance of any covenant, condition,
representation or warranty of the other party shall not invalidate this
Agreement, nor shall such waiver be construed as a waiver of any other covenant,
condition, representation or warranty. A waiver by any party of the time for
performing any act shall not constitute a waiver of the time for performing any
other act or the time for performing an identical act required to be performed
at a later time.
19.12 SEVERABILITY
The provisions of this Agreement are severable, and if any
one or more provisions may be determined to be judicially unenforceable, in
whole or in part, the remaining provisions and any partially unenforceable
provisions, to the extent enforceable, shall nevertheless be binding upon and
enforceable against the parties hereto.
19.13 CERTAIN DEFINITIONS
(a) Newly Defined Terms. For purposes of this Agreement, the
following terms shall have the following meanings:
"AFFILIATE" of a specified Person shall mean any corporation,
partnership, sole proprietorship or other Person or entity which directly or
indirectly through one or more intermediaries controls, is controlled by or is
under common control with the Person specified. The term "control" means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person or entity.
"COBRA" shall mean Sections 601 through 609 of ERISA and
Section 4980B of the Code.
"ENVIRONMENTAL REGULATIONS" shall mean all Laws and all
policies and guidelines as of the date of this Agreement relating to the use,
handling, treatment, storage, transportation, disposal, emissions, discharges or
releases of Hazardous Materials or otherwise relating to the protection of the
environment or industrial hygiene (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata).
"GOVERNMENT RECEIVABLES" shall mean any and all Receivables
due from Medicare, Medicaid or CHAMPUS, or any other Receivable (including any
such Receivables respecting a Straddle Patient), the assignment of which is
either prohibited by Law or by the terms of any contract with a payor, and
including all deductibles and co-insurance payments receivable from the patient
or other payor, and including all Receivables which
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represent amounts due from Payors with respect to the cost reports and other
filings referred to in Paragraph 14.10.
"HAZARDOUS MATERIALS" shall mean any substance, material or
waste (including, without limitation, medical wastes, asbestos in any form,
formaldehyde, radon, radioactive substance, hydrocarbons, petroleum, gasoline,
crude oil or any products, byproducts or fractions thereof, polychlorinated
biphenyls, industrial solvents, flammables, explosives and any other substance
or material defined or listed as "hazardous substances", "hazardous waste",
"toxic substances", "toxic pollutant" or similarly identified substances,
materials or mixtures in or pursuant to the Environmental Regulations) which, in
any material respect, is known to cause as of the date of this Agreement a
health or environmental hazard and require remediation at the behest of any
governmental agency.
"KNOWLEDGE" of (I) a party or Person other than Seller shall
mean the current conscious awareness of the Persons who serve as of the date of
this Agreement as the duly elected officers of such party or Person after
reasonable inquiry, and (ii) Seller shall mean the current conscious awareness
of the Chief Executive Officer, the Chief Financial Officer, the Chief Operating
Officer, the Director of Nursing and the Plant Manager of each Hospital as
communicated to Seller's representatives in response to inquiries made in the
course of Seller's preparation of the Disclosure Statement.
"LAWS" shall mean all statutes, rules, regulations,
ordinances, orders, codes, permits, licenses, policies, and agreements with or
of federal, state, local and foreign governmental and regulatory authorities and
any order, writ, injunction or decree issued by any court, arbitrator or
governmental agency or in connection with any judicial, administrative or other
nonjudicial proceeding (including, without limitation, arbitration or
reference).
"PAYOR" shall mean Medicare, Medicaid, CHAMPUS and Medically
Indigent Assistance programs, Blue Cross, Blue Shield or any other third party
payor (including an insurance company), or any health care provider (such as a
health maintenance organization, preferred provider organization, peer review
organization, or any other managed care program).
"PERSON" shall mean any individual, partnership, corporation,
limited liability company, trust, unincorporated association, joint venture or
any other entity of any kind whatsoever, whether for profit or not for profit,
and any governmental agency.
"REASONABLE COMMERCIAL EFFORTS" OR "REASONABLE EFFORTS" do
not include the provision of any consideration to any third party or the
suffering of any economic detriment to a party's ongoing operations for the
procurement of any consent, authorization or approval required under this
Agreement except for the costs of gathering and supplying data or other
information or making any filings, fees and expenses of counsel and consultants
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and for customary fees and charges of governmental authorities and
accreditation organizations.
"RECEIVABLES" shall mean all accounts, notes or other amounts
receivable recorded or otherwise accrued by Seller as of the Closing Date as
accounts, notes or other amounts receivable (excluding any amount not so
recorded or accrued and any amount which ever was recorded or accrued before the
Closing Date but which has been written off or: fully reserved as of the Closing
Date) from Payors, patients, physicians or any other Person (whether or not
billed) including, without limiting the generality of the foregoing, any amount
due to Seller arising from or in connection with the treatment of patients at,
or the operation of, the Hospital Businesses, including (to the extent not
already included) rights to payment for services rendered through the Closing
Date to Straddle Patients, but excluding all such Receivables constituting
Buyer's share of Straddle Patient Payments payable to Buyer pursuant to
Paragraph 14.8(b).
"TAXES" shall mean (i) all federal, state, county and local
sales, use, property, payroll, recordation and transfer taxes, (ii) all federal,
state, county and local taxes, levies, fees, assessments or surcharges (however
designated, including privilege taxes, room or bed taxes and user fees) which
are based on the gross receipts, net operating revenues or patient days of a
Hospital for a period ending on, before or including the Closing Date or a
formula taking any one of the foregoing into account, and (iii) any interest,
penalties and additions to tax attributable to any of the foregoing, but shall
not include any income tax or other tax based on net income or any taxes payable
by Seller relating to Seller's 1031 exchange as described in Paragraph 19.21.
(b) Table of Contents for Previously Defined Terms. The terms
listed below are defined elsewhere in this Agreement and, for ease of reference,
the Paragraph containing the definition of each such term is set forth opposite
such term.
<TABLE>
<CAPTION>
Term Paragraph
---- ---------
<S> <C>
Accrued Operating Expenses 3.1(d)
Assumed Contracts 3.1(a)
Assumed Obligations 3.1
Bill of Sale 2 3(a)(ii)
Business Records 14.2(a)
Buyer's Designated Representatives 7.5
Buyer's Subsidiary 19.5(a)
Closing 11
Closing Date 11
Closing Schedule 2.2
Code 5.15
Collection Period 14.8(d)(iii)
</TABLE>
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<TABLE>
<S> <C>
Commitment Letter 8.5
Confidential Information 14.6
Consultant 8.2
Contracts 1.1.5
Desired Consents 6.4
Destruction Notice 14.2(b)
Disapproved Item 14.7
Disclosure Statement 4
Document Retention Period 14.2(b)
Environmental Survey 8 2
ERISA 5 22
Escrow 13
Escrow Agent 11.2
Escrow Agreement 13
Estimated Statement 2.3
Excluded Liabilities 3.2
Exclusivity Fee 13
Financial Statements 5.3(a)
Hired Employees 14 11(b)
Hospitals A
Hospital Businesses A
Hospital Records 14 2
Indemnification Notice 16 3
Indemnitee 16.3
Indemnitor 16.3
Inspection 8.2
Inspection Period 9.3
Intercompany Transactions 1.1.5
Interim Statements 5.3(a)
Inventory 1.1.4
JCAHO 5 9
Justice Department 14.13(a)
Lander Lease 1.1.2
Lander Property 1.1.2
Leased Real Property 1.1.2
Liens 5.4
Losses 16.1
Manuals 14.16
Monthly Statements 6.7
Paid Time Off 3 1(b)
Patient Records 14.2(a)
Permits 5.9
</TABLE>
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<TABLE>
<S> <C>
Permitted Exceptions 5.4
Phase I Assessment 8.2
Phase II Investigation 8.2
Plans 5.22
Preliminary Title Reports 8.2
Premerger Rules 9.11
Prepaids 1.1.7
Prior Years' Statements 5.3(a)
Purchase Price 2.1
Purchased Inventory 1.1.4
Purchased Prepaids 1.1.7
Purchased Receivables 1.1.12
Real Property 1.1. 1
Real Property Leases 1.1.2
Retained Employees 14.11
Retained Assets 1.2
Seller's Parent 9.13
Services 14.16
Software 14. 16
Straddle Patients 14.8(b)
Straddle Patient Payments 14.8(b)(iii)
Supplemental Disclosure Statement 4
Surveys 8.2
Tentative Purchase Price 2.3
Title Company 8.2
Title Policy 9.7
Transferred Assets 1.1
UCC Reports 8.2
WARN Act 14.11
Woodland Park Lease 1.1.2
Woodland Park Property 1.1.2
Written Statement 7.5
</TABLE>
19.14 CONSENTS NOT UNREASONABLY WITHHELD
Wherever the consent or approval of any party is required
under this Agreement, such consent or approval shall not be unreasonably
withheld delayed or conditioned, unless such consent or approval is to be given
by such party at the sole and absolute discretion of such party or is otherwise
similarly qualified.
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19.15 TIME OF THE THE ESSENCE
Time is hereby expressly made of the essence with respect to
each and every term and provision of this Agreement. The parties acknowledge
that each will be relying upon the timely performance by the other of its
obligations hereunder as a material inducement to each party's execution of this
Agreement. Consequently, the parties agree that they are bound strictly by the
provisions concerning timely performance of their respective obligations
contained in this Agreement and that if any attempt is made by either party to
perform an obligation required to be performed or to comply with a provision of
this Agreement required to be complied with in a manner other than in strict
compliance with the time period applicable thereto, even if such purported
attempt is but one day late, then such purported attempt at performance or
compliance shall be deemed a violation of this Paragraph 19.15, shall be deemed
in contravention of the intention of the parties hereto, shall be null and void
and of no force or effect and shall constitute such party's material default
under this Agreement.
19.16 INTEREST ON AMOUNTS DUE
Any amount due from either party to the other which is not
paid when due shall bear interest at a rate equal to the prime rate reported by
the Wall Street Journal under "Money Rates" from time to time or the highest
rate permitted by Law, whichever is lower.
19.17 GOVERNING LAW
This Agreement shall be construed and enforced in accordance
with the laws of the State of California, without regard to the principles of
conflicts of law theory; provided, however, that the validity, interpretation
and effect of any documents or instruments by which real property is conveyed
shall be governed by the laws of the State in which such real property is
located.
19.18 TAX AND MEDICARE EFFECT
Except as otherwise expressly provided for in this Agreement,
neither party (nor such party's counsel or accountant) has made or is making any
representations to the other party (nor such party's counsel or accountant)
concerning any of the Tax, income or franchise tax, or Medicare effects arising
by reason of the transactions provided for in this Agreement as each party has
obtained independent professional advice with respect thereto and upon which it
has solely relied. Except as otherwise provided in this Agreement, no party
shall be liable or in any way responsible to any other party because of any Tax,
income or franchise tax, or Medicare effect resulting from the transactions
provided for in this Agreement and each party shall be responsible for the
payment of any Tax, income
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or franchise tax, or Medicare related charge or payment for which it becomes
liable by reason of the consummation of the transactions provided for in this
Agreement.
19.19 CASUALTY
If any part of the Transferred Assets are damaged, lost or
destroyed (whether by fire, theft, vandalism or other casualty) in whole or in
part on or prior to the Closing Date, Seller shall promptly notify Buyer of the
same; and if the fair market value of such damage or destruction does not
(according to Seller's reasonable estimate) exceed $3,000,000, Seller shall, at
Seller's option, either (a) reduce the Purchase Price by the fair market value
of the assets destroyed as reasonably determined by Seller, such value to be
determined as of the day immediately prior to such destruction or, as the case
may be, by the estimated cost to restore damaged goods, (b) provided that the
insurance proceeds are obtainable without delay and are, in Seller's reasonable
judgment, sufficient to fully restore the damaged assets, upon the Closing,
transfer the insurance proceeds or the rights to insurance proceeds of
applicable insurance to Buyer and Buyer may restore the improvements, or (c)
repair or restore such damaged or destroyed improvements. If any part of the
Transferred Assets are damaged, lost or destroyed (whether by fire, theft,
vandalism or other cause or casualty) in whole or in part prior to the Closing
and the fair market value of such damages exceeds (according to Buyer's
reasonable estimate) $3,000,000, Buyer may elect either to (x) require Seller to
transfer so much of the proceeds (or the right to the proceeds) of applicable
insurance to Buyer as is required for Buyer to restore the improvements and
Buyer shall thereafter restore the improvements or (y) terminate this Agreement,
in which case the Exclusivity Fee shall be returned to Buyer.
19.20 CONDEMNATION
From the date hereof and until the Closing, in the event that
any portion of either the Real Property underlying a particular Hospital, the
Lander Property or the Woodland Park Property is taken, reduced or restricted by
any pending, threatened or contemplated condemnation or eminent domain
proceeding or otherwise, then Buyer, at its sole option, may elect to terminate
this Agreement only with respect to the Hospital and related Hospital Businesses
affected by such preceding, in which case the Purchase Price shall be reduced by
the amount allocated to such Hospital and related Hospital Businesses pursuant
to Paragraph 14.5.
19.21 TAX-DEFERRED EXCHANGE
The parties acknowledge that it is Seller's intent to
transfer some or all of the Transferred Assets as part of a tax-deferred
exchange which qualifies for nonrecognition of gain under Section 1031 of the
Code. The manner and format for such exchange shall be designated by Seller;
provided, however, that at no time shall Buyer acquire any interest in any
property other than the Transferred Assets. Buyer shall cooperate with
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Seller in effecting such exchange, provided that (a) Buyer shall not incur any
additional liability in connection with such exchange, and (b) all additional
closing costs and charges attributable to the exchange shall be paid by Seller.
The exchange format to be designated may require Buyer to enter into an exchange
escrow with Seller, to acquire Seller's newly selected real property and other
tangible or intangible property, and then to transfer such real property and
other tangible or intangible property to Seller, or Seller may elect to effect a
non-simultaneous exchange wherein Seller will convey the Transferred Assets
subject to the exchange to an intermediary designated by Seller who will convey
such Transferred Assets to Buyer.
Rest of the Page Intentionally Left Blank
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<PAGE> 94
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
date first above written.
Seller:
DAVENPORT MEDICAL CENTER, INC.
WOODLAND PARK HOSPITAL, INC.
EGH, INC. QUALICARE OF WYOMING, INC.
By: /s/ Donald W. Thayer
----------------------------------
Name: Donald W. Thayer
Title: Vice President
NEW AMERICAN HEALTHCARE
CORPORATION
By: /s/ Robert M. Martin
----------------------------------
Name: Robert M. Martin
-----------------------------
Title: CEO
-----------------------------
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<PAGE> 95
ANNEX I
LIST OF SCHEDULES
<TABLE>
<CAPTION>
Schedule Description
-------- -----------
<S> <C>
1.1.1 Real Property Owned
1.1.2 Real Property Leases, Lander Property
and Woodland Park Property
1.1.3 Personal Property
1.1.5 Contracts
1.1.7 Purchased Prepaids
1.1.8 Business Names
1.1.13 Joint Ventures
1.2.7 Other Retained Assets
3.1(b) Paid Time Off
3.1(g) Capital Leases
5.1 Sellers' States of Incorporation and
Subsidiaries
5.3 Financial Statements
5.4 Permitted Exceptions
5.5 Third Party Consents
5.6 Governmental Consents
5.7 Hazardous Substances
5.8 Litigation
5.9 Permits
5.10 Compliance with Laws
5.11 Union Matters
5.12 Personnel List
5.13 Defaults Under Assumed Contracts
5.17 Adverse Changes
5.18 Cost Reports and Participation Matters
5.19 Medical Staff Matters
8.5 Commitment Letter
9.13 Parent Guaranty
14.15 Special Limited Powers of Attorney
14.16 Licensed Software
14.18 BuyPower Agreement
5.20 Government Fund
5.25 Motor Vehicle Titles
6.4 Desired Consents
14.5 Purchase Price Allocation
</TABLE>
<PAGE> 96
ANNEX II
LIST OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
- -------
<S> <C>
2.3(a)(ii) Bill of Sale and Assignment and Assumption
of Assumed Obligations
8.5 Commitment Letter
9.13 Parent Guaranty
14.15 Special Limited Powers of Attorney
14.16 Licensed Software
14.18 BuyPower Agreement
</TABLE>
<PAGE> 1
Exhibit 10.10
RESTRICTED STOCK AGREEMENT
RESTRICTED STOCK AGREEMENT dated as of December 19, 1995 among NEW AMERICAN
HEALTHCARE CORPORATION, a Tennessee corporation (the "Company"), WELSH, CARSON,
ANDERSON & STOWE VII, L.P., a Delaware limited partnership ("WCAS VII"), the
several other investors named in Annex I hereto (collectively with WCAS VII, the
"Purchasers"), and the several individuals named in Annex II hereto
(individually, a "Founder" and collectively, the "Founders").
WHEREAS, pursuant to a Securities Purchase Agreement dated as of December
19, 1995 (the "Purchase Agreement") among the Company, the Purchasers and the
Founders, the Company (i) proposes to issue and sell to the Purchasers and the
Founders on the date hereof an aggregate 5,026,500 shares of Common Stock, $0.01
par value ("Common Stock"), of the Company and (ii) subject to the provisions of
the Purchase Agreement, may issue and sell to the Purchasers and Founders up to
(A) an aggregate 250,000 shares of Series A Non-Convertible Cumulative Preferred
Stock (the "Series A Preferred Stock") and (B) an aggregate 235,000 shares of
Series B Convertible Preferred Stock (the "Series B Preferred Stock"), in each
case during the five-year period after the date hereof;
WHEREAS, on the date hereof and prior to any additional purchases of
securities to be made by such Founders on the date hereof pursuant to the
Purchase Agreement, the Founders own the number of shares of Common Stock set
opposite their respective names in Annex II hereto under the heading "Number of
Restricted Shares", being 2,800,000 shares in the aggregate; and
WHEREAS, the Purchasers are willing to consummate the initial purchase and
any subsequent purchase contemplated to be made by them pursuant to the Purchase
Agreement on the terms and subject to the conditions set forth therein if, and
only if, each of the Founders covenants and agrees to subject the number of
shares of Common Stock owned by him as of the date hereof and set opposite his
name in Annex II hereto under the heading "Number of Restricted Shares" to
certain restrictions, including without limitation that such shares of Common
Stock be subject to repurchase by the Company under certain circumstances, all
as provided herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereby agree as follows:
<PAGE> 2
I.
SHARES OF COMMON STOCK SUBJECT TO REPURCHASE
SECTION A. Agreement to Restrict. Each Founder hereby agrees to subject,
and does hereby subject, all shares of Common Stock owned by him on the date
hereof, the number of which is set opposite his name in Annex II hereto under
the heading "Number of Restricted Shares", to the provisions of this Restricted
Stock Agreement (said shares, in the case of each Founder, being herein called
his "Restricted Shares" and all said shares of all Founders collectively being
herein called the "Restricted Shares").
SECTION B. Vested and Unvested Shares. The Restricted Shares of each
Founder as of any date, less any of the same which, as of such date, shall have
become vested with respect to such Founder as provided in Sections 1.03 and 1.04
below, are hereinafter referred to as of such date as "Unvested Shares", and any
Restricted Shares which, as of any date, shall have become vested with respect
to such Founder as provided in Sections 1.03 and 1.04 below, are hereinafter
collectively referred to as of such date as "Vested Shares". The Unvested Shares
held by any Founder from time to time shall be subject to the repurchase rights
of the Company as set forth in Section 1.05 below. All Shares purchased by the
Founders pursuant to the Securities Purchase Agreement dated December 19, 1995
between the Company, the Founders, and the Purchasers and, unless otherwise
specifically noted on such certificates and by an amendment hereto, all shares
hereafter purchased by the Founders, shall be considered Vested Shares not
subject to the provisions of this Agreement.
SECTION C. Ordinary Vesting. Except as otherwise provided in Sections 1.04
and 1.05 below, 1/48 of each Founder's Restricted Shares shall vest on the last
day of each calendar month commencing after August 28, 1995 with respect to
Messrs. Martin, McLendon, Watson and Hill, and, in connection with the person
who may, pursuant to Section 3.7 hereof, be treated as a Founder for purposes of
this Agreement, on the date such person purchases the shares of Common Stock
which are to be subject hereto.
SECTION D. Accelerated Vesting.
1. If a "Change of Control" (as hereinafter defined) shall occur then
concurrently with such Change of Control all Unvested Shares held by any Founder
whose employment with the Company shall not theretofore have ceased shall become
Vested Shares.
2
<PAGE> 3
2. For purposes of this Agreement, a "Change of Control" means:
a. a transaction whereby the Company shall merge or consolidate with
or into another entity (other than the consolidation or merger of a
wholly-owned subsidiary with or into the Company and other than a merger
involving the Company in which holders of at least 51% of the outstanding
Common Stock, on a fully diluted basis, immediately prior to such merger or
consolidation hold at least 51% of the Common Stock, on a fully diluted
basis, immediately thereafter, in substantially the same proportions);
b. the sale or other disposition by WCAS in a single transaction or a
series of transactions, of shares of outstanding Common Stock, or
securities convertible into Common Stock of the Company of at least 33 1/3%
of the outstanding Common Stock, on a fully diluted basis, calculated
immediately prior to such a sale or other disposition; or
c. a sale of all or substantially all of the properties and assets of
the Company.
SECTION E. Right of Repurchase of Unvested Shares Upon Termination of
Employment.
1. Each Founder agrees with the Company and the Purchasers that upon
the termination of such Founder's employment with the Company for any reason,
(i) no further Restricted Shares of such Founder shall, unless so provided in
Section 1.05(c), thereafter become Vested Shares and (ii) the Company shall
thereupon have the right and option, but not the obligation, on the terms set
forth in this Section 1.05, to purchase from such Founder that Founder's
Unvested Shares; provided, however, that if such Founder's employment with the
Company is terminated for any of the reasons set forth in Section 7(a)(iv) of
such Founder's Employment Agreement with the Company, whether before or after
the scheduled expiration date of the Employment Term (as defined in the
Employment Agreement), then the Company shall only be entitled to repurchase,
the lesser of (i) the number of Unvested Shares as of the last day in the
calendar month in which the Founder's employment with the Company is terminated
or (ii) the number of such Founder's Unvested Shares equal to the percentage set
forth below opposite such Founder's name of the total original number of such
Founder's Restricted Shares:
Robert M. Martin: 50.0%
Dana C. McLendon, Jr.: 50.0%
Craig B. Watson: 65.0%
Timothy S. Hill: 80.0%
Any additional person
treated pursuant to
3
<PAGE> 4
Section 3.7 hereof
as a Founder: 85.0%
The Unvested Shares of a Founder which become purchasable by the Company
pursuant to this Section 1.05 are herein sometimes referred to as "Repurchase
Shares". The purchase price to be paid for Repurchase Shares (the "Repurchase
Price") under this Section 1.05 shall be the price such Founder paid for such
Repurchase Shares at the time he acquired such shares from the Company.
Notwithstanding the foregoing, if (i) Craig B. Watson's Employment Term (as such
term is defined in his Executive Employment Agreement with the Company dated as
of the date hereof) does not commence by February 1, 1996 or (ii) Timothy S.
Hill's Employment Term (as such term is defined in his Executive Employment
Agreement with the Company dated as of the date hereof) does not commence by
March 1, 1996, then the Company shall be entitled, at its option, to purchase
all of Mr. Watson's or Mr. Hill's, as the case may be, Restricted Shares,
whether or not any have theretofore become Vested Shares, at the Repurchase
Price, together with all Shares of capital stock of the Company purchased by Mr.
Watson or Mr. Hill, as the case may be, pursuant to the Purchase Agreement at
the price paid therefor.
If after the date hereof any subdivision or combination of the shares of
Common Stock of the Company shall have occurred or any dividend or other
distribution upon the shares of Common Stock payable in Common Stock or in
options to purchase Common Stock or securities convertible into Common Stock
shall have been made or declared, then (i) all shares issued or issuable to a
Founder in connection therewith in respect of shares which constitute Unvested
Shares shall become Restricted Shares and shall be treated as part of the total
original number of Restricted Shares held by such Founder and (ii) the purchase
price payable by the Company thereafter pursuant to this Section 1.05 for each
Unvested Share shall be a price obtained by dividing the aggregate purchase
price for all Unvested Shares prior to such event by the total number of
Unvested Shares existing immediately after the occurrence of such event.
2. Each Founder agrees with the Company and the Purchasers that upon any
transfer of the Unvested Shares in violation of this Agreement, either willfully
or by operation of law, the Company shall thereupon have the right and option,
but not the obligation, on the terms set forth in this Section 1.05, to purchase
from such Founder or its transferee all of the Unvested Shares held by such
person at the Repurchase Price (such Unvested Shares to be designated for
purchase by the Company under this Section 1.05 are sometimes referred to as
"Repurchase Shares").
3. Within sixty (60) days after the occurrence of any event specified in
subsection (a) above or within sixty (60) days
4
<PAGE> 5
after the Company obtains knowledge of the occurrence of an event specified in
subsection (b) above, the Company shall give such Founder (or, in the case of a
transfer, such Founder's transferee) written notice of the Company's election to
exercise its right to purchase any Unvested Shares held by such Founder (or
transferee) under this Section 1.05 and the number of Unvested Shares the
Company elects to purchase. The closing for the purchase by the Company of any
such Unvested Shares pursuant to the provisions of this Section 1.05 will take
place at the offices of the Company on the date specified in such written
notice, which date shall be a business day not later than 30 days after the date
such notice is given. At such closing, such Founder shall deliver the Repurchase
Shares to the Company, duly endorsed for transfer, against payment of the
purchase price therefor. Such purchase price shall be payable to the Founder by
certified or cashier's check payable to his order. To the extent the Company
chooses not to exercise such right and option under this Section 1.05 to
repurchase any Unvested Shares from a Founder (unless such decision is made
because the Company is at the time prevented from repurchasing such shares under
applicable law, in which event no Unvested Shares shall continue to vest
pursuant to Section 1.03 until such date, if any, that is 90 days after the date
on which the Company determines that it shall be able to exercise its rights
under this Section 1.05 and the Company shall be entitled to exercise its rights
hereunder until such date) all Unvested Shares of such Founder shall become
Vested Shares. Any decision pursuant to this Section 1.05(c) to repurchase or
not to repurchase shares shall be made by a majority of the members of the Board
of Directors excluding any Founder Stockholders Designees (as defined in the
Stockholders Agreement, dated December 19, 1995, among the Company and the
several parties named in Schedule I and II thereto).
SECTION F. Rights as a Stockholder. Subject to the provisions of Sections
1.03, 1.04, 1.05 and 1.07 hereof, each Founder will have all rights of a
stockholder with respect to all Common Shares held by him, including the right
to vote such Common Shares and to receive any dividends paid thereon.
SECTION G. Transfer Restrictions on Restricted Shares. Notwithstanding
anything contained in this Agreement to the contrary, each Founder agrees with
the Company that such Founder will not sell, assign, transfer, pledge, convey or
otherwise dispose of any Unvested Shares, or subject the same to any lien,
encumbrance, mortgage or other security interest of any kind whatsoever, prior
to the date on which such Unvested Shares become Vested Shares as provided in
this Agreement.
SECTION H. Recording of Assignments. The Company shall not record any
assignment, transfer or other disposition of any Restricted Shares on its
transfer books unless the provisions of
5
<PAGE> 6
this Agreement shall have been fully complied with and the Company shall have
received satisfactory evidence thereof.
SECTION I. Legend on Stock Certificates. Each stock certificate
representing Restricted Shares held by each Founder shall be conspicuously
endorsed with the following legend:
THE RIGHTS OF THE HOLDER OF THE SHARES EVIDENCED BY THIS CERTIFICATE
ARE SUBJECT TO AND LIMITED BY THE TERMS AND CONDITIONS OF A CERTAIN
RESTRICTED STOCK AGREEMENT DATED AS OF DECEMBER 19, 1995 AMONG NEW
AMERICAN HEALTHCARE CORPORATION, CERTAIN OTHER PARTIES AND THE ORIGINAL
HOLDER OF SUCH SHARES. A COPY OF SAID AGREEMENT, TO WHICH REFERENCE IS
HEREBY MADE, IS ON FILE AND MAY BE EXAMINED AT THE OFFICES OF NEW
AMERICAN HEALTHCARE CORPORATION.
Whenever any Restricted Shares held by any Founder become Vested Shares under
this Agreement, such Founder shall be entitled to receive from the Company a new
stock certificate evidencing such newly Vested Shares without the restrictive
legend set forth above and such certificate shall be delivered to such Founder.
Each stock certificate representing Restricted Shares shall also bear the
legends provided for in the Stockholders Agreement and in the Registration
Rights Agreement.
SECTION J. Applicability of Stockholders Agreement. The terms and
provisions of the Stockholders Agreement dated as of the date hereof among the
Company, the Purchasers and the Founders shall also apply to the Restricted
Shares, provided that in the event of any conflict between the provisions hereof
and thereof, the provisions hereof shall govern.
II.
REPRESENTATIONS AND WARRANTIES OF THE FOUNDERS
Each Founder, severally and not jointly, represents and warrants to the
Company as follows:
SECTION A. Authorization. The execution, delivery and performance by such
Founder of this Agreement will not violate any provision of law, any order of
any court or other agency of government, or any provision of any indenture,
agreement or other instrument by which such Founder or any of such Founder's
properties or assets is bound, or conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of such Founder.
6
<PAGE> 7
SECTION B. Validity. This Agreement has been duly executed and
delivered by such Founder and constitutes the legal, valid and binding
obligation of such Founder, enforceable in accordance with its terms, subject,
as to enforcement of remedies, to applicable bankruptcy, insolvency,
reorganization, moratorium, and similar laws from time to time in effect
affecting the enforcement of creditors' rights generally and to general equity
principles.
SECTION C. Title to Common Shares. The transfer and delivery by such
Founder of any Restricted Shares repurchased by the Company from such Founder in
accordance with Section 1.05 above will transfer valid title thereto to the
Company, free and clear of any liens, claims, security interests or other
encumbrances whatsoever.
III.
MISCELLANEOUS
SECTION A. Expenses, Etc. The parties hereto shall pay all of their own
expenses relating to the transactions contemplated by this Agreement, whether or
not such transactions shall be consummated, except that the Company shall pay
the expenses of the Founders incurred in connection with the preparation,
execution and delivery of this Agreement.
SECTION B. Notices. All notices which are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and (i) delivered personally,
(ii) mailed by certified or registered mail, return receipt requested and
postage prepaid, (iii) sent via a nationally recognized overnight courier or
(iv) sent via facsimile confirmed in writing to the recipient, in each case as
follows:
1. if to the Company, at
229 Ward Circle
Suite C-12
P.O. Box 3689
Brentwood, Tennessee 37024
Attention: Mr. Robert M. Martin
Telecopy No. (615) 221-5009
7
<PAGE> 8
with a copy to:
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
Attention: Ernest E. Hyne, II, Esq.
Telecopy No. (615) 251-1058
2. if to any Purchaser, at
Welsh, Carson, Anderson & Stowe VII, L.P.
One World Financial Center
200 Liberty Street
New York, N.Y. 10281
Telecopy No. (212) 945-2016
with a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, N.Y. 10111
Attention: William J. Hewitt, Esq.
Telecopy No. (212) 841-5725
3. if to any Founder, to such person at his address
appearing on the stock transfer records of the Company;
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION C. Entire Agreement; Modifications. This Agreement
constitutes the entire agreement of the parties with respect to the subject
matter hereof and supersedes all previous agreements between one or more
Founders and the Company, including, without limitation, a Shareholders'
Agreement, dated August 28, 1995, by and among Robert M. Martin, Dana C.
McLendon, Jr., Craig B. Watson, Timothy S. Hill and the several shareholders
named on the Shareholder Exhibits attached thereto, an Employment Agreement,
dated October 15, 1995, between the Company and Robert M. Martin, an Employment
Agreement, dated October 15, 1995, between the Company and Dana C. McLendon,
Jr., an Employment Agreement, dated October 15, 1995, between the Company and
Craig B. Watson, an Employment Agreement, dated October 15, 1995, between the
Company and Timothy S. Hill, a Noncompetition Agreement, dated October 15, 1995,
between the Company and Dana C. McLendon, Jr., a Noncompetition Agreement, dated
October 15, 1995, between the Company and Craig B. Watson, and a Noncompetition
Agreement, dated October 15, 1995, between the Company and Timothy S. Hill. This
Agreement may not be amended or
8
<PAGE> 9
modified nor any provisions waived except in a writing signed by the parties
hereto.
SECTION D. Assignment. Neither this Agreement nor any of the parties'
rights and obligations hereunder shall be assignable by either party hereto
without the prior written consent of the other parties hereto.
SECTION E. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
SECTION F. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Tennessee.
SECTION G. Additional Person to be Treated as a Founder. It is intended
that one additional person, who may purchase up to 200,000 shares of Common
Stock from the Company at $.30 per share at the time of such person's employment
with the Company, may become an executive officer of the Company as Vice
President of Acquisitions and Development. As a condition to such purchase of
shares, such person shall execute and deliver to the Company a counterpart of
this Agreement, whereupon such person shall, for all purposes hereof, become a
"Founder" and the shares so purchased shall become "Restricted Shares."
<PAGE> 10
IN WITNESS WHEREOF, the Company, the Founders and the Purchasers have
executed this Restricted Stock Agreement as of the day and year first above
written.
NEW AMERICAN HEALTHCARE CORPORATION
By
-----------------------------------------
Robert M. Martin
Chairman, President and CEO
PURCHASERS:
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
By WCAS VII Partners, General Partner
By
-----------------------------------------
General Partner
WCAS Healthcare Partners, L.P.
By WCAS HP Partners, General Partner
By
-----------------------------------------
General Partner
-------------------------------------------
Patrick J. Welsh
-------------------------------------------
Russell L. Carson
-------------------------------------------
Bruce K. Anderson
-------------------------------------------
Richard H. Stowe
-------------------------------------------
Andrew M. Paul
-------------------------------------------
Thomas E. McInerney
<PAGE> 11
-------------------------------------------
Laura VanBuren
-------------------------------------------
James B. Hoover
-------------------------------------------
Robert A. Minicucci
-------------------------------------------
Anthony J. de Nicola
DAVID F. BELLET - TRUSTEE
PROFIT SHARING PLAN DLJSC -
CUSTODIAN FBO DAVID F. BELLET
By
-----------------------------------------
HORIZON INVESTMENTS ASSOCIATES, I
By
-----------------------------------------
<PAGE> 12
FOUNDERS:
-------------------------------------------
Robert M. Martin
-------------------------------------------
Dana C. McLendon, Jr.
-------------------------------------------
Craig B. Watson
-------------------------------------------
Timothy S. Hill
<PAGE> 13
ANNEX I
Purchasers
Name and Address
- ----------------
Welsh, Carson Anderson
& Stowe VII, L.P.
One World Financial Center
New York, NY 10281
WCAS Healthcare Partners, L.P.
One World Financial Center
New York, NY 10281
Patrick J. Welsh
Russell L. Carson
Bruce K. Anderson
Richard H. Stowe
Andrew M. Paul
Thomas E. McInerney
Laura VanBuren
James B. Hoover
Robert A. Minicucci
Anthony J. de Nicola
In care of
WCAS Management Corporation
One World Financial Center
New York, NY 10281
David F. Bellet - Trustee
Profit Sharing Plan DLJSC-Custodian
FBO David F. Bellet
125 East 72nd Street
New York, New York 10021-4250
copy to:
Ms. Nicole Primack
Sales Associate
Donaldson, Lufkin & Jenrette
Investment Services Group
140 Broadway
New York, New York 10005-1281
HORIZON INVESTMENTS ASSOCIATES, I
c/o R.A. Ortenzio
Continental Medical Systems, Inc.
600 Wilson Lane
Mechanicsburg, Pennsylvania 17055
13
<PAGE> 14
ANNEX II
Founders
<TABLE>
<CAPTION>
Number of
Name and Address Restricted Shares
- ---------------- -----------------
<S> <C>
Robert M. Martin
919 Stuart Lane
Brentwood, TN 37027 1,479,000
Dana C. McLendon, Jr.
One Strawberry Hill
Nashville, TN 37215 677,000
Craig B. Watson
10803 Briar Branch
Houston, TX 77024 392,000
Timothy S. Hill
604 Davidson Road
Nashville, TN 37205 252,000
- ------------------- ---------
TOTAL 2,800,000
</TABLE>
<PAGE> 15
Pursuant to the provisions of Article III, Section G of that certain
Restricted Stock Agreement dated December 19, 1995 among New American Healthcare
Corporation, (the "Company") Welsh, Carson Anderson & Stowe VII, L.P. ("WCAS
VII"), the several other investors named in Annex I thereto (the "Purchasers")
and the several individuals named in Annex II thereto (the "Founders") (the
"Restricted Stock Agreement"), the undersigned hereby becomes a party to the
Restricted Stock Agreement as a Founder and agrees to be bound by such agreement
as if a party to the original Restricted Stock Agreement.
-------------------------------
Neil G. McLean
<PAGE> 16
REVISED
ANNEX II
Founders
<TABLE>
<CAPTION>
Number of
Name and Address Restricted Shares
---------------- -----------------
<S> <C>
Robert M. Martin
919 Stuart Lane
Brentwood, TN 37027 1,479,000
Dana C. McLendon, Jr.
One Strawberry Hill
Nashville, TN 37215 677,000
Craig B. Watson
10803 Briar Branch
Houston, TX 77024 392,000
Timothy S. Hill
604 Davidson Road
Nashville, TN 37205 252,000
Neil G. McLean
502 Mulberry Ct.
Marietta, GA 30068 200,000
---------
TOTAL 3,000,000
</TABLE>
<PAGE> 1
Exhibit 10.11
================================================================================
ASSET PURCHASE AGREEMENT
BETWEEN
DOCTORS HOSPITAL - WENTZVILLE, L.P.
AS SELLER
AND
NAHC OF MISSOURI, INC.
AS BUYER
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE I. PURCHASE AND SALE...........................................................................2
1.1 Purchase and Sale...........................................................................2
1.2 Excluded Assets.............................................................................4
1.3 Assumed Contracts, Leases and Liabilities...................................................4
1.4 Excluded Liabilities........................................................................5
1.5 Additional Real Estate......................................................................6
ARTICLE II. ACCOUNTS RECEIVABLE.........................................................................7
2.1 Seller's Accounts Receivable................................................................7
ARTICLE III. PURCHASE PRICE..............................................................................7
3.1 Purchase Price..............................................................................7
3.2 [Omitted]...................................................................................8
3.3 Closing Statements..........................................................................8
3.4 Allocation of Purchase Price. ..............................................................9
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER....................................................9
4.1 Organization, Qualification and Authority...................................................9
4.2 Absence of Default.........................................................................10
4.3 Financial Statements.......................................................................10
4.4 Operations Since December 31, 1995.........................................................11
4.5 Taxes......................................................................................12
4.6 Employment.................................................................................12
4.7 Licenses and Permits.......................................................................13
4.8 JCAHO and Accreditations...................................................................14
4.9 Medicare, Medicaid, and Other Third Party Payors...........................................14
4.10 Peer Review................................................................................15
4.11 Compliance with Zoning, Land Use and Other Laws............................................15
4.12 Easements, etc.............................................................................15
4.13 Title to Assets............................................................................16
4.14 Leases and Contracts.......................................................................17
4.15 Environmental Matters......................................................................18
4.16 Miscellaneous Representations Relating to Real Estate......................................21
4.17 Conditions of Assets.......................................................................22
4.18 Capital Expenditure and Construction.......................................................23
4.19 Future Construction........................................................................23
4.20 Litigation.................................................................................23
4.21 Seller's Employees.........................................................................24
4.22 Labor Relations............................................................................25
4.23 Insurance..................................................................................25
4.24 Broker's or Finder's Fee...................................................................25
4.25 Medical Staff..............................................................................25
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
4.26 Conflicts of Interest......................................................................26
4.27 Hill-Burton and Other Liens................................................................26
4.28 Experimental Procedures....................................................................26
4.29 Intellectual Property; Computer Software...................................................26
4.30 Inventories................................................................................27
4.31 Motor Vehicles.............................................................................27
4.32 Employee Benefit Plans.....................................................................27
4.33 Compliance with Laws.......................................................................28
4.34 No Omissions or Misstatements..............................................................29
4.35 [Omitted.].................................................................................29
4.36 Auxiliary..................................................................................29
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER....................................................29
5.1 Organization, Qualification and Authority..................................................30
5.2 Absence of Default.........................................................................30
ARTICLE VI. COVENANTS OF PARTIES.......................................................................30
6.1 Preservation of Business and Assets........................................................30
6.2 Absence of Material Change.................................................................31
6.3 Access to Books and Records................................................................31
6.4 Consents...................................................................................32
6.5 Risk of Loss...............................................................................32
6.6 Condemnation...............................................................................33
6.7 Good Faith.................................................................................33
6.8 Preserve Accuracy of Representations and Warranties........................................33
6.9 Maintain Books and Accounting Practices....................................................33
6.10 Indebtedness; Liens........................................................................34
6.11 Compliance with Laws and Regulatory Consents...............................................34
6.12 No Merger or Consolidation.................................................................34
6.13 Maintain Insurance Coverage................................................................34
6.14 Medicare and Medicaid Reporting............................................................35
6.15 [Omitted.].................................................................................35
6.16 Performance................................................................................35
6.17 WARN Act...................................................................................35
6.18 Termination of Employee Plans..............................................................35
6.19 Power to Endorse Checks....................................................................36
6.20 Status of Partnership......................................................................36
6.21 Removal of Tank............................................................................36
6.22 Accounting Adjustments.....................................................................37
ARTICLE VII. TITLE AND SURVEY...........................................................................37
7.1 Title Report and Policy....................................................................37
7.2 Survey.....................................................................................37
7.3 U.C.C. Searches...........................................................................38
7.4 Defects and Cure...........................................................................38
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
ARTICLE VIII. CLOSING....................................................................................38
8.1 Closing....................................................................................38
8.2 Termination................................................................................39
ARTICLE IX. SELLER'S CONDITIONS TO CLOSE...............................................................40
9.1 Representations and Warranties True at Closing; Compliance with Agreement..................40
9.2 Regulatory Approvals.......................................................................40
9.3 No Action/Proceeding.......................................................................40
9.4 Compliance with Article XII................................................................40
9.5 Approval by Counsel........................................................................40
9.6 Order Prohibiting Transaction..............................................................40
ARTICLE X. BUYER'S CONDITIONS TO CLOSE................................................................41
10.1 Representations and Warranties True at Closing; Compliance with Agreement..................41
10.2 No Loss, Damage or Destruction.............................................................41
10.3 No Material Adverse Change.................................................................41
10.4 Regulatory Approvals.......................................................................41
10.5 No Action/Proceeding.......................................................................41
10.6 Compliance with Articles VII and XI........................................................41
10.7 Inspection of Assets.......................................................................42
10.8 Approval by Counsel........................................................................42
10.9 Order Prohibiting Transaction..............................................................42
10.10 Repayment of Loans.........................................................................42
10.11 Consents...................................................................................42
10.12 Tail Insurance.............................................................................42
ARTICLE XI. OBLIGATIONS OF SELLER AT CLOSING...........................................................42
11.1 Documents Relating to Title................................................................42
11.2 Possession.................................................................................43
11.3 Opinion of Seller's Counsel................................................................43
11.4 Good Standing and Resolutions..............................................................43
11.5 Closing Certificate........................................................................44
11.6 Third Party Consents.......................................................................44
11.7 Taxes and Other Payments...................................................................44
11.8 Releases and Other Matters.................................................................45
11.9 Notice to Third Party Payors...............................................................45
11.10 Additionally Requested Documents; Post Closing Assistance..................................45
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
ARTICLE XII. OBLIGATIONS OF BUYER AT CLOSING............................................................45
12.1 Purchase Price.............................................................................45
12.2 Corporate Good Standing and Certified Board Resolutions....................................45
12.3 Opinion of Buyer's Counsel.................................................................45
12.4 Assumption of Liabilities..................................................................45
12.5 Closing Certificate........................................................................46
12.6 Seller's Employees.........................................................................46
12.7 [Omitted]..................................................................................46
12.8 Bailey Consulting Agreement................................................................46
ARTICLE XIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION.................................................46
13.1 Survival...................................................................................46
13.2 Indemnification by Seller..................................................................46
13.3 Indemnification by Buyer...................................................................47
13.4 Procedure for Indemnification..............................................................47
13.5 Assignment by Buyer. .....................................................................49
ARTICLE XIV. PRESERVATION OF HOSPITAL BUSINESSES AND NONCOMPETE RESTRICTIONS............................49
14.1 Covenant Not to Compete....................................................................49
14.2 Enforceability.............................................................................50
ARTICLE XV. MISCELLANEOUS..............................................................................50
15.1 Assignment.................................................................................50
15.2 Other Expenses.............................................................................50
15.3 Notices....................................................................................50
15.4 Controlling Law............................................................................51
15.5 Headings...................................................................................51
15.6 Benefit....................................................................................51
15.7 Partial Invalidity.........................................................................52
15.8 Waiver.....................................................................................52
15.9 Counterparts...............................................................................52
15.10 Interpretation.............................................................................52
15.11 Entire Agreement...........................................................................52
15.12 Further Assurance of Seller After Closing..................................................52
15.13 Legal Fees and Costs.......................................................................52
15.14 Exclusivity................................................................................53
</TABLE>
iv
<PAGE> 6
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Matter
- ----------- --------------
<S> <C>
1.1(1) Real Estate
1.1(2) Equipment and Furnishings
1.3 Assumed Liabilities
3.1(6) Escrow Agreement
3.4 Purchase Price Allocation
4.1 Subsidiaries, Affiliates and Predecessors
4.2 Absence of Default; Consents
4.3 Financial Statements
4.4 Operations since December 31, 1995
4.6 Employment Matters
4.7(1) Licenses and Permits
4.7(2) Certificates of Need
4.8 JCAHO and Accreditations
4.8(4) Notice of Termination
4.9 Program Agreements
4.9(2) Statement of Deficiencies and Plan of Correction (Form HCFA-2567)
4.9(6) Violation of Fraud and Abuse or Self Referral Laws
4.10 Peer Review Memorandum of Understanding
4.11 Exceptions to Zoning, Land Use and Other Laws
4.13(2) Permitted Exceptions
4.13(3) Transferred Assets
4.13(4) Tradenames and Fictitious Names
4.13(5) Addresses for Accounts Receivable
4.14 Leases and Contracts
4.15 Hazardous Materials
4.16(5) Non-reflected Assets
4.17 Conditions of Assets
4.18 Construction
4.19 Future Construction
4.20 Litigation
4.21(a) Employees, Fringe Benefits and Personnel Policies
4.21(b) Terminated Employees
4.23 Insurance
4.26 Conflicts of Interest
4.29 Intellectual Property
4.32 Employee Benefit Plans
4.32(2) Employee Benefit Plans - Prohibited Transactions
4.32(3) Employee Benefit Plans - Noncompliance
4.32(4) Employee Benefit Plan Obligations being assumed by Buyer
11.6(3) Estoppel and attornment letters from tenants
11.9 Notice to Third Party Payors
12.8 Bailey Consulting Agreement
</TABLE>
v
<PAGE> 7
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, is made the 31st day of July, 1996, by and between
DOCTORS HOSPITAL - WENTZVILLE, L.P., a limited partnership ("SELLER"), Jack B.
Bailey who is a shareholder and director of the corporate general partner of
Seller (the "GUARANTOR"), and NAHC OF MISSOURI, INC., a Tennessee corporation
("BUYER").
R E C I T A L S:
A. Seller owns and operates Doctors Hospital - Wentzville, Missouri,
located on approximately 45.28 acres of land at 500 Medical Drive, Wentzville,
Missouri, including a hospital comprised of 94 licensed beds (51
medical/surgical, 27 skilled care, 8 ICU/CCU and 8 OB) and other hospital
related businesses and programs (the "HOSPITAL"); and
B. Seller owns and operates the following additional properties and
businesses in and around Wentzville, Missouri associated with the Hospital:
(i) A home health agency known as Doctors Hospital Home
Health Agency; a skilled nursing unit known as
Doctors Hospital Skilled Nursing Unit; an
occupational health network known as Occ-Net
Occupational Network Unit; a hernia institute known
as The Hernia Institute at Doctors Hospital; and
Midwest Bariatric Center;
(ii) A two-story Medical Office Building ("MOB") adjacent
to the Hospital located at 600 Medical Drive,
Wentzville, Missouri, and known as the Doctors
Hospital - Wentzville Medical Office Building;
(iii) lease of approximately 1,500 square feet of offices
at The Plaza, Number 16 The Plaza, Troy, Linden
County, Missouri and subleases of such offices to
physicians and other healthcare professionals;
(iv) lease of approximately 5,000 square feet offices at
Warrenton Family Medicine Building, 511 Ashland,
Warrenton, Warren County, Missouri and subleases of
such offices for physicians and other healthcare
professionals;
The properties, operations and facilities described in paragraph B of these
Recitals are referred to as the "RELATED ASSETS".
C. Except for the Excluded Assets described in Section 1.2, Seller
desires to sell and transfer to Buyer or its designee the Hospital, the Related
Assets and the Assets (as defined in Section 1.1), and Buyer or its designee
desires to purchase the same from Seller, subject to the terms and conditions
set forth in this Agreement.
<PAGE> 8
NOW, THEREFORE, in consideration of the mutual terms, covenants,
agreements and conditions contained in this Agreement, acknowledged by each of
the undersigned, the undersigned agree as follows:
ARTICLE I. PURCHASE AND SALE
1.1 Purchase and Sale. Except for the Excluded Assets described, Seller
agrees to sell, transfer, assign, convey and deliver to Buyer (or Buyer's
designee) and Buyer (or Buyer's designee) shall purchase from Seller all right,
title and interest in all of the following assets (collectively, the "ASSETS"):
(1) Good and marketable fee simple (or leasehold with respect
to items noted as such on Exhibit 1.1(1), as the case may be), right, title and
interest in the Hospital and the Related Assets, as described in Exhibit 1.1(1);
including, without limitation, all interests in real property, including
leaseholds, easements and improvements thereon, plants, fixed assets, buildings,
structures, fixtures (including fixed machinery and fixed equipment) situated
thereon or forming a part thereof and all appurtenances, easements,
rights-of-way and air, mineral or other rights related thereto (collectively,
the "REAL ESTATE");
(2) All tangible business and personal property, medical and
other equipment, machinery, data processing hardware and software, furniture,
furnishings, appliances, vehicles and other tangible personal property of every
description and kind and all replacement parts therefor which are either owned
by Seller or used or maintained or operated by Seller in connection with the
Hospital and Related Assets, wherever located, including but not limited to the
items listed on Exhibit 1.1(2) (collectively, the "EQUIPMENT AND FURNISHINGS");
(3) All inventory of goods and supplies used or maintained in
connection with or located in the Hospital and Related Assets, including, but
not limited to, food, cleaning materials, disposables, linens, consumables,
office supplies, drugs and medical supplies (collectively, the "INVENTORY");
(4) All Seller's patient accounts, notes and other
receivables, including those from third party payors (exclusive of receivables
from Medicare prior year cost reports and the Medicare terminating cost report),
whether or not written off (collectively, the "RECEIVABLES");
(5) All patient, medical, personnel, clinical and other
records of the Hospital and Related Assets (including both hard and microfiche
copies), and all manuals, books and records used in operating the Hospital and
Related Assets, including personnel policies and manuals, and computer software;
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(6) To the extent transferable, all licenses, permits,
registrations, certificates, consents, accreditations, approvals and franchises,
and all applications therefor, necessary to construct, operate and conduct the
business of the Hospital and Related Assets, together with assignments thereof,
if required, and all waivers which Seller currently has, if any, of any
requirements pertaining to such licenses, permits, registrations, certificates,
consents, accreditations, approvals and franchises;
(7) All plans and surveys, including "as-built" plans, all
plats, specifications, engineers' drawings, and architectural renderings and
similar items relating to the Assets, in Seller's possession or obtainable by
Seller (without unreasonable cost and if it is unreasonable, Seller will provide
notice to Buyer prior to Closing), and further including, without limitation,
those relating to utilities, easements and roads;
(8) All goodwill associated with the Hospital and Related
Assets and other intangible assets including, but not limited to, the exclusive
rights to use the name "Doctors Hospital - Wentzville" and the other trade names
listed on Exhibit 4.13(4) and logos, and, to the extent assignable by Seller,
all telephone numbers, all warranties (express or implied) and rights and claims
assertable by (but not against Seller) related to the operation of the Hospital
and Related Assets, and all telephone and facsimile numbers as currently used in
the operation of the Hospital and Related Assets;
(9) All prepaid assets;
(10) Seller's contract and leasehold rights and interests
pursuant to contracts for purchase or lease of real and personal property,
rights of first refusal, construction contracts, contracts for purchase, sale or
lease of equipment, goods or services currently furnished or to be furnished at
or to the Hospital and the other facilities constituting the Related Assets
which Buyer in its discretion will assume the future performance after Closing
pursuant to Section 1.3;
(11) All assets reflected on the Financial Statements, as
defined in Section 4.3(1), and any additions thereto up through the Closing less
deletions therefrom sold or consumed in the ordinary course of business;
(12) Seller's interest in all property used in connection with
or for the benefit of the Hospital or Related Assets, other than Excluded
Assets, whether real, personal or mixed, tangible or intangible, arising or
acquired after the date of this Agreement and prior to Closing;
(13) All insurance proceeds (including applicable deductibles,
co-payments or self insured requirements) arising in connection with damage to
the Assets occurring before or after the date of this Agreement and prior to
Closing, to the extent not expended for the repair and restoration of the
Assets;
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(14) Any claims of Seller against third parties relating to
the Assets, choate or inchoate, known or unknown, contingent or otherwise;
(15) All security or other deposits and prepayments made by
tenants of Seller pursuant to leases or subleases; and
(16) All of Seller's rights of first refusal or any other
options, including but not limited to those described in Exhibit 4.1 relating to
the Related Assets.
(17) All other property, other than Excluded Assets, of every
kind, character or description owned by Seller and used or held for use in the
business of the Hospital or the Related Assets, whether or not reflected on the
Financial Statements, wherever located and whether or not similar to the items
specifically set forth above, and all other businesses and ventures directly or
indirectly owned by Seller in connection with the operations of the Hospital or
the Related Assets;
1.2 Excluded Assets. Seller is not selling and Buyer is not purchasing
or assuming obligations with respect to the following (collectively, the
"EXCLUDED ASSETS"):
(1) Seller's balances at Closing in cash and cash equivalents,
to the extent needed to cover checks written in 1996 which are outstanding
checks or cash deducted from the Purchase Price.
(2) Assets in the gift shop which are owned by the hospital
auxiliary, which Seller represents to be an unincorporated non-profit
association (exclusive of furniture and fixtures, which are included in the
Assets).
(3) Receivables from Medicare prior years cost reports and the
Medicare terminating cost report.
All tangible Excluded Assets shall be removed from the Assets by Seller
prior to Closing without damage or defacement to the Assets.
1.3 Assumed Contracts, Leases and Liabilities. At Closing, Buyer will
assume and agree to pay or perform, at Buyer's option, as the case may be, all
of the following (collectively, the "ASSUMED LIABILITIES"):
(1) All obligations accruing after Closing with respect to
those contracts, purchase orders and leases which are described on Exhibit 1.3
hereto;
(2) All accrued compensation, vacation time, paid time off
("PTO") and build up of sick leave, together with all related taxes, for
Seller's employees who become employees of Buyer, which time accrued prior to
Closing; provided, however, that Buyer's performance will extend only to
granting a credit under Buyer's fringe benefit policies
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equivalent to any accrued vacation, PTO and sick leave buildup that such
employees have accrued under the Seller's fringe benefit policies; and,
provided, however, that Buyer shall assume the same only to the extent that the
same is included in current liabilities as described in Section 1.3(4);
(3) All amounts payable under the Medicaid Programs applicable
to cost reports filed for services rendered through the Closing including any
amount payable or if any gain or loss occurs as a result of the sale of the
Hospital or Related Assets pursuant to this Agreement;
(4) Seller's Accounts Payable (exclusive of amounts owed to
Missouri Baptist and its affiliates; and items identified as not being assumed
under Exhibit 1.3) and Accrued Expenses as of July 31, 1996 as determined in
accordance with generally accepted accounting principles, consistently applied.
1.4 Excluded Liabilities. The obligations for which Seller shall remain
responsible shall include (and the following are not Assumed Liabilities)
(collectively, the "EXCLUDED LIABILITIES"):
(1) All obligations pursuant to or related to the following:
(i) all obligations, including, but not limited to, any note, security therefor
and obligations under any lease between Seller and Missouri Baptist Hospital of
Wentzville or its affiliates, including BJC Healthcare System; (ii) all
obligations, including, but not limited to, any note, security therefor and
obligations under any line of credit between Seller and First of America -
Illinois, N.A. and its affiliates (the amounts due Missouri Baptist Medical
Center, BJC Healthcare System, First of America Bank - Illinois, N.A. and any
affiliates are collectively referred to as the "LOANS");
(2) Obligations or liabilities to any donor with respect to
any and all gifts, devises, bequeaths or donations in any way related to the
Hospital or Related Assets;
(3) Except for Assumed Liabilities, liabilities, indebtedness,
commitments or obligations and responsibilities of any kind whatsoever of Seller
(and any predecessor operator of the Hospital) arising from its operations
(including malpractice claims or suits and scheduled or unscheduled liabilities
of any kind whatsoever) relating to the time through Closing, or from the
operations or existence of any trust or foundation;
(4) Liabilities or obligations with respect to the ownership
or operation of any assets owned or operated by Seller other than the Assets;
(5) Liabilities and obligations arising from or relating to
the Excluded Assets;
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(6) The assets and liabilities of all employee benefit plans
except with respect to the vacation, holidays and personal days to the extent
included in Section 1.3(4);
(7) Seller will be responsible for paying all current
liabilities up to and through Closing except those which are included in Section
1.3(4);
(8) All liabilities and commitments relating to the time
periods prior to and including Closing for all of the following: suits, claims,
indemnities, mortgages, contingent liabilities and other obligations of Seller
(including, without limitation, malpractice claims or suits and other forms of
liability for acts and omissions or events whether scheduled or unscheduled);
any and all investment tax credit recapture; all impositions of income tax and
other taxes; Hill-Burton liabilities; violation or liabilities under
environmental laws; except pursuant to Section 1.3(2) and 6.18 all employee (and
former employee) wages, salaries and benefits including, without limitation,
ERISA, and COBRA liabilities and obligations, and all obligations to give notice
of and to provide continuation health care coverage for employees, former
employees, and their dependents or any qualified beneficiary of such employees
in accordance with the requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended (hereinafter referred to as "COBRA
COVERAGE"), including, without limitation, all liabilities, taxes, sanctions,
interest and penalties imposed upon, incurred by or assessed against Buyer or
any affiliated corporation within a controlled group relationship with Buyer (as
determined under Section 414 of the Internal Revenue Code), and any of their
employees, arising by reason of or relating to any failure to provide the COBRA
coverage;
(9) All obligations with respect to Medicare prior years cost
reports and the Medicare terminating cost report.
(10) Any liabilities or obligations of Seller or related in
any way to the Assets or actions of Seller, which are not specifically assumed
by Buyer pursuant to this Agreement.
1.5 Additional Real Estate. Other than the Excluded Assets, Seller and
Buyer acknowledge and agree that it is their intent to transfer to Buyer all
real estate used in, usable with or related to the operation of the Hospital and
the Related Assets that is owned or leased directly by the Seller, a predecessor
operator of the Hospital or by a direct or indirect affiliate of the Seller. To
the extent any tract or parcel of real estate (or buildings, improvements and
fixtures on or forming a part of the real estate or any easement, appurtenances,
rights of way, air, mineral or other rights), whether owned or leased,
identified on Exhibit 1.1(1) (or which should have been identified on such
Exhibit) is (1) misidentified, incorrectly described, or incorrectly identified
as being owned or leased, by a particular entity, or (2) any such real estate,
whether owned or leased, which should have been included on Exhibit 1.1(1) is
inadvertently not included on Exhibit 1.1(1) and such errors are discovered
subsequent to execution of this Agreement, the parties agree that
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Exhibit 1.1(1) shall be amended by mutual agreement prior to Closing to correct
such errors and such amended Exhibit shall then be deemed to be controlling as
of the Closing in determining the Real Estate subject to this Agreement. In the
event that any such errors are discovered subsequent to the Closing, to the
extent necessary to effect the intent of this Agreement, the parties agree that
Exhibit 1.1 (1) shall be amended by a post-Closing addendum to this Agreement to
correct such errors and such amended Exhibit 1.1(1) shall be deemed to be
controlling in determining the Real Estate subject to this Agreement and the
Seller shall execute and deliver or cause to be executed and delivered, deeds,
instruments of correction, or such other instruments or documents, and to take
or cause to be taken, such other steps as may be necessary to correctly vest or
convey the applicable right title to any such real estate in or to Buyer in
accordance with the terms and provisions of this Agreement. Similarly, to the
extent necessary to effect the intent of the Agreement, Exhibit 1.1(1) shall be
amended by mutual agreement to correct any errors and such amended Exhibit shall
be deemed to be controlling in determining the Related Assets subject to this
Agreement. The obligations pursuant to this Section shall survive Closing and
obligations to correct such Exhibit and make such conveyance shall continue
after Closing.
ARTICLE II. ACCOUNTS RECEIVABLE
2.1 Seller's Accounts Receivable. Buyer is purchasing all of Seller's
accounts receivable, including patient accounts receivable, long-term patient
accounts receivable, income guarantee advances, amounts receivable from third
party payor programs (exclusive of Medicare receivables or payables for prior
years cost reports and the Medicare terminating cost report), notes, other
receivables, whether or not written off. After the Closing, Seller shall remit
to Buyer any payments received by Seller with respect to the accounts receivable
sold to Buyer. Any funds so collected will be remitted to the Buyer within 5
days following receipt of such payments.
ARTICLE III. PURCHASE PRICE
3.1 Purchase Price. Subject to the terms and conditions hereof, the
purchase price (the "PURCHASE PRICE") will be payable by Buyer to the Seller for
the Assets in cash or equivalent funds as provided in Section 8.1 hereof and
shall be an amount derived in the following manner:
(1) Three Million Three Hundred Eighty Seven Thousand Dollars
($3,387,000), less the amount by which the total of Accounts Payable (exclusive
of amounts owed to Missouri Baptist and its affiliates and items identified as
not being assumed on Exhibit 1.3), Accrued Expenses (as of July 31, 1996 as
determined in accordance with general accepted accounting principles,
consistently applied) plus the amount paid under Section 3.1(3) exceed Three
Million Six Hundred Seventy Two Thousand Dollars ($3,672,000);
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(2) PLUS provide Seller funds in the amount of Eight Million
One Hundred Thousand Dollars ($8,100,000) plus interest of Fifty-One Thousand
Forty One Dollars ($51,041), by which Seller shall otherwise fully settle all
amounts owed by Seller to Missouri Baptist Medical Center, BJC Healthcare System
or their affiliates, and fully release the Hospital, Related Assets and the
Assets therefrom;
(3) PLUS provide Seller with funds to retire all debt owed to
First of America Bank - Illinois, N.A. up to One Million Five Hundred Thousand
Dollars ($1,500,000) by which Seller shall fully settle the debt owed by Seller
to First of America Bank - Illinois, N.A. and fully release the Hospital, the
Related Assets and the Assets therefrom;
(4) PLUS up to Thirty Five Thousand Dollars ($35,000) to
Seller to reimburse for reasonably receipted legal costs and accounting costs
for dissolving the Seller's partnership pursuant to Section 6.20;
(5) PLUS reimbursement of certain tail insurance costs up to
One Hundred Fifty Thousand Dollars ($150,000) as provided in Section 6.13; and
(6) LESS Nine Hundred Sixty Thousand Dollars ($960,000) (the
"ESCROWED AMOUNT") escrowed to protect the parties from Medicare cost report
exposure and breach of representations, warranties, covenants and
indemnification. The Escrowed Amount shall be deposited into an interest earning
escrow account pursuant to the terms of an escrow agreement (the "ESCROW
AGREEMENT"), the form of which is attached hereto as Exhibit 3.1(6).
(7) LESS Three Hundred Thousand Dollars ($300,000) (the
"HOLDBACK AMOUNT") which shall be retained by Buyer until the Final Closing
Statement and upon the Final Closing Statement the Holdback Amount shall no
longer be a deduction.
Buyer and Seller will work together to agree on adjustments
specified in Section 3.1(1) by making a good faith estimate at Closing and to
agree as to the final amount within thirty (30) days after Closing as set forth
in Section 3.3 hereof.
The Purchase Price will be payable in good funds by wire transfer as
provided in Section 8.1.
3.2 [Omitted].
3.3 Closing Statements. The adjustments specified in Section 3.1(1)
shall be estimated by the parties hereto in good faith at the Closing to the
extent reasonably possible based on the most current interim financial
statements with provisional adjustments as shall be mutually agreed at Closing
and shall be called the "PRELIMINARY CLOSING STATEMENT". No later than thirty
(30) days after the Closing, the parties hereto
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shall prepare the "FINAL CLOSING STATEMENT" reflecting the items listed above
determined in accordance with generally accepted accounting principles on an
accrual basis applied consistently with prior periods. Adjustments made after
the Closing based on the Final Closing Statement shall be payable in cash, on or
before the tenth day following the day the Final Closing Statement is agreed
upon, with interest on any adjustments at the Rate (as defined in Section 13.2)
commencing at Closing. If Buyer and Seller are unable to agree on the Final
Closing Statement within thirty (30) days after the Closing, they shall appoint
Deloitte & Touche, LLP, a firm of independent certified public accountants of
recognized national standing (the "ACCOUNTANTS") to make such determination
which determination shall be final and binding on the parties hereto for the
purpose of this Agreement, and Buyer and Seller shall each pay one-half the cost
of the Accountants.
3.4 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Assets in the manner set forth in Exhibit 3.4. The parties agree that
this allocation will be used by them for all purposes including tax,
reimbursement and other purposes. Each party hereto agrees that it will report
the transaction in accordance with such allocation, including under Section 1060
of the Internal Revenue Code of 1986, as amended (the "CODE"), and that it will
not take a position inconsistent with such allocation except with the written
consent of the other party hereto.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER
As inducements to Buyer to enter into this Agreement and to consummate
the transactions contemplated herein, Seller and Guarantor hereby represent and
warrant, jointly and severally, to Buyer, which representations and warranties
shall be true and correct on the date hereof, and on Closing, as if then
restated, and which shall survive Closing, as follows:
4.1 Organization, Qualification and Authority. Seller is a limited
partnership, duly organized, validly existing and in good standing under the
laws of the State of Missouri. Seller's only general partner is D/H-Wentzville,
Inc. ("D/H"). The only directors of D/H are Jack B. Bailey and Dr. William D.
Coughlin and the only shareholders of D/H are and their respective ownership
interests are: Mr. Bailey, 54%; Dr. Coughlin, (40%); Dr. George VanGiesen, Jr.,
4%; and Dr. Robert Rhoades, 2%. Seller has full power and authority to own,
lease and operate its facilities and assets as presently owned, leased and
operated and to carry on its business as it is now being conducted, and is duly
qualified to do business and is in good standing in each state in which its
operations make it necessary to be so qualified, and has the requisite power and
authority to enter into and perform its obligations under this Agreement without
the consent, approval or authorization of, or obligation to notify, any person,
entity or governmental agency. The execution, delivery and consummation of this
Agreement and all other agreements and documents executed in connection herewith
by Seller have been duly authorized by all necessary action on the part of
Seller (including any approvals of the General Partner necessary to carry out
this transaction). No other action on the part of Seller or any other person or
entity is
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necessary to authorize the execution, delivery and consummation of this
Agreement and all other agreements and documents executed in connection
herewith. This Agreement and all other agreements and documents executed in
connection herewith by Seller, upon due execution and delivery thereof, shall
constitute valid and binding obligations of Seller, enforceable in accordance
with their respective terms. Seller has no interests, direct or indirect, in any
corporation, joint venture, general or limited partnership or any other entity
except those listed on Exhibit 4.1, and the businesses carried on by Seller have
not been conducted, directly or indirectly, through any entity other than
Seller's corporate name except as described on Exhibit 4.1; and Seller has no
commitments to purchase any such interests other than as set forth on Exhibit
4.1. The Seller does not and has never owned the assets in the gift shop in the
Hospital other than the furniture and fixtures (and such owned assets are
included in the Assets), but instead the gift shop is operated and the contents
owned by an unincorporated Hospital auxiliary.
4.2 Absence of Default. Upon receipt of the consents specified in
Exhibit 4.2, except with respect to matters which will not cause damage to
Buyer, the execution, delivery and consummation of this Agreement and all other
agreements and documents executed in connection herewith by Seller will not
constitute a violation of, or be in conflict with, and will not, with or without
the giving of notice or the passage of time, or both, result in a breach of,
constitute a default under, or create (or cause the acceleration of the maturity
of) any debt, indenture, obligation or liability affecting the Assets pursuant
to, or result in the creation or imposition of any security interest, lien,
charge or other encumbrance upon any of the Assets under: (a) any term or
provision of the Limited Partnership Agreement of Seller; (b) any contract,
lease, purchase order, agreement, indenture, mortgage, pledge, assignment,
permit, license, approval or other commitment to which Seller is a party or by
which Seller or the Assets are bound; (c) any judgment, decree, order,
regulation or rule of any court or regulatory authority, or (d) any law,
statute, rule, regulation, order, writ, injunction, judgment or decree of any
court or governmental authority or arbitration tribunal to which Seller is
subject that would have a material adverse effect on Buyer or the Assets.
4.3 Financial Statements.
(1) Attached as Exhibit 4.3 are true and correct copies of the
unaudited Balance Sheets of Seller for the fiscal years ended December 31, 1992,
1993, 1994, and 1995, the related Statements of Revenue and Expenses, Statements
of Changes in Fund Balances, and Statements of Cash Flows for the periods then
ended along with the interim unaudited financial statements of Seller for the
six month period ending June 30, 1996 (collectively, the "UNAUDITED FINANCIAL
STATEMENTS" together with the financial statements described in Section 4.3(2)
shall be the "FINANCIAL STATEMENTS"). The Financial Statements reflect the
results of both the Hospital and Related Assets. The Financial Statements
present fairly and accurately the financial position of Seller and its
predecessors, the results of its operations and all costs and expenses for the
periods specified. The Financial Statements are true, complete and correct, and
have been
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prepared in conformity with generally accepted accounting principles on an
accrual basis, applied consistently for the periods involved. The Financial
Statements are in accordance with the books and records of Seller and its
predecessors. Except as set forth in Exhibits 4.3, 4.6 or 4.23, Seller has no
contingent liabilities or obligations.
(2) Seller shall cause to be prepared (and Buyer shall assist
without incurring liability) interim unaudited monthly financial statements of
Seller for each month since the most recent delivered Unaudited Financial
Statements, which shall be delivered to Buyer within two (2) days after they are
created (but the delivery shall be no later than twenty days after the end of
the month which the Unaudited Financial Statement relates to), and after
delivery shall be deemed a part of the Unaudited Financial Statements.
(3) After Closing, Seller shall make the books and records of
the Seller available to Buyer and Buyer's auditors at reasonable times and in a
manner so as to not unduly interfere with Seller's operations, and otherwise
cooperate with Buyer in order to permit Buyer to conduct an audit of the
Seller's financial statements for any period prior to Closing. Such audit, if
any, shall be at Buyer's expense. The books and records of Seller are in such
order and completeness so that an unqualified audit may be performed for such
periods. Seller agrees to cooperate, at Buyer's expense, with Buyer in Buyer's
preparation of financial statements relating to such periods and Buyer's filing
in a timely manner registration statements, private placement memoranda and
periodic reports, if any, pursuant to applicable federal and state securities
laws.
4.4 Operations Since December 31, 1995. Except as set forth on Exhibit
4.4 since December 31, 1995, Seller has conducted its business only in the
ordinary course and there have been no:
(1) material adverse changes in the condition, financial or
otherwise, of the Assets, the business or prospects of, or in the results of
operations of the Hospital, Related Assets or Seller;
(2) terminations of any contract, lease or other agreement to
which Seller is a party except by Seller, or damage or destruction to the Assets
(other than related to current renovation projects), whether or not covered by
insurance;
(3) sales, leases, transfers or other dispositions by Seller
of any of the Assets, mortgages or pledges of or the imposition of any liens,
charges or encumbrances in excess of Five Thousand Dollars ($5,000) in the
aggregate on any of the Assets or removal of any of the Assets from the Real
Estate, other than those made in the ordinary course of business;
(4) increases in the compensation payable by Seller to any of
its employees or independent contractors or any increase in, or institution of,
any bonus,
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insurance, pension, profit-sharing or other employee benefit plan, remuneration
or arrangements made to, for or with such employees;
(5) changes in the composition of the medical staff of the
Hospital,
(6) changes in the rates charged by the Hospital for its
service;
(7) any net operating losses incurred in the operation of the
Hospital or Related Assets;
(8) any dividends, distributions or extraordinary payments by
Seller;
(9) capital expenditures, additions or betterments to the
Hospital or Related Assets in excess of Ten Thousand Dollars ($10,000) in the
aggregate;
(10) discharges or satisfactions of, or unscheduled payments
against, any lien, charge or encumbrance, other than current liabilities shown
on the Financial Statements or incurred since December 31, 1995 and paid
consistent with past practice;
(11) institution or settlements of any litigation, action or
proceeding before any court or governmental body relating to Seller, its
business or the Assets; or
(12) since the date of the most recent unaudited financial
statement of each of the Related Assets, there has been no material adverse
change in the business and operations of any of the Related Assets.
4.5 Taxes. All taxes, including, without limitation, income, property,
sales, use, franchise, added value, employees' income withholding and social
security taxes, license fees and taxes deposits and fees for waste disposal,
pharmaceutical, nursing facilities, and taxes on disproportionate share
hospitals imposed by the United States, by any foreign country or by any state,
municipality, subdivision or instrumentality of the United States or any foreign
country, or by any other taxing authority, which are due or payable by Seller
and all predecessors and affiliates of Seller and all interests and penalties
thereon, whether disputed or not, have been paid in full and all tax returns
required to be filed in connection therewith have been accurately prepared and
timely filed (without any extension or waiver). All deposits required to be made
by Seller, and all predecessors and affiliates of Seller, with respect to
employees' withholding taxes have been duly made. Seller, and all predecessors
and affiliates of Seller, have not been delinquent in the payment of any tax,
assessment or governmental charge or deposit and have no tax deficiency or claim
outstanding, proposed or assessed against it, and there is no basis therefor.
4.6 Employment. Except as disclosed in Exhibit 4.6 hereto, no person or
party (including, but not limited to, any governmental agency) has any claim or
basis for any
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action or proceeding against Seller arising out of any statute, ordinance or
regulation relating to wages, collective bargaining, discrimination in
employment or employment practices or occupational safety and health standards
(including, but not limited to, the Fair Labor Standards Act, Title VII of the
Civil Rights Act of 1964, as amended, the Occupational Safety and Health Act, or
the Age Discrimination in Employment Act of 1967 or the Americans With
Disabilities Act of 1990). None of such claims shall result in any liability to
or obligation of Buyer, or lien or encumbrance against the Assets.
4.7 Licenses and Permits.
(1) Seller has all local, state and federal licenses, permits,
registrations, certificates, contracts, consents, accreditations and approvals
(collectively, "LICENSES AND PERMITS") necessary for Seller and the Related
Assets to occupy, operate and conduct its business. There is no default under
any of such Licenses and Permits. There exist no grounds for revocation,
suspension or limitation of such Licenses or Permits. Copies of these Licenses
and Permits are attached to and listed on Exhibit 4.7(1). The most recent
licensure surveys and deficiency reports related to each of these items has also
been included in Exhibit 4.7(1). Seller is and at the Closing Date will have
duly registered the following beds with the Missouri Department of Health as a
short term, acute care hospital authorized to operate 94 licensed beds of which
51 are medical/surgical acute care beds, 27 skilled nursing beds, 8 ICU/CCU beds
and 8 OB beds. Except as described in Exhibit 4.7(1), no notices have been
received by Seller with respect to complaints lodged with any regulatory
authority or agency or with respect to threatened, pending, or possible
revocation, termination, suspension or limitation of any of the Licenses and
Permits nor are there any grounds for revocation, suspension or limitation.
(2) Seller has all certificates of need, exemptions or
non-reviewablility determination letters from the State of Missouri necessary to
operate its business as it has been historically and currently conducted by
Seller. Seller has complied fully with the requirements and conditions thereof.
Included in Exhibit 4.7(2) are copies of all unimplemented certificates of need,
exemption and non-reviewability determination letters issued or related to the
Hospital, Related Assets or to Seller or its predecessors. Included in Exhibit
4.7(2) are copies of all implemented certificates of need and non-reviewability
determination letters issued to the Hospital, Related Assets or to Seller or its
predecessors since 1993. All implemented certificates of need and
non-reviewability determination letters have been implemented in substantial
accordance with their terms. All unimplemented certificates of need are clearly
identified as such on Exhibit 4.7(2), and no progress has been made on such
unimplemented certificates of need which would violate the terms or conditions
of said certificates of need.
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4.8 JCAHO and Accreditations.
(1) The Hospital is duly accredited for operation of its
various beds by the Joint Commission on Accreditation of Healthcare
Organizations ("JCAHO"). Included in Exhibit 4.8 are each Certificate of
Accreditation, copies of the most recent JCAHO accreditation survey report, and
a list of deficiencies, if any.
(2) The Hospital's laboratory operated by Seller holds a
Laboratory Registration Certificate pursuant to the Clinical Laboratory
Improvements Amendments ("CLIA"), as well as a CLIA Laboratory Certificate of
Accreditation, is duly accredited by the Commission on Laboratory Accreditation
of the College of American Pathologists ("CAP"). Included in Exhibit 4.8 are
copies of the most recent letter and list of accredited services from CAP.
(3) The mammography facilities operated by Seller are duly
accredited by the American College of Radiology ("ACR"). Included in Exhibit 4.8
are copies of the most recent letter(s) and list(s) of accredited services from
ACR.
(4) Except as described in Exhibit 4.8(4), Seller has received
no notice with respect to any threatened, pending or possible revocation, early
termination, suspension or limitation of any of the accreditations listed in
this Section 4.8 nor are there any grounds for such action.
4.9 Medicare, Medicaid, and Other Third Party Payors.
(1) The Hospital and the Related Assets are duly certified to
participate, and do participate in the Medicare and Medicaid Programs (the
"PROGRAMS"). Copies of their existing Medicare and Medicaid contracts (the
"PROGRAM AGREEMENTS") are included in Exhibit 4.9. The Hospital and the Related
Assets (to the extent applicable) are, and will be at the time of Closing, in
full compliance with all of the terms, conditions and provisions of such
contracts, as well as state and federal laws related thereto.
(2) Attached as part of Exhibit 4.9(2) is a copy of the
Hospital's and the Related Assets'(to the extent applicable) most recent
Statement of Deficiencies and Plan of Correction (Form HCFA-2567) for the
Hospital and the Related Assets as applicable.
(3) No notice of any offsets against future reimbursement has
been received by Seller nor is there any basis therefor. There are no pending
appeals, adjustments, challenges, audits, litigation, notices of intent to
reopen or open cost reports with respect to the Programs except as set forth in
Exhibit 4.9. Neither the Hospital nor the Related Assets has been subject to or
threatened with loss of waiver of liability for utilization review denials with
respect to the Programs during the past twelve (12) months, nor has the Hospital
or any Related Asset received notice of pending, threatened or
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possible decertification or other loss of participation in, any of the Programs,
except as set forth in Exhibit 4.9.
(4) The Hospital and the Related Assets currently have
contractual arrangements with Blue Cross and other third party payors. Copies of
all existing Blue Cross contracts and other third party payor contract(s) are
included in Exhibit 4.9. The Hospital and the Related Assets are, and will be at
the time of Closing, in full compliance with all of the terms, conditions and
provisions of such contract(s).
(5) Seller has previously furnished Buyer the Medicare and
Medicaid cost reports of Seller and the Related Assets (to the extent
applicable) for the years of 1995, 1994 and 1993. The cost reports are complete
and accurate for the periods indicated. All liabilities and contractual
adjustments of the Hospital and the Related Assets under any third party payor
or reimbursement programs have been properly reflected and adequately reserved
in the Financial Statements.
(6) Seller and the Related Assets have received no notice of
any violation of federal or state fraud and abuse or self-referral laws, except
as set forth in Exhibit 4.9(6), nor is Seller aware of any such violations in
connection with the operation of its business.
4.10 Peer Review. The Hospital and the Related Assets (to the extent
applicable) have entered into one or more valid memorandums of understanding
with the Hospital's or the Related Assets' peer review organizations. A copy of
each memorandum of understanding is included in Exhibit 4.10.
4.11 Compliance with Zoning, Land Use and Other Laws. Except as
disclosed in Exhibit 4.11 hereto, neither the Hospital nor the Related Assets
are in violation of any zoning, land use, public health, building code or other
similar laws, ordinances and regulations applicable thereto or to the ownership,
occupancy and/or operation thereof, nor does there exist any variances,
conditional use permits, waivers or exemptions relating to the Real Estate with
respect to any non-conforming use or other zoning, land use or building codes
matters. There is presently located within the Real Estate an adequate number of
parking spaces to satisfy the requirements of all applicable zoning and land use
ordinances and regulations. Final, permanent and unconditional certificates of
occupancy and/or use have been duly issued by the applicable governmental
authority having jurisdiction for all buildings located on the Real Estate.
4.12 Easements, etc. The Hospital and the Related Assets have all
easements and rights necessary to continue operation of the business of the
Hospital and the Related Assets as currently conducted.
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4.13 Title to Assets.
(1) Seller is, and at Closing will be, the only record, legal
and beneficial owner of and has, and at Closing will have, good marketable and
insurable fee simple or leasehold, as the case may be, absolute title to all the
Assets, free and clear of all mortgages, security interests, liens, leases,
covenants, assessments, easements, options, rights of refusal, restrictions,
reservations, defects in the title, encroachments, adverse claims and other
encumbrances, except for the Permitted Exceptions. The Assets, together with the
Excluded Assets, are all assets set forth on the Financial Statements, are all
assets owned or leased by Seller and are all assets utilized by Seller in the
operation of the Hospital and the Related Assets.
(2) The Real Estate is accurately described in Exhibit 1.1(1)
and includes all real estate owned by Seller set forth on the Financial
Statements and used in connection with the Hospital and the Related Assets.
Seller is, and at Closing will be, the sole and exclusive record, legal and
equitable owner of all right, title and interest in and has, and at Closing will
have, good, marketable and insurable title in fee simple or leasehold, as the
case may be, to, and at Closing will be in possession of, all the Real Estate
including the buildings, structures and improvements situated thereon and
appurtenances thereto, in each case free and clear of all mortgages, liens,
assessments, easements, covenants, options, rights of refusal, restrictions,
reservations, defects in title, encroachments and other encumbrances, whether or
not the same render the title to such Real Estate uninsurable or unmarketable,
except for the items listed on Exhibit 4.13(2) (the "PERMITTED EXCEPTIONS").
(3) The Hospital and the Related Assets, together with the
Excluded Assets, constitute all of the assets and business operations of the
Seller. The Seller has not sold, exchanged or transferred any assets which were
used by the Hospital, the Related Assets or any businesses of the Seller within
the last five years, except as listed on Exhibit 4.13(3).
(4) The only names, tradenames or fictitious names under which
the business of the Hospital, the Related Assets and businesses of Seller and
its predecessors have been operated for the last five years are listed on
Exhibit 4.13(4). Seller has complied with all fictitious name filing statutes.
(5) Exhibit 4.13(5) lists all post office boxes and addresses
where accounts receivable sold to Buyer are to be paid and all names under which
payment is to be received. Seller hereby grants to Buyer the irrevocable power
of attorney to execute and endorse any checks or receive any payments with
respect to any accounts receivable which are sold to Buyer.
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4.14 Leases and Contracts.
(1) Exhibit 4.14 hereto sets forth a complete and accurate
list of all contracts, agreements, purchase orders, leases, subleases, options
and commitments, oral or written, and all assignments, amendments, schedules,
exhibits and appendices thereof, affecting or relating to any Asset or any
interest therein, to which Seller is a party or by which Seller or the Assets
are bound or affected, including, without limitation, service contracts,
management agreements, equipment leases, leases of space, and ground leases
pertaining to any part of the Real Estate (collectively, the "LEASES AND
CONTRACTS"). Seller will provide or cause to be provided Buyer a copy of all
written Leases and Contracts, and detailed summary of the provisions of all oral
Leases and Contracts, prior to Closing. Except for Assumed Liabilities, all
Leases and Contracts and all other obligations relating to the Assets, the
Related Assets and the business of Seller shall be retained and paid or
performed by Seller.
(2) None of the Leases and Contracts has been modified,
amended, assigned or transferred, except as noted on Exhibit 4.14, and each is
in full force and effect and is valid, binding and enforceable in accordance
with its respective terms;
(3) No event or condition has happened or presently exists
which constitutes a default or breach or, after notice or lapse of time or both,
would constitute a default or breach by any party under any of the Leases and
Contracts, and Seller shall do no act nor omit to do any act which would cause
such a default or breach. There are no counterclaims or offsets under any of the
Leases and Contracts which are part of the Assumed Liabilities;
(4) Except for the Permitted Exceptions, there does not exist,
and between the date hereof and Closing Seller will not grant or suffer, any
security interest, lien, encumbrance or claim of others created or suffered to
exist on any interest created under any of the Leases and Contracts;
(5) No purchase commitment by Seller is in excess of Seller's
ordinary business requirements;
(6) None of the Leases and Contracts shall be amended in any
material respect between the date hereof and Closing without the prior written
consent of Buyer;
(7) [Omitted.]
(8) Except as specifically set forth on Exhibit 4.14 and
except with respect to matters which will not cause damage to Buyer, the
assignment to Buyer of the Leases and Contracts constituting the Assumed
Liabilities will not default, alter or terminate any of the Leases and
Contracts, and such assignment will confer all Seller's rights thereunder to
Buyer, without resulting penalty, premium or variation.
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(9) All leases of office space or other space in the Hospital
or Related Assets to third parties are set forth or described (if they are oral)
in Exhibit 4.14. All such leases are in full force and effect and they are not
in default. Seller has no outstanding obligations under any of such leases
including without limitation any obligations to make any repairs or improvements
or renovations (whether such improvements or renovations are to be made prior to
or after Closing). There are no outstanding negotiations with any such lessees
regarding any matter relating to the leased space.
(10) All Leases and Contracts which are not Assumed
Liabilities have been terminated on or prior to Closing or will be retained by
and at the sole expense of Seller.
(11) Except as identified on Exhibit 4.14:
(i) There are no contracts or agreements with respect
to marks, names, trademarks, service marks, patents, patent rights, assumed
names, logos and copyrights used in the business of the Hospital or the Related
Assets;
(ii) There are no contracts or agreements relating to
computer or data processing programs, software or source codes used in the
business of the Hospital or the Related Assets;
(iii) Except for the Limited Partnership Agreement of
Seller, there are no contracts, agreements or arrangements, direct or indirect,
providing for payments based in any manner on the revenues, purchases or profits
of Seller, the Hospital or the Related Assets;
(iv) There are no contracts, agreements or
arrangements, direct or indirect, with referral sources to any of the Hospital
or the Related Assets; and
(v) There are no contracts or agreements which would
require, as a condition to their termination by Seller prior to Closing, or by
Buyer after Closing, notice to the other party of more than ninety (90) days.
(12) The performance after Closing of obligations under the
Leases and Contracts will not violate any law, rule, regulation or judgment
applicable to the business of the Hospital or the Related Assets or to the
subject matter of or parties to the Leases and Contracts.
4.15 Environmental Matters.
(1) Hazardous Substances. As used in this Section, the term
"HAZARDOUS SUBSTANCES" means any hazardous or toxic substances, pollutants,
contaminants, materials or wastes, including but not limited to those
substances, pollutants, contaminants, materials, and wastes listed in the United
States Department of
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Transportation Table (49 CFR 172.101) or by the Environmental Protection Agency
as hazardous substances pursuant to 40 CFR Part 302, or such substances,
materials and wastes which are regulated under any Environmental Law (as defined
herein), or any of the following: hydrocarbons, petroleum and petroleum
products, asbestos, polychlorinated biphenyls, formaldehyde, radioactive
substances, flammables and explosives. As used in this Section, "ENVIRONMENTAL
LAW" means any federal, state, or local laws, statutes, ordinances, codes,
rules, regulations, orders, decrees and other applicable requirements of
governmental authorities including, but not limited to, the Clean Air Act, 42
U.S.C. ss.7401, et seq., the Clean Water Act, 33 U.S.C. ss.1251, et seq., the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), 42 U.S.C. ss.9401, et seq., the Resource Conservation and Recovery
Act ("RCRA"), 42 U.S.C. ss.6901, et seq., the Toxic Substance Control Act, 15
U.S.C. ss.2601, et seq., the Safe Drinking Water Act, 42 U.S.C. ss.300f, et
seq., the Rivers and Harbors Act, 33 U.S.C. ss.401, et seq., the Endangered
Species Act, 16 U.S.C. ss.1531, et seq., and the Occupational Safety and Health
Act, 29 U.S.C. ss.651, et seq., all as supplemented and amended.
(2) Compliance with Laws and Regulations.
(a) All operations or activities upon, or any use of
occupancy of the Real Estate, or any portion thereof, by Seller, any Affiliates
of Seller (the term "AFFILIATES" shall mean any person or entity controlling,
controlled by or under common control with Seller or a predecessor of Seller,
and the term "CONTROL" shall mean the power, directly or indirectly to direct
the management or policies of such person or entity), any agent, contractor or
employee of Seller or its Affiliates ("AGENTS"), or any tenant or subtenant of
Seller of any part of the Real Estate, are and have been in all respects in
compliance with all Environmental Laws. Seller, Affiliates, Related Assets and
Agents have kept the Real Estate free of any lien imposed pursuant to any
Environmental Law.
(b) Except in compliance with all applicable
Environmental Laws, neither Seller, Affiliates, Agents nor the Related Assets
have allowed the manufacture, use, generation, voluntary transmission, storage,
disposal, transportation, or presence of any Hazardous Substances over, in or
upon the Real Estate.
(c) No friable asbestos or except as disclosed on
Exhibit 4.15 any substance containing asbestos or any other substance deemed
hazardous by federal or state regulations respecting such material is present on
the Real Estate.
(d) Except as disclosed on Exhibit 4.15, Seller, its
Agents and Affiliates and the Related Assets have not at any time engaged in or
permitted, nor to the best of Seller's knowledge, after due inquiry, has any
tenant or subtenant of Seller, Agent, Affiliate or any other occupant of the
Real Estate, or any portion thereof, engaged in or permitted any dumping,
discharge, disposal, spillage, or leakage (whether legal or illegal, accidental
or intentional) of such Hazardous Substances, at, on, in or about the Real
Estate, or any portion thereof.
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(e) None of the Real Estate, nor any part thereof,
nor Seller, Affiliates, nor any present or prior owner or operator of the Real
Estate is subject to any existing, pending, or threatened investigation or
inquiry by any governmental authority, any judicial or administrative proceeding
alleging the violation of any Environmental Law, or any remedial or removal
obligations under any Environmental Law.
(f) Except as disclosed on Exhibit 4.15, no work,
repairs, remedy, construction or capital expenditures are required by any
Environmental Laws with respect to the Real Estate in order for the continued
lawful use of the Real Estate.
(g) Neither Seller nor Affiliates have filed any
notice under any Environmental Law indicating past or present treatment, storage
or disposal of a Hazardous Substance or reporting a spill or release of a
Hazardous Substance into the environment.
(h) No lien, charge or encumbrance has been filed
against or attached to the Real Estate relating to any liability under
Environmental Laws or damages arising from or costs incurred by any governmental
authority in response to a release of any Hazardous Substance into the
environment.
(i) Seller has obtained all environmental permits
necessary for the operation of a hospital and related activities, all such
permits are in good standing and Seller is in compliance with all terms and
conditions of its environmental permits.
(j) Neither Seller, the Affiliates nor the Agents
have installed or permitted to be installed or have knowledge of friable
asbestos or any substance containing asbestos or any other substance deemed
hazardous by any Environmental Law respecting such material in or on the Real
Estate except as disclosed on Exhibit 4.15.
(k) Except as disclosed on Exhibit 4.15, the Real
Estate is not currently nor has it ever been listed on the National Priorities
List or the Comprehensive Environmental Response, Compensation and Liability
Information System, both promulgated under CERCLA, or any comparable state list,
and Seller has not received any written notice from any person under or relating
to CERCLA or any comparable state or local law.
(l) Except as disclosed on Exhibit 4.15, no off-site
location at which Seller has disposed or arranged for the disposal of any waste
is listed on the National Priorities List or on any comparable state list.
Seller shall promptly notify Buyer in writing of any order of which it
is aware, receipt of any notice of violation or noncompliance with any
applicable Environmental Law, any threatened or pending action of which it is
aware by any regulatory agency or their governmental authority, or any claims
made by any third party of which it is aware relating
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to Hazardous Substances on, emanations on or from, releases on or from, or
threats or threats of releases on or from any of the Real Estate, or violation
of any Environmental Law, which relate to the period prior to Closing; and shall
promptly furnish the Buyer with copies of any correspondence, notices, or legal
pleadings in connection therewith. Buyer shall have the right, but shall not be
obligated, to notify any governmental authority of any state of facts which may
come to its attention with respect to Hazardous Substances, on, released from or
emanating from any part of the Real Estate.
(3) Other Environmental Matters. Except as disclosed on
Exhibit 4.15, no petroleum hydrocarbons have migrated on or below the surface of
any portion of the Real Estate. Except for the tank disclosed in Section 6.21,
there are no surface impoundments or underground storage tanks on any portion of
the Real Estate. The Real Estate is free of dangerous levels of
naturally-emitted radon. No portion of the Real Estate has ever been used as a
landfill, garbage or refuse dumpsite, waste disposal facility, transfer station
or other type of facility for the processing, treatment or disposal of waste
materials. Seller has furnished to Buyer a copy of any environmental audit or
report on the Real Estate, which Seller or its Affiliates obtained or was
furnished.
4.16 Miscellaneous Representations Relating to Real Estate.
(1) No part of the Real Estate is currently subject to
condemnation proceedings, and no condemnation or taking is threatened or known
by Seller to be contemplated. There are no public improvements which may result
in special assessments against or otherwise affect the Real Estate.
(2) Seller has furnished to Buyer complete copies of all
appraisals, mechanical and structural studies or reports or assessments,
engineering plans, architectural drawings, soil studies, surveys and other
documents which have been prepared by or at the direction of Seller or its
Affiliates within the last ten years relating to any of the Assets.
(3) From and after the date hereof until Closing, Seller and
any party in possession of all or any part of the Real Estate will not perform
any material grading or excavation, construction or removal of any improvement,
or make any other material change or improvement upon or about the Real Estate.
(4) All utilities serving the Hospital and the Related Assets
are, and shall be at Closing, adequate to operate the Hospital and the Related
Assets in the manner it is currently operated and all utility lines, pipes,
hook-ups and wires serving the Real Estate are located within the Real Estate or
recorded easements for the benefit of the Real Estate. Any so-called, tap fees,
hook-up fees or other associated charges accrued to date have been fully paid
with respect to all potable and industrial water and all gas, electrical, steam,
compressed air, telecommunication, sanitary and storm sewage lines and systems
and other similar systems serving the Hospital and the Related Assets. There are
no
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encroachments upon the Real Estate or upon any dominant easement appurtenant
thereto and no encroachment of any improvements to the Real Estate onto adjacent
property. None of the improvements to the Real Estate violate set-back, building
or side lines, nor do they encroach on any easements located on the Real Estate
except for the portion of the parking lot over the easement as shown on the
Survey.
(5) Except as set forth on Exhibit 4.16(5), the Equipment and
Furnishings are all of the Equipment reflected on the Financial Statements,
other than those items sold and replaced in the ordinary course of business and
other than additions thereto. Except as set forth on Exhibit 4.16(5), the Assets
together with the Excluded Assets comprise all of the following: all assets
owned by Seller, all assets used in connection with the Hospital and its related
businesses, all assets used in connection with the Related Assets, and all
assets owned by Seller or its Affiliates located in Missouri. From and after the
date of this Agreement until Closing, Seller and any party in possession of all
or any part of the Assets will maintain and keep the Assets in a sanitary,
well-maintained condition and in good order and repair. Seller has received no
written recommendation from any insurer to repair or replace any of the Assets
with which Seller has not complied.
(6) Except for those tenants in possession of the Real Estate
under Leases and Contracts described in Exhibit 4.14 and patients which are in
the facility that have the right to stay in overnight for one night, there are
no parties in possession of, or claiming any possession, adverse or not, to or
other interest in, any portion of the Real Estate as lessees, tenants at
sufferance, trespassers or otherwise. No tenant is entitled to any rebate,
concession or free rent, other than as set forth in the lease or contract with
such tenant; no commitments have been made to any tenant for repairs or
improvements other than for normal repairs and maintenance in the future; and no
rents due under any of the tenant Leases and Contracts have been assigned or
hypothecated to, or encumbered by, any person.
(7) Any division of the Real Estate has been done in full
compliance with all applicable subdivision, zoning or other land use laws,
regulations, ordinances or requirements.
(8) No portion of the Real Estate constitutes wetlands and no
portion of the Real Estate has been or is used as a cemetery, burial ground or
other site for the internment, burial or location of the remains of any deceased
person or persons; provided, however, this sentence shall not be breached by the
small portion of the unimproved Real Estate as shown in the Survey as being
located within the 100 year flood plain.
4.17 Conditions of Assets. Except as set forth on Exhibit 4.17, to the
best of Seller's knowledge, all material components of all of the Assets (a) are
free from major structural, (including electrical and mechanical) defects, and
(b) are in working order sufficient for purposes of Seller's operation of the
Hospital and Related Assets. Except as disclosed on Exhibit 4.17 hereto, Seller
has no knowledge of any physical condition of the
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Real Estate and Improvements which Seller is aware could have a material adverse
effect on Buyer or Buyer's operation of the Hospital or the Related Assets.
Exhibit 4.17 describes the location of all underground tanks on the Real Estate.
All potable and industrial water and all gas, electrical, steam, compressed air,
telecommunication, sanitary and storm sewage lines and systems and other similar
systems serving the Real Estate are installed and operating and are sufficient
currently to enable the Real Estate to be used and operated in the manner
currently being used and operated, and any so-called hook-up fees or other
associated charges accrued to date have been fully paid. From and after the date
of this Agreement until Closing, Seller and any party in possession of all or
any part of the Assets will use best efforts to maintain and keep the Assets in
a sanitary, well-maintained condition and in good order and repair. Seller has
received no written recommendation from any insurer to repair or replace any of
the Assets with which Seller has not complied.
4.18 Capital Expenditure and Construction. Seller shall pursue the
completion of all current capital expenditures and construction with reasonable
diligence from the date hereof until the Closing pursuant to the capital
expenditure budget and construction schedule currently in effect. All current
construction has been constructed to the date hereof in a good workmanship
manner, in accord with good construction practice and in accordance with the
plans, specifications and architectural renderings described in Exhibit 4.18
hereof, applicable requirements, restrictions, and limitations of federal,
state, county and local statutes, laws, ordinances and regulations, including,
but not limited to, those related to zoning, building, fire, health and safety
and environmental control and protection. All bills for labor, services and
materials previously rendered with respect to construction projects have been
paid in full by Seller. Except as set forth in Exhibit 4.18 such
construction-in-progress has been and will be completed within budget. All
building permits and licenses necessary to complete construction in accordance
with the plans, specifications and architectural renderings have been obtained.
When the construction-in-progress is completed in accordance with the plans and
specifications, such construction will comply with zoning, public health,
building code and similar laws applicable thereto including ownership, occupancy
and operation. All contracts and agreements necessary in order to complete the
construction in accordance with the plans and specifications have been entered
into and are included in Exhibit 4.14.
4.19 Future Construction. Except as described on Exhibit 4.19, Seller
has entered into no agreements, including oral agreements or understandings
regarding the development of future or pending construction of facilities in
connection with the Hospital or any of the Related Assets. To the knowledge of
the Seller there exists no expectations regarding future construction or
development by Seller or any successor thereof.
4.20 Litigation. Except as set forth in Exhibit 4.20 hereto, Seller has
not received notice of any violation of any law, rule, regulation, ordinance or
order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality (including,
without limitation, legislation and regulations applicable to the Medicare and
Medicaid programs, environmental protection, civil rights
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and public health and safety and occupational health). Except as set forth in
Exhibit 4.20, there are no lawsuits, proceedings, actions, arbitrations,
governmental investigations, claims, inquiries or proceedings pending or, to the
knowledge of Seller, threatened, involving or related to the Seller, Affiliates,
its partners, employees, members or trustees, the Related Assets or the Assets,
and Seller knows of no basis therefore. Whether or not listed on Exhibit 4.20,
Seller shall fully indemnify Buyer with respect to any lawsuits, proceedings,
actions, arbitrations, governmental investigations, claims, inquiries or
proceedings relating to or arising as a result of all periods of time prior to
Closing, except the Assumed Liabilities.
4.21 Seller's Employees. Exhibit 4.21(a) hereto sets forth: (a) a
complete list of all of Seller's partners and employees, and rates of pay,
together with true and correct copies of any and all employment contracts,
fringe benefits and personnel policies, (b) the employment dates and job titles
of each such person, and (c) categorization of each such person as a full-time
or part-time employee of Seller. Buyer shall have no obligation to hire Seller's
employees, and has made and will make no promise or representation to any of
Seller's employees with respect to employment by Buyer. Seller shall be solely
responsible for any notice which may be required under WARN as hereinafter
defined, and shall indemnify Buyer therefrom. For purposes of this paragraph,
"PART-TIME EMPLOYEE" means an employee who is employed for an average of fewer
than twenty (20) hours per week or who has been employed for fewer than six (6)
of the twelve (12) months preceding the date on which notice is required
pursuant to the "Worker Adjustment and Retraining Notification Act" ("WARN"), 29
U.S.C. ss.2102 et seq. Except as provided in Exhibit 4.21(a), Seller has no
employment agreements with its Employees and all such Employees are employed on
an at "at will" basis. Exhibit 4.21(a) lists all ex-employees of Seller
utilizing or eligible to use COBRA (health insurance). Exhibit 4.21(b) sets
forth a complete list of all of Seller's full and part time employees who have
been terminated within ninety (90) days before Closing.
The Seller and Buyer agree that the employment experience of the Seller
will be transferred to the Buyer if such a transfer of unemployment experience
is allowed by law and elected by the Buyer. If the payroll of the transferred
hospital is reported in an unemployment insurance account with other payroll
prior to the date of transfer, the portion of the unemployment experience
transferred to the Buyer shall be the same portion as the transferred hospital's
state unemployment taxable payroll bears to the total state unemployment taxable
payroll of the Seller's unemployment insurance account. Funds which are in group
accounts for the purpose of paying reimbursable unemployment benefits will be
transferred to the Buyer if the Buyer elects such transfer. Obligations to
reimburse the state for unemployment benefits relating to persons who do not
become Buyer employees at Closing shall continue to be the obligations of
Seller.
The Seller agrees to make available to the Buyer the records of
individual wages of all employees, as well as copies of state unemployment tax
returns, to the extent necessary for the Buyer to verify future unemployment tax
rates and to calculate the
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correct taxable payroll for the remainder of the calendar year in which the
transaction occurs.
4.22 Labor Relations. Seller is not a party to any labor contract,
collective bargaining agreement, contract, Letter of Understanding (or to the
best of Seller's knowledge, any other arrangement, formal or informal) with any
labor union or organization which obligates Seller to compensate its employees
at prevailing rates or union scale, nor are any of Seller's employees
represented by any labor union or organization. There is no pending, or to
Seller's knowledge, threatened labor dispute, work stoppage, unfair labor
practice complaint, strike, administrative or court proceeding or order between
Seller and any present or former employees of Seller and Seller knows of no
basis therefore. There is no pending, or to Seller's knowledge, threatened suit,
action, investigation or claim between Seller and any present or former
employees of Seller and Seller knows of no basis therefore. Except as disclosed
on Exhibit 4.6, there has not been any labor union organizing activity at the
Hospital or elsewhere with respect to employees of the Hospital or the Related
Assets within the last three (3) years.
4.23 Insurance. Seller has in effect and has continuously for at least
the last five years maintained insurance coverage for its operations, personnel
and the Assets. Exhibit 4.23 sets forth a summary of the Seller's current
insurance coverage (listing type, carrier and limits). Exhibit 4.23 includes a
list of any pending insurance claims relating to Seller. Seller is not in
default or breach with respect to any provision contained in any such insurance
policies, nor has Seller failed to give any notice or to present any claim
thereunder in due and timely fashion. Such insurance is adequate to cover all
business risks normally insured against by owners and operators of healthcare
facilities. Seller will continue to maintain all its insurance policies and
coverage amounts in full force and effect until the Closing. All of such
policies are valid, outstanding, in full force and effect with insurers
unaffiliated with Seller, and enforceable with no premium arrearages. Complete
genuine copies of all policies and endorsements thereto have been provided to
Buyer. At no time has Seller been denied, or reduced or requested a reduction in
the scope of amount of, any insurance or indemnity bond coverage with respect to
the Assets. No insurance carrier has canceled or reduced, or given notice of its
intention to cancel or reduce, any insurance coverage with respect to the Assets
and, to Seller's knowledge, there exists no grounds to cancel or avoid any such
policies or the coverage provided thereby. Seller has received no written
recommendation from any insurer to repair or replace any of the Assets with
which Seller has not complied.
4.24 Broker's or Finder's Fee. Seller has not employed and is not
liable for the payment of any fee to any finder, broker or similar person in
connection with the transactions contemplated by this Agreement.
4.25 Medical Staff. Seller has previously delivered to Buyer a true and
correct copy of medical staff privilege and membership application forms, a
description of medical staff privileges, all current medical staff bylaws, rules
and regulations and amendments
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thereto, all credentials and appeals procedures not incorporated therein, the
name of each current member of the medical staff of the Hospital, the age of
each medical staff member to the best of Seller's knowledge, the specialty, if
any, of each medical staff member, and all contracts with physicians, physician
groups, or other members of the medical staff of the Hospital. There are no
pending or, to Seller's knowledge, threatened appeals, challenges, disciplinary
or corrective actions, or disputes involving applicants, staff members, or
health professionals and Seller knows of no basis therefor.
4.26 Conflicts of Interest. Except as disclosed in Exhibit 4.26, no
affiliate, trustee, member, general partner or shareholder of a general partner,
or other executive of Seller or its Affiliates is either a supplier of goods or
services to Seller, or directly or indirectly controls or is a trustee, partner,
shareholder, employee or agent of any corporation, firm, association,
partnership or other business entity which is a supplier of goods or services to
Seller or a party to any contract or other agreement with Seller.
4.27 Hill-Burton and Other Liens. Neither Seller nor any of its
predecessors have received any loans, grants or loan guarantees pursuant to the
Hill-Burton Act program, the Health Professions Educational Assistance Act, the
Nurse Training Act, the National Health Planning and Resources Development Act,
and the Community Mental Health Centers Act, as amended or similar laws or acts
providing for the recovery of any public funds advanced under the provisions of
such laws or acts relating to health care facilities. The transactions
contemplated hereby and the use of the Hospital and Related Assets in whatever
manner desired by Buyer will not result in any obligation on any party to this
Agreement to repay any of such loans, grants or loan guarantees. Seller, jointly
and severally, promises to pay all amounts owing with respect to any such loans,
grants or loan guarantees, if any, and shall hold harmless and indemnify the
Buyer from any liability therefor.
4.28 Experimental Procedures. Seller has not performed or permitted the
performance of any experimental or research procedures or studies involving
patients in the Hospital.
4.29 Intellectual Property; Computer Software. All trademarks, service
marks, trade names, patents, copyrights, inventions, processes and applications
therefor (whether registered or common law) owned by Seller are listed and
described in Exhibit 4.29 (collectively the "INTELLECTUAL PROPERTY"). No
proceedings have been instituted or pending or, to Seller's knowledge,
threatened which challenge the validity of the ownership by Seller of such
Intellectual Property and Seller knows of no basis therefore. Seller has not
licensed anyone to use such Intellectual Property and Seller has no knowledge of
the use or the infringement of any of such Intellectual Property by any other
person. Seller owns (or possesses adequate and enforceable licenses or other
rights to use) all Intellectual Property, and all computer software programs and
similar systems used in the conduct of its business.
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4.30 Inventories. The Inventory is, and on Closing will be, of a
quality and quantity presently usable in the ordinary course of business at the
Hospital and Related Assets, determined and valued consistent with generally
accepted accounting principles. The Inventory is, and at Closing will be,
maintained at normal levels for medical/surgical short term, acute care Hospital
of its size as well as skilled nursing facilities of their size. Since the date
of the Financial Statements, Seller has not decreased or substituted its items
of Inventory other than in the ordinary course of business.
4.31 Motor Vehicles. All motor vehicles used in the business of Seller,
identified as whether owned or leased, are listed in Exhibit 1.1(2) hereto. All
such vehicles are properly licensed and registered in accordance with applicable
law.
4.32 Employee Benefit Plans.
(1) Except as set forth in Exhibit 4.32, Seller does not
maintain, and is not required to contribute to or otherwise participate in an
"employee benefit plan" or a "multi-employer plan" (as such terms are defined in
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
including without limitation, any pension, profit-sharing, retirement, stock
purchase or stock option plan, or any other retirement, compensation, welfare or
fringe benefit plan, program or arrangement of any kind whatsoever, whether
formal or informal, providing for benefits for, or for the welfare of, any or
all of the employees of Seller, any member of a group defined in Section 414(b),
(c), (e), (m) or (o) of the Code to which Seller belongs or has belonged, or any
predecessor of Seller, or for the welfare of the beneficiaries of such employees
(each an "EMPLOYEE PLAN"). Seller shall be liable for any withdrawal liability
with regard to such employees under the Multi-Employer Pension Plan Amendments
Act of 1980. Seller has no liability for unpaid compensation or fringe benefits,
including without limitation accrued vacation, sick leave, post retirement
medical or other benefits, severance pay, "parachutes," or vacation pay, not
disclosed on Exhibit 4.32.
(2) Except as set forth in Exhibit 4.32(2), no "party in
interest" (as such term is defined in Section 3(14) of ERISA) or "disqualified
person" (as such term is defined in Section 4975(e) of the Code) with respect to
any of the Employee Plans has engaged in any "prohibited transaction" (as such
term is defined in ERISA or the Code) breached a fiduciary duty or failed to
file any required filing with the Internal Revenue Service, Department of Labor
or other governmental authority, which could subject any of the Employee Plans,
any trusts thereunder, any trustee, custodian or administrator thereof, any
person or entity holding or controlling assets of any of the Employee Plans, any
party in interest or disqualified person or any other person or entity dealing
with such Employee Plans to any tax, penalty or other cost or liability of any
kind. No "reportable events" (as such term is defined in Section 4043 of ERISA)
have occurred by reason of any act or omission of Seller or any other person
with respect to any of the Employee Plans.
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(3) Except as set forth in Exhibit 4.32(3), Seller and its
Affiliates have fully complied with all of its and their obligations under each
of the Employee Plans and all provisions of each Employee Plan, ERISA, the Code,
and any and all other laws, rules, regulations, releases and other official
pronouncements applicable to the Employee Plans, each Employee Plan that is
intended to qualify under Section 401(a) of the Code has, at all times, so
qualified and received determination letters under the Tax Reform Act of 1986,
and each Employee Plan has, at all times, been administered so as to comply with
all applicable law including, but not limited to, ERISA, the Code, the Revised
Statutes of Missouri and any regulations thereunder.
(4) Except as specified in Section 1.3(2) relating to accrued
vacation, holiday and personal days, and as set forth on Exhibit 4.32(4) Buyer
will not be liable and will not be responsible for any debt, obligation,
contribution, responsibility, withdrawal liability or other liability of Seller
under any Employee Plans, including, without limitation, any penalty, fee or
funding obligation related to the termination of any plan pursuant to Section
6.18. Buyer will not assume any obligations under or adopt any Employee Plans
maintained by Seller. The Seller will be liable under the Employee Plans for all
claims due and unpaid at or after Closing and for all claims incurred before or
after the Closing, whether or not paid or presented before Closing, and for any
liabilities arising from any failure before or after the Closing to comply with
the requirements of ERISA, the Code, the Revised Statutes of Missouri or
regulations thereunder.
(5) Seller has provided or caused to be provided notice of the
availability of COBRA coverage for all of its present and former employees, and
their dependents entitled to such notice because of a qualifying event occurring
on or before the Closing, and Seller shall be responsible for providing COBRA
coverage for all such employees, or their dependents, who elect or have elected
such coverage. All COBRA coverage has been and will be fully insured. The only
persons entitled to receive COBRA coverage or in the future elect COBRA coverage
as a result of a qualifying event occurring on or prior to Closing are persons
listed on Exhibit 4.21(a). Upon Closing, all of Seller's employees shall cease
participation in all Employee Plans maintained by Seller, except to the extent
provided herein or as to benefits owed such employees.
4.33 Compliance with Laws. Seller has complied with all existing laws,
rules, regulations, ordinances, orders, judgements and decrees applicable to its
businesses or the Assets in all ways other than exceptions which in the
aggregate have and will have only an immaterial impact on the business and its
operations and prospects. To the knowledge of Seller, there are no proposed
laws, rules, regulations, ordinances, orders, judgements, decrees, governmental
takings, condemnations or other proceedings which could, before or after
Closing, adversely affect Seller's businesses, financial or other condition,
prospects, results of operations or the Assets. Seller has made no kickback,
bribe or payment to any person or entity, directly or indirectly, for referring,
recommending or arranging business or patients with, to or for Seller. None of
the Leases and Contracts and no activity of Seller violates Section 1877 of the
Social Security Act or any similar
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provision of applicable state law. None of the Leases and Contracts and no
activity of Seller violates provisions of applicable state law relating to the
corporate practice of medicine. Jurisdictions in which the Hospital and the
Related Assets are located have adopted bulk sales statutes (collectively, the
"BULK SALES LAW") but none of the same apply to the transaction contemplated
hereunder. Seller shall pay when due all of its debts and obligations including,
but not limited to, any debt or obligation which could give rise to transferee
liability because of taxes, penalties, interest, assessments, and deficiencies
related thereto and related to the period ending on the Closing Date. Seller
hereby agrees that it will remain responsible for the Excluded Liabilities and
any other obligations for which Buyer may otherwise be liable under the Bulk
Sales Law, other than the Assumed Liabilities and Seller will indemnify Buyer
with respect to all such liabilities. Based on such indemnification, Buyer and
Seller agree not to comply with notice provisions of the Bulk Sales Law.
4.34 No Omissions or Misstatements. There is no fact material to the
Assets, or liabilities, businesses or prospects of Seller, the Hospital or the
Related Assets which has not been set forth or described in this Agreement or in
the Exhibits hereto which to the knowledge of Seller, is material to the
business, operations or financial condition of the Hospital or the Related
Assets. None of the information included in this Agreement and Exhibits or other
documents furnished or to be furnished by Seller or any of its representatives
contains any untrue statement of a material fact or is misleading in any
material respect or omits to state any material fact necessary in order to make
any of the statements herein or therein not misleading. Copies of all documents
referred to in any Exhibit hereto have been delivered or made available to Buyer
and constitute true, correct and complete copies thereof and include all
amendments, exhibits, schedules, appendices, supplements or modifications
thereto or waivers thereunder. The representations and warranties of Seller set
forth in this Agreement or in any document delivered pursuant hereto shall not
be affected or deemed waived by reason of the fact that the Buyer knew or should
have known that any such representation or warranty is, or might be, inaccurate
in any respect.
4.35 [Omitted.]
4.36 Auxiliary. Except for volunteers who operate as an unincorporated
association, there is no and during the proceeding five (5) years there has not
been any hospital auxiliary associated with the business of the Seller. There is
no and has not been a separately organized corporate auxiliary.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Seller to enter into this Agreement and to
consummate the transactions contemplated herein, Buyer represents and warrants
to Seller, which representations and warranties shall be true and correct on the
date hereof, and on Closing, as if then restated by it, and which shall survive
Closing, as follows:
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5.1 Organization, Qualification and Authority. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of its
state of organization. Buyer has the full corporate power and authority to own,
lease and operate its properties and assets as presently owned, leased and
operated and to carry on its business as it is now being conducted, and is in
good standing in Missouri and has the requisite corporate power and authority to
enter into and perform its obligations under this Agreement without the consent,
approval or authorization of, or obligation to notify, any person, entity or
governmental agency. Buyer has the full right, power and authority to execute,
deliver and carry out the terms of this Agreement and all documents and
agreements necessary to give effect to the provisions of this Agreement and to
consummate the transactions contemplated on the part of Buyer hereby. The
execution, delivery and consummation of this Agreement and all other agreements
and documents executed in connection herewith by Buyer has been duly authorized
by all necessary action on the part of Buyer. No other action on the part of
Buyer or any other person or entity is necessary to authorize the execution,
delivery and consummation of this Agreement and all other agreements and
documents executed in connection herewith. This Agreement and all other
agreements and documents executed in connection herewith by Buyer, upon due
execution and delivery thereof, shall constitute valid binding obligations of
Buyer enforceable in accordance with their respective terms.
5.2 Absence of Default. The execution, delivery and consummation of
this Agreement and all other agreements and documents executed in connection
herewith by Buyer will not constitute a violation of, be in conflict with, or,
with or without the giving of notice or the passage of time, or both, result in
a breach of, constitute a default under, or create (or cause the acceleration of
the maturity of) any debt, indenture, obligation or liability or result in the
creation or imposition of any security interest, lien, charge or other
encumbrance upon any of the Assets under: (a) any term or provision of the
Articles of Incorporation or Bylaws of Buyer; (b) any contract, lease,
agreement, indenture, mortgage, pledge, assignment, permit, license, approval or
other commitment to which Buyer is a party or by which Buyer is bound; (c) any
judgment, decree, order, regulation or rule of any court or regulatory
authority, or (d) any law, statute, rule, regulation, order, writ, injunction,
judgment or decree of any court or governmental authority or arbitration
tribunal to which Buyer is subject.
ARTICLE VI. COVENANTS OF PARTIES
6.1 Preservation of Business and Assets. From the date hereof until the
Closing, Seller shall use its best efforts and shall do or cause to be done all
such acts and things as may be necessary to preserve, protect and maintain the
Assets and the business and operation of the Hospital and Related Assets as a
going concern consistent with prior practice and, not other than in the ordinary
course of business, to preserve, protect and maintain for Buyer the good will of
the Hospital's and Related Assets' medical staff, suppliers, employees,
clientele, patients, tenants and others having business relations with Seller.
Seller shall use its best efforts to obtain all documents called for by this
Agreement.
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From and after the date of this Agreement until Closing, Seller and any party in
possession of all or any part of the Assets will maintain and keep the Assets in
a sanitary, well-maintained condition and in good order and repair. Buyer and
Seller shall use best efforts to facilitate the consummation of the transactions
contemplated by this Agreement. Other than in the ordinary course of business,
Seller will not sell, discard, dispose of or move any of the Assets. Seller
shall make no dividend, distribution or extraordinary payment to any Affiliate.
6.2 Absence of Material Change. From the date hereof until the Closing,
Seller shall make no material change in the business and operation of the
Hospital and Related Assets and in the utilization of the Assets and shall not
enter jointly or separately into any other significant contract or commitment or
any other transaction with respect thereto without the prior written consent of
Buyer, which shall not be unreasonably withheld.
6.3 Access to Books and Records.
(1) From the date hereof until the Closing, Seller shall give
to Buyer and to Buyer's counsel, accountants, and other representatives, full
access during normal business hours to all of Seller's offices, properties,
books, contracts, commitments, records and affairs relating to the Assets so
that Buyer may inspect and audit them and shall furnish to Buyer a copy of all
documents and information concerning the properties and affairs of the Assets as
Buyer may reasonably request. If any such books, records and materials are in
the custody of third parties, Seller shall direct such third parties to promptly
provide them to Buyer. Copies of documents furnished to Buyer by Seller will be
returned by Buyer upon request if the transaction is not consummated. Seller
shall provide Buyer promptly with interim financial statements of Seller in
accordance with Section 4.3, and any other management reports as and when they
are available. Additionally, from the date hereof until Closing, Seller grants
Buyer full access to Seller's personnel and computers as is reasonably necessary
to assist Buyer in the transition to be prepared for the ownership change.
(2) Following the Closing, for a reasonable period, Buyer
shall permit Seller's representatives (including, without limitation, their
counsel and auditors) and Missouri Baptist Hospital of Wentzville or their
successor, during normal business hours and upon appropriate advance notice, to
(i) have reasonable access to, and examine and make copies of all books and
records of the Hospital and the Related Assets, including all medical records
and medical charts of any patient admitted to the Hospital and the Related
Assets which are transferred to Buyer hereunder and (ii) with regard to
transactions or events occurring prior to the Closing, have reasonable access to
the Hospital's employees to the maximum extent permitted by law as long as such
requests do not unreasonably interfere with the operation of the Hospital. For a
period of seven (7) years after the Closing, Buyer agrees that, prior to the
destruction or disposition of any such books or records, Buyer shall provide not
less than forty-five (45) days' nor more than ninety (90) days' prior written
notice to Seller of such proposed destruction or disposal. If Seller
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desires to obtain any of such documents, it may do so by notifying Buyer in
writing at any time prior to the date scheduled for such destruction or
disposal. In such event, Buyer shall not destroy such documents and the parties
shall then promptly arrange for the delivery of such documents to Seller, its
successors or assigns. All out-of-pocket costs associated with the delivery of
the requested documents shall be paid by Seller.
(3) Following the Closing, Seller shall permit Buyer and their
representatives (including, without limitation, their counsel and auditors),
during normal business hours, to have reasonable access to, and examine and make
copies of, all books and records of Seller and its Affiliates relating to the
Hospital, Related Assets or the Assets, which books and records are retained by
Seller and which relate to transactions or events contemplated by this Agreement
occurring prior to the Closing, to the maximum extent permitted by law. For a
period of seven (7) years after the Closing, Seller agrees that, prior to the
destruction or disposition of any such books or records, Seller shall provide
not less than forty-five (45) days', nor more than ninety (90) days' prior
written notice to Buyer of such proposed destruction or disposal. If Buyer
desires to obtain any such documents, it may do so by notifying Seller in
writing at any time prior to the date scheduled for such destruction or
disposal. In such event, Seller shall not destroy such documents and the parties
shall then promptly arrange for the delivery of such documents to Buyer, its
successors or assigns. All out-of-pocket costs associated with the delivery of
the requested documents shall be paid by Buyer.
6.4 Consents. Seller has and shall use its best efforts to obtain all
consents required in form and substance reasonably acceptable to Buyer for the
assignment of the Leases and Contracts constituting Assumed Liabilities and
transfer of the Seller's partnership interest, joint venture interest or
membership interest. In the event Seller is unable to obtain any one or more
consents required pursuant to this section, Buyer shall be indemnified by Seller
except with respect to matters which will not cause damage to Buyer.
6.5 Risk of Loss. In the event there is any damage to or loss of any of
the Assets (whether by fire, theft, vandalism or other cause or casualty),
between the date hereof and the Closing, the Purchase Price shall be reduced by
the amount necessary to repair the damage, which reduction shall be offset by
any amounts paid by Seller's insurance company and assigned to Buyer; provided,
however, in the event of a casualty which in Buyer's sole judgment materially
adversely affects the business or operation or prospects of any of the Assets,
Buyer, at its sole option, may elect either (i) to terminate this Agreement in
its entirety, or (ii) to terminate this Agreement but only with respect to the
damaged property with a reduction in the Purchase Price determined as follows.
The reduction in Purchase Price shall be determined, based on the value on the
date of this Agreement of the Assets damaged or lost, the value of which shall
be determined by an MAI appraiser to be mutually selected and paid equally by
Seller and Buyer. If Seller and Buyer are unable to mutually select an
appraiser, then one MAI appraiser shall be selected and paid by Buyer and one
MAI appraiser shall be selected and paid by Seller. If a party
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does not select an appraiser as provided in the preceding sentence within ten
(10) days after the other party has given notice of the name of its appraiser,
such party shall lose its right to appoint an appraiser. If the two appraisers
are selected by the parties as provided above, they shall meet promptly to
determine the reduction in Purchase Price. If they are unable to agree within
fifteen (15) days after the second appraiser has been selected, they shall
jointly select a third MAI appraiser. The reduction in Purchase Price shall be
set by agreement of any two (2) of the three (3) appraisals. If the two (2)
appraisers are unable to agree on a third appraiser within thirty (30) days
after the second appraiser has been selected, either party, by giving written
notice to the other, may apply to the American Arbitration Association for the
purpose of determining the reduction in Purchase Price. The Seller and Buyer
shall each bear one-half (1/2) of the cost of selecting the third appraiser and
of paying the third appraiser's fee. The third appraiser, however selected,
shall be a person who has not previously acted in any capacity for either party.
If any two (2) appraisers are unable to determine the reduction in Purchase
Price within fifteen (15) days after the third appraiser has been selected, then
the three (3) appraisals shall be added together and their total divided by
three (3); the resulting quotient shall be the reduction in Purchase Price. In
determining the reduction in Purchase Price, each appraiser shall take into
consideration, understand, and correctly employ those recognized techniques that
are necessary to produce a credible appraisal.
6.6 Condemnation. From the date hereof until the Closing, in the event
that any portion of the Assets becomes subject to or is threatened with any
condemnation or eminent domain proceedings which in Buyer's sole opinion
materially adversely affects the businesses or operations or prospects of any of
the Assets, then Buyer, at its sole option, may elect either (i) to terminate
this Agreement in its entirety or (ii) to terminate this Agreement with respect
only to that part which is condemned or threatened to be condemned with a
reduction in the Purchase Price determined as provided in Section 6.6.
6.7 Good Faith. All parties shall act in good faith and use their
reasonable best efforts to satisfy all conditions to their respective
obligations to close.
6.8 Preserve Accuracy of Representations and Warranties. Seller shall
refrain from taking any action which would render any representations and
warranty contained in Article IV hereof inaccurate as of Closing. Seller
promptly will notify Buyer of any lawsuits, claims, administrative actions or
other proceedings asserted or commenced against Seller, partners, trustees,
members or affiliates, involving or affecting in any way the Assets or the
business and operation of the Assets. Seller shall promptly notify Buyer of any
facts or circumstances which come to Seller's attention and which cause, or
through the passage of time may cause, any of Seller's representations and
warranties to be untrue or misleading at any time from the date hereof to
Closing.
6.9 Maintain Books and Accounting Practices. From the date hereof until
the Closing, Seller shall maintain its books of account in the usual, regular
and ordinary manner in accordance with generally accepted accounting principles
consistently applied
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and on a basis consistent with prior years and shall make no change in its
accounting methods or practices or the accounting methods or practices.
6.10 Indebtedness; Liens. From the date hereof until the Closing, with
respect to the Assets, including the business and operations of the Assets,
Seller shall not create, incur, assume, guarantee or otherwise become liable or
obligated with respect to any indebtedness for borrowed money, nor make any loan
or advance to, or any investment in, any person or entity, nor create any lien,
security interest, mortgage, right or other encumbrance in any of the Assets
without Buyer's prior written approval, which will not be unreasonably withheld.
Seller shall take all action necessary to fully retire the Loans and except with
respect to the Permitted Exceptions cause all collateral and obligations and
security against the Assets to be fully released to Buyer's satisfaction as
contemplated hereunder, and Buyer will cooperate with Seller in this regard.
6.11 Compliance with Laws and Regulatory Consents. From the date hereof
until the Closing, Seller shall comply with all applicable statutes, laws,
ordinances and regulations; keep, hold and maintain all certificates,
certificates of need, certificates of exemption, accreditations, participations,
licenses, and other permits necessary for the business and operation of the
Assets; shall use its best efforts to obtain all consents, approvals, exemptions
and authorizations of third parties, whether governmental or private, necessary
to consummate the transactions contemplated by this Agreement; shall make and
cause to be made all filings and give and cause to be given all notices which
may be necessary or desirable on its part under all applicable laws and under
its contracts, agreements and commitments in order to consummate the
transactions contemplated by this Agreement; and shall use its reasonable
efforts to consummate the transactions contemplated by this Agreement and the
agreements and documents to be executed in connection with this Agreement as
soon as is practicable.
6.12 No Merger or Consolidation. From the date hereof until the
Closing, Seller shall not merge or consolidate with any other entity; shall not
solicit any inquiries, proposals or offers relating to the disposition of the
Assets; and shall promptly notify Buyer orally, and confirm in writing, of all
relevant details relating to inquiries, proposals or offers which it may receive
relating to any of the matters referred to in this Section.
6.13 Maintain Insurance Coverage. From the date hereof until the
Closing, Seller shall maintain and cause to be maintained in full force and
effect, without change of coverage or insurance carrier unless approved of in
writing by the Buyer, which approval shall not be unreasonably withheld, the
existing insurance on the Assets, the Hospital and its operations and the
Related Assets and shall provide, upon request by Buyer, evidence satisfactory
to Buyer that such insurance continues to be in effect and that all premiums due
have been paid.
Prior to Closing, Seller will obtain "tail" insurance coverage (which
at Closing Buyer shall reimburse Seller up to One Hundred Fifty Thousand Dollars
($150,000) therefor) for
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a malpractice and general liability insurance policy from a carrier with
coverages naming Buyer and its affiliates as additional insureds with an insurer
and having coverages acceptable to Buyer. Seller will provide Buyer reasonable
evidence thereof.
6.14 Medicare and Medicaid Reporting. From the date hereof until the
Closing, on behalf of the Hospital and Related Assets, Seller shall timely file
or cause to be filed all cost reports and other reports of every kind, nature or
description, required by law or by written or oral contract to be filed with
respect to the purchase of services by third party payors, including, but not
limited to Medicare, Medicaid, and Blue Cross prior to Closing. Seller will
prepare and timely file the terminating cost reports for the Hospital, and shall
bear all costs associated with compiling and filing the same. Seller shall
immediately provide to Buyer, copies of all Medicare and Medicaid terminating
cost reports.
6.15 [OMITTED.]
6.16 Performance. Seller and Buyer shall take appropriate steps to
satisfy their respective obligations, and the conditions to Closing, including,
if any, the obtaining of necessary contracts and application for necessary
licenses and permits.
6.17 WARN Act. Prior to Closing, Seller will not temporarily or
permanently close or shut down any "single site of employment" or any "facility"
or any "operating unit," department or service within a single site of
employment, as such terms are used in WARN, and Seller represents that it has
not had any such closures or shutdowns within the period of at least 90 days
before Closing. After Closing, Buyer shall not take any action which will
violate the WARN Act with respect to the employees of the Hospital.
6.18 Termination of Employee Plans.
(a) At or as soon as possible after Closing, Seller will take
the following steps with respect to the Employee Plans:
(1) With respect to any Employee Plan that is an
"employee pension benefit plan" (as defined in section 3(2) of ERISA) Seller
shall freeze the Employee Plan at Closing and provide written notice of the
foregoing of such Employee Plan to all participants in accordance with ERISA and
as soon as possible after Closing Seller shall take all steps necessary to
terminate the Employee Plan effective on or before the Closing, including, but
not limited to, notice of the termination to all participants and the adoption
by Seller's Board of Trustees of a written resolution providing that the
Employee Plan will be terminated as soon as possible after the Closing, that all
participants in the Employee Plan will be fully vested in their benefits accrued
to the date of termination and that Seller shall make such additional
contributions to the Employee Plan as may be necessary to fully fund all
benefits accrued under the Employee Plan on a terminated basis.
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(2) With respect to each other Employee Plan, Seller
shall take all steps necessary to freeze the Employee Plan at Closing and to
terminate the Employee Plan as soon as possible after the Closing including, but
not limited to, notice of the termination to all participants and affected third
parties (including insurance companies) and the adoption of written resolutions
of the Seller's General Partner providing for the termination of the Employee
Plan.
(3) With respect to the termination of each Employee
Plan, Seller agrees to terminate the plan in accordance with all applicable law
and in such a manner so as to ensure the payment of any benefit to which a
participant may have become entitled and that the best interests of plan
participants are otherwise served. With regard to the Seller's 401(k) Plan,
Seller shall within thirty (30) days of Closing apply to the Internal Revenue
Service on Form 5310 for a favorable determination that such Plan is qualified
upon its termination. Seller further agrees that to the extent necessary, it
will contract with one or more third parties to effect or facilitate the
termination of the Employee Plan in a timely and efficient manner.
(4) Seller shall consult with Buyer in the process of
terminating all Employee Plans and all such actions shall be taken by Seller as
soon as possible following Closing. Decisions of Seller that impact employees
who have been hired by Buyer must be satisfactory to Buyer in Buyer's reasonable
discretion. Actions taken by Seller after the Closing in terminating the plans
are actions taken on behalf of Seller and Seller agrees that the indemnification
of Buyer provided in Section 13.2 of the Agreement shall include all direct or
indirect consequences thereof.
(b) Buyer agrees that it will make its on-site personnel
reasonably available during normal business hours to assist Seller in gathering
information necessary to terminate the Employee Plans, so long as such
cooperation with Seller does not interfere with the normal job responsibilities
of such employees.
6.19 Power to Endorse Checks. As specified in Section 4.13(5), Buyer
has been granted the power to execute and endorse for payment all payments on
accounts receivable sold to Buyer.
6.20 Status of Partnership. Buyer shall reimburse Seller for up to
Thirty Five Thousand Dollars ($35,000) for reasonable receipted legal costs and
accounting costs relating to the dissolving of the partnership.
6.21 Removal of Tank. Buyer shall remove the only underground tank at
the Hospital disclosed to Buyer within ninety (90) days after Closing (which
removal and replacement expense, exclusive of any remediation costs, shall be
borne by Buyer). Buyer shall have the soil tested, at Buyer's expense. In the
event that the soil testing indicates that remediation of hydrocarbons or other
Hazardous Substances are required to bring the
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site into compliance with all applicable law and regulations, Seller shall pay
for all remediation.
6.22 Accounting Adjustments. Seller shall record the following balance
sheet adjustments prior to Closing: (i) establish a bad debt reserve equal to
all receivables over 150 days old plus $200,000; (ii) establish an additional
$400,000 reserve for Medicaid receivables for prior years; (iii) establish a
$1,000,000 reserve for physician receivables.
ARTICLE VII. TITLE AND SURVEY
7.1 Title Report and Policy. At least five days prior to Closing Seller
shall deliver to Buyer, at Buyer's expense, a current ALTA preliminary title
commitment issued by a nationally recognized title company of the condition of
title to each tract of Real Estate (the "COMMITMENT") for a title insurance
policy, ALTA Owner's Policy Form 1992 (the "TITLE POLICY"). The Commitment and
Title Policy shall show that the Real Estate is owned in fee simple by Seller,
free from all liens, restrictions, encumbrances, easements and clouds on title
whatsoever, except the Permitted Exceptions. The Commitment and Title Policy
will also contain (a) a so-called "tax parcel endorsement" listing all of the
tax parcel identification numbers affecting the Real Estate covered by the
policy and that no other property is included in the Real Estate and that no
other tax parcel identification numbers affect such Real Estate, (b) a
contiguity endorsement, (c) a 3.1 zoning endorsement or its equivalent as then
in use by the title company in form and substance acceptable to Buyer, (d)
extended coverage deleting all standard and general exceptions, (e) affirmative
coverage against any Hill-Burton lien, and (f) any additional endorsements or
insurance as Buyer may reasonably require. The Title Policy shall be in form
acceptable to Buyer's lender and shall permit a simultaneous issue rate for the
lender's mortgage title policy. The title company shall provide when delivering
the Commitment one (1) copy of all recorded documents affecting title of the
Real Estate to Buyer. At Closing, there shall be issued to Buyer, at Buyer's
expense, the Title Policy in the amount of the Purchase Price which is allocated
to the Real Estate as improved. In the event Buyer requests, and at Buyer's
expense, the title company shall issue a mortgage title policy at no additional
cost in an amount up to the Purchase Price which is allocated to the Real Estate
as improved, at simultaneous issue rates.
7.2 Survey. At least five days prior to Closing, Seller shall obtain
and deliver to Buyer, at Buyer's expense, an as-built survey of the Real Estate
accompanied by a certificate of a registered surveyor licensed in the State of
Missouri, certified as directed by Buyer in full ALTA form, sufficient to cause
the title company to delete the standard printed survey exception and to issue
the Title Policy free from any survey objections or exceptions whatsoever (the
"SURVEY"). The survey shall show the boundaries of the Real Estate, separate
legal descriptions and boundaries for the tracts and the location of all
streets, highways, alleys and public ways crossing or abutting said Real Estate,
all dominant and servient easements identified by recording information, all
building lines and all buildings and structures as are situated thereon as of
said date. Said certificate shall
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state that the improvements situated on the Real Estate lie wholly within the
boundaries thereof and that no part thereof encroach upon or overhang any
easement or rights-of-way or upon the land of others; that such improvements are
wholly within the building restriction lines however established and will not
violate any use or other restriction contained in prior conveyances, zoning
ordinances or regulations; that no adjoining structure encroaches upon the Real
Estate or upon any dominant easement appurtenant thereto; and that as of said
date there were no visible encroachments, overlaps, overhangs, easements,
improvements, utility lines or rights-of-way on, above or below the ground
except as shown on the survey plat. Said certificate shall also state whether or
not the Real Estate or any part thereof lies within the boundaries of a local,
state or federal flood plain designation.
7.3 U.C.C. Searches. U.C.C. Financing Statement searches, local and
central, including fixtures, and federal and state tax lien and judgment
searches, with respect to Seller, its affiliates and predecessors, including all
"DBA's", tradenames and fictitious names of Seller (including, but not limited
to, all names set forth in Exhibit 4.13(4)), from each of the jurisdictions in
which such entity does business or has done business within the preceding five
(5) years (the "U.C.C. SEARCHES"), shall be obtained, at Buyer's cost, and
delivered to Buyer at least five (5) days prior to Closing. The results shall be
updated to Closing to reflect Closing and the release of all financing statement
liens other than the Permitted Exceptions.
7.4 Defects and Cure. The Title Commitment and Policy and the Survey
and U.C.C. Searches described in this Article are collectively referred to as
"TITLE EVIDENCE". Buyer shall notify Seller as soon as reasonably possible of
any liens, claims, encroachments exceptions or defects disclosed in the Title
Evidence which either: (a) do not constitute Permitted Exceptions, or (b) even
if they constitute Permitted Exceptions, if such matter adversely impacts any of
the Assets or the financeability thereof in the reasonable opinion of Buyer
(collectively, "DEFECTS"). Seller, at its sole cost and expense, may elect to
not cure the objection and shall give written notice to Buyer within ten (10)
days of its receipt of Buyer's objections of its decision whereupon Buyer may
waive such objection and close or may terminate this Agreement, which election
shall be made within ten (10) days of receipt of notice from Seller. If Seller
fails to timely give such notice, Seller shall be deemed to have elected not to
cure the objection, whereupon Buyer may waive such objection and close or may
terminate this Agreement, which election by Buyer shall be made within thirty
(30) days following notice of objection to Seller. Upon termination of this
Agreement under the terms of this Section 7.4, no party to this Agreement shall
have any further claims under this Agreement against any other party.
ARTICLE VIII. CLOSING
8.1 Closing. If all of the conditions to Closing set forth in Articles
IX and X hereof are satisfied, the closing shall occur on July 31, 1996, at the
offices of Harwell Howard Hyne Gabbert & Manner, P.C., Nashville, Tennessee, or
at such other time or place as the parties may mutually agree. If all of the
conditions to Closing set forth in Articles IX and
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X hereof are not satisfied by July 31, 1996, the closing shall occur on the last
business day of any month following the date upon which all of the conditions to
Closing set forth in Articles IX and X hereof are satisfied or at such other
time as the parties may mutually agree. Upon transfer of the assets and payment
of the Purchase Price, the Closing shall be deemed to be effective (the
"CLOSING") and the transfer of the Assets shall be deemed to have occurred as of
12:01 a.m. local time on August 1, 1996 (or such later first of the month if
execution of all necessary and contemplated documents occurs after July 31,
1996). On the day before the effectiveness of Closing Seller shall receive good
funds in the amount of the Purchase Price. In the event that the Purchase Price
is received by Seller before or after the date before the day of effectiveness
of the Closing, the Purchase Price shall be reduced or increased on a per diem
basis, based on the Rate.
8.2 Termination. Notwithstanding anything in this Agreement to the
contrary, this Agreement and the obligations of the parties hereunder may be
terminated on or prior to Closing as follows:
(a) By Seller (i) in the event the transactions contemplated
by this Agreement have been prohibited or enjoined by reason of any final
judgment, decree or order entered or issued by a court of competent jurisdiction
in litigation or proceedings involving either Buyer or Seller; or (ii) in the
event Buyer breaches or violates any material provision of this Agreement or
fails to perform any material covenant or agreement to be performed by Buyer
under the terms of this Agreement and Seller has provided written notice thereof
to Buyer giving reasonable specificity and Buyer has not cured same within a
reasonable period of time and such breach is not waived by Seller in writing.
(b) By Buyer (i) in the event the transactions contemplated by
this Agreement have been prohibited or enjoined by reason of any final judgment,
decree or order entered or issued by a court of competent jurisdiction in
litigation or proceedings involving either Buyer or Seller; (ii) pursuant to
Section 6.5 or 6.6; or (iii) in the event Seller breaches or violates any
material provision of this Agreement or fails to perform any material covenant
or agreement to be performed by Seller under the terms of this Agreement and
Buyer has provided written notice thereof to Seller giving reasonable
specificity and Seller has not cured same within a reasonable period of time and
such breach is not waived by Buyer in writing.
(c) By Buyer or Seller if the Closing hereunder shall not have
taken place by September 30, 1996, or by such later date as shall be agreed upon
by an appropriate amendment to this Agreement if the parties agree in writing to
an extension, provided that a party shall not have the right to terminate under
this Section 8.2(c) if the conditions precedent to such party's obligation to
close have been fully satisfied and such party has failed or refused to close
after being requested in writing to close by the other party.
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ARTICLE IX. SELLER'S CONDITIONS TO CLOSE
The obligations of Seller under Section XI of this Agreement are
subject to the satisfaction on or prior to Closing, of the following conditions
(which may be waived specifically in writing by Seller in whole or in part):
9.1 Representations and Warranties True at Closing; Compliance with
Agreement. The representations and warranties of Buyer contained in this
Agreement (including the Exhibits hereto) or in any certificate or document
delivered to Seller pursuant hereto, shall be deemed to have been made again at
the Closing and shall then be true in all respects; and Buyer shall have
performed and complied with all covenants, agreements and conditions required by
this Agreement to be performed or complied with by it prior to or at Closing.
9.2 Regulatory Approvals. Buyer shall have obtained (at its own cost)
all consents, licenses, permits, approvals, provider contracts, determinations
or certificates of need from the Missouri Department of Health, required for
Buyer to acquire and operate the Assets as contemplated hereunder.
9.3 No Action/Proceeding. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transaction herein contemplated, and no governmental
agency or body shall have taken any other action or made any request of Seller
or Buyer as a result of which Seller reasonably and in good faith deems that to
proceed with the transactions hereunder may constitute a violation of law.
9.4 Compliance with Article XII. The Buyer shall have made to the
Seller the deliveries required by Article XII hereof.
9.5 Approval by Counsel. All matters, proceedings, instruments and
documents required to carry out this Agreement or incidental thereto and all
other relevant legal matters shall have been approved at or before the Closing
by counsel for Seller, which approval will not be unreasonably withheld.
9.6 Order Prohibiting Transaction. No order shall have been entered in
any action or proceeding before any court or governmental agency, and no
preliminary or permanent injunction by any court shall have been issued which
would have the effect of (a) making the transactions contemplated by this
Agreement illegal, (b) otherwise preventing consummation of such transactions,
or (c) imposing material limitations on the ability of Buyer effectively to
acquire and hold Assets, or, in either case, to exercise rights of ownership
pursuant thereto. There shall have been no federal or state statute, rule or
regulations enacted or promulgated after the date of this Agreement that would
reasonably, directly or indirectly, result in any of the consequences referred
to in this Section.
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ARTICLE X. BUYER'S CONDITIONS TO CLOSE
The obligations of Buyer under Article XII of this Agreement are
subject to the satisfaction, on or prior to Closing, of the following conditions
(which may be waived in writing by Buyer in whole or in part):
10.1 Representations and Warranties True at Closing; Compliance with
Agreement. The representations and warranties of Seller and Affiliates contained
in this Agreement (including the Exhibits hereto) or in any certificate or
document delivered to Buyer pursuant hereto, shall be deemed to have been made
again at the Closing and shall then be true in all respects; and Seller shall
have performed and complied with all covenants, agreements and conditions
required by this Agreement to be performed or complied with by it prior to or at
Closing.
10.2 No Loss, Damage or Destruction. In the event there is any damage
to or loss of any of the Assets (whether by fire, theft, vandalism or other
cause or casualty), the terms of Sections 6.5 and 6.6 hereof shall have been
complied with to the satisfaction of Buyer.
10.3 No Material Adverse Change. There shall have been no material
adverse change or change known to have a future material adverse affect in the
condition or prospects, financial or otherwise, of Seller, the Assets or the
operations. There shall not be any material claims, litigation or governmental
proceedings pending or threatened against Seller which would adversely affect
the Assets or the consummation of the transactions contemplated hereby at
Closing.
10.4 Regulatory Approvals. Buyer shall have obtained (at its own cost)
(a) certification for participation in the Medicaid Programs of the State of
Missouri, (b) certification from the appropriate agency of the federal
government for participation in the federal Medicare Program, and (c) all other
consents, licenses, permits, approvals, material provider contracts,
determinations or certificates of need necessary in the judgment of Buyer.
10.5 No Action/Proceeding. No action or proceeding before a court or
any other governmental agency or body shall have been instituted or threatened
to restrain or prohibit the transaction herein contemplated, and no governmental
agency or body shall have taken any other action or made any request of Seller
or Buyer as a result of which Buyer reasonably and in good faith deems that to
proceed with the transactions hereunder may constitute a violation of law.
10.6 Compliance with Articles VII and XI. The Seller shall have made to
Buyer the deliveries required by Articles VII and XI hereof within the time
periods required thereunder.
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10.7 Inspection of Assets. Buyer shall have obtained environmental
engineering reports and mechanical and electrical engineering reports and
survey, if Buyer elects to obtain them, at Buyer's cost, indicating a condition
of the Assets acceptable to Buyer. Buyer and its representatives shall have had
and continue to have reasonable rights of inspection of the Assets, and the
results of Buyer's inspection shall be acceptable to it in Buyer's sole
discretion.
10.8 Approval by Counsel. All matters, proceedings, instruments and
documents required to carry out this Agreement or incidental thereto and all
other relevant legal matters shall have been approved at or before the Closing
by counsel for Buyer, which approval will not be unreasonably withheld.
10.9 Order Prohibiting Transaction. No order shall have been entered in
any action or proceeding before any court or governmental agency, and no
preliminary or permanent injunction by any court shall have been issued which
would have the effect of (a) making the transactions contemplated by this
Agreement illegal, (b) otherwise preventing consummation of such transactions,
or (c) imposing material limitations on the ability of Buyer effectively to
acquire and hold Assets, or, in either case, to exercise rights of ownership
pursuant thereto. There shall have been no federal or state statute, rule or
regulations enacted or promulgated after the date of this Agreement that would
reasonably result, directly or indirectly, in any of the consequences referred
to in this Section.
10.10 Repayment of Loans. The completion by Seller (simultaneous with
Closing) of repayment of all of the Loans on such terms as are reasonably
acceptable to Buyer and full release of the security relating thereto and of any
claims by any such lenders.
10.11 Consents. Seller shall have obtained all of the consents
described in Section 6.4.
10.12 Tail Insurance. Seller shall deliver evidence of its tail
insurance coverage required by Section 6.13 hereof.
ARTICLE XI. OBLIGATIONS OF SELLER AT CLOSING
At Closing, Seller shall deliver or cause to be delivered to Buyer or
Buyer's designee, at Seller's expense, the following in a form and substance
reasonably satisfactory to Buyer or Buyer's designee:
11.1 Documents Relating to Title. Seller shall execute, acknowledge,
deliver and cause to be executed, acknowledged and delivered to Buyer or Buyer's
designee:
(1) General warranty deeds, in form satisfactory to Buyer or
Buyer's designee and the title insurer, and conveying to Buyer good, valid and
marketable title in fee simple to the Real Estate free and clear of all liens,
mortgages, pledges,
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encumbrances, security interests, covenants, easements, rights of way, equities,
options, rights of first refusal, restrictions, special tax or governmental
assessments, defects in title, encroachments and other burdens, except for
Permitted Exceptions.
(2) General warranty bills of sales and assignments, in form
satisfactory to Buyer, warranting and conveying to Buyer good, fee simple or
leasehold, as the case may be, valid and marketable title to all Assets free and
clear of all liens, mortgages, pledges, encumbrances, security interests,
covenants, easements, rights of way, equities, options, rights of first refusal
restrictions, special tax or governmental assessments, defects in title,
encroachments and other burdens, except for Permitted Exceptions.
(3) Certificates of title to all vehicles which constitute
Assets endorsed by Seller (or its affiliates, as is appropriate) together with
completed originals of any forms required by the State of Missouri to transfer
the same, free and clear of liens.
(4) An assignment to Buyer of each lease and contract
constituting an Assumed Liability.
(5) Title Policy and Survey as specified in Sections 7.1 and
7.2 hereof.
(6) U.C.C. Financing Statement searches as specified in
Section 7.3 hereof.
(7) Evidence satisfactory to Buyer of release of all
collateral and obligations related to the Assets.
11.2 Possession. Seller shall deliver to Buyer full possession and
control of the Assets, free and clear of all liens, mortgages, pledges, security
interests, restrictions, encumbrances, mortgages, easements, liabilities, and
burdens of any kind whatsoever, including, without limitation, limitations on
use and rights of reclamation by donees, except for Permitted Exceptions and
except for unwritten rights of patients for overnight stay in the Hospital and
except for leases listed on Exhibit 4.14.
11.3 Opinion of Seller's Counsel. Seller shall deliver to Buyer and its
lender the favorable opinion of counsel for Seller, dated as of Closing, in form
and substance reasonably acceptable to Buyer and its lender.
11.4 Good Standing and Resolutions. Seller shall deliver to Buyer
Certificates of Good Standing from the secretary of state of organization and
qualification for Seller together with a certified copy of the resolutions of
the necessary partners authorizing the execution, delivery and consummation of
this Agreement and the execution, delivery and consummation of all other
agreements and documents executed in connection herewith by them, including all
deeds, bills of sale and other instruments required hereunder and
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certified by the general partners to be validly adopted and in full force and
effect and unamended as of Closing.
11.5 Closing Certificate. Seller shall deliver to Buyer certificates of
the general partners of Seller, dated as of Closing, certifying that (a) each
covenant and obligation of Seller has been complied with by Seller in all
material respects, and (b) each representation and warranty of Seller is true
and correct on the Closing as if made on and as of the Closing.
11.6 Third Party Consents. Seller shall deliver to Buyer:
(1) Any consents, approvals and authorizations of third
parties which are necessary in the reasonable opinion of Buyer (in form
reasonably acceptable to Buyer) for the execution, delivery and consummation of
this Agreement, including without limitation, those necessary for the assignment
of the leases and contracts included in the Assumed Liabilities;
(2) All consents required by Section 6.4.
(3) Estoppel and attornment letters from tenants of the
Related Assets and other Assets, in form of Exhibit 11.6(3) reasonably
acceptable to Buyer; and
11.7 Taxes and Other Payments. Seller shall deliver to Buyer:
(1) Proof of cash payment directly to the tax authorities or
cash payment (or credit on the Purchase Price) to Buyer in the amount of all
real estate taxes and assessments which are a lien on the date of Closing,
general and special except for taxes which have been accrued.
(2) A certificate of non-foreign status signed by the
appropriate party and sufficient in form and substance to relieve Buyer of all
withholding obligations under Section 1445 of the Code. In the event that Seller
cannot furnish such a certificate or is not entitled to rely upon such a
certificate under the provisions of Section 1445 and the regulations thereunder,
Seller shall take and/or permit Buyer or Buyer's nominee to take any and all
steps necessary to allow Buyer or Buyer's nominee to satisfy the requirements or
Section 1445.
(3) Receipt or other evidence from the Missouri Department of
Revenue showing that all liability for sale and use taxes and employment taxes
due from Seller have been paid, in form reasonably acceptable to Buyer.
(4) Receipt or other evidence from the Missouri Unemployment
Security Commission evidencing that all contributions under the Missouri
unemployment compensation law due from Seller have been paid, in form reasonably
acceptable to Buyer.
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11.8 Releases and Other Matters. Seller shall deliver to Buyer:
(1) Full releases of all obligations described in Section
1.4(1).
(2) Releases of mortgages, security interests, etc. as
required after completion of due diligence.
11.9 Notice to Third Party Payors. Seller shall deliver executed
notices of the sale of the Hospital to be furnished to all third party payors
including the Programs, in the form of Exhibit 11.9 hereto.
11.10 Additionally Requested Documents; Post Closing Assistance. At the
reasonable request of Buyer at Closing and at any time or from time to time
thereafter, Seller shall cooperate with Buyer to put Buyer in actual possession
and operating control of the Assets, execute and deliver such further
instruments of sale, conveyance, transfer and assignment, as Buyer may
reasonably request in order to effectively sell, convey, transfer and assign the
Assets to Buyer, to execute and deliver such further instruments and to take
such other actions as Buyer may reasonably request to release Buyer from all
obligation and liability with regard to any obligation or liability retained by
Seller and to execute and deliver such further instruments and to cooperate with
Buyer as Buyer may reasonably request or to enable Buyer to obtain all necessary
health care or regulatory certifications, approvals, consents and licenses,
accreditations or permits.
ARTICLE XII. OBLIGATIONS OF BUYER AT CLOSING
At Closing, Buyer shall deliver or cause to be delivered to Seller the
following in a form and substance reasonably satisfactory to Seller:
12.1 Purchase Price. Buyer shall deliver to Seller cash or other
immediately available funds in the aggregate amount of the Purchase Price
specified herein.
12.2 Corporate Good Standing and Certified Board Resolutions. Buyer
shall deliver to Seller a certificate of good standing from the secretary of the
state of organization dated the most recent practical date prior to Closing and
a certified copy of the resolutions of the Board of Directors of the Buyer
approving this Agreement and consummation of the transactions intended hereby.
12.3 Opinion of Buyer's Counsel. Buyer shall deliver to Seller a
favorable opinion of counsel for Buyer, dated as of Closing, in form and
substance reasonably acceptable to Seller.
12.4 Assumption of Liabilities. Buyer shall assume and covenant to
fully perform and comply with all of the Assumed Liabilities by instruments
reasonably acceptable to Seller and Seller's counsel.
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12.5 Closing Certificate. Buyer shall deliver to Seller a certificate
of an officer of the Buyer, dated as of Closing, certifying that (a) each
covenant and condition precedent of Buyer has been complied with by Buyer in all
material respects and (b) each representation and warranty of Buyer is true and
correct on the Closing as if made on and as of the Closing.
12.6 Seller's Employees. For employees who accept Buyer's offer of
employment, Buyer shall recognize the employee's length of service with Seller
(but not any predecessor) for eligibility and vesting under Buyer's employee
benefit programs, including vacation and pension.
12.7 [Omitted].
12.8 Bailey Consulting Agreement. Buyer and Jack B. Bailey shall enter
into a consulting agreement for a term of three (3) years providing an aggregate
pay of Six Hundred Thousand Dollars ($600,000) payable monthly in accordance
with the Consulting Agreement attached as Exhibit 12.8.
ARTICLE XIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION
13.1 Survival. The covenants, obligations, representations and
warranties of Buyer and Seller contained in this Agreement or any certificate or
document delivered pursuant hereto shall be deemed to be material and to have
been relied upon by the parties hereto notwithstanding any investigation prior
to the Closing and shall survive the date of Closing and shall not be merged
into any deeds or other documents delivered in connection with the Closing and
shall remain in full force and effect for a period of three (3) years after the
Closing, except with respect to matters relating to title to the Assets, taxes,
Medicare/Medicaid and other cost reports, ERISA and employee benefit matters,
negligence, malpractice and other forms of liability for acts and omissions or
events, Hill- Burton matters, Excluded Liabilities, Assumed Liabilities and
claims for breach of Sections 4.1, 4.2, 4.5, 4.6, 4.9, 4.13, 4.15, 4.27, 6.3 and
6.18 which shall remain in full force and effect for the statute of limitations
relating to the underlying claim.
13.2 Indemnification by Seller. Seller and Guarantor, jointly and
severally, promptly shall indemnify, defend and hold harmless (and upon demand
shall reimburse) Buyer and the directors, officers, shareholders, employees and
agents of Buyer (and with respect to the COBRA coverage, Buyer and all
affiliated corporations within a controlled group relationship with Buyer (as
determined under Section 414 of the Internal Revenue Code), and their employees
against any and all claim, action, demands, suits, proceedings, assessments,
judgments losses, cost, and expenses (including reasonable cost of
investigation, court costs, legal fees and expenses incident to any of the
foregoing or incurred in attempting to avoid the same or oppose the imposition
thereof or in enforcing this indemnity) and other damages (i) resulting from any
breach by Seller of any of its covenants, obligations, representations or
warranties or breach or untruth of any covenant,
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obligation, representation, warranty, fact or conclusion contained in this
Agreement or any certificate or document of Seller delivered pursuant to this
Agreement (or which would not have been suffered or incurred if such
representation, warranty, fact or conclusion were true or had not been breached
or such covenant or obligation had been fully performed), (ii) arising out of
the ownership, licensing, operation, action, inaction or conduct of Seller,
Hospital, Related Assets or any of the Assets or any of Seller's employees,
agents or independent contractors, relating to all periods of time prior to
Closing and any act of Buyer under Section 1.4(7) after Closing, except the
Assumed Liabilities, (iii) resulting from the Excluded Liabilities, and (iv)
except for the Assumed Liabilities, in respect of any other liabilities of
Seller not expressly assumed by Buyer hereunder. Any indemnification payment
pursuant to the foregoing shall include interest at a floating rate equal to
three points over the prime rate of Citibank N.A., from time to time, (the
"RATE") from the date the loss, costs, expenses or damages were incurred until
the date of payment.
13.3 Indemnification by Buyer. Buyer shall promptly indemnify, defend,
and hold harmless (and upon demand shall reimburse) Seller against any and all
loss, costs, and expenses (including reasonable cost of investigation, court
costs legal fees and expenses incident to any of the foregoing or incurred in
attempting to avoid the same or oppose the imposition thereof or in enforcing
this indemnity) and other damages resulting from (i) any breach by Buyer of any
of its covenants, obligations, representations or warranties or breach or
untruth of any covenant, obligation, representation, warranty, fact or
conclusion contained in this Agreement or any certificate or document of Buyer
delivered pursuant to this Agreement (or which would not have been suffered or
incurred if such representation, warranty, fact or conclusion were true or had
not been breached or such covenant or obligation had been fully performed),and
(ii) any claim which is brought or asserted by any third party(s) against Seller
for failure to pay or perform any of the Assumed Liabilities. Any
indemnification payment pursuant to the foregoing shall include interest at the
Rate from the date of the loss, costs, expenses or damages were incurred until
the date of payment.
13.4 Procedure for Indemnification.
(1) Notice. Promptly after receipt of written or actual notice
of any action or claim (the "CLAIM") as to which it asserts a right to
indemnification, the party seeking indemnification hereunder (the "INDEMNITEE")
shall give written notice thereof (the "NOTICE") to the person from whom
indemnification is sought (the "INDEMNITOR"), provided that the failure of the
Indemnitee to give the Indemnitor prompt notice shall not relieve the Indemnitor
of any of its obligations hereunder, but may create a cause of action for breach
for damages directly attributable to such delay.
(2) Third Party Claims.
(a) If any claim for indemnification by Indemnitee
arises out of a Claim by a person other than Indemnitee, the Indemnitor shall be
entitled to assume the defense thereof, by written notice to the Indemnitee
within fifteen days after receipt of the
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<PAGE> 54
Notice. Indemnitor shall thereupon undertake to take all steps or proceedings to
defeat or compromise any such Claim, including retaining counsel reasonably
satisfactory to the Indemnitee. Except as otherwise provided herein, all costs,
fees and expenses with respect to any such Claim shall be borne by Indemnitor.
If the Indemnitor assumes the defense of a Claim, it shall not settle such Claim
unless such settlement includes as an unconditional term thereof a release by
the claimant of the Indemnitee, reasonably satisfactory to the Indemnitee and
except that Indemnitor shall not, without the prior written consent of
Indemnitee, directly or indirectly require Indemnitee to take or refrain from
taking any action, or make any public statement, or consent to any settlement,
which it reasonably considers to be against its interest. Indemnitee shall have
the right to participate at its own expense, in such proceedings, but control of
such proceedings shall remain exclusively with Indemnitor.
(b) If the Indemnitor shall fail to notify the
Indemnitee of its desire to assume the defense of any such claim or action
within the prescribed period of time, then the Indemnitee may assume such
defense in such manner as it may deem appropriate, and the Indemnitor shall be
bound by any determinations made or any settlements thereof effected by the
Indemnitee. The Indemnitor shall be permitted, at its own expense, to join in
such defense and to employ its own counsel but control of such proceedings shall
remain exclusively with Indemnitee.
(c) Indemnitor and Indemnitee agree to make available
to each other, their counsel and other representatives, all information and
documents reasonably available to them reasonably requested by the other which
relate to any such claim or action, and to render to each other such reasonable
assistance as may be reasonably requested in order to insure the proper and
adequate defense of such claim or action, but any costs or expenses related
thereto shall be borne by Indemnitor; and provided that any failure (after
written notice with specificity and an opportunity to cure) shall not relieve
the Indemnitor of any of its obligations hereunder but may create a cause of
action for breach for damages directly attributable to such failure.
(3) Other Claims. In the event of any Claim other than those
provided for in subsection (2) hereof, Indemnitee shall be entitled to
indemnification hereunder as provided herein.
(4) Payment of Claims. Amounts payable by the Indemnitor to
the Indemnitee under this Section 13.4 shall be payable by the Indemnitor as
incurred by the Indemnitee. In the event, Indemnitor fails to pay, timely and
fully, any such amounts, Indemnitee may pay such claim. In such event, the
Indemnitee may recover from the Indemnitor, in an addition to the amount so
paid, (i) interest on the amount claimed at the Rate, and (ii) reasonable
attorneys' fees in connection with the enforcement of payment under this Section
13.4.
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(5) No Set-Off. The Indemnitee's right to indemnification
under this Section 13.4 shall not be subject to set-off for any claim by the
Indemnitor against the Indemnitee.
(6) Claims by a Straddle Patient. Any claim by a patient
relating to professional negligence or similar matters involving a patient of
the Hospital served both prior to Closing and subsequent to Closing will be the
responsibility of either Buyer or Seller in accordance with the following
guidelines: (i) if it is a claim in which clearly the incident giving rise to
liability arose prior to Closing, Seller shall respond to the loss and defense
expenses; (ii) if it is a claim in which clearly the incident giving rise to
liability arose subsequent to Closing, Buyer shall respond to the loss and
defense expenses; and (iii) in the event that the incident giving rise to
liability as to time is not clear, Seller and Buyer will jointly defend the case
and each will fully cooperate with the other in such defense. Once the case is
closed, if Buyer and Seller cannot agree to the allocation of both indemnity and
expenses, then the matter shall be submitted to binding arbitration in
accordance with the rules and procedures of the American Arbitration
Association.
13.5 Assignment by Buyer. No consent by Seller shall be required for
any assignment or reassignment of the rights of Buyer under this Article XIII.
ARTICLE XIV. PRESERVATION OF HOSPITAL BUSINESSES
AND NONCOMPETE RESTRICTIONS
14.1 Covenant Not to Compete. Seller, Guarantor and any Affiliates of
any hereby covenant and agree with Buyer that during the "Noncompete Period"
within the "Noncompete Area" they shall not directly or indirectly, (a) acquire,
lease, manage, consult for, finance or own any part of (as member, shareholder
or partner) any health care facility which provides any services similar to the
services provided by the Hospital or what are normally provided by a non-urban
hospital, including but not limited to, skilled nursing, obstetrics,
psychiatric, alcohol/chemical dependency, rural health, primary care, urgent
care, ambulatory surgery, diagnostics, psychiatric counseling, home health,
management service organization, network for contracting for managed care,
managed care organization, or any other health related services, or (b) solicit
for employment or employ any person who at Closing became an employee of Buyer,
or (c) disrupt or attempt to disrupt any past, present or reasonably foreseeable
future relationship, contractual or otherwise between Buyer, on the one hand,
and on the other hand, any physician, physician group, or other healthcare
provider with whom Buyer contracts with in connection with the Hospital. The
"NONCOMPETE PERIOD" shall commence at the Closing and terminate on the third
anniversary thereof. The "NONCOMPETE AREA" shall mean the area within a fifty
(50)-mile radius of the Hospital. The following shall not be deemed a breach of
this covenant: (i) advertisements for the Springfield Illinois Hospital which is
partially owned by Mr. Bailey, which are not targeted to the Noncompete Area,
but which incidentally happen to overlap into the Noncompete Area; and (ii)
ownership of less than five percent (5%) of the stock of a publicly held
company.
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14.2 Enforceability. In the event of a breach of Section 14.1 hereof,
Seller recognizes that monetary damages shall be inadequate to compensate Buyer
and Buyer shall be entitled, without the posting of a bond, to an injunction
restraining such breach, with the costs including attorneys fees of securing
such injunction to be borne by Seller and Affiliates, jointly and severally.
Nothing herein contained shall be construed as prohibiting Buyer from pursuing
any other remedy available to it for such breach or threatened breach.
All parties hereto hereby acknowledge the necessity of protection
against the competition of Seller and any Affiliates and that the nature and
scope of such protection has been carefully considered by the parties. The
period provided and the area covered are expressly represented and agreed to be
fair, reasonable and necessary. The consideration provided for herein is deemed
to be sufficient and adequate to compensate for agreeing to the restrictions
contained in Section 14.1 hereof. If, however, any court determines that the
forgoing restrictions are not reasonable, such restrictions shall be modified,
rewritten or interpreted to include as much of their nature and scope as will
render them enforceable.
ARTICLE XV. MISCELLANEOUS
15.1 Assignment. Buyer may assign its rights or obligations under this
Agreement without the express written consent of Seller. No assignment shall
relieve the assignor of any liability or obligation hereunder.
15.2 Other Expenses. Except as otherwise provided in this Agreement,
Seller shall pay all of its own expenses in connection with the negotiation,
execution, and implementation of the transactions contemplated by this Agreement
and Buyer shall pay all of its own expenses in connection with the negotiation,
execution, and implementation of the transactions contemplated by this
Agreement. State and local sales taxes and all stamp tax, recording taxes, and
other transfer fees and taxes shall be borne by Seller.
15.3 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given: (a) if delivered
personally or sent by facsimile, on the date received, (b) if delivered by
overnight courier, on the day after mailing, and (c) if mailed, five (5) days
after mailing with postage prepaid. Any such notice shall be sent as follows:
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To Seller:
Doctors Hospital - Wentzville, L.P.
500 Medical Drive
P.O. Box 711
Wentzville, Missouri 63385-0711
Attn: Jack B. Bailey, President
D/H-Wentzville, Inc., General Partner
with a copy to:
Stephen A. Tagge, Esq.
Sorling, Northrup, Hanna, Cullen and Cochron, Ltd.
Suite 800 - Illinois Building
607 East Adams
P.O. Box 5131
Springfield, Illinois 62705
To Buyer:
New American Healthcare Corporation
109 Westpark Drive
Suite 440
P.O. Box 3689
Brentwood, TN 37024
Attn: Dana C. McLendon, Jr., Senior Vice President
with a copy to:
Ernest E. Hyne, III
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
15.4 Controlling Law. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the State of Missouri.
15.5 Headings. Any table of contents and paragraph headings in this
Agreement are for convenience of reference only and shall not be considered or
referred to in resolving questions of interpretation.
15.6 Benefit. Subject to Section 15.1 hereof, this Agreement shall be
binding upon and shall inure to the exclusive benefit of the respective heirs,
legal representatives,
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successors and assigns of the parties hereto and Buyer shall require any of its
successors to assume Buyer's obligations under this Agreement. This Agreement is
not intended to, nor shall it, create any rights in any other party.
15.7 Partial Invalidity. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted.
15.8 Waiver. Neither the failure nor any delay on the part of any party
hereto in exercising any rights, power or remedy hereunder shall operate as a
waiver thereof, or of any other right, power or remedy; nor shall any single or
partial exercise of any right, power or remedy preclude any further or other
exercise thereof, or the exercise of any other right, power or remedy.
15.9 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
15.10 Interpretation. All pronouns and any variation thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the person or entity or the context may require. Further, it is
acknowledged by the parties that this Agreement including exhibits has undergone
several drafts with the negotiated suggestions of both; and, therefore, no
presumptions shall arise favoring either party by virtue of the authorship of
any of its provisions or the changes made through revisions.
15.11 Entire Agreement. This Agreement, including the Exhibits hereto,
constitutes the entire agreement between the parties hereto with regard to the
matters contained herein and it is understood and agreed that all previous
undertakings, negotiations and agreements between the parties are merged herein.
This Agreement may not be modified orally, but only by an agreement in writing
signed by Buyer and Seller. Except as expressly provided herein, no waiver of
any of the provisions of this Agreement shall be valid unless it is in writing
and signed by the party against which it is sought to be enforced.
15.12 Further Assurance of Seller After Closing. Subsequent to the
Closing, Seller shall from time to time, at Buyer's request and expense, execute
and deliver such other instruments of conveyance and transfer, and take such
other action as Buyer may reasonably request, in order to more effectively sell,
transfer, assign and deliver and vest in Buyer the benefits of, title to and
possession of the Assets.
15.13 Legal Fees and Costs. In the event any party hereto elects to
incur legal expenses to enforce or interpret any provision of this Agreement,
the prevailing party will be entitled to recover such legal expenses, including,
without limitation, attorney's fees, costs and necessary disbursements, in
addition to any other relief to which such party shall be entitled.
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15.14 Exclusivity. Buyer contemplates the expenditure of substantial
sums of time and money in connection with legal, accounting, financial, and due
diligence work to be performed in conjunction with the transactions contemplated
under this Agreement. For purposes of inducing Buyer to proceed with the
transactions, Seller shall not, directly or indirectly, without Buyer's prior
written consent, initiate or hold discussions with any person or entity (other
than Buyer) concerning a purchase, affiliation, or lease of all or a material
part of the Assets, directly or indirectly, whether by sale of capital stock,
merger, consolidation, sale or lease of material assets, affiliation, joint
venture, or other material transaction for the period of time from the date
hereof until the date specified in the first sentence of Section 8.2(c) (or such
later period of time as the parties mutually agree pursuant to Section 8.2(c)).
Seller will promptly notify Buyer by telephone and thereafter confirm in writing
via fax, if any such discussions or negotiations are sought to be initiated
with, or any such proposal or possible proposal is received directly or
indirectly, by Seller. In the event Seller receives an unsolicited offer related
to a type of transaction described in this paragraph, Seller shall promptly
inform the person making such unsolicited offer of the existence of its
obligations under this Section 15.14 but shall not disclose the contents of this
Section or this Agreement, and Seller shall reject such offer and promptly
notify Buyer thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"SELLER":
DOCTORS HOSPITAL - WENTZVILLE, L.P.
By: D/H-Wentzville, Inc. Its General Partner
---------------------------------------------
Jack B. Bailey, President
---------------------------------------------
Jack B. Bailey, individually as a Guarantor
"BUYER":
NAHC OF MISSOURI, INC.
By:
-----------------------------------------
Its:
----------------------------------------
54
<PAGE> 1
Exhibit 10.12
CONSULTING AGREEMENT
This Consulting Agreement is entered into this 1st day of August, 1996,
by and between Jack B. Bailey (the "CONSULTANT") and New American Healthcare
Corporation, a Tennessee corporation (the "CORPORATION").
WHEREAS, the Corporation wishes to retain the Consultant to provide
advisory consulting services and other assigned projects, and the Consultant
wishes to accept such position; and
WHEREAS, Consultant has a great number of contacts within the
healthcare community throughout the United States and has utilized and will
continue to utilize his positive relationships to provide leads for acquisitions
for the Corporation and its affiliates throughout the United States.
NOW, THEREFORE, and in consideration of the amounts and services set
forth below and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Engagement as Consultant. The Corporation has retained the
Consultant to provide advisory consulting services and other assigned projects,
including, but not limited to: (i) actively assist in the transition as
requested by NAHC, including but not limited to maintaining support for
Corporation from the medical staff, advising Corporation on Hospital strategies
and operations, assisting with evaluations of employees, assisting with the
determination of needed capital expenditures, advising on the recruitment of
physicians, advising on the political relationship of Doctors Hospital of
Wentzville to area elected officials and employers and assisting with tertiary
health care affiliation relationships; (ii) pro-actively seek acquisition leads
for the Corporation; (iii) visit hospitals, as requested by Corporation, to
build relationships with key decision makers; (iv) perform initial site visits,
as requested by Corporation, to provide information to be used in determining
Corporation's interest in hospitals; (v) perform analysis on hospitals, as
requested by Corporation, for possible contacts to acquire or lease; (vi)
perform other duties as requested by the senior management of Corporation which
are consistent with Consultant's status as an independent contractor and not an
employee. During the term of this Agreement, Consultant will not use for his
personal benefit or for the direct or indirect benefit of any other person or
business entity, whether or not for monetary gain, any leads for potential
acquisitions or management or consulting or joint venture relationships within
the healthcare field, including, without limitation, any information related to
the potential acquisition of any hospital, joint venture of any hospital, or any
other healthcare entity or business; all of which Consultant agrees to provide
exclusively to the Corporation, unless the Corporation formally and in writing
rejects such potential business; provided, further, leads with respect to and
acquisitions within fifty (50) miles of Springfield, Illinois are excluded from
this provision. As an independent contractor, the Consultant is subject to the
control or direction of Corporation as to the result to be accomplished by
Consultant's work, and not as to the means and methods for accomplishing that
result. The Consultant agrees to use his reasonable best efforts to assist the
Corporation with respect to its operations, business, ethics and affairs. The
Consultant agrees that he will spend no less than one hundred (100) hours per
month
<PAGE> 2
in performing the above duties and assignments. The Consultant agrees that
within ten (10) days following the end of each month he will submit to the
Corporation a reasonably detailed report of activities, disposition of
activities/status, date of activities, hours (or tenths thereof) dedicated on
such date to performing such activities, all in the form reasonably satisfactory
to the Corporation.
2. Term.
(a) This term of this agreement shall commence and be
effective on August 1, 1996, the closing date of the Asset Purchase Agreement
dated July 31, 1996 between Doctors Hospital - Wentzville, L.P. and NAHC of
Missouri, Inc. (the "Asset Purchase Agreement"). Unless earlier terminated as
otherwise provided herein, said term of the agreement shall continue until the
third anniversary of such date of term of commencement, at which time the
agreement will expire unless extended on terms mutually agreeable to the
parties.
(b) Consultant's agreement hereunder shall be terminable by
the Corporation at any time for cause, which shall include but not be limited to
(i) insubordination, malfeasance, or misconduct, including breach of business
ethics; (ii) charge or conviction of a felony or of a misdemeanor involving
moral turpitude; (iii) the inability of Consultant to perform his duties
hereunder for a period of ninety (90) consecutive days (or ninety (90) days in
any one-hundred twenty (120) consecutive day period) by reason of illness or
mental or physical disability; (iv) death; (v) other circumstances deemed by
Corporation to be materially detrimental to Corporation. In the case of
termination under this Section 2(b), all obligations of the parties shall cease
except the Consultant's obligations under Sections 4 and 5 hereof.
3. Compensation. Commencing as of the date hereof, during the term the
Corporation shall pay the Consultant in monthly installments of Sixteen Thousand
Six Hundred Sixty-Six and 67/100 Dollars ($16,666.67) or a pro rata amount for
any period less than a full month payable on the last day of each month with
respect to the preceding month.
4. Confidentiality. The Consultant shall not, either during or after
the term hereof, disclose to any person confidential or proprietary information
concerning the Corporation's business.
5. Non-Compete.
(a) Consultant recognizes and acknowledges that all
information pertaining to the Business and the related affairs, clients,
customers or other relationships of Corporation is confidential and is a unique
and valuable asset of Corporation. Access to and knowledge of this information
were and are essential to the performance of Consultant's duties to Corporation.
Consultant will not during his retention as a consultant or thereafter, except
to the extent reasonably necessary in the performance of his duties for
Corporation, give to any person, firm, association, or governmental agency any
information concerning the affairs, business, clients, customers or other
relationships of Corporation except as required by law. Consultant will not make
use of this type of information for his own purposes or for the benefit of any
person or organization other than Corporation. Consultant shall use his best
efforts to prevent the disclosure of this information by
2
<PAGE> 3
others. All records, memoranda, copies thereof, etc. relating to the Business
whether made by Consultant or otherwise coming into his possession are
confidential and will remain the property of Corporation and all of the same
shall be returned to the Corporation promptly upon request by the Corporation.
(b) Consultant hereby covenants and agrees with Corporation
that during the "Noncompete Period" within the "Noncompete Area" he shall not
directly or indirectly, (a) acquire, lease, manage, consult for, finance or own
any part of (as member, shareholder or partner) any health care facility which
provides any services similar to the services provided by the Hospital or what
are normally provided by a non-urban hospital, including but not limited to,
skilled nursing, obstetrics, psychiatric, alcohol/chemical dependency, rural
health, primary care, urgent care, ambulatory surgery, diagnostics, psychiatric
counseling, home health, management service organization, network for
contracting for managed care, managed care organization, or any other health
related services, or (b) solicit for employment or employ any person who at
Closing became an employee of Corporation's subsidiary, or (c) disrupt or
attempt to disrupt any past, present or reasonably foreseeable future
relationship, contractual or otherwise between Corporation or its
subsidiary(ies), on the one hand, and any physician, physician group, or other
healthcare provider with whom Corporation or its subsidiary(ies) contracts with
in connection with the Hospital, on the other hand. The "NONCOMPETE PERIOD"
shall commence at the Closing and terminate on the third anniversary thereof.
The "NONCOMPETE AREA" shall mean the area within a fifty (50)-mile radius of the
Hospital. The following shall not be deemed a breach of this covenant: (i)
advertisements for the Springfield Illinois Hospital which is partially owned by
Mr. Bailey and Dr. Coughlin, which are not targeted to the Noncompete Area, but
which incidentally happen to overlap into the Noncompete Area; and (ii)
ownership of less than five percent (5%) of the stock of a publicly held
company.
6. Set-Off Rights. If the Corporation or the Corporation's subsidiary
has any claims against the Consultant or against the Doctors Hospital -
Wentzville, L.P. or its general partner under that certain Asset Purchase
Agreement (the "AGREEMENT") dated July 31, 1996 by and between Doctors Hospital
- - Wentzville and the Corporation's subsidiary, or under any contracts or
documents accompanying or executed in connection with the closing thereunder,
Corporation and its subsidiaries may set off the amounts of such claims against
the payments to be made to Consultant under this agreement (the "SET-OFF
RIGHTS"). It will be in the sole discretion of the Corporation whether to use
the Set-Off Rights or whether to exercise any other remedies that may be
available to the Corporation and its subsidiaries under the terms of the
Agreement. Exercise of its Set-Off Rights by the Corporation will in no way
serve to prevent the Corporation from exercising any additional remedies that
are necessary or available against the Consultant or against Doctors Hospital -
Wentzville, L.P. or its general partner.
7. No Agency and Not Employee. It is understood that the Consultant is
to act as a consultant and advisor to the Corporation and is not an agent or
employee of the Corporation in any respect. The Consultant shall have no right,
authority or power to act for or on behalf of the Corporation.
3
<PAGE> 4
8. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Tennessee, which the parties mutually
agree is the appropriate law to govern the relationship hereunder.
9. Assignment. All terms of this Agreement shall be binding upon, and
inure to the benefit of, the successors and assigns of the Corporation. The
Consultant may not assign or delegate his duties and obligations hereunder
without the prior written consent of the Corporation.
10. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original, but all of
which shall together constitute one and the same instrument.
11. Entire Agreement. This instrument contains the entire agreement of
the parties and may be changed only by an agreement in writing signed by each of
the parties hereto. All capitalized terms not defined herein shall have the same
meaning as given them in the Asset Purchase Agreement.
IN WITNESS WHEREOF, the parties have executed this Consulting Agreement
as of the date set forth above.
CORPORATION
NEW AMERICAN HEALTHCARE CORPORATION
By: ____________________________________
Title: ____________________________________
CONSULTANT
--------------------------------------------
JACK B. BAILEY
4
<PAGE> 1
Exhibit 10.13
================================================================================
AMENDED AND RESTATED
CREDIT AGREEMENT
By and Among
NEW AMERICAN HEALTHCARE CORPORATION,
as Borrower,
TORONTO DOMINION (TEXAS), INC.,
as Agent,
THE TORONTO-DOMINION BANK,
as Issuing Bank
and
THE FINANCIAL INSTITUTIONS PARTY HERETO
Dated as of January 30, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE I DEFINITIONS; ACCOUNTING TERMS 1
Section 1.1 Definitions ........................................................................1
Section 1.2 Accounting Terms ..................................................................22
ARTICLE 11 LOANS 22
Section 2.1 Revolving Credit ..................................................................22
Section 2.2 Interest and Fees .................................................................24
Section 2.3 Payments ..........................................................................28
Section 2.4 Waivers ...........................................................................32
Section 2.5 Application of Payments ...........................................................34
ARTICLE III LETTERS OF CREDIT 35
Section 3.1 Issuance of Letters of Credit .....................................................35
Section 3.2 Draws Under Letters of Credit .....................................................35
Section 3.3 Actions by Issuing Bank ...........................................................37
Section 3.4 Fees, Increased Costs, Indemnification, Expenses . ................................38
ARTICLE IV SECURITY DOCUMENTS 40
Section 4.1 Security Agreements; Mortgages; Stock Pledge Agreements;
Concentration Account Pledge Agreement .........................................40
Section 4.2 Subsidiary Guaranties .............................................................41
ARTICLE V CONDITIONS PRECEDENT 41
Section 5.1 Conditions to Commitment ..........................................................41
Section 5.2 Conditions to Each Loan ...........................................................46
Section 5.3 Conditions Precedent to Each Letter of Credit .....................................47
Section 5.4 Conditions for the Benefit of the Agent and the Banks . ...........................47
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE BORROWER 48
Section 6.1 Due Organization ..................................................................48
Section 6.2 Organization, Standing and Qualification of Subsidiaries . ........................48
Section 6.3 Absence of Certain Activities .....................................................49
Section 6.4 Requisite Power ...................................................................49
Section 6.5 Authorization .....................................................................49
Section 6.6 Officer Authorization .............................................................49
Section 6.7 Binding Nature ....................................................................49
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 6.8 No Conflict .......................................................................50
Section 6.9 No Event of Default ...............................................................50
Section 6.10 Financial Statements ..............................................................50
Section 6.11 No Adverse Change .................................................................51
Section 6.12 Real Property .....................................................................51
Section 6.13 Equipment .........................................................................51
Section 6.14 Contracts .........................................................................51
Section 6.15 Intellectual Property .............................................................51
Section 6.16 Litigation ........................................................................52
Section 6.17 Tax Returns and Tax Matters .......................................................52
Section 6.18 Employee Benefits .................................................................52
Section 6.19 Environmental Matters .............................................................54
Section 6.20 Insurance .........................................................................55
Section 6.21 Compliance with Laws ..............................................................55
Section 6.22 Statutory Regulation ..............................................................55
Section 6.23 Use of Proceeds; Regulation U .....................................................55
Section 6.24 Solvency ..........................................................................55
Section 6.25 Fiscal Year .......................................................................56
Section 6.26 Health Care Related Matters .......................................................56
Section 6.27 Related Agreements ................................................................56
ARTICLE VII AFFIRMATIVE COVENANTS 57
Section 7.1 Accounting Records ................................................................57
Section 7.2 Financial Statements and Notices ..................................................57
Section 7.3 Inspection of Property Books and Records ..........................................61
Section 7.4 Maintenance of Existence, Licenses, Permits, Etc ..................................61
Section 7.5 Tax Returns .......................................................................62
Section 7.6 Qualifications To Do Business .....................................................62
Section 7.7 Compliance with Laws ..............................................................62
Section 7.8 Compliance with Agreements ........................................................62
Section 7.9 Insurance .........................................................................62
Section 7.10 Facilities ........................................................................62
Section 7.11 Taxes and Other Liabilities .......................................................63
Section 7.12 Governmental Approvals ............................................................63
Section 7.13 Compliance with Governmental Approvals and Governmental
Requirements ......................................................................63
Section 7.14 Compliance with Environmental Laws ................................................63
Section 7.15 Prevent Contamination .............................................................63
Section 7.16 Tax Qualification .................................................................64
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 7.17 Funding ...........................................................................64
Section 7.18 Financial Tests; Calculation Assumptions ..........................................64
Section 7.19 Health Care Related Matters .......................................................68
Section 7.20 Concentration Account .............................................................69
Section 7.21 Operating Leases ..................................................................69
Section 7.22 Subsidiary Control Documents ......................................................69
ARTICLE VIII NEGATIVE COVENANTS 70
Section 8.1 Mergers ...........................................................................70
Section 8.2 Change of Business ................................................................70
Section 8.3 Distributions .....................................................................70
Section 8.4 Accounting Policies ...............................................................71
Section 8.5 Investments .......................................................................71
Section 8.6 Liens .............................................................................71
Section 8.7 Guaranties ........................................................................71
Section 8.8 Indebtedness ......................................................................71
Section 8.9 Sale of Assets ....................................................................72
Section 8.10 Sale-Leaseback Transactions .......................................................72
Section 8.11 Capital Expenditures ..............................................................73
Section 8.12 Transactions with Affiliates ......................................................73
Section 8.13 Restrictive Agreements ............................................................73
Section 8.14 Prepayments .......................................................................73
Section 8.15 Certain ERISA Payments ............................................................73
Section 8.16 Compliance with ERISA .............................................................73
Section 8.17 Creation of Subsidiaries ..........................................................74
Section 8.18 Fundamental Changes ...............................................................74
ARTICLE IX EVENTS OF DEFAULT 74
Section 9.1 Events of Default .................................................................74
Section 9.2 Remedies ..........................................................................77
ARTICLE X THE AGENT 79
Section 10.1 Appointment and Authorization .....................................................79
Section 10.2 Delegation of Duties ..............................................................79
Section 10.3 Liability of Agent ................................................................79
Section 10.4 Reliance by Agent .................................................................80
Section 10.5 Notice of Default .................................................................80
Section 10.6 Credit Decision ...................................................................81
Section 10.7 Indemnification ...................................................................81
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 10.8 Agent in Individual Capacity ......................................................82
Section 10.9 Successor Agent ................................................................. 82
ARTICLE XI MISCELLANEOUS 82
Section 11.1 Successors and Assigns and Sale of Interests ......................................82
Section 11.2 No Implied Waiver .................................................................84
Section 11.3 Amendments and Waivers ............................................................84
Section 11.4 Remedies Cumulative ...............................................................85
Section 11.5 Severability ......................................................................85
Section 11.6 Costs, Expenses and Attorneys' Fees ...............................................85
Section 11.7 General Indemnification ...........................................................86
Section 11.8 Environmental Indemnification .....................................................86
Section 11.9 Notices ...........................................................................87
Section 11.10 Entire Agreement ..................................................................88
Section 11.11 Governing Law and Consent to Jurisdiction .........................................88
Section 11.12 Counterparts ......................................................................89
Section 11.13 Waiver Of Jury Trial ..............................................................89
Section 11.14 Headings ..........................................................................89
Section 11.15 Effect of Amendment and Restatement ...............................................89
</TABLE>
iv
<PAGE> 6
EXHIBITS
<TABLE>
<S> <C>
Exhibit 2.1 (c) Form of Request for Loan
Exhibit 2.1 (d)- 1 Form of Promissory Note
Exhibit 2.l(d)-2 Form of Subsidiary Note
Exhibit 3.1 (b) Request for Issuance of Letter of Credit
Exhibit 4.1-1 Form of Security Agreement
Exhibit 4.1-2 Form of Subsidiary Security Agreement
Exhibit 4.1-3 Form of Stock Pledge Agreement
Exhibit 4.1-4 Form of Concentration Account Pledge Agreement
Exhibit 4.2-1 Form of Subsidiary Guaranty
Exhibit 4.2-2 Form of Subsidiary Guaranty for Partially
Owned Subsidiaries
Exhibit 11. 1 Form of Assignment and Acceptance
</TABLE>
v
<PAGE> 7
SCHEDULES
<TABLE>
<S> <C>
Schedule 5.1 (i) Litigation
Schedule 6.2 List of Subsidiaries
Schedule 6.15 Intellectual Property
Schedule 6.18(i) ERISA Title IV Benefit Plans
Schedule 6.18(ii) Other Benefit Plans
Schedule 6.20 List of Insurance Policies
Schedule 6.21 Exceptions to Compliance with Laws
Schedule 6.26 Health Care Related Matters
Schedule 7.20 Bank Accounts
Schedule 8.5 Borrower's Corporate Investment Policy
Schedule 8.6 List of Existing Permitted Encumbrances
Schedule 8.8 List of Existing Indebtedness
</TABLE>
vi
<PAGE> 8
AMENDED AND RESTATED
CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of
January 30, 1998, by and among NEW AMERICAN HEALTHCARE CORPORATION, a Tennessee
corporation (the "Borrower"), TORONTO DOMINION (TEXAS), INC., as agent for the
financial institutions party hereto (in such capacity, the "Agent"), THE
TORONTO-DOMINION BANK, as Issuing Bank (in such capacity, the "Issuing Bank"),
and THE FINANCIAL INSTITUTIONS PARTY TO THIS AGREEMENT (collectively, the
"Banks"; individually, a "Bank") and amends and restates in its entirety that
certain Credit Agreement dated as of September 30, 1996 by and among the
Borrower, the Agent, the Issuing Bank and the Banks, as amended.
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS; ACCOUNTING TERMS
SECTION 1.1 DEFINITIONS.
In addition to any terms defined elsewhere in this Agreement, the
following terms have the meanings indicated for purposes of this Agreement (such
definitions being equally applicable to the singular and plural forms of the
defined term):
"ACCELERATION" means that the Loans (i) shall not have been paid at the
Final Maturity Date or (ii) shall have become due and payable prior to the Final
Maturity Date pursuant to SECTION 9.2 hereof.
"ACCOUNT" means any right to payment, whether or not it has been earned
by performance, for goods sold or leased or for services rendered in the
ordinary course of business which is not evidenced by an instrument (except as
part of chattel paper).
"AFFECTED BANK" has the meaning specified in SECTION 2.2(G) hereof.
"AFFILIATE" means, with respect to any Person, (i) each Person that,
directly or indirectly, owns or controls, whether beneficially or as a trustee,
guardian or other fiduciary, five percent (5%) or more of the outstanding
Capital Stock having ordinary voting power in the election of directors of such
Person, (ii) each Person that controls, is controlled by or is under common
control with such Person or any Affiliate of such Person, or (iii) each of such
Person's officers, directors, joint venturers and partners. For the purpose of
this definition, "control" of a Person shall mean the possession, directly or
indirectly, of the power to direct
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<PAGE> 9
or cause the direction of its management or policies, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" has the meaning specified in the heading to this Agreement.
"Agent's Fee Letter" means the letter from the Borrower to the Agent,
dated January 30, 1998, whereby the Borrower agrees to pay to the Agent the fees
specified therein for the Agent's performance of its responsibilities under this
Agreement.
"AGENT-RELATED PERSONS" has the meaning set forth in SECTION 10.3
hereof.
"AGGREGATE CREDIT OBLIGATIONS" means, as of any particular time, the
sum of (a) the aggregate principal amount of all Loans then outstanding, plus
(b) the aggregate amount of all Letter of Credit Obligations then outstanding.
"AGREEMENT" or "Credit Agreement" means this Amended and Restated
Credit Agreement, as may be from time to time further amended, modified or
supplemented.
"APPLICABLE LAW" shall mean, in respect of any Person, all provisions
of constitutions, statutes, rules, regulations, and orders of governmental
bodies or regulatory agencies applicable to such Person, and all orders and
decrees of all courts and arbitrators in proceedings or actions to which the
Person in question is a party or by which it is bound.
"APPRAISED VALUE" means, with respect to any real property to be
subjected to the Lien of a Mortgage, the value of such real property as
determined by an appraisal performed by an independent appraiser in accordance
with Applicable Law as of a date not more than ninety (90) days prior to the
date upon which such real property shall be so subjected to such Lien.
"ASSIGNEE" has the meaning specified in SECTION 11.1(B) hereof.
"ASSIGNMENT AND ACCEPTANCE" has the meaning specified in SECTION
11.1(B) hereof.
"ASSIGNOR" has the meaning specified in SECTION 11.1(B) hereof.
"AUTHORIZED REPRESENTATIVES" shall mean those officers, employees or
other persons designated by the Borrower in a certificate delivered to the Agent
as being authorized to request any Borrowing, to make any interest rate
designation on behalf of the Borrower hereunder, or to give the Agent any other
notice hereunder which is required or contemplated by the terms hereof.
"AVAILABLE COMMITMENT AMOUNT" means, as of any particular time, (a) the
Total Commitment Amount, minus (b) the Aggregate Credit Obligations then
outstanding.
"BANK INDEMNITEES" has the meaning set forth in SECTION 11.7 hereof.
"BANK" OR "BANKS" has the meaning specified in the heading of this
Agreement and any successors thereto.
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<PAGE> 10
"Banking Day" means a day other than a Saturday or a Sunday when
commercial banks are open for business in Houston, Texas and New York, New York
and, with respect to LIBOR Loans, when commercial banks are open for business in
London, England.
"Banks' Closing Fee Letter" means the letter dated January 30, 1998
from the Banks to the Borrower and accepted by the Borrower, whereby the
Borrower agrees to pay the upfront closing fees of the Banks specified therein.
"BASE LIBOR" shall mean, for any Interest Period pertaining to a LIBOR
Loan, the rate per annum at which the Agent or any Affiliate thereof is offered
dollar deposits in the interbank Eurodollar market at approximately 11:00 a.m.
(London time) two (2) Banking Days prior to the beginning of the Interest Period
for such Loan, for delivery on the first day thereof for the number of months
comprised therein and in an amount equal to the amount of the LIBOR Loan to be
outstanding during such Interest Period.
"Base Rate" means on any day the greater of the rate (rounded upwards
if necessary to the nearest whole one-sixteenth of one percent (0.0625%)) equal
to (a) the Prime Rate in effect on that day or (b) the Federal Funds Rate in
effect on that day, plus (in either, case) the applicable margin based upon the
Borrower's ratio of Funded Indebtedness to EBITDA as calculated in accordance
with SECTION 7.18(A)(I) as follows:
<TABLE>
<CAPTION>
Funded Applicable
Indebtedness/EBITDA Margin (bps)
------------------- ------------
<S> <C>
> 5.0 100.00
-
> 4.5 < 5.0 75.00
-
> 4.0 < 4.5 50.00
-
> 3.5 < 4.0 25.00
-
> 3.0 < 3.5 0
-
> 2.5 < 3.0 0
-
< 2.5 0
</TABLE>
"Base Rate Loans" means all Loans bearing interest at the Base Rate.
"Borrower" has the meaning specified in the heading to this Agreement.
"Borrowing" means an extension of a Loan by the Banks to the Borrower
pursuant to ARTICLE II hereof.
"CAPITAL EXPENDITURE" means any expenditure for the maintenance of
existing physical plants, furniture, fixtures and equipment and any other
expenditure that would be capitalized on the balance sheet of the Borrower
(consolidated with its Subsidiaries) as of the end of that period, in conformity
with GAAP, other than payment of the purchase price of any fixed assets in
connection with a Permitted Acquisition.
"CAPITAL STOCK" shall mean, as applied to any Person, any Capital Stock
of such Person, regardless of class or designation, and all warrants, options,
purchase rights,
3
<PAGE> 11
conversion or exchange rights, voting rights, calls or claims of any character
with respect thereto.
"CAPITALIZED LEASE" means any lease, under which the obligation of the
lessee is required by GAAP to be shown as a liability on the financial
statements of the lessee.
"CAPITALIZED LEASE OBLIGATION" means any lease obligation that, in
accordance with GAAP, is required to be shown as a liability on the financial
statements of the lessee. The amount of a Capitalized Lease Obligation shall be
the amount required by GAAP so to be shown.
"CASH MANAGEMENT POLICY" means the cash management policy of the
Borrower as in effect on the date hereof.
"CHANGE OF CONTROL" means the occurrence of any of the following
events: (a) all or substantially all of the assets of the Borrower are sold,
leased, exchanged or otherwise transferred to any Person or group of Persons
acting in concert as a partnership or other group; (b) the Borrower is merged or
consolidated with or into another corporation with the effect that either (i)
the common stockholders immediately prior to such merger or consolidation hold
directly or indirectly less than a majority of the ordinary voting power of the
outstanding securities of the surviving corporation of such merger or the
corporation resulting from such consolidation (the "new corporation") or (ii)
Robert M. Martin, Dana C. McLendon, Jr. and designees of Welsh Carson constitute
less than a majority of the directors of such surviving corporation or new
corporation; or (c) a Person or group (as such term is used in Rule 13d-5 under
the Securities Exchange Act of 1934) of Persons shall, as a result of a tender
or exchange offer, open market purchases, merger, privately negotiated purchases
or otherwise, have become, directly or indirectly, the beneficial owner (within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of
securities having twenty-five percent (25%) or more of the ordinary voting power
of the then outstanding securities of the Borrower.
"CLOSING DATE" means the date on which all of the conditions set forth
in SECTION 5.1 hereof have been satisfied or waived.
"COBRA" means Title X of the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended from time to time.
"Code" means the Internal Revenue Code of 1986, as amended.
"COLLATERAL" means, collectively, all of the assets and property
constituting collateral under the Security Agreements, the Concentration Account
Pledge Agreement, the Stock Pledge Agreements, the Mortgages or any document or
instrument executed pursuant thereto or under any of the other Loan Documents.
"COLLATERAL DOCUMENTS" means the Security Agreements, the Concentration
Account Pledge Agreement, the Stock Pledge Agreements, the Mortgages and any
other documents or instruments executed pursuant thereto.
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<PAGE> 12
"COMMITMENT" means the obligation of the Banks severally to extend
Loans to the Borrower pursuant to the terms and conditions of SECTION 2.1
hereof.
"COMMITMENT AMOUNT" means, with respect to each Bank, an amount equal
to such Bank's Commitment Percentage multiplied by the Total Commitment Amount.
"COMMITMENT FEE" shall mean the fee provided for in SECTION 2.2(c)
hereof.
"COMMITMENT PERCENTAGE" means the aggregate of the percentage set forth
after each Bank's signature at the end of this Agreement, plus the aggregate of
any Commitment Percentages thereafter acquired by such Bank as the Assignee and
minus any Commitment Percentages assigned by such Bank as the Assignor, and, as
to any new Bank, the aggregate of any Commitment Percentages acquired by such
new Bank as the Assignee less any Commitment Percentages assigned by such new
bank as Assignor.
"CONCENTRATION ACCOUNT" means an account with a financial institution
acceptable to the Agent into which substantially all cash receipts of the
Borrower and its Subsidiaries are deposited and with respect to which a Lien has
been placed on such account by the Agent on behalf of the Banks. As of the date
hereof, the Concentration Account is Account Number 4901309676 maintained at
NationsBank of Tennessee, N.A., Nashville, Tennessee, in the name of the
Borrower.
"CONCENTRATION ACCOUNT PLEDGE AGREEMENT" means the Amended and Restated
Concentration Account Pledge Agreement to be executed and delivered by the
Borrower in accordance with SECTION 4.1 hereof.
"CONSOLIDATED CAPITAL EXPENDITURES" means the aggregate Capital
Expenditures of the Borrower and its Subsidiaries.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, gross
consolidated interest expense for the period (including all commissions,
discounts, fees and other charges in connection with standby letters of credit
and similar instruments and such portion of payments under Capitalized Leases as
may be characterized as interest expense in accordance with GAAP) for the
Borrower and its Subsidiaries; plus the portion of the up-front costs and
expenses for Rate Contracts (to the extent not included in gross interest
expense) fairly allocated to such Rate Contracts as expenses for such period;
all as determined in accordance with GAAP.
"CONSOLIDATED LIABILITIES" means all liabilities of the Borrower and
its Subsidiaries that would, in accordance with GAAP, be required to be included
as liabilities on a consolidated balance sheet of the Borrower and its
Subsidiaries.
"CONSOLIDATED NET INCOME" means, for any period, the net income of the
Borrower and its Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP; provided, however, that in determining Consolidated Net
Income, there shall not be included in gross revenues any earnings of, and
dividends payable to, the Borrower or any of
5
<PAGE> 13
its Subsidiaries in a currency which at the time may not be converted into
Dollars under the laws of the nation issuing such currency.
"CONSOLIDATED NET REVENUE" means the net revenue of the Borrower and
its Subsidiaries on a consolidated basis.
"CONTROLLED GROUP" means the Borrower and all Persons (whether or not
incorporated) under common control or treated as a single employer with the
Borrower pursuant to Section 414(b) or (c) of the Code.
"DAYS SALES OUTSTANDING" means, as of any calculation date, (i)
Receivables divided by (ii) (a) Net Revenues for the three-month period ended on
the calculation date divided by (b) ninety (90).
"DEFAULT RATE" means the Prime Rate plus two percent (2.0%) per annum.
"DOLLARS" and "$" mean United States Dollars.
"DISTRIBUTION" means any dividend (in cash, securities or any other
form of property) on, or other payment or distribution on account of, any Equity
Interests of a Person.
"EBITDA" means, for any period, the sum of (a) Consolidated Net Income
for such period, plus (b) to the extent deducted in determining such
Consolidated Net Income, (i) extraordinary charges, (ii) consolidated
depreciation, amortization and interest (including the portion of payments under
any Capitalized Lease that may be characterized as interest) and (iii) federal,
state, local and foreign income taxes, minus (c) to the extent included in
determining such Consolidated Net Income, extraordinary gains.
"EBITDAR" means, for any period, the sum of (a) the Consolidated Net
Income for such period, plus (b) to the extent deducted in determining such
Consolidated Net Income, (i) extraordinary charges, (ii) consolidated
depreciation, amortization and interest (including the portion of payments under
a Capitalized Lease that may be characterized as interest), (iii) federal,
state, local and foreign income taxes and (iv) consolidated operating lease rent
expense for the Borrower and its Subsidiaries, minus (c) to the extent included
in determining such Consolidated Net Income, extraordinary gains.
"EMPLOYEE BENEFIT PLAN" means any Pension Plan or any other employee
benefit plan (as defined in Section 3(3) of ERISA) which any Borrower or any
member of the Controlled Group maintains, or to which it makes or is obligated
to make contributions.
"ENVIRONMENTAL CLAIM" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law or for release or injury
to the environment or threat to public health, personal injury (including
sickness, disease or death), property damage, natural resources damage, or
otherwise alleging liability or responsibility for damages (punitive or
otherwise), cleanup, removal, remedial or response costs, restitution, civil or
criminal penalties, injunctive
6
<PAGE> 14
relief, or other type of relief, resulting from or based upon (a) the presence,
placement, discharge, emission or release (including intentional and
unintentional, negligent and nonnegligent, sudden or non-sudden, accidental or
non-accidental placement, spills, leaks, discharges, emissions or releases) of
any Hazardous Material at, in or from property, whether or not owned by the
Borrower or any of its Subsidiaries, or (b) any other circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law.
"ENVIRONMENTAL LAWS" means any applicable Governmental Requirement
pertaining to land use, air, soil, surface water, groundwater (including the
protection, cleanup, removal, remediation or damage thereof), public or employee
health or safety or any other environmental matter, including, without
limitation, the following laws as the same may be amended from time to time:
(1) Clean Air Act (42 U.S.C. ss. 7401, et seq.);
(2) Clean Water Act (33 U.S.C. ss. 1251, et seq.);
(3) Resource Conservation and Recovery Act (42 U.S.C. ss. 6901,
et seq.)
(4) Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. ss. 9601, et seq.);
(5) Safe Drinking Water Act (42 U.S.C. ss. 300f, et seq.);
(6) Toxic Substances Control Act (15 U.S.C. ss. 2601, et seq.);
(7) Rivers and Harbors Act (33 U.S.C. ss. 401, et seq.);
(8) Endangered Species Act (16 U.S.C. ss. 1531, et seq.); and
(9) Occupational Safety and Health Act (29 U.S.C. ss. 651, et
seq.);
together with any other applicable foreign or domestic laws (federal, state,
provincial or local) relating to emissions, discharges, releases or threatened
releases of any Hazardous Substance into ambient air, land, surface water,
groundwater, personal property or structures, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, discharge or handling of any Hazardous Substance.
"ENVIRONMENTAL REPORT" means an environmental review and audit report
with respect to real property which is prepared by a consultant acceptable to
the Agent not more than ninety (90) days prior to the acquisition of such
property and which is satisfactory in all respects to the Agent.
"EQUITY INTERESTS" with respect to any Person shall mean indicia of
ownership generally entitling the holder to direct the management or policies of
such Person or to receive distributions of profits, including, without
limitation, shares of Capital Stock (in the case of a
7
<PAGE> 15
corporation), partnership interests (in the case of a general, limited or
limited liability partnership) or membership interests (in the case of a limited
liability company).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA AFFILIATED GROUP" means any entity that, together with the
Borrower or other member of the Controlled Group, is treated as a single
employer under Section 414(m) of the Code.
"EVENT OF DEFAULT" has the meaning set forth in SECTION 9.1 hereof.
"EXCESS CASH FLOW" means, for any fiscal year, Consolidated Net Income
(or loss) (excluding extraordinary gains and extraordinary losses) for such
fiscal year, plus (a) the sum of (i) depreciation and amortization for such
fiscal year, (ii) the non-cash portion, if any, of Interest Expense and (iii) an
amount equal to a decrease in consolidated working capital during such fiscal
year, minus (b) an amount equal to (i) Consolidated Capital Expenditures for
such fiscal year, (ii) the aggregate principal amount of all Indebtedness
required by its terms to be repaid during such fiscal year, (iii) the amount of
all taxes paid during such fiscal year, to the extent not deducted in
determining such Consolidated Net Income, (iv) an amount equal to any increase
in consolidated working capital during such fiscal year and (v) the aggregate
principal amount of Indebtedness hereunder voluntarily prepaid during such
fiscal year.
"EXCLUDED LEASES" means any lease (a) which has annual aggregate rental
payments of One Hundred Thousand Dollars ($100,000) or less, or (b) the loss of
which would not have a material adverse effect on the operation of the acute
care facilities of the Borrower and its Subsidiaries, or (c) for which there
does not exist any economic value between the market value of the space and the
rental payments made thereunder.
"FEDERAL FUNDS RATE" means, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Board (including any such
successor, "H.15(519)") for such day opposite the caption "Federal Funds
(Effective)." If on any relevant day such rate is not yet published in H.
15(519), the rate for such day will be the rate set forth in the daily
statistical release designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m.
Quotations") for such day under the caption "Federal Funds Effective Rate." If
on any relevant day the appropriate rate for such day is not yet published in
either H. 15(519) or the Composite 3:30 p.m. Quotations, the rate for such day
shall be the arithmetic mean of the rates for the last transaction in overnight
federal funds arranged prior to 9:00 a.m., New York City time, on that day by
each of three leading brokers of federal funds transactions in New York City,
selected by the Agent.
"FINAL MATURITY DATE" means December 31, 2003.
8
<PAGE> 16
"FUNDED INDEBTEDNESS" means, without duplication, all obligations,
liabilities and indebtedness of the Borrower and its Subsidiaries of the types
described in clauses (a) through (e) of the definition of Indebtedness.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and in the statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of the
date of determination.
"GOVERNMENTAL APPROVALS" means any consent, right, exemption,
concession, permit, license, authorization, certificate, order, franchise,
determination or approval of any federal, state, provincial, municipal or
governmental department, commission, board, bureau, agency or instrumentality
required for the ownership of or activities of the Borrower or any of its
Subsidiaries or any other Person in connection with the business of the Borrower
or any of its Subsidiaries.
"GOVERNMENTAL AUTHORITY" means any nation, state, province or other
political subdivision thereof or any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"GOVERNMENTAL REQUIREMENT" means all legal requirements in effect from
time to time, including all laws, statutes, codes, acts, ordinances, orders,
judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, certificates, orders, franchises, determinations, approvals,
notices, demand letters, directions and requirements of all governments,
departments, commissions, boards, courts, authorities, agencies, officials and
officers, and all instruments of record, foreseen or unforeseen, ordinary or
extraordinary, including, but not limited to, any change in any law or
regulation or the interpretation thereof by any foreign or domestic governmental
or other authority (whether or not having the force of law), relating now or at
any time heretofore or hereafter to the business or operations of the Borrower
or any of its Subsidiaries or to any of the property owned, leased or used by
the Borrower or any of its Subsidiaries, including, without limitation, the
development, design, construction, acquisition, start-up, ownership and
operation and maintenance of property.
"GUARANTY" OR "GUARANTEED," as applied to an obligation (each a
"primary obligation"), means (a) any guaranty, direct or indirect, in any
manner, of any part or all of such primary obligation, and (b) any agreement,
direct or indirect, contingent or otherwise, the practical effect of which is to
assure in any way the payment or performance (or payment of damages in the event
of non-performance) of any part or all of such primary obligation, including,
without limiting the foregoing, any reimbursement obligations as to amounts
drawn down by beneficiaries of outstanding letters of credit, and any obligation
of any Person, whether or not contingent, (i) to purchase any such primary
obligation or any property or asset constituting direct or indirect security
therefor, (ii) to advance or supply funds (A) for the purchase or payment of
such primary obligation or (B) to maintain working capital, equity
9
<PAGE> 17
capital or the net worth, cash flow, solvency or other balance sheet or income
statement condition of any other Person, (iii) to purchase property, assets,
securities or services primarily for the purpose of assuring the owner or holder
of any primary obligation of the ability of the primary obligor with respect to
such primary obligation to make payment thereof or (iv) otherwise to assure or
hold harmless the owner or holder of such primary obligation against loss in
respect thereof.
"HAZARDOUS SUBSTANCE" means any pollutant, contaminant, toxic or
hazardous substance, material, constituent or waste as such terms are defined in
or pursuant to any Environmental Law.
"HAZARDOUS WASTE FACILITY PERMIT" means any permit, license or other
governmental authorization relating to the storage, treatment or disposal of any
Hazardous Substance required pursuant to any Environmental Law.
"HCFA" means the Health Care Financing Administration of HHS and any
Person succeeding to the functions thereof.
"HEALTH FACILITY LICENSE" shall mean a license or permit under
Applicable Law to provide any nursing, medical or other health related services
or any combination of such services.
"HHS" means the United States Department of Health and Human Services
and any Person succeeding to the functions thereof.
"HIGHEST LAWFUL RATE" shall mean the maximum non-usurious interest
rate, if any, that at any applicable time may be contracted for, taken,
reserved, charged or received on any Loan or on the other amounts which may be
owing to any Bank pursuant to this Agreement under the laws applicable to such
Bank and this transaction.
"INCIPIENT DEFAULT" has the meaning set forth in Section 5.1(e) hereof.
"INDEBTEDNESS" of any Person means, without duplication (a) any
obligation for borrowed money; (b) any obligation evidenced by bonds,
debentures, notes or other similar instruments; (c) any obligation to pay the
deferred purchase price of property or services (other than in the ordinary
course of business); (d) any Capitalized Lease Obligation; (e) any obligation or
liability of others secured by a Lien on property owned by such Person, whether
or not such obligation or liability is assumed; (f) any obligation under any
Rate Contract; (g) any Guaranty; and (h) any other obligation or liability which
is required by GAAP to be shown as part of the Consolidated Liabilities on a
consolidated balance sheet of the Borrower and its Subsidiaries.
"INSOLVENCY PROCEEDING" means (a) any case, action or proceeding before
any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution, winding-up
or relief of debtors or (b) any general assignment for the
10
<PAGE> 18
benefit of creditors, composition, marshalling of assets for creditors or other
similar arrangement.
"INTELLECTUAL PROPERTY RIGHTS" has the meaning set forth in SECTION
6.15 hereof.
"INTEREST COVERAGE RATIO" means the ratio of (a) EBITDAR minus the
Maintenance Capital Expenditure Limit, to (b) Interest Expense plus consolidated
operating lease rent expense of the Borrower and its Subsidiaries.
"INTEREST EXPENSE" means, for any period, the cash interest expense and
letter of credit fee expense of the Borrower and its Subsidiaries determined on
a consolidated basis for such period.
"INTEREST PERIOD" means, with respect to any LIBOR Loan, a period from
the borrowing date with respect to such Loan (or the date of the expiration of
the then current Interest Period with respect to such Loan) to a date up to one
(1), two (2), three (3) or six (6) months thereafter, subject to the following:
(a) if any Interest Period would otherwise end on a day which is not a
Banking Day, that Interest Period shall be extended to the next succeeding
Banking Day, unless the result of such extension would be to extend such
Interest Period into another calendar month, in which event such Interest Period
shall end on the immediately preceding Banking Day;
(b) any Interest Period which begins on a day for which there is no
numerically corresponding day in the calendar month during which such Interest
Period is to end shall (subject to SUBPARAGRAPH (A) above) end on the last day
of such calendar month; and
(c) any Interest Period that would otherwise extend beyond the Final
Maturity Date shall end on the Final Maturity Date or, if the Final Maturity
Date shall not be a Banking Day, on the next preceding Banking Day.
"INVENTORY" means all goods intended for sale or lease or furnished or
to be furnished under contracts of service or used or consumed in the business
of the Borrower or any of its Subsidiaries, including, without limitation, all
raw materials, work in process and finished goods or materials, together with
all supplies of any kind, nature or description which are or might be used in
connection with the manufacture, packing, shipping, advertisement, sale or
finishing of such goods, and all documents of title or documents representing,
covering or evidencing any of the foregoing.
"INVESTMENT," as applied to any Person, means any direct or indirect
ownership or purchase or other acquisition by that Person of any Capital Stock,
equity interest, obligations or other securities, or of a beneficial interest in
any Capital Stock, equity interest, obligations or other securities, or all or
substantially all of the assets of any other Person (including any Subsidiary),
or any direct or indirect loan, advance (other than advances to officers and
employees for moving and travel expenses, drawing accounts and similar
expenditures in the ordinary course of business) or capital contribution by that
Person to any other Person,
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<PAGE> 19
including all indebtedness and accounts receivable from that other Person which
are not current assets or did not arise from sales to that other Person in the
ordinary course of business.
"ISSUING BANK" shall mean The Toronto-Dominion Bank and any other
Person which The Toronto-Dominion Bank may hereafter designate as the successor
Issuing Bank pursuant to an Assignment and Acceptance or otherwise.
"JCAHO" means the Joint Commission on Accreditation of Healthcare
Organizations.
"KEY CONTRACTS" has the meaning set forth in SECTION 6.14 hereof.
"LETTER OF CREDIT" means a Letter of Credit issued by Issuing Bank on
behalf or for the account of the Borrower from time to time in accordance with
ARTICLE III hereof.
"LETTER OF CREDIT COMMITMENT" means the obligation of the Issuing Bank
to issue Letters of Credit on behalf of the Banks from time to time in an
aggregate face amount not to exceed Five Million Dollars ($5,000,000). The Banks
shall participate in such Letters of Credit in an amount equal to their
respective Commitment Percentages.
"LETTER OF CREDIT FEE" means the fee provided for in Section 3.4(a)
hereof.
"LETTER OF CREDIT OBLIGATIONS" means, at any time, the sum of (a) an
amount equal to the aggregate undrawn and unexpired amount (including the amount
to which any such Letter of Credit can be reinstated pursuant to the terms
thereof) of the then outstanding Letters of Credit and (b) an amount equal to
the aggregate outstanding and unreimbursed drawings on any Letters of Credit.
"LETTER OF CREDIT RESERVE ACCOUNT" means any account maintained by the
Agent for the benefit of the Issuing Bank, the proceeds of which shall be
applied as provided SECTION 9.2(D) hereof.
"LIBOR LOAN" means any Loan bearing interest at the LIBOR Rate.
"LIBOR RATE" means the rate (rounded upwards if necessary to the
nearest whole one-sixteenth of one percent (0.0625%)) equal to (a) the product
of Base LIBOR times Statutory Reserves, plus (b) the applicable LIBOR margin
based upon the Borrower's ratio of Funded Indebtedness to EBITDA as calculated
in accordance with SECTION 7.18(A)(I) as follows:
12
<PAGE> 20
<TABLE>
<CAPTION>
Funded Indebtedness/EBITDA LIBOR (bps)
-------------------------- -----------
<S> <C>
> 5.0 250.00
-
> 4.5 < 5.0 225.00
-
> 4.0 < 4.5 200.00
-
> 3.5 < 4.0 175.00
-
> 3.0 < 3.5 150.00
-
> 2.5 < 3.0 125.00
-
< 2.5 100.00
</TABLE>
"LIEN" means any mortgage, deed of trust, pledge, hypothecation,
assignment, charge or deposit arrangement, encumbrance, lien (statutory or
other) or preference, priority or other security interest or preferential
arrangement of any kind or nature whatsoever (including, without limitation,
those created by, arising under or evidenced by any conditional sale or other
title retention agreement, the interest of a lessor under a Capitalized Lease,
any financing lease having substantially the same economic effect as any of the
foregoing, or the filing of any financing statement naming the owner of the
asset to which such lien relates as debtor, under the UCC or any comparable law,
but excluding therefrom any financing statement filed by a lessor under an
operating lease not intended as security) and any contingent or other agreement
to provide any of the foregoing.
"LOAN" has the meaning set forth in SECTION 2.1(A) hereof (including
any and all Base Rate Loans and LIBOR Loans), and "LOANS" means all such Loans
at any time outstanding.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Subsidiary Notes,
the Security Agreements, the Mortgages, the Subsidiary Guaranties, the Stock
Pledge Agreements, the Concentration Account Pledge Agreement, reimbursement
agreements relating to Letters of Credit, Rate Contracts under which any of the
Agent or the Banks (or any Affiliate of the Agent or a Bank) is the
counterparty, the Agent's Fee Letter, the Banks' Closing Fee Letter and all
other agreements, instruments and documents (including, without limitation,
security agreements, loan agreements, notes, fee agreements, guaranties,
mortgages, deeds of trust, subordination agreements, pledges, assignments of
intellectual property, powers of attorney, consents, assignments, contracts,
notices, leases, financing statements, certificates, reports, notices and all
other writings) heretofore, now or hereafter executed by, on behalf of or for
the benefit of the Borrower or any of its Subsidiaries and delivered to the
Agent, the Issuing Bank or any of the Banks pursuant to or in connection with
this Agreement or the transactions contemplated hereby, together with all
amendments, modifications and supplements thereto.
"LOAN REQUEST" has the meaning set forth in SECTION 2.1(C) hereof.
"MAINTENANCE CAPITAL EXPENDITURE LIMIT" means an amount equal to One
Hundred Thousand Dollars ($100,000) multiplied by the aggregate number of acute
care facilities owned by the Borrower and its Subsidiaries.
"MAJORITY BANKS" means at any time Banks holding at least sixty-six and
two-thirds percent (66-2/3%) of the then aggregate outstanding principal amount
of the Loans, or, if no
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<PAGE> 21
such principal amount is then outstanding, Banks having at least sixty-six and
two-thirds percent (66-2/3%) of the Commitment Percentages.
"MATERIAL ADVERSE CHANGE" shall mean a material adverse change in (a)
the business, assets, operations, prospects or financial condition of the
Borrower and its Subsidiaries considered as a whole, (b) the collective ability
of the Borrower and its Subsidiaries to pay the Obligations in accordance with
their terms, or (c) the security interests or liens of the Agent, the Issuing
Bank and the Banks in or on the Collateral or the priority of such security
interests or liens.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, assets, operations, or financial condition of the Borrower and its
Subsidiaries considered as a whole, (b) the collective ability of the Borrower
and its Subsidiaries to pay the Obligations in accordance with their terms, or
(c) the security interests or liens of the Agent, the Issuing Bank and the Banks
in or on the Collateral or the priority of such security interests or liens.
"MATURITY" means any date on which a Loan or any portion thereof
becomes due and payable whether as stated, by virtue of mandatory prepayment, by
Acceleration or otherwise.
"MEDICAID CERTIFICATION" shall mean the certification by the applicable
state Medicaid agency or its successor that a facility complies with all the
requirements for participation set forth in the Medicaid Regulations.
"MEDICAID PROVIDER AGREEMENT" shall mean an agreement entered into with
a state Medicaid agency or its successor or other such entity administering the
Medicaid program pursuant to which the agency agrees to pay for covered services
provided by a facility to eligible Medicaid recipients in accordance with the
terms of such agreement and the Medicaid Regulations.
"MEDICAID REGULATIONS" shall mean collectively (a) all Federal statutes
(whether set forth in Title XIX of the Social Security Act or elsewhere)
affecting the medical assistance program established by Title XIX of the Social
Security Act (42 U.S.C. ss.ss. 1396, et seq .); (b) all applicable provisions of
all federal rules, regulations, manuals, final orders and administrative,
reimbursement and other guidelines of all Governmental Authorities (whether or
not having the force of law) promulgated pursuant to or in connection with the
statutes described in clause (a) above; (c) all state statutes and regulations
and plans for medical assistance enacted in connection with the statutes and
provisions described in clauses (a) and (b) above; and (d) all applicable
provisions of all rules, regulations, manuals, final orders and administrative,
reimbursement and other applicable guidelines of all Governmental Authorities
(whether or not having the force of law) promulgated pursuant to or in
connection with any of the foregoing.
"MEDICARE CERTIFICATION" shall mean certification by HCFA or a state
agency or entity under contract with HCFA that a facility complies with all the
applicable requirements for participation set forth in the Medicare Regulations.
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<PAGE> 22
"MEDICARE PROVIDER AGREEMENT" shall mean an agreement entered into with
HCFA or a state agency under contract with HCFA under which HCFA agrees to pay
for covered services provided by a facility to Medicare beneficiaries in
accordance with the terms of such agreement and the Medicare Regulations.
"MEDICARE REGULATIONS" shall mean collectively all Federal statutes
(whether set forth in Title XVIII of the Social Security Act or elsewhere)
affecting the health insurance program for the aged and disabled established by
Title XVIII of the Social Security Act (42 U.S.C. ss.ss. 1395, et seq.),
together with all applicable provisions of all rules, regulations, manuals,
final orders and administrative, reimbursement and other applicable guidelines
of all Governmental Authorities, including HHS, HCFA or the Office of the
Inspector General of HHS, or any Person succeeding to the functions of any of
the foregoing (whether or not having the force of law).
"MINORITY HOLDERS" means the holders (other than the Borrower or any
Wholly-Owned Subsidiary) of Equity Interests in a Partial Subsidiary.
"Moody's" means Moody's Investors Service, Inc. and any successor
thereto that is a nationally recognized rating agency.
"MORTGAGES" means the mortgages, leasehold mortgages, deeds of trust or
other similar instruments, in form satisfactory to the Agent, to be executed and
delivered by the Borrower, its Subsidiaries and their respective Subsidiaries in
accordance with SECTION 4.1 hereof.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) and to which the Borrower or any other member of
the Controlled Group makes, is obligated to make or at any time since December
31, 1988 has made or been obligated to make contributions.
"Net Assets" means, with respect to the Borrower on a consolidated
basis, the aggregate amount of all items categorized as assets on the
consolidated balance sheet of the Borrower under GAAP.
"NET CASH PROCEEDS" means, with respect to any sale, lease, transfer or
other disposition of assets or securities by the Borrower or any of its
Subsidiaries, the aggregate amount of cash received for such assets or
securities, net of reasonable and customary transaction costs properly
attributable to such transaction and payable by the Borrower or such Subsidiary
in connection with such sale, lease, transfer or other disposition of assets or
securities, including, without limitation, sales commissions.
"NET REVENUES" means gross revenues of the Borrower on a consolidated
basis with its Subsidiaries less contractual adjustments thereto.
"NET WORTH" means, at any time, with respect to the Borrower on a
consolidated basis, the excess of Net Assets over Indebtedness.
15
<PAGE> 23
"NOTES" has the meaning set forth in Section 2.1(d)(i) hereof.
"OBLIGATIONS" means all loans, advances, debts, liabilities,
obligations, covenants and duties owing to the Agent or the Banks by the
Borrower or any of its Subsidiaries of any kind or nature, present or future,
whether or not evidenced by any note, guaranty or other instrument, arising
under this Agreement or any of the other Loan Documents, whether or not for the
payment of money, arising by reason of an extension of credit, absolute or
contingent, due or to become due, now existing or hereafter arising, including
all principal, interest, charges, expenses, fees, attorneys' fees and
disbursements and any other sum chargeable to the Borrower or any of its
Subsidiaries under this Agreement or any other Loan Document.
"ORIGINAL AGREEMENT" means that certain Credit Agreement dated as of
September 30, 1996, by and among the Borrower, the Agent, the Issuing Bank and
the Banks, as amended.
"ORIGINAL CLOSING DATE" means the date on which the obligation of the
Banks to undertake the Commitment occurred under the Original Agreement.
"ORIGINAL MORTGAGES" shall have the meaning set forth in SECTION 4.1
(B).
"ORIGINAL NOTES" means those promissory notes evidencing the Borrower's
obligations to repay all loans made by the Banks pursuant to the Original
Agreement.
"PARTIAL SUBSIDIARY" shall mean any Subsidiary which is not a
Wholly-Owned Subsidiary.
"PARTICIPANT" has the meaning set forth in SECTION 11.1(E) hereof.
"PBGC" means the Pension Benefit Guaranty Corporation and any successor
to all or any part of such corporation's functions under ERISA.
"PENSION PLAN" means any Multiemployer Plan or any other employee
pension benefit plan (as defined in Section 3(2) of ERISA) that is subject to
Title IV of ERISA and which the Borrower or any member of the Controlled Group
maintains, or to which it makes, is obligated to make or at any time during the
preceding five calendar years has made or has been obligated to make
contributions.
"PERMITTED ACQUISITIONS" means any acquisition by the Borrower or one
of its Subsidiaries of all or substantially all of the Capital Stock of a
corporation, all or substantially all of the ownership interests in any
partnership or joint venture, all or substantially all of the operating assets
of any Person, or assets which constitute all or substantially all of the assets
of a division or a separate or separable line of business, provided that:
(i) the Borrower or its Subsidiary, as the case may be, is the
surviving entity in any acquisition involving a merger, reorganization
or recapitalization;
16
<PAGE> 24
(ii) the corporation, partnership, operating assets or line of
business acquired is in a line of business consistent with the business
plan of the Borrower and its then current Subsidiaries;
(iii) no Event of Default or Incipient Default shall exist at
the time of such acquisition or would result on a pro forma basis after
completion of such acquisition;
(iv) not less than ten (10) days prior to such acquisition,
the Agent shall have received an Environmental Report with respect to
any real property to be so acquired;
(v) contemporaneously with the closing of such acquisition,
the Agent shall have received such documents and instruments as may be
necessary to grant or confirm to the Agent a Lien on or security
interest in all of the assets so acquired and all proceeds and revenues
therefrom, including, one or more Mortgages with respect to any real
property or leasehold interest in real property so acquired and (in
case a Subsidiary is created or acquired in connection with such
Permitted Acquisition) a Stock Pledge Agreement (or addendum to a
previously executed Stock Pledge Agreement), a Subsidiary Guaranty, a
Security Agreement and (to the extent applicable) a Subsidiary Note,
and shall have received a title insurance policy with respect to any
real property so acquired which is substantially similar to the title
insurance policies delivered pursuant to SECTION 5.10)(ii)(B) hereof
and, to the extent applicable, landlord's waivers from landlords in any
ground leases so acquired which shall be in form and substance
satisfactory to the Agent;
(vi) the Agent shall have received a certificate of an
Authorized Representative (to be delivered to the Agent not less than
ten (10) days prior to such acquisition) setting forth in reasonable
detail the calculations necessary to show compliance with the financial
ratios set forth in SECTION 7.18 hereof for the twelve (12) months
immediately preceding the date of the acquisition, assuming that the
proposed acquisition had occurred on the first day of the first month
of such twelve (12) month period; provided, however, EBITDA of any
acute care facility or related business previously acquired by the
Borrower or any of its Subsidiaries without the approval of the Banks
holding at least seventy-five percent (75%) of the then outstanding
principal amount of the Loans or, if no such principal amount is then
outstanding, the Banks having at least seventy-five percent (75 %) of
the Commitment Percentages, shall not be taken into account for
purposes of calculating the ratio of Funded Indebtedness TO EBITDA
PURSUANT TO SECTION 7.18(a)(i) hereof unless agreed to by the aforesaid
percentage of Banks. For purposes of calculating EBITDA pursuant to
this SUBPARAGRAPH (vi), with the prior consent of the Agent (which
consent shall not be unreasonably withheld), any expenses (and other
items) that will be immediately realized upon consummation of the
acquisition (or immediately thereafter) may be excluded from
calculation of EBITDA;
17
<PAGE> 25
(vii) not less than ten (10) days prior to such acquisition,
the Agent shall have received historical and pro forma financial
statements for the entity or line of business to be acquired;
(viii) the Agent and the Banks shall have had the opportunity
to conduct an inspection of the entity or line of business to be
acquired; and
(ix) any such acquisition with a Purchase Price in excess of
Twelve Million Five Hundred Thousand Dollars ($12,500,000), or in which
the Borrower acquires less than One Hundred Percent (100%) of the
Equity Interests, shall be approved by the Agent, and any such
acquisition with a Purchase Price in excess of Twenty Million Dollars
($20,000,000) shall be approved by the Majority Banks; provided,
however, that in the event that the Purchase Price of acquisitions in
any twelve (12) month period exceed Thirty-Million Dollars
($30,000,000) in the aggregate, then all subsequent acquisitions shall
be approved by the Majority Banks; provided, further, that in the event
that no portion of the purchase price to be paid in connection with
such acquisition is to be funded with the proceeds of any Loan, this
SUBPARAGRAPH (ix) SHALL not be applicable to such acquisition; such
documentation provided PURSUANT TO SUBPARAGRAPHS (iv), (vi) AND (vii)
above to be delivered to the Agent not less than ten (10) days prior to
such acquisition).
"PERMITTED ENCUMBRANCES" means: (a) carriers', warehousemen's,
mechanics', landlords, materialmen, suppliers', tax, assessment, governmental
and other like liens and charges arising in the ordinary course of business
securing obligations that are not incurred in connection with the obtaining of
any advance or credit and which are not more than thirty (30) days overdue, or
are being contested in good faith by appropriate proceedings, provided that, in
accordance with GAAP, adequate reserves have been established; (b) liens arising
in connection with worker's compensation, unemployment insurance, appeal and
release bonds and progress payments under government contracts; (c) judgment
liens with respect to which execution has been stayed, or the appeal period for
which has not expired, or the payment of which is covered in full by insurance
(as certified by an Authorized Representative; (d) zoning restrictions,
easements, licenses or other restrictions on the use of real property, so long
as the same do not materially impair the use of such real property by the
Borrower or any of its Subsidiaries or the value thereof to the owner of such
real property; (e) any lien existing or arising by operation of law in the
ordinary course of business, such as a "banker's lien" or similar right of
offset; (f) liens on the property of the Borrower or any of its Subsidiaries
securing (i) the performance of bids, trade contracts (other than for borrowed
money), leases, statutory obligations, (ii) obligations on surety and appeal
bonds, and (iii) other obligations of a like nature incurred in the ordinary
course of business, provided that all such Liens in the aggregate have no
reasonable likelihood of causing a Material Adverse Effect; (g) liens covering
equipment (including liens in favor of a lessor under a Capitalized Lease),
whether or not such equipment was purchased or leased by the Borrower or any of
its Subsidiaries or assumed in connection with a Permitted Acquisition, which
liens secure purchase money financing for such equipment, provided that any such
lien covers only the equipment so acquired; (h) liens identified on SCHEDULE 8.6
attached hereto; (i) liens and security
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<PAGE> 26
interests securing payment of the Obligations granted pursuant to any of the
Loan Documents; (j) liens encumbering assets (other than receivables) acquired
(whether directly through the purchase of assets or by acquisition of the
Capital Stock of a corporation or ownership interests in a partnership or joint
venture) in a Permitted Acquisition which were not incurred or created in
connection with or in contemplation of such Permitted Acquisition, provided that
the aggregate book value of any assets subject to liens permitted by this clause
(j) shall not exceed five percent (5%) of the Borrower's total assets; (k) any
renewals or extensions of any of the liens referred to in any of the foregoing
clauses (g), (h), (i), or (j), provided that by any such renewal or extension no
lien is extended to additional property and that no monetary amount secured by
any such lien is increased; (l) any other lien or security interest securing
payment of a determinable amount which is not overdue and which, when added to
all other liens covered by this clause (l), does not exceed One Million Dollars
($1,000,000); and (m) liens in favor of any Wholly-Owned Subsidiary of Borrower,
provided such Subsidiary has executed an intercreditor agreement subordinating
such liens to the liens of the Banks and otherwise in form and substance
acceptable to the Agent in its sole discretion.
"PERMITTED PURPOSES" means the purposes for which Loans may be used or
Letters of Credit issued. The Permitted Purposes are as follows: (a) to make
Permitted Acquisitions; and (b) to provide funds for general corporate purposes,
including (but not limited to) initial and ongoing working capital, the
completion of any construction or development projects at acute care facilities
or related businesses acquired by the Borrower or any of its Subsidiaries which
are in progress on the date of acquisition, and capital improvements to acute
care facilities or related businesses acquired by the Borrower or any of its
Subsidiaries which are made after the date of acquisition; provided that (y) the
outstanding aggregate principal amount of all Loans made for working capital
purposes shall not exceed Ten Million Dollars ($10,000,000) and (z) the
aggregate face amount of all Letters of Credit shall not exceed Five Million
Dollars ($5,000,000) at any one time, as certified by the Borrower as a
condition for the making of any Loan for working capital purposes or the
issuance of any Letter of Credit.
"PERSON" means any individual, corporation, partnership, trust,
association or other entity or organization, including any government, political
subdivision, agency or instrumentality thereof.
"PRIME RATE" shall be the rate most recently announced by The
Toronto-Dominion Bank as its "Prime Rate." Prime Rate is a base rate which
serves as the basis upon which effective rates of interest are calculated for
those loans making reference thereto, and is evidenced by the reporting thereof
after its announcement in such internal publication or publications as the Agent
may designate. Any change in the interest rate resulting from a change in such
Prime Rate shall become effective as of 12:01 a.m. of the Banking Day on which
each change in Prime Rate is announced by The Toronto-Dominion Bank.
"PURCHASE PRICE" as used in the definition of Permitted Acquisitions,
means (i) cash paid to the seller in consideration of such acquisition, (ii)
long-term indebtedness of the seller assumed by the Borrower or its Subsidiary
in consideration of such acquisition, (iii) initial
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<PAGE> 27
working capital and (iv) initial capital expenditures identified as such on the
purchase date and made within twelve months of such date.
"RATE CONTRACTS" means interest rate and currency swap agreements, cap,
floor and collar agreements, interest rate insurance, currency spot and forward
contracts and other agreements or arrangements designed to provide protection
against fluctuations in interest or currency exchange rates.
"RECEIVABLES" shall mean any right to payment, whether or not it has
been earned by performance, for goods sold or leased or for services rendered in
the ordinary course of business, after adjustment for estimated settlements with
third party payors.
"REPLACEMENT BANK" has the meaning set forth in SECTION 2.2(G) hereof.
"REPORTABLE EVENT" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder other than a Reportable Event as
to which the provision of thirty (30) days notice to the PBGC is waived under
applicable regulations. In addition, a Reportable Event means a withdrawal from
a plan described in Section 4063 of ERISA or a cessation of operations described
in Section 4062(e) of ERISA, if such withdrawal or cessation could reasonably be
expected to result in a liability of the Borrower or member of the Controlled
Group to the PBGC, to a trustee or to a Multiemployer Plan in an aggregate
amount of One Million Dollars ($1,000,000) or more.
"RESPONSIBLE OFFICER" means the Borrower's Chief Executive Officer,
Senior Vice President, Finance and Administration, or Treasurer.
"REVOLVING TERMINATION DATE" means December 31, 2000 or such earlier
date, if any, that the Total Commitment Amount is reduced to zero pursuant to
Section 2.1(b) hereof.
"S&P" means Standard & Poor's, a division of The McGraw-Hill
Companies, and any successor thereto that is a nationally recognized rating
agency.
"SALE-LEASEBACK TRANSACTION" means an arrangement relating to property
now owned or hereafter acquired whereby the Borrower or one of its Subsidiaries
transfers such property to a Person and the Borrower or one of its Subsidiaries
leases it from such Person.
"Security Agreements" means the Amended and Restated Security
Agreement to be executed and delivered by the Borrower and the Security
Agreements to be executed and delivered by its Subsidiaries and their respective
Subsidiaries in accordance with Section 4.1 hereof.
"SENIOR INDEBTEDNESS" means all Funded Indebtedness other than the
Welsh Carson Subdebt.
"SOLVENT" means, when used with respect to any Person, that at the
time of determination:
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<PAGE> 28
(i) the fair value of its assets (both at fair valuation and
at present fair salable value) is in excess of the total amount of all
of its debts and liabilities, including contingent, subordinated,
unmatured and unliquidated liabilities; and
(ii) it is then able to pay its debts as they become due; and
(iii) it owns property having a value (both at fair valuation
and at present fair salable value) in excess of the total amount
required to pay its debts; and
(iv) it has capital sufficient to carry on its business.
"STATUTORY RESERVES" means a fraction (expressed as a decimal), the
numerator of which is the number one (1) and the denominator of which is the
number one (1) minus the aggregate of the maximum reserve percentages
(including, without limitation, any marginal, special, emergency or supplemental
reserves, and expressed as a decimal) established by the Federal Reserve Board
or any other United States banking authority to which the Agent or any Bank is
subject for Eurocurrency Liabilities (as defined in Regulation D of the Federal
Reserve Board). Such reserve percentages shall include, without limitation,
those imposed under said Regulation D. LIBOR Loans shall be deemed to constitute
Eurocurrency Liabilities and as such shall be deemed to be subject to such
reserve requirements without benefit of or credit for proration, exceptions or
offsets which may be available from time to time to the Banks under said
Regulation D. Statutory Reserves shall be adjusted automatically on and as of
the effective date of any change in any reserve percentage.
"STOCK PLEDGE AGREEMENTS" means the Amended and Restated Stock Pledge
Agreements to be executed and delivered by the Borrower and its Subsidiaries in
accordance with SECTION 4.1 hereof.
"SUBSIDIARY" of a Person means any corporation, partnership, joint
venture, association or other business entity of which such Person now or
hereafter owns, directly or indirectly, securities or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other governing body thereof. References herein to Subsidiaries of the Borrower
shall, unless otherwise specifically provided, include any Subsidiaries of the
Borrower's Subsidiaries, whether now or hereafter acquired.
"SUBSIDIARY GUARANTIES" means the Guaranty Agreements to be executed
and delivered by all Subsidiaries of the Borrower in accordance with SECTION 4.2
hereof.
"SUBSIDIARY NOTE" has the meaning set forth in SECTION 2.1(d)(ii)
hereof.
"TENET HOSPITALS" means the following acute care facilities and related
assets purchased by Borrower (or its Affiliates) from certain subsidiaries of
Tenet Healthcare Corporation: Lander Valley Medical Center (Lander, Wyoming),
Davenport Medical Center (Davenport, Iowa), Eastmoreland General Hospital
(Portland, Oregon) and Woodland Park Hospital (Portland Oregon).
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<PAGE> 29
"TOTAL COMMITMENT AMOUNT" means, as of any date, subject to SECTION
2.1(b) hereof, an amount equal to One Hundred Thirty-Two Million Five Hundred
Thousand Dollars ($132,500,000).
"UCC" means the Uniform Commercial Code as in effect in the relevant
jurisdiction.
"WCAS" means WCAS Capital Partners III, L.P.
"WCAS SUBDEBT" means the subordinated Indebtedness loaned by WCAS to
the Borrower pursuant to SECTION 5.1(p) hereof.
"Welsh Carson" means Welsh, Carson, Anderson & Stowe VII, L.P., WCAS
Healthcare Partners, L.P. and related parties.
"WELSH CARSON SUBDEBT" means (a) the WCAS Subdebt, and (b) any
subsequent loans of subordinated Indebtedness by WCAS or Welsh Carson.
"WHOLLY-OWNED SUBSIDIARY" shall mean any Subsidiary as to which all of
the Equity Interests are held by the Borrower or a Wholly-Owned Subsidiary of
the Borrower.
SECTION 1.2 ACCOUNTING TERMS.
Each accounting term not defined herein and each accounting term partly
defined herein to the extent not defined shall have the meaning given to it
under GAAP.
ARTICLE II
LOANS
SECTION 2.1 REVOLVING CREDIT.
(a) Revolving Loans. Subject to the terms and conditions of this
Agreement, each Bank severally agrees to make loans to the Borrower on a
revolving basis (each herein called a "Loan"), from time to time until the
Revolving Termination Date, in an aggregate principal amount not to exceed at
any time outstanding such Bank's Commitment Amount. The Borrower shall use the
proceeds of the Loans exclusively for Permitted Purposes. The Loans shall
consist of one or more Base Rate Loans and LIBOR Loans, subject to SECTION
2.2(a) hereof. All of the Loans shall mature on the Final Maturity Date. Subject
to the terms and conditions of this Agreement, Loans which are prepaid may be
reborrowed in whole or in part prior to the Revolving Termination Date. Each
Borrowing of a Base Rate Loan hereunder shall be in a principal amount equal to
an integral multiple of One Hundred Thousand Dollars ($100,000) and in a minimum
principal amount of Five Hundred Thousand Dollars ($500,000), and each Borrowing
of a LIBOR Loan hereunder shall be in a principal amount equal to an integral
multiple of One Million Dollars ($1,000,000) and in a minimum principal amount
of Five Million Dollars ($5,000,000).
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<PAGE> 30
(b) Commitment Limits. The aggregate principal amount of Loans
outstanding shall not at any one time exceed the Total Commitment Amount minus
the Letter of Credit Obligations, and the Banks shall have no obligation to make
any Loan if, after giving effect thereto, the Available Commitment Amount would
be less than zero. The Borrower may reduce the Total Commitment Amount upon not
less than five (5) Banking Days telephone notice, confirmed by an Authorized
Representative on the date of such notice by electronic facsimile transmission,
to the Agent and by repaying to the Agent for the account of the Banks the
principal amount of any Loans outstanding in excess of such reduced amount. Any
such reduction shall be permanent and shall (unless reducing the Total
Commitment Amount to zero) be in an amount equal to at least Five Million
Dollars ($5,000,000) and be an integral multiple of One Million Dollars
($1,000,000).
(c) Borrowing Procedures. For any proposed Borrowing which is to be a
Base Rate Loan, an Authorized Representative shall give the Agent telephone
notice not later than 11:00 a.m. (Houston, Texas time) on the Banking Day of the
proposed Borrowing, confirmed by a written borrowing request in substantially
the form attached hereto as EXHIBIT 2.1(c) (a "Loan Request"), executed by an
Authorized Representative and received by the Agent by facsimile on the day of
such telephone notice. For any proposed Borrowing which is to consist of at
least one (1) LIBOR Loan, an Authorized Representative shall give the Agent
telephone notice not later than 11: 00 a.m. (Houston, Texas time) at least three
(3) Banking Days prior to the date of the proposed Borrowing, confirmed by a
Loan Request executed by an Authorized Representative and received by the Agent
by facsimile on the day of such telephone notice. Upon receipt by the Agent of
the Loan Request, the Agent shall promptly notify each Bank of the proposed
Borrowing, including the date and amount thereof. Each Bank will make an amount
equal to its respective Commitment Percentage of such Borrowing available to the
Agent for the account of the Borrower at the office specified by the Agent in
SECTION 11.9 hereof for payment to the Borrower by 2:00 p.m. (Houston, Texas
time) on the borrowing date requested by the Borrower. Unless any applicable
condition specified in ARTICLE V hereof has not been satisfied, the proceeds of
all such Loans will then be made available to the Borrower by the Agent at such
office by crediting the account of the Borrower with the aggregate of the
amounts made available to the Agent by the Banks in like funds as received by
the Agent.
(d) Notes.
(i) Notes of the Borrower. The Borrower's obligation to repay
all Loans made by the Banks shall be evidenced by a promissory note in
favor of each Bank in the form attached hereto as EXHIBIT 2.1(d)-1 (the
"Notes").
(ii) Notes of Subsidiaries. In the event that the Borrower
loans all or a portion of any Loan to any of its Subsidiaries, such
Subsidiary shall execute and deliver a promissory note in favor of the
Borrower in the form attached hereto as EXHIBIT 2.1(d)-2 (the
"Subsidiary Note"), and the Borrower shall assign such Subsidiary Note
to the Agent to be held by the Agent, on behalf of itself and for the
benefit of the Banks, as additional security for the repayment of such
Loan.
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<PAGE> 31
SECTION 2.2 INTEREST AND FEES.
(a) Interest. Subject to all other provisions of this SECTION 2.2, all
or a part of each Loan may, at the option of the Borrower, be a Base Rate Loan
or a LIBOR Loan. Subject to SECTION 2.2(f) hereof, the Loans shall bear interest
on the unpaid principal amount thereof from the date of disbursement until such
amount shall become due and payable at Maturity (i) in the case of each Base
Rate Loan, at a fluctuating rate per annum equal to the Base Rate as from time
to time in effect and (ii) in the case of each LIBOR Loan, at a rate per annum
equal to the LIBOR Rate for the applicable Interest Period. Interest on each
Base Rate Loan shall be payable in arrears on the last day of each calendar
quarter, commencing with the quarter ending March 31, 1998, on any date that any
such Base Rate Loan is converted to a LIBOR Loan, on the date of any prepayment
as to the amount of such prepayment, and on the Final Maturity Date. Interest on
each LIBOR Loan shall be payable in arrears on the last day of the applicable
Interest Period (provided, however, that interest on each LIBOR Loan with an
Interest Period of six (6) months shall be paid three (3) months after
commencement of such Interest Period and on each three (3) month anniversary
thereof), on any date when such LIBOR Loan is converted to a Base Rate Loan, on
the date on which any LIBOR Loan is prepaid as to the amount of such prepayment,
and on the Final Maturity Date.
Upon the occurrence of an Event of Default, and at the direction of the
Majority Banks, interest on the Loans and any other outstanding Obligations
shall accrue at the Default Rate from the date of the occurrence of such Event
of Default. Interest accruing at the Default Rate shall be payable on demand and
in any event at Maturity and shall accrue until the earliest to occur of (i)
waiver in writing by the Majority Banks of the applicable Event of Default,
which waiver may provide for the waiver of the Default Rate from the initial
date of accrual thereof to the date of such waiver, (ii) agreement by the
Majority Banks to rescind the charging of interest at the Default Rate, or (iii)
payment in full of the Loans and other outstanding Obligations. The Banks shall
not be required to (i) accelerate the maturity of the Loans or (ii) exercise any
other rights or remedies under the Loan Documents in order to charge interest
hereunder at the Default Rate.
(b) Extensions and Conversions. Subject to the terms and conditions
hereof, including SECTION 2.2(a), the Borrower shall have the option at any time
to convert all or any part of a Loan into a Base Rate Loan or a LIBOR Loan;
provided, however, that (i) a LIBOR Loan may be converted only as of the last
day of the applicable Interest Period, and (ii) the Borrower may not convert a
Base Rate Loan into a LIBOR Loan or extend a LIBOR Loan after the occurrence and
during the continuance of an Event of Default hereunder. Each LIBOR Loan shall
be in a principal amount equal to an integral multiple of One Million Dollars
($1,000,000) and in a minimum principal amount of Five Million Dollars
($5,000,000). Subject to the terms and conditions hereof, the Borrower may
extend a LIBOR Loan beyond its current Interest Period. In the case of a
proposed conversion of a Base Rate Loan into a LIBOR Loan or an extension of a
LIBOR Loan, an Authorized Representative shall give the Agent telephone notice
not later than 11:00 a.m. (Houston, Texas time) at least three (3) Banking Days
prior to the date of the proposed conversion or extension, confirmed by a
written notice executed by an Authorized Representative and received by the
Agent by
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<PAGE> 32
facsimile on the day of such telephone notice. The Agent shall provide a copy of
such written notice to the Banks. In the case of a proposed conversion of a
LIBOR Loan into a Base Rate Loan, an Authorized Representative shall give the
Agent telephone notice not later than 11:00 a.m. (Houston, Texas time) at least
one (1) Banking Day prior to the end of the applicable Interest Period confirmed
by a Notice of Conversion/ Extension executed by any Authorized Representative
and received by the Agent by facsimile the day of such telephone notice. Any
notice given by an Authorized Representative under this SECTION 2.2(b) shall be
irrevocable. Unless the Agent receives notice of a proposed conversion as and
when required hereunder, then at the end of an Interest Period for a LIBOR Loan,
such Loan shall automatically convert to a Base Rate Loan.
(c) Commitment Fee. The Borrower shall pay to the Agent for the account
of the Banks, in accordance with the Banks' Commitment Percentages, a Commitment
Fee equal to the amount listed below based upon the Borrower's ratio of Funded
Indebtedness to EBITDA as calculated in accordance with Section 7.18(a)(i) of
the average daily Available Commitment Amount as follows:
<TABLE>
<CAPTION>
Funded Indebtedness/ Commitment Fee
EBITDA - (bps)
-------------------- --------------
<S> <C>
> 5.0 37.50
-
> 4.5 < 5.0 37.50
-
> 4.0 < 4.5 37.50
-
> 3.5 < 4.0 37.50
-
> 3.0 < 3.5 37.50
-
> 2.5 < 3.0 25.00
-
< 2.5 25.00
</TABLE>
The Commitment Fee shall (i) accrue from the Closing Date to the Revolving
Termination Date and (ii) be payable quarterly in arrears on the last day of
each quarter commencing with the quarter ending March 31, 1998 and on the
Revolving Termination Date.
(d) Computation of Interest and Commitment Fee. The computation of
interest and the Commitment Fee shall be based on the actual number of days
elapsed assuming (i) in the case of Base Rate Loans and any period during which
any such Loans are outstanding, a year consisting of three hundred sixty-five
(365) days and (ii) in the case of LIBOR Loans and any period during which any
such Loans are outstanding, a year consisting of three hundred sixty (360) days.
(e) Illegality, Taxation and Additional Interest Rate Provisions.
(i) In the event the Agent shall have determined (which
determination shall be conclusive and binding) that by reason of
circumstances affecting the interbank Eurodollar market, adequate and
reasonable means do not exist for ascertaining Base LIBOR, the Agent
shall forthwith give notice of such determination, confirmed in
writing, to the Borrower. If such notice is given, and until such
notice has been
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<PAGE> 33
withdrawn by the Agent, no additional LIBOR Loans shall be made and no
additional conversions of Loans to LIBOR Loans shall be permitted, and
at the end of the Interest Period relating to any outstanding LIBOR
Loans, such Loans shall become Base Rate Loans.
(ii) Notwithstanding any other provisions herein, if any law,
treaty, rule or regulation, or determination of a court or other
Governmental Authority, or any change therein or in the interpretation
or application thereof, shall make it unlawful for a Bank to make or
maintain LIBOR Loans, as contemplated by this Agreement, the obligation
of such Bank hereunder to make LIBOR Loans shall forthwith be suspended
until such Bank shall notify the Agent that the circumstances causing
such suspension no longer exist, and each LIBOR Loan of such Bank then
outstanding shall (if required by such law, treaty, rule, regulation,
determination or change) immediately become a Base Rate Loan.
(iii) In the event that any adoption or modification of any
law, treaty, rule or regulation, or determination of a court or other
Governmental Authority, or that any change in the interpretation or
application thereof, which adoption, modification or change becomes
effective after the date hereof, or in the event that compliance by a
Bank with any request or directive issued after the date hereof
(whether or not having the force of law) from any Governmental
Authority:
(A) does or shall subject a Bank or any of its
foreign offices to any tax of any kind whatsoever (other than
taxes based on income from all sources) with respect to this
Agreement, the Notes, the Loans or any payments made to and
received by such Bank of principal, interest, fees or any
other amount payable hereunder; or
(B) does or shall impose, modify, or hold applicable
any reserve, special deposit, compulsory loan, FDIC insurance
or similar requirement against assets held by, deposits or
other liabilities in or for the account of, advances or loans
by, other credit extended by or any other acquisition of funds
by, any office of a Bank (other than to the extent previously
taken into account in determining the Base Rate or Statutory
Reserves); or
(C) does or shall impose on a Bank any other
condition;
and the result of any of the foregoing is to increase the cost to a
Bank of making, renewing or maintaining such Bank's Commitment Amount
or the Loans, or to reduce any amount receivable in respect thereof or
under any of the Loan Documents; then, in any such case, such Bank
shall notify the Borrower of any such event and shall deliver to the
Agent and the Borrower a written statement specifying in reasonable
detail the losses or expenses sustained or incurred, and any reasonable
allocation made by such Bank of such losses and expenses shall be
conclusive. The Borrower shall, within ten (10) days following demand
therefor, pay the amount of such losses and expenses.
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<PAGE> 34
(iv) Each Bank represents and warrants to the Agent and the
Borrower that, under applicable law and treaties, such Bank is entitled
to receive all payments under this Agreement and the Notes payable to
it, without deduction or withholding of any taxes imposed by the United
States or any political subdivision thereof. On or before the Closing
Date, each Bank shall deliver to each of the Borrower and the Agent two
(2) executed copies of valid and properly completed (i) United States
Internal Revenue Service Form 1001 or 4224 certifying that such Bank is
entitled to receive payments under this Agreement and the Notes then
held by it, without deduction or withholding of any United States
federal income taxes, and (ii) Internal Revenue Service Form W-8 or W-9
establishing any exemption from United States backup withholding tax.
If any such form is found to be incomplete or incorrect, or must be
replaced (on the same or a successor form) in order to maintain its
effectiveness, the affected Bank shall execute and deliver to the
Borrower and the Agent two (2) executed copies of a valid, complete and
correct replacement form.
(f) Capital Adequacy Requirements. If any Bank shall determine that the
application of any law, rule, regulation or guideline regarding capital
adequacy, or any change therein or any change in the interpretation or
administration thereof by any central bank. or other Governmental Authority
charged with the interpretation or administration thereof, or compliance by such
Bank (or its lending office) or any corporation controlling such Bank, with any
request, guideline or directive regarding capital adequacy (whether or not
having the force of law) of any such central bank or other authority (which in
any such case has become effective after the date hereof), affects or would
affect the amount of capital required or expected to be maintained by such Bank
or any corporation controlling such Bank, and such Bank determines that the
amount of such capital is increased as a consequence of its obligation under
this Agreement, then, upon demand of such Bank, the Borrower shall, within ten
(10) days following demand therefor, pay to such Bank, from time to time as
specified by the Bank, additional amounts sufficient to compensate such Bank for
such increase.
(g) Substitution of Banks. Upon the receipt by the Borrower from any
Bank (an "Affected Bank") of a request for compensation or payment under this
SECTION 2.2, the Borrower may: (i) request the Agent to use reasonable efforts
to obtain a replacement bank or financial institution satisfactory to the
Borrower to acquire and assume all or part of such Affected Bank's Loans and
Commitments (a "Replacement Bank"); (ii) request one or more of the other Banks
to acquire and assume all or part of such Affected Bank's Loans and Commitments;
(iii) designate a Replacement Bank; or (iv) subject to SECTION 11.3(e) hereof,
terminate in whole or reduce in part the Commitments of the Affected Bank and
prepay all or part of the outstanding Loans owing to such Affected Bank in
accordance with SECTION 2.3 hereof. Any such designation of a Replacement Bank
under clause (i) or (iii) shall be subject to the prior written consent of the
Agent and each of the other Banks (which consent in the case of the Banks and
the Agent shall not be unreasonably withheld).
(h) Highest Lawful Rate. Anything in this Agreement to the contrary
notwithstanding, the Borrower shall never be required to pay unearned interest
on any Loan and shall never be required to pay interest on any Loan at a rate in
excess of the Highest Lawful Rate, and if the
27
<PAGE> 35
effective rate of interest which would otherwise be payable under this Agreement
would exceed the Highest Lawful Rate, or if any Bank shall receive any unearned
interest or shall receive monies that are deemed to constitute interest which
would increase the effective rate of interest payable under this Agreement to a
rate in excess of the Highest Lawful Rate, then (a) in lieu of the amount of
interest which would otherwise be payable under this Agreement, the Borrower
shall pay the Highest Lawful Rate and (b) any unearned interest paid by the
Borrower or any interest paid by the Borrower in excess of the Highest Lawful
Rate shall be credited on the principal of such Loan and thereafter shall be
refunded to the Borrower. It is further agreed, without limiting the foregoing,
that all calculations of the rate of interest contracted for, charged or
received by any Bank under this Agreement that are made for the purpose of
determining whether such rate exceeds the Highest Lawful Rate applicable to such
Bank (such Highest Lawful Rate being such Bank's "Maximum Permissible Rate")
shall be made, to the extent permitted by usury laws applicable to such Bank
(now or hereafter enacted), by amortizing, prorating and spreading in equal
parts during the period of the full stated term of the Loans all interest at any
time contracted for, charged or received by such Bank in connection therewith.
If at any time and from time to time (i) the amount of interest payable to any
Bank on any date shall be computed at such Bank's Maximum Permissible Rate
pursuant to this SECTION 2.2(h) and (ii) in respect of any subsequent interest
computation period the amount of interest otherwise payable to such Bank would
be less than the amount of interest otherwise payable to such Bank computed at
such Bank's Maximum Permissible Rate, then the amount of interest payable to
such Bank in respect of such subsequent interest computation period shall
continue to be computed at such Bank's Maximum Permissible Rate until the total
amount of interest payable to such Bank shall equal the total amount of interest
which would have been payable to such Bank if the total amount of interest had
been computed without giving effect to this SECTION 2.2(h).
SECTION 2.3 PAYMENTS.
(a) Payment of Loans. The Borrower shall repay all Loans which are
outstanding on the Revolving Termination Date by paying one-sixteenth (1/16) of
the aggregate outstanding principal amount thereof on December 31, 2000 and on
the last day of each third month thereafter to and including September 30, 2003
and by paying the aggregate principal amount thereof remaining outstanding on
December 31, 2003.
(b) Optional Prepayment. Subject to the following and the provisions of
SECTION 2.3(c) and SECTION 2.3(d) hereof, the Borrower may at any time prepay,
upon notice given not later than 10:30 a.m. (Houston, Texas time) on the date of
such prepayment in the case of Base Rate Loans, or three (3) Banking Days prior
written notice to the Agent as to any LIBOR Loans, the principal amount of any
or all of the Loans in whole or in part, without penalty or premium. With
respect to each prepayment hereunder, interest accrued to the date of prepayment
on the amount of such prepayment shall be payable (i) for LIBOR Loans, on the
date of the prepayment, and (ii) for Base Rate Loans, on the next scheduled date
for the payment of interest pursuant to SECTION 2.2(a) hereof. Any such notice
of prepayment shall specify the amount of the prepayment. Any such prepayment
shall be in a minimum principal
28
<PAGE> 36
amount of Five Million Dollars ($5,000,000) and in a principal amount which is
an integral multiple of One Million Dollars ($1,000,000).
(c) Mandatory Prepayment.
(i) If at any time the aggregate principal amount of the Loans
outstanding exceeds the Total Commitment Amount minus the Letter of
Credit Obligations, then the Borrower shall immediately pay to the
Agent, for the account of each Bank, the amount of such excess (as a
prepayment in respect of the Loans), plus any amount due under SECTION
2.3(d) hereof as a result of such prepayment.
(ii) In the event that the Borrower or any of its Subsidiaries
sells or otherwise disposes of assets in any calendar year, and the
book value of such assets, together with the book value of any other
assets sold or disposed of by the Borrower and its Subsidiaries during
such calendar year, are in excess of five percent (5%) of the book
value of the total assets of the Borrower and its Subsidiaries on the
first day of such calendar year, the Borrower shall prepay the Loans
from the Net Cash Proceeds received at any time by the Borrower or its
Subsidiaries from such sale or other disposition. The Borrower shall
also pay any amount due under SECTION 2.3(d) hereof as a result of such
prepayment or may, in lieu thereof, deposit the Net Cash Proceeds with
the Agent, to be held pending expiration of Interest Periods until the
earliest time at which such proceeds may be used to prepay the Loans in
accordance herewith without the Borrower being obligated to pay any
amounts which would have been due under SECTION 2.3(d) hereof had
payment been made earlier.
(iii) Within ninety (90) days after the end of each fiscal
year (commencing with the fiscal year ending March 31, 1998), the
Borrower shall prepay the Loans in an amount equal to one hundred
percent (100%) of the Excess Cash Flow for such fiscal year reduced by
the amount necessary to maintain a minimum of Four Million Dollars
($4,000,000) of cash and cash equivalents on the Borrower's
consolidated balance sheet at the end of such fiscal year.
(iv) In the event that the Borrower shall issue Equity
Interests to a Person other than Welsh Carson in exchange for cash, or
shall incur additional unsecured or subordinated Indebtedness other
than the Welsh Carson Subdebt, Borrower shall apply the proceeds so
received in prepayment of the Loans as follows:
(A) If the ratio of Funded Indebtedness to EBITDA,
calculated in accordance with SECTION 7.18(a)(i) is greater
than or equal to 4.75 : 1, then the Borrower shall prepay the
Loans in an amount equal to one hundred percent (100%) of the
Net Cash Proceeds received by the Borrower.
(B) If the ratio of Funded Indebtedness to EBITDA,
calculated in accordance with SECTION 7.18(a)(i) is less than
4.75 : 1, then the Borrower shall prepay the Loans in an
amount equal to (I) twenty-five percent (25 %) of the Net Cash
Proceeds received by the Borrower from the issuance of any
additional
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<PAGE> 37
Equity Interests, and (II) fifty percent (50%) of the Net Cash
Proceeds received by the Borrower by incurring additional
unsecured or subordinated Indebtedness other than the Welsh
Carson Subdebt.
Any prepayment made pursuant to SECTION 2.3(c)(ii) hereof shall
permanently reduce the Total Commitment Amount; provided, however, that if and
to the extent that the Net Cash Proceeds result from the sale of any asset which
is being replaced or will be replaced within twelve (12) months after the date
of receipt of such Net Cash Proceeds by a similar or comparable replacement
asset having a comparable fair market value or in connection with a Permitted
Acquisition and if the Borrower notifies the Agent in writing within five (5)
Banking Days after the applicable sale that the Borrower or its Subsidiary
intends to so replace the asset sold or to so use such Net Cash Proceeds for a
Permitted Acquisition, the Total Commitment Amount shall not be permanently
reduced until the twelve (12) month anniversary of such sale, and on such
12-month anniversary, the Total Commitment Amount shall be permanently reduced
by (i) one hundred percent (100%) of such Net Cash Proceeds received by the
Borrower or its Subsidiary from such sale if the Borrower fails to notify the
Agent in writing on or before the twelve (12) month anniversary of such asset
sale that the replacement asset has been acquired or a Permitted Acquisition has
been completed, or (ii) the amount of any excess Net Cash Proceeds not used to
acquire the replacement asset or in connection with a Permitted Acquisition. Any
Loans or portions thereof prepaid pursuant to SECTION 2.3(c)(iii) hereof may,
subject to the terms and conditions of this Agreement, be reborrowed prior to
the Revolving Termination Date.
(d) Payments Prior to Interest Period Expiration. The Borrower hereby
agrees to indemnify and hold the Banks free and harmless from any loss or
expense (including, without limitation, any loss or expense incurred by reason
of the liquidation or redeployment of deposits or other funds acquired by the
Banks to fund or maintain any LIBOR Loan and in addition to any interest or
other payments which may be due the Banks under this Agreement) which the Banks
may incur as a result of (i) the failure by the Borrower to accept or complete a
borrowing, conversion or extension with respect to a LIBOR Loan after making a
request therefor, (ii) the failure of the Borrower to make any prepayment after
notice has been given in accordance with SECTION 2.3(b) hereof, (iii) a
prepayment in whole or in part (whether optional or mandatory) of any LIBOR Loan
prior to the expiration of a related Interest Period, or (iv) the conversion of
a LIBOR Loan as a result of any of the events indicated in SECTION 2.3(G)
hereof. The Agent, after consultation with the Banks, shall deliver to the
Borrower a written statement specifying in reasonable detail any amounts due the
Banks as provided above, and such statement, in the absence of manifest error,
shall be fixed and binding on all parties. In no event shall any amounts be
payable by the Banks to the Borrower under this SECTION 2.3(d).
(e) Payments by the Borrower. All payments (including prepayments)
required to be made on account of principal, interest and fees shall be made
without set-off or counterclaim and shall be made to the Agent, for the account
of the Banks, at the Agent's office referenced in SECTION 11.9 hereof, in
Dollars and in immediately available funds no later than 2:00 p.m. (Houston,
Texas time). The Agent will promptly distribute such payments to each Bank its
Commitment Percentage of such principal, interest, fees or other amounts, in
like funds as
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<PAGE> 38
received. Any payment which is received by the Agent later than 2:00 p.m.
(Houston, Texas time) shall be deemed to have been received on the immediately
succeeding Banking Day. Whenever any payment hereunder shall be stated to be due
on a day other than a Banking Day, such payment shall be made on the next
succeeding Banking Day, and such extension of time shall in such case be
included in the computation of interest or fees, as the case may be. Unless the
Agent shall have received notice from the Borrower prior to the date on which
any payment is due to the Banks hereunder that the Borrower will not make such
payment in full, the Agent may assume that the Borrower has made such payment in
full to the Agent on such date and the Agent may (but shall not be so required),
in reliance upon such assumption, cause to be distributed to each Bank on such
due date an amount equal to the amount then due such Bank. If and to the extent
such payment has not been made in full to the Agent, each Bank shall repay to
the Agent on demand such amount distributed to such Bank, together with interest
thereon for each day from the date such amount is distributed to such Bank until
the date such Bank repays such amount to the Agent, at the Federal Funds Rate as
in effect from time to time.
(f) Payments by the Banks to the Agent. Each Bank shall make available
to the Agent in immediately available funds the amount of such Bank's Commitment
Percentage of any Borrowing pursuant to notification as provided in SECTION
2.1(c). Unless the Agent shall have received notice from a Bank at least one (1)
Banking Day prior to the date of any proposed Borrowing that such Bank will not
make available to the Agent for the account of the Borrower the amount of that
Bank's Commitment Percentage of the proposed Borrowing, the Agent may assume
that each Bank has made such amount available to the Agent on the borrowing date
and the Agent may (but shall not be so required), in reliance upon such
assumption, make available to the Borrower on such date a corresponding amount.
If and to the extent any Bank shall not have made its full amount available to
the Agent and the Agent in such circumstances has made available to the Borrower
such amount, that Bank shall within two (2) Banking Days following the date of
such Borrowing make such amount available to the Agent, together with interest
at the Federal Funds Rate as in effect for each day during such period. A notice
from the Agent submitted to any Bank with respect to amounts owing under this
SECTION 2.3(e) conclusive, absent manifest error. If such amount is so
made available, such payment to the Agent shall constitute such Bank's Loan on
the date of the Borrowing for all purposes of this Agreement. If such amount is
not made available to the Agent within two (2) banking days following the date
of such Borrowing, the Agent shall notify the Borrower of such failure to fund
and, upon demand by the Agent, the Borrower shall pay such amount to the Agent
for the account of the Agent, together with interest thereon for each day
elapsed since the date of such Borrowing, at a rate per annum equal to the
interest rate applicable at the time to the Loans comprising such Borrowing. The
failure of any Bank to make any Loan on any date of any proposed Borrowing shall
not relieve any other Bank of its obligation hereunder to make its Loan on such
date, but no Bank shall be responsible for the failure of any other Bank to make
the Loan to be made by such other Bank on such date. In the event that a Bank
for any reasons fails or refuses to fund its portion of a Loan in violation of
this Agreement, then, until such time as such Bank has funded its portion of
such Loan, or all other Banks have received in full (whether by repayment or
prepayment) of the principal and interest due in payment respect of such Loan,
such non-funding Bank shall (i) have no right to vote regarding any issue
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<PAGE> 39
on which voting is required or advisable under this Agreement or any other Loan
Document and (ii) shall not be entitled to receive any payments of principal,
interest or fees from the Agent (or the other Banks) in respect of its Loans.
(g) Sharing of Payments, etc.. If any Bank shall obtain any payment
(whether voluntary, involuntary, through the exercise of any right of set-off,
or otherwise) on account of any Obligations owing to such Bank and such payment
exceeds such Bank's pro rata share of all Obligations owing to all of the Banks,
such Bank shall forthwith (a) notify the Agent of such fact and (b) purchase
from the other Banks such participations in the Obligations owing to such other
Banks as shall be necessary to cause such purchasing Bank to share the excess
payment ratably with each of them; provided, however, that if all or any portion
of such excess payment is thereafter recovered from the purchasing Bank, such
purchase shall to that extent be rescinded and each other Bank shall repay to
the purchasing Bank the purchase price paid thereto together with an amount
equal to such paying Bank's allocable portion (according to the proportion of
(i) the amount of such paying Bank's required repayment to (ii) the total amount
so recovered from the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so recovered. The
Borrower agrees that any Bank so purchasing a participation from another Bank
pursuant to this SECTION 2.3(g) may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of offset in SECTION
2.3(h) hereof), with respect to such participation as fully as if such Bank were
the direct creditor of the Borrower in the amount of such participation. The
Agent shall keep records (which shall be conclusive and binding in the absence
of manifest error) of participations purchased pursuant to this SECTION 2.3(g)
and shall in each case notify the Banks following any such purchases.
(h) Offset. In addition to and not in limitation of all rights of
offset that the Banks may have under applicable law, the Banks, upon the
occurrence and during the continuance of an Acceleration, shall have the right
to appropriate and apply to the payment of all Obligations any and all balances,
credits, deposits, accounts or moneys of the Borrower then or thereafter with
the Banks. Each Bank agrees promptly to notify the Borrower and the Agent after
any such offset and application made by such Bank; provided, however, that the
failure to give such notice shall not affect the validity of such offset and
application. The rights of each Bank under this SECTION 2.3(h) are in addition
to the other rights and remedies which such Bank may have.
SECTION 2.4 WAIVERS.
The Borrower hereby expressly waives presentment, protest, notice,
demand or action on delinquency in respect of the Obligations. The Borrower
waives any defense arising by reason of any inability to pay or any defense
based on bankruptcy or insolvency or other similar limitations on creditors'
remedies. The Borrower authorizes the Agent and the Banks, without notice or
demand and without affecting the Borrower's liability hereunder or under any of
the other Loan Documents, from time to time to: (i) renew, extend, accelerate or
otherwise change the time or place for payment of the Notes or the Obligations
or any part thereof; (ii) take and hold security, and exchange, enforce, waive
and release any collateral or security or
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<PAGE> 40
any part thereof or any such other security, surrender, modify, impair, change,
alter, renew, continue, compromise or release in whole or in part any such
security, or fall to perfect its interest in any such security or to establish
its priority with respect thereof; (iii) apply such security and direct the
order or manner or sale thereof as the Agent and the Banks in their sole
discretion may determine; (iv) release or substitute, in whole or in part any of
the endorsers or guarantors of the Obligations or any part thereof; (v) settle
or compromise any or all of the Obligations with any endorser or guarantor of
the Obligations; and (vi) subordinate any or all of the Obligations to any other
obligations of or claim against the Borrower, whether owing to or existing in
favor of the Agent or the Banks or any other party. The Obligations of the
Borrower shall continue to be effective or be reinstated (as the case may be) if
at any time payment by the Borrower of all or any part of the Obligations is
rescinded or must otherwise be returned by either of the Agent or the Banks upon
the insolvency, bankruptcy or reorganization of the Borrower or otherwise, all
as though such payment to either of the Agent or the Banks had not been made.
The Agent and the Majority Banks may, at their election, exercise any
right or remedy they may have against the Borrower or any security now or
hereafter held by or for the benefit of the Agent or the Banks including,
without limitation, the right to foreclose upon any such security by judicial or
nonjudicial sale, without affecting or impairing in any way the liability of the
Borrower hereunder, except to the extent the Obligations may thereby be paid.
The Borrower waives any defense arising out of the absence, impairment or loss
of any right or remedy against any such security, whether resulting from any
defect in, failure of, or loss or absence of priority with respect to the
interest of the Agent or the Banks in such security, or otherwise. Neither the
Agent nor any Bank shall be required to institute or prosecute proceedings to
recover any deficiency as a condition of payment hereunder or enforcement
hereof.
The Borrower waives the benefit of any statute of limitations affecting
its liability hereunder or the enforcement thereof, to the extent permitted by
law. The Borrower understands and acknowledges that the Banks would not make the
Loans in the absence of the covenants and waivers of the Borrower contained
herein.
The Borrower acknowledges that repeated and successive demands may be
made and payments or performance made hereunder in response to such demands as
and when, from time to time, the Borrower may default in performance of the
Obligations. Notwithstanding any such payment or performance hereunder, this
Agreement shall remain in full force and effect and shall apply to any and all
subsequent defaults by the Borrower in payment or performance of the
obligations.
The Borrower waives any set-off, defense or counterclaim which the
Borrower may have or claim to have against the Agent or the Banks.
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<PAGE> 41
Section 2.5 APPLICATION OF PAYMENTS.
(a) Payments Prior to Acceleration. Prior to the acceleration of the
Obligations under SECTION 8.2 hereof, and other than with respect to payments
required to be made pursuant to SECTION 2.3(c) hereof (which shall be applied as
set forth in SECTION 2.3(c) hereof), if some but less than all amounts due from
the Borrower are received by the Agent, the Agent shall distribute such amounts
in the following order of priority: FIRST, to the payment of interest then due
and payable on the Loans; SECOND, to the payment of principal then due and
payable on the Loans; THIRD, to the payment of any fees then due and payable to
the Agent hereunder or under any other Loan Document; FOURTH, to the payment of
any fees then due and payable to the Banks or the Issuing Bank hereunder or
under any other Loan Document; FIFTH, to the extent of the undrawn and unexpired
amount of any Letter of Credit Obligations, to the Letter of Credit Reserve
Account; SIXTH, to the costs and expenses (including attorneys' fees and
expenses), if any, incurred by the Agent in the collection of such amounts under
this Agreement or any of the other Loan Documents; SEVENTH, to the payment of
all other Obligations not otherwise referred to in this SECTION 2.5(a) then due
and payable hereunder or under any of the other Loan Documents; and EIGHTH, upon
satisfaction in full of all outstanding Obligations, to the Borrower.
(b) Payments Subsequent to Acceleration. Subsequent to the acceleration
of the Obligations under SECTION 8.2 hereof, payments and prepayments with
respect to the Obligations made to the Agent, the Banks or the Issuing Bank or
otherwise received by the Agent, any Bank or the Issuing Bank (from realization
on Collateral or otherwise) shall be distributed in the following order of
priority: FIRST, to the costs and expenses (including attorneys' fees and
expenses), if any, incurred by the Agent, any Bank or the Issuing Bank in the
collection of such amounts under this Agreement or any of the other Loan
Documents, including, without limitation, any costs incurred in connection with
the sale or disposition of any Collateral; SECOND, to the payment of interest
then due and payable on the Loans; THIRD, to the payment of the principal of any
Loans then outstanding; FOURTH, to any fees then due and payable to the Agent
under this Agreement or any of the other Loan Documents; FIFTH, to any fees then
due and payable to the Banks and the Issuing Bank under this Agreement or any
other of the Loan Documents; SIXTH, to the extent of the undrawn and unexpired
amount of any Letter of Credit Obligations, to the Letter of Credit Reserve
Account; SEVENTH, to the payment of any obligation under any Rate Contract
between the Borrower, on the one hand, and the Agent (or an Affiliate of the
Agent) or one or more Banks (or an Affiliate of a Bank), on the other hand;
EIGHTH, to any other Obligations not otherwise referred to in section
2.5(b); NINTH, to damages incurred by the Agent, any Bank or the Issuing Bank by
reason of any breach hereof or of any of the other Loan Documents; and TENTH,
upon satisfaction in full of all Obligations, to the Borrower or as otherwise
required by law.
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<PAGE> 42
ARTICLE III
LETTERS OF CREDIT
SECTION 3.1 ISSUANCE OF LETTERS OF CREDIT.
(a) Subject to the terms and conditions hereof, the Issuing Bank, on
behalf of the Banks, and in reliance on the agreements of the Banks set forth in
this SECTION 3.1 hereby agrees to issue one or more Letters of Credit up to an
aggregate face amount equal to the Letter of Credit Commitment; provided,
however, that the Issuing Bank shall not issue any Letter of Credit unless the
conditions precedent to the issuance thereof set forth in SECTION 5.3 hereof
have been satisfied, and the Issuing Bank shall have no obligation to issue any
Letter of Credit if, after giving effect to such issuance, the Available
Commitment Amount would be less than zero. Each Letter of Credit shall (1) be
denominated in Dollars and (2) expire no later than the earlier to occur of (A)
the Final Maturity Date and (B) three hundred sixty (360) days after its date of
issuance (but may contain provisions for automatic renewal, provided that no
Event of Default or Incipient Default exists on the renewal date or would be
caused by such renewal). Each Letter of Credit shall be subject to the Uniform
Customs and, to the extent not inconsistent therewith, the laws of the State of
New York. The Issuing Bank shall not at any time be obligated to issue, or cause
to be issued, any Letter of Credit if such issuance would conflict with, or
cause the Issuing Bank to exceed any limits imposed by, any Applicable Law.
(b) The Borrower may from time to time request that the Issuing Bank
issue a Letter of Credit for a Permitted Purpose. The Borrower shall execute and
deliver to the Agent and the Issuing Bank a Request for Issuance of Letter of
Credit in the form attached hereto as EXHIBIT 3.1(B) for each Letter of Credit
to be issued by the Issuing Bank not later than 11:00 a.m. (Houston time) on the
fifth (5th) Banking Day preceding the date on which the requested Letter of
Credit is to be issued, subject to such shorter notice as may be acceptable to
the Issuing Bank and the Agent. Upon receipt of any such request, subject to
satisfaction of all conditions precedent thereto as set forth in SECTION 5.3
hereof and in accordance with SECTION 3.1 hereof, the Issuing Bank shall process
such request and the certificates, documents and other papers and information
delivered to it in connection therewith in accordance with its customary
procedures and shall promptly issue the Letter of Credit requested thereby. The
Issuing Bank shall furnish a copy of such Letter of Credit to the Borrower and
the Agent following the issuance thereof. The Borrower shall pay or reimburse
the Issuing Bank for normal and customary costs and expenses incurred by the
Issuing Bank in issuing, effecting payment under, amending or otherwise
administering the Letters of Credit.
SECTION 3.2 DRAWS UNDER LETTERS OF CREDIT.
(a) At such time as the Agent shall be notified by the Issuing Bank
that the beneficiary under any Letter of Credit has drawn on the same, the Agent
shall promptly notify the Borrower and each Bank, by telephone or telecopy, of
the amount of the draw and, in the case of each Bank, such Bank's portion of
such draw amount as calculated in accordance with its Commitment Percentage.
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<PAGE> 43
(b) The Borrower hereby agrees to immediately reimburse the Issuing
Bank for amounts paid by such Issuing Bank in respect of draws under a Letter of
Credit. In order to facilitate such repayment, the Borrower hereby irrevocably
requests the Banks, and the Banks hereby severally agree, on the terms and
conditions of this Agreement (other than as provided in ARTICLE II hereof with
respect to the amounts of, the timing of requests for, and the repayment of
Loans hereunder and in ARTICLE IV hereof with respect to conditions precedent to
Loans hereunder), with respect to any drawing under a Letter of Credit prior to
the occurrence of an event described in SECTION 9.1(J) hereof, to make a Base
Rate Loan to the Borrower on each day on which a draw is made under a Letter of
Credit and in the amount of such draw, and to pay the proceeds of such Loan
directly to the Issuing Bank to reimburse the Issuing Bank for the amount paid
by it upon such draw. The Borrower agrees to deliver to the Agent a Loan Request
requesting the making of such Base Rate Loan on the day of any such draw;
provided, however, that the failure of the Borrower to deliver such Loan Request
shall not effect the validity of any Base Rate Loan made hereunder. Each Bank
shall fund its share of such Base Rate Loan by paying its portion of such Loan
to the Agent in accordance with SECTION 2.3(E) hereof and its Commitment
Percentage, without reduction for any set-off or counterclaim of any nature
whatsoever and regardless of whether any Incipient Default or Event of Default
(other than with respect to an event described in SECTION 2.3(E) hereof) then
exists or would be caused thereby. If at any time that any Letters of Credit are
outstanding, any of the events described in SECTION 9.1(J) shall have occurred,
then each Bank shall, automatically upon the occurrence of any such event and
without any action on the part of the Issuing Bank, the Borrower, the Agent or
the Banks, be deemed to have purchased an undivided participation in the face
amount of all Letters of Credit then outstanding in an amount equal to such
Bank's Commitment Percentage, and each Bank shall, notwithstanding the
occurrence of such event, upon a drawing under any Letter of Credit, immediately
pay to the Agent for the account of the Issuing Bank, in immediately available
funds, the amount of such Bank's participation, and the Issuing Bank shall
deliver to such Bank a loan participation certificate dated the date of the
occurrence of such event and in the amount of such Bank's Commitment Percentage.
The disbursement of funds in connection with a draw under a Letter of Credit
pursuant to this SECTION 3.2 shall be subject to the terms and conditions of
SECTION 2.3(E) hereof. The obligations of each Bank to make payments to the
Agent, for the account of the Issuing Bank, in accordance with this SECTION 3.2
shall be absolute and unconditional, and no Bank shall be relieved of its
obligations to make such payments by reason of noncompliance by any other Person
with the terms of the Letter of Credit or for any other reason. The Agent shall
promptly remit to the Issuing Bank the amounts so received from the other Banks.
Any overdue amounts payable by the Banks to the Issuing Bank in respect of a
draw under any Letter of Credit shall bear interest, payable on demand, (x) for
the first two (2) Banking Days, at the rate on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day by the Federal Reserve Bank of New
York, and (y) thereafter, at the Base Rate.
(c) The Borrower agrees that each Loan made by the Banks to reimburse
the Issuing Bank for draws under any Letter of Credit shall, for all purposes
hereunder, be deemed to be a Base Rate Loan and shall be payable and bear
interest in accordance with all other Base Rate
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<PAGE> 44
Loans. At the Borrower's option, any such Base Rate Loan may be converted to a
LIBOR Loan as provided in SECTION 2.2(B).
SECTION 3.3 ACTIONS BY ISSUING BANK.
(a) The Borrower agrees that any action taken or omitted to be taken by
the Issuing Bank in connection with any Letter of Credit, except for such
actions or omissions as shall constitute gross negligence or willful misconduct
on the part of the Issuing Bank, shall be binding on the Borrower as between the
Borrower and the Issuing Bank and shall not result in any liability of the
Issuing Bank to the Borrower. The obligation of the Borrower to reimburse the
Issuing Bank for a drawing under any Letter of Credit or the Banks for Loans
disbursed by them to the Issuing Bank on account of draws made under the Letters
of Credit shall be absolute, unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement under all circumstances
whatsoever, including, without limitation, the following circumstances:
(i) Any lack of validity or enforceability of any Loan
Document,
(ii) Any amendment or waiver of or consent to any departure
from any or all of the Loan Documents;
(iii) Any improper use which may be made of any Letter of
Credit or any improper acts or omissions of any beneficiary or
transferee of any Letter of Credit in connection therewith;
(iv) The existence of any claim, set-off, defense or any right
which the Borrower may have at any time against any beneficiary or any
transferee of any Letter of Credit (or Persons for whom any such
beneficiary or any such transferee may be acting), any Bank or any
other Person, whether in connection with any Letter of Credit, any
transaction contemplated by any Letter of Credit, this Agreement or any
other Loan Document, or any unrelated transaction;
(v) Any statement or any other documents presented under any
Letter of Credit proving to be insufficient, forged, fraudulent or
invalid in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever;
(vi) The insolvency of any Person issuing any documents in
connection with any Letter of Credit;
(vii) Any breach of any agreement between the Borrower and any
beneficiary or transferee of any Letter of Credit;
(viii) Any irregularity in the transaction with respect to
which any Letter of Credit is issued, including any fraud by the
beneficiary or any transferee of such Letter of Credit;
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<PAGE> 45
(ix) Any errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph,
wireless or otherwise, whether or not they are in code;
(x) Any act, error, neglect or default, omission, insolvency
or failure of business of any of the correspondents of the Issuing
Bank; and
(xi) Any other circumstances arising from causes beyond the
control of the Issuing Bank.
Section 3.4 FEES, INCREASED COSTS, INDEMNIFICATION, EXPENSES.
(a) Letter of Credit Fee.
(i) The Borrower shall pay the Letter of Credit Fee to the
Banks, in accordance with the Banks' respective Commitment Percentages,
and to the Issuing Bank in the following amounts: (a) with respect to
the Banks, an amount equal to the Letter of Credit Obligations with
respect to each Letter of Credit multiplied by the rate equal to the
applicable LIBOR margin based upon the Borrower's ratio of Funded
Indebtedness to EBITDA (calculated in accordance with SECTION
7.18(A)(I)) as follows:
<TABLE>
<CAPTION>
Funded LIBOR
Indebtedness/EBITDA Margin (bps)
------------------- ------------
<S> <C>
> 5.0 250.00
-
> 4.5 < 5.0 225.00
-
> 4.0 < 4.5 200.00
-
> 3.5 < 4.0 175.00
-
> 3.0 < 3.5 150.00
-
> 2.5 < 3.0 125.00
-
< 2.5 100.00
</TABLE>
from the date of issuance of such Letter of Credit through and
including the later of the expiration date thereof or the date as of
which all reimbursement obligations owing with respect thereto shall be
paid in full; and (b) with respect to the Issuing Bank, an amount equal
to one-eighth of one percent (1/8%) per annum. of the stated amount of
each Letter of Credit issued by the Issuing Bank from the date of
issuance of such Letter of Credit through and including the expiration
date thereof, plus Two Hundred Fifty Dollars ($250) for issuing,
amending and renewing any Letter of Credit.
(ii) The Letter of Credit Fee shall be payable quarterly in
arrears on the last day of each quarter commencing with the quarter
ending March 31, 1998 and on the Final Maturity Date, subject to
SECTION 2.2(D) hereof.
(b) If any change in Applicable Law, any change in the interpretation
or administration thereof, or any change in compliance with Applicable Law by
the Issuing Bank as a result of any request or directive of any Governmental
Authority, central bank or comparable agency
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(whether or not having the force of law) after the date hereof shall (i) impose,
modify or deem applicable any reserve (including, without limitation, any
imposed by the Board of Governors of the Federal Reserve System), special
deposit, capital adequacy, assessment or other requirements or conditions
against letters of credit issued by the Issuing Bank or (ii) impose on the
Issuing Bank any other condition regarding this Agreement or any Letter of
Credit or any participation therein, and the result of any of the foregoing in
the determination of the Issuing Bank is to increase the cost to the Issuing
Bank of issuing or maintaining any Letter of Credit or purchasing or maintaining
any participation therein, then, on the earlier of the Final Maturity Date or a
date not more than fifteen (15) days after demand by the Issuing Bank, the
Borrower agrees to pay to the Issuing Bank, from time to time as specified by
the Issuing Bank, such additional amount or amounts as the Issuing Bank
determines will compensate it for such increased costs, from the date such
change or action is effective, together with interest on each such amount from
the Final Maturity Date or the date demanded, as applicable, until payment in
full thereof at the Base Rate. A certificate as to such increased cost incurred
by the Issuing Bank as a result of any event referred to in this subsection (b)
submitted by the Issuing Bank to the Borrower shall be conclusive, absent
manifest error, as to the amount thereof.
(c) The Borrower will indemnify and hold harmless the Agent, the
Issuing Bank and each other Bank and each of their respective employees,
representatives, officers and directors from and against any and all claims,
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever (including
reasonable attorneys' fees, but excluding taxes) which may be imposed on,
incurred by or asserted against the Agent, the Issuing Bank or any other Bank in
any way relating to or arising out of the issuance of a Letter of Credit, except
that the Borrower shall not be liable to the Agent, the Issuing Bank or any
other Bank for any portion of such claims, liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the gross negligence or willful misconduct of the Agent, the
Issuing Bank or any other Bank, as the case may be. This SUBPARAGRAPH (c) shall
survive termination of this Agreement.
(d) Each Bank shall be responsible for its pro rata share (based on
such Bank's Commitment Percentage) of any and all reasonable out-of-pocket
costs, expenses (including reasonable legal fees) and disbursements which may be
incurred or made by the Issuing Bank in connection with the collection of any
amounts due under, the administration of, or the presentation or enforcement of
any rights conferred by any Letter of Credit or the Borrower's or any
guarantor's obligations to reimburse draws thereunder or otherwise. In the event
the Borrower shall fail to pay such expenses of the Issuing Bank within thirty
(30) days of demand for payment by the Issuing Bank, each Bank shall thereupon
pay to the Issuing Bank its pro rata share (based on such Bank's Commitment
Percentage) of such expenses within ten (10) days from the date of the Issuing
Bank's notice to the Banks of the Borrower's failure to pay; provided, however,
that if the Borrower shall thereafter pay such expenses, the Issuing Bank will
pay to each Bank the amounts received from such Bank hereunder.
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ARTICLE IV
SECURITY DOCUMENTS
SECTION 4.1 SECURITY AGREEMENTS; MORTGAGES; STOCK PLEDGE AGREEMENTS;
CONCENTRATION ACCOUNT PLEDGE AGREEMENT.
The Obligations shall be secured by the Security Agreements, the
Mortgages, the Concentration Account Pledge Agreement and the Stock Pledge
Agreements which shall be executed and delivered to the Agent as follows:
(a) Security Agreements. On or prior to the Closing Date, the Borrower
and its Subsidiaries shall execute and deliver the Security Agreements in
substantially the forms attached hereto as EXHIBIT 4.1-1 and EXHIBIT 4.1-2,
respectively, and any entity which becomes a Subsidiary of the Borrower
thereafter shall execute and deliver a Security Agreement in substantially the
form attached hereto as EXHIBIT 4.1-2 at the time of its creation or acquisition
by the Borrower or its Subsidiary.
(b) Mortgages. The Borrower and its Subsidiaries previously have
delivered Mortgages with respect to their respective ownership or leasehold
interest in all real property which the Borrower and its Subsidiaries either own
or lease prior to the Closing Date (the "Original Mortgages"). As to (i) the
real property constituting the Tenet Hospitals or (ii) any other ownership or
leasehold interest in real property which the Borrower or any Subsidiary
acquires from time to time after the Closing Date, the Borrower or such
Subsidiary, as the case may be, shall execute and deliver additional Mortgages,
provided that this SECTION 4.1(B) shall not require the Borrower or its
Subsidiaries to execute and deliver any Mortgage with respect to the Excluded
Leases; and provided further that (i) prior to any such acquisition, the Agent
shall have received an Environmental Report with respect to the real property so
acquired and (ii) concurrently with the execution and delivery of each such
Mortgage the Agent shall have received a title insurance policy with respect to
any real property so acquired which is substantially similar to the title
insurance policies delivered pursuant to SECTION 5.1(J)(II)(B) hereof and, to
the extent applicable, landlord's waivers from landlords in any ground leases so
acquired which shall be in form and substance satisfactory to the Agent. By
virtue of the execution and delivery of a Mortgage pursuant to this SECTION
4.1(B) the Borrower shall be deemed to have affirmed, with respect to the real
property thereby mortgaged, the covenants set forth in SECTION 6.19 hereof.
(c) Stock Pledge Agreements. On or prior to the Closing Date, the
Borrower shall execute and deliver an Amended and Restated Stock Pledge
Agreement in substantially the form attached hereto as EXHIBIT 4.1-3. The
Borrower represents that, to the best of its knowledge after reasonable inquiry,
none of its Subsidiaries existing as of the Closing Date owns any Equity
Interests of any Person. In the event that either such Subsidiary or any entity
which becomes a Subsidiary of the Borrower after the Closing Date shall ever own
any Equity Interests of any Person, the Borrower shall, promptly upon learning
of such Equity Interest ownership, cause such Subsidiary to execute and deliver
additional agreements and documents
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as necessary to give the Banks a fully-perfected, first priority security
interest in such Equity Interests. Where the Equity Interests consist of Capital
Stock of a Person, such additional agreements and documents shall include, but
shall not be limited to, a Stock Pledge Agreement.
(d) Concentration Account Pledge Agreement. On or prior to the Closing
Date, the Borrower shall execute and deliver the Concentration Account Pledge
Agreement in substantially the form attached hereto as EXHIBIT 4.1-4.
SECTION 4.2 SUBSIDIARY GUARANTIES.
The Obligations shall be unconditionally guaranteed as set forth in the
Subsidiary Guaranties, all of which Guaranties shall be in substantially the
form attached hereto as EXHIBIT 4.2-1. Any entity which shall become a
Subsidiary of the Borrower or one of its Subsidiaries after the Closing Date
shall execute and deliver a similar Subsidiary Guaranty at the time of its
creation or acquisition by the Borrower or its Subsidiary. Notwithstanding the
foregoing, with the consent of Banks having at least seventy-five percent (75%)
of the Commitment Percentages, Partial Subsidiaries may execute and deliver a
Subsidiary Guaranty in substantially the form attached hereto as EXHIBIT 4.2-2.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.1 CONDITIONS TO COMMITMENT.
The obligation of the Banks to continue to undertake the Commitment
pursuant to the terms and conditions of this Agreement shall be subject to the
prior or contemporaneous satisfaction of each of the following conditions
precedent:
(a) Delivery of Documents. The Borrower shall have delivered or caused
to be delivered to the Agent the following documents, each duly executed by an
Authorized Representative or similar authorized person:
(i) This Agreement.
(ii) Notes executed by the Borrower payable to each of the
Banks in the Commitment Amount of each Bank. Such Notes shall replace
and supercede any Original Notes. All obligations evidenced by the
Original Notes shall continue in full force and effect, but shall be
governed by the Notes and this Agreement. The execution and delivery of
the Notes shall not be construed as a novation of the obligations
outstanding under the Original Notes.
(iii) From each Subsidiary of the Borrower which previously
has delivered an Original Subsidiary Note, an amended and restated
Subsidiary Note, which shall
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replace and supercede any Original Subsidiary Notes. All obligations
evidenced by the Original Subsidiary Notes shall continue in full force
and effect, but shall be governed by the Amended and Restated
Subsidiary Notes and this Agreement. The execution and delivery of the
Amended and Restated Subsidiary Notes shall not be construed as a
novation of the obligations outstanding under the Original Subsidiary
Notes.
(iv) From any Subsidiary of the Borrower which previously has
not delivered an Original Subsidiary Note, but as to which a Subsidiary
Note is required by the terms of SECTION 2.1(D)(II), a Subsidiary Note.
(v) The Subsidiary Guaranties: any entity which shall be a
Subsidiary of the Borrower as of the Closing Date and which previously
has executed a Subsidiary Guaranty shall execute and deliver an Amended
and Restated Subsidiary Guaranty and any other Subsidiary of the
Borrower as of the Closing Date shall deliver a Subsidiary Guaranty.
(vi) The Security Agreements.
(vii) Amendments to the Original Mortgages, in form and
substance satisfactory to the Agent, and Mortgages for the real estate
constituting the Tenet Hospitals.
(viii) The Stock Pledge Agreement.
(ix) The Concentration Account Pledge Agreement.
(x) The Agent's Fee Letter.
(xi) The Banks' Closing Fee Letter.
(xii) An intercreditor agreement regarding the Welsh Carson
Subdebt, duly executed by WCAS and otherwise in form and substance
satisfactory to the Agent in its sole discretion.
(b) Reports, Certificates and Other Information. The Agent shall have
received the following, dated and in full force and effect on the Closing Date:
(i) a certificate of the Secretary or an Assistant Secretary
of the Borrower and each of its Subsidiaries as to (A) its corporate
charter and by-laws, (B) authorization of the execution, delivery and
performance of this Agreement and all of the other Loan Documents
(including action of shareholders, where required), and (C) the
incumbency and signatures of persons authorized to act hereunder and
thereunder on behalf of the Borrower and its Subsidiaries, to which
shall be attached the resolutions of the Boards of Directors of the
Borrower and its Subsidiaries relating to the matters described in the
preceding clause (B), certified by such Secretary or Assistant
Secretary to be in full force and effect on the Closing Date;
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(ii) a certificate, signed by a Responsible Officer of the
Borrower and each of its Subsidiaries stating (A) that the
representations and warranties contained in ARTICLE VI hereof and in
each of the other Loan Agreements, as applicable, are then true and
accurate as though made on and as of such date, and (B) that there then
exists no Event of Default or Incipient Default;
(iii) good standing certificates for the Borrower and each of
its Subsidiaries bearing a date satisfactory to the Agent; and
(iv) such other instruments or documents as either the Agent
may reasonably request relating to the existence and good standing of
the Borrower or any of its Subsidiaries or corporate authority for the
execution, delivery and performance of this Agreement or any of the
other Loan Documents.
(c) Opinion of Counsel. There shall have been delivered to the Agent a
written opinion dated as of the date hereof by Harwell Howard Hyne Gabbert &
Manner, P.C., as counsel to the Borrower and its Subsidiaries, in form and
substance reasonably acceptable to the Agent, together with such additional
opinions of local counsel as Lender reasonably may request.
(d) Payment of Fees. On or before the Closing Date, the Agent shall
have received payment of any fee or other payment due the Agent or the Banks
pursuant to any of (i) the Agent's Fee Letter, (ii) the Banks' Closing Fee
Letter, or (iii) any other Loan Documents.
(e) No Existing Default. No Event of Default or event which, upon the
lapse of time or the giving of notice or both, would constitute an Event of
Default (an "Incipient Default") shall exist on the Closing Date or after giving
effect to the transactions contemplated to take place hereunder on such date.
(f) Representations and Warranties Correct. The representations and
warranties set forth in ARTICLE VI hereof and in each of the other Loan
Documents shall be true and correct on the Closing Date, and after giving effect
to the transactions contemplated to occur on such date.
(g) Legality of Transactions. It shall not be unlawful for the
Borrower, its Subsidiaries, the Agent, the Issuing Bank or the Banks to carry
out their respective obligations under this Agreement or any of the other Loan
Documents.
(h) No Material Adverse Change. Since March 31, 1997, no Material
Adverse Change shall have occurred in the consolidated financial condition,
operations or prospects of the Borrower.
(i) No Material Litigation. No action, suit, investigation, tax claim
or proceeding shall as of the Closing Date be pending or, to the knowledge of
the Borrower, threatened against or affecting the Borrower or any of its
Subsidiaries or the property of the Borrower or any of its Subsidiaries before
any court, arbitrator or administrative or governmental body other than the
matters described in SCHEDULE 5.1(I) hereto, and an Authorized Representative
shall certify
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that the matters described in said SCHEDULE 5.10) are not reasonably expected to
have a Material Adverse Effect.
(j) Security Interests and Collateral. On or before the Closing Date,
the Borrower and its Subsidiaries shall have taken or caused to be taken all
such actions as may be reasonably necessary, in the opinion of counsel to the
Agent, to give the Banks a valid and perfected first priority Lien on and
security interest in the Collateral. Such actions shall include without
limitation:
(i) The delivery to the Agent pursuant to the Security
Agreements, the Concentration Account Pledge Agreement and the Stock
Pledge Agreements relating to such Collateral of evidence satisfactory
to the Agent of the filing of proper financing statements and fixture
filings duly filed under the Uniform Commercial Code in form and
substance satisfactory to the Agent in each jurisdiction as may be
reasonably necessary or desirable in order to perfect the first
priority security interests in the Collateral created thereby.
(ii) With respect to the Collateral constituting real
property, the delivery to the Agent of the following:
(A) Evidence that counterparts of the Mortgages and
such other documents, instruments and agreements reasonably
requested by the Agent (in each case in form and substance
reasonably satisfactory to the Agent) have been duly recorded
in all places that are reasonably necessary to create a valid
and enforceable first priority Lien on all parcels of real
property constituting the Collateral delivered on the Closing
Date in favor of the Banks, subject only to Permitted
Encumbrances;
(B) A title insurance policy for each parcel of real
property constituting such Collateral in the form of an
American Land Title Association Standard Loan Policy Form 1992
(L.P. 10), with ALTA Endorsement Form 1 Coverage, insuring
that on the Closing Date, the Borrower or the applicable
Subsidiary of the Borrower owns fee simple title to such real
property and that the mortgage relating thereto is a valid
first Lien on such real property. Each such title insurance
policy shall be in an amount approved by the Agent and
normally equal to at least the Appraised Value of such real
property and contain the special endorsements requested by the
Agent. No such title insurance policy shall contain any survey
exceptions, exceptions for rights of parties in possession,
easements not of record or installments of taxes or special
assessments (other than taxes and special assessments not then
payable), or any other exceptions to coverage not approved by
the Agent. Each such title insurance policy shall contain such
reinsurance agreements as the Agent may reasonably require;
and
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(C) Evidence of the payment of the applicable fees
respecting the recordation of the Mortgages and applicable
fees respecting the recordation of amendments to the Original
Mortgages.
(iii) The Agent shall have received a landlord's waiver from
the landlord under any ground lease in form and substance satisfactory
to the Agent as to each of the leased premises (if any) which
constitutes any Collateral being delivered on the Closing Date;
provided, however, that the Agent may, in its sole discretion, waive
this requirement as to any leases which it feels are immaterial to the
overall Collateral.
(k) Environmental Report. The Agent shall have received an
Environmental Report for any real property constituting the Tenet Hospitals.
(1) Insurance. The Agent shall have received copies of policies or
binders or certificates of insurance (or evidence thereof) required by the Loan
Documents, together with lender's loss payable endorsements in form and
substance satisfactory to the Majority Banks as to insurance maintained with
respect to the Collateral to be mortgaged or pledged under the Loan Documents,
and evidence of the payment of the premium therefor.
(m) Solvency. The Agent shall have received a certificate of the Senior
Vice President, Finance and Administration, of the Borrower in form and
substance satisfactory to the Agent that the Borrower and each of its
Subsidiaries is Solvent on and as of the Closing Date;
(n) Written Receipt. If any part of the proceeds of the Loan is to be
disbursed to a Person other than the Borrower, the Agent shall have received
from the Borrower written disbursement instructions and a written receipt for
such proceeds;
(o) Notice of Authorized Representatives. The Borrower shall have
delivered a certificate to the Agent providing the names, titles and signatures
of the Authorized Representatives; and
(p) Additional Funds Advanced by WCAS and Welsh Carson.
(i) WCAS shall have loaned to the Borrower, on an unsecured,
fully subordinated basis, no less than Twenty-Five Million Dollars
($25,000,000), with a maturity of January 30, 2008, an interest rate
not in excess of ten percent (10%) per annum, providing for semi-annual
payments of accrued interest and otherwise on terms and conditions
satisfactory to the Agent, in its sole discretion.
(ii) Welsh Carson shall have made additional capital
contributions to the Borrower in the aggregate amount of Seventeen
Million Seven Hundred Sixty Thousand Dollars ($17,760,000), the
proceeds of which will be used by Borrower in connection with its
acquisition of the Tenet Hospitals.
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(q) Other Documents. The Agent shall have received any other document,
instrument, undertaking or certificate required by any of the Loan Documents to
be delivered on or prior to the Closing Date.
SECTION 5.2 CONDITIONS TO EACH LOAN.
The obligation of the Banks to make any Loan is subject to the prior or
contemporaneous satisfaction of each of the following conditions precedent on
and as of the date of such Borrowing:
(a) Closing Date. The Closing Date shall have occurred;
(b) No Existing Default. No Event of Default or Incipient Default shall
exist at the date of such Borrowing or after giving effect to the transactions
contemplated to take place hereunder on such date;
(c) Representations and Warranties Correct. The representations and
warranties set forth in ARTICLE VI hereof shall be true and correct at the date
of such Borrowing and after giving effect to the transactions contemplated to
take place hereunder on such date;
(d) Loan Request. The Agent shall have received a Loan Request which
shall (i) describe the Permitted Purposes for which such Loan is being requested
and the amount of such Loan to be applied to each such Permitted Purpose, (ii)
certify that the amount of such Loan allocable to working capital purposes,
together with the outstanding principal amount of Loans previously made for such
purposes, does not exceed Ten Million Dollars ($10,000,000) and (iii) constitute
a certification by the Borrower that the conditions set forth in this SECTION
5.2 are or will be satisfied on and as of the date of such Borrowing;
(e) No Material Adverse Change. No Material Adverse Change shall have
occurred since March 31, 1997;
(f) Permitted Acquisition. Any acquisition to be funded with the
requested Loan shall constitute a Permitted Acquisition;
(g) Payment of Indebtedness Tax. Any recording tax under Tennessee Code
Annotated, Section 67-4-409 shall have been paid.
(h) Additional Conditions. The Agent shall have received all such other
certificates, reports, statements, or other documents as the Agent may
reasonably request, and all other conditions to the making of such Loan which
are set forth in this Agreement, including, but not limited to, those set forth
in SECTION 4.1 AND SECTION 4.2 hereof, shall have been fulfilled.
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SECTION 5.3 CONDITIONS PRECEDENT TO EACH LETTER OF CREDIT.
The obligation of the Issuing Bank to issue each Letter of Credit is
subject to the fulfillment of each of the following conditions immediately prior
to or contemporaneously with the issuance of such Letter of Credit:
(a) Closing Date. The Closing Date shall have occurred;
(b) Representations and Warranties Correct. All of the representations
and warranties set forth in ARTICLE VI hereof shall be true and correct at the
date of issuance of the Letter of Credit and after giving effect to such
issuance;
(c) No Existing Default. There shall not exist on the date of issuance
of such Letter of Credit, and after giving effect thereto, an Event of Default
or an Incipient Default;
(d) Request for Issuance of Letter of Credit. The Agent and the Issuing
Bank shall have received a Request for Issuance of Letter of Credit which shall
constitute a certification by the Borrower that (i) the conditions set forth in
this Section 5.3 are or will be satisfied on and as of the date of issuance of
such Letter of Credit; and (ii) the Letter of Credit is being requested for a
Permitted Purpose;
(e) No Material Adverse Change. No Material Adverse Change shall have
occurred since March 31, 1997;
(f) Permitted Acquisition Any acquisition for which the Letter of
Credit is being issued shall constitute a Permitted Acquisition; and
(g) Additional Conditions. The Agent and the Issuing Bank shall have
received all such other certificates, reports, statements or other documents as
the Agent or the Issuing Bank may reasonably request, and all other conditions
to the issuance of such Letter of Credit which are set forth in this Agreement,
including, but not limited to, those set forth in SECTION 4.1 and SECTION 4.2
hereof, shall have been fulfilled.
SECTION 5.4 CONDITIONS FOR THE BENEFIT OF THE AGENT AND THE BANKS.
The conditions set forth in this ARTICLE V are for the exclusive
benefit of the Banks and the Agent and may be waived only by a written waiver
signed by the Majority Banks and the Agent. For purposes of determining
satisfaction of the conditions set forth in Section 5.1 hereof, each Bank agrees
that, by funding its Commitment Percentage of the initial Borrowing subsequent
to the Closing Date, it will be deemed to have approved any matter in such
conditions requiring its approval. For purposes of determining satisfaction or
waiver of the conditions set forth in Section 5.2 hereof for any Borrowing
subsequent to such initial Borrowing, each Bank which funds its Commitment
Percentage of such subsequent Borrowing shall be deemed to have approved any
matter disclosed by the Borrower in writing to such Bank and the Agent at least
three (3) Banking Days prior to such Borrowing, which writing refers
specifically to Section 5.2 and Section 5.4 hereof and includes a statement to
the effect
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that such Bank's funding shall be deemed a waiver of the applicable condition
with respect to such matter. Such waiver shall not be deemed a waiver with
respect to the conditions applicable to any subsequent Borrowing, but the
Borrower shall not be required to send the Banks or the Agent any additional
written notice.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
In order to induce the Agent, the Issuing Bank and the Banks to enter
into this Agreement, to extend the Loans and to issue the Letters of Credit, the
Borrower makes the following representations and warranties to the Agent, the
Issuing Bank and the Banks, all of which shall be true and correct as of the
Closing Date and shall survive the execution of this Agreement:
SECTION 6.1 DUE ORGANIZATION.
Each of the Borrower and its Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, and each is duly licensed or qualified to conduct business, and
each is in good standing in, each jurisdiction wherein the character of the
property owned or the nature of the business transacted by it makes such
licensing or qualification necessary (except for jurisdictions in which the
failure to so qualify or be in good standing would not have a Material Adverse
Effect).
SECTION 6.2 ORGANIZATION, STANDING AND QUALIFICATION OF SUBSIDIARIES.
(a) Set forth in SCHEDULE 6.2 attached hereto is a complete and
accurate list of the Borrower's Subsidiaries as of the date hereof, showing
their respective jurisdictions of organization, the jurisdictions in which each
is qualified to do business and all trade names or assumed or fictitious names
used by any Subsidiary.
(b) The organizational documents and all amendments thereto for the
Borrower and each of its Subsidiaries have been duly filed (where required) and
are in proper order. All of the outstanding Equity Interests of the Borrower and
its Subsidiaries have been validly issued in compliance with all federal and
state securities laws and are fully paid and nonassessable. Except as specified
in SCHEDULE 6.2, all of the Equity Interests of or other ownership interest in
each of the Subsidiaries is owned by the Borrower or one of its Subsidiaries
free and clear of all Liens.
(c) Other than certain Equity Interests held by Welsh Carson, the terms
of which are disclosed on SCHEDULE 6.2, neither the Borrower nor any of its
Subsidiaries is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any of its Equity Interests, provided,
however, that any Partial Subsidiary of the Borrower may at any time redeem any
Equity Interests held by Persons who are not Affiliates of the Borrower at a
redemption price not in excess of the fair market value of such Equity
Interests.
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SECTION 6.3 ABSENCE OF CERTAIN ACTIVITIES.
Except as set forth on SCHEDULE 6.2 attached hereto, neither the
Borrower nor any of its Subsidiaries is a partner in any partnership or a joint
venturer in any joint venture, which partnership or joint venture has not been
previously disclosed to and approved by the Majority Banks; provided, however,
that the foregoing representation shall be limited to the knowledge of the
Borrower following reasonable inquiry as to any partnerships or joint ventures
of those Subsidiaries having as their primary business the operation of acute
care facilities.
SECTION 6.4 REQUISITE POWER.
Each of the Borrower and its Subsidiaries has all requisite corporate,
partnership or other organizational power and all governmental licenses,
permits, authorizations, consents and approvals necessary to own and operate its
respective properties and to carry on its respective business as now conducted
and as proposed to be conducted (except where the failure to do so would not
have a Material Adverse Effect). Each of the Borrower and its Subsidiaries has
all requisite power to borrow the sums provided for in this Agreement and to
execute, deliver, issue and perform this Agreement, the Notes, the Subsidiary
Notes, the Security Agreements, the Concentration Account Pledge Agreement, the
Mortgages, the Subsidiary Guaranties, the Stock Pledge Agreements and the other
Loan Documents to which any of them is a party.
SECTION 6.5 AUTHORIZATION.
All action on the part of the Borrower and its Subsidiaries and their
respective directors, stockholders, partners, managers and members necessary for
the authorization, execution and delivery and performance of this Agreement, the
Notes, the Subsidiary Notes, the Security Agreements, the Concentration Account
Pledge Agreement, the Mortgages, the Subsidiary Guaranties, the Stock Pledge
Agreements and the other Loan Documents has been duly taken and is in full force
and effect.
SECTION 6.6 OFFICER AUTHORIZATION.
Each natural person executing this Agreement or any of the other Loan
Documents on behalf of the Borrower or its Subsidiaries is (as of the date of
such execution) duly and properly in office and fully authorized to execute and
deliver the same.
SECTION 6.7 BINDING NATURE.
This Agreement, the Notes, the Subsidiary Notes, the Security
Agreements, the Mortgages, the Subsidiary Guaranties, the Concentration Account
Pledge Agreement, the Stock Pledge Agreements and each of the other Loan
Documents are, or upon the execution and delivery thereof will be, a legal,
valid and binding obligation of the Borrower or its Subsidiaries, with respect
to which any of such parties is a signatory thereto, in full force and effect
and enforceable in accordance with its respective terms, except for the effect
of applicable laws regarding bankruptcy or insolvency and the effect of
equitable principles generally.
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SECTION 6.8 NO CONFLICT.
Neither the execution nor delivery of this Agreement, the Notes, the
Subsidiary Notes, the Security Agreements, the Concentration Account Pledge
Agreement, the Mortgages, the Subsidiary Guaranties, the Stock Pledge Agreements
or any of the other Loan Documents nor performance of nor compliance with the
terms and provisions hereof or thereof will (a) conflict with or result in a
breach of any Governmental Requirement or any other material agreement or
instrument binding upon the Borrower or any of its Subsidiaries, or conflict
with or result in a breach of any provision of the corporate charter or by-laws,
partnership, or other constituent document of the Borrower or any of its
Subsidiaries, or (b) result in the creation or imposition of any Lien upon any
property of the Borrower or any of its Subsidiaries pursuant to any such
agreement or instrument (other than pursuant to the Security Agreements, the
Concentration Account Pledge Agreement, the Subsidiary Guaranties, the Mortgages
and the Stock Pledge Agreements). No authorization, consent or approval or other
action by, and no notice to or filing with, any Governmental Authority is
required to be obtained or made by the Borrower or any of its Subsidiaries,
other than those which will be obtained or made prior to the date hereof, for
the due execution, delivery and performance by the Borrower or its Subsidiaries
of this Agreement, the Notes, the Subsidiary Notes, the Security Agreements, the
Concentration Account Pledge Agreement, the Mortgages, the Subsidiary
Guaranties, the Stock Pledge Agreements or any of the other Loan Documents or
for the validity or enforceability thereof.
SECTION 6.9 NO EVENT OF DEFAULT.
No Event of Default or Incipient Default has occurred and is continuing
or will result from the execution, delivery or performance of this Agreement,
the Notes, the Subsidiary Notes, the Security Agreements, the Concentration
Account Pledge Agreement, the Mortgages, the Subsidiary Guaranties, the Stock
Pledge Agreements or any of the other Loan Documents.
SECTION 6.10 FINANCIAL STATEMENTS.
The financial statements most recently delivered to the Agent pursuant
to SECTION 7.2 hereof fairly present the financial condition and results of
operations of the Borrower consolidated with its Subsidiaries. All such
financial statements were prepared in accordance with GAAP consistently applied
throughout the respective periods covered thereby, except that financial
statements not dated as of the end of a fiscal year are subject to adjustments
upon audit. Except as disclosed in such financial statements or otherwise
disclosed in writing to the Banks, neither the Borrower nor any Subsidiary of
the Borrower is liable for any material liability, direct or contingent,
including, but not limited to, liabilities for taxes, long-term leases or
long-term commitments, which would be required to be shown as a liability or
otherwise disclosed in current financial statements.
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SECTION 6.11 NO ADVERSE CHANGE.
Since March 31, 1997, there has been no Material Adverse Change, and
there has occurred no event which would have a Materially Adverse Effect on the
Borrower or any of its Subsidiaries.
SECTION 6.12 REAL PROPERTY.
Each of the Borrower and its Subsidiaries has good marketable title in
fee simple to, or a valid and subsisting leasehold interest in, all real
property reasonably necessary for the operation of its business as a whole, free
from all Liens, charges, mortgages, deeds of trust, security interests and
encumbrances of any nature whatsoever, except for Permitted Encumbrances.
SECTION 6.13 EQUIPMENT.
The Borrower and its Subsidiaries own or have the right to use, under
valid and subsisting leases, equipment and fixtures reasonably necessary for the
operation of their business as a whole. Substantially all of the tangible
property of the Borrower and its Subsidiaries used in connection with their
business is in good operating condition (ordinary wear and tear excepted),
usable in the ordinary course of business, and is adequate for the operation of
their business.
SECTION 6.14 CONTRACTS.
Neither the Borrower nor any of its Subsidiaries nor, to the best
knowledge of the Borrower, any other party to any of the material contracts to
which the Borrower or any of its Subsidiaries is a party ("Key Contracts") is in
material default thereunder, and there are no presently existing facts or
circumstances which, if continued or on notice, could reasonably be expected to
result in such a material default on the part of the Borrower or any of its
Subsidiaries, or, to the best knowledge of the Borrower, on the part of the
other party thereto. The Borrower has no knowledge that any other party to any
of the Key Contracts intends to terminate such Key Contract.
SECTION 6.15 INTELLECTUAL PROPERTY.
SCHEDULE 6.15, attached hereto contains a complete and correct list of
all material patents, copyrights, trademarks, licenses, service marks, trade
names and other similar rights (the "Intellectual Property Rights") used by the
Borrower or any of its Subsidiaries. No proceedings have been instituted or are
pending or have been threatened in writing which challenge the validity,
ownership or use of any such Intellectual Property Rights which could reasonably
be expected to have a Material Adverse Effect. To the best knowledge of the
Borrower, no infringement of any Intellectual Property Right of any third party
has occurred or would result in any way from the operations or business of the
Borrower or any of its Subsidiaries, and, except as set forth in SCHEDULE 6.15,
no claim has been made by any
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such third party based on allegation of any such infringement which could
reasonably be expected to have a Material Adverse Effect.
SECTION 6.16 LITIGATION.
There is no action, suit, investigation, tax claim or proceeding
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower or any of its Subsidiaries or the property of the Borrower or any
of its Subsidiaries before any court, arbitrator or administrative or
governmental body which would reasonably be expected to have a Material Adverse
Effect.
SECTION 6.17 TAX RETURNS AND TAX MATTERS.
Each of the Borrower and each of its Subsidiaries has filed all federal
and state income tax returns which are required to be filed, and each has paid
all taxes as shown on said returns and on all assessments received by it to the
extent that such taxes have become due. There is no proposed, asserted or
assessed material tax deficiency against the Borrower or any of its
Subsidiaries, except those being contested in good faith and for which such
reserve as is required by GAAP has been created.
SECTION 6.18 EMPLOYEE BENEFITS.
(a) Plans Maintained. Except as provided in SCHEDULE 6.18(i) with
respect to clauses (i) and (iii) below or in SCHEDULE 6.18(ii) with respect to
clauses (ii) and (iv) below, neither the Borrower nor any Controlled Group
member is a party to, contributes to or is currently obligated to contribute to
any plans, programs, agreements, policies, commitments or other arrangements
(whether or not set forth in a written document) in the following categories:
(i) Any funded employee pension benefit plan subject to Title
IV of ERISA, including (without limitation) any Multiemployer Plan,
except as disclosed to and approved by the Majority Banks,
(ii) Any material plan, program, agreement, policy, commitment
or other arrangement relating to severance or termination pay, whether
or not published or generally known,
(iii) Any material retiree health care plan (as described in
SECTION 6.18(G) hereof) and any material retiree life insurance plan,
and
(iv) Any material plan that is an excess benefit plan or a
"top hat" plan, as defined in Section 3(36) or Section 301(a) (3) of
ERISA, and is unfunded, as described in Section 4(b) (5) or Section
301(a)(3) of ERISA.
(b) Reporting and Disclosure. With respect to each Employee Benefit
Plan, including employee welfare benefit plans not required to be listed in
SCHEDULE 6.18(i) or
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SCHEDULE 6.18(ii), which is subject to the reporting, disclosure and record
retention requirements set forth in Part I of Subtitle B of Title I of ERISA and
the regulations thereunder, each of such requirements has been fully met on a
timely basis, except where instances of failing to do so could not, considered
in the aggregate, have a Material Adverse Effect.
(c) Qualification of Plans. Except as provided on SCHEDULE 6.18(i),
each plan which is listed in SCHEDULE 6.18(i) attached hereto, and which is
intended to be qualified under Section 401(a) of the Code, has been determined
by the Internal Revenue Service in writing to be so qualified or, for amendments
not related to TRA 86, such application has been submitted and not yet denied.
To the best knowledge of the Borrower, since the Internal Revenue Service issued
its determination with respect to any such plan (or, with respect to pending
applications, since the date such application was submitted) there has been no
occurrence (including, without limitation, a plan amendment, the enactment of
legislation or the adoption of regulations) that could cause such plan not to be
so qualified. Within the applicable remedial amendment period described in the
regulations under Section 401(b) of the Code, an application for such a
determination was or will be filed with the Internal Revenue Service with
respect to each amendment to any such plan for which a failure to do so could
reasonably be expected to have a Material Adverse Effect. Each such plan has in
all material respects been administered in accordance with its terms and the
applicable provisions of ERISA and the Code and the regulations thereunder.
(d) Contributions and Premiums. All material contributions, premiums or
other payments due from the Borrower or any other member of the Controlled Group
to (or under) any Employee Benefit Plan have been fully paid or adequately
provided for on the books and financial statements of the Borrower or other
member of the Controlled Group.
(e) Litigation and Extraordinary Claims. There are no pending or, to
the best knowledge of the Borrower, threatened claims, actions or lawsuits,
other than routine claims for benefits in the usual and ordinary course,
asserted or instituted against (i) any Employee Benefit Plan, (ii) any member of
the Controlled Group with respect to any Employee Benefit Plan, or (iii) any
fiduciary with respect to any Employee Benefit Plan, for which the Borrower may
be directly or indirectly liable, through indemnification obligations or
otherwise that, in the aggregate could reasonably be expected to have a Material
Adverse Effect.
(f) Prohibited Transactions. To the best knowledge of the Borrower,
with respect to each Employee Benefit Plan which is subject to Part 4 of
Subtitle B of Title I of ERISA, there does not now exist, nor has there existed
within the six-year period ending on the date hereof, any act or omission which
constitutes a violation of Section 406 or 407 of ERISA and is not exempted by
Section 408 of ERISA or which constitutes a violation of Section 4975(c) of the
Code and is not exempted by Section 4975(d) of the Code, except for violations
which, considered in the aggregate, would not have a Material Adverse Effect.
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(g) COBRA. To the best knowledge of the Borrower, the Borrower and its
Subsidiaries are in compliance with the requirements of COBRA, except for
violations which, considered in the aggregate, would not have a Material Adverse
Effect.
SECTION 6.19 ENVIRONMENTAL MATTERS.
Based upon inquiries and inspections undertaken by or conducted under
the auspices of Responsible Officers of the Borrower and each of its
Subsidiaries, the Borrower and its Subsidiaries are not aware of any facts or
reports that would make the following representations untrue or incorrect,
except as may be disclosed in Environmental Reports furnished by the Borrower to
the Agent:
(a) (i) The properties and operations of the Borrower and each of its
Subsidiaries comply in all respects with all applicable Environmental Laws; (ii)
none of the properties or operations of the Borrower or any of its Subsidiaries
is subject to any judicial or administrative proceeding alleging the violation
of any Environmental Law; (iii) none of the properties or operations of the
Borrower or any of its Subsidiaries is the subject of any federal or state
investigation concerning any use or release of any Hazardous Substance; (iv)
neither the Borrower nor any of its Subsidiaries, nor, to the best knowledge of
the Borrower, any predecessor of the Borrower or any of its Subsidiaries, has
filed any notice under any federal or state law indicating past or present
treatment, storage or disposal of a Hazardous Substance or reporting a spill or
release of a Hazardous Substance into the environment; (v) neither the Borrower
nor any of its Subsidiaries has any contingent liability in connection with any
release of any Hazardous Substance into the environment, and no such release
which could, under applicable law, require remediation has occurred; (vi)
neither the Borrower nor any of its Subsidiaries' operations involve the
generation, transportation, treatment, storage or disposal of Hazardous
Substances, except for the generation of Hazardous Substances in the ordinary
course of business, and except for such activities carried out through licensed
independent contractors; (vii) neither the Borrower nor any of its Subsidiaries
has disposed of any Hazardous Substance on or about any premises owned, leased
or used by the Borrower or any of its Subsidiaries and, to the best of the
knowledge of the Borrower, neither has any lessee, prior owner, or other Person;
and (viii) the existence of any surface impoundments or underground storage
tanks located in, on or about any of the premises owned, leased or used by the
Borrower or any of its Subsidiaries has been disclosed to the Agent, and any
such impoundments or tanks so disclosed do not violate any Environmental Laws;
and, in the case of clauses (i) through (viii) above, any failure of the
foregoing to be true and correct would reasonably be expected in the aggregate
to have a Material Adverse Effect.
(b) No Lien in favor of any Governmental Authority for (i) any
liability under Environmental Laws or (ii) damages arising from or costs
incurred by such Governmental Authority in response to a release of any
Hazardous Substance into the environment has been filed or attached to any of
the premises owned, leased or used by the Borrower or any of its Subsidiaries.
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SECTION 6.20 INSURANCE.
SCHEDULE 6.20 attached hereto contains a complete and accurate list of
all insurance policies maintained by the Borrower and its Subsidiaries. The
Borrower and each of its Subsidiaries maintains such insurance with insurers
duly licensed in the applicable jurisdictions, in such amounts and against such
risks and losses as is reasonable for their business and properties. All such
insurance is in full force and effect and all premiums due in respect thereof
have been paid.
SECTION 6.21 COMPLIANCE WITH LAWS.
Except as set forth in SCHEDULE 6.21 attached hereto, the Borrower and
each of its Subsidiaries are in compliance with all Governmental Requirements
applicable to their properties, assets and business with only such exceptions as
in the aggregate could not have a Material Adverse Effect. There are no
proceedings pending or, to the best of their knowledge, threatened, to terminate
or modify any material Governmental Approvals.
SECTION 6.22 STATUTORY REGULATION.
Neither the Borrower nor any of its Subsidiaries is an investment
company within the meaning of the Investment Company Act of 1940, as amended, or
is, directly or indirectly, controlled by or acting on behalf of any person
which is an investment company, within the meaning of said Act. Neither the
Borrower nor any of its Subsidiaries is subject to any state law or regulation
regulating public utilities or similar entities, or is, within the meaning of
the Public Utility Holding Company Act of 1935, as amended: (a) a holding
company; (b) a subsidiary or Affiliate of a holding company; or (c) a public
utility. Neither the Borrower nor any of its Subsidiaries is subject to
regulation under the Interstate Commerce Act or the Federal Power Act or under
any other federal or state statute or regulation limiting or placing conditions
upon their respective power or right to borrow money.
SECTION 6.23 USE OF PROCEEDS; REGULATION U.
Neither the Borrower nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any margin stock (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
of the United States). No part of the proceeds of the Loans will be used to
purchase or carry any such margin stock or to extend credit to others for the
purpose of purchasing or carrying any such margin stock, except in compliance
with such regulations. No part of the proceeds of the Loans will be used for any
purpose which violates the provisions of Regulation G, T, U or X of said Board
of Governors.
SECTION 6.24 SOLVENCY.
After giving effect to the transactions contemplated by this Agreement
and the other Loan Documents, including all of the Loans made and to be made
hereunder, the Borrower and each of its Subsidiaries are (and will be as a
consequence thereof) Solvent.
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SECTION 6.25 FISCAL YEAR.
The fiscal year of the Borrower ends on March 31.
SECTION 6.26 HEALTH CARE RELATED MATTERS.
(a) Except as disclosed on SCHEDULE 6.26 hereof, each acute care
facility or related business operated by the Borrower or any of its Subsidiaries
has: (i) where required by Applicable Law, obtained all CONs; (ii) obtained and
maintains in good standing all required Health Facility Licenses; (iii) obtained
and maintains applicable JCAHO accreditation for its acute care facilities or
related businesses; (iv) obtained and maintains Medicaid Certification and
Medicare Certification; (v) entered into and maintains in good standing its
Medicaid Provider Agreement and its Medicare Provider Agreement; (vi) is in
substantial compliance with the material conditions of participation in
Medicaid, Medicare and CHAMPUS programs and the conditions of participation in
each such program and with the indigent care conditions, if any, applicable to
each acute care facility or related business of the Borrower and its
Subsidiaries.
(b) The Medicare cost reports of each acute care facility or related
business of the Borrower and its Subsidiaries and of the home office of the
Borrower have been properly completed and duly filed with the Medicare
intermediary or other HCFA agents for all cost reporting periods.
(c) The Medicaid cost reports of each acute care facility or related
business of the Borrower and its Subsidiaries and of the home office of the
Borrower have been properly completed and duly filed with the agencies or agents
responsible for audits of same for all cost reporting periods. The status of
each audit with respect to such cost reports is described on SCHEDULE 6.26
hereto.
(d) The accounts receivable of the Borrower and its Subsidiaries have
been and will continue to be adjusted to reflect reimbursement policies of third
party payors such as Medicare, Medicaid, Blue Cross/Blue Shield, private
insurance companies, health maintenance organizations and preferred provider
organizations.
SECTION 6.27 RELATED AGREEMENTS.
All representations and warranties of the Borrower contained in any
Loan Documents are true and correct as if made on the date hereof and the
Borrower hereby adopts and affirms all such representations and warranties which
the Borrower agrees shall be incorporated by reference herein and made a part
hereof.
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ARTICLE VII
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, so long as any Obligation is
outstanding or any Commitment is in effect, it will comply with and, if
applicable, cause each of its Subsidiaries to comply with the following
provisions:
SECTION 7.1 ACCOUNTING RECORDS.
The Borrower and each of its Subsidiaries shall maintain adequate books
and accounts in accordance with sound business practices and GAAP consistently
applied. In the event of any changes in GAAP or in the application of GAAP to
the Borrower and its Subsidiaries, the parties shall, unless they agree
otherwise, continue to determine the compliance of the Borrower with the
covenants herein set forth and otherwise interpret the provisions of this
Agreement based on GAAP prior to any such changes.
SECTION 7.2 FINANCIAL STATEMENTS AND NOTICES.
The Borrower shall furnish the following financial statements,
information and notices:
(a) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, within forty-five (45) days after the end of each month,
commencing with the month ending December 31, 1997: (i) a statement of
stockholders equity for such month; (ii) a statement of changes in financial
position or statement of cash flows (whichever is required by GAAP) for such
month; (iii) an income statement for such month; and (iv) a balance sheet as of
the end of such month. All such statements shall be prepared on a consolidated
and consolidating basis for the Borrower and its Subsidiaries, in reasonable
detail, subject to year-end audit adjustments and without footnotes, shall
include appropriate comparisons to the same period for the prior year, and shall
be certified by the Senior Vice President, Finance and Administration, of the
Borrower to have been prepared in accordance with GAAP consistently applied,
subject to year-end audit adjustments;
(b) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, within forty-five (45) days after the end of each fiscal
quarter of the Borrower, commencing with the fiscal quarter ending March 31,
1998: (i) a statement of stockholders equity for such quarter; (ii) a statement
of changes in financial position or statement of cash flows (whichever is
required by GAAP) for such quarter; (iii) an income statement for such month;
and (iv) a balance sheet as of the end of such month. All such statements shall
be prepared on a consolidated and consolidating basis for the Borrower and its
Subsidiaries, in reasonable detail, subject to year-end audit adjustments and
without footnotes, shall include appropriate comparisons to the same period for
the prior fiscal year, and shall be certified by the Senior Vice President,
Finance and Administration, of the Borrower to have been prepared in accordance
with GAAP consistently applied, subject to year-end audit adjustments;
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(c) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, within ninety (90) days after the close of each fiscal
year of the Borrower, commencing with the fiscal year ending March 31, 1998, for
the Borrower and its Subsidiaries on a consolidated and consolidating basis: (i)
a statement of stockholders equity for such fiscal year; (ii) a statement of
changes in financial position or statement of cash flows (whichever is required
by GAAP) for such fiscal year; (iii) an income statement for such fiscal year;
and (iv) a balance sheet as of the end of such fiscal year; and setting forth in
each case in comparative form the figures for the previous fiscal year. All
statements required by this SECTION 7.2(C) shall include appropriate comparisons
to the prior fiscal year. Such consolidated financial statements shall be
audited by KPMG Peat Marwick LLP or another independent certified public
accounting firm acceptable to the Majority Banks and shall include a report of
such accounting firm, which report shall be unqualified and shall state that
such financial statements fairly present the financial position of the Borrower
and its Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated in conformity with
GAAP, consistently applied. Such accounting firm shall also certify to the Agent
and the Banks that in the course of the regular annual examination of the
business of the Borrower and its Subsidiaries, which examination was conducted
by such accounting firm in accordance with generally accepted auditing
standards, such accounting firm has obtained no knowledge that an Event of
Default or an Incipient Default has occurred and is continuing as of the date of
certification, or if, in the opinion of such accounting firm, an Event of
Default or an Incipient Default has occurred and is continuing, a statement as
to the nature thereof. Such accounting firm shall also prepare a letter to
management of the Borrower in connection with the preparation of such audit
report which the Borrower shall deliver to the Agent and each Bank within five
Banking Days of receipt thereof;
(d) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, (i) contemporaneously with each monthly, quarterly and
year-end financial report required by the foregoing SUBPARAGRAPHS (A), (B) AND
(C), a certificate of a Responsible Officer (A) stating that, to the best of
such officer's knowledge after due inquiry, no Event of Default or Incipient
Default exists on the date of such certificate, or if any Event of Default or
Incipient Default then exists, setting forth the details thereof and the action
that the Borrower is taking or proposes to take with respect thereto, (B)
stating whether, since the date of the most recent financial statements
previously delivered pursuant to the foregoing SUBPARAGRAPH (A), (B) OR (C),
there has been a change in the generally accepted accounting principles applied
in preparing the financial statements then being delivered from those applied in
preparing the most recent audited financial statements so delivered which is
material to the financial statements then being delivered, (C) furnishing
calculations demonstrating compliance with the covenants contained in SECTION
7.18 hereof, and (D) attaching management's summary of the results contained in
such financial statements, and (ii) contemporaneously with each such quarterly
and annual financial report, a certificate of a Responsible Officer furnishing
calculations demonstrating compliance with the covenant set forth in SECTION
8.11 hereof;
(e) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, contemporaneously with each six (6) month and year-end
financial report required by the foregoing SUBPARAGRAPHS (A) AND (B), an
addendum to SCHEDULE 6.2 as to the identity
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of, and jurisdictions of incorporation or organization of, the Borrower's
Subsidiaries to the extent that such information set forth in SCHEDULE 6.2 has
changed since the Closing Date or the date of the most recent addendum thereto;
(f) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, the information required under the Security Agreements
with respect to (i) changes in the executive offices of the Borrower or any
Subsidiary or locations at which records with respect to the accounts receivable
of the Borrower or any Subsidiary are kept, as specified by Section 11(a)
thereof, and (ii) changes in or additions to the locations at which the
inventory and equipment of the Borrower and its Subsidiaries are kept, as
specified by Section 9(a) of the Security Agreements;
(g) To the Agent, upon the creation or acquisition of any new
Subsidiary or of any investment that results in a new Subsidiary, a Security
Agreement, a Subsidiary Guaranty and (to the extent applicable) one or more
Mortgages and a Subsidiary Note, all duly executed by such new Subsidiary, and a
Stock Pledge Agreement duly executed by the Borrower or its applicable
Subsidiary, as the case may be;
(h) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, contemporaneously with each year-end financial report
required by the foregoing SUBPARAGRAPH (C), a schedule identifying all insurance
then in effect and certificates evidencing such insurance;
(i) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, promptly after they are released, sent, made available or
filed, copies of all press releases, material reports, proxy statements and
financial statements that the Borrower sends or makes available to its
stockholders generally and all registration statements and reports that the
Borrower files with the Securities and Exchange Commission or any other
governmental official, agency or authority; copies of all such reports provided
that include the information required to be provided pursuant to SECTION 7.2(A),
(B) OR (C) shall to that extent be deemed to satisfy such requirements;
(j) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, promptly but in no event later than one (1) Banking Day
after a Responsible Officer of the Borrower obtains knowledge of (i) the
occurrence of an Event of Default or an Incipient Default, or (ii) any default
or event of default as defined in any evidence of Indebtedness in excess of One
Million Dollars ($1,000,000) or under any agreement, indenture or other
instrument under which such Indebtedness has been created, whether or not such
Indebtedness is accelerated or such default waived, notification thereof, and,
within five (5) calendar days after obtaining such knowledge, a statement of a
Responsible Officer setting forth details thereof and the action which the
Borrower proposes to take with respect thereto;
(k) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, as soon as available, any written report involving the
internal controls of the Borrower and its Subsidiaries submitted to the Borrower
by its independent public accountants in
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connection with their annual or any interim special audit of the financial
condition of the Borrower and its Subsidiaries;
(1) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, promptly but in no event later than five (5) calendar days
after a Responsible Officer learns thereof, written notice of any actual or
threatened claim, litigation, suit, investigation, proceeding or dispute against
or affecting the Borrower or any of its Subsidiaries which: (i) may have a
Material Adverse Effect; (ii) involves a monetary amount in excess of One
Million Dollars ($1,000,000) and is not covered by insurance; (iii) is
reasonably expected to result in a strike, work stoppage, boycott, shutdown or
other labor disruption against or involving the Borrower or any of its
Subsidiaries which could reasonably be expected to have a Material Adverse
Effect; (iv) could reasonably be expected materially to limit, prohibit or
restrict the manner in which the Borrower or any of its Subsidiaries currently
conducts its business; or (v) concerns any alleged violation by the Borrower or
any of its Subsidiaries, or any of their respective predecessors, of any
Environmental Law, where there exists a reasonable possibility that such
violation could materially affect any of the properties or the operations of the
Borrower or such Subsidiary or any alleged material noncompliance of any of the
properties or the operations of the Borrower or such Subsidiary therewith;
(m) To the Agent, as soon as possible, and in any event within twenty
(20) calendar days, after a Responsible Officer learns that any of the following
events has occurred, a statement describing such event and any action that the
Borrower proposes to take with respect thereto: (i) any Reportable Event with
respect to a Pension Plan; (ii) the institution of proceedings by the PBGC to
terminate any Pension Plan or to have a trustee appointed to administer such
plan, or receipt of notice of any intention by the PBGC to do so; (iii) the
filing of a request for a minimum funding waiver by the Borrower or a member of
the Controlled Group under Section 412 of the Code with respect to any Pension
Plan or any employee pension benefit plan (as defined in Section 3(2) of ERISA)
maintained by any member of the ERISA Affiliated Group; or (iv) the receipt by
the Borrower or any other member of the Controlled Group of a material demand
for withdrawal liability under Section 4219 or 4202 of ERISA;
(n) To the Agent, as soon as possible, and in any event within ten (10)
days after receipt of a written request from the Agent or the Majority Banks:
(i) a copy of any Employee Benefit Plan or summary description of such plan;
(ii) a copy of any report, description or other document filed with any
governmental agency with respect to any Employee Benefit Plan or any plan (as
defined in Section 3(3) of ERISA) maintained by the Borrower or any ERISA
Affiliate; or (iii) a copy of any notice, determination letter, ruling or
opinion that the Borrower or any other Controlled Group member receives from any
governmental agency with respect to any Employee Benefit Plan;
(o) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, not later than thirty (30) days prior to commencement of
each fiscal year of the Borrower, a copy of the Borrower's consolidated
financial projections for such fiscal year, including a projected consolidated
balance sheet, income statement, and statement of changes
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in financial position or statement of cash flows for and as of the end of such
fiscal year, together with the annual budget for such fiscal year;
(p) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, not later than ten (10) Banking Days prior to incurring
any Welsh Carson Subdebt in addition to the WCAS Subdebt, a certificate of a
Responsible Officer (i) stating that, to the best of such officer's knowledge
after due inquiry, no Event of Default or Incipient Default exists on the date
of such certificate, and (ii) furnishing calculations demonstrating, on a pro
forma basis showing the effects of such additional Welsh Carson Subdebt,
compliance with the covenants contained in SECTION 7.18 hereof; and
(q) To the Agent, with sufficient copies for distribution by the Agent
to each of the Banks, within a reasonable time after a request therefor, such
other information as the Agent or the Majority Banks may reasonably request.
SECTION 7.3 INSPECTION OF PROPERTY BOOKS AND RECORDS.
(a) The Borrower and each of its Subsidiaries shall permit the Agent or
any of the Banks (or any representative thereof), at such reasonable times and
intervals as the Agent or Banks may designate upon reasonable notice, at their
own expense, by and through the representatives of the Agent or any of the
Banks, to inspect, audit and examine their respective books and records, to make
copies thereof, to discuss their respective affairs, finances and accounts with
their respective officers and independent public accountants, and to visit and
inspect their respective properties; provided, however, that when an Event of
Default exists, representatives of the Agent or any of the Banks may visit and
inspect at the expense of the Borrower such properties at any time during
business hours and without advance notice.
(b) The Borrower and its Subsidiaries shall extend their cooperation
and assistance and comply with the requests of the Agent or the Majority Banks
or their respective representatives in connection with any audit regarding the
Collateral and will furnish any information requested in respect thereof,
including, without limitation, appraisals of the Collateral, lien search reports
and physical counts. Upon the occurrence of an Incipient Default, the Borrower
shall, at the request of the Agent or the Majority Banks, pay the reasonable
fees and expenses of an accounting firm selected by the Majority Banks to
conduct examinations of the Accounts of the Borrower and its Subsidiaries from
time to time. The Borrower shall also pay all reasonable out-of-pocket expenses
of the Agent in connection with any other audit or examination of the Collateral
hereunder.
SECTION 7.4 MAINTENANCE OF EXISTENCE, LICENSES, PERMITS, ETC.
The Borrower and each of its Subsidiaries shall preserve and maintain
their respective existences and all of their material licenses, permits,
privileges and franchises and other rights necessary or desirable in the normal
course of their businesses, and will use reasonable efforts, in the ordinary
course and consistent with past practice, to preserve their respective business
organization and preserve the goodwill and business of the patients, physicians,
third-party payors, customers, suppliers and others having business relations
with them, except where the
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failure to do so would not have a Material Adverse Effect; provided, however,
that the foregoing shall not preclude the merger of any Subsidiary of the
Borrower into another Subsidiary of the Borrower if permitted under SECTION 8.1
hereof.
SECTION 7.5 TAX RETURNS.
Each of the Borrower and its Subsidiaries shall file all federal and
state income tax returns which are required to be filed.
SECTION 7.6 QUALIFICATIONS TO DO BUSINESS.
The Borrower and each of its Subsidiaries shall qualify to do business
and shall remain in good standing in each jurisdiction in which the nature of
their business requires them to be so qualified, except where the failure to so
qualify could not have a Material Adverse Effect.
SECTION 7.7 COMPLIANCE WITH LAWS.
The Borrower and its Subsidiaries shall comply with all Governmental
Requirements, except where the failure to do so could not have a Material
Adverse Effect.
SECTION 7.8 COMPLIANCE WITH AGREEMENTS.
The Borrower and its Subsidiaries shall comply in all respects with the
terms of each agreement to which any of them is a party, except in such
instances where any failure to so comply would not, in the aggregate, have a
Material Adverse Effect.
SECTION 7.9 INSURANCE.
The Borrower and its Subsidiaries shall maintain in full force and
effect insurance of such types and in such amounts as are customarily carried in
their respective lines of business, including, but not limited to, fire, hazard,
public liability, professional liability, property damage, products liability
and workers' compensation insurance. All such insurance policies which insure
real or personal property shall include a standard form lender's loss payee
endorsement, naming the Agent as loss payee. All such insurance policies which
insure liability shall name the Agent as additional insureds for the benefit of
the Agent and each Bank. The Borrower shall deliver or cause to be delivered to
the Agent, as the Agent may from time to time request, schedules identifying all
insurance then in effect with respect to the Borrower and its Subsidiaries and
certificates evidencing such insurance.
SECTION 7.10 FACILITIES.
The Borrower and its Subsidiaries shall keep the material properties
(in the aggregate) used in their respective businesses in good repair, working
order and condition, and from time to time shall make necessary repairs or
replacements thereto so that their property shall be maintained adequately for
its intended use.
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SECTION 7.11 TAXES AND OTHER LIABILITIES.
The Borrower and its Subsidiaries shall pay and discharge when due any
and all material indebtedness, obligations, liabilities, assessments and real
and personal property taxes, including, but not limited to, federal and state
income and personal and real property taxes, except as may be subject to good
faith contest or as to which a bona fide dispute may arise; provided, however,
that adequate reserves in accordance with GAAP or other provision is made to the
satisfaction of the Majority Banks for prompt payment thereof in the event that
it is found that any of the above are due and owing.
SECTION 7.12 GOVERNMENTAL APPROVALS.
Except where the failure to do so could not have a Material Adverse
Effect, the Borrower and its Subsidiaries shall apply for, diligently pursue,
and obtain or cause to be obtained, and shall thereafter maintain in full force
and effect all Governmental Approvals that shall now or hereafter be necessary
under any Governmental Requirement (a) for land use, public and employee health
and safety, pollution or protection of the environment, and (b) for the
operation of the business of the Borrower and its Subsidiaries. The Borrower
shall promptly notify the Agent in the event of, and provide the Agent with a
copy of all notices of, any denial, suspension, or revocation of any material
Governmental Approvals.
SECTION 7.13 COMPLIANCE WITH GOVERNMENTAL APPROVALS AND GOVERNMENTAL
REQUIREMENTS.
Except where the failure to do so could not have a Material Adverse
Effect, the Borrower and each of its Subsidiaries shall comply with all terms
and conditions of all Governmental Approvals and with all other limitations,
restrictions, obligations, schedules, timetables and reporting requirements in
any Governmental Requirements in all material respects.
SECTION 7.14 COMPLIANCE WITH ENVIRONMENTAL LAWS.
The Borrower shall, and shall cause each of its Subsidiaries to,
conduct its operations and keep and maintain its property in substantial
compliance with all Environmental Laws except where the failure to do so would
not have a Material Adverse Effect.
SECTION 7.15 PREVENT CONTAMINATION.
The Borrower and its Subsidiaries shall (a) conduct their operations in
such a way as to prevent material contamination of any part of their respective
properties by any Hazardous Substance; (b) manage all Hazardous Substances in a
manner that does not require a Hazardous Waste Facility Permit, and in
compliance in all material respects with all Governmental Requirements and
Governmental Approvals; and (c) not intentionally or recklessly, and endeavor
not to unintentionally, and not permit any other Person to, emit, release or
discharge into air, soil, surface water or groundwater, any Hazardous Substance
in excess of permitted levels or reportable quantities, or other concentrations,
standards, or limitations under any
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Governmental Requirements or Governmental Approvals in the case of each of the
foregoing clauses (a) through (c) if the failure to do so would have a Material
Adverse Effect.
SECTION 7.16 TAX QUALIFICATION.
For any Employee Benefit Plan which is intended to be qualified under
Section 401(a) of the Code, the Borrower shall, or shall use its best efforts to
cause the members of the Controlled Group to:
(a) Use its best efforts to seek and receive determination letters from
the Internal Revenue Service stating that such plan, or any material amendment
to such plan, meets the requirements for qualification under Section 401(a) of
the Code, unless there is no reasonable possibility that the failure to do so
would have a Material Adverse Effect;
(b) Use its best efforts to cause such plan to meet such requirements
in operation and to be administered in accordance with the requirements of the
Code and ERISA, unless the failure to do so could not reasonably be expected to
result in a liability described in SECTION 9.1(H) hereof; and
(c) Use its best efforts to refrain from taking any action that would
cause such plan to lose its qualification under Section 401(a) of the Code or to
violate the requirements of the Code or ERISA in any material respect.
SECTION 7.17 FUNDING.
The Borrower shall, and shall use its best efforts to cause each other
member of the Controlled Group to, make all material contributions that it is
required to make by law or by any plan prior to the earliest date when statutory
Liens could be imposed under the Code or ERISA on any assets of the Borrower or
such member of the Controlled Group in order to satisfy payment of such
contributions. The Borrower shall not, and shall use its best efforts to not
permit any other member of the Controlled Group to, allow or suffer any material
statutory Lien to be placed upon its assets under the Code or ERISA.
SECTION 7.18 FINANCIAL TESTS; CALCULATION ASSUMPTIONS.
(a) Subject to SECTION 7.18(B) hereof, the Borrower shall:
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(i) Maintain the following ratio of Funded Indebtedness to EBITDA for
each of the months ending during each of the periods set forth below, such ratio
to be calculated for the twelve (12) month period preceding and including such
month:
<TABLE>
<CAPTION>
FUNDED
PERIOD INDEBTEDNESS/EBITDA
------ -------------------
<S> <C>
January 1998 to and < 5.50x
including August 1998 -
September 1998 to and < 5.25x
including November 1998 -
December 1998 to and < 5.0x
including May 1999 -
June 1999 to and < 4.75x
including November 1999 -
December 1999 to and < 4.50x
including November 2000 -
December 2000 to and < 4.25x
including November 2001 -
December 2001 to and < 3.50x
including November 2002 -
December 2002 and thereafter < 2.50x
-
</TABLE>
(ii) Maintain the following ratio of Funded Indebtedness to Net Worth
for each of the months ending during each of the periods set forth below:
<TABLE>
<CAPTION>
FUNDED
INDEBTEDNESS/
PERIOD NET WORTH
------ ---------------
<S> <C>
January 1998 to and < 2.50x
including November 1998 -
December 1998 to and < 2.35x
including November 2000 -
December 2000 to and < 2.25x
including November 2001 -
December 2001 and thereafter < 2.00x
-
</TABLE>
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(iii) Maintain the following Interest Coverage Ratio for each of the
months ending during each of the periods set forth below, such ratio to be
calculated for the twelve (12) month period preceding and including such month:
<TABLE>
<CAPTION>
INTEREST
PERIOD COVERAGE RATIO
------ --------------
<S> <C>
January 1998 to and >1.50x
including November 1998 -
December 1998 to and >1.65x
including November 1999 -
December 1999 to and >1.85x
including November 2000 -
December 2000 to and >2.00x
including November 2001 -
December 2001 and thereafter >2.25x
-
</TABLE>
(iv) Maintain a maximum of seventy (70) Days Sales Outstanding at all
times during the period from the Closing Date through November 30, 2000, and
maintain a maximum of sixty-five (65) Days Sales Outstanding at all times
thereafter.
(v) Prior to the Revolving Termination Date, maintain a minimum Net
Worth:
(A) during the period from and including the Closing Date through
and including March 31, 1998, in an amount not less than (1) ninety
percent (90%) of the actual Net Worth at August 31, 1997 plus (II)
equity contributions received by the Borrower and its subsidiaries from
any source during such period;
(B) during the period from and including April 1, 1998 through and
including March 31, 1999, in an amount not less than (I) ninety percent
(90%) of the actual Net Worth at August 31, 1997 plus (II) seventy-five
percent (75%) of Consolidated Net Income during the period from and
including August 1, 1997 through and including March 31, 1998, plus
(III) equity contributions received by the Borrower and its
subsidiaries from any source during such period; and
(C) during each fiscal year of the Borrower thereafter, in an
amount not less than (I) ninety percent (90%) of the actual Net Worth
at the beginning of
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the immediately preceding fiscal year plus (II) seventy-five percent
(75%) of Consolidated Net Income during the immediately preceding
fiscal year, plus (III) equity contributions received by the Borrower
and its subsidiaries from any source during such period.
(vi) Maintain the following ratio of Senior Indebtedness to EBITDA for
each of the months ending during each of the periods set forth below:
<TABLE>
<CAPTION>
SENIOR
PERIOD INDEBTEDNESS/EBITDA
------ -------------------
<S> <C>
January 1998 to and < 4.50x
including May 1998 -
June 1998 to and < 4.25x
including November 1998 -
December 1998 to and < 4.00x
including November 1999 -
December 1999 to and < 3.75x
including November 2000 -
December 2000 to and < 3.50x
including November 2001 -
December 2001 to and < 3.00x
including November 2002 -
December 2002 and thereafter < 2.00x
-
</TABLE>
(b) For purposes of calculating the financial ratios set forth in
SECTION 7.18(A) hereof, the following assumptions shall be made:
(i) In calculating Consolidated Net Income as a component of
EBITDA and EBITDAR for purposes of calculating compliance with the
covenants set forth in SECTION 7.18(A)(I) and SECTION 7.18(A)(III)
hereof:
(A) Corporate Overhead Expenses: (I) for each of the
months of January 1998 through and including December 2000,
the amount of corporate overhead expenses included in the
calculation of Consolidated Net Income shall be the amount of
corporate overhead expenses actually incurred during the six
(6) month period preceding and including such month multiplied
by two (2) and (II) for each of the months of January 2001
through and including December 31, 2002, the amount of
corporate overhead expenses included in the calculation of
Consolidated Net Income shall be the amount of corporate
overhead expenses
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actually incurred during the twelve (12) month period
preceding and including such month; and
(B) Interest Expense: (I) for each of the months of
January 1998 through and including December 2000, the amount
of Interest Expense shall be the amount of Interest Expense
actually incurred during the six (6) month period preceding
and including such month multiplied by two (2) and (II) for
each of the months of January 2001 through and including
December 2003, the amount of Interest Expense shall be the
amount of Interest Expense actually incurred during the twelve
(12) month period preceding and including such month.
(ii) For purposes of calculating compliance with the covenants
set forth in SECTION 7.18(A) hereof, (A) prior to the Revolving
Termination Date, EBITDA and EBITDAR of the Borrower and its
Subsidiaries for any twelve (12) month period shall be calculated on
the basis of EBITDA and EBITDAR of the Borrower and its Subsidiaries an
adjusted annualized rolling six (6) month basis; provided that EBITDA
and EBITDAR of any acute care facility or related business which the
Borrower or any of its Subsidiaries acquires (or proposes to acquire in
the case of calculating EBITDA and EBITDAR pursuant to SUBPARAGRAPH
(VI) of the definition of Permitted Acquisitions) on or after the
Closing Date for any twelve (12) month period shall be calculated on
the basis of EBITDA and EBITDAR of such acute care facility or related
business on a rolling twelve (12) month period until the last day of
the sixth month following the date of such acquisition and shall
thereafter be calculated on the same basis as EBITDA and EBITDAR of the
Borrower and its Subsidiaries; and (B) on and after the Revolving
Termination Date, all such calculations of EBITDA and EBITDAR shall be
made on the basis of such EBITDA and EBITDAR on a rolling twelve (12)
month; and provided further that with respect to EBITDA and EBITDAR of
any acute care facility or related business acquired by the Borrower or
any of its Subsidiaries on or after the Closing Date, such EBITDA and
EBITDAR shall be calculated by excluding any profits or losses
associated with any business segments of such acute care facility or
related business which are sold immediately prior to the date such
acute care facility or related business is acquired by the Borrower or
which are to be sold immediately thereafter. Any such business segments
so excluded will be identified in the compliance certificate delivered
to the Agent and the Banks pursuant to SECTION 7.2(D) hereof.
(iii) With respect to any Partial Subsidiary, for purposes of
calculating EBITDA, EBITDAR and Net Worth, the actual financial results
of such Partial Subsidiary shall be reduced by any Distribution made to
Minority Holders in such Partial Subsidiary.
SECTION 7.19 HEALTH CARE RELATED MATTERS.
The Borrower shall, and shall cause each of its Subsidiaries to, at all
times:
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(a) comply with all applicable CON requirements in jurisdictions where
the Borrower and its Subsidiaries operate;
(b) maintain in good standing all required Health Facility Licenses for
the operation of each of the acute care facilities or related businesses
operated by the Borrower and its Subsidiaries;
(c) maintain applicable JCAHO accreditation of each of the acute care
facilities or related businesses operated by the Borrower and its Subsidiaries;
provided that if any such accreditation becomes conditional, the Borrower and
its Subsidiaries will cure or otherwise address the reasons for such conditional
accreditation within twelve months of receiving notice of such status;
(d) maintain Medicaid Certification and Medicare Certification
presently in effect or hereafter obtained with respect to each acute care
facility or related business operated by the Borrower and its Subsidiaries; and
(e) maintain each Medicaid Provider Agreement and each Medicare
Provider Agreement presently in effect or hereafter entered into with respect to
each acute care facility or related business operated by the Borrower and its
Subsidiaries.
SECTION 7.20 CONCENTRATION ACCOUNT.
The Borrower previously has established the Concentration Account and
shall maintain the Concentration Account at all times prior to the Final
Maturity Date. All other bank accounts maintained by the Borrower and its
Subsidiaries (other than accounts maintained exclusively for the purpose of
making disbursements) shall be and at all times remain subject to instructions
to transfer all funds out of such accounts into the Concentration Account on a
one or two day delay basis. SCHEDULE 7.20 sets forth a current list of all bank
accounts maintained by the Borrower and its Subsidiaries, and the Borrower will
inform Agent promptly of any changes to the information contained in such
schedule.
SECTION 7.21 OPERATING LEASES.
Neither the Borrower nor any of its Subsidiaries shall create, incur,
assume, or suffer to exist, any obligation for the payment of rent or hire for
property or assets of any kind whatsoever, whether real or personal, under
leases or lease agreements (other than Capitalized Lease Obligations) which
would cause the aggregate amount of all payments made by the Borrower and its
Subsidiaries pursuant to such leases or lease agreements to exceed five percent
(5%) of Net Revenues during any fiscal year. Any such leases shall not be deemed
to constitute Indebtedness and shall not be subject to SECTION 8.6 hereof.
SECTION 7.22 SUBSIDIARY CONTROL DOCUMENTS.
The Borrower shall provide the Agent with true and correct copies of
all shareholders' agreements and other agreements to be entered into with any
other Persons proposing to
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purchase Equity Interests in any Subsidiary, which agreements shall not, in the
sole judgement of the Agent, provide to such Persons any special voting rights
or other special protections not required to be granted under the applicable
state statutes if those rights or protections could interfere with the Banks'
ability (following any foreclosure on the Equity Interests in such Subsidiary
pledged to the Banks) to (i) remove, elect and maintain a majority of members of
the Board of Directors or other governing body of such Subsidiary, or (ii)
dissolve, merge, consolidate or recapitalize such Subsidiary into the Borrower
or any other Person.
ARTICLE VIII
NEGATIVE COVENANTS
The Borrower covenants and agrees that so long as any Obligation is
outstanding or the Commitment is in effect, it will comply with and, if
applicable, cause each of its Subsidiaries to comply with the following
covenants:
SECTION 8.1 MERGERS.
Neither the Borrower nor any of its Subsidiaries shall enter into any
merger, consolidation, reorganization or recapitalization, or any agreement to
do any of the foregoing, except pursuant to a Permitted Acquisition and except
that any Subsidiary of the Borrower may be merged into the Borrower or another
Subsidiary of the Borrower.
SECTION 8.2 CHANGE OF BUSINESS.
Neither the Borrower nor any of its Subsidiaries shall change the
nature of its business or engage in any other business other than the businesses
which are substantially similar to the lines of business in which the Borrower
and its Subsidiaries are engaged as of the date hereof.
SECTION 8.3 DISTRIBUTIONS.
Subject to SECTION 8.13 hereof, neither the Borrower nor any of its
Subsidiaries shall, directly or indirectly, make or declare any Distribution or
set aside assets for a sinking or similar fund for the purchase of, or redeem,
purchase, retire or otherwise acquire, any Equity Interests of the Borrower or
such Subsidiary, or make any other Distribution in respect thereof, whether in
cash or other property, except (a) to the extent otherwise permitted under
SECTION 6.2(C) hereof; (b) the Borrower may make Distributions to any of its
Subsidiaries and any of its Subsidiaries may make Distributions to the Borrower
or any of its other Subsidiaries; (c) the Borrower may purchase Equity Interests
in any Subsidiary as a means of making additional capital contributions in
connection with a Permitted Acquisition; and (d) as long as no Event of Default
or Incipient Default exists, any Partial Subsidiary may make Distributions to
the holders of its Equity Interests (provided, however, that prior to August 1,
1999, the aggregate annual amount of Distributions to be made to Minority
Holders shall not exceed Two Hundred Seventy-Five Thousand ($275,000) per
Partial Subsidiary)
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SECTION 8.4 ACCOUNTING POLICIES.
Except in order to comply with GAAP, the Borrower shall not materially
change any of its accounting policies or its fiscal year or the fiscal year of
any of its Subsidiaries.
SECTION 8.5 INVESTMENTS.
Neither the Borrower nor any of its Subsidiaries shall make (or acquire
as part of an acquisition) any Investment, except Investments (a) in connection
with a Permitted Acquisition; (b) made by the Borrower in any of its
Wholly-Owned Subsidiaries, by any of its Subsidiaries in the Borrower or by any
of its Subsidiaries in any of its Wholly-Owned Subsidiaries (provided, however,
that Investments in Partial Subsidiaries must be in the ordinary course of
business and shall not exceed Two Million Dollars ($2,000,000) per year); (c)
constituting seller financing undertaken on commercially reasonable terms, which
Investments shall not in the aggregate exceed Two Hundred Fifty Thousand Dollars
($250,000); and (d) Investments made in accordance with the Borrower's corporate
investment policy attached hereto as SCHEDULE 8.5.
SECTION 8.6 LIENS.
Neither the Borrower nor any of its Subsidiaries shall mortgage,
pledge, grant or permit to exist a security interest in, or Lien upon, any of
their respective assets of any kind now owned or hereafter acquired, or any
income or profits therefrom, except for Permitted Encumbrances.
SECTION 8.7 GUARANTIES.
Neither the Borrower nor any of its Subsidiaries shall become liable,
directly or indirectly, for any Guaranty except: (a) endorsements for collection
or deposit in the ordinary course of business; (b) obligations entered into in
connection with the acquisition of services, supplies and equipment in the
ordinary course of business not exceeding (i) Two Hundred Fifty Thousand Dollars
($250,000) multiplied by (ii) the number of acute care facilities owned by the
Borrower and its Subsidiaries; (c) obligations of the Borrower with respect to
Letters of Credit; (d) obligations of the Borrower or its Subsidiaries arising
from physician income maintenance agreements and physician recruitment
activities not exceeding (i) One Million Two Hundred Thousand Dollars
($1,200,000) multiplied by (ii) the number of acute care facilities owned by the
Borrower and its Subsidiaries; (e) Guaranties by the Borrower of any obligations
of its Subsidiaries; (f) the Subsidiary Guaranties; and (g) Guaranties by any
Subsidiary of the obligations of any Wholly-Owned Subsidiaries.
SECTION 8.8 INDEBTEDNESS.
Neither the Borrower nor any of its Subsidiaries shall incur, create,
assume or permit to exist any Indebtedness except: (a) the Obligations; (b)
Indebtedness where payment is secured by a Permitted Encumbrance; (c) taxes,
assessments and governmental charges or levies which are not delinquent or which
are being contested in good faith and for which, in accordance
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with GAAP, adequate reserves have been set aside on the books of the Borrower or
the affected Subsidiary of the Borrower; (d) current liabilities incurred in
connection with the obtaining of goods or services in the ordinary course of
business; (e) Indebtedness which is owing by a Subsidiary acquired in a
Permitted Acquisition, provided that such Indebtedness was not incurred or
created in connection with or in contemplation of such Permitted Acquisition and
that the aggregate principal amount of any such Indebtedness owing by all such
Subsidiaries shall not exceed Two Million Dollars ($2,000,000); (f) Indebtedness
owing from the Borrower to a Wholly-Owned Subsidiary of the Borrower, from any
Subsidiary of the Borrower to the Borrower or from one Subsidiary of the
Borrower to any Wholly-Owned Subsidiary of the Borrower, and all Indebtedness
arising between the Borrower and its Subsidiaries, or between any Subsidiary and
any other subsidiary, in connection with Concentration Account activities; (g)
Indebtedness incurred in connection with Rate Contracts; (h) Guaranties
permitted under SECTION 8.7 hereof; (i) Indebtedness existing on the date
hereof, as shown on SCHEDULE 8.8 attached hereto; (j) Indebtedness incurred
pursuant to Sale-Leaseback Transactions, provided that the present value of the
aggregate payments to be made by the Borrower and its Subsidiaries pursuant to
all such Sale-Leaseback Transactions shall not exceed One Million Dollars
($1,000,000); (k) accounts payable assumed by the Borrower or any of its
Subsidiaries in connection with a Permitted Acquisition; and (1) the WCAS
Subdebt. Notwithstanding the foregoing, the Borrower may incur Welsh Carson
Subdebt in addition to the WCAS Subdebt provided that: (y) if any Welsh Carson
Subdebt is loaned by a Welsh Carson entity other than WCAS, such entity shall,
prior to effecting such loan, execute and deliver to the Agent an intercreditor
agreement in form and substance satisfactory to the Agent in its sole
discretion, and (z) at least ten (10) Banking Days prior to the date such loan
is to be extended, the Borrower shall have provided to the Agent the certificate
required by SECTION 7.2(P) hereof.
SECTION 8.9 SALE OF ASSETS.
Other than (a) sales of readily marketable securities, (b) sales of
inventory and other property in the ordinary course of business, (c) sales,
transfers, leases or other dispositions of assets between or among the Borrower
and any of its Subsidiaries and (d) sales of any other assets not described in
the preceding clauses (a) through (c) during any calendar year the book value of
which, together with the book value of any other such assets sold during such
calendar year, does not exceed five percent (5%) of the book value of the total
assets of the Borrower and its Subsidiaries neither the Borrower nor any of its
Subsidiaries shall sell, transfer or otherwise dispose of any of its respective
assets (including, but not limited to, transfers or dilution of its Equity
Interests in any Subsidiary); provided, however, that notwithstanding the
foregoing the Borrower may transfer, or NAHC II of Texas, Inc. may issue, up to
twenty percent (20%) of the total outstanding Equity Interests in NAHC II of
Texas, Inc. (calculated on a fully-diluted basis) to other Persons.
SECTION 8.10 SALE-LEASEBACK TRANSACTIONS.
Neither the Borrower nor any of its Subsidiaries shall enter into any
Sale-Leaseback Transaction, except as permitted under SECTION 8.8(j) hereof.
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SECTION 8.11 CAPITAL EXPENDITURES.
The Borrower and its Subsidiaries, considered in the aggregate, shall
not during any calendar year set forth below make Consolidated Capital
Expenditures in excess of the amount equal to (a) One Million Dollars
($1,000,000) multiplied by (b) the number of acute care facilities owned by the
Borrower and its Subsidiaries during such calendar year.
SECTION 8.12 TRANSACTIONS WITH AFFILIATES.
The Borrower shall not, and shall not permit its Subsidiaries to, enter
into any agreement or transaction with an Affiliate of the Borrower except in
the ordinary course of and pursuant to the reasonable requirements of the
Borrower's or such Subsidiary's business and upon fair and reasonable terms that
are (a) approved by the Borrower's or such Subsidiary's board of directors, (b)
fully disclosed to Agent, (c) no less favorable to the Borrower or such
Subsidiary than it would obtain in a comparable arms length transaction with a
Person not an Affiliate of the Borrower, and (d) on terms consistent with the
business relationship of the Borrower or such Subsidiary and such Affiliate
prior to the date hereof, if any. Nothing contained in this Agreement shall
prohibit increases in compensation and benefits for officers and employees of
the Borrower or its Subsidiaries which are customary in the industry or
consistent with the past business practice of the Borrower or such Subsidiary,
or payment of customary directors' fees and indemnities.
SECTION 8.13 RESTRICTIVE AGREEMENTS.
The Borrower shall not and shall not permit any of its Subsidiaries to
enter into any agreement which restricts the ability or right of any such
Subsidiary to make payments to the Borrower or another Subsidiary of the
Borrower by way of dividends, distributions, returns of capital, advances,
reimbursement or otherwise.
SECTION 8.14 PREPAYMENTS.
Neither the Borrower nor any of its Subsidiaries shall prepay any
Indebtedness which is subordinated to the Obligations, provided that nothing
herein shall preclude the Borrower or any Subsidiary from effecting any
conversion of any such Indebtedness into common Capital Stock.
SECTION 8.15 CERTAIN ERISA PAYMENTS.
Neither the Borrower nor its Subsidiaries shall make any payment of any
material liability arising under ERISA or under the Code of any Controlled Group
member which is not a Subsidiary of the Borrower.
SECTION 8.16 COMPLIANCE WITH ERISA.
The Borrower shall not, directly or indirectly, and the Borrower shall
use its best efforts to prevent any Controlled Group member from directly or
indirectly undertaking to:
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(a) Maintain, become a party to, contribute to or become or be
obligated to contribute to a Pension Plan, if such maintenance or contribution
would result in material unfunded liabilities in excess of One Hundred Thousand
Dollars ($100,000) immediately following such action;
(b) Maintain, become a party to, contribute to or become obligated to
contribute to a material plan maintained outside of the United States primarily
for the benefit of persons substantially all of whom are nonresident aliens, as
described in Section 4(b)(4) of ERISA; or
(c) Maintain, become a party to, contribute to or being obligated to
contribute to or otherwise provide material health care or material life
insurance benefits to retirees or survivors of employees.
SECTION 8.17 CREATION OF SUBSIDIARIES.
The Borrower will not, nor will it permit any of its Subsidiaries to,
create any Subsidiary, unless (a) such newly created Subsidiary is organized
under the laws of a jurisdiction within the United States of America, (b) such
newly created Subsidiary executes at the time of its creation a Subsidiary
Guaranty, a Security Agreement and (to the extent applicable) a Subsidiary Note,
one or more Mortgages with respect to its ownership or leasehold interest in
real property owned by such Subsidiary at the time of its creation and such
agreements and other documents necessary or desirable to grant the Banks a
fully-perfected, first priority security interest in the Equity Interests held
by the Borrower or its Subsidiary, (c) the Borrower or its existing Subsidiary
(as applicable) and such newly created Subsidiary take all steps required and
execute all additional documents (including UCC-1 financing statements)
necessary to perfect the security interest of the Agent in the Equity Interests
of such newly created Subsidiary and the assets of such newly created Subsidiary
and (d) no Event of Default or Incipient Default exists immediately prior to or
after the creation of such newly created Subsidiary.
SECTION 8.18 FUNDAMENTAL CHANGES.
The Borrower will not, nor will it permit any of its Subsidiaries to
(a) amend or restate any of the organizational documents of such Person, or (b)
hold itself out as doing business under any tradename or assumed or fictitious
name that would require additional filings by the Banks under the provisions of
the Uniform Commercial Code in order to maintain the perfection of the Banks'
security interests.
ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.1 EVENTS OF DEFAULT.
Each of the following shall constitute an Event of Default under this
Agreement:
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(a) Payments. The Borrower shall fail to pay when due (i) any
installment of principal or interest due hereunder or on the Notes or (h) any
reimbursement obligation with respect to any Letter of Credit, or the Borrower
shall fail to pay not later than two (2) Banking Days after the date when due
any other sum payable hereunder or under any of the other Loan Documents;
(b) Certain Covenants in This Agreement and Other Loan Documents. The
Borrower shall default in the performance of any of its agreements set forth in
SECTION 7.2, SECTION 7.18 OR SECTION 7.20 hereof or in ARTICLE VIII hereof, or
the Borrower or any of its Subsidiaries shall default in the performance of any
other agreements set forth herein or in any of the other Loan Documents and such
default is not capable of being cured; provided that, in the case of a default
under SECTION 7.18 hereof, such default shall not become an Event of Default
until thirty (30) days shall have expired from the date of occurrence of such
default;
(c) Other Covenants and Agreements. The Borrower or any of its
Subsidiaries shall default in the performance of any of their respective
agreements set forth in any provision herein not constituting an Event of
Default under any other clause of this SECTION 9.1 or in the Subsidiary
Guaranties or any of the other Loan Documents and such default, although capable
of being cured, is not cured within thirty (30) days of its occurrence;
(d) Representations and Warranties. Any representation, warranty or
certification made by the Borrower or its Subsidiaries, or any officer of the
Borrower or its Subsidiaries, in any of the Loan Documents shall be untrue in
any material respect on any date as of which the facts set forth are stated or
certified;
(e) Monetary Judgments. A judgment shall be entered against the
Borrower or any of its Subsidiaries, the uninsured or unbonded portion of which
is in excess of Seven Hundred Fifty Thousand Dollars ($750,000), and such
judgment shall remain unstayed, unvacated, undischarged or unsatisfied for
thirty (30) days;
(f) Non-Monetary Judgments. Any final non-monetary judgment, order or
decree shall be rendered against the Borrower or any of its Subsidiaries which
may have a Material Adverse Effect, and either (i) enforcement proceedings shall
have been commenced by any Person upon such judgment or order or (ii) there
shall be any period of thirty (30) days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall not be
in effect, unless such judgment, order or decree shall, within such thirty-day
period, be vacated or discharged (other than by satisfaction thereof);
(g) Liens for Pension Contributions. Any statutory Lien shall have been
placed upon the assets of the Borrower or any member of the Controlled Group
under the Code or ERISA in an amount in excess of Two Hundred Fifty Thousand
Dollars ($250,000);
(h) ERISA. (i) An Employee Benefit Plan that is intended to be
qualified under Section 401(a) of the Code shall lose its qualification, and the
resulting loss or cost to the Borrower or any other member of the Controlled
Group can reasonably be expected to exceed One Million Dollars ($1,000,000);
(ii) the commencement or increase of contributions to, the adoption of,
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or the amendment of a Pension Plan by, the Borrower or any other Controlled
Group member shall result in a net increase in unfunded liabilities to the
Borrower or any other Controlled Group member in the aggregate in excess of One
Million Dollars ($1,000,000) immediately following such action; (iii) any
termination of a single employer Employee Benefit Plan (as defined in Section
4001(a) (15) of ERISA, but also including a plan amendment described in Section
4041(e) of ERISA) or any complete or partial withdrawal from a Multiemployer
Plan shall occur, or steps shall have been taken by any Person that make it
reasonable to expect that such termination or withdrawal will occur, and such
termination or withdrawal could reasonably be expected to result in liability of
the Borrower or any member of the Controlled Group to the PBGC, to a trustee or
to such Multiemployer Plan in the aggregate amount of One Million Dollars
($1,000,000) or more; (iv) the Borrower or any member of the Controlled Group
shall apply under Section 412 of the Code for a waiver of the minimum funding
standard; or (v) the Borrower or any member of the Controlled Group shall incur
liability attributable to the participation of a member of the ERISA Affiliated
Group (other than the Borrower or a member of the Controlled Group) in an
employee benefit plan (as defined in Section 3(3) of ERISA) and such liability
will or can reasonably be expected to have a Material Adverse Effect;
(i) Cross-Default. The Borrower or any of its Subsidiaries shall
default (unless waived) in the payment when due, whether by acceleration or
otherwise, of any amount, of principal or interest due in respect of
Indebtedness in an aggregate principal amount greater than Five Hundred Thousand
Dollars ($500,000), or any Guaranty of such Indebtedness, or default (unless
waived) in the performance or observance (subject to any applicable grace
period) of any agreement, covenant or condition with respect to any such
Indebtedness or Guaranty if the effect of such default is to accelerate the
maturity of any such Indebtedness or to permit the holder or holders of any such
Indebtedness or Guaranty, or any trustee or agent for such holders, to cause
such Indebtedness to become due and payable prior to its expressed maturity or
to call upon such Guaranty in advance of nonpayment of the guaranteed
Indebtedness;
(j) Bankruptcy. (i) The Borrower or any of its Subsidiaries shall
institute a voluntary case seeking liquidation or reorganization under Chapter 7
or Chapter 11, respectively, of the United States Bankruptcy Code, or shall
consent to the institution of an involuntary case thereunder against it; or the
Borrower or any of its Subsidiaries shall file a petition initiating or shall
otherwise institute any similar Insolvency Proceeding under any other applicable
federal or state law, or shall consent thereto; or (ii) the Borrower or any of
its Subsidiaries shall apply for, or by consent or acquiescence there shall be
an appointment of, a receiver, liquidator, sequestrator, trustee or other
officer with similar powers; or the Borrower or any of its Subsidiaries shall
make an assignment for the benefit of creditors; or (iii) the Borrower or any of
its Subsidiaries shall admit in writing its inability to pay its debts generally
as they become due; or, if an involuntary case shall be commenced seeking the
liquidation or reorganization of the Borrower or any of its Subsidiaries under
Chapter 7 or Chapter 11, respectively, of the United States Bankruptcy Code, or
any similar proceeding shall be commenced against the Borrower or any of its
Subsidiaries under any other applicable federal or state law, and (A) the
petition commencing the involuntary case is not timely controverted, or (B) the
petition
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commencing the involuntary case is not dismissed within forty-five (45) days of
its filing, or (C) an interim trustee is appointed to take possession of all or
a portion of the property and/or to operate all or any part of the business of
the Borrower or such Subsidiary, or (D) an order for relief shall have been
issued or entered therein; or (iv) a decree or order of a court having
jurisdiction in the premises for the appointment of a receiver, liquidator,
sequestrator, trustee or other officer having similar powers over the Borrower
or any of its Subsidiaries, or of all or a part of the property of the Borrower
or any of its Subsidiaries, shall have been entered; or (v) any other similar
relief shall be granted against the Borrower or any of its Subsidiaries under
any applicable federal or state law;
(k) Voting Change. Welsh Carson and executive officers of the Borrower
shall cease to hold and control (on an aggregate basis) a majority of the
Capital Stock of the Borrower, or shall otherwise cease to have the power to
elect a majority of the Board of Directors of the Borrower;
(l) Invalidity of Loan Documents. Any of the Loan Documents shall cease
for any reason to be in full force and effect or any party thereto (other than
the Agent or the Banks) shall purport to disavow its obligations thereunder,
shall declare that it does not have any further obligation thereunder or shall
contest the validity or enforceability thereof;
(m) Impairment of Collateral. A judgment creditor of the Borrower or
its Subsidiaries shall obtain possession of any of the Collateral having a book
value in excess of Five Hundred Thousand Dollars ($500,000) by any means,
including, but not limited to, levy, distraint, replevin or self-help, or the
Agent's or the Banks' security interest in, or Lien on, any portion of the
Collateral shall become impaired or otherwise unenforceable;
(n) Change of Control. A Change of Control shall occur;
(o) Change of Management. Robert M. Martin shall cease to act as
President, Chairman of the Board of Directors and Chief Executive Officer of the
Borrower, or Dana C. McLendon, Jr. shall cease to act as Senior Vice President
of the Borrower performing duties essentially the same as those performed on the
closing date; or
(p) Material Adverse Change, Material Adverse Effect. The Agent shall
have determined in good faith that (i) a Material Adverse Change or Material
Adverse Effect has occurred, or (ii) the prospect of payment or performance of
any Obligation of the Borrower hereunder or under any Loan Document is
materially impaired.
SECTION 9.2 REMEDIES.
If an Event of Default shall have occurred and until such Event of
Default is waived in writing by the Majority Banks, or all of the Banks as may
be required by SECTION 11.3 hereof:
(a) With the exception of an Event of Default specified in SECTION
9.1(j), the Agent, at the direction of the Majority Banks, shall (i) terminate
the Commitment and the Letter of Credit Commitment and/or (ii) declare the
principal of and interest on the Loans, the Notes,
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the Subsidiary Notes and all other Obligations to be forthwith due and payable
without presentment, demand, protest, or notice of any kind, all of which are
hereby expressly waived, anything in this Agreement, the Notes or the Subsidiary
Notes to the contrary notwithstanding, or both.
(b) Upon the occurrence and continuance of an Event of Default
specified in SECTION 9.1(j) such principal, interest and other Obligations shall
thereupon and concurrently therewith become due and payable, and the Commitment
and the Letter of Credit Commitment shall forthwith terminate, all without any
action by the Agent or the Banks or the Majority Banks or the holders of the
Notes and the Subsidiary Notes, and without presentment, demand, protest, or
other notice of any kind, all of which are expressly waived, anything in this
Agreement, the Notes or the Subsidiary Notes to the contrary notwithstanding.
(c) The Agent, with the concurrence of the Majority Banks, shall
exercise all of the post-default rights granted to it and to the Issuing Bank
and the Banks under the Loan Documents or under Applicable Law. The Agent, for
the benefit of itself, the Issuing Bank and the Banks, shall have the right to
the appointment and hereby waives any objection the Borrower may have thereto or
the right to have a bond or other security posted by the Agent, the Issuing Bank
or the Banks in connection therewith.
(d) In regard to all Letters of Credit with respect to which
presentment for honor shall not have occurred at the time of any acceleration of
the Obligations pursuant to the provisions of this SECTION 9.2, the Borrower
shall promptly upon demand by the Agent deposit in the Letter of Credit Reserve
Account an amount equal to one hundred five percent (105%) of the aggregate then
undrawn and unexpired amount of the Letter of Credit Obligations with respect to
such Letters of Credit. Amounts held in the Letter of Credit Reserve Account
shall be applied by the Agent to the payment of drafts drawn under such Letters
of Credit, and after all such Letters of Credit shall have expired or been fully
drawn upon, if any, any amounts remaining on deposit in the Letter of Credit
Reserve Account shall be applied to repay any other Obligations of the Borrower
in the manner set forth in SECTION 2.5 hereof. Pending the application of such
deposit, the Agent shall, to the extent reasonably practicable, invest such
deposit in an interest bearing open account or similar available savings deposit
account and all interest accrued thereon shall be held in the Letter of Credit
Reserve Account as additional security. Except as expressly provided above,
presentment, demand, protest and all other notices of any kind are hereby
expressly waived by the Borrower.
(e) The rights and remedies of the Agent and the Banks hereunder shall
be cumulative and not exclusive.
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ARTICLE X
THE AGENT
SECTION 10.1 APPOINTMENT AND AUTHORIZATION.
Each Bank hereby irrevocably appoints, designates and authorizes the
Agent to take such action on its behalf under the provisions of this Agreement
and each other Loan Document and to exercise such powers and perform such duties
as are expressly delegated to it by the terms of this Agreement or any other
Loan Document, together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in this
Agreement or in any other Loan Document, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Bank, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
SECTION 10.2 DELEGATION OF DUTIES.
The Agent may execute any of its duties under this Agreement or any
other Loan Document by or through agents, employees or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters pertaining to such
duties. The Agent shall not be responsible for the negligence or misconduct of
any agent or attorney-in-fact that has been selected with reasonable care.
SECTION 10.3 LIABILITY OF AGENT.
Neither the Agent, nor any of its Affiliates, nor any of their
respective officers, directors, employees, agents, or attorneys-in-fact
(collectively, the "Agent-Related Persons") shall (a) be liable for any action
taken or omitted to be taken by any of them under or in connection with this
Agreement (except for their own gross negligence or willful misconduct) or (b)
be responsible in any manner to any of the Banks for any recital, statement,
representation or warranty made by the Borrower or any of its Subsidiaries or
any officer thereof contained in this Agreement or in any other Loan Document,
or in any certificate, report, statement or other document referred to or
provided for in, or received by the Agent under or in connection with, this
Agreement or any other Loan Document, or for the value of any Collateral or the
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of the Borrower or any
other party to any Loan Document to perform its obligations hereunder or
thereunder. No Agent-Related Person shall be under any obligation to any Bank to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower or any
of its Subsidiaries.
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SECTION 10.4 RELIANCE BY AGENT.
(a) The Agent shall be entitled to rely, and shall be fully protected
in relying, upon any writing, resolution, notice, consent, certificate,
affidavit, letter, facsimile or telephone message, statement or other document
or conversation believed by the Agent to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including counsel to the Borrower or any of its
Subsidiaries), independent accountants and other experts selected by the Agent.
The Agent shall be fully justified in failing or refusing to take any action
under this Agreement or any other Loan Document unless the Agent shall first
receive such advice or concurrence of the Majority Banks as the Agent shall deem
appropriate and, if the Agent so requests, the Agent shall first be indemnified
to its satisfaction by the Banks against any and all liability and expense which
may be incurred by the Agent by reason of taking or continuing to take any such
action. The Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement or any other Loan Document in
accordance with a request or consent of the Majority Banks and such request and
any action taken or failure to act pursuant thereto shall be binding upon all of
the Banks.
(b) For purposes of determining compliance with the conditions
specified in SECTION 5.1 AND SECTION 5.2 hereof, each Bank shall be deemed to
have consented to, approved or accepted or to be satisfied with each document or
other matter required thereunder to be consented to or approved by or acceptable
or satisfactory to the Agent (provided that the Banks shall have been provided
with a copy of such document or a writing setting forth the particulars of such
matter) unless an officer of the Agent responsible for the transactions
contemplated by the Loan Documents shall have received notice from a Bank prior
to the extension of a Borrowing specifying its objection thereto and either such
objection shall not have been withdrawn by notice to the Agent to that effect or
such Bank shall not have made available to the Agent the Bank's ratable portion
of such Borrowing.
SECTION 10.5 NOTICE OF DEFAULT.
The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Incipient Default or Event of Default, except with respect to
defaults in the payment of principal, interest and fees payable to the Agent for
the account of the Banks, unless the Agent shall have received written notice
from a Bank or the Borrower referring to this Agreement, describing such
Incipient Default or Event of Default and stating that such notice is a "notice
of default." In the event that the Agent receives such a notice, the Agent shall
give notice thereof to the Banks. The Agent shall take such action with respect
to such Incipient Default or Event of Default as shall be requested by the
Majority Banks in accordance with ARTICLE IX; provided, however, that unless and
until the Agent shall have received any such request, the Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with
respect to such Incipient Default or Event of Default as the Agent shall deem
advisable in the best interests of the Banks.
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SECTION 10.6 CREDIT DECISION.
Each Bank expressly acknowledges that none of the Agent-Related Persons
has made any representation or warranty to it and that no act by the Agent
hereinafter taken, including any review of the affairs of the Borrower and its
Subsidiaries, shall be deemed to constitute any representation or warranty by
the Agent to any Bank. Each Bank represents to the Agent that it has,
independently and without reliance upon the Agent and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition and creditworthiness of the Borrower and its Subsidiaries and
made its own decision to enter into this Agreement and extend credit to the
Borrower hereunder. Each Bank also represents that it will, independently and
without reliance upon the Agent and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations, property, financial
and other condition and creditworthiness of the Borrower and its Subsidiaries.
Except for notices, reports and other documents expressly required to be
furnished to the Banks by the Agent hereunder, the Agent shall not have any
duty or responsibility to provide any Bank with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition or creditworthiness of the Borrower and its Subsidiaries which may
come into the possession of any of the Agent-Related Persons.
SECTION 10.7 INDEMNIFICATION.
The Banks agree to indemnify the Agent and each Agent-Related Person
(to the extent not reimbursed by or on behalf of the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to the
respective amounts of their outstanding Loans, or, if no Loans are outstanding,
their outstanding Commitment Percentages, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses and disbursements of any kind whatsoever which may at any time
(including at any time following the repayment of the Loans) be imposed on,
incurred by or asserted against any such person in any way relating to or
arising out of this Agreement, any other Loan Documents or any document
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by any such person
under or in connection with any of the foregoing; provided, however, that no
Bank shall be liable for the payment to the Agent or such Agent-Related Person
of any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting solely
from such person's gross negligence or willful misconduct. Without limitation of
the foregoing, each Bank shall reimburse the Agent promptly upon demand for its
ratable share of any costs or out-of-pocket expenses (including attorneys' fees
and the allocated cost of in-house counsel) incurred by the Agent in connection
with the preparation, execution, delivery, administration, modification,
amendment or enforcement (whether through negotiations, legal proceedings or
otherwise) of, or legal advice in respect of rights or responsibilities under,
this Agreement, any other Loan Document, or any document
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contemplated by or referred to herein to the extent that the Agent is not
reimbursed for such expenses by or on behalf of the Borrower.
SECTION 10.8 AGENT IN INDIVIDUAL CAPACITY.
The Agent and its Affiliates may make loans to, issue letters of credit
for the account of, accept deposits from and generally engage in any kind of
business with the Borrower or any of its Subsidiaries as though the Agent were
not the Agent hereunder and without notice to the Banks. With respect to its
Loans, the Agent shall have the same rights and powers under this Agreement as
any other Bank and may exercise the same as though it were not the Agent, and
the terms "Bank" and "Banks" shall include the Agent in its individual capacity.
SECTION 10.9 SUCCESSOR AGENT.
The Agent may, and at the request of the Majority Banks shall, resign
as Agent upon thirty (30) days' notice to the Banks. The new Agent shall succeed
to all the rights, powers and duties of the Agent hereunder, including the
rights, powers and duties of the Agent as the Agent. If no successor Agent is
appointed prior to the effective date of the resignation of the Agent, the Agent
shall appoint, after consulting with the Banks and the Borrower, a successor
agent from among the Banks. Upon the acceptance of its appointment as successor
Agent hereunder, such successor Agent shall succeed to all the rights, powers
and duties of the prior Agent, and the retiring Agent's rights, powers and
duties as such shall be terminated. After any retiring Agent's resignation
hereunder as such, the provisions of this ARTICLE X AND SECTION 11.6, SECTION
11.7 AND SECTION 11.8 hereof shall inure to the benefit of such Agent as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 SUCCESSORS AND ASSIGNS AND SALE OF INTERESTS.
(a) The terms and provisions of this Agreement shall be binding upon,
and, subject to the provisions of this Section 11.1, the benefits hereof shall
inure to, the parties hereto and their respective successors and assigns;
provided, however, that the Borrower may not assign this Agreement or any of the
rights, duties or obligations of the Borrower hereunder without the prior
written consent of all of the Banks.
(b) Any Bank (an "Assignor"), with the written consent of the Borrower,
which shall not be unreasonably withheld, and with the written consent of the
Agent, which shall not be unreasonably withheld, and upon three (3) Banking
Days' written notice to the Agent, may at any time assign and delegate to any
Person, or, with notice to the Borrower and the Agent but without the consent of
either the Borrower or the Agent, may assign and delegate to any of its wholly
owned Affiliates (each an "Assignee") all or any part of the Loans or the
Commitments or any other rights or obligations of such Bank hereunder in a
minimum amount of Five
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Million Dollars ($5,000,000), representing the principal amount of the Loans
assigned plus the amount of the Commitment Percentage so assigned multiplied by
the Total Commitment Amount; provided, however, that the Borrower and the Agent
may continue to deal solely and directly with such Bank in connection with the
interests so assigned to an Assignee until (i) written notice of such
assignment, together with payment instructions, addresses and related
information with respect to the Assignee, shall have been given to the Borrower
and the Agent by such Bank and the Assignee and (ii) such Bank and its Assignee
shall have delivered to the Borrower and the Agent an Assignment and Acceptance
in substantially the form of EXHIBIT 11.1 hereto (an "Assignment and
Acceptance") together with any Note or Notes subject to such assignment; and
(iii) the processing fee of Three Thousand Five Hundred Dollars ($3,500) shall
have been paid to the Agent. Notwithstanding the foregoing, (1) any Bank may at
any time, with notice to the Borrower and the Agent but without the consent of
either the Borrower or the Agent, assign and delegate all or any part of the
Loans or the Commitments or any other rights or obligations of such Bank
hereunder to any Federal Reserve Bank as collateral security pursuant to
Regulation A of the Board of Governors of the Federal Reserve System and any
Operating Circular issued by such Federal Reserve Bank, so long as such
assignment does not relieve such Bank from its obligations hereunder, and (II)
the consent of the Borrower shall not be required to any assignment made
following an Event of Default (unless such- Event of Default is subsequently
waived as provided in Section 9.2).
(c) From and after the date that the Agent notifies the Assignor that
it has received the Assignment and Acceptance, (i) the Assignee thereunder shall
be a party hereto and, to the extent that rights and obligations hereunder have
been assigned to it pursuant to such Assignment and Acceptance, shall have the
rights and obligations of a Bank under the Loan Documents and (ii) the Assignor
Bank shall, to the extent that rights and obligations hereunder have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Loan Documents.
(d) Within five (5) Banking Days after its receipt of notice by the
Agent that it has received an executed Assignment and Acceptance, the Borrower
shall execute and deliver to the Agent new Notes evidencing such Assignee's
assigned Loans and Commitment Amount and, if the Assignor has retained a portion
of its Loans and its Commitment Amount, replacement Notes in the Commitment
Amount retained by the Assignor (such Notes to be in exchange for, but not in
payment of, the Notes held by such Bank). Immediately upon each Assignee's
making its payment under the Assignment and Acceptance, this Agreement shall be
deemed to be amended to the extent, but only to the extent necessary to reflect
the addition of the Assignee and the resulting adjustment of the Assignor's
Commitment Amount arising therefrom. The Commitment Amount allocated to each
Assignee shall reduce the Commitment Amount of the Assignor pro tanto.
(e) Any Bank may at any time sell to one or more banks or other
entities (a "Participant") participating interests in any Loans, the Commitment
Amount of that Bank or any other interest of that Bank hereunder in a minimum
amount of Five Million Dollars ($5,000,000); provided, however, that (i) the
Bank's obligations under this Agreement shall remain unchanged, (ii) the selling
Bank shall remain solely responsible for the performance of
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such obligations, (iii) the Borrower and the Agent shall continue to deal solely
and directly with the selling Bank in connection with such Bank's rights and
obligations under this Agreement, and (iv) no Bank shall transfer or grant any
participating interest under which the Participant shall have rights to approve
any amendment to, or any consent or waiver with respect to this Agreement except
to the extent such amendment, consent or waiver would require unanimous consent
as described in clauses (a) through (f) of SECTION 11.3 hereof. In the case of
any such participation, the Participant shall not have any rights under this
Agreement, or any of the other Loan Documents, and all amounts payable by the
Borrower hereunder shall be determined as if such Bank had not sold such
participation, except that if amounts outstanding under this Agreement are due
and unpaid, or shall have been declared or shall have become due and payable
upon the occurrence of an Event of Default, each Participant shall be deemed to
have the right of set-off in respect of its participating interest in amounts
owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Bank under this Agreement.
SECTION 11.2 NO IMPLIED WAIVER.
No delay or omission to exercise any right, power or remedy accruing to
the Agent or any Bank upon any breach or default of the Borrower under this
Agreement or under any of the other Loan Documents shall impair any such right,
power or remedy of the Agent or any Bank, nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default occurring thereafter, nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring theretofore or thereafter.
SECTION 11.3 AMENDMENTS AND WAIVERS.
No amendment or waiver of any provision of this Agreement or any other
Loan Document, and no consent with respect to any departure by the Borrower
therefrom, shall be effective unless the same shall be in writing and signed by
the Majority Banks, and then such waiver shall be effective only in the specific
instance and for the specific purpose for which given; provided, however, that
no such waiver, amendment or consent shall, unless in writing and signed by all
the Banks, do any of the following:
(a) increase the Commitment Amount of any Bank or subject any Bank to
any additional obligations;
(b) postpone or delay any date fixed for any payment of principal,
interest, fees or other amounts due hereunder or under any Loan Document;
(c) reduce the principal of, or the rate of interest specified herein
on any Loan, or of any fees or other amounts payable hereunder or under any Loan
Document;
(d) change the definition of "Majority Banks" or the percentage of the
aggregate Commitment Percentages or of the aggregate unpaid principal amount of
the Loans which shall be required for the Banks or any of them to take any
action hereunder;
84
<PAGE> 92
(e) amend this SECTION 11.3; or
(f) release any portion of the Collateral from the Liens created by any
of the Loan Documents unless pursuant to a bona fide arms' length transaction
not with an Affiliate of the Borrower, which transaction either (i) is permitted
by this Agreement or (ii) if such transaction requires the consent of the
Majority Banks, has been so consented to;
and, provided, further, that (y) no amendment, waiver or consent shall, unless
in writing and signed by the Agent in addition to the Majority Banks, affect the
rights or duties of the Agent under this Agreement, and (z) the definition of
"Majority Banks" or the percentage of the aggregate Commitment Percentages or of
the aggregate principal amount of the Loans which shall be required for the
Banks or any of them to take any action here-under may be changed without the
consent of the Borrower.
SECTION 11.4 REMEDIES CUMULATIVE.
All rights and remedies, either under this Agreement, by law or
otherwise afforded to the Agent or the Banks shall be cumulative and not
exclusive, and any single or partial exercise of any power or right hereunder or
thereunder does not preclude other or further exercise thereof, or the exercise
of any other power or right.
SECTION 11.5 SEVERABILITY.
Any provision of this Agreement, the Notes or any of the other Loan
Documents which is prohibited or unenforceable in any jurisdiction, shall be,
only as to such jurisdiction, ineffective to the extent of such prohibition or
unenforceability, but all the remaining provisions of this Agreement, the Notes
and the other Loan Documents shall remain valid.
SECTION 11.6 COSTS, EXPENSES AND ATTORNEYS' Fees.
The Borrower shall reimburse the Agent for all reasonable costs and
expenses, including, but not limited to, reasonable attorneys' and other
professionals' fees and expenses (including the allocated cost of the Agent's
internal counsel) and appraisal, audit, review, travel, search and filing fees
and expenses, expended or incurred by the Agent in connection with the
preparation, negotiation and execution of this Agreement, in connection with the
initial Borrowing or any due diligence review by the Agent of any Permitted
Acquisitions, in amending this Agreement or extending any waiver or consent
hereunder, or in any transaction referred to in SECTION 11.1(b) hereof, and
shall reimburse the Agent and the Banks for all costs and expenses, including,
but not limited to, reasonable attorneys' fees and expenses (including the
allocated cost of the Agent's internal counsel), expended or incurred by the
Agent or any Bank in collecting any sum which becomes due under the Notes or
under this Agreement or any of the other Loan Documents, or in the protection,
perfection, preservation and enforcement of any and all rights of the Agent or
any Bank in connection with the Loan Documents, including, without limitation,
the fees and costs incurred in any out-of-court workout or a bankruptcy or
reorganization proceeding. This obligation on the part of the Borrower
85
<PAGE> 93
shall survive the expiration or termination of this Agreement, with or without
occurrence of the Closing Date.
SECTION 11.7 GENERAL INDEMNIFICATION.
The Borrower shall indemnify and hold each Bank, the Agent and each of
their directors, officers, employees, Affiliates, attorneys and agents
(collectively referred to herein as the "Bank Indemnitees") harmless from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any kind
or nature whatsoever (including, without limitation, any expenses (including
reasonable attorneys' fees and the allocated cost of in-house counsel) incurred
by any such Bank Indemnitee in connection with any investigation or discovery
served upon such Bank Indemnitee in connection with any such matter, whether or
not any such Bank Indemnitee shall be designated a party thereto) which may be
imposed on, incurred by or asserted against such Bank Indemnitees by any Person
other than the Bank with which such Bank Indemnitee is affiliated (whether
direct, indirect or consequential and whether based on any federal or state laws
or other statutory regulations, including, without limitation, securities,
environmental and commercial laws and regulations, under common law or at
equitable cause, or on contract or otherwise) in any manner relating to or
arising out of this Agreement, the Agent's Fee Letter, the Banks' Closing Fee
Letter, any other Loan Documents, or any act, event or transaction related or
attendant thereto; the making of Loans hereunder; the management of the Loans
(including any liability under federal, state or local environmental laws or
regulations); or the use or intended use of the proceeds of the Loans
(collectively, the "Indemnified Matters"); provided, however, that the Borrower
shall have no obligation to any Bank Indemnitee under this SECTION 11.7 with
respect to Indemnified Matters to the extent such Indemnified Matters were
caused by or resulted from the gross negligence or willful misconduct of a Bank
Indemnitee. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in the preceding sentence may be unenforceable because it
violates any law or public policy, the Borrower shall contribute to the payment
and satisfaction of all Indemnified Matters incurred by the Bank Indemnitees the
maximum portion which the Borrower is permitted to pay and satisfy under
applicable law. This indemnification shall survive repayment by the Borrower of
all Loans made under this Agreement and the termination of this Agreement, with
or without occurrence of the Closing Date.
SECTION 11.8 ENVIRONMENTAL INDEMNIFICATION.
The Borrower hereby agrees to indemnify, defend and hold harmless each
Bank Indemnitee, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, charges, expenses
or disbursements (including attorneys' fees and the allocated cost of in-house
counsel), which may be incurred by or asserted against such Bank Indemnitee in
connection with or arising out of any pending or threatened investigation,
litigation or proceeding, or any action taken by any Person, with respect to any
Environmental Claim arising out of or related to any property subject to a
mortgage in favor of the Agent or any Bank. No action taken by legal counsel
chosen by the Agent or any Bank in defending against any such investigation,
litigation or proceeding or
86
<PAGE> 94
requested remedial, removal or response action shall vitiate or any way impair
the Borrower's obligations and duties hereunder to indemnify and hold harmless
the Agent and each Bank. In no event shall site visit, observation, or testing
by the Agent or any Bank be a representation that Hazardous Materials are or are
not present in, on, or under the site, or that there has been or shall be
compliance with any law, regulation, or ordinance pertaining to Hazardous
Materials or any other applicable governmental law. Neither the Borrower nor any
other party is entitled to rely on any site visit, observation, or testing by
the Agent or any Bank. Neither the Agent nor any Bank owes any duty of care to
protect the Borrower or any other party against, or to inform the Borrower or
any other party of, any Hazardous Materials or any other adverse condition
affecting any site or property. Neither the Agent nor any Bank shall be
obligated to disclose to the Borrower or any other party any report or findings
made as a result of, or in connection with, any site visit, observation, or
testing by the Agent or any Bank. This indemnification shall survive repayment
of all Loans made under this Agreement and the termination of this Agreement,
with or without occurrence of the Closing Date.
SECTION 11.9 NOTICES.
Any notice which the Borrower, the Agent, the Issuing Bank or any of
the Banks may be required or may desire to give to the other parties under any
provision of this Agreement shall be in writing by electronic facsimile
transmission and shall be deemed to have been given or made when transmitted and
addressed to the Issuing Bank and any Bank at the address set forth on the
signature pages hereto or to the Agent or the Borrower as follows:
To the Borrower: New American Healthcare Corporation
109 Westpark Drive, Suite 440
Brentwood, Tennessee 37027
Attention: Mr. Dana L. McLendon, Jr.
Senior Vice President
Telephone: (615) 221-5070
Facsimile: (615) 221-5009
Copy to: Ernest E. Hyne, 11, Esq.
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
Telephone: (615) 251-1064
Facsimile: (615) 251-1059
To the Agent: Toronto Dominion (Texas), Inc.
909 Fannin Street, Suite 1700
Houston, Texas 77010
Attention: Manager, Agency
Telephone: (713) 653-8200
Facsimile: (713) 951-9921
87
<PAGE> 95
Copy to: The Toronto-Dominion Bank
31 West 52nd Street
New York, New York 10019
Attention: Ms. Beth Olmstead
Telephone: (212) 827-7754
Facsimile: (212) 974-0396
Copy to: Robert J. Zimmerman, Esq.
Foley & Lardner
330 North Wabash Avenue
Suite 3300
Chicago, Illinois 60611
Telephone: (312) 755-2521
Facsimile: (312) 755-1925
Any party may change the address to which all notices, requests and other
communications are to be sent to it by giving written notice of such address
change to the other parties in conformity with this paragraph, but such change
shall not be effective until notice of such change has been received by the
other parties.
SECTION 11.10 ENTIRE AGREEMENT.
This Agreement, together with the exhibits to this Agreement and all of
the other Loan Documents, is intended by the Borrower, the Agent and the Banks
as a final expression of their agreement and, together with all of the other
Loan Documents, is intended as a complete statement of the terms and conditions
of their agreement. This Agreement and the other Loan Documents contain all of
the agreements and understandings between or among the Borrower, the Agent and
the Banks concerning the Loans and the other transactions contemplated hereby.
SECTION 11.11 GOVERNING LAW AND CONSENT TO JURISDICTION.
The validity, construction and effect of this Agreement, the Notes and
all of the other Loan Documents shall be governed by the laws of the State of
New York, without regard to its laws regarding choice of applicable law, but
giving effect to federal laws applicable to national and federally insured
banks. All judicial proceedings brought against the Borrower with respect to
this Agreement, the Notes or any of the other Loan Documents may be brought in
any state or federal court of competent jurisdiction in the State of New York,
and the Borrower accepts for itself and its assets and properties, generally and
unconditionally, the nonexclusive jurisdiction of the aforesaid courts. The
Borrower waives, to the fullest extent permitted by applicable law, any
objection (including, without limitation, any objection to the laying of venue
or based on the grounds of forum non conveniens) which it may now or hereafter
have to the bringing of any such action or proceeding in any such jurisdiction.
Nothing herein shall limit the right of a Bank or the Agent to bring proceedings
against the Borrower in the court of any other jurisdiction.
88
<PAGE> 96
SECTION 11.12 COUNTERPARTS.
This Agreement may be executed in any number of counterparts each of
which shall be an original with the same effect as if the signatures thereto and
hereto were upon the same instrument.
SECTION 11.13 WAIVER OF JURY TRIAL.
THE BORROWER WAIVES ANY RIGHT TO TRIAL BY JURY WITH REGARD TO ANY
ACTION OF ANY TYPE OR NATURE WHATSOEVER UNDER OR CONCERNING THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS OR IN ANY WAY RELATED TO THE LOANS OR THE
ADMINISTRATION OR ENFORCEMENT THEREOF.
SECTION 11.14 HEADINGS.
Captions, headings and the table of contents in this Agreement are for
convenience only and are not to be deemed part of this Agreement.
SECTION 11.15 EFFECT OF AMENDMENT AND RESTATEMENT.
Upon the execution and delivery of this Agreement, the obligations of
the Borrower to repay or perform the obligations under the Original Agreement
shall continue in full force and effect and the liens, mortgages and security
interests securing payment thereof shall be continuing, but shall now be
governed by the terms of this Agreement, and any other agreements and document
herein referenced, as the case may be. The execution and delivery of this
Agreement and any other agreements or documents executed and delivered
concurrently herewith shall not be construed as a novation of the obligations
outstanding under the Original Agreement.
(The next page is the commencement of the signature pages.)
89
<PAGE> 97
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement by its duly authorized officers as of the date and year first above
written.
BORROWER: NEW AMERICAN HEALTHCARE CORPORATION
By:
-------------------------------------
Title:
----------------------------------
THIS IS A SIGNATURE PAGE FOR THE AMENDED AND RESTATED CREDIT AGREEMENT BY AND
AMONG NEW AMERICAN HEALTHCARE CORPORATION, AS BORROWER,
TORONTO DOMINION (TEXAS), INC., AS AGENT,
THE TORONTO-DOMINION BANK, AS ISSUING BANK AND
THE FINANCIAL INSTITUTIONS PARTY HERETO
<PAGE> 98
ISSUING BANK: THE TORONTO-DOMINION BANK,
as Issuing Bank
By:
-------------------------------------
Title:
----------------------------------
THIS IS A SIGNATURE PAGE FOR THE AMENDED AND RESTATED CREDIT AGREEMENT BY AND
AMONG NEW AMERICAN HEALTHCARE CORPORATION, AS BORROWER,
TORONTO DOMINION (TEXAS), INC., AS AGENT,
THE TORONTO-DOMINION BANK, AS ISSUING BANK AND
THE FINANCIAL INSTITUTIONS PARTY HERETO
<PAGE> 99
AGENT/BANK: TORONTO DOMINION (TEXAS), INC.,
as Agent and as a Bank
By:
-------------------------------------
Title:
----------------------------------
Commitment Percentage: %
------------------
THIS IS A SIGNATURE PAGE FOR THE AMENDED AND RESTATED CREDIT AGREEMENT BY AND
AMONG NEW AMERICAN HEALTHCARE CORPORATION, AS BORROWER,
TORONTO DOMINION (TEXAS), INC., AS AGENT,
THE TORONTO-DOMINION BANK, AS ISSUING BANK AND
THE FINANCIAL INSTITUTIONS PARTY HERETO
<PAGE> 100
OTHER BANKS:
THIS IS A SIGNATURE PAGE FOR THE AMENDED AND RESTATED CREDIT AGREEMENT BY AND
AMONG NEW AMERICAN HEALTHCARE CORPORATION, AS BORROWER,
TORONTO DOMINION (TEXAS), INC., AS AGENT,
THE TORONTO-DOMINION BANK, AS ISSUING BANK AND
THE FINANCIAL INSTITUTIONS PARTY HERETO
<PAGE> 101
BANQUE PARIBAS
By: By:
---------------------------------- ----------------------------------
Title: Title:
------------------------- -------------------------
Commitment Percentage: % Commitment Percentage: %
--------------- ---------------
NATIONAL CITY BANK
By:
----------------------------------
Title:
-------------------------
Commitment Percentage: %
---------------
BANCONE
By:
----------------------------------
Title:
-------------------------
Commitment Percentage: %
---------------
THIS IS A SIGNATURE PAGE FOR THE AMENDED AND RESTATED CREDIT AGREEMENT BY AND
AMONG NEW AMERICAN HEALTHCARE CORPORATION, AS BORROWER,
TORONTO DOMINION (TEXAS), INC., AS AGENT,
THE TORONTO-DOMINION BANK, AS ISSUING BANK AND
THE FINANCIAL INSTITUTIONS PARTY HERETO
<PAGE> 102
AMSOUTH BANK
By:
-------------------------------------
Title:
----------------------------------
Commitment Percentage: _________________%
THIS IS A SIGNATURE PAGE FOR THE AMENDED AND RESTATED CREDIT AGREEMENT BY AND
AMONG NEW AMERICAN HEALTHCARE CORPORATION, AS BORROWER,
TORONTO DOMINION (TFXAS), INC.. AS AGENT,
THE TORONTO-DOMINION BANK, AS ISSUING BANK AND
THE FINANCIAL INSTITUTIONS PARTY HERETO
<PAGE> 1
Exhibit 10.14
NEW AMERICAN HEALTHCARE CORPORATION
PROMISSORY NOTE
US $30,000,000 Dated: January 30, 1998
FOR VALUE RECEIVED, the undersigned, NEW AMERICAN HEALTHCARE CORPORATION,
a Tennessee corporation (the "Borrower"), hereby promises to pay to the order of
TORONTO DOMINION (TEXAS), INC. (together with its successors and assigns, the
"Bank"), at such place as the Bank may designate in writing to the Borrower, in
immediately available funds, the principal sum of THIRTY MILLION DOLLARS
($30,000,000), or, if less, so much thereof as may from time to time be advanced
as Loans by the Bank to the Borrower pursuant to the hereinafter defined Credit
Agreement, plus interest as hereinafter provided. Such Loans may be endorsed
from time to time on the grid attached hereto, but the failure to make such
notations shall not affect the validity or enforceability of the Borrower's
obligation to repay unpaid principal and interest on this Note.
This Note is one of the promissory notes referred to in that certain
Amended and Restated Credit Agreement dated as of January 30, 1998 (as the same
may be amended, modified or supplemented from time to time, the "Credit
Agreement") by and among the Borrower, the Agent, the Issuing Bank and the
Banks. Capitalized terms used but not defined herein shall have the meanings
ascribed thereto in the Credit Agreement.
The principal of this Note shall be due and payable on the Final Maturity
Date or such earlier date as the principal amount of the Loans shall be due and
payable under the Credit Agreement.
This Note evidences the Loans of funds made by the Bank pursuant to the
Credit Agreement, which funds may be borrowed, repaid and re-borrowed as
provided in the Credit Agreement. Prepayment of the principal amount of any Loan
may be made only as provided in the Credit Agreement.
The Borrower promises to pay interest on the unpaid principal amount hereof
as provided in ARTICLE II of the Credit Agreement. Interest on this Note shall
also be due and payable at Maturity. Overdue principal and, to the extent
permitted by law, overdue interest hereon shall bear interest at the Default
Rate as provided in the Credit Agreement.
In no event shall the amount of interest due or payable hereunder exceed
the maximum rate of interest allowed by Applicable Law, and in the event any
such payment is
<PAGE> 2
inadvertently made by the Borrower or inadvertently received by the Bank, then
such excess sum shall be credited as a payment of principal unless the Borrower
shall notify the Bank in writing that it elects to have such excess sum returned
forthwith. It is hereby expressly intended that the Borrower shall not pay and
the Bank shall not receive, directly or indirectly, in any manner whatsoever,
interest in excess of that which may legally be paid by the Borrower under
Applicable Law.
All parties now or hereafter liable with respect to this Note, whether the
Borrower, any guarantor, endorser or any other person, hereby waive presentment
for payment, demand, notice of non-payment or dishonor, protest, notice of
protest and notice of any other kind whatsoever.
No delay or omission on the part of the Bank or any holder hereof in
exercising its rights under this Note, or delay or omission on the part of the
Agent, the Majority Banks or the Banks, collectively or any of them, in
exercising its or their rights under the Credit Agreement or under any other
Loan Document, or course of conduct relating thereto, shall operate as a waiver
of such rights or any other right of the Bank or any holder hereof, nor shall
any waiver by the Agent, the Majority Banks or the Banks, collectively or any of
them, or any holder hereof, of any such right or rights on any one occasion be
deemed a bar to, or waiver of, the same right or rights on any future occasion.
The Borrower hereby promises to pay all reasonable costs of collection,
including reasonable attorneys' fees, should this Note be collected by or
through an attorney-at-law or under advice therefrom.
Time is of the essence of this Note.
This Note evidences the Bank's portion of the Loans under, and is entitled
to the benefits and subject to the terms of, the Credit Agreement, which
contains provisions with respect to the acceleration of the maturity of this
Note upon the happening of certain stated events and provisions for prepayment
and repayment. This Note is secured by and is also entitled to the benefits of
the Loan Documents to the extent provided therein and any other agreement or
instrument providing Collateral for the Loans, whether now or hereafter in
existence, and any filings, instruments, agreements and documents related
thereto.
This Note shall be construed in accordance with and governed by the laws of
the State of New York without regard to the conflict or choice of law principles
thereof.
<PAGE> 3
IN WITNESS WHEREOF, the duly authorized officers of the Borrower
have executed this Note under seal as of the day and year first above written.
NEW AMERICAN HEALTHCARE CORPORATION
By:
---------------------------------
Its:
----------------------------
(SEAL)
Attest:
By:
-------------------------------
Its:
--------------------------
<PAGE> 4
<TABLE>
<CAPTION>
=========================================================================================================
LOAN GRID
- ---------------------------------------------------------------------------------------------------------
Amount
Date Type of Date
Loan Amount Of Principal Notation Bank Officer
Made of Loan Loan Prepaid Made Signature
- ------ --------- ------ ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
==========================================================================================================
</TABLE>
<PAGE> 1
Exhibit 10.15
NEW AMERICAN HEALTHCARE CORPORATION
PROMISSORY NOTE
US $25,000,000 Dated: January 30, 1998
FOR VALUE RECEIVED, the undersigned, NEW AMERICAN HEALTHCARE CORPORATION, a
Tennessee corporation (the "Borrower"), hereby promises to pay to the order of
NATIONSBANK, N.A. (together with its successors and assigns, the "Bank"), at
such place as the Bank may designate in writing to the Borrower, in immediately
available funds, the principal sum of TWENTY FIVE MILLION DOLLARS ($25,000,000),
or, if less, so much thereof as may from time to time be advanced as Loans by
the Bank to the Borrower pursuant to the hereinafter defined Credit Agreement,
plus interest as hereinafter provided. Such Loans may be endorsed from time to
time on the grid attached hereto, but the failure to make such notations shall
not affect the validity or enforceability of the Borrower's obligation to repay
unpaid principal and interest on this Note.
This Note is one of the promissory notes referred to in that certain
Amended and Restated Credit Agreement dated as of January 30, 1998 (as the same
may be amended, modified or supplemented from time to time, the "Credit
Agreement") by and among the Borrower, the Agent, the Issuing Bank and the
Banks. Capitalized terms used but not defined herein shall have the meanings
ascribed thereto in the Credit Agreement.
The principal of this Note shall be due and payable on the Final Maturity
Date or such earlier date as the principal amount of the Loans shall be due and
payable under the Credit Agreement.
This Note evidences the Loans of funds made by the Bank pursuant to the
Credit Agreement, which funds may be borrowed, repaid and re-borrowed as
provided in the Credit Agreement. Prepayment of the principal amount of any Loan
may be made only as provided in the Credit Agreement.
The Borrower promises to pay interest on the unpaid principal amount hereof
as provided in ARTICLE II of the Credit Agreement. Interest on this Note shall
also be due and payable at Maturity. Overdue principal and, to the extent
permitted by Law, overdue interest hereon shall bear interest at the Default
Rate as provided in the Credit Agreement.
In no event shall the amount of interest due or payable hereunder exceed
the maximum rate of interest allowed by Applicable Law, and in the event any
such payment is
<PAGE> 2
inadvertently made by the Borrower or inadvertently received by the Bank, then
such excess sum shall be credited as a payment of principal unless the Borrower
shall notify the Bank in writing that it elects to have such excess sum returned
forthwith. It is hereby expressly intended that the Borrower shall not pay and
the Bank shall not receive, directly or indirectly, in any manner whatsoever,
interest in excess of that which may legally be paid by the Borrower under
Applicable Law.
All parties now or hereafter liable with respect to this Note, whether the
Borrower, any guarantor, endorser or any other person, hereby waive presentment
for payment, demand, notice of non-payment or dishonor, protest, notice of
protest and notice of any other kind whatsoever.
No delay or omission on the part of the Bank or any holder hereof in
exercising its rights under this Note, or delay or omission on the part of the
Agent, the Majority Banks or the Banks, collectively or any of them, in
exercising its or their rights under the Credit Agreement or any other Loan
Document, or course of conduct relating thereto, shall operate as a waiver of
such rights or any other right of the Bank or any holder hereof, nor shall any
waiver by the Agent, the Majority Banks or the Banks, collectively or any of
them, or any holder hereof, of any such right or rights on any one occasion be
deemed a bar to, or waiver of, the same right or rights on any future occasion.
The Borrower hereby promises to pay all reasonable costs of collection,
including reasonable attorneys' fees, should this Note be collected by or
through an attorney-at-law or under advice therefrom.
Time is of the essence of this Note.
This Note evidences the Bank's portion of the Loans under, and is entitled
to the benefits and subject to the terms of, the Credit Agreement, which
contains provisions with respect to the acceleration of the maturity of this
Note upon the happening of certain stated events and provisions for prepayment
and repayment. This Note is secured by and is also entitled to the benefits of
the Loan Documents to the extent provided therein and any other agreement or
instrument providing Collateral for the Loans, whether now or hereafter in
existence, and any filings, instruments, agreements and documents related
thereto.
This Note shall be construed in accordance with and governed by the laws of
the State of New York without regard to the conflict or choice of law principles
thereof.
<PAGE> 3
IN WITNESS WHEREOF, the duly authorized officers of the Borrower have
executed this Note under seal as of the day and year first above written.
NEW AMERICAN HEALTHCARE CORPORATION
By:
----------------------------------
Its:
-----------------------------
(SEAL)
Attest:
By:
------------------------------
Its:
-------------------------
<PAGE> 4
<TABLE>
<CAPTION>
===============================================================================================
LOAN GRID
- -----------------------------------------------------------------------------------------------
Amount
Date Type Of Date
Loan Amount Of Principal Notation Bank Officer
Made of Loan Loan Prepaid Made Signature
- ------- --------- ------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
================================================================================================
</TABLE>
<PAGE> 1
Exhibit 10.16
NEW AMERICAN HEALTHCARE CORPORATION
PROMISSORY NOTE
US $10,000,000 Dated: January 30, 1998
FOR VALUE RECEIVED, the undersigned, NEW AMERICAN HEALTHCARE CORPORATION, a
Tennessee corporation (the "Borrower"), hereby promises to pay to the order of
AMSOUTH BANK OF TENNESSEE (together with its successors and assigns, the
"Bank"), at such place as the Bank may designate in writing to the Borrower, in
immediately available funds, the principal sum of TEN MILLION DOLLARS
($10,000,000), or, if less, so much thereof as may from time to time be advanced
as Loans by the Bank to the Borrower pursuant to the hereinafter defined Credit
Agreement, plus interest as hereinafter provided. Such Loans may be endorsed
from time to time on the grid attached hereto, but the failure to make such
notations shall not affect the validity or enforceability of the Borrower's
obligation to repay unpaid principal and interest on this Note.
This Note is one of the promissory notes referred to in that certain
Amended and Restated Credit Agreement dated as of January 30, 1998 (as the same
may be amended, modified or supplemented from time to time, the "Credit
Agreement") by and among the Borrower, the Agent, the Issuing Bank and the
Banks. Capitalized terms used but not defined herein shall have the meanings
ascribed thereto in the Credit Agreement.
The principal of this Note shall be due and payable on the Final Maturity
Date or such earlier date as the principal amount of the Loans shall be due and
payable under the Credit Agreement.
This Note evidences the Loans of funds made by the Bank pursuant to the
Credit Agreement, which funds may be borrowed, repaid and re-borrowed as
provided in the Credit Agreement. Prepayment of the principal amount of any Loan
may be made only as provided in the Credit Agreement.
The Borrower promises to pay interest on the unpaid principal amount hereof
as provided in ARTICLE II of the Credit Agreement. Interest on this Note shall
also be due and payable at Maturity. Overdue principal and, to the extent
permitted by law, overdue interest hereon shall bear interest at the Default
Rate as provided in the Credit Agreement.
In no event shall the amount of interest due or payable hereunder exceed
the maximum rate of interest allowed by Applicable Law, and in the event any
such payment is
<PAGE> 2
inadvertently made by the Borrower or inadvertently received by the Bank, then
such excess sum shall be credited as a payment of principal unless the Borrower
shall notify the Bank in writing that it elects to have such excess sum returned
forthwith. It is hereby expressly intended that the Borrower shall not pay and
the Bank shall not receive, directly or indirectly, in any manner whatsoever,
interest in excess of that which may legally be paid by the Borrower under
Applicable Law.
All parties now or hereafter liable with respect to this Note, whether the
Borrower, any guarantor, endorser or any other person, hereby waive presentment
for payment, demand, notice of non-payment or dishonor, protest, notice of
protest and notice of any other kind whatsoever.
No delay or omission on the part of the Bank or any holder hereof in
exercising its rights under this Note, or delay or omission on the part of the
Agent, the Majority Banks or the Banks, collectively or any of them, in
exercising its or their rights under the Credit Agreement or any other Loan
Document, or course of conduct relating thereto, shall operate as a waiver of
such rights or any other right of the Bank or any holder hereof, nor shall any
waiver by the Agent, the Majority Banks or the Banks, collectively or any of
them, or any holder hereof, of any such right or rights on any one occasion be
deemed a bar to, or waiver of, the same right or rights on any future occasion.
The Borrower hereby promises to pay all reasonable costs of collection,
including reasonable attorneys' fees, should this Note be collected by or
through an attorney-at-law or under advice therefrom.
Time is of the essence of this Note.
This Note evidences the Bank's portion of the Loans under, and is entitled
to the benefits and subject to the terms of, the Credit Agreement, which
contains provisions with respect to the acceleration of the maturity of this
Note upon the happening of certain stated events and provisions for prepayment
and repayment. This Note is secured by and is also entitled to the benefits of
the Loan Documents to the extent provided therein and any other agreement or
instrument providing Collateral for the Loans, whether now or hereafter in
existence, and any filings, instruments, agreements and documents related
thereto.
This Note shall be construed in accordance with and governed by the laws of
the State of New York without regard to the conflict or choice of law principles
thereof.
<PAGE> 3
IN WITNESS WHEREOF, the duly authorized officers of the Borrower have
executed this Note under seal as of the day and year first above written.
NEW AMERICAN HEALTHCARE CORPORATION
By:
----------------------------------
Its:
-----------------------------
(SEAL)
Attest:
By:
----------------------------
Its:
-----------------------
<PAGE> 4
<TABLE>
<CAPTION>
===============================================================================================
LOAN GRID
- -----------------------------------------------------------------------------------------------
Amount
Date Type Of Date
Loan Amount Of Principal Notation Bank Officer
Made of Loan Loan Prepaid Made Signature
- ------- --------- ------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
================================================================================================
</TABLE>
<PAGE> 1
Exhibit 10.17
NEW AMERICAN HEALTHCARE CORPORATION
PROMISSORY NOTE
US $15,000,000 Dated: January 30, 1998
FOR VALUE RECEIVED, the undersigned, NEW AMERICAN HEALTHCARE CORPORATION, a
Tennessee corporation (the "Borrower"), hereby promises to pay to the order of
CORESTATES BANK, N.A. (together with its successors and assigns, the "Bank"), at
such place as the Bank may designate in writing to the Borrower, in immediately
available funds, the principal sum of FIFTEEN MILLION DOLLARS ($15,000,000), or,
if less, so much thereof as may from time to time be advanced as Loans by the
Bank to the Borrower pursuant to the hereinafter defined Credit Agreement, plus
interest as hereinafter provided. Such Loans may be endorsed from time to time
on the grid attached hereto, but the failure to make such notations shall not
affect the validity or enforceability of the Borrower's obligation to repay
unpaid principal and interest on this Note.
This Note is one of the promissory notes referred to in that certain
Amended and Restated Credit Agreement dated as of January 30, 1998 (as the same
may be amended, modified or supplemented from time to time, the "Credit
Agreement") by and among the Borrower, the Agent, the Issuing Bank and the
Banks. Capitalized terms used but not defined herein shall have the meanings
ascribed thereto in the Credit Agreement.
The principal of this Note shall be due and payable on the Final Maturity
Date or such earlier date as the principal amount of the Loans shall be due and
payable under the Credit Agreement.
This Note evidences the Loans of funds made by the Bank pursuant to the
Credit Agreement, which funds may be borrowed, repaid and re-borrowed as
provided in the Credit Agreement. Prepayment of the principal amount of any Loan
may be made only as provided in the Credit Agreement.
The Borrower promises to pay interest on the unpaid principal amount hereof
as provided in ARTICLE II of the Credit Agreement. Interest on this Note shall
also be due and payable at Maturity. Overdue principal and, to the extent
permitted by law, overdue interest hereon shall bear interest at the Default
Rate as provided in the Credit Agreement.
In no event shall the amount of interest due or payable hereunder exceed
the maximum rate of interest allowed by Applicable Law, and in the event any
such payment is
<PAGE> 2
inadvertently made by the Borrower or inadvertently received by the Bank, then
such excess sum shall be credited as a payment of principal unless the Borrower
shall notify the Bank in writing that it elects to have such excess sum returned
forthwith. It is hereby expressly intended that the Borrower shall not pay and
the Bank shall not receive, directly or indirectly, in any manner whatsoever,
interest in excess of that which may legally be paid by the Borrower under
Applicable Law.
All parties now or hereafter liable with respect to this Note, whether the
Borrower, any guarantor, endorser or any other person, hereby waive presentment
for payment, demand, notice of non-payment or dishonor, protest, notice of
protest and notice of any other kind whatsoever.
No delay or omission on the part of the Bank or any holder hereof in
exercising its rights under this Note, or delay or omission on the part of the
Agent, the Majority Banks or the Banks, collectively or any of them, in
exercising its or their rights under the Credit Agreement or any other Loan
Document, or course of conduct relating thereto, shall operate as a waiver of
such rights or any other right of the Bank or any holder hereof, nor shall any
waiver by the Agent, the Majority Banks or the Banks, collectively or any of
them, or any holder hereof, of any such right or rights on any one occasion be
deemed a bar to, or waiver of, the same right or rights on any future occasion.
The Borrower hereby promises to pay all reasonable costs of collection,
including reasonable attorneys' fees, should this Note be collected by or
through an attorney-at-law or under advice therefrom.
Time is of the essence of this Note.
This Note evidences the Bank's portion of the Loans under, and is entitled
to the benefits and subject to the terms of, the Credit Agreement, which
contains provisions with respect to the acceleration of the maturity of this
Note upon the happening of certain stated events and provisions for prepayment
and repayment. This Note is secured by and is also entitled to the benefits of
the Loan Documents to the extent provided therein and any other agreement or
instrument providing Collateral for the Loans, whether now or hereafter in
existence, and any filings, instruments, agreements and documents related
thereto.
This Note shall be construed in accordance with and governed by the laws of
the State of New York without regard to the conflict or choice of law principles
thereof.
<PAGE> 3
IN WITNESS WHEREOF, the duly authorized officers of the Borrower have
executed this Note under seal as of the day and year first above written.
NEW AMERICAN HEALTHCARE CORPORATION
By:
-------------------------------
Its:
--------------------------
(SEAL)
Attest:
By:
----------------------------
Its:
-----------------------
<PAGE> 4
<TABLE>
<CAPTION>
===============================================================================================
LOAN GRID
- -----------------------------------------------------------------------------------------------
Amount
Date Type Of Date
Loan Amount Of Principal Notation Bank Officer
Made of Loan Loan Prepaid Made Signature
- ------- --------- ------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
================================================================================================
</TABLE>
<PAGE> 1
Exhibit 10.18
NEW AMERICAN HEALTHCARE CORPORATION
PROMISSORY NOTE
US $10,000,000 Dated: January 30, 1998
FOR VALUE RECEIVED, the undersigned, NEW AMERICAN HEALTHCARE CORPORATION, a
Tennessee corporation (the "Borrower"), hereby promises to pay to the order of
BANQUE PARIBAS (together with its successors and assigns, the "Bank"), at such
place as the Bank may designate in writing to the Borrower, in immediately
available funds, the principal sum of TEN MILLION DOLLARS ($10,000,000), or, if
less, so much thereof as may from time to time be advanced as Loans by the Bank
to the Borrower pursuant to the hereinafter defined Credit Agreement, plus
interest as hereinafter provided. Such Loans may be endorsed from time to time
on the grid attached hereto, but the failure to make such notations shall not
affect the validity or enforceability of the Borrower's obligation to repay
unpaid principal and interest on this Note.
This Note is one of the promissory notes referred to in that certain
Amended and Restated Credit Agreement dated as of January 30, 1998 (as the same
may be amended, modified or supplemented from time to time, the "Credit
Agreement") by and among the Borrower, the Agent, the Issuing Bank and the
Banks. Capitalized terms used but not defined herein shall have the meanings
ascribed thereto in the Credit Agreement.
The principal of this Note shall be due and payable on the Final Maturity
Date or such earlier date as the principal amount of the Loans shall be due and
payable under the Credit Agreement.
This Note evidences the Loans of funds made by the Bank pursuant to the
Credit Agreement, which funds may be borrowed, repaid and re-borrowed as
provided in the Credit Agreement. Prepayment of the principal amount of any Loan
may be made only as provided in the Credit Agreement.
The Borrower promises to pay interest on the unpaid principal amount hereof
as provided in ARTICLE II of the Credit Agreement. Interest on this Note shall
also be due and payable at Maturity. Overdue principal and, to the extent
permitted by law, overdue interest hereon shall bear interest at the Default
Rate as provided in the Credit Agreement.
In no event shall the amount of interest due or payable hereunder exceed
the maximum rate of interest allowed by Applicable Law, and in the event any
such payment is
<PAGE> 2
inadvertently made by the Borrower or inadvertently received by the Bank, then
such excess sum shall be credited as a payment of principal unless the Borrower
shall notify the Bank in writing that it elects to have such excess sum returned
forthwith. It is hereby expressly intended that the Borrower shall not pay and
the Bank shall not receive, directly or indirectly, in any manner whatsoever,
interest in excess of that which may legally be paid by the Borrower under
Applicable Law.
All parties now or hereafter liable with respect to this Note, whether the
Borrower, any guarantor, endorser or any other person, hereby waive presentment
for payment, demand, notice of non-payment or dishonor, protest, notice of
protest and notice of any other kind whatsoever.
No delay or omission on the part of the Bank or any holder hereof in
exercising its rights under this Note, or delay or omission on the part of the
Agent, the Majority Banks or the Banks, collectively or any of them, in
exercising its or their rights under the Credit Agreement or any other Loan
Document, or course of conduct relating thereto, shall operate as a waiver of
such rights or any other right of the Bank or any holder hereof, nor shall any
waiver by the Agent, the Majority Banks or the Banks, collectively or any of
them, or any holder hereof, of any such right or rights on any one occasion be
deemed a bar to, or waiver of, the same right or rights on any future occasion.
The Borrower hereby promises to pay all reasonable costs of collection,
including reasonable attorneys' fees, should this Note be collected by or
through an attorney-at-law or under advice therefrom.
Time is of the essence of this Note.
This Note evidences the Bank's portion of the Loans under, and is entitled
to the benefits and subject to the terms of, the Credit Agreement, which
contains provisions with respect to the acceleration of the maturity of this
Note upon the happening of certain stated events and provisions for prepayment
and repayment. This Note is secured by and is also entitled to the benefits of
the Loan Documents to the extent provided therein and any other agreement or
instrument providing Collateral for the Loans, whether now or hereafter in
existence, and any filings, instruments, agreements and documents related
thereto.
This Note shall be construed in accordance with and governed by the laws of
the State of New York without regard to the conflict or choice of law principles
thereof.
<PAGE> 3
IN WITNESS WHEREOF, the duly authorized officers of the Borrower have
executed this Note under seal as of the day and year first above written.
NEW AMERICAN HEALTHCARE CORPORATION
By:
--------------------------------
Its:
---------------------------
(SEAL)
Attest:
By:
-------------------------------
Its:
--------------------------
<PAGE> 4
<TABLE>
<CAPTION>
===============================================================================================
LOAN GRID
- -----------------------------------------------------------------------------------------------
Amount
Date Type Of Date
Loan Amount Of Principal Notation Bank Officer
Made of Loan Loan Prepaid Made Signature
- ------- --------- ------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
================================================================================================
</TABLE>
<PAGE> 1
Exhibit 10.19
NEW AMERICAN HEALTHCARE CORPORATION
PROMISSORY NOTE
US $12,500,000 Dated: January 30, 1998
FOR VALUE RECEIVED, the undersigned, NEW AMERICAN HEALTHCARE CORPORATION, a
Tennessee corporation (the "Borrower"), hereby promises to pay to the order of
FIRST AMERICAN NATIONAL BANK (together with its successors and assigns, the
"Bank"), at such place as the Bank may designate in writing to the Borrower, in
immediately available funds, the principal sum of TWELVE MILLION FIVE HUNDRED
THOUSAND DOLLARS ($12,500,000), or, if less, so much thereof as may from time to
time be advanced as Loans by the Bank to the Borrower pursuant to the
hereinafter defined Credit Agreement, plus interest as hereinafter provided.
Such Loans may be endorsed from time to time on the grid attached hereto, but
the failure to make such notations shall not affect the validity or
enforceability of the Borrower's obligation to repay unpaid principal and
interest on this Note.
This Note is one of the promissory notes referred to in that certain
Amended and Restated Credit Agreement dated as of January 30, 1998 (as the same
may be amended, modified or supplemented from time to time, the "Credit
Agreement") by and among the Borrower, the Agent, the Issuing Bank and the
Banks. Capitalized terms used but not defined herein shall have the meanings
ascribed thereto in the Credit Agreement.
The principal of this Note shall be due and payable on the Final Maturity
Date or such earlier date as the principal amount of the Loans shall be due and
payable under the Credit Agreement.
This Note evidences the Loans of funds made by the Bank pursuant to the
Credit Agreement, which funds may be borrowed, repaid and re-borrowed as
provided in the Credit Agreement. Prepayment of the principal amount of any Loan
may be made only as provided in the Credit Agreement.
The Borrower promises to pay interest on the unpaid principal amount hereof
as provided in ARTICLE II of the Credit Agreement. Interest on this Note shall
also be due and payable at Maturity. Overdue principal and, to the extent
permitted by law, overdue interest hereon shall bear interest at the Default
Rate as provided in the Credit Agreement.
<PAGE> 2
inadvertently made by the Borrower or inadvertently received by the Bank, then
such excess sum shall be credited as a payment of principal unless the Borrower
shall notify the Bank in writing that it elects to have such excess sum returned
forthwith. It is hereby expressly intended that the Borrower shall not pay and
the Bank shall not receive, directly or indirectly, in any manner whatsoever,
interest in excess of that which may legally be paid by the Borrower under
Applicable Law.
All parties now or hereafter liable with respect to this Note, whether the
Borrower, any guarantor, endorser or any other person, hereby waive presentment
for payment, demand, notice of non-payment or dishonor, protest, notice of
protest and notice of any other kind whatsoever.
No delay or omission on the part of the Bank or any holder hereof in
exercising its rights under this Note, or delay or omission on the part of the
Agent, the Majority Banks or the Banks, collectively or any of them, in
exercising its or their rights under the Credit Agreement or any other Loan
Document, or course of conduct relating thereto, shall operate as a waiver of
such rights or any other right of the Bank or any holder hereof, nor shall any
waiver by the Agent, the Majority Banks or the Banks, collectively or any of
them, or any holder hereof, of any such right or rights on any one occasion be
deemed a bar to, or waiver of, the same right or rights on any future occasion.
The Borrower hereby promises to pay all reasonable costs of collection,
including reasonable attorneys' fees, should this Note be collected by or
through an attorney-at-law or under advice therefrom.
Time is of the essence of this Note.
This Note evidences the Bank's portion of the Loans under, and is entitled
to the benefits and subject to the terms of, the Credit Agreement, which
contains provisions with respect to the acceleration of the maturity of this
Note upon the happening of certain stated events and provisions for prepayment
and repayment. This Note is secured by and is also entitled to the benefits of
the Loan Documents to the extent provided therein and any other agreement or
instrument providing Collateral for the Loans, whether now or hereafter in
existence, and any filings, instruments, agreements and documents related
thereto.
This Note shall be construed in accordance with and governed by the laws of
the State of New York without regard to the conflict or choice of law principles
thereof.
<PAGE> 3
IN WITNESS WHEREOF, the duly authorized officers of the Borrower have
executed this Note under seal as of the day and year first above written.
NEW AMERICAN HEALTHCARE CORPORATION
By:
---------------------------------
Its:
----------------------------
(SEAL)
Attest:
By:
------------------------------
Its:
-------------------------
<PAGE> 4
<TABLE>
<CAPTION>
===============================================================================================
LOAN GRID
- -----------------------------------------------------------------------------------------------
Amount
Date Type Of Date
Loan Amount Of Principal Notation Bank Officer
Made of Loan Loan Prepaid Made Signature
- ------- --------- ------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
================================================================================================
</TABLE>
<PAGE> 1
Exhibit 10.20
NEW AMERICAN HEALTHCARE CORPORATION
PROMISSORY NOTE
US $15,000,000 Dated: January 30, 1998
FOR VALUE RECEIVED, the undersigned, NEW AMERICAN HEALTHCARE CORPORATION, a
Tennessee corporation (the "Borrower"), hereby promises to pay to the order of
NATIONAL CITY BANK, KENTUCKY (together with its successors and assigns, the
"Bank"), at such place as the Bank may designate in writing to the Borrower, in
immediately available funds, the principal sum of FIFTEEN MILLION DOLLARS
($15,000,000), or, if less, so much thereof as may from time to time be advanced
as Loans by the Bank to the Borrower pursuant to the hereinafter defined Credit
Agreement, plus interest as hereinafter provided. Such Loans may be endorsed
from time to time on the grid attached hereto, but the failure to make such
notations shall not affect the validity or enforceability of the Borrower's
obligation to repay unpaid principal and interest on this Note.
This Note is one of the promissory notes referred to in that certain
Amended and Restated Credit Agreement dated as of January 30, 1998 (as the same
may be amended, modified or supplemented from time to time, the "Credit
Agreement") by and among the Borrower, the Agent, the Issuing Bank and the
Banks. Capitalized terms used but not defined herein shall have the meanings
ascribed thereto in the Credit Agreement.
The principal of this Note shall be due and payable on the Final Maturity
Date or such earlier date as the principal amount of the Loans shall be due and
payable under the Credit Agreement.
This Note evidences the Loans of funds made by the Bank pursuant to the
Credit Agreement, which funds may be borrowed, repaid and re-borrowed as
provided in the Credit Agreement. Prepayment of the principal amount of any Loan
may be made only as provided in the Credit Agreement.
The Borrower promises to pay interest on the unpaid principal amount hereof
as provided in ARTICLE II of the Credit Agreement. Interest on this Note shall
also be due and payable at Maturity. Overdue principal and, to the extent
permitted by law, overdue interest hereon shall bear interest at the Default
Rate as provided in the Credit Agreement.
In no event shall the amount of interest due or payable hereunder exceed
the maximum rate of interest allowed by Applicable Law, and in the event any
such payment is
<PAGE> 2
inadvertently made by the Borrower or inadvertently received by the Bank, then
such excess sum shall be credited as a payment of principal unless the Borrower
shall notify the Bank in writing that it elects to have such excess sum returned
forthwith. It is hereby expressly intended that the Borrower shall not pay and
the Bank shall not receive, directly or indirectly, in any manner whatsoever,
interest in excess of that which may legally be paid by the Borrower under
Applicable Law.
All parties now or hereafter liable with respect to this Note, whether the
Borrower, any guarantor, endorser or any other person, hereby waive presentment
for payment, demand, notice of non-payment or dishonor, protest, notice of
protest and notice of any other kind whatsoever.
No delay or omission on the part of the Bank or any holder hereof in
exercising its rights under this Note, or delay or omission on the part of the
Agent, the Majority Banks or the Banks, collectively or any of them, in
exercising its or their rights under the Credit Agreement or any other Loan
Document, or course of conduct relating thereto, shall operate as a waiver of
such rights or any other right of the Bank or any holder hereof, nor shall any
waiver by the Agent, the Majority Banks or the Banks, collectively or any of
them, or any holder hereof, of any such right or rights on any one occasion be
deemed a bar to, or waiver of, the same right or rights on any future occasion.
The Borrower hereby promises to pay all reasonable costs of collection,
including reasonable attorneys' fees, should this Note be collected by or
through an attorney-at-law or under advice therefrom.
Time is of the essence of this Note.
This Note evidences the Bank's portion of the Loans under, and is entitled
to the benefits and subject to the terms of, the Credit Agreement, which
contains provisions with respect to the acceleration of the maturity of this
Note upon the happening of certain stated events and provisions for prepayment
and repayment. This Note is secured by and is also entitled to the benefits of
the Loan Documents to the extent provided therein and any other agreement or
instrument providing Collateral for the Loans, whether now or hereafter in
existence, and any filings, instruments, agreements and documents related
thereto.
This Note shall be construed in accordance with and governed by the laws of
the State of New York without regard to the conflict or choice of law principles
thereof.
<PAGE> 3
IN WITNESS WHEREOF, the duly authorized officers of the Borrower have
executed this Note under seal as of the day and year first above written.
NEW AMERICAN HEALTHCARE CORPORATION
By:
---------------------------------
Its:
----------------------------
(SEAL)
Attest:
By:
------------------------------
Its:
-------------------------
<PAGE> 4
<TABLE>
<CAPTION>
===============================================================================================
LOAN GRID
- -----------------------------------------------------------------------------------------------
Amount
Date Type Of Date
Loan Amount Of Principal Notation Bank Officer
Made of Loan Loan Prepaid Made Signature
- ------- --------- ------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
================================================================================================
</TABLE>
<PAGE> 1
Exhibit 10.21
NEW AMERICAN HEALTHCARE CORPORATION
PROMISSORY NOTE
US $15,000,000 Dated: January 30, 1998
FOR VALUE RECEIVED, the undersigned, NEW AMERICAN HEALTHCARE CORPORATION,
a Tennessee corporation (the "Borrower"), hereby promises to pay to the order of
BANKONE, N.A. (together with its successors and assigns, the "Bank"), at such
place as the Bank may designate in writing to the Borrower, in immediately
available funds, the principal sum of FIFTEEN MILLION DOLLARS ($15,000,000), or,
if less, so much thereof as may from time to time be advanced as Loans by the
Bank to the Borrower pursuant to the hereinafter defined Credit Agreement, plus
interest as hereinafter provided. Such Loans may be endorsed from time to time
on the grid attached hereto, but the failure to make such notations shall not
affect the validity or enforceability of the Borrower's obligation to repay
unpaid principal and interest on this Note.
This Note is one of the promissory notes referred to in that certain
Amended and Restated Credit Agreement dated as of January 30, 1998 (as the same
may be amended, modified or supplemented from time to time, the "Credit
Agreement") by and among the Borrower, the Agent, the Issuing Bank and the
Banks. Capitalized terms used but not defined herein shall have the meanings
ascribed thereto in the Credit Agreement.
The principal of this Note shall be due and payable on the Final Maturity
Date or such earlier date as the principal amount of the Loans shall be due and
payable under the Credit Agreement.
This Note evidences the Loans of funds made by the Bank pursuant to the
Credit Agreement, which funds may be borrowed, repaid and re-borrowed as
provided in the Credit Agreement. Prepayment of the principal amount of any Loan
may be made only as provided in the Credit Agreement.
The Borrower promises to pay interest on the unpaid principal amount hereof
as provided in ARTICLE II of the Credit Agreement. Interest on this Note shall
also be due and payable at Maturity. Overdue principal and, to the extent
permitted by law, overdue interest hereon shall bear interest at the Default
Rate as provided in the Credit Agreement.
In no event shall the amount of interest due or payable hereunder exceed
the maximum rate of interest allowed by Applicable Law, and in the event any
such payment is
<PAGE> 2
inadvertently made by the Borrower or inadvertently received by the Bank, then
such excess sum shall be credited as a payment of principal unless the Borrower
shall notify the Bank in writing that it elects to have such excess sum returned
forthwith. It is hereby expressly intended that the Borrower shall not pay and
the Bank shall not receive, directly or indirectly, in any manner whatsoever,
interest in excess of that which may legally be paid by the Borrower under
Applicable Law.
All parties now or hereafter liable with respect to this Note, whether the
Borrower, any guarantor, endorser or any other person, hereby waive presentment
for payment, demand, notice of non-payment or dishonor, protest, notice of
protest and notice of any other kind whatsoever.
No delay or omission on the part of the Bank or any holder hereof in
exercising its rights under this Note, or delay or omission on the part of the
Agent, the Majority Banks or the Banks, collectively or any of them, in
exercising its or their rights under the Credit Agreement or any other Loan
Document, or course of conduct relating thereto, shall operate as a waiver of
such rights or any other right of the Bank or any holder hereof, nor shall any
waiver by the Agent, the Majority Banks or the Banks, collectively or any of
them, or any holder hereof, of any such right or rights on any one occasion be
deemed a bar to, or waiver of, the same right or rights on any future occasion.
The Borrower hereby promises to pay all reasonable costs of collection,
including reasonable attorneys' fees, should this Note be collected by or
through an attorney-at-law or under advice therefrom.
Time is of the essence of this Note.
This Note evidences the Bank's portion of the Loans under, and is entitled
to the benefits and subject to the terms of, the Credit Agreement, which
contains provisions with respect to the acceleration of the maturity of this
Note upon the happening of certain stated events and provisions for prepayment
and repayment. This Note is secured by and is also entitled to the benefits of
the Loan Documents to the extent provided therein and any other agreement or
instrument providing Collateral for the Loans, whether now or hereafter in
existence, and any filings, instruments, agreements and documents related
thereto.
This Note shall be construed in accordance with and governed by the laws of
the State of New York without regard to the conflict or choice of law principles
thereof.
<PAGE> 3
IN WITNESS WHEREOF, the duly authorized officers of the Borrower have
executed this Note under seal as of the day and year first above written.
NEW AMERICAN HEALTHCARE CORPORATION
By:
---------------------------------
Its:
----------------------------
(SEAL)
Attest:
By:
----------------------------
Its:
-----------------------
<PAGE> 4
<TABLE>
<CAPTION>
===============================================================================================
LOAN GRID
- -----------------------------------------------------------------------------------------------
Amount
Date Type Of Date
Loan Amount Of Principal Notation Bank Officer
Made of Loan Loan Prepaid Made Signature
- ------- --------- ------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
================================================================================================
</TABLE>
<PAGE> 1
Exhibit 10.22
================================================================================
AMENDED AND RESTATED SECURITY AGREEMENT
BY AND BETWEEN
NEW AMERICAN HEALTHCARE CORPORATION,
AS BORROWER
AND
TORONTO DOMINION (TEXAS), INC.,
AS AGENT
DATED AS OF JANUARY 30, 1998
================================================================================
<PAGE> 2
AMENDED AND RESTATED SECURITY AGREEMENT
THIS AMENDED AND RESTATED SECURITY AGREEMENT (the "Agreement") dated as
of January 30, 1998, is entered into by and between NEW AMERICAN HEALTHCARE
CORPORATION, a Tennessee corporation (the "Borrower"), and TORONTO DOMINION
(TEXAS), INC. (the "Agent"), for itself and as Agent on behalf of the Issuing
Bank and the Banks (all as defined in the hereinafter defined Credit Agreement).
This Agreement amends and restates in its entirety that certain Security
Agreement dated as of September 30, 1996, by and between the above-named
parties, as amended.
W I T N E S S E T H :
WHEREAS, the Borrower, the Agent, the Issuing Bank and the Banks are
parties to that certain Amended and Restated Credit Agreement dated as of
January 30, 1998 (as hereafter amended, modified or supplemented from time to
time, the "Credit Agreement"), which amends and restates in its entirety that
certain Credit Agreement dated as of September 30, 1996, entered into by and
between the Borrower, the Agent, the Issuing Bank and the Banks; and
WHEREAS, it is a condition precedent to the making of Loans and the
issuing of Letters of Credit (as said terms are defined in the Credit Agreement)
under the Credit Agreement that the Borrower shall have granted the security
interest contemplated by this Agreement;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Capitalized terms used but not defined herein
shall have the meanings ascribed thereto in the Credit Agreement.
SECTION 2. GRANT OF SECURITY INTEREST. The Borrower hereby conveys,
transfers, grants, assigns and pledges to the Agent a security interest in and
security title to (together with a right of setoff) all assets of the Borrower
including, without limitation, the Borrower's right, title and interest in and
to the following, whether now owned or hereafter acquired (collectively, the
"Collateral"):
(a) all inventory in all of its forms, wherever located, now
or hereafter existing (including, but not limited to (i) all goods,
merchandise and other personal property owned and held for sale, (ii)
all raw materials, work or goods in process, all finished products
thereof, and all materials and supplies which contribute to the
finished products of the Borrower in the ordinary course of business
and (iii) any goods which are returned to or repossessed by the
Borrower), whether the Borrower has an interest in mass or a joint or
other interest or right of any other kind (including, without
limitation, goods in which the Borrower has an interest or right as
consignee), and all accessions thereto and products thereof and
documents and warehouse receipts therefor
<PAGE> 3
(any and all such inventory, accessions, products and documents being
hereinafter referred to as the "Inventory");
(b) all accounts, contract rights, chattel paper, instruments,
warehouse receipts, drafts, acceptances, deposit and bank accounts (including,
without limitation, the Concentration Account), general intangibles (including
all patents, trademarks, tradenames, service marks, patent applications,
trademark applications and copyrights, and all licenses relating to any of the
foregoing) and documents of the Borrower, whether secured or unsecured, and
whether now existing or hereafter created or arising, and all rights now or
hereafter existing in and to all security agreements, leases and other contracts
securing or otherwise relating to any such accounts, contract rights, chattel
paper, instruments, deposit and bank accounts, drafts, acceptances and documents
(any and all such accounts, contract rights, chattel paper, instruments, deposit
and bank accounts, drafts, acceptances and documents being hereinafter referred
to as the "Accounts" and any and all such leases, security agreements and other
contracts being hereinafter referred to as the "Related Contracts"), and the
proceeds of all service contracts sold by or on behalf of the Borrower;
(c) all Certificates of Need, management services agreements, Health
Facility Licenses, Medicaid Provider Agreements and Medicare Provider Agreements
(but only to the extent that the Borrower will not be in default under any such
Medicaid Provider Agreement or Medicare Provider Agreement or violate any
Governmental Requirements as a result of a granting of the security interest to
the Agent therein);
(d) all books and records (including, without limitation, computer
tapes, programs and printouts and all other computer materials, records and
electronic data processing software) recording, evidencing or relating to any or
all of the foregoing Collateral;
(e) all deposit accounts (and the investments and earnings thereof and
documents evidencing the same) into which the proceeds of any of the foregoing
may from time to time be deposited;
(f) all equipment, including machinery, supplies, motor vehicles,
tractors, trailers, trucks, dollies, forklifts and computers, and all
accretions, accessions and parts attached thereto, including tires and tubes in
service, and all additions thereto, and replacements thereof;
(g) all Subsidiary Notes;
(h) all proceeds of the Loans; and
(i) all proceeds of any and all of the Collateral (including, without
limitation, cash proceeds and other proceeds which constitute property of the
types described in clauses (a) and (b) of this SECTION 2) and, to the extent not
otherwise included, all payments under insurance (whether or not the Agent is
the loss payee
2
<PAGE> 4
thereof) or under any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the
Collateral.
The security interest hereby granted in the Concentration Account
shall, so long as the Concentration Account shall be held by the Agent, the
Issuing Bank or any of the Banks, be perfected by possession thereof by the
Agent, the Issuing Bank or such Bank.
The Borrower and the Agent agree that the Excluded Leases shall be
excluded from the foregoing grant of security interest.
SECTION 3. SECURITY FOR OBLIGATIONS. This Agreement secures the payment
of the Obligations and the Notes, whether now or hereafter existing. Without
limiting the generality of the foregoing, this Agreement secures the payment of
all amounts which constitute part of the Obligations and would be owed by the
Borrower to the Agent, the Issuing Bank or the Banks under the Credit Agreement
and the Notes but for the fact that they are unenforceable or not allowable due
to the existence of a bankruptcy, reorganization or similar proceeding involving
the Borrower.
SECTION 4. BORROWER REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (a) the Borrower shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of the duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by the Agent of any of the
rights hereunder shall not release the Borrower from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) neither the Agent, the Issuing Bank nor any Bank shall have any obligation
or liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall the Agent, the Issuing Bank or any Bank be
obligated to perform any of the obligations or duties of the Borrower thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.
SECTION 5. DELIVERY OF CHATTEL PAPER. The Borrower will promptly upon
request by the Agent deliver, assign and endorse to the Agent all chattel paper
and all other documents held by the Borrower in connection therewith.
SECTION 6. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants as follows:
(a) All of the Inventory, other than Inventory in transit, is located
at the places specified in SCHEDULE 1 attached hereto. The chief place of
business and chief executive office of the Borrower and the office where the
Borrower keeps records concerning the Accounts, and the originals of all chattel
paper that evidence Accounts, are located at its address specified in SCHEDULE 2
attached hereto. The originals of all chattel paper that evidence Accounts have
been delivered to the Agent. None of the Accounts is evidenced by a promissory
note or other instrument, other than a note or other instrument which has been
delivered to the Agent.
3
<PAGE> 5
(b) SCHEDULE 3 attached hereto and incorporated herein by reference
sets forth a true, complete and correct list of (i) all leases for Property in
which Inventory is stored (together with the name and mailing address of each
lessor with respect thereto) and (ii) the name and address of each location at
which Inventory is stored with a warehouseman or other bailee (together with the
name and address of each warehouseman or bailee with respect thereto).
(c) This Agreement creates a valid security interest in the Collateral,
securing the payment of the Obligations, and, to the best of the Borrower's
knowledge, all filings and other actions necessary or desirable to perfect and
protect such security interest will have been duly taken upon the filing of
UCC-1 financing statements listing the Borrower, as debtor, and the Agent, as
secured party, in the jurisdictions listed on SCHEDULE 4 attached hereto. Upon
the taking of such actions and the making of such filings, the Agent will have a
first priority perfected security interest in the Collateral, except to the
extent such priority is affected by Permitted Encumbrances.
(d) The Borrower represents and warrants that it has not operated or
owned the Collateral under any other name or tradename at any time during the
five-year period prior to the date of this Agreement other than the name of the
Borrower set forth on the signature pages hereof.
SECTION 7. FURTHER ASSURANCES.
(a) The Borrower agrees that from time to time, at the expense of the
Borrower, the Borrower will promptly execute and deliver all further instruments
and documents and take all further action that may be necessary or that the
Agent may request in order to perfect and protect any security interest granted
or purported to be granted hereby or to enable the Agent to exercise and enforce
its rights and remedies hereunder with respect to any Collateral. Without
limiting the generality of the foregoing, the Borrower will: (i) mark
conspicuously each chattel paper included in the Accounts and, at the request of
the Agent, each document included in the Inventory, each Related Contract and
each of its records pertaining to the Collateral with a legend, in form and
substance satisfactory to the Agent, indicating that such document, chattel
paper, Related Contract or Collateral is subject to the security interest
granted hereby; (ii) if any Account shall be evidenced by a promissory note or
other instrument or chattel paper, deliver and pledge to the Agent hereunder
such note or instrument or chattel paper duly endorsed and accompanied by duly
executed instruments of transfer or assignment, all in form and substance
satisfactory to the Agent; and (iii) execute and file such financing or
continuation statements or amendments thereto and such other instruments or
notices as may be necessary or as the Agent may reasonably request in order to
perfect and preserve the security interest granted or purported to be granted
hereby.
(b) The Borrower hereby authorizes the Agent and appoints the Agent its
attorney-in-fact to file one or more financing or continuation statements and
4
<PAGE> 6
amendments thereto relating to all or any part of the Collateral without the
signature of the Borrower where permitted by law. A photocopy or other
reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
(c) The Borrower covenants and agrees that it shall not change
its chief place of business and chief executive office or keep any records
concerning the Accounts at any address other than the addresses set forth on
SCHEDULE 2 unless written notice thereof is given to the Agent at least thirty
(30) calendar days prior to the creation of any new address for the keeping of
such records. The Borrower further agrees that it shall promptly advise the
Agent in writing, making reference to this SECTION 8(C), of the opening of any
new material place of business, the closing of any material place of business or
the change of the location of the places where it keeps the Collateral.
SECTION 8. INSURANCE. The Borrower shall, at its own expense, maintain
insurance with respect to the Collateral in such amounts, against such risks, in
such form and with such insurers as are in compliance with the requirements of
the Credit Agreement.
SECTION 9. TRANSFERS OF COLLATERAL; LIENS. The Borrower shall not (i)
sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Collateral, except Inventory in the
ordinary course of business and as otherwise permitted by the Credit Agreement,
or (ii) create or permit to exist any Lien, security interest, option or other
charge or encumbrance upon or with respect to any of the Collateral, except for
Permitted Encumbrances.
SECTION 10. AGENT APPOINTED ATTORNEY-IN-FACT. The Borrower hereby
irrevocably appoints the Agent its attorney-in-fact, with full authority in the
place and stead of the Borrower and in the name of the Borrower or otherwise, at
such time as an Event of Default has occurred under the Credit Agreement and the
Agent is exercising any of the remedies available under SECTION 9.2 of the
Credit Agreement, to take any action and to execute any instrument which the
Agent may deem necessary or advisable to accomplish the purposes of this
Agreement, including without limitation:
(a) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in connection with the Collateral;
(b) to receive, endorse and collect any drafts or other
instruments, documents and chattel paper in connection therewith;
(c) to file any claims or take any action or institute any
proceedings which the Agent may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights
of the Agent with respect to any of the Collateral; and
5
<PAGE> 7
(d) to use any trademarks, trade names, licenses or other
intellectual property rights to the extent necessary to sell Inventory
and to collect any amounts due under any Accounts or Related Contracts.
SECTION 11. AGENT MAY PERFORM. If the Borrower fails to perform any
agreement contained herein, the Agent may itself perform or cause the
performance of such agreement, and the expenses of the Agent incurred in
connection therewith shall be payable by the Borrower under the Credit
Agreement.
SECTION 12. AGENT'S DUTIES. The powers conferred on the Agent hereunder
are solely to protect its interest in the Collateral and shall not impose any
duty upon it, any Bank or the Issuing Bank to exercise any such powers. Except
for the safe custody of any Collateral in its possession and the accounting for
moneys actually received by it hereunder, the Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral. The Agent shall
be deemed to have exercised reasonable care in the custody and preservation of
any Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which the Agent accords its own property. Each
reference herein to any right granted to, benefit conferred upon, or power
exercisable by the "Agent" shall be a reference to the Agent (including any
successors to the Agent pursuant to the Credit Agreement) for itself and for the
benefit of the Banks and the Issuing Bank, and each action taken or right
exercised hereunder shall be deemed to have been so taken or exercised by the
Agent for itself and for the benefit of and on behalf of all of the Banks and
the Issuing Bank.
SECTION 13. REMEDIES. If any Event of Default shall have occurred and
until such Event of Default is waived in writing in accordance with the Credit
Agreement:
(a) The Agent may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party under
the Uniform Commercial Code (the "Code") in effect in the State of New
York at that time or any other applicable jurisdiction, and also may
(i) require the Borrower to, and the Borrower hereby agrees that it
will at its expense and upon request of the Agent forthwith, assemble
all or part of the Collateral as directed by the Agent and make it
available to the Agent at one or more locations where the Borrower
regularly maintains inventory and (ii) without notice, except as
specified below, sell the Collateral or any part thereof in one or
more parcels at public or private sale, at any of the Agent's offices
or elsewhere, for cash, on credit or for future delivery, and upon
such other terms as are commercially reasonable. The Borrower agrees
that, to the extent notice of sale shall be required by law, at least
ten (10) calendar days' notice to the Borrower of the time and place
of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification. The Agent shall not be
obligated to make any sale of Collateral, regardless of notice of sale
having been given. The Agent may adjourn any public or private sale
from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned. The Agent
6
<PAGE> 8
is hereby granted a license or other right to use, without charge, the
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks and advertising matter or any
property of a similar nature, whether owned by the Borrower or with respect to
which the Borrower has rights under license, sublicense or other agreements, as
it pertains to the Collateral, in preparing for sale, advertising for sale and
selling any Collateral, and the Borrower's rights under all licenses shall inure
to the benefit of Agent.
(b) Any cash held by the Agent as Collateral and all cash proceeds
received by the Agent in respect of any sale of, collection from or other
realization upon all or any part of the Collateral may, in the discretion of the
Agent, be held by the Agent as collateral for, and/or then or at any time
thereafter be applied in whole or in part by the Agent against, all or any part
of the Obligations. Any surplus of such cash or cash proceeds held by the Agent
and remaining after payment in full of all the Obligations shall be paid over to
the Borrower or to whomsoever may be lawfully entitled to receive such surplus.
(c) The Borrower hereby acknowledges that the Obligations arise out of
a commercial transaction and agrees that if an Event of Default shall occur, the
Agent shall have the right to the appointment of a receiver for the properties
and assets of the Borrower, and the Borrower hereby consents to such right and
appointment and hereby waives any objection which the Borrower may have thereto
or the right to have a bond or other security posted by the Agent, the Issuing
Bank or any Bank in connection therewith.
SECTION 14. REMEDIES CUMULATIVE. Each right, power and remedy of the
Agent, the Issuing Bank and any Bank as provided for in this Agreement and the
other Loan Documents or now or hereafter existing at law or in equity or by
statute or otherwise shall be cumulative and concurrent and shall be in addition
to every other right, power or remedy provided for in this Agreement and the
other Loan Documents or now or hereafter existing at law or in equity or by
statute or otherwise, and the exercise or beginning of the exercise by any of
the Agent, the Issuing Bank or the Banks of any one or more of such rights,
powers, or remedies shall not preclude the simultaneous or later exercise by any
of the Agent, the Issuing Bank and the Banks of any or all such other rights,
powers, or remedies.
SECTION 15. EXPENSES. The Borrower will upon demand pay to the Agent
the amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel and of any experts and agents, which the Agent may incur
in connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use, operation or sale of, collection from, or other realization
upon any of the Collateral, (iii) the exercise or enforcement of any of the
rights of the Agent hereunder or (iv) the failure by the Borrower to perform or
observe any of the provisions hereof.
SECTION 16. POSSESSION UNTIL DEFAULT. Until an Event of Default shall
occur, except as otherwise provided in this Agreement, the Credit Agreement or
the other Loan
7
<PAGE> 9
Documents, the Borrower will have the right to possession and enjoyment of the
Collateral for the purpose of conducting the ordinary course of its business,
subject to and upon the terms hereof and of the Credit Agreement and the other
Loan Documents.
SECTION 17. AMENDMENTS; ETC. No waiver of any provision of this
Agreement, and no consent to any departure by the Borrower herefrom, shall in
any event be effective unless the same shall be in writing and signed by the
Agent, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. No amendment of any
provision of this Agreement shall be effective unless the same shall be in
writing and signed by the Agent and the Borrower.
SECTION 18. ADDRESSES FOR NOTICES. All notices and other communications
provided for hereunder shall be given in the form and manner and delivered to
the Agent or the Borrower, as the case may be, at its respective address
specified in the Credit Agreement or, as to either party, at such other address
as shall be designated by such party in a written notice to the other party.
SECTION 19. CONTINUING SECURITY INTEREST; ASSIGNMENTS UNDER CREDIT
AGREEMENT. This Agreement shall create a continuing security interest in the
Collateral and shall (i) remain in full force and effect until (x) the payment
in full of the Obligations and (y) the expiration or termination of the
Commitment and the Letter of Credit Commitment, (ii) be binding upon the
Borrower and its successors and assigns, and (iii) inure to the benefit of and
be enforceable by the Agent for the benefit of the Banks and the Issuing Bank
and their respective successors, transferees and assigns. Without limiting the
generality of the foregoing clause (iii), any Bank may assign or otherwise
transfer all or any portion of its rights and obligations under the Credit
Agreement (including, without limitation, all or any portion of its Commitment,
the Loans owing to it and any Note held by it) to any other Person, and such
other Person shall thereupon become vested with all the benefits in respect
thereof granted to such Bank herein or otherwise, subject, however, to the
provisions of SECTION 11.1 of the Credit Agreement. Upon the payment in full of
the Obligations and all other amounts payable under this Agreement and the
expiration or termination of the Commitment and the Letter of Credit Commitment,
the security interest granted hereby shall terminate and all rights to the
Collateral shall revert to the Borrower. No transfer or renewal, extension,
assignment or termination of this Agreement, the Credit Agreement, any other
Loan Document or any other instrument or document executed and delivered by the
Borrower to the Agent, the Issuing Bank or the Banks, nor any additional Loans
made by the Banks or the Issuing Bank to the Borrower, nor the taking of further
security, nor the retaking or re-delivery of the Collateral to the Borrower by
the Agent, nor any other act of the Agent, the Issuing Bank or the Banks shall
release the Borrower from any obligation hereunder, except upon a release or
discharge executed in writing by the Agent with respect to such obligation or
upon payment of such obligation or upon full satisfaction of all the Obligations
and the expiration or termination of the Commitment and the Letter of Credit
Commitment. The Agent shall not, by any act, delay, omission or otherwise, be
deemed to have waived any of its rights or remedies hereunder unless such waiver
is in writing and signed by the Agent and then only to the extent therein set
forth. A waiver by the Agent of any right or remedy on any occasion shall not be
8
<PAGE> 10
construed as a bar to the exercise of any such right or remedy which the Agent
has or would otherwise have had on any other occasion.
SECTION 20. GOVERNING LAW; TERMS. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York without
reference to the conflict or choice of law principles thereof, except to the
extent that the validity or perfection of the security interest hereunder, or
the remedies hereunder, in respect of any particular Collateral are governed by
the laws of a jurisdiction other than the State of New York. Any terms used
herein which are used in the Uniform Commercial Code of the State of New York
shall have the same meanings herein as such terms have in said Uniform
Commercial Code.
SECTION 21. MISCELLANEOUS.
(a) This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all
such separate counterparts shall together constitute but one and the
same instrument.
(b) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall be ineffective to the extent of
such prohibition or unenforceability in such jurisdiction without
invalidating the remaining provisions hereof in such jurisdiction or
affecting the validity or enforceability of such provision in any other
jurisdiction.
9
<PAGE> 11
IN WITNESS WHEREOF, the Borrower and the Agent have caused this
Agreement to be duly executed and delivered as of the date first above written.
NEW AMERICAN HEALTHCARE
CORPORATION
By:
------------------------------------
Its:
-----------------------------------
TORONTO DOMINION (TEXAS), INC.
By:
------------------------------------
Its:
-----------------------------------
SCHEDULE 1 - Inventory Locations
SCHEDULE 2 - Locations of Records
SCHEDULE 3 - Leased Property
SCHEDULE 4 - UCC-1 Filing Jurisdictions
THIS IS A SIGNATURE PAGE FOR THE AMENDED AND RESTATED SECURITY AGREEMENT BETWEEN
NEW AMERICAN HEALTHCARE CORPORATION AND
TORONTO-DOMINION (TEXAS), INC., AS AGENT
10
<PAGE> 1
Exhibit 10.23
================================================================================
AMENDED AND RESTATED STOCK PLEDGE AGREEMENT
by and between
NEW AMERICAN HEALTHCARE CORPORATION,
as Borrower
and
TORONTO DOMINION (TEXAS), INC.,
as Agent
Dated as of January 30, 1998
================================================================================
<PAGE> 2
AMENDED AND RESTATED STOCK PLEDGE AGREEMENT
THIS AMENDED AND RESTATED STOCK PLEDGE AGREEMENT (this "Agreement")
dated as of January 30, 1998, is entered into by and between NEW AMERICAN
HEALTHCARE CORPORATION, a Tennessee corporation (the "Borrower"), and TORONTO
DOMINION (TEXAS), INC. (the "Agent"), for itself and as Agent on behalf of the
Issuing Bank and the Banks (all defined in the hereinafter defined Credit
Agreement), which amends and restates in its entirety that certain Stock Pledge
Agreement dated as September 30, 1996, by and between the above-named parties,
as amended.
W I T N E S S E T H :
WHEREAS, the Borrower, the Agent, the Issuing Bank and the Banks are
parties to that certain Amended and Restated Credit Agreement dated as of
January 30, 1998 (as amended, modified or supplemented from time to time, the
"Credit Agreement"); and
WHEREAS, it is a condition to the making of the Loans and the issuing
of the Letters of Credit (as said terms are defined in the Credit Agreement)
under the Credit Agreement that the Borrower shall have entered into this
Agreement pledging to the Agent, for itself and for the benefit of the Issuing
Bank and the Banks, the shares of capital stock (the "Stock") owned by the
Borrower in each of the corporations (the "Pledged Corporations") listed on
EXHIBIT A attached hereto, as the same may be supplemented from time to time
pursuant to SECTION 4 hereof, in order to secure the Obligations (as defined in
the Credit Agreement);
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Capitalized terms used but not defined herein
shall have the meanings ascribed thereto in the Credit Agreement.
SECTION 2. WARRANTY. The Borrower hereby represents and warrants to the
Agent that (i) except for the security interest created hereby, the Borrower
owns the Stock listed on EXHIBIT A hereto, or will own the Stock to be listed on
addenda to said EXHIBIT A which may from time to time be prepared pursuant to
SECTION 4 hereof, free and clear of all Liens, (ii) such Stock is or will be, at
the time of the Borrower's acquisition thereof, duly authorized, validly issued,
fully paid and nonassessable, and (iii) the Borrower has or will have, at the
time of the Borrower's acquisition thereof, the unencumbered right to pledge
such Stock.
SECTION 3. SECURITY INTEREST. The Borrower hereby unconditionally
pledges, transfers, conveys, grants and assigns to the Agent a continuing
security interest in and security title to the Stock and all substitutions
therefor and replacements thereof, all proceeds and products thereof and all
rights relating thereto, including, without limitation, the
<PAGE> 3
certificates representing the Stock, all warrants, options, share appreciation
rights and other rights, contractual or otherwise, in respect thereof and all
dividends, cash, instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in addition to, in
substitution of, on account of or in exchange for any or all of the Stock,
whether now owned or hereafter acquired by the Borrower. The Borrower has
delivered to and deposited with the Agent certificates representing the Stock
owned by it as of the Closing Date and undated stock powers endorsed in blank,
and will deliver such certificates and stock powers with respect to any Stock
acquired by the Borrower after the Closing Date, as security for the payment and
performance of all Obligations. It is the intention of the parties hereto that
record and beneficial ownership of the Stock, including, without limitation, all
voting, consensual and dividend rights, shall remain in the Borrower until the
occurrence of an Event of Default and until the Agent shall notify the Borrower
of the Agent's exercise of voting and consensual rights to the Stock pursuant to
SECTION 9 hereof.
SECTION 4. ADDITIONAL SHARES. In the event that, during the term of
this Agreement, the Borrower acquires additional stock in a corporation list on
EXHIBIT A attached hereto at the time of such acquisition or acquires stock in a
corporation not listed on said EXHIBIT A prior to such acquisition, such stock
shall be subject to the security interest hereby granted, and the Borrower
shall, concurrently with the acquisition of such stock, deliver to and deposit
with the Agent certificates representing such stock, together with undated stock
powers endorsed in blank, and such stock shall thereupon constitute additional
Stock to be held by the Agent under the terms of this Agreement.
In the event that, during the term of this Agreement:
(a) any stock dividend, stock split, reclassification,
readjustment or other change is declared or made in the capital
structure of any Pledged Corporation, or any new stock is issued by
such Pledged Corporation, certificates representing all such new,
substituted and additional shares or other such securities issued to
the Borrower shall be promptly delivered to the Agent, together with
undated stock powers endorsed in blank by the Borrower, and shall
thereupon constitute additional Stock to be held by the Agent under the
terms of this Agreement; and
(b) any subscriptions, warrants or any other rights or options
shall be issued in connection with the Stock, all new stock or other
securities acquired by the Borrower through such subscriptions,
warrants, rights or options, together with related powers appropriately
endorsed, shall be promptly delivered to the Agent and shall thereupon
constitute additional Stock to be held by the Agent under the terms of
this Agreement.
The Borrower shall deliver an addendum to the attached EXHIBIT A
reflecting the foregoing concurrently with the delivery of such additional Stock
and related powers. Any such corporation not previously listed on said EXHIBIT A
which shall be included in any such addendum shall thereupon constitute a
Pledged Corporation.
-2-
<PAGE> 4
SECTION 5. Event of Default. Upon the occurrence of an Event of
Default, and until such Event of Default is waived in writing in accordance with
the Credit Agreement:
(a) The Agent shall have, in addition to any other rights
given under this Agreement or by law, all of the rights and remedies
with respect to the Stock of a secured party under the Uniform
Commercial Code as in effect in the State of New York or any other
relevant jurisdiction, including, without limitation, such powers of
sale and other powers as may be conferred by applicable law. With
respect to the Stock or any part thereof which shall then be in or
shall thereafter come into the possession or custody of the Agent or
which the Agent shall otherwise have the ability to transfer under
applicable law, the Agent may, in its sole discretion, without notice
except as specified below, sell or cause the same to be sold at any
exchange or broker's board or at public or private sale, in one or more
sales or lots, at such price as the Agent may deem best, for cash or on
credit or for future delivery, without assumption of any credit risk,
and the purchaser of any or all of the Stock so sold shall thereafter
own the same, absolutely free from any claim, encumbrance or right of
any kind whatsoever. The Agent and each of the Banks and the Issuing
Bank may, in its own name or in the name of a designee or nominee, buy
the Stock at any public sale and, if permitted by applicable law, buy
the Stock at any private sale. The Borrower will pay to the Agent, in
accordance with the Credit Agreement, all expenses of, or incident to,
the enforcement of any of the provisions hereof. The Agent agrees to
distribute any proceeds of the sale of the Stock or any other
realization upon the Stock in accordance with the Credit Agreement, and
the Borrower shall remain liable for any deficiency following the sale
of the Stock or any other realization upon the Stock.
(b) Unless any of the Stock threatens to decline speedily in
value or is or becomes of a type sold on a recognized market, the Agent
will give the Borrower reasonable notice of the time and place of any
public sale thereof or of the time after which any private sale or
other intended disposition is to be made. Any sale of the Stock
conducted in conformity with reasonable commercial practices of banks,
commercial finance companies, insurance companies or other financial
institutions disposing of property similar to the Stock shall be deemed
to be commercially reasonable. Notwithstanding any provision to the
contrary contained herein, any requirements of reasonable notice shall
be met if such notice is received by the Borrower as provided in
SECTION 10 hereof at least ten (10) Banking Days before the time of the
sale or disposition. Any other requirement of notice, demand or
advertisement for sale is waived, to the extent permitted by law.
(c) If, at the original time or times appointed for the sale
of the whole or any part of the Stock, the highest bid, if there be but
one sale, shall be inadequate to discharge in full all the Obligations,
or if the Stock shall be offered for sale in lots, if at any of such
sales, the highest bid for the lot offered for sale would indicate to
the Agent, in its discretion, the unlikelihood of the proceeds of the
sales of the whole of the Stock being sufficient to discharge all the
Obligations, or if applicable law would permit postponement or
postponements of sale for any other reason, then the Agent
3
<PAGE> 5
may, on one or more occasions and in its discretion, postpone any of
said sales by public announcement at the time of sale or the time of
previous postponement of sale, and no other notice of such postponement
or postponements of sale need be given, any other notice being hereby
waived; provided, however, that any sale or sales made after such
postponement shall be after ten (10) Banking Days' notice to the
Borrower.
(d) The Borrower shall, upon the request of the Agent, execute
and deliver, and cause each Pledged Corporation and its respective
officers and directors to execute and deliver, all such instruments and
documents, and do or cause to be done all such other acts and things,
as may be necessary or, in the opinion of the Agent, the Borrower or
its or their counsel, advisable to register the applicable Stock under
the provisions of the Securities Act of 1933, as amended (the
"Securities Act"), and exercise its best efforts to cause the
registration statement relating thereto to become effective and to
remain effective for such period as prospectuses are required by law to
be furnished, and to make all amendments and supplements thereto and to
the related prospectus which, in the opinion of the Agent, the Borrower
or its or their counsel are necessary or advisable, all in conformity
with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable
thereto.
The Borrower shall, upon the request of the Agent, use its
best efforts to qualify the Stock under state securities or "Blue Sky"
laws and to obtain all necessary governmental approvals for the sale of
the Stock, as requested by the Agent.
The Borrower shall, upon the request of the Agent, cause the
Pledged Corporations (or any of them) to make available to the holders
of their securities, as soon as practicable, earnings statements which
will satisfy the provisions of SECTION 11(A) of the Securities Act.
The Borrower shall, upon the request of the Agent, do or cause
to be done all such other acts and things as may be necessary to make
such sale of the Stock or any part thereof valid and binding and in
compliance with applicable law.
The Borrower will reimburse the Agent, in accordance with the
Credit Agreement, for all expenses incurred by the Agent in connection
with the foregoing.
(e) If the Agent determines that, prior to any public offering
of any securities constituting part of the Stock, such securities
should be registered under the Securities Act and/or registered or
qualified under any other federal or state law and such registration
and/or qualification is not practicable, then the Borrower agrees that
it will be commercially reasonable if a private sale is arranged so as
to avoid a public offering, even though the sales price established
and/or obtained at such private sale may be substantially less than
prices which could have been obtained for such security on any market
or exchange or in any other public sale. In so doing, the Agent may
restrict the bidders and prospective purchasers to those who are
qualified and will
4
<PAGE> 6
represent and agree that they are purchasing for investment only and
not for distribution, and the Agent may solicit offers to buy the
Stock, or any part of it, from a limited number of investors deemed by
the Agent, in its reasonable judgment, to be financially responsible
parties who might be interested in so purchasing the Stock. If the
Agent solicits such offers from not less than four (4) such investors,
then the acceptance by the Agent of the highest offer obtained
therefrom shall be deemed to be a commercially reasonable method of
disposing of such Stock. The Agent shall be under no obligation to
delay a sale of any of the Stock for the period of time necessary to
permit the registrant to register such securities for public sale under
the Securities Act or under applicable state securities laws even if
the Borrower or the issuer of the Stock would agree to do so.
(f) Any such sale pursuant to this subparagraph (e) (including
a sale at auction) may, in the Agent's discretion, be conducted subject
to restrictions (i) as to the financial sophistication and ability of
any Person permitted to bid or purchase at any such sale, (ii) as to
the content of legends to be placed upon any certificates representing
the Stock sold in such sale, including restrictions on future transfer
thereof, (iii) as to the representations required to be made by each
Person bidding or purchasing at such sale relating to that Person's
access to financial information about the pertinent Pledged
Corporation(s) and such Person's intentions as to the holding of the
Stock so sold for investment, for its own account, and not with a view
of the distribution thereof, and (iv) as to such other matters as the
Agent may deem necessary or appropriate in order that such sale
(notwithstanding any failure so to register) may be effected in
compliance with the Uniform Commercial Code as in effect in the State
of New York or any other relevant jurisdiction, laws affecting the
enforcement of creditors' rights, the Securities Act and all applicable
state securities laws.
(g) The Borrower agrees that it will not at any time plead,
claim or take the benefit of any appraisal, valuation, stay, extension,
moratorium or redemption law now or hereafter in force in order to
prevent or delay the enforcement of this Agreement or the absolute sale
of the whole or any part of the Stock or the possession thereof by any
purchaser at any sale hereunder, and the Borrower waives the benefit of
all such laws, to the extent it lawfully may do so. No failure or delay
on the part of the Agent to exercise any such right, power or remedy
and no notice or demand which may be given to or made upon the Borrower
by the Agent with respect to any such remedies shall operate as a
waiver thereof or limit or impair the Agent's right to take any action
or exercise any power of remedy hereunder, without notice or demand, or
prejudice its rights as against the Borrower in any respect.
SECTION 6. ADDITIONAL RIGHTS OF SECURED PARTY. In addition to its
rights and privileges under this Agreement and the other Loan Documents, the
Agent shall have all the rights, powers and privileges of a secured party under
the Uniform Commercial Code as in effect in any applicable jurisdiction.
5
<PAGE> 7
SECTION 7. RETURN OF STOCK TO BORROWER. Upon satisfaction in full of
all the Obligations and the termination of the Commitment and the Letter of
Credit Commitment, the Agent shall return the Stock and all rights received by
the Agent as a result of its possessory interest in the Stock to the Borrower.
SECTION 8. BORROWER'S OBLIGATIONS ABSOLUTE. The obligations of the
Borrower under this Agreement shall be direct and immediate and not conditional
or contingent upon the pursuit of any remedies against any other Person or any
other security or Liens available to the Agent, the Issuing Bank or any Bank.
The Borrower hereby waives any right to require that an action be brought
against any other Person, or to require that resort be had to any other security
or to any balance in any deposit account or credit on the books of the Agent,
any of the Banks or the Issuing Bank in favor of any other Person prior to the
exercise of remedies hereunder, or to require action hereunder prior to resort
by the Agent to any other security or Collateral for the Obligations.
SECTION 9. VOTING RIGHTS.
(a) Upon the occurrence of an Event of Default, and until such
Event of Default is waived in writing in accordance with the Credit
Agreement, (i) the Agent may, upon ten (10) calendar days' prior notice
to the Borrower of the Agent's intention to do so, exercise all voting
rights and all other ownership or consensual rights with respect to the
Stock, but under no circumstances is the Agent obligated by the terms
of this Agreement to exercise such rights, and (ii) the Borrower hereby
appoints the Agent, which appointment shall be effective on the tenth
day following the giving of notice by the Agent as provided in the
foregoing clause (i), the Borrower's true and lawful attorney-in-fact
and irrevocable proxy to vote the Stock in any manner that the Agent
deems advisable for or against all matters submitted or which may be
submitted to a vote of shareholders. The power-of-attorney granted
hereby is coupled with an interest and shall be irrevocable.
(b) For so long as the Borrower shall have the right to vote
the Stock owned by it, the Borrower covenants and agrees that it will
not, without the prior written consent of the Agent, vote or take any
consensual action with respect to the Stock which would constitute an
Event of Default.
SECTION 10. NOTICES; CHOICE OF LAW. All notices and other
communications required or permitted hereunder shall be in writing and shall be
given in the manner and to the addresses set forth in the Credit Agreement.
SECTION 11. BINDING AGREEMENT; CHOICE OF LAW. This Agreement shall be
construed and interpreted in accordance with the internal laws of the State of
New York applicable to agreements made and to be performed wholly within the
State of New York without reference to the conflicts or choice of law principles
thereof. This Agreement, together with all documents referred to herein,
constitutes the entire agreement between the
6
<PAGE> 8
parties with respect to the matters addressed herein and may not be modified
except by a writing executed by the Agent and the Borrower.
SECTION 12. SEVERABILITY. If any paragraph or part thereof shall for
any reason be held or adjudged to be invalid, illegal or unenforceable by any
court of competent jurisdiction, such paragraph or part thereof so adjudicated
invalid, illegal or unenforceable shall be deemed separate, distinct and
independent, and the remainder of this Agreement shall remain in full force and
effect and shall not be affected by such holding or adjudication.
SECTION 13. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
SECTION 14. AGENT. Each reference herein to any right granted to,
benefit conferred upon or power exercisable by the "Agent" shall be a reference
to the Agent for itself and for the benefit of the Issuing Bank and the Banks,
and each action taken or right exercised hereunder shall be deemed to have been
so taken or exercised by the Agent for itself and for the benefit of and on
behalf of the Issuing Bank and the Banks.
7
<PAGE> 9
IN WITNESS WHEREOF, the undersigned parties hereto have executed this
Agreement by and through their duly authorized officers, as, of the day and year
first above written.
NEW AMERICAN HEALTHCARE CORPORATION
By:
------------------------------------
Its:
-----------------------------------
TORONTO DOMINION (TEXAS), INC.
By:
------------------------------------
Its:
-----------------------------------
THIS IS A SIGNATURE PAGE FOR THE AMENDED AND RESTATED STOCK PLEDGE
AGREEMENT BETWEEN NEW AMERICAN HEALTHCARE CORPORATION AND
TORONTO-DOMINION (TEXAS), INC., AS AGENT
<PAGE> 10
EXHIBIT A
PLEDGED CORPORATIONS
<TABLE>
<CAPTION>
Stock
Class of Number of Percentage of Certificate
Name Stock Shares Class Owned Nos.
---- -------- --------- ------------- -----------
<S> <C> <C> <C> <C>
NAHC of Missouri, Inc. Common 1,000 100% 1
NAHC of Tennessee, Inc. Common 1,000 100% 1
NAHC of Texas, Inc. Common 1,600 100% 3
NAHC II of Texas, Inc. Common 1,000 100% 1
NAHC Financial, Inc. Common 1,000 100% 1
NAHC of Iowa, Inc. Common 1,000 100% 1
NAHC of Oregon, Inc. Common 1,000 100% 1
NAHC II of Oregon, Inc. Common 1,000 100% 1
NAHC of Washington, Inc. Common 1,000 100% 1
NAHC of Wyoming, Inc. Common 1,000 100% 1
NAHC Management Company Common 1,000 100% 1
</TABLE>
<PAGE> 1
Exhibit 10.24
EXHIBIT 4.1-2
[FORM OF SUBSIDIARY SECURITY AGREEMENT]
===============================================================================
SUBSIDIARY SECURITY AGREEMENT
BY AND BETWEEN
------------------------,
AS SUBSIDIARY
AND
TORONTO DOMINION (TEXAS), INC.,
AS AGENT
DATED AS OF ___________
===============================================================================
Exhibit 4.1-2 p. 1
<PAGE> 2
SUBSIDIARY SECURITY AGREEMENT
THIS SUBSIDIARY SECURITY AGREEMENT (the "Agreement") dated as of _________,
is entered into by and between ____________________, a _____________ corporation
(the "Subsidiary"), and TORONTO DOMINION (TEXAS), INC. (the "Agent"), for itself
and as Agent on behalf of the Banks and the Issuing Bank (all as defined in the
hereinafter defined Credit Agreement).
WITNESSETH:
WHEREAS, New American Healthcare Corporation ("NAHC"), the Agent, the
Issuing Bank and the Banks are parties to that certain Amended and Restated
Credit Agreement dated as of ___________, 199__ (as hereafter amended, modified
or supplemented from time to time, the "Credit Agreement"); and
WHEREAS, it is a condition precedent to the making of Loans and the issuing
of Letters of Credit (as said terms are defined in the Credit Agreement) under
the Credit Agreement that the Subsidiary shall have granted the security
interest contemplated by this Agreement; and
WHEREAS, the Subsidiary is a Subsidiary, as defined in the Credit
Agreement, and the Subsidiary will realize substantial direct and indirect
benefits as a result of the making of the Loans and the issuance of the Letters
of Credit; and
WHEREAS, the Subsidiary is entering into this Agreement in order to secure
the obligations of the Subsidiary arising under (i) this Agreement, (ii) the
Subsidiary Guaranty dated as of _____________ (as hereafter amended, modified or
supplemented from time to time, the "Subsidiary Guaranty") by and between the
Subsidiary and the Agent and (iii) the Subsidiary Notes issued by the Subsidiary
pursuant to the Credit Agreement (collectively, the "Obligations");
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Capitalized terms used but not defined herein shall
have the meanings ascribed thereto in the Credit Agreement.
SECTION 2. GRANT OF SECURITY INTEREST. The Subsidiary hereby conveys,
transfers, grants, assigns and pledges to the Agent a security interest in and
security title to (together with a right of setoff) all assets of the Subsidiary
including, without limitation, the Subsidiary's right, title and interest in and
to the following, whether now owned or hereafter acquired (collectively, the
"Collateral"):
Exhibit 4.1-2 p.2
<PAGE> 3
(a) all inventory in all of its forms, wherever located, now or
hereafter existing (including, but not limited to (i) all goods,
merchandise and other personal property owned and held for sale, (ii) all
raw materials, work or goods in process, all finished products thereof, and
all materials and supplies which contribute to the finished products of the
Subsidiary in the ordinary course of business and (iii) any goods which are
returned to or repossessed by the Subsidiary), whether the Subsidiary has
an interest in mass or a joint or other interest or right of any other kind
(including, without limitation, goods in which the Subsidiary has an
interest or right as consignee), and all accessions thereto and products
thereof and documents and warehouse receipts therefor (any and all such
inventory, accessions, products and documents being hereinafter referred to
as the "Inventory");
(b) all accounts, contract rights, chattel paper, instruments,
warehouse receipts, drafts, acceptances, deposit and bank accounts, general
intangibles (including all patents, trademarks, tradenames, service marks,
patent applications, trademark applications and copyrights, and all
licenses relating to any of the foregoing) and documents of the Subsidiary,
whether secured or unsecured, and whether now existing or hereafter created
or arising, and all rights now or hereafter existing in and to all
security agreements, leases and other contracts securing or otherwise
relating to any such accounts, contract rights, chattel paper, instruments,
deposit and bank accounts, drafts, acceptances and documents (any and all
such accounts, contract rights, chattel paper, instruments, deposit and
bank accounts, drafts, acceptances and documents being hereinafter referred
to as the "Accounts" and any and all such leases, security agreements and
other contracts being hereinafter referred to as the "Related Contracts"),
and the proceeds of all service contracts sold by or on behalf of the
Subsidiary;
(c) all Certificates of Need, management services agreements, Health
Facility Licenses, Medicaid Provider Agreements and Medicare Provider
Agreements (but only to the extent that the Subsidiary will not be in
default under any such Medicaid Provider Agreement or Medicare Provider
Agreement or violate any Governmental Requirements as a result of a
granting of the security interest to the Agent therein);
(d) all books and records (including, without limitation, computer
tapes, programs and printouts and all other computer materials, records and
electronic data processing software) recording, evidencing or relating to
any or all of the foregoing Collateral;
Exhibit 4.1-2 p.3
<PAGE> 4
(e) all deposit accounts (and the investments and earnings thereof and
documents evidencing the same) into which the proceeds of any of the
foregoing may from time to time be deposited;
(f) all equipment, including machinery, supplies, motor vehicles,
tractors, trailers, trucks, dollies, forklifts and computers, and all
accretions, accessions and parts attached thereto, including tires and
tubes in service, and all additions thereto, and replacements thereof;
(g) all proceeds of the Subsidiary Loans (as defined in the Subsidiary
Notes of the Subsidiary); and
(h) all proceeds of any and all of the Collateral (including, without
limitation, cash proceeds and other proceeds which constitute property of
the types described in clauses (a) and (b) of this SECTION 2) and, to the
extent not otherwise included, all payments under insurance (whether or not
the Agent is the loss payee thereof) or under any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise with respect
to any of the Collateral.
The Subsidiary and the Agent agree that the Excluded Leases shall be
excluded from the foregoing grant of security interest.
SECTION 3. SECURITY FOR OBLIGATIONS. This Agreement secures the payment of
the Obligations, whether now or hereafter existing. Without limiting the
generality of the foregoing, this Agreement secures the payment of all amounts
which constitute part of the Obligations and would be owed by the Subsidiary to
the Agent under the Subsidiary Guaranty and the Subsidiary Notes of the
Subsidiary but for the fact that they are unenforceable or not allowable due to
the existence of a bankruptcy, reorganization or similar proceeding involving
the Subsidiary.
SECTION 4. SUBSIDIARY REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (a) the Subsidiary shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of the duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by the Agent of any of the
rights hereunder shall not release the Subsidiary from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) neither the Agent, the Issuing Bank nor any Bank shall have any obligation
or liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall the Agent, the Issuing Bank or any Bank be
obligated to perform any of the obligations or duties of the Subsidiary
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
Exhibit 4.1-2 p.4
<PAGE> 5
SECTION 5. DELIVERY OF CHATTEL PAPER. The Subsidiary will promptly upon
request by the Agent deliver, assign and endorse to the Agent all chattel paper
and all other documents held by the Subsidiary in connection therewith.
SECTION 6. REPRESENTATIONS AND WARRANTIES. The Subsidiary represents and
warrants as follows:
(a) All of the Inventory, other than Inventory in transit, is located
at the places specified in SCHEDULE 1 attached hereto. The chief place of
business and chief executive office of the Subsidiary and the office where
the Subsidiary keeps records concerning the Accounts, and the originals of
all chattel paper that evidence Accounts, are located at its address
specified in SCHEDULE 2 attached hereto. The originals of all chattel paper
that evidence Accounts have been delivered to the Agent. None of the
Accounts is evidenced by a promissory note or other instrument, other than
a note or other instrument which has been delivered to the Agent.
(b) SCHEDULE 3 attached hereto and incorporated herein by reference
sets forth a true, complete and correct list of (i) all leases for Property
in which Inventory is stored (together with the name and mailing address of
each lessor with respect thereto) and (ii) the name and address of each
location at which Inventory is stored with a warehouseman or other bailee
(together with the name and address of each warehouseman or bailee with
respect thereto).
(c) This Agreement creates a valid security interest in the
Collateral, securing the payment of the Obligations, and, to the best of
the Subsidiary's knowledge, all filings and other actions necessary or
desirable to perfect and protect such security interest will have been duly
taken upon the filing of UCC-1 financing statements listing the Subsidiary,
as debtor, and the Agent, as secured party, in the jurisdictions listed on
SCHEDULE 4 attached hereto. Upon the taking of such actions and the making
of such filings, the Agent will have a first priority perfected security
interest in the Collateral, except to the extent such priority is affected
by Permitted Encumbrances.
(d) The Subsidiary represents and warrants that it has not operated or
owned the Collateral under any other name or tradename at any time during
the five-year period prior to the date of this Agreement other than the
name of the Subsidiary set forth on the signature pages hereof.
SECTION 7. FURTHER ASSURANCES.
(a) The Subsidiary agrees that from time to time, at the expense of
the Subsidiary, the Subsidiary will promptly execute and deliver all
further instruments and documents and take all further action that may be
necessary or that the Agent may
Exhibit 4.1-2 p.5
<PAGE> 6
request in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Agent to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, the Subsidiary will: (i)
mark conspicuously each chattel paper included in the Accounts and, at the
request of the Agent, each document included in the Inventory, each Related
Contract and each of its records pertaining to the Collateral with a
legend, in form and substance satisfactory to the Agent, indicating that
such document, chattel paper, Related Contract or Collateral is subject to
the security interest granted hereby; (ii) if any Account shall be
evidenced by a promissory note or other instrument or chattel paper,
deliver and pledge to the Agent hereunder such note or instrument or
chattel paper duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to the
Agent; and (iii) execute and file such financing or continuation statements
or amendments thereto and such other instruments or notices as may be
necessary or as the Agent may reasonably request in order to perfect and
preserve the security interest granted or purported to be granted hereby.
(b) The Subsidiary hereby authorizes the Agent and appoints the Agent
its attomey-in-fact to file one or more financing or continuation
statements and amendments thereto relating to all or any part of the
Collateral without the signature of the Subsidiary where permitted by law.
A photocopy or other reproduction of this Agreement or any financing
statement covering the Collateral or any part thereof shall be sufficient
as a financing statement where permitted by law.
(c) The Subsidiary covenants and agrees that it shall not change its
chief place of business and chief executive office or keep any records
concerning the Accounts at any address other than the addresses set forth
on SCHEDULE 2 unless written notice thereof is given to the Agent at least
thirty (30) calendar days prior to the creation of any new address for the
keeping of such records. The Subsidiary further agrees that it shall
promptly advise the Agent in writing, making reference to this SECTION
7(C), of the opening of any new material place of business, the closing of
any material place of business or the change of the location of the places
where it keeps the Collateral.
SECTION 8. INSURANCE. The Subsidiary shall, at its own expense, maintain
insurance with respect to the Collateral in such amounts, against such risks, in
such form and with such insurers as are in compliance with the requirements of
the Credit Agreement.
SECTION 9. TRANSFERS OF COLLATERAL; LIENS. The Subsidiary shall not (i)
sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Collateral, except Inventory in the
ordinary course of business and as otherwise permitted by the Credit Agreement,
or (ii) create or permit to exist any Lien,
Exhibit 4.1-2 p.6
<PAGE> 7
security interest, option or other charge or encumbrance upon or with respect to
any of the Collateral, except for Permitted Encumbrances.
SECTION 10. AGENT APPOINTED ATTORNEY-IN-FACT. The Subsidiary hereby
irrevocably appoints the Agent its attorney-in-fact, with full authority in the
place and stead of the Subsidiary and in the name of the Subsidiary or
otherwise, at such time as an Event of Default has occurred under the Credit
Agreement and is continuing and the Agent is exercising any of the remedies
available under SECTION 9.2 of the Credit Agreement, to take any action and to
execute any instrument which the Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation:
(a) to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
connection with the Collateral;
(b) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection therewith;
(c) to file any claims or take any action or institute any proceedings
which the Agent may deem necessary or desirable for the collection of any
of the Collateral or otherwise to enforce the rights of the Agent with
respect to any of the Collateral; and
(d) to use any trademarks, trade names, licenses or other intellectual
property rights to the extent necessary to sell Inventory and to collect
any amounts due under any Accounts or Related Contracts.
SECTION 11. AGENT MAY PERFORM. If the Subsidiary fails to perform any
agreement contained herein, the Agent may itself perform or cause the
performance of such agreement, and the expenses of the Agent incurred in
connection therewith shall be payable by the Subsidiary.
SECTION 12. AGENT'S DUTIES. The powers conferred on the Agent hereunder are
solely to protect its interest in the Collateral and shall not impose any duty
upon it, any Bank or the Issuing Bank to exercise any such powers. Except for
the safe custody of any Collateral in its possession and the accounting for
moneys actually received by it hereunder, the Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral. The Agent shall
be deemed to have exercised reasonable care in the custody and preservation of
any Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which the Agent accords its own property. Each
reference herein to any right granted to, benefit conferred upon, or power
exercisable by the "Agent" shall be a reference to the Agent (including any
successors to the Agent pursuant to the Credit Agreement) for itself and for the
benefit of the Banks and the Issuing Bank, and each action taken or right
exercised hereunder
Exhibit 4.1-2 p.7
<PAGE> 8
shall be deemed to have been so taken or exercised by the Agent for itself and
for the benefit of and on behalf of all of the Banks and the Issuing Bank.
SECTION 13. REMEDIES. If any Event of Default shall have occurred and until
such Event of Default is waived in writing in accordance with the Credit
Agreement:
(a) The Agent may exercise in respect of the Collateral, in addition
to other rights and remedies provided for herein or otherwise available to
it, all the rights and remedies of a secured party under the Uniform
Commercial Code (the "Code") in effect in the State of New York at that
time or any other applicable jurisdiction, and also may (i) require the
Subsidiary to, and the Subsidiary hereby agrees that it will at its expense
and upon request of the Agent forthwith, assemble all or part of the
Collateral as directed by the Agent and make it available to the Agent at
one or more locations where the Subsidiary regularly maintains inventory
and (ii) without notice, except as specified below, sell the Collateral or
any part thereof in one or more parcels at public or private sale, at any
of the Agent's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as are commercially reasonable. The
Subsidiary agrees that, to the extent notice of sale shall be required by
law, at least ten (10) calendar days' notice to the Subsidiary of the time
and place of any public sale or the time after which any private sale is to
be made shall constitute reasonable notification. The Agent shall not be
obligated to make any sale of Collateral, regardless of notice of sale
having been given. The Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it
was so adjourned. The Agent is hereby granted a license or other right to
use, without charge, the Subsidiary's labels, patents, copyrights, rights
of use of any name, trade secrets, trade names, trademarks, service marks
and advertising matter or any property of a similar nature, whether owned
by the Subsidiary or with respect to which the Subsidiary has rights under
license, sublicense or other agreements, as it pertains to the Collateral,
in preparing for sale, advertising for sale and selling any Collateral, and
the Subsidiary's rights under all licenses shall inure to the benefit of
Agent.
(b) Any cash held by the Agent as Collateral and all cash proceeds
received by the Agent in respect of any sale of, collection from or other
realization upon all or any part of the Collateral may, in the discretion
of the Agent, be held by the Agent as collateral for, and/or then or at any
time thereafter be applied in whole or in part by the Agent against, all or
any part of the Obligations. Any surplus of such cash or cash proceeds held
by the Agent and remaining after payment in full of all the Obligations
shall be paid over to the Subsidiary or to whomsoever may be lawfully
entitled to receive such surplus.
Exhibit 4.1-2 p-8
<PAGE> 9
(c) The Subsidiary hereby acknowledges that the Obligations arise out
of a commercial transaction and agrees that if an Event of Default shall
occur, the Agent shall have the right to the appointment of a receiver for
the properties and assets of the Subsidiary, and the Subsidiary hereby
consents to such right and appointment and hereby waives any objection
which the Subsidiary may have thereto or the right to have a bond or other
security posted by the Agent, the Issuing Bank or any Bank in connection
therewith.
SECTION 14. REMEDIES CUMULATIVE. Each right, power and remedy of the Agent,
the Issuing Bank and any Bank as provided for in this Agreement and the other
Loan Documents or now or hereafter existing at law or in equity or by statute or
otherwise shall be cumulative and concurrent and shall be in addition to every
other right, power or remedy provided for in this Agreement and the other Loan
Documents or now or hereafter existing at law or in equity or by statute or
otherwise, and the exercise or beginning of the exercise by any of the Agent,
the Issuing Bank or the Banks of any one or more of such rights, powers, or
remedies shall not preclude the simultaneous or later exercise by any of the
Agent, the Issuing Bank and the Banks of any or all such other rights, powers,
or remedies.
SECTION 15. Expenses. The Subsidiary will upon demand pay to the Agent the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel and of any experts and agents, which the Agent may incur
in connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use, operation or sale of, collection from, or other realization
upon any of the Collateral, (iii) the exercise or enforcement of any of the
rights of the Agent hereunder or (iv) the failure by the Subsidiary to perform
or observe any of the provisions hereof.
SECTION 16. POSSESSION UNTIL DEFAULT. Until an Event of Default shall
occur, except as otherwise provided in this Agreement, the Credit Agreement or
the other Loan Documents, the Subsidiary will have the right to possession and
enjoyment of the Collateral for the purpose of conducting the ordinary course of
its business, subject to and upon the terms hereof and of the Credit Agreement
and the other Loan Documents.
SECTION 17. AMENDMENTS; ETC. No waiver of any provision of this Agreement,
and no consent to any departure by the Subsidiary herefrom, shall in any event
be effective unless the same shall be in writing and signed by the Agent, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. No amendment of any provision of this
Agreement shall be effective unless the same shall be in writing and signed by
the Agent and the Subsidiary.
SECTION 18. ADDRESSES FOR NOTICES. All notices and other communications
provided for hereunder shall be given in the form and manner and delivered to
the Agent or the Subsidiary, as the case may be, at the Agent's address
specified in the Credit Agreement and at
Exhibit 4.1-2 p.9
<PAGE> 10
the following address of the Subsidiary: ___________________; or, as to either
party, at such other address as shall be designated by such party in a written
notice to the other party. A copy of any such notice given to the Subsidiary
shall be given to NAHC at the addressed specified in the Credit Agreement or at
such other address as shall be specified in a written notice to the Agent and
the Subsidiary.
SECTION 19. CONTINUING SECURITY INTEREST; ASSIGNMENTS UNDER CREDIT
AGREEMENT. This Agreement shall create a continuing security interest in the
Collateral and shall (i) remain in full force and effect until (x) the payment
in full of the Obligations and (y) the expiration or termination of the
Commitment and the Letter of Credit Commitment, (ii) be binding upon the
Subsidiary and its successors and assigns, and (iii) inure to the benefit of and
be enforceable by the Agent for the benefit of the Banks and the Issuing Bank
and their respective successors, transferees and assigns. Without limiting the
generality of the foregoing clause (iii), any Bank may assign or otherwise
transfer all or any portion of its rights and obligations under the Credit
Agreement (including, without limitation, all or any portion of its Commitment,
the Loans owing to it and any Note held by it) to any other Person, and such
other Person shall thereupon become vested with all the benefits in respect
thereof granted to such Bank herein or otherwise, subject, however, to the
provisions of SECTION 11.1 of the Credit Agreement. Upon the payment in full of
the Obligations and all other amounts payable under this Agreement and the
expiration or termination of the Commitment and the Letter of Credit Commitment,
the security interest granted hereby shall terminate and all rights to the
Collateral shall revert to the Subsidiary. No transfer or renewal, extension,
assignment or termination of this Agreement, the Credit Agreement, any other
Loan Document or any other instrument or document executed and delivered by the
Subsidiary to the Agent, the Issuing Bank or the Banks, nor any additional Loans
made by the Banks or the Issuing Bank to the Subsidiary, nor the taking of
further security, nor the retaking or re-delivery of the Collateral to the
Subsidiary by the Agent, nor any other act of the Agent, the Issuing Bank or the
Banks shall release the Subsidiary from any obligation hereunder, except upon a
release or discharge executed in writing by the Agent with respect to such
obligation or upon payment of such obligation or upon full satisfaction of all
the Obligations and the expiration or termination of the Commitment and the
Letter of Credit Commitment. The Agent shall not, by any act, delay, omission or
otherwise, be deemed to have waived any of its rights or remedies hereunder
unless such waiver is in writing and signed by the Agent and then only to the
extent therein set forth. A waiver by the Agent of any right or remedy on any
occasion shall not be construed as a bar to the exercise of any such right or
remedy which the Agent has or would otherwise have had on any other occasion.
SECTION 20. GOVERNING LAW; TERMS. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without reference
to the conflict or choice of law principles thereof, except to the extent that
the validity or perfection of the security interest hereunder, or the remedies
hereunder, in respect of any particular Collateral are governed by the laws of a
jurisdiction other than the State of New York. Any
Exhibit 4.1-2 p. 10
<PAGE> 11
terms used herein which are used in the Uniform Commercial Code of the State of
New York shall have the same meanings herein as such terms have in said Uniform
Commercial Code.
SECTION 21. MISCELLANEOUS.
(a) This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but all such separate
counterparts shall together constitute but one and the same instrument.
(b) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall be ineffective to the extent of
such prohibition or unenforceability in such jurisdiction without
invalidating the remaining provisions hereof in such jurisdiction or
affecting the validity or enforceability of such provision in any other
jurisdiction.
IN WITNESS WHEREOF, the Subsidiary and the Agent have caused this Agreement
to be duly executed and delivered as of the date first above written.
[NAME OF SUBSIDIARY]
By:
--------------------------------
Its:
-------------------------------
TORONTO DOMINION (TEXAS), INC.
By:
--------------------------------
Its:
-------------------------------
SCHEDULE 1 - Inventory Locations
SCHEDULE 2 - Locations of Records
SCHEDULE 3 - Leased Property
SCHEDULE 4 - UCC-1 Filing Jurisdictions
Exhibit 4.1-2 p. 11
<PAGE> 1
Exhibit 10.25
EXHIBIT 4.2-1
[FORM OF SUBSIDIARY GUARANTY]
================================================================================
SUBSIDIARY GUARANTY
by and between
--------------------------------,
as Guarantor
and
TORONTO DOMINION (TEXAS), INC.,
as Agent
Dated as of
--------------------
================================================================================
Exhibit 4.2-1 p.1
<PAGE> 2
SUBSIDIARY GUARANTY
THIS SUBSIDIARY GUARANTY (this "Guaranty"), made this _____ day of
________________, by ____________________ (the "Guarantor") in favor of TORONTO
DOMINION (TEXAS), INC., (the "Agent"), for itself and as Agent on behalf of the
Issuing Bank and the Banks (all as defined in the hereinafter defined Credit
Agreement).
W I T N E S S E T H:
WHEREAS, New American Healthcare Corporation (the "Borrower"), the
Agent, the Issuing Bank and the Banks are parties to that certain Amended and
Restated Credit Agreement dated as of ____________________, 199___ (as amended,
modified or supplemented from time to time, the "Credit Agreement"; capitalized
terms used but not defined herein shall have the meanings ascribed thereto in
the Credit Agreement); and
WHEREAS, the Banks have agreed to make Loans to the Borrower, as
evidenced by the Notes from the Borrower to the Banks, and the Issuing Bank has
agreed to issue one or more Letters of Credit, all as provided in and subject to
the conditions of the Credit Agreement; and
WHEREAS, the Guarantor is a Subsidiary of the Borrower, and the
Guarantor will realize substantial direct and indirect benefits as a result of
the making of the Loans and the issuance of the Letters of Credit; and
WHEREAS, it is a condition precedent to the making of the Loans and the
issuance of the Letters of Credit that each Subsidiary execute and deliver a
Subsidiary Guaranty to the Agent; and
WHEREAS, the obligations of the Guarantor hereunder are secured by the
security interests granted to the Agent by the Guarantor pursuant to that
Security Agreement dated as of _____________ and by the other Loan Documents to
which the Guarantor is a party;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Guarantor hereby agrees as follows:
SECTION 1. The Guarantor hereby guarantees, subject to the limitations
set forth in SECTION 7 hereof, the full and prompt payment of the Obligations,
including any interest thereon, plus reasonable attorneys' fees and expenses if
the obligations represented by this Guaranty are collected by law, through an
attorney-at-law, or under advice therefrom.
SECTION 2. Regardless of whether any other Person shall become in any
other way responsible to the Agent, the Issuing Bank and the Banks, or any of
them, for or in respect of the Obligations or any part thereof, and regardless
of whether or not any Person
Exhibit 4.2-1 p.2
<PAGE> 3
now or hereafter responsible to the Agent, the Issuing Bank and the Banks, or
any of them, for the Obligations or any part thereof, whether under this
Guaranty or otherwise, shall cease to be so liable, the Guarantor hereby
declares and agrees that this Guaranty shall be a continuing guaranty and shall
be operative and binding until the Obligations shall have been indefeasibly paid
or performed in full and the Commitment and the Letter of Commitment shall have
been terminated.
SECTION 3. This Guaranty shall not be subject to or affected by any
promise or condition affecting or limiting the Guarantor's liability, and no
statement, representation, agreement or promise on the part of the Agent, the
Banks, the Issuing Bank and the Borrower, or any of them, or any officer,
employee or agent thereof, unless contained herein, forms any part of this
Guaranty or has induced the making thereof or shall be deemed in any way to
affect the Guarantor's liability hereunder. The Guarantor absolutely,
unconditionally and irrevocably waives any and all right to assert any defense,
set-off, counterclaim or cross-claim of any nature whatsoever with respect to
this Guaranty or the obligations of the Guarantor hereunder or the obligations
of any other Person or party (including, without limitation, the Borrower)
relating to this Guaranty or otherwise with respect to the Obligations in any
action or proceeding brought by the Agent to collect the Obligations or any
portion thereof or to enforce the obligations of the Guarantor hereunder.
SECTION 4. The Agent, the Issuing Bank and the Banks, or any of them,
may from time to time, without exonerating or releasing the Guarantor in any way
under this Guaranty, (a) take such further or other security or securities for
the Obligations or any part thereof as it may deem proper, or (b) release,
discharge, abandon or otherwise deal with or fail to deal with any other
guarantor of the Obligations or any security or securities therefor or any part
thereof now or hereafter held by the Agent, the Issuing Bank or any of the
Banks, or (c) amend, modify, extend, accelerate or waive in any manner any of
the provisions, terms or conditions of the Loan Documents, all as it may
consider expedient or appropriate in its sole discretion. Without limiting the
generality of the foregoing, or of SECTION 5 hereof, it is understood that the
Agent, the Issuing Bank and the Banks, or any of them, may, without exonerating
or releasing the Guarantor, give up, modify or abstain from perfecting or taking
advantage of any security for the Obligations, accept or make any compositions
or arrangements, and realize upon any security for the Obligations when, and in
such manner, and with or without notice, all as such Person may deem expedient.
SECTION 5. The Guarantor acknowledges and agrees that no change in the
nature or terms of the Obligations or any of the Loan Documents, or other
agreements, instruments or contracts evidencing, related to or attendant with
the Obligations (including any novation) shall discharge all or any part of the
liabilities and obligations of the Guarantor pursuant to this Guaranty; it being
the intent of the Guarantor and the Agent that the covenants, agreements,
liabilities and obligations of the Guarantor hereunder are absolute,
unconditional and irrevocable under any and all circumstances. Without limiting
the generality of the foregoing, the Guarantor agrees that until each and every
one of the covenants and agreements of this Guaranty is fully performed, and
without possibility of recourse, whether by operation of law or otherwise, the
Guarantor's undertakings hereunder shall not be released, in whole or in
Exhibit 4.2-1 p.3
<PAGE> 4
part, by any action or thing which might, but for this SECTION 5, be deemed a
legal or equitable discharge of a surety or guarantor, or by reason of any
waiver or omission of the Agent, the Issuing Bank and the Banks, or any of them,
or by reason of its or their failure to proceed promptly or otherwise, or by
reason of any action taken or omitted by the Agent, the Issuing Bank and the
Banks, or any of them, whether or not such action or failure to act varies or
increases the risk of, or affects the rights or remedies of, the Guarantor or by
reason of any further dealings between Borrower on the one hand and the Agent,
the Issuing Bank, any Bank or any other guarantor or surety, on the other hand,
and the Guarantor hereby expressly waives and surrenders any defense to its
liability hereunder or any right of counterclaim or offset of any nature or
description which it may have or may exist based upon (and the Guarantor shall
be deemed to have consented to) any of the foregoing acts, omissions, things,
agreements or waivers.
SECTION 6. The Agent, the Issuing Bank and each of the Banks may,
without demand or notice of any kind upon or to the Guarantor, at any time or
from time to time when any amount shall be due and payable hereunder, set-off
and appropriate and apply to any portion of the Obligations hereby guaranteed,
and in such order of application as the Agent, the Issuing Bank or such Bank may
from time to time elect in accordance with the Credit Agreement, any deposits,
property, balances, credit accounts or moneys of the Guarantor in the possession
of the Agent, the Issuing Bank or such Bank or under their respective control
for any purpose.
SECTION 7. The creation or existence from time to time of Obligations
in excess of the amount committed to or outstanding on the date of this Guaranty
is hereby authorized, without notice to the Guarantor, and shall in no way
impair or affect this Guaranty or the rights of the Agent hereunder. Anything
herein to the contrary notwithstanding, the liability of the Guarantor hereunder
shall equal, but not exceed, the Maximum Guaranteed Amount. The "Maximum
Guaranteed Amount" shall mean the maximum amount which could be paid by the
Guarantor without rendering this Guaranty void or voidable, as determined by a
court of competent jurisdiction in any action or proceeding involving any state
or Federal bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws relating to the insolvency of debtors.
SECTION 8. Upon the bankruptcy or winding up or other distribution of
assets of the Borrower or of any surety or guarantor (other than the Guarantor)
of all or any portion of the Obligations, the rights of the Agent against the
Guarantor shall not be affected or impaired by the omission of the Agent, the
Issuing Bank or any Bank to prove its claim or to prove the full claim, as
appropriate, and the Agent may prove such claims as it sees fit, may refrain
from proving any claim and in its discretion may value as it sees fit or refrain
from valuing any security held by it without in any way releasing, reducing or
otherwise affecting the liability of the Guarantor to the Agent hereunder.
SECTION 9. Any amount received by the Agent from whatsoever source and
applied toward the payment of the Obligations shall be applied in accordance
with the terms of the Credit Agreement.
Exhibit 4.2-1 p.4
<PAGE> 5
SECTION 10. The Guarantor hereby absolutely, unconditionally and
irrevocably expressly waives, except to the extent such waiver would be
expressly prohibited by Applicable Law, the following: (a) notice of acceptance
of this Guaranty, (b) notice of the existence or creation of all or any of the
Obligations, (c) presentment, demand, notice of dishonor, protest and all other
notices whatsoever, (d) all diligence in the collection or protection of or
realization upon the Obligations or any part thereof, any obligation hereunder
or any security for any of the foregoing, (e) all rights to enforce any remedy
which the Agent, the Issuing Bank and the Banks, or any of them, may have
against the Borrower, and (f) all rights of subrogation, indemnification,
contribution and reimbursement from the Borrower or any other surety or
guarantor of the Obligations and any benefit of, or right to participate in, any
collateral or security now or hereinafter held by the Agent, the Issuing Bank
and the Banks, or any of them, in respect of the Obligations until the
Obligations shall have been paid in full and the Commitment and the Letter of
Credit Commitment shall have been terminated. If a claim is ever made upon the
Agent, the Issuing Bank or any of the Banks for the repayment or recovery of any
amount or amounts received by such Person in payment of any of the Obligations
and such Person repays all or part of such amount by reason of (y) any judgment,
decree or order of any court or administrative body having jurisdiction over
such Person or any of its property, or (z) any settlement or compromise of any
such claim effected by such Person with any such claimant, including the
Borrower, then in such event the Guarantor agrees that any such judgment,
decree, order, settlement or compromise shall be binding upon the Guarantor,
notwithstanding any revocation hereof or the cancellation of any promissory note
or other instrument evidencing any of the Obligations, and the Guarantor shall
be and remain obligated to such Person hereunder for the amount so repaid or
recovered to the same extent as if such amount had never originally been
received by such Person.
SECTION 11. The Agent, the Issuing Bank and the Banks may, to the
extent permitted under the Credit Agreement, sell, assign or transfer all or any
part of the Obligations, and in such event each and every permitted assignee,
transferee or holder of all or any of the Obligations shall have the right to
enforce this Guaranty, by suit or otherwise, for the benefit of such permitted
assignee, transferee or holder as fully as if such assignee, transferee or
holder were herein by name specifically given such rights, powers and benefits.
SECTION 12. This Guaranty is a continuing guaranty of the Obligations
and all liabilities to which it applies or may apply under the terms hereof
which shall be conclusively presumed to have been created in reliance hereon. No
failure or delay by the Agent in the exercise of any right, power, privilege or
remedy shall operate as a waiver hereof; no single or partial exercise by the
Agent of any right or remedy shall preclude other or further exercise thereof or
the exercise of any other right or remedy; and no course of dealing between any
Guarantor and the Agent, the issuing Bank or any Bank shall operate as a waiver
hereof. No action by the Agent permitted hereunder shall in any way impair or
affect this Guaranty. For the purpose of this Guaranty, the Obligations shall
include, without limitation, all Obligations of the Borrower to the Agent, the
Issuing Bank and the Banks, notwithstanding any right or power of any third
party, individually or in the name of Borrower, the Agent, the Issuing Bank and
the Banks, or any of them, to assert any claim or defense as to the invalidity
or
Exhibit 4.2-1 p.5
<PAGE> 6
unenforceability of any such Obligation, and no such claim or defense shall
impair or affect the obligations of the Guarantor hereunder.
SECTION 13. This Guaranty shall be binding upon the Guarantor, its
successors and permitted assigns and inure to the benefit of the successors and
assigns of the Agent, the Issuing Bank and the Banks. The Guarantor may not
assign its rights or obligations under this Guaranty without the prior written
consent of the Agent. No alteration or waiver of this Guaranty or of any of its
terms, provisions or conditions shall be binding upon the parties against whom
enforcement is sought unless made in writing and signed by an authorized officer
of such party.
SECTION 14. This is a guaranty of payment and not of collection. In the
event the Agent makes a demand upon the Guarantor hereunder, the Guarantor
shall be held and bound to the Agent directly as debtor in respect of the
payment of the amounts hereby guaranteed. All costs and expenses, including
reasonable attorneys' fees and expenses, incurred by the Agent in obtaining
performance of or collecting payments due hereunder shall be deemed part of the
Obligations guaranteed hereby. Any notice or demand which the Agent may wish to
give to the Guarantor shall be given in the manner prescribed for notices in the
Credit Agreement at the address for the Guarantor given in the Guarantor
Security Agreement.
SECTION 15. The Guarantor expressly represents and acknowledges that
any financial accommodations by the Agent, the Issuing Bank and the Banks to the
Borrower, including, without limitation, the extension of the Loans and the
issuance of the Letters of Credit, are and will be of direct interest, benefit
and advantage to the Guarantor.
SECTION 16. The Guarantor covenants and agrees that so long as the
Commitment and the Letter of Credit Commitment have not terminated or any
Obligations are owing on account of the Notes, the Loans, the Letters of Credit
or otherwise pursuant to this Guaranty, the Guarantor shall permit, as provided
in the Credit Agreement with respect to the Borrower, representatives of the
Agent and the Banks to visit and inspect the properties of the Guarantor,
inspect the Guarantor's books and records and discuss with the principal
officers of the Guarantor its businesses, assets, liabilities, financial
position, results of operations and business prospects.
SECTION 17. The Guarantor hereby represents and warrants that:
(a) the Guarantor is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and the
laws of the jurisdiction in which the Guarantor conducts business, and
has the power and authority and the legal right to own, lease and
operate its property and to conduct the business in which the Guarantor
is currently engaged;
(b) the Guarantor has the power and authority and the legal right
to execute and deliver, and to perform its obligations under, this
Guaranty and the other Loan Documents to which it is a party, and has
taken all necessary action to authorize the
Exhibit 4.2-1 p.6
<PAGE> 7
execution, delivery and performance of this Guaranty and each of the
other Loan Documents to which it is a party;
(c) this Guaranty and each of the other Loan Documents to which
the Guarantor is a party constitutes a legal, valid and binding
obligation of the Guarantor enforceable in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and general equitable
principles (whether enforcement is sought by proceedings in equity or
at law);
(d) the execution, delivery and performance of this Guaranty and
the other Loan Documents to which the Guarantor is a party will not
violate any provision of any Governmental Requirement or contractual
obligation of the Guarantor and will not result in or require the
creation or imposition of any Lien on any of the properties or
revenues of the Guarantor pursuant to any Governmental Requirement or
contractual obligation of the Guarantor;
(e) no consent or authorization of, filing with, or other act by
or in respect of, any arbitrator or Governmental Authority and no
consent of any other Person (including, without limitation, any
partner, stockholder or creditor of the Guarantor) is required in
connection with the execution, delivery, performance, validity or
enforceability of this Guaranty or any other Loan Document to which
the Guarantor is a party;
(f) no litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge
of the Guarantor, threatened by or against the Guarantor or against
the Guarantor's properties or revenues (i) with respect to this
Guaranty or any other Loan Document to which it is a party or any of
the transactions contemplated hereby or thereby or (ii) which could
reasonably be expected to have a Material Adverse Effect;
(g) the Guarantor has good record and marketable title in fee
simple to, or a valid leasehold interest in, all of its real property,
and good title to, or a valid leasehold interest in, all of its other
property, and none of such property is subject to any Lien of any
nature whatsoever, except as permitted under the Credit Agreement; and
(h) that the representations contained in the Credit Agreement,
insofar as such representations apply to the Guarantor, are true and
correct.
The Guarantor agrees that the foregoing representations and warranties
shall be deemed to have been made by the Guarantor on the date of each Borrowing
under the Credit Agreement and on the date of issuance of each Letter of Credit
pursuant to the Credit Agreement as though made hereunder on and as of such
date.
Exhibit 4.2-1 p.7
<PAGE> 8
SECTION 18. The Guarantor hereby irrevocably and unconditionally:
(a) submits, for itself and its property in any legal action or
proceeding relating to this Guaranty and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the nonexclusive general jurisdiction of the courts of
the State of New York, the courts of the United States of America sitting
in New York, New York, and the appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts, and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court, and agrees not
to plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Guarantor at its address set forth in the Guarantor Security Agreement; and
(d) agrees that nothing herein shall affect the right to effect
service or process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction.
SECTION 19. THE GUARANTOR HEREBY KNOWINGLY, INTENTIONALLY, IRREVOCABLY
AND UNCONDITIONALLY, TO THE EXTENT PERMITTED BY APPLICABLE LAW, WAIVES TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTY OR ANY OTHER
LOAN DOCUMENT TO WHICH IT IS A PARTY.
SECTION 20. This Guaranty shall be construed and interpreted in
accordance with the internal laws of the State of New York applicable to
agreements made and to be performed wholly within the State of New York, without
reference to the conflicts or choice of law principles thereof.
SECTION 21. The Guarantor hereby agrees that if any Subsidiary shall
become an Excess Funding Guarantor (as defined below) by reason of the payment
by such Subsidiary of any Obligations, the Guarantor shall, on demand of such
Excess Funding Guarantor (but subject to the next sentence), pay to such Excess
Funding Guarantor an amount equal to the Guarantor's Pro Rata Share (as defined
below) of the Excess Payment (as defined below) in respect of such Obligations.
The payment obligation of the Guarantor to any Excess Funding Guarantor under
this SECTION 21 shall be subordinate and subject in right of payment to the
prior payment in full of the obligations of the Guarantor under the other
provisions of this Guaranty, and such Excess Funding Guarantor shall not
exercise any right or remedy with respect to such excess until payment and
satisfaction in full of all such obligations. For purposes of this SECTION 21,
(i) "Excess Funding Guarantor" shall mean, in respect of any Obligations, a
Subsidiary (other than the Guarantor) that has paid an amount in excess of its
Exhibit 4.2-1 p.8
<PAGE> 9
Pro Rata Share of such Obligations, (ii) "Excess Payment" shall mean, in respect
of any Obligations, the amount paid by an Excess Funding Guarantor in excess of
its Pro Rata Share of such Obligations and (iii) "Pro Rata Share" shall mean,
for any Subsidiary (including the Guarantor), the ratio (expressed as a
percentage) of (x) the amount by which the aggregate present fair saleable value
of all properties of such Subsidiary (excluding any shares of stock of any other
Subsidiary) exceeds the amount of all the debts and liabilities of such
Subsidiary (including contingent, subordinated, unmatured and unliquidated
liabilities, but excluding the obligations of such Subsidiary under a Subsidiary
Guaranty and any obligations of any other Subsidiary that have been guaranteed
by such Subsidiary) to (y) the amount by which the aggregate fair saleable value
of all properties of the Borrower and all of the Subsidiaries exceeds the amount
of all the debts and liabilities (including contingent, subordinated, unmatured
and unliquidated liabilities, but excluding the obligations of the Subsidiaries
under their respective Subsidiary Guaranties and, with respect to each
Subsidiary, any obligations of any other Subsidiary which have been guaranteed
by such Subsidiary) of the Borrower and all of the Subsidiaries, all as of the
Closing Date. If any Subsidiary enters into a Subsidiary Guaranty subsequent to
the Closing Date, then for purposes of this SECTION 21 such Subsidiary shall be
deemed to have been a party to such Subsidiary Guaranty as of the Closing Date
and the aggregate present fair saleable value of the properties, and the amount
of the debts and liabilities, of such Subsidiary as of the Closing Date shall be
deemed to be equal to such value and amount on the date such Subsidiary becomes
a party to such Subsidiary Guaranty.
SECTION 22. Each reference herein to any right granted to, benefit
conferred upon or power exercisable by the "Agent" shall be a reference to the
Agent for itself and for the benefit of the Issuing Bank and the Banks, and each
action taken or right exercised hereunder shall be deemed to have been so taken
or exercised by the Agent for itself and for the benefit of the Issuing Bank and
the Banks.
SECTION 23. Upon payment in full of all Obligations and the termination
of the Commitment and the Letter of Credit Commitment, this Guaranty shall
terminate, and the Agent shall take all action reasonably requested by the
Guarantor (at the expense of the Borrower or Guarantor) to evidence the
termination of this Guaranty.
Exhibit 4.2-1 p.9
<PAGE> 10
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of the
date first above written.
[NAME OF GUARANTOR]
By:
-------------------------------------
Its:
-------------------------------------
ACCEPTED FOR ITSELF AND AS AGENT ON BEHALF
OF THE ISSUING BANKS AND THE BANKS:
TORONTO DOMINION (TEXAS), INC.
By:
-------------------------------------
Its:
-------------------------------------
Exhibit 4.2-1 p.10
<PAGE> 1
Exhibit 10.26
================================================================================
EXECUTION COPY
STOCK PURCHASE AGREEMENT
FOR
MEMORIAL HOSPITAL OF CENTER
BETWEEN
SOUTHEASTERN HOSPITAL CORPORATION
AND OTHERS
SELLERS
AND
NEW AMERICAN HEALTHCARE CORPORATION
BUYER
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE I. PURCHASE AND SALE..........................................................................1
1.1 Purchase and Sale..........................................................................1
1.2 Assets At Closing..........................................................................2
1.3 Excluded Assets............................................................................3
1.4 Continuing Contracts, Leases and Liabilities...............................................3
1.5 Excluded Liabilities.......................................................................4
1.6 Additional Real Estate.....................................................................4
1.7 Delivery of Stock..........................................................................5
ARTICLE II. PURCHASE PRICE.............................................................................5
2.1 Purchase Price.............................................................................5
2.2 Taxes and Assessments; Prorations; Adjustments.............................................6
2.3 Closing Statements.........................................................................6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLERS AND
SHAREHOLDERS...............................................................................6
3.1 Organization, Corporate Power and Qualification............................................6
3.2 Capitalization of the Company..............................................................7
3.3 Subsidiaries and Affiliates; Organization of Sellers.......................................7
3.4 Financial Statements.......................................................................8
3.5 Absence of Undisclosed Liabilities.........................................................8
3.6 Letters of Credit..........................................................................8
3.7 Absence of Certain Recent Changes..........................................................8
3.8 Title to Assets...........................................................................10
3.9 Real Property.............................................................................11
3.10 Contracts.................................................................................12
3.11 Absence of Related Party Transactions.....................................................14
3.12 Defaults..................................................................................14
3.13 Inventory.................................................................................14
3.14 Equipment.................................................................................14
3.15 Receivables...............................................................................15
3.16 Powers of Attorney........................................................................15
3.17 Guarantees................................................................................15
3.18 Permits and Licenses......................................................................15
3.19 Bank Accounts.............................................................................15
3.20 Litigation................................................................................15
3.21 Court Orders, Decrees and Laws............................................................15
3.22 Taxes.....................................................................................16
3.23 Immigration Act...........................................................................17
3.24 Program Compliance........................................................................17
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
3.25 Reimbursement Matters.....................................................................17
3.26 Environmental Matters.....................................................................18
3.27 ERISA.....................................................................................19
3.28 Employee Matters..........................................................................19
3.29 Insurance; Malpractice....................................................................20
3.30 Labor Matters.............................................................................20
3.31 Certain Representations With Respect to the Hospital and
the Agency................................................................................20
3.32 Books of Account; Reports.................................................................22
3.33 Finders and Brokers.......................................................................22
3.35 Consents and Approvals of Governmental Authorities........................................22
3.36 Disclosure................................................................................22
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER...................................................23
4.1 Organization, Qualification and Authority.................................................23
4.2 Absence of Default........................................................................23
4.3 Finders and Brokers.......................................................................23
4.4 Investment Representations................................................................24
ARTICLE V. COVENANTS OF PARTIES......................................................................24
5.1 Preservation of Company's Business and Assets.............................................24
5.2 Absence of Material Change................................................................24
5.3 Access to Books and Records...............................................................24
5.4 Consents..................................................................................26
5.5 Capital Expenditures......................................................................26
5.6 Risk of Loss..............................................................................26
5.7 Condemnation..............................................................................27
5.8 Good Faith................................................................................27
5.9 Preserve Accuracy of Representations and Warranties.......................................27
5.10 Maintain Books and Accounting Practices...................................................28
5.11 Indebtedness; Liens.......................................................................28
5.12 Compliance with Laws and Regulatory Consents..............................................28
5.13 No Merger or Consolidation................................................................28
5.14 Maintain Insurance Coverage...............................................................28
5.15 Medicare, Medicaid and Blue Cross Reporting...............................................29
5.16 Current Return Filing.....................................................................29
5.17 Environmental Assessment; Additional Environmental Inspections............................29
5.18 Performance...............................................................................30
</TABLE>
iii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
ARTICLE VI. TITLE AND SURVEY..........................................................................30
6.1 Title Report and Policy...................................................................30
6.2 Survey....................................................................................31
6.3 UCC Searches..............................................................................31
6.4 Defects and Cure..........................................................................31
ARTICLE VII. CLOSING...................................................................................32
7.1 Closing...................................................................................32
7.2 Termination...............................................................................32
ARTICLE VIII. SELLERS' CONDITIONS TO CLOSE..............................................................33
8.1 Representations and Warranties True at Closing; Compliance with
Agreement.................................................................................33
8.2 Regulatory Approvals......................................................................33
8.3 No Action/Proceeding......................................................................33
8.4 Compliance with Article XI................................................................34
8.5 Approval by Counsel.......................................................................34
8.6 Order Prohibiting Transaction.............................................................34
8.7 Completion of Exhibits....................................................................34
ARTICLE IX. BUYER'S CONDITIONS TO CLOSE...............................................................34
9.1 Representations and Warranties True at Closing; Compliance with
Agreement.................................................................................34
9.2 No Loss, Damage or Destruction............................................................34
9.3 No Material Adverse Change................................................................35
9.4 Regulatory Approvals......................................................................35
9.5 No Action/Proceeding......................................................................35
9.6 Compliance with Articles VI and X.........................................................35
9.7 Inspection of Assets......................................................................35
9.8 Approval by Counsel.......................................................................35
9.9 Order Prohibiting Transaction.............................................................35
9.10 Satisfaction of Long-Term Liabilities.....................................................36
9.11 Consents..................................................................................36
9.12 Tail Insurance............................................................................36
9.13 Due Diligence; Information................................................................36
9.14 Title Evidence............................................................................36
9.15 Approvals.................................................................................36
9.16 Completion of Exhibits....................................................................36
ARTICLE X. OBLIGATIONS OF SELLERS AT CLOSING.........................................................37
10.1 Documents Relating to Stock...............................................................37
10.2 Opinion of Counsel........................................................................37
10.3 Corporate Good Standing and Corporate Resolution..........................................37
</TABLE>
iv
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
10.4 Closing Certificate.......................................................................37
10.5 Third Party Consents......................................................................37
10.6 Taxes and Other Payments..................................................................38
10.7 Releases and Other Matters................................................................38
10.8 Notice to Third-Party Payors..............................................................38
10.9 Tail Insurance............................................................................38
10.10 Additionally Requested Documents; Post Closing Assistance.................................39
10.11 Assumption Agreement......................................................................39
ARTICLE XI. OBLIGATIONS OF BUYER AT CLOSING...........................................................39
11.1 Purchase Price............................................................................39
11.2 Corporate Good Standing and Certified Board Resolutions...................................39
11.3 Opinion of Buyer's Counsel................................................................39
11.4 Closing Certificate.......................................................................40
ARTICLE XII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION................................................40
12.1 Survival..................................................................................40
12.2 Indemnification by Sellers and Shareholders...............................................40
12.3 Indemnification by Company and Buyer......................................................41
12.4 Procedure for Indemnification.............................................................41
12.5 Limitations on Obligations................................................................43
12.6 Company not Liable........................................................................43
12.7 Assignment by Buyer.......................................................................44
ARTICLE XIII. RESTRICTIVE COVENANTS.....................................................................44
13.1 Covenant Not to Compete...................................................................44
13.2 Enforceability............................................................................44
ARTICLE XIV. MISCELLANEOUS.............................................................................45
14.1 Assignment................................................................................45
14.2 Other Expenses............................................................................45
14.3 Notices...................................................................................45
14.4 Controlling Law...........................................................................46
14.5 Headings..................................................................................46
14.6 Benefit...................................................................................46
14.7 Partial Invalidity........................................................................46
14.8 Waiver....................................................................................46
14.9 Counterparts..............................................................................47
14.10 Interpretation............................................................................47
14.11 Entire Agreement..........................................................................47
14.12 Legal Fees and Costs......................................................................47
14.13 Exclusivity...............................................................................47
14.14 Completion of Exhibits....................................................................48
</TABLE>
v
<PAGE> 6
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Matter
- ----------- --------------
<S> <C>
1.2(1) Real Property
1.2(2) Equipment
1.2(5) Cash and Cash Equivalents
1.2(9) Trade Name
1.3 Excluded Assets
3.1A States in which Company is Qualified to do Business
3.1B Articles of Incorporation and Bylaws of Company
3.3A Ownership Interest
3.3B Articles of Incorporation and Bylaws of each Seller
3.3C Stock Ownership of Parent
3.4 Financial Statements
3.4(1) Disclosed Liabilities
3.6 Outstanding Letters of Credit
3.7 Operations Since ______________
3.8A Title to Assets
3.9 Exceptions to Zoning, Land Use and Other Laws
3.10 Contracts and Agreements with Obligations of $25,000 or more
3.11 Related Party Transactions
3.12 Defaults
3.15 Receivables
3.16 Powers of Attorney
3.17 Guarantees
3.18 Permits and Licenses
3.19 Bank Accounts
3.20 Litigation
3.21 Court Orders and Decrees
3.22A Tax Liens
3.22B Tax Audits
3.22C Copies of Company's Last Two Federal, State and Local Tax Returns
3.25A Medicare and Medicaid Cost Reports
3.25B Audit Status of Medicare and Medicaid Cost Reports
3.25C Claims against Company by Third Party Payors
3.26 Environmental Matters
3.28A List of Employees
3.28B Employee Benefits
3.28C Ex-Employees Eligible for COBRA
3.28D List of Employees Terminated within 90 Days of Closing
3.29A Insurance Policies
3.29B Insurance Claims History
3.27 Employee Benefit Plans
</TABLE>
vi
<PAGE> 7
<TABLE>
<S> <C>
3.31(1)A Noncompliance with Licensure Regulations
3.31(1)B Home Health Agency Licenses
3.31(2) Blue Cross Contracts
3.31(3) Accreditations
3.31(4) Medicare Contract
3.31(5) Medicaid Contract
3.31(6) CHAMPUS Contract
3.31(7) Fire Marshal Reports
3.31(8) Violations of Local Building and Zoning Laws
3.31(9) Most Recent Survey by Department of health
3.31(10) Medical Staff Bylaws
3.31(11) Licensure/Professional Liability Insurance Coverage of Hospital Staff
3.31(12) Hill-Burton Obligations
3.35 Consents of Governmental Authorities
10.5(3) Estoppel and Attornment Letters
10.8 Notice to Third-Party Payors
10.11 Assumption Agreement
12.5 Escrow Agreement
</TABLE>
vii
<PAGE> 8
GLOSSARY
<TABLE>
<CAPTION>
Section Defined Term
- ------- ------------
<S> <C>
2.3 Accountants
4.4 Act
Recital A Agency
Page 1 Agreement
5.17 Asbestos Clean-Up
1.2 Assets
1.4 Continuing Liabilities
Page 1 Buyer
12.5(1) Cap
12.4(1) Claim
7.1 Closing
7.1 Closing Date
3.22 Code
6.1 Commitment
Recital A Company
1.4 Continuing Liabilities
3.10 Contracts
6.4 Defects
3.27(1) ERISA
1.2(2) Equipment
12.5(2) Escrow Agreement
1.3 Excluded Assets
1.5 Excluded Liabilities
2.3 Final Closing Statement
3.4 Financial Statements
Recital A Hospital
12.4(1) Indemnitee
12.4(1) Indemnitor
1.2(3) Inventory
1.1 Liens
2.1(2) Net Working Capital
13.1 Noncompete Area
13.1 Noncompete Period
12.4(1) Notice
Page 1 Parent
Page 1 Park
4.15(2) Permitted Exceptions
3.8 Permitted Liens
2.3 Preliminary Closing Statement
</TABLE>
viii
<PAGE> 9
<TABLE>
<S> <C>
4.11(1) Program Agreements
4.11(1) Programs
2.1 Purchase Price
1.4(2) PTO
12.2 Rate
1.2(1) Real Property
1.2(4) Receivables
Recital A Agency
12.5(2) Sale Event
Page 1 Sellers
Page 1 Shareholders
Recital B Stock
6.2 Survey
6.4 Title Evidence
6.1 Title Policy
6.3 UCC Searches
</TABLE>
ix
<PAGE> 10
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), is made as of
___________, 1997, by and among LARRY F. MCFALL, PHIL SANDERSON, D. L.
PATTERSON, CHARLES F. DANIEL, SAM C. YEAGER, MACK R. CHOPLIN, DAVID R. CARVER
and TIMOTHY L. YEAGER (collectively, the "SHAREHOLDERS"), SOUTHEASTERN HOSPITAL
CORPORATION, a Tennessee corporation ("PARENT"), PARK HEALTHCARE COMPANY, a
Tennessee corporation ("PARK") (Parent and Park are collectively, jointly and
severally, "SELLERS"), and NEW AMERICAN HEALTHCARE CORPORATION, a Tennessee
corporation ("BUYER").
R E C I T A L S:
A. Park owns all of the issued and outstanding capital stock of Center
Hospital, Inc., d/b/a Memorial Hospital of Center, a Tennessee corporation
qualified to do business in the State of Texas (the "COMPANY"). The Company
operates Memorial Hospital of Center in Center, Texas located on approximately
4.128 acres of land at 602 Hurst Street, Center, Shelby County, Texas, including
a hospital comprised of [60] licensed medical/surgical beds, associated
equipment and other hospital related businesses and programs, approximately
12.2505 acres of undeveloped real property, and a home health agency (the
"AGENCY") (all of the above are collectively, the "HOSPITAL").
B. Park owns all of the issued and outstanding capital stock of the
Company and all rights to acquire stock of the Company (the "STOCK"). Parent
owns all of the issued and outstanding capital stock of Park, and Shareholders
own 100% of the issued and outstanding capital stock of Parent.
C. Sellers desire to sell and transfer the Stock to Buyer, and Buyer
desires to purchase the same from Sellers, subject to the terms and conditions
set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual terms, covenants,
agreements and conditions contained in this Agreement and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound hereby, agree as
follows:
ARTICLE I. PURCHASE AND SALE
1.1 Purchase and Sale. Sellers agree to sell, transfer, assign, convey
and deliver to Buyer, and Buyer agrees to purchase from Sellers, all right,
title and interest in and to the Stock. Sellers shall deliver to Buyer at
Closing all stock certificates representing the Stock, duly endorsed for
transfer or accompanied by duly executed stock powers. The
<PAGE> 11
Stock shall be delivered free and clear of all claims, liens, pledges,
mortgages, restrictions, suits, proceedings, calls, proxies, charges, options,
security interests, defects in title, assessments, covenants, rights of first
refusal and encumbrances of any kind (herein, "LIENS").
1.2 Assets At Closing. Except as provided in Section 1.3, at Closing
the Company shall own or lease, as specified, all assets, tangible and
intangible, real and personal, associated with the operation of the Hospital
(including those related to the Agency) (collectively, the "ASSETS"), free and
clear of all Liens other than the Permitted Liens (as defined in Section 3.8),
which Assets shall include, without limitation, the following:
(1) All real estate owned by the Company comprising or owned
in connection with the Hospital as described in Exhibit 1.2(1) (with leasehold
items noted as such); including, without limitation, all interests in real
property, including leaseholds, easements and improvements thereon, plants,
fixed assets, buildings, structures, fixtures (including fixed machinery and
fixed equipment) situated thereon or forming a part thereof and all
appurtenances, easements and rights-of-way related thereto (collectively, the
"REAL PROPERTY");
(2) All business, medical and other equipment, machinery, data
processing hardware and software, furniture, furnishings, appliances, vehicles
and other tangible personal property of every description and kind and all
replacement parts therefor, wherever located, including but not limited to the
items listed on Exhibit 1.2(2) (collectively, the "EQUIPMENT");
(3) All inventory of goods and supplies, including, but not
limited to, disposables, consumables, office supplies, drugs and medical
supplies (collectively, the "INVENTORY");
(4) All of the Company's patient accounts, notes and other
receivables, including those from third party payors, Medicare and Medicaid
(including all prior years and terminating cost reports), whether or not written
off and whether recorded or unrecorded, including those with respect to all
prior year and terminating cost reports (collectively, the "RECEIVABLES");
(5) All cash, bank accounts (as listed by name and address of
banking institution, account name and account and routing numbers on Exhibit
1.2(5) attached hereto), money market accounts, other accounts, certificates of
deposit and other investments of the Company;
2
<PAGE> 12
(6) All patient, medical, personnel, clinical and other
records of the Hospital and all manuals, books and records, including personnel
policies and manuals, and computer software;
(7) All licenses, permits, registrations, certificates,
consents, accreditations, approvals and franchises, and applications therefor,
and all waivers, if any, pertaining thereto;
(8) All plans and surveys, including "as-built" plans, all
plats, specifications, engineers' drawings, and architectural renderings and
similar items relating to the Hospital, including, without limitation, those
relating to utilities, easements and roads;
(9) All goodwill and other intangible assets including, but
not limited to, all rights to use the name "Memorial Hospital of Center," the
other trade names listed on Exhibit 1.2(9) and derivatives thereof;
(10) The Company's rights and interests under the Contracts
(as defined in Section 3.10), to the extent included, identified as a
"Continuing Liability" in Exhibit 3.10;
(11) All assets reflected on the Financial Statements, as
defined in Section 4.4(1), and additions thereto through the Closing (as defined
in Section 7.1) less deletions therefrom sold or consumed in the ordinary course
of business;
(12) All insurance proceeds arising in connection with damage
to the Assets prior to Closing, to the extent not expended for the repair and
restoration of the Assets;
(13) The Company's membership interest in Health Center
Preferred, the Hospital's managed care contracting entity and any other entities
listed on Exhibit 3.3A; and
(14) All other property, other than Excluded Assets, of every
kind, character or description owned by the Company and used or held for use in
the business of the Hospital, whether or not reflected on the Financial
Statements, wherever located.
1.3 Excluded Assets. Prior to conveyance of the Stock, Company shall
transfer to Sellers those items listed on Exhibit 1.3 (collectively, the
"EXCLUDED ASSETS"). All tangible Excluded Assets shall be removed from the
Assets, without damage or defacement to the Assets, by Sellers prior to Closing.
1.4 Continuing Contracts, Leases and Liabilities. At Closing, Company
will retain and continue to pay or perform, as the case may be, only the
following (collectively, the "CONTINUING LIABILITIES"):
3
<PAGE> 13
(1) All obligations accruing after Closing with respect to
those contracts, purchase orders and leases identified as Continuing Liabilities
on Exhibit 3.10;
(2) All accrued compensation, vacation time, compensatory
time/paid time off ("PTO"), holiday time and build up of sick leave, together
with all related taxes and tax withholding payable or held with respect thereto,
for the Company's employees who remain employees of the Company after Closing,
which was accrued or accumulated prior to Closing; provided, however, that the
Company shall retain the obligation to pay or remit such compensation and other
amounts, including such accrued compensation, vacation time, PTO, holiday time
and build up of sick leave together with all related taxes only to the extent
that the same is included in the calculation of Net Working Capital or Buyer has
received a credit therefor under Section 2.1(4); and
(3) All amounts payable under the Medicare, Medicaid, CHAMPUS
and Blue Cross/Blue Shield of Texas reimbursement programs applicable to cost
reports filed for services rendered prior to the Closing as properly recorded on
the Company's Financial Statements.
1.5 Excluded Liabilities. Immediately prior to conveyance of the Stock,
Sellers shall satisfy and release or Company shall transfer to Sellers and
Sellers shall assume responsibility from and after Closing for the following
(collectively, the "EXCLUDED LIABILITIES"):
(1) All obligations pursuant to or related to (i) the
Promissory Note dated June 27, 1995, in the original principal amount of
$2,000,000 payable by the Company to AmSouth Bank of Alabama or (ii) the Real
Estate Lien Note dated October 24, 1994, in the original amount of $170,000
payable by the Company to Lloyd Gillespie;
(2) All liabilities and obligations with respect to those
leases, contracts and purchase orders identified as Excluded Liabilities on
Exhibit 3.10;
(3) Any intercompany payables; and
(4) All liabilities, indebtedness, commitments, taxes,
assessments, claims, obligations and responsibilities of any kind whatsoever of
the Company (and any predecessor operator of the Hospital) arising from its
operations prior to Closing, including, but not limited to, malpractice claims
or suits and scheduled or unscheduled liabilities of any kind whatsoever, except
as expressly included in the Continuing Liabilities.
1.6 Additional Real Estate. Sellers, Shareholders and Buyer acknowledge
and agree that it is their intent that all real estate used in or related to the
operation of the Hospital that is owned or leased by the Company or an
Affiliate, shall be retained by the Company. To the extent any tract or parcel
of real estate (or buildings, improvements and
4
<PAGE> 14
fixtures and any rights, easements or appurtenances thereon) identified on
Exhibit 1.2(1) (or which should have been identified on such Exhibit) is (1)
misidentified, incorrectly described, or incorrectly identified as being owned
by a particular entity, or (2) any such real estate which should have been
included on Exhibit 1.2(1) is inadvertently not included on Exhibit 1.2(1) and
such errors are discovered subsequent to execution of this Agreement, the
parties agree that Exhibit 1.2(1) shall be amended by mutual agreement prior to
Closing to correct such errors and such amended Exhibit shall then be deemed to
be controlling as of the Closing. In the event that any such errors are
discovered subsequent to the Closing, to the extent necessary to effect the
intent of this Agreement, the parties agree that Exhibit 1.2 (1) shall be
amended by a post-Closing addendum to this Agreement to correct such errors and
such amended Exhibit 1.2(1) shall be deemed to be controlling and the Sellers
shall execute and deliver or cause to be executed and delivered, deeds,
instruments of correction, or such other instruments or documents, and to take
or cause to be taken, such other steps as may be necessary to correctly vest
title to any such real estate in or to the Company in accordance with the terms
of this Agreement.
1.7 Delivery of Stock. Sellers shall deliver to Buyer at Closing all
stock certificates representing the Stock, duly endorsed for transfer or
accompanied by duly executed stock powers. The Stock will be conveyed to Buyer
fully paid and nonassessable with good and valid title, free and clear of all
Liens, including all amounts due and payable for federal, state and local
transfer taxes.
ARTICLE II. PURCHASE PRICE
2.1 Purchase Price. Subject to the terms and conditions hereof, the
purchase price (the "PURCHASE PRICE") will be payable by Buyer to Sellers for
the Stock as provided in Section 7.1 hereof and shall be an amount derived in
the following manner:
(1) Eleven Million Dollars ($11,000,000.00);
(2) PLUS the amount by which Net Working Capital at Closing
exceeds $1,635,760.00 MINUS the amount by which $1,635,760.00 exceeds Net
Working Capital at Closing. The term "NET WORKING CAPITAL" shall mean the
following assets and liability accounts, as those terms are used in the
Financial Statements, all recorded and valued according to generally accepted
accounting principles, consistently applied: cash, net accounts receivable,
inventory and prepaid expenses and other current assets, less accounts payable,
accrued liabilities, short-term and long-term portions of leases payable and
other current liabilities;
(3) PLUS or MINUS, as appropriate, for the proration of
property taxes, utilities, rentals and payments under assumed contracts (as more
clearly detailed in Section 2.2), except to the extent already included in the
calculation of Net Working Capital;
5
<PAGE> 15
(4) MINUS a negotiated amount for sick pay amounts which will
be agreed upon prior to Closing.
2.2 Taxes and Assessments; Prorations; Adjustments. To the extent not
included as a reduction of Net Working Capital, Sellers shall pay or credit on
the Purchase Price the amount of all delinquent real estate and personal
property taxes, including penalties and interest, and all special assessments
that are a lien as of the day of Closing, both current and reassessed and
whether due or to become due.
2.3 Closing Statements. The adjustments specified in Sections 2.1 and
2.2 shall be estimated by the parties hereto in good faith at the Closing based
on the most current interim financial statements with provisional adjustments as
shall be mutually agreed upon and shall be called the "PRELIMINARY CLOSING
STATEMENT". No later than one hundred twenty (120) days after the Closing, the
parties hereto shall prepare the "FINAL CLOSING STATEMENT" reflecting the items
listed above determined in accordance with generally accepted accounting
principles on an accrual basis applied consistently with prior periods.
Adjustments made after the Closing based on the Final Closing Statement shall be
payable in immediately available funds, on or before the tenth day following the
day the Final Closing Statement is agreed upon. If Buyer and Sellers are unable
to agree upon said Final Closing Statement within one hundred twenty (120) days
after Closing, then they shall submit their dispute to KPMG Peat Marwick (the
"ACCOUNTANTS"), and the Accountants shall make such determination which
determination shall be final and binding on the parties hereto for the purpose
of this Agreement, and Buyer and Shareholders shall each pay one-half the cost
of the Accountants.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
OF SELLERS AND SHAREHOLDERS
To induce Buyer to enter into this Agreement and consummate the
transactions contemplated hereunder, Sellers and Shareholders hereby represent
and warrant to Buyer, which representations and warranties shall be true and
correct on the date hereof, and at Closing, as follows:
3.1 Organization, Corporate Power and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Tennessee and has full corporate power and authority and all
material authorizations, licenses and permits necessary to own, lease and
operate its properties and assets and to carry on its business as and where it
is now being conducted, to enter into this Agreement. The Company is duly
qualified to do business and is in good standing in Texas The Company is
qualified to do business in the states and foreign countries listed in Exhibit
3.1A. No jurisdiction where the Company is not presently qualified as a foreign
corporation has made any written assertion that the Company's business or
ownership of property makes qualification as a foreign corporation in such
jurisdiction necessary. A
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copy of the Company's Articles of Incorporation and all amendments thereto as of
the date hereof and a copy of the Company's by-laws, as amended to the date
hereof (both certified by the Secretary of the Company), are included as Exhibit
3.1B and are true, accurate and complete as of the date hereof. The Company is
not in default under or in violation of any provision of its Articles of
Incorporation or bylaws.
3.2 Capitalization of the Company. The authorized capital stock of the
Company consists of 2,000 shares of no par value voting common stock, of which
as of the date hereof, 1,600 shares have been duly authorized by all necessary
corporate action on the part of the Company, are validly issued and outstanding,
fully paid and non-assessable and all of which are owned beneficially and of
record by Park. No assessments have been made with respect to such stock which
have not been fully satisfied. There are no other authorized or outstanding or
authorized equity securities of the Company of any class, kind or character, and
there are no outstanding rights, contracts, rights to subscribe, conversion
rights, exchange rights, warrants, options, calls, puts or other agreements or
commitments of any character relating to the capital stock of the Company or any
securities convertible or exchangeable or exercisable for any shares of stock of
any class of capital stock of the Company. The Stock is subject to no pledge or
other Lien. Immediately after the Closing, Buyer will own 100% of the issued and
outstanding capital stock of the Company, free and clear of any Liens. No shares
of the capital stock of the Company are reserved for any purpose; there are no
preemptive or similar rights with respect to the issuance, sale or other
transfer (whether present, past or future) of the capital stock of the Company
and there are no agreements or other obligations (contingent or otherwise) which
may require the Company to issue, repurchase or otherwise acquire any shares of
its capital stock or any other securities. There are no outstanding or
authorized stock appreciation/phantom stock or similar rights with respect to
the Company. There are no voting trusts, proxies, or any other agreements or
understandings with respect to the voting stock of the Company.
3.3 Subsidiaries and Affiliates; Organization of Sellers. Except as
disclosed on Exhibit 3.3A, at the Closing, the Company will have no direct or
indirect ownership interest in, by way of stock ownership or otherwise, any
corporation, association or business enterprise. Each Seller is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, each has full corporate power to own, lease and operate its
properties and assets and to carry on its business as and where it is now
currently conducted, is duly qualified to do business and is in good standing in
each jurisdiction in which the character of the properties owned or leased by it
or the nature of the business transacted by it make such qualification necessary
except for any jurisdiction wherein the failure to be so qualified will not have
a material adverse effect on such entity's financial condition. Copies of the
Articles of Incorporation and by-laws of each Seller are included as Exhibit
3.3B and are true, accurate and complete as of the date hereof. The Shareholders
and those individuals listed on Exhibit 3.3C own beneficially and of record all
shares of capital stock of Parent, and Parent owns beneficially and of record
all shares of capital stock of Park.
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3.4 Financial Statements. Exhibit 3.4 consists of the Company's audited
financial statements, including balance sheets and statements of operations for
the fiscal years ended April 30, 1993, 1994, 1995 and 1996, and the unaudited
ten (10) month interim period ending February 28, 1997 (herein collectively
called "FINANCIAL STATEMENTS"). The Financial Statements present fairly in all
material respects the financial condition of the Company as at the respective
dates thereof and the results of their operations for the periods ended at the
respective dates thereof, in each case prepared in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved and with prior periods.
3.5 Absence of Undisclosed Liabilities. Except for (i) liabilities
disclosed in Exhibit 3.5, (ii) liabilities reflected or reserved against in the
Financial Statements, or (iii) commitments and obligations incurred in the
ordinary course of business accruing after February 28, 1997, the Company had,
or will have at Closing, no material liabilities, claims or obligations.
3.6 Letters of Credit. Except as disclosed in Exhibit 3.6 hereto, there
are no outstanding letters of credit issued at the request of the Company to any
suppliers or obligees of the Company with respect to the operations of the
Company or its subsidiaries.
3.7 Absence of Certain Recent Changes. Except as expressly provided in
this Agreement or as set forth on Exhibit 3.7 in numerical order corresponding
to the following subsections since the date of the most recent Financial
Statements, and through the Closing Date, the Company has not and will not have:
(1) except in the usual and ordinary course of its businesses,
consistent with past practice, and in an amount which is usual and normal, both
individually and in the aggregate or as otherwise contemplated by this
Agreement, incurred, any material indebtedness or other liabilities (whether
accrued, absolute, contingent or otherwise), guaranteed any indebtedness or sold
any of its assets;
(2) suffered any damage, destruction or loss, whether or not
covered by insurance, in excess of $25,000;
(3) suffered the resignation or other termination of its
hospital administrator, or the loss of or other termination of a business
relationship with any material customers or suppliers of the Company's business;
(4) increased the regular rate of compensation payable by it
to any employee or any physician other than normal merit and cost of living
increases granted in the ordinary course of business; or increased such
compensation by bonus, percentage, compensation service award or similar
arrangement theretofore in effect for the benefit of any of its employees, and
no such increase is required except for increases made in the
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ordinary course of business to persons currently receiving a salary of less than
$50,000 per year, which increases, in the aggregate, do not exceed $50,000 per
annum;
(5) established or agreed to establish, amended or terminated
any pension, retirement or welfare plan or arrangement for the benefit of its
employees not theretofore in effect;
(6) suffered any material adverse change in their financial
condition, assets, liabilities, operations, or business;
(7) had any change in its capitalization, including, without
limitation, the issuance by the Company of any shares of stock of any class, any
subscriptions, options, warrants, convertible securities, rights, calls,
agreements, commitments or rights affecting or relating in any manner whatsoever
to any equitable interests in the Company;
(8) declared or paid any dividend or other distribution on any
class of its capital stock or purchased or redeemed any of its capital stock;
(9) made any direct or indirect purchase, redemption or other
acquisition or made any commitment, plan or agreement to purchase, redeem or
otherwise acquire any shares of its capital stock or other equitable interests;
(10) experienced any material labor organizational efforts,
strikes or complaints other than grievance procedures in the ordinary course of
business or entered into any collective bargaining agreements with any union;
(11) made any single capital expenditure which exceeded
$10,000 or made aggregate capital expenditures which exceeded $25,000;
(12) except with respect to Liens arising by operation of law
or conditional sales or similar security interest granted in connection with the
purchase of equipment or supplies, permitted or allowed any of its assets (real,
personal or mixed, tangible or intangible) to be subjected to any additional
Lien of any kind;
(13) written down the value of any of its assets, or written
off as uncollectible any Receivables, except for write-downs and write-offs in
the ordinary course of business and consistent with past practice, none of which
are material to the Company, or revalued any of its assets;
(14) paid, discharged or satisfied any claims, liabilities or
obligations (absolute, accrued, contingent or otherwise) other than in the usual
and ordinary course of business;
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(15) suffered any extraordinary losses, canceled any material
debts, or waived any claims or rights of substantial value, whether or not in
the usual and ordinary course of business;
(16) paid, lent or advanced any amount to, or sold,
transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or arrangement with
any of the officers or directors of the Company, or of any "affiliate" or
"associate" of any of its officers or directors (as such terms are defined in
the rules and regulations of the Securities and Exchange Commission under the
Securities Act of 1933, as amended), except for reimbursement of ordinary and
reasonable business expenses related to the business of the Company;
(17) amended, terminated or otherwise altered (whether by
action or inaction) any contract, agreement or license of significant value to
which the Company is a party, except in the ordinary course of business;
(18) entered into a material transaction other than in the
ordinary course of business, or made any change in any method of accounting or
accounting practice;
(19) canceled, or failed to continue, insurance coverages; or
(20) agreed to take any action described in this Section 3.7.
3.8 Title to Assets. Except as disclosed in Exhibit 3.8A, or disclosed
elsewhere in this Agreement, the Company has or will have at Closing, good and
marketable title to its property and assets, as reflected in the Financial
Statements or acquired by the Company subsequent to the date of the most recent
Financial Statements, subject to no Lien, except the following (collectively the
"PERMITTED LIENS"):
(1) property and assets sold or otherwise disposed of
subsequent to such date in the ordinary course of business or as otherwise
contemplated by this Agreement,
(2) liens in respect of unpaid taxes and interest and
penalties thereon as reflected in the Financial Statements not yet due and
payable or being contested in good faith by appropriate proceedings,
(3) liens in respect of pledges or deposits under worker's
compensation, unemployment insurance, social security and public liability laws
and other similar legislation,
(4) liens imposed by law, such as carriers', warehousemen's or
mechanics' liens incurred in good faith in the ordinary course of business,
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(5) liens set forth in the Financial Statements as securing
specified debts or otherwise described in Exhibit 3.8A,
(6) any Lien approved in writing by Buyer, and
(7) such imperfections of title and other encumbrances, if
any, which do not in the aggregate materially detract from the value or
interfere with the use of their properties or otherwise materially impair their
business operations.
None of the encumbrances set forth in Exhibit 3.8A currently impairs or
materially interferes with the use or value of their assets. All of the Real
Property which is owned or leased by the Company is described in Exhibit 3.8A.
None of the Assets consisting of owned Real Property are subject to mortgage or
other encumbrance or charge other than those encumbrances described in Exhibit
3.8A. The owned personal property is subject to no Liens except the security
interests of record set forth on Exhibit 3.8B, which Exhibit is a copy of a
Uniform Commercial Code search as of a recent date duly obtained by the Company
and which search reports security interests of record relating to such assets in
every place where such security interests are legally required to be filed and
includes copies of all such financing statements.
3.9 Real Property. Except as disclosed on Exhibit 3.9:
(1) The Company enjoys peaceful and undisturbed possession of
its Real Property as described in Exhibit 1.2(1). The use of the Real Property
by the Company does not currently, violate any existing zoning, building or use
statutes, rules, ordinances or regulations of any federal, state, county or
local entity, authority or agency the violation of which would have a material
adverse effect on its respective assets or the business of such entity as it is
presently conducted. Neither the Company nor Sellers has received any written
notice of any violation of any law, zoning ordinance or regulation affecting the
Real Property and neither has received any written notice of nor has any actual
knowledge of or information as to any existing or condemnation or other legal
action of any kind involving the Real Property which may materially and
adversely affect the value of its respective Real Property. The use of the Real
Property, and the activities conducted thereon and are in substantial compliance
with all material applicable laws, rules, regulations, permits and licenses.
(2) There are no contracts, leases or agreements in effect
with respect to the Real Property of any kind or nature whatsoever, whether or
not of record not otherwise disclosed in this Agreement.
(3) Sellers do not know of any building, use or deed
restrictions relating to the Real Property that are not of public record or of
any latent structural defects in any buildings or improvements located on the
Real Property.
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(4) There are no unrecorded easements relating to the Real
Property known to Sellers, or special assessments or proposed special
assessments of which written notice has been given relating to the Real
Property, and no federal, state or local taxing authority has asserted any tax
deficiency, lien or assessment against the Real Property which has not been
paid.
(5) There are no outstanding accounts payable or mechanics'
liens or rights to claim a mechanic's lien in favor of any contractor,
materialman, laborer or any other Person in connection with any portion of the
Real Property which are past due or are not otherwise being contested in good
faith by appropriate proceeding.
(6) The Company has rights of ingress and egress from the Real
Property which are adequate for the purposes for which the Real Property
currently is used. All service utilities, including gas, water, electricity,
telephone and sewer, are presently available and serving the Real Property in an
adequate manner for its current use.
3.10 Contracts. Exhibit 3.10 is a list of each contract, lease,
agreement and other instrument to which the Company is a party or is bound which
involves an unperformed commitment or obligation (contingent or otherwise) of
more than $25,000 in the aggregate (herein, the "CONTRACTS"). Exhibit 3.10 also
indicates whether each Contract is an Excluded Liability. All Contracts not
designated as Excluded Liabilities shall be considered Continuing Liabilities.
Except as noted in such Exhibit, all such Contracts are in full force and
effect, there has been no cancellation or written notice of any threatened
cancellation thereof, there are no outstanding disputes thereunder, each is with
unrelated third parties and was entered into on an arms-length basis in the
ordinary course of business and except as noted in Exhibit 3.10, will continue
to be binding in accordance with their terms after consummation of the
transactions contemplated hereby. Except as noted in Exhibit 3.10, there are no
employment agreements or other agreements to which the Company is a party or by
which the Company is bound that contain any severance or termination pay
liabilities or obligations.
Except as described in Exhibit 3.10 or the other Exhibits hereto (and
except for purchase contracts and orders for inventory in the ordinary course of
business consistent with past practice), the Company is not, as of the date of
this Agreement, a party to or bound by any:
(1) material agreement or contract not made in the ordinary
course of business;
(2) employee collective bargaining agreement or other contract
with any labor union;
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(3) covenant not to compete (other than pursuant to any lease,
reciprocal easement agreement, development agreement, operating agreement or
construction, operating and reciprocal easement agreement, including any radius
restriction contained therein);
(4) lease or similar agreement under which the Company is a
lessor or sublessor of any material real property owned or leased by the
Company;
(5) (i) lease or similar agreement under which (A) the Company
is lessee of, or holds or uses, any machinery, equipment, vehicle or other
tangible personal property owned by a third party or (B) the Company is a lessor
or sublessor of any tangible personal property owned by the Company, (ii)
continuing contract for the future purchase of materials, supplies or equipment,
or (iii) management, service, consulting or other similar type of contract, in
any such case which has a future liability in excess of $25,000, and which is
not terminable by the Company for a cost of less than $10,000;
(6) license or other agreement relating in whole or in part
to, trademarks (including, but not limited to, any license or other agreement
under which the Company has the right to use any of the same owned or held by a
third party);
(7) agreement or contract under which the Company has borrowed
or lent any money or issued any note, bond, indenture or other evidence of
indebtedness or directly or indirectly guaranteed indebtedness, liabilities or
obligations of others for an amount in excess of $10,000 (other than (i)
endorsements for the purpose of collection in the ordinary course of business,
(ii) agreements or contracts between the Company and Sellers, and (iii) advances
to employees of the Company in the ordinary course of business);
(8) mortgage, pledge, security agreement, deed of trust or
other document granting a lien (including liens upon properties acquired under
conditional sales, capital leases or other title retention or security devices
but excluding operating leases) other than Permitted Liens;
(9) other agreement, contract, lease, license, commitment or
instrument to which the Company is a party or by or to which the Company or any
of its assets or businesses are bound or subject which has an aggregate future
liability in excess of $10,000 and is not terminable by the Company for a cost
of less than $10,000; or
(10) any agreement, contract, understanding or business
venture with any physician, other provider or any other person which knowingly
violates the Medicare/Medicaid Fraud and Abuse amendments or any regulations
thereunder adopted by the U.S. Department of Health and Human Services.
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3.11 Absence of Related Party Transactions. Prior to the Closing, any
contracts or other financial interest which may exist between either Sellers and
the Company or between the Company and any officer, director or affiliate of the
Company shall have been terminated, except as set forth in Exhibit 3.11.
3.12 Defaults. Except as disclosed in Exhibit 3.12 or otherwise in this
Agreement, the Company is not in material default under, nor has any event
occurred which, with the lapse of time or action by a third party, could result
in a default by the Company under, any of its outstanding indentures, mortgages,
contracts, instruments or agreements to which the Company is a party or by which
the Company may be bound or under any provision of the Articles of Incorporation
or by-laws of the Company. Except as disclosed in Exhibit 3.12, the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated by this Agreement will not: (i) violate any provision
of, or result in the breach of, or constitute a material default under, any law
the violation of which would result in a significant liability to the Company,
or any order, writ, injunction or decree of any court, governmental agency or
arbitration tribunal; (ii) constitute a violation of or a material default
under, or a conflict with, any term or provision of the Articles of
Incorporation or by-laws of the Company; (iii) violate any contract, commitment,
indenture, lease, instrument or other agreement, or any other restriction of any
kind to which the Company is a party or it or its assets is bound; or (iv) give
any party thereunder grounds to cause (with or without notice, the passage of
time or both) the maturity of any liability or obligation of the Company to be
accelerated, or increase any such liability or obligation.
3.13 Inventory. Substantially all Inventory, as reflected in the
Financial Statements or otherwise (and not disposed of in the ordinary course),
consists of a quality and quantity generally usable and saleable in the ordinary
course of business and is carried on the balance sheet included in the Financial
Statements at the lower of cost or market, except for items of obsolete
materials, substantially all of which have been written down in the balance
sheet included in the Financial Statements to realizable market value or for
which adequate reserves have been provided in the balance sheet included in the
Financial Statements. The only transactions related thereto since the date of
the most recent Financial Statements, have been additions or sales in the
ordinary course of business.
3.14 Equipment. Substantially all material items of Equipment reflected
in the Financial Statements, are in good operating condition, except for
reasonable wear and tear and except for items which have been written down in
the Financial Statements to a realizable market value or for which adequate
reserves have been provided in the Financial Statements. The only transactions
related thereto since the date of the most recent Financial Statements, have
been additions thereto or dispositions thereof in the ordinary course of
business.
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3.15 Receivables. Except as set forth in Exhibit 3.15, all Receivables
shown on the Financial Statements and all those arising since the date of the
most recent Financial Statements, have arisen in the ordinary course of
business.
3.16 Powers of Attorney. Exhibit 3.16 lists and contains a copy of any
outstanding powers of attorney related to the Company.
3.17 Guarantees. Exhibit 3.17 is a list of all material guarantees and
matters of suretyship of the Company. Except as noted in Exhibit 3.17, all
guarantees by the Company of obligations of entities, whether or not related
parties, will be satisfied or released prior to Closing.
3.18 Permits and Licenses. Included as Exhibit 3.18 is a schedule of
permits and licenses, listing and briefly describing each permit, license or
similar authorization from each governmental authority issued with respect to
the operation or ownership of properties by the Company, together with the
designation of the respective expiration dates of each, and also listing each
association or governmental authority by which the Company is accredited or
otherwise recognized. The Company is not required to obtain any additional
permits, licenses or similar authorizations (including, without limitation, any
additional certificates of need) from any governmental authority for the proper
conduct of its business as currently conducted or to become a member of or
accredited by any association or governmental authority. Except as set forth in
Exhibit 3.18, all of such permits, licenses and authorizations will continue to
be valid and in full force and effect in accordance with their respective terms
after the consummation of the transactions contemplated hereby.
3.19 Bank Accounts. Exhibit 3.19 is a true and complete list as of the
date hereof of all banking institutions in which the Company has accounts, lines
of credit, letters of credit, or safety deposit boxes, plus the account numbers
thereof and the names of the persons authorized to have access thereto.
3.20 Litigation. Except as set forth in Exhibit 3.20: (i) there is no
litigation, arbitration, governmental claim, investigation or proceeding pending
or threatened in writing against the Company at law or in equity, before any
court, arbitral tribunal or governmental agency; (ii) there are no facts known
to Sellers on which material claims may be hereafter made against the Company
which are not covered by insurance assuming the same insurance programs
presently in effect are maintained after the Closing; and (iii) all currently
pending claims and litigations against the Company are fully covered by
insurance subject to applicable deductibles.
3.21 Court Orders, Decrees and Laws. There is not outstanding or
threatened in writing any order, writ, injunction or decree of any court,
governmental agency or arbitration tribunal against or affecting the Company or
any of its assets which would significantly
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interfere with its ability to conduct its businesses as presently conducted. The
Company is in substantial compliance with all applicable federal, state and
local laws, regulations and administrative orders which are material to the
business of the Company, and the Company has received no written notices of
alleged violations thereof except as disclosed herein. Except as set forth in
Exhibit 3.21, to the best of Sellers' knowledge, no governmental authorities are
presently conducting proceedings against the Company and no such investigation
or proceeding is pending or been threatened in writing.
3.22 Taxes. All federal, state and other tax returns of the Company
required by law to be filed have been filed, and the Company has paid or accrued
on the balance sheets included in the Financial Statements (including taxes on
properties, income, franchises, licenses, sales and payrolls) which are shown to
be due on or have become due pursuant to such returns or pursuant to any
assessment, except for any taxes and assessments of which the amount,
applicability or validity is currently being contested in good faith by
appropriate proceedings and with respect to which the Company has set aside on
its books adequate reserves. All such tax returns have been prepared in
compliance with all applicable laws and regulations. The amounts set up as
provisions for taxes (including provision for deferred income taxes) on the
Financial Statements are sufficient for the payment of all unpaid federal,
state, county and local taxes accrued for or applicable to all periods (or
portions thereof) ending on or before the Closing Date. Except as otherwise
disclosed in this Agreement or disclosed in Exhibit 3.22A or elsewhere in this
Agreement, there are no tax liens on any of the property of the Company, except
those with respect to taxes not yet due and payable and except for any taxes and
assessments of which the amount, applicability or validity is currently being
contested in good faith by appropriate proceedings and with respect to which the
Company has set aside on its books adequate reserves. Except as otherwise
disclosed in this Agreement or disclosed in Exhibit 3.22B, there are no pending
tax examinations of which Sellers have knowledge, nor has the Company received a
revenue agent's report asserting a tax deficiency. Sellers have no knowledge of
any basis for any taxing authority to claim or assess any amount of additional
taxes against the Company. No written claim has ever been made by a taxing
authority in a jurisdiction where the Company does not file tax returns that the
Company is or may be subject to taxes assessed by such jurisdiction. The Federal
income tax liability of the consolidated company of which the Company is a part
has been examined and reported on by the Internal Revenue Service (or closed by
applicable statutes) and satisfied for all fiscal years prior to and including
the fiscal year ended April 30, 1994. The Company has never filed a consent
under ss. 341(f) of the Internal Revenue Code of 1986, as amended (the "CODE"),
relating to collapsible corporations.
Copies of the Company's last two state and local income tax returns are
included as Exhibit 3.22C. No waivers of any statute of limitations relating to
the payment of taxes have been given by the Company and no waivers therefor have
been requested by the Internal Revenue Service from the Company. No extensions
have been obtained to file
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any tax return which has not heretofore been filed. The Company has withheld
from each payment made to employees of the Company the amount of all taxes
(including, but not limited to, federal, state and local income taxes and
Federal Insurance Contribution Act taxes) required to be withheld therefrom and
all amounts customarily withheld therefrom, and has set aside all other employee
contributions or payments customarily set aside with respect to such wages and
have paid or will pay the same to, or have deposited or will deposit such
payment with, the proper tax receiving officers or other appropriate
authorities. The Company will not be required as a result of a change in method
of accounting for a taxable period ending on or prior to the Closing Date to
include any adjustment in taxable income for any taxable period (or portion
thereof) beginning after the Closing Date. The Company has not been a member of
an affiliated group (as defined in ss.1504(a) of the Code) other than one of
which Parent or Park was the common parent. The Company is not a party to or
bound by any tax sharing agreement and does not have any current or potential
contractual obligation to indemnify any other person with respect to taxes. The
Company is not and will not become obligated (under any contract entered into on
or before the Closing Date) to make any payments that will be non-deductible
under ss.280G of the Code. Prior to the Closing, the Company shall deliver to
Buyer a certification pursuant to Treasury Regulation ss.1.897-2 to the effect
that the Company is not a "United States real property holding corporation" as
defined in ss.897 of the Code.
3.23 Immigration Act. There are no violations or potential violations
of the Immigration Act by the Company. The Company has not been cited, fined,
served with a Notice of Intent to Fine or with a Cease and Desist Order, nor, to
Sellers' knowledge, has any action or administrative proceeding been initiated
or threatened against the Company by reason of any actual or alleged failure to
comply with the Immigration Act.
3.24 Program Compliance. To the best of Seller's knowledge, the Company
is not a party to any agreement or contract which violates the Medicare/Medicaid
Fraud and Abuse amendments (42 USC 1320a-7b(b)) or any regulations thereunder
adopted by the U.S. Department of Health and Human Services as currently in
force and interpreted.
3.25 Reimbursement Matters. Copies of all Medicare and Medicaid Cost
Reports filed by the Company either not audited by the fiscal intermediary or
audited and not formally settled are included as Exhibit 3.25A. A schedule
setting forth the audit status of such Medicare Cost Reports is set forth in
Exhibit 3.25B. The amounts set up as provisions for Medicare and Medicaid
adjustments and adjustments by any other third-party payors on the Financial
Statements are sufficient to pay any amounts for which the Company or any of its
subsidiaries may be liable. Sellers do not know of any basis for any claims
against the Company by any third-party payors other than routine Medicare and
Medicaid audit adjustments except as identified in Exhibit 3.25C or identified
in the Financial Statements or otherwise disclosed herein.
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3.26 Environmental Matters. Except as disclosed on (i) the
Asbestos/Lead Inspection Report prepared by Esesis dated May 9, 1995 and (ii) a
Phase I Environmental Report by TRA Environmental Consulting dated October 1994
or (iii) Exhibit 3.26:
(1) All material federal, state and local permits, licenses
and authorizations required for the current use and operation of the Real
Property have been obtained and are presently in effect.
(2) None of the Real Property has been used by the Company
(and to the actual knowledge of Sellers, by any other person or entity at any
time) to handle, treat, store or dispose of any hazardous or toxic waste or
substance, nor is any of the Real Property, including all soils, groundwaters
and surface waters located on, in or under the Real Property, known to be
contaminated with pollutants or other substances which contamination may give
rise to a clean-up obligation under any federal, state or local law, rule,
regulation or ordinance, including, but not limited to, the federal
Comprehensive Environmental Response, Compensation and Liability Act, 42 USC
9601 et seq, and the common law.
(3) To the best knowledge of Sellers, all underground tanks
located in, on or under any Real Property are in a state of good condition; have
not leaked; nor are presently leaking any of the contents which they have held
or presently hold.
(4) There are no outstanding violations or any consent decrees
entered against the Company regarding environmental and land use matters,
including, but not limited to, matters affecting the emission of air pollutants,
the discharge of water pollutants, the management of hazardous or toxic
substances or wastes, or noise as those laws are in force and applied and
interpreted by courts and regulatory authorities at the time of or prior to the
Closing Date.
(5) There are no violations threatened in writing with respect
to any federal, state or local environmental law, rule, regulation, ordinance,
permit, license or authorization, and there are no present discussions by the
Company with any federal, state or local governmental agency concerning any
alleged violation of environmental laws, rules, regulations, ordinances,
permits, licenses or authorizations as those laws are in force and applied and
interpreted by courts and regulatory authorities as the time of or prior to the
Closing Date.
(6) All operations conducted by the Company on the Real
Property have been and are in substantial compliance with all federal, state and
local statutes, rules, regulations, ordinances, permits, licenses and
authorizations relating to environmental compliance and control as those laws
are in force and applied and interpreted by courts and regulatory authorities at
the time of or prior to the Closing Date.
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3.27 ERISA.
(1) Except as listed in Exhibit 3.27, the Company does not
maintain any "employee benefit plans", as such term is defined under Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or any other plan or similar arrangement, written or otherwise, which
provides any type of welfare benefit any of their directors, employees, or
former employees. Neither Sellers nor the Company maintains an "employee pension
benefit plan" as defined under ERISA.
(2) With respect to all of the plans listed in Exhibit 3.27,
the Company has delivered to Buyer true and exact copies of (i) all plan
documents embodying the provisions of such plans, together with all amendments
thereto, (ii) all summary plan descriptions and summaries of material
modifications pertaining thereto, (iii) copies of the most recent Internal
Revenue Service determination letters, if any, relating to such plans, (iv)
copies of the last three (3) years' Annual Report (Form 5500 series), as filed
with respect to such plans with the Internal Revenue Service, together with all
Schedules and attachments thereto, including, without limitation, copies of the
plan audits and/or actuarial valuations, (v) copies of all contract
administration agreements between Sellers or the Company and third party
administrators, (vi) copies of all participant-related forms currently in use in
connection with such plans including, without limitation, salary reduction
agreements and beneficiary designations and (vii) participant-specific claims
history for any "welfare benefit plan" (within the meaning of Section 3(1) of
ERISA that has been in existence during any part of the last three years.
(3) No "prohibited transaction", as such term is defined under
Section 4975(c) of the Code or under Section 406 of ERISA, and the respective
regulations thereunder, has occurred or is occurring with respect to any
"employee benefit plan" maintained by the Company or with respect to any trustee
or administrator thereof.
3.28 Employee Matters. Included as Exhibit 3.28A is a list of all
employees of the Company (or employees of Sellers based at the Hospital, if any)
whose total annual compensation (including bonuses) in the last 12 months was in
excess of $50,000, together with their annual rates of compensation and a list
of all people who were paid bonuses in the last twelve months plus the amount
thereof. No written employment agreement to which Sellers or the Company is a
party requires longer than a four-week notice before termination or agreement to
lend to or guarantee any loan to an employee or an agreement relating to a
bonus, severance pay or similar plan, agreement, arrangement or understanding.
Exhibit 3.28B is a list of employee benefits of Sellers and the Company. Exhibit
3.28C sets forth all ex-employees of Company utilizing or eligible to use
continuation coverage (health insurance). Exhibit 3.28D sets forth a complete
list of all of Company's full and part time employees who have been terminated
within ninety (90) days before Closing.
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3.29 Insurance; Malpractice. Exhibit 3.29A is a list of all policies of
fire, general liability, professional liability, product liability,
environmental impairment liability, worker's compensation, health and other
forms of insurance policies or binders currently in force insuring against risks
of the Company. All insurance policies or binders of the Company are valid,
outstanding and enforceable and will continue to be valid, binding and
enforceable following the consummation of the transactions contemplated by this
Agreement assuming all premiums which become due after the Closing Date are paid
in full when due. Exhibit 3.29B contains a description of the past malpractice
liability insurance coverage and claims history of the Company since January
1992.
3.30 Labor Matters. There are no collective bargaining agreements with
any labor union to which Sellers or the Company is a party or by which Sellers
or the Company is bound, and they are not currently negotiating with a labor
union. No employees of Sellers or the Company have ever petitioned for a
representation election. The Company is in compliance in all material respects
with all applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, and is not engaged in any
unfair labor practice. There is no known unfair labor practice complaint against
Sellers or the Company currently pending before the National Labor Relations
Board. There is no labor strike, dispute, slowdown or stoppage actually pending
or, to Sellers' knowledge, threatened against or affecting Sellers or the
Company. No employee grievance which might have a material adverse effect on
Sellers or the Company or the conduct of their businesses nor any arbitration
proceeding arising out of or under collective bargaining agreements is pending
and no written claim therefor exists. The Company has not experienced any
employee strikes during the last three years. Sellers will advise Buyer of any
material labor dispute, petition for representative election or negotiations
with any labor union which shall arise before the Closing Date. Except as may be
required by ss.4980B of the Code or applicable state health care continuation
coverage statutes, the Company has no liability under any plan or arrangement
which provides welfare benefits, including medical and life insurance, to any
current or future retiree or terminated employee.
3.31 Certain Representations With Respect to the Hospital and the
Agency.
(1) The Hospital is licensed by the Texas Department of Health
as a general acute care hospital authorized to operate 60 beds in its existing
facilities located in Center, Texas. The Agency is licensed by the Texas
Department of Health as a home health agency. Except as set forth in Exhibit
3.31(1)A, the Hospital and the Agency are presently in compliance with all the
terms, conditions and provisions of such license. Exhibit 3.31(1)B is a copy of
such licenses.
(2) The Hospital and the Agency, as applicable, each has
current contractual arrangements with Blue Cross. Copies of its existing Blue
Cross contracts are included as Exhibit 3.31(2); and the Hospital and the
Agency, as applicable, each is
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presently in compliance with all of the material terms, conditions and
provisions of its Blue Cross contract.
(3) The Hospitals is duly accredited as a general hospital by
the Joint Commission on Healthcare Organizations of the American Medical and
American Hospital Associations and included as Exhibit 3.31(3) are copies of the
most recent Certificates of Accreditation. Exhibit 3.31(3) also includes a copy
of any other accreditations currently held by the Hospital.
(4) The Hospital and the Agency, as applicable, each is
qualified for participation in the Federal Medicare Program. A copy of the
Hospital's and the Agency's, as applicable, existing Medicare contract is
included as Exhibit 3.31(4). The Hospital and the Agency, as applicable, each is
presently in compliance with all of the material terms, conditions and
provisions of such contract pertaining to it.
(5) The Hospital and the Agency, as applicable, each is
qualified for participation in the Medicaid program in the State(s) of Texas. A
copy of the Hospital's and the Agency's, as applicable, existing Medicaid
contract is included as Exhibit 3.31(5). The Hospital and the Agency, as
applicable, each is presently in compliance with all the material terms,
conditions and provisions of such contract pertaining to it except as otherwise
disclosed in this Agreement.
(6) The Hospital is qualified for participation in the CHAMPUS
program. A copy of the Hospital's existing CHAMPUS contract is included as
Exhibit 3.31(6). The Hospital is presently in compliance with all the material
terms, conditions and provisions of such contract pertaining to it except as
otherwise disclosed in this Agreement.
(7) Included as Exhibit 3.31(7) is a copy of the fire marshal
reports with respect to the Hospital after January 1, 1992. Sellers have no
knowledge of any fire code violations at the Hospital.
(8) Except as set forth in Exhibits 3.31(8) and 3.31(9), the
Company has received no written notification that the Hospital is in violation
of local building codes, ordinances or zoning laws pertaining to it. The
buildings in which the Hospital is located comply with all local building codes,
ordinances and zoning codes.
(9) Included as Exhibit 3.31(9) is a copy of the most recent
survey of the Texas Department of Health for each of the Hospital and the
Agency, as applicable.
(10) Included as Exhibit 3.31(10) are the bylaws of the
medical staff of the Hospital.
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(11) Included as Exhibit 3.31(11) is a schedule of the current
status of the Hospital's medical staff, showing state licensure, DEA licensure
and professional liability insurance coverage, which schedule includes
expiration dates, of each physician.
(12) Included as Exhibit 3.31(12) is a description of all
previous Hill-Burton obligations of the Hospital, and any obligations under
similar governmental programs. As of the date hereof, no such obligations are
outstanding.
3.32 Books of Account; Reports. The books of account of the Company in
reasonable detail, accurately and fairly reflect its transactions and the
disposition of its assets. The Company has filed all reports and returns
required by any law or regulation to be filed by it other than those, the
failure to file will not have a material adverse effect on the business of the
Company or its subsidiaries.
3.33 Finders and Brokers. Seller shall be fully responsible for any
finders or brokers engaged by Seller, Shareholders, the Company or any officer
or director of Sellers, Shareholders or the Company in connection with the
transactions described herein.
3.34 Authority; Binding Effect. Sellers and Shareholders have the full
right, power and authority to execute, deliver and carry out the terms of this
Agreement and all documents and agreements necessary to give effect to the
provisions of this Agreement, to consummate the transactions contemplated
hereby, and to take all actions necessary, in their respective capacities, to
approve the actions of Sellers and Shareholders taken in connection with this
Agreement. The execution, delivery and consummation of this Agreement, and all
other agreements and documents executed in connection herewith by Sellers and
Shareholders, have been duly authorized by all necessary action on the part of
such parties. This Agreement and all other agreements and documents executed in
connection herewith by Sellers and/or Shareholders, upon due execution and
delivery thereof, shall constitute the valid and binding obligations of Sellers
and/or Shareholders, as the case may be, enforceable in accordance with their
respective terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights generally
and by general principles of equity.
3.35 Consents and Approvals of Governmental Authorities. Except as set
forth in Exhibit 3.35, no characteristic of the Company or Sellers or of the
nature of their businesses or operations requires any consent, approval or
authorization of, or declaration, filing or registration with any governmental
or regulatory authority in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
3.36 Disclosure. No representations and warranties by Sellers in this
Agreement and no statement in this Agreement or any document or certificate
furnished or to be furnished to Buyer pursuant hereto knowingly contains or will
knowingly contain any untrue
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statement or knowingly omits or will knowingly omit to state a fact necessary in
order to make the statements contained therein not misleading.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER
To induce Sellers and Shareholders to enter into this Agreement and to
consummate the transactions contemplated herein, Buyer represents and warrants
to Sellers and Shareholders, which representations and warranties shall be true
and correct on the date hereof, and on Closing, as follows:
4.1 Organization, Qualification and Authority. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of its
state of organization. Buyer has the full corporate power and authority to own,
lease and operate its properties and assets as presently owned, leased and
operated and to carry on its business as it is now being conducted, and has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement. Buyer has the full right, power and authority
to execute, deliver and carry out the terms of this Agreement and all documents
and agreements necessary to give effect to the provisions of this Agreement and
to consummate the transactions contemplated on the part of Buyer hereby. The
execution, delivery and consummation of this Agreement and all other agreements
and documents executed in connection herewith by Buyer has been duly authorized
by all necessary action on the part of Buyer. No other action on the part of
Buyer or any other person or entity is necessary to authorize the execution,
delivery and consummation of this Agreement and all other agreements and
documents executed in connection herewith. This Agreement and all other
agreements and documents executed in connection herewith by Buyer, upon due
execution and delivery thereof shall constitute valid binding obligations of
Buyer, enforceable in accordance with their respective terms.
4.2 Absence of Default. The execution, delivery and consummation of
this Agreement and all other agreements and documents executed in connection
herewith by Buyer will not constitute a violation of, be in conflict with, or,
with or without the giving of notice or the passage of time, or both, result in
a breach of, constitute a default under, or create (or cause the acceleration of
the maturity of) any debt, indenture, obligation or liability or result in the
creation or imposition of any Lien upon the Stock or any of the Assets under:
(a) any term or provision of the Articles of Incorporation or Bylaws of Buyer;
(b) any contract, lease, agreement, indenture, mortgage, pledge, assignment,
permit, license, approval or other commitment to which Buyer is a party or by
which Buyer is bound; (c) any judgment, decree, order, regulation or rule of any
court or regulatory authority, or (d) any law, statute, rule, regulation, order,
writ, injunction, judgment or decree of any court or governmental authority or
arbitration tribunal to which Buyer is subject.
4.3 Finders and Brokers. Buyer shall be fully responsible for any
finders or brokers engaged by Buyer in connection with the transactions
described herein.
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4.4 Investment Representations. Buyer understands that the Stock has
not been registered under the federal Securities Act of 1933, as amended (the
"ACT") or under the securities laws of any jurisdiction, and that the Stock is
being sold under a claim of exemption from registration under the Act. Buyer
further understands that this transaction has not been reviewed by, passed on,
or submitted to the United States Securities and Exchange Commission or any
state agency. Buyer is aware that the Stock must be held indefinitely unless it
is subsequently registered or an exemption from such registration is available
and that the Company is under no obligation to register the Stock under the Act,
any state securities law, or any other applicable securities legislation. Buyer
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks in the acquisition of the Stock. The
Stock is being acquired by Buyer solely for Buyer's own account for investment,
with no present intention of making or participating in a distribution thereof
within the meaning of the Act.
ARTICLE V. COVENANTS OF PARTIES
5.1 Preservation of Company's Business and Assets. From the date hereof
until the Closing, Sellers and Shareholders shall use their best efforts and
shall do or cause to be done all such acts and things as may be necessary to
preserve, protect and maintain intact the Assets and the business and operation
of the Hospital as a going concern consistent with prior practice and to
preserve, protect and maintain for Buyer and Company the good will of the
Hospital's medical staff, suppliers, employees, clientele, patients, tenants and
others having business relations with Company. Shareholders and Sellers shall
use their best efforts to obtain all documents called for by this Agreement.
From and after the date of this Agreement until Closing, Sellers and
Shareholders shall cause the Company to maintain and keep the Assets in good
order and repair. Buyer, Sellers and Shareholders shall use best efforts to
facilitate the consummation of the transactions contemplated by this Agreement.
The Company shall make no dividend, distribution or extraordinary payment to any
Affiliate.
5.2 Absence of Material Change. From the date hereof until the Closing,
Shareholders and Sellers shall cause the Company to make no material adverse
change in the business and operation of the Hospital and in the utilization of
the Assets and shall not enter jointly or separately into any other significant
contract or commitment or any other transaction with respect thereto without the
prior written consent of Buyer, which shall not be unreasonably withheld.
5.3 Access to Books and Records.
(1) From the date hereof until the Closing, Shareholders and
Sellers shall cause the Company to give to Buyer and to Buyer's counsel,
accountants, and other representatives, reasonable access during normal business
hours (and at a time or times
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that will not disrupt the delivery of care to patients) to all of Company's
offices, properties, books, contracts, commitments, records and affairs relating
to the Stock and Assets, other than the Excluded Assets, so that Buyer may
inspect and audit them and shall furnish to Buyer a copy of all documents and
information concerning the properties and affairs of the Stock and the Assets as
Buyer may reasonably request. If any such books, records and materials are in
the custody of third parties, Shareholders and Sellers shall cause the Company
to direct such third parties to promptly provide them to Buyer. Copies of
documents furnished to Buyer by Company and Shareholders will be returned by
Buyer upon request if the transaction is not consummated. Shareholders and
Sellers shall cause the Company to provide Buyer promptly with interim financial
statements of Company and any other management reports as and when they are
available. Additionally, from the date hereof until Closing, Shareholders and
Sellers shall cause the Company to grant Buyer full access to Company's
personnel and computers as is reasonably necessary to assist Buyer.
(2) Following the Closing, Buyer shall cause the Company to
permit Shareholders' and Sellers' representatives (including, without
limitation, their counsel, accountants and auditors), during normal business
hours and upon appropriate advance notice, to (i) have reasonable access to, and
examine and make copies of all books and records of the Hospital, including all
medical records and medical charts of any patient admitted to the Hospital, to
the maximum extent permitted by law and (ii) have reasonable access without cost
to the Hospital's employees and their successors, relating to transactions or
events occurring prior to the Closing and Sellers' and Shareholders' obligations
under this Agreement, as long as such requests do not unreasonably interfere
with the operation of the Hospital. For a period of seven (7) years after the
Closing, Buyer agrees that, prior to the destruction or disposition of any such
books or records, Buyer shall provide not less than forty-five (45) days', nor
more than ninety (90) days' prior written notice to Shareholders and Sellers of
such proposed destruction or disposal. If Shareholders and Sellers desire to
obtain any of such documents, they may do so by notifying Buyer in writing prior
to the date scheduled for such destruction or disposal. In such event, Buyer
shall cause the Company to not destroy such documents and the parties shall then
promptly arrange for the delivery of such documents to Shareholders or Sellers,
their successors or assigns. All out-of-pocket costs associated with the
delivery of the requested documents shall be paid by Shareholders and Sellers.
(3) Following the Closing, Shareholders and Sellers shall
permit Buyer and its representatives (including, without limitation, their
counsel, accountants and auditors), during normal business hours, to have access
to, and examine and make copies of, all books and records relating to the
Company, which books and records are retained by Sellers or Shareholders, if
any, and which relate to transactions or events contemplated by this Agreement
occurring prior to the Closing, to the maximum extent permitted by law. For a
period of seven (7) years after the Closing, Shareholders and Sellers agree
that, prior to the destruction or disposition of any such books or records,
Shareholders shall provide
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not less than forty-five (45) days', nor more than ninety (90) days' prior
written notice to Buyer of such proposed destruction or disposal. If Buyer
desires to obtain any such documents, it may do so by notifying Shareholders and
Sellers in writing prior to the date scheduled for such destruction or disposal.
In such event, Shareholders shall not destroy such documents and the parties
shall then promptly arrange for the delivery of such documents to Buyer, its
successors or assigns. All out-of-pocket costs associated with the delivery of
the requested documents shall be paid by Buyer.
(4) Shareholders and Sellers shall cause or use reasonable
best efforts to cause Company's accounting firm to consent to the inclusion of
the Financial Statements in any registration statements, private placement
memoranda, and periodic reports, if any, necessary or appropriate in order to
enable Buyer or its affiliates to comply with any applicable registration or
reporting requirements of federal or state securities laws.
5.4 Consents. Sellers shall obtain all consents, approvals, exemptions
and authorizations of third parties, whether governmental or private, in form
and substance reasonably acceptable to Buyer, necessary to accomplish this
transaction without causing a default under the Contracts included in the
Continuing Liabilities or a material change in the terms thereof, or causing a
fee to be payable as a result of the consummation of the transactions, except
where the failure to obtain such consents, approvals, exemptions and
authorizations would not have a material adverse effect on the business or
prospects of the Company. In the event Sellers are unable to obtain any one or
more consents required pursuant to this section, Buyer may elect to terminate
this Agreement in its entirety.
5.5 Capital Expenditures. Sellers covenant that between the date hereof
and Closing, the Company shall not incur any obligations with respect to capital
expenditures in an amount greater than Ten Thousand Dollars ($10,000.00) unless
such capital expenditure has been previously approved in writing by Buyer.
5.6 Risk of Loss. In the event there is any damage to or loss of any of
the Assets (whether by fire, theft, vandalism or other cause or casualty),
between the date hereof and the Closing, the Purchase Price shall be reduced by
the amount necessary to repair the damage; provided, however, in the event of a
casualty which in Buyer's reasonable business judgment materially adversely
affects the business or operation or prospects of any of the Assets, Buyer may
elect either (i) to terminate this Agreement, or (ii) to close with a reduction
in the Purchase Price with respect to the damaged property determined as
follows. The reduction in Purchase Price shall be determined, based on the value
on the date of this Agreement of the Assets damaged or lost, the value of which
shall be determined by an MAI appraiser to be mutually selected and paid equally
by Sellers and Buyer. If Sellers and Buyer are unable to mutually select an
appraiser, then one MAI appraiser shall be selected and paid by Buyer and one
MAI appraiser shall be selected and paid by Sellers. If a party does not select
an appraiser as provided in the preceding sentence within ten (10) days after
the other party has given notice of the name of its
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appraiser, such party shall lose its right to appoint an appraiser. If the two
appraisers are selected by the parties as provided above, they shall meet
promptly to determine the reduction in Purchase Price. If they are unable to
agree within fifteen (15) days after the second appraiser has been selected,
they shall jointly select a third MAI appraiser. The reduction in Purchase Price
shall be set by agreement of any two (2) of the three (3) appraisals. If the two
(2) appraisers are unable to agree on a third appraiser within thirty (30) days
after the second appraiser has been selected, either party, by giving written
notice to the other, may apply to the American Arbitration Association for the
purpose of determining the reduction in Purchase Price. Sellers and Buyer shall
each bear one-half (1/2) of the cost of selecting the third appraiser and of
paying the third appraiser's fee. The third appraiser, however selected, shall
be a person who has not previously acted in any capacity for either party. If
any two (2) appraisers are unable to determine the reduction in Purchase Price
within fifteen (15) days after the third appraiser has been selected, then the
three (3) appraisals shall be added together and their total divided by three
(3); the resulting quotient shall be the reduction in Purchase Price. In
determining the reduction in Purchase Price, each appraiser shall take into
consideration, understand, and correctly employ those recognized techniques that
are necessary to produce a credible appraisal.
5.7 Condemnation. From the date hereof until the Closing, in the event
that any portion of the Assets becomes subject to or is threatened with any
condemnation or eminent domain proceedings which in Buyer's reasonable business
judgment materially adversely affects the businesses or operations or prospects
of any of the Assets, then Buyer may elect either (i) to terminate this
Agreement in its entirety or (ii) to close with respect to the Assets less that
part which is condemned or threatened to be condemned with a reduction in the
Purchase Price determined as provided in Section 5.6.
5.8 Good Faith. All parties shall act in good faith and use their
reasonable best efforts to satisfy all conditions to their respective
obligations to close.
5.9 Preserve Accuracy of Representations and Warranties. Sellers and
Shareholders shall refrain from and shall cause the Company to refrain from
taking any action which (and shall take all action and shall cause the Company
to take all action, the failure of which) would render any representations and
warranties contained in Article III hereof inaccurate as of Closing. Sellers and
Shareholders shall promptly notify Buyer of any lawsuits, claims, administrative
actions or other proceedings asserted or commenced against Shareholders,
Sellers, Company, their respective directors, officers, shareholders or
affiliates, or involving or affecting in any way the Assets or the business and
operation of the Assets. Shareholders shall promptly notify Buyer of any facts
or circumstances which come to their attention and which cause, or through the
passage of time may cause, any of Sellers' representations and warranties to be
untrue or misleading at any time from the date hereof to Closing.
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5.10 Maintain Books and Accounting Practices. From the date hereof
until the Closing, Sellers shall cause the Company to maintain the Company's
books of account in the usual, regular and ordinary manner in accordance with
generally accepted accounting principles consistently applied and on a basis
consistent with prior years and shall make no change in its accounting methods
or practices.
5.11 Indebtedness; Liens. From the date hereof until the Closing,
Sellers shall not and shall cause the Company to not create, incur, assume,
guarantee or otherwise become liable or obligated with respect to any
indebtedness for borrowed money, nor make any loan or advance to, or any
investment in, any person or entity, nor create any Lien in any of the Assets or
the Stock, without Buyer's prior written approval which will not be unreasonably
withheld. Until Closing, Sellers shall cause the Company to make all payments
required with respect to its long-term debt and fully and timely comply with and
satisfy all its obligations with respect thereto. Sellers shall cause the
Company to take all action necessary to repay, release and retire any loans or
other long-term liabilities and cause all collateral, obligations and security
against the Assets to be fully released to Buyer's satisfaction as contemplated
hereunder, and Buyer will cooperate with Company and Sellers in this regard.
5.12 Compliance with Laws and Regulatory Consents. From the date hereof
until the Closing, Sellers shall cause the Company to comply with all applicable
statutes, laws ordinances and regulations; keep, hold and maintain all
certificates, accreditations, participations, licenses, and other permits
necessary for the business and operation of the Hospital; to make and cause to
be made all filings and give and cause to be given all notices which may be
necessary or desirable on its part under all applicable laws and under its
contracts, agreements and commitments in order to consummate the transactions
contemplated by this Agreement; and shall use best efforts to consummate the
transactions contemplated by this Agreement and the agreements and documents to
be executed in connection with this Agreement as soon as is practicable.
5.13 No Merger or Consolidation. From the date hereof until the
Closing, Sellers and Shareholders shall not cause or permit the Company to merge
or consolidate with any other entity; nor solicit any inquiries, proposals or
offers relating to the Stock or disposition of the Assets; and shall promptly
notify Buyer orally, and confirm in writing, of all relevant details relating to
inquiries, proposals or offers which they may receive relating to any of the
matters referred to in this Section.
5.14 Maintain Insurance Coverage. From the date hereof until the
Closing, Sellers shall cause the Company to maintain and cause to be maintained
in full force and effect, without change of coverage or insurance carrier unless
approved of in writing by the Buyer (which approval shall not be unreasonably
withheld), the existing insurance on the Assets and the operations of the
Hospital and shall provide, upon request by Buyer, evidence
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<PAGE> 38
satisfactory to Buyer that such insurance continues to be in effect and that all
premiums due have been paid.
At the Buyer's sole option, either (1) prior to Closing, Sellers shall
cause the Company to obtain, at Sellers' expense, "tail" insurance coverage,
converting its existing malpractice insurance to an "occurrence" basis policy
from Company's current carrier with professional and general liability coverages
in amounts equal to or greater than $1,000,000.00 per occurrence and
$3,000,000.00 aggregate and with deductible amounts satisfactory to Buyer; Buyer
shall be named as an additional insured on all insurance policies acquired or
maintained by Company pursuant to this Section 5.14 and Sellers will provide
Buyer reasonable evidence thereof; or (2) Buyer shall receive a credit of
$126,000 reducing the Purchase Price.
5.15 Medicare, Medicaid and Blue Cross Reporting. From the date hereof
until Closing, Sellers shall cause the Company to timely file or cause to be
filed all cost reports and other reports of every kind, nature or description,
required by law or by written or oral contract to be filed with respect to the
purchase of services by third party payors, including, but not limited to,
Medicare, Medicaid, and Blue Cross prior to Closing.
5.16 Current Return Filing. Sellers shall be responsible for the timely
preparation and filing of the federal, state and local income tax returns for
all the tax periods through the Closing and the payment of all taxes for such
periods.
5.17 Environmental Assessment; Additional Environmental Inspections.
Sellers and Shareholder shall permit and cause the Company to permit Buyer to
conduct an environmental assessment of the Real Property. Buyer will pay the
cost of such environmental assessment. If such environmental assessment
discloses the presence of any hazardous substances on the Real Property,
including hydrocarbons, in quantities or concentrations which require
remediation or removal under applicable laws, Buyer shall have the right to
conduct additional investigations, including the taking of soil and groundwater
samples. The environmental study showed the following asbestos clean-up was
needed (collectively the "ASBESTOS CLEAN-UP"). The Asbestos Clean-Up will be
conducted by a licensed contractor in accordance with State of Texas regulations
in such manner as to clean all asbestos containing materials and dust from the
hall area attic and from the suspended ceiling materials. This is to include
cleaning the pipes, wires, cables, etc., in the hall area ceiling area. The
clean-up will include areas that can be reasonably reached from the hall. The
contractor will not disturb the sprayed on asbestos containing material (fire
proofing) on the structural metal beams located in the attic area. Subsequent to
clean-up, and as a part of the Asbestos Clean-Up, evidence of satisfactory air
quality tests from samples taken in halls, offices, patient rooms, and from the
attic space above the ceiling shall be presented to the Buyer. Satisfactory air
quality is defined as less than 0.01 f/cc.
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Prior to Closing, Sellers shall obtain an estimate from a licensed
contractor for the Asbestos Clean-Up and provide a copy of the same to Buyer.
Prior to Closing, Sellers shall enter into a contract with the contractor
(providing a copy thereof to Buyer) for timely completion of the Asbestos
Clean-Up. Sellers shall timely and promptly (no later than ninety (90) days
after Closing) accomplish the Asbestos Clean-Up in compliance with all laws and
regulations and so as to meet air quality standards. To the extent that the
Asbestos Clean-Up is not completed by Closing, Buyer shall be entitled to
withhold from the Purchase Price two (2) times the amount remaining to be paid
to the contractor so as to induce Sellers compliance with the foregoing. When
the work is completed in accordance with the foregoing, Buyer shall pay to
Sellers the withhold amount net of any expenses or damages suffered by Buyer but
this shall not be Buyer's exclusive remedy.
Additionally, if the Environmental Study shows any hydrocarbons in
quantities or concentrations which require remediation or removal, then Sellers
shall follow the same procedure with respect to such hydrocarbons as is outlined
in the immediately foregoing paragraph regarding Asbestos Clean-Up.
5.18 Performance. Sellers, Shareholders and Buyer shall take
appropriate steps to satisfy their respective obligations, and the conditions to
Closing, including, if any, the obtaining of necessary contracts and application
for necessary licenses and permits.
ARTICLE VI. TITLE AND SURVEY
6.1 Title Report and Policy. At least ten (10) days prior to Closing,
Sellers shall deliver to Buyer, at Sellers' expense, a current TLTA preliminary
title commitment issued by Chicago Title Insurance Company, or other company
which is mutually acceptable to the parties, of the condition of title to each
tract of Real Property (the "COMMITMENT") for a title insurance policy in
current TLTA form (the "TITLE POLICY"). The Commitment and Title Policy shall
show that the Real Property is owned in fee simple or leasehold by Company, free
from all Liens, except the Permitted Liens, and the Commitment may also be
subject to such other items as Company can cause to be removed prior to or at
Closing. The Commitment and Title Policy will also contain (a) a so-called "tax
parcel endorsement" listing all of the tax parcel identification numbers
affecting the Real Property covered by the policy and that no other property is
included in the Real Property and that no other tax parcel identification
numbers affect such Real Property, (b) a contiguity and nonimputation
endorsement, (c) a 3.1 zoning endorsement or its equivalent as then in use by
the title company in form and substance acceptable to Buyer, (d) extended
coverage deleting all standard and general exceptions, (e) affirmative coverage
against any Hill-Burton lien, and (f) any additional endorsements or insurance
as Buyer may reasonably require. The Title Policy shall be in form acceptable to
Buyer and Buyer's lender and shall permit a simultaneous issue rate for the
lender's mortgage title policy with the cost of all special lender endorsements
required by Buyer's lender to be borne by Buyer. The title company shall provide
when delivering the Commitment one (1) copy of all recorded documents
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affecting title of the Real Property to Buyer. At Closing, there shall be issued
to the Company, at Sellers' expense, the Title Policy in the amount of the
Purchase Price which is allocated to the Real Property as improved. In the event
Buyer requests, and at Buyer's expense, the title Company shall issue a mortgage
title policy in an amount up to the Purchase Price which is allocated to the
Real Property as improved, at simultaneous issue rates.
6.2 Survey. At least ten (10) days prior to Closing, Sellers shall
cause to be delivered to Buyer, at Sellers' expense, an "as-built" survey of the
Real Property accompanied by a certificate of a registered surveyor licensed in
the State of Texas, certified as directed by Buyer in full TLTA form, sufficient
to cause the title company to delete the standard printed survey exception and
to issue the Title Policy free from any survey objections or exceptions
whatsoever (the "SURVEY"). The Survey shall show the boundaries of the Real
Property, separate legal descriptions and boundaries for the tracts, the
location and dimension of all improvements, the physical location of all
utilities, and the location of all streets, highways, alleys and public ways
crossing or abutting said Real Property, all dominant and servient easements
identified by recording information, all building lines and all buildings and
structures as are situated thereon as of said date. Said certificate shall state
that the improvements situated on the Real Property lie wholly within the
boundaries thereof and that no part thereof encroach upon or overhang any
easement or rights-of-way or upon the land of others; that such improvements are
wholly within the building restriction lines however established and do not
violate any use or other restriction contained in prior conveyances, zoning
ordinances or regulations; that no adjoining structure encroaches upon the Real
Property or upon any dominant easement appurtenant thereto; and that as of said
date there were no visible encroachments, overlaps, overhangs, easements,
improvements, utility lines or rights-of-way on, above or below the ground
except as shown on the survey plat. Said certificate shall also state whether or
not the Real Property or any part thereof lies within the boundaries of a local,
state or federal flood plain designation. The Survey shall also provide tax map
identification numbers, zoning information and other data sufficient for the
title company to provide the title insurance coverage and endorsements as
described in Section 6.1, above.
6.3 UCC Searches. UCC Financing Statement searches, local and central,
including fixtures, and federal and state tax lien and judgment searches, with
respect to Company, its affiliates and predecessors, including all "DBA's",
trade names and fictitious names of Company (including, but not limited to, all
names set forth in Exhibit 1.2(9)), from each of the jurisdictions in which such
entity does business or has done business within the preceding five (5) years
(the "UCC SEARCHES"), shall be obtained by Sellers, at Sellers' cost, and
delivered to Buyer at least ten (10) days prior to Closing. Copies shall be
included in Exhibit 3.8 attached hereto.
6.4 Defects and Cure. The Title Commitment and Policy and the Survey
and UCC Searches described in this Article are collectively referred to as
"TITLE EVIDENCE".
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Buyer shall notify Sellers as soon as reasonably possible of any Liens disclosed
in the Title Evidence which either: (a) do not constitute Permitted Liens, or
(b) even if they constitute Permitted Liens, if such matter adversely impacts
any of the Assets or the financeability thereof in the reasonable opinion of
Buyer (collectively "DEFECTS"). Sellers, at their sole cost and expense, may
elect to not cure the Defects and shall give written notice to Buyer within ten
(10) days of their receipt of Buyer's objections of their decision whereupon
Buyer may waive such Defects and close or may terminate this Agreement, which
election shall be made within ten (10) days of receipt of notice from Sellers.
If Sellers fail to timely give such notice, Sellers shall be deemed to have
elected not to cure the Defects, whereupon Buyer may waive such objection and
close or may terminate this Agreement, which election by Buyer shall be made
within thirty (30) days following notice of objection to Sellers. Upon
termination of this Agreement under the terms of this Section 6.4, no party to
this Agreement shall have any further claims under this Agreement against any
other party.
ARTICLE VII. CLOSING
7.1 Closing. If all of the conditions set forth in Articles VIII and IX
hereof are satisfied, the closing of the transaction described herein (the
"CLOSING") shall occur on April 30, 1997 at the offices of Harwell Howard Hyne
Gabbert & Manner, P.C., Nashville, Tennessee, and transfer of the Stock shall be
deemed to be effective as of 12:01 a.m. local time on May 1, 1997 (said date
sometimes being referred to as the "CLOSING DATE"). If all of the conditions to
Closing set forth in Articles VIII and IX hereof are not satisfied by April 30,
1997, the Closing shall occur at such time as all approvals and other conditions
to Closing set forth in Articles VIII and IX hereof are satisfied or at such
other time as the parties may mutually agree. On the day of the effectiveness of
Closing, Sellers shall receive immediately available funds in the amount of the
Purchase Price. In the event that the Purchase Price is received by Sellers
before or after the date of effectiveness of the Closing, the Purchase Price
shall be reduced or increased on a per diem basis, based on the Rate, as defined
in Section 12.2.
7.2 Termination. Notwithstanding anything in this Agreement to the
contrary, this Agreement and the obligations of the parties hereunder may be
terminated on or prior to Closing as follows:
(a) By Sellers (i) in the event the transactions contemplated
by this Agreement have been prohibited or enjoined by reason of any final
judgment, decree or order entered or issued by a court of competent jurisdiction
in litigation or proceedings involving either Buyer, Company, Sellers or
Shareholders; or (ii) in the event Buyer breaches or violates any material
provision of this Agreement or fails to perform any material covenant or
agreement to be performed by Buyer under the terms of this Agreement, and
Sellers have provided written notice thereof to Buyer giving reasonable
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specificity and Buyer has not cured same within a reasonable period of time and
such breach is not waived by Sellers in writing.
(b) By Buyer (i) in the event the transactions contemplated by
this Agreement have been prohibited or enjoined by reason of any final judgment,
decree or order entered or issued by a court of competent jurisdiction in
litigation or proceedings involving Buyer, Company, Sellers or Shareholders;
(ii) pursuant to Section 5.6 or 5.7; or (iii) in the event Sellers or
Shareholders breach or violate any material provision of this Agreement or fail
to perform any material covenant or agreement to be performed by Seller or
Shareholders under the terms of this Agreement and Buyer has provided written
notice thereof to Sellers and Shareholders giving reasonable specificity and
Sellers and Shareholders have not cured same within a reasonable period of time
and such breach is not waived by Buyer in writing.
(c) By Buyer or Sellers if the Closing hereunder shall not
have taken place by June 30, 1997, or, by such later date as shall be agreed
upon by the parties in writing, provided that a party shall not have the right
to terminate under this Section 7.2(c) if the conditions precedent to such
party's obligation to close have been fully satisfied and such party has failed
or refused to close after being requested in writing to close by the other
party.
ARTICLE VIII. SELLERS' CONDITIONS TO CLOSE
The obligations of Sellers under Section X of this Agreement are
subject to the satisfaction on or prior to Closing, of the following conditions
(which may be waived specifically in writing by Sellers in whole or in part):
8.1 Representations and Warranties True at Closing; Compliance with
Agreement. The representations and warranties of Buyer contained in this
Agreement (including the Exhibits hereto) or in any certificate or document
delivered pursuant hereto, shall be deemed to have been made again at the
Closing and shall then be true in all respects; and Buyer shall have performed
and complied with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by it prior to or at Closing.
8.2 Regulatory Approvals. Buyer shall have obtained, or have reasonable
assurance that it will obtain (at its own cost), all consents, licenses,
permits, approvals, provider contracts, determinations from the Texas Department
of Health, if any, required for Buyer to acquire the Stock and continue the
operations of the Hospital.
8.3 No Action/Proceeding. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transaction herein contemplated, and no governmental
agency, body or other
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entity shall have taken any other action or made any request of Company,
Sellers, Shareholders or Buyer as a result of which Sellers reasonably and in
good faith deems that to proceed with the transactions hereunder may constitute
a violation of law.
8.4 Compliance with Article XI. Buyer shall have made to Sellers and
Shareholders the deliveries required by Article XI hereof.
8.5 Approval by Counsel. All matters, proceedings, instruments and
documents required to carry out this Agreement or incidental thereto and all
other relevant legal matters shall have been approved at or before the Closing
by counsel for Sellers and Shareholders, which approval will not be unreasonably
withheld.
8.6 Order Prohibiting Transaction. No order shall have been entered in
any action or proceeding before any court or governmental agency, and no
preliminary or permanent injunction by any court shall have been issued which
would have the effect of (a) making the transactions contemplated by this
Agreement illegal, (b) otherwise preventing consummation of such transactions,
or (c) imposing material limitations on the ability of Buyer effectively to
acquire and hold the Stock, or, in any case, to exercise rights of ownership
pursuant thereto. There shall have been no federal or state statute, rule or
regulation enacted or promulgated after the date of this Agreement that would
reasonably result, directly or indirectly, in any of the consequences referred
to in this Section.
8.7 Completion of Exhibits. All Exhibits to this Agreement will be
completed to the mutual satisfaction of the parties.
ARTICLE IX. BUYER'S CONDITIONS TO CLOSE
The obligations of Buyer under Article XI of this Agreement are subject
to the satisfaction, on or prior to Closing, of the following conditions (which
may be waived in writing by Buyer in whole or in part):
9.1 Representations and Warranties True at Closing; Compliance with
Agreement. The representations and warranties of Sellers contained in this
Agreement (including the Exhibits hereto) or in any certificate or document
delivered to Buyer pursuant hereto, shall be deemed to have been made again at
the Closing and shall then be true in all respects; and Sellers shall have
performed and complied with all covenants, agreements and conditions required by
this Agreement to be performed or complied with by it prior to or at Closing.
9.2 No Loss, Damage or Destruction. In the event there is any damage to
or loss of any of the Assets (whether by fire, theft, vandalism or other cause
or casualty), the terms of Sections 5.6 and 5.7 hereof shall have been complied
with.
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9.3 No Material Adverse Change. There shall have been no material
adverse change or change known to have a future material adverse affect on the
condition or prospects, financial or otherwise, of Company, the Assets or the
operations of the Hospital. There shall not be any material claims, litigation
or governmental proceedings pending or threatened against Company, Sellers or
Shareholders which would adversely affect the Company, the Hospital, the Assets
or the consummation of the transactions contemplated hereby at Closing.
9.4 Regulatory Approvals. Buyer shall have obtained or have reasonable
assurance of obtaining (at its own cost) (a) certification for participation in
the Medicaid programs of the State of Texas, and (b) certification from the
appropriate agency of the federal government for participation in the Medicare
program. Sellers shall have delivered to Buyer all consents, licenses, permits,
approvals, material provider contracts, or determinations required for Buyer to
acquire the Stock and operate the Hospital as contemplated hereunder.
9.5 No Action/Proceeding. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transaction herein contemplated, and no governmental
agency, body or other entity shall have taken any other action or made any
request of Company, Sellers, Shareholders or Buyer as a result of which Buyer
reasonably and in good faith deems that to proceed with the transactions
hereunder may constitute a violation of law.
9.6 Compliance with Articles VI and X. The Sellers shall have made to
Buyer the deliveries required by Articles VI and X hereof within the time
periods required thereunder.
9.7 Inspection of Assets. Buyer shall have obtained environmental
engineering reports and mechanical and electrical engineering reports and
surveys (including those referred to in Section 5.17 above), if Buyer elects to
obtain them, at Buyer's cost, indicating a condition of the Assets acceptable to
Buyer. Buyer and its representatives shall have had and continue to have
reasonable rights of inspection of the Assets, and the results of Buyer's
inspection shall be acceptable to Buyer in Buyer's sole discretion.
9.8 Approval by Counsel. All matters, proceedings, instruments and
documents required to carry out this Agreement or incidental thereto and all
other relevant legal matters shall have been approved at or before the Closing
by counsel for Buyer, which approval will not be unreasonably withheld.
9.9 Order Prohibiting Transaction. No order shall have been entered in
any action or proceeding before any court or governmental agency, and no
preliminary or permanent injunction by any court shall have been issued which
would have the effect of (a) making the transactions contemplated by this
Agreement illegal, (b) otherwise preventing consummation of such transactions,
or (c) imposing material limitations on the
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ability of Buyer effectively to acquire and hold the Stock or Assets, or, in any
case, to exercise rights of ownership pursuant thereto. There shall have been no
federal or state statute, rule or regulations enacted or promulgated after the
date of this Agreement that would reasonably result, directly or indirectly, in
any of the consequences referred to in this Section.
9.10 Satisfaction of Long-Term Liabilities. Sellers shall have repaid,
released and retired all loans and long-term liabilities and obtain a full
release of all collateral, obligations and security interests related to the
Assets and Stock to Buyer's satisfaction.
9.11 Consents. Shareholders shall have obtained all of the consents
described in Section 5.4.
9.12 Tail Insurance. Sellers shall deliver to Buyer evidence of tail
insurance coverage required by Section 5.14 hereof.
9.13 Due Diligence; Information. Shareholders and Sellers acknowledge
that this Agreement is being negotiated and entered into prior to Buyer's
receipt of all due diligence information and Buyer's analysis thereof,
including, but not limited, to Company liabilities, direct and contingent,
results of analysis of reimbursement methodologies and prior history, and the
condition of the Assets, cost report review, analysis of contracts and potential
agreements by which the property will be bound, exposure under disclosed suits
and claims, engineering reports, title reports, title commitments, surveys, and
other matters. The results of information obtained by Buyer as a result of its
due diligence efforts shall be acceptable to it, in Buyer's sole discretion.
9.14 Title Evidence. The Title Evidence shall have been delivered to
Buyer, in form satisfactory to Buyer, in accordance with Article VII hereof and
any Defects evidenced thereby shall be been cured to Buyer's satisfaction, in
its sole discretion, in accordance with Section 6.4 hereof.
9.15 Approvals. This Agreement and consummation of the transactions
contemplated hereunder shall have been approved by (i) the Board of Directors of
Buyer and (ii) the Buyer's primary lender, which approval or disapproval shall
be obtained within fourteen (14) business days after receipt of the
environmental survey referred to in Section 5.17.
9.16 Completion of Exhibits. All exhibits to this Agreement will be
completed to the mutual satisfaction of the parties.
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ARTICLE X. OBLIGATIONS OF SELLERS AT CLOSING
At Closing, Sellers shall deliver or cause to be delivered to Buyer, at
Shareholders' expense, the following in a form and substance reasonably
satisfactory to Buyer:
10.1 Documents Relating to Stock. Sellers shall execute, acknowledge,
deliver and cause to be executed, acknowledged and delivered to Buyer:
(1) Stock certificates, registered in the name of Park, duly
endorsed by Park or with stock powers attached, representing all of the Stock,
or, in lieu thereof, new stock certificates representing the Stock, in Buyer's
name, along with evidence of the cancellation of the certificates previously
representing the Stock.
(2) The resignation of each member of the Board of Directors
and each officer of Company effective as of the Closing.
10.2 Opinion of Counsel. Sellers shall deliver to Buyer and its lender
the favorable opinion of counsel for Sellers, Company and Shareholders, dated as
of Closing, in form and substance reasonably acceptable to Buyer and its lender.
10.3 Corporate Good Standing and Corporate Resolution. Sellers shall
deliver to Buyer a certificate of good standing from the Secretary of State of
Company's state of organization, and from each jurisdiction in which Company is
qualified to do business, dated the most recent practical date prior to Closing,
together with a certified copy of the Bylaws and Articles of Incorporation of
the Company, and a certified copy of the resolutions of the Board of Directors
and shareholders of each Seller, authorizing the execution, delivery and
consummation of this Agreement and the execution, delivery and consummation of
all other agreements and documents executed in connection herewith by them,
sufficient in form and content to meet the requirements of the law of the state
of such Seller's incorporation relevant to such transactions and certified by
officers of such Seller to be validly adopted and in full force and effect and
unamended as of Closing.
10.4 Closing Certificate. Sellers shall deliver to Buyer certificates
of an officer of each Seller, dated as of Closing, certifying that (a) each
covenant and obligation of Sellers has been complied with, and (b) each
representation and warranty of Sellers and Shareholders is true and correct on
the Closing as if made on and as of the Closing.
10.5 Third Party Consents. Sellers shall deliver to Buyer:
(1) All consents, approvals, releases, filings and
authorizations of third parties which are necessary in the reasonable opinion of
Buyer (in form reasonably acceptable to Buyer) for the execution, delivery and
consummation of this Agreement and the transactions contemplated herein;
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(2) All consents required by Section 5.4; and
(3) Estoppel and attornment letters, if needed, from tenants
of the Company in a form reasonably acceptable to Buyer as set forth in Exhibit
10.5(3) hereto.
10.6 Taxes and Other Payments. Sellers shall deliver to Buyer:
(1) Proof of cash payment directly to the tax authorities or
cash payment (or credit on the Purchase Price) to Buyer in the amount of all
real estate taxes and assessments which are a lien on the date of Closing
general and special.
(2) A certificate of non-foreign status signed by the
appropriate party and sufficient in form and substance to relieve Buyer of all
withholding obligations under Section 1445 of the Code. In the event that
Sellers cannot furnish such a certificate or is not entitled to rely upon such a
certificate under the provisions of Section 1445 and the regulations thereunder,
Sellers and Shareholders shall take and/or permit Buyer to take any and all
steps necessary to allow Buyer to satisfy the requirements of Section 1445.
(3) Receipt or other evidence from the Revenue Department of
the State of Texas showing that all liability for sales and use taxes and
employment taxes due from Company have been paid, in form reasonably acceptable
to Buyer if needed in Texas.
(4) Receipt or other evidence from the Texas Department of
Unemployment Security evidencing that all contributions under Texas unemployment
compensation law due from Company have been paid, in form reasonably acceptable
to Buyer if needed in Texas.
10.7 Releases and Other Matters.
(1) Release of all obligations described in Section 1.4(1).
Release of all Liens applicable to the Stock or Assets, except for Permitted
Liens, required after the completion of due diligence.
(2) Certificates of Occupancy with respect to each of the
completed and occupied structures which are included in the Assets in form and
substance reasonably acceptable to Buyer.
10.8 Notice to Third-Party Payors. Shareholders shall deliver executed
notices, as needed of the sale of the Stock, to be furnished to all third-party
payors in the form of Exhibit 10.8 hereto.
10.9 Tail Insurance. Sellers shall deliver evidence of tail insurance
coverage as required by Section 5.14 hereof.
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10.10 Additionally Requested Documents; Post Closing Assistance. At the
reasonable request of Buyer at Closing and at any time or from time to time
thereafter, Sellers and Shareholders shall cooperate with Buyer to put Buyer in
actual possession and operating control of the Hospital, execute and deliver
such further instruments of sale, conveyance, transfer and assignment, as Buyer
may reasonably request in order to effectively sell, convey, transfer and assign
the same to Buyer, to execute and deliver such further instruments and to take
such other actions as Buyer may reasonably request to release Buyer and Company
from any obligations or liabilities retained or assumed by Sellers or
Shareholders and to execute and deliver such further instruments and to
cooperate with Buyer as Buyer may reasonably request or to enable Buyer and
Company to obtain any necessary health care or regulatory certifications,
approvals, consents and licenses, accreditations or permits. After the Closing,
Sellers and Shareholders shall remit to Buyer any payments received by Sellers
or Shareholders with respect to Receivables of the Company. Any funds so
collected will be remitted to the Company within five (5) working days following
receipt of such payments.
10.11 Assumption Agreement. Sellers shall deliver to Buyer and Company
an Assumption Agreement evidencing that Sellers shall be jointly and severally
responsible for all obligations pertaining to past operations of the Hospital
other than the Continuing Liabilities, the form of which is set forth in Exhibit
10.11 hereto.
ARTICLE XI. OBLIGATIONS OF BUYER AT CLOSING
At Closing, Buyer shall deliver or cause to be delivered to Sellers the
following in a form and substance reasonably satisfactory to Sellers:
11.1 Purchase Price. Buyer shall deliver the Purchase Price to Sellers
in immediately available funds.
11.2 Corporate Good Standing and Certified Board Resolutions. Buyer
shall deliver to Sellers a certificate of good standing of the Secretary of
State of Buyer's state of organization dated the most recent practical date
prior to Closing together with a certified copy of the resolutions of the Board
of Directors of the Buyer authorizing the execution, delivery and consummation
of this Agreement and the execution, delivery and consummation of all other
agreements and documents executed in connection herewith by Buyer, and certified
by an officer of Buyer to be validly adopted and in full force and effect and
unamended as of Closing.
11.3 Opinion of Buyer's Counsel. Buyer shall deliver to Sellers a
favorable opinion of counsel for Buyer, dated as of Closing, in form and
substance reasonably acceptable to Sellers.
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11.4 Closing Certificate. Buyer shall deliver to Sellers a certificate
of an officer of the Buyer, dated as of Closing, certifying that (a) each
covenant and obligation of Buyer has been complied with and (b) each
representation and warranty of Buyer is true and correct on the Closing as if
made on and as of the Closing.
ARTICLE XII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION
12.1 Survival. The covenants, obligations, representations and
warranties contained in this Agreement or any certificate or document delivered
pursuant hereto shall be deemed to be material and to have been relied upon by
the parties hereto notwithstanding any investigation prior to the Closing and
shall survive the date of Closing for a period of eighteen (18) months after
Closing, and shall not be merged into any deeds or other document delivered in
connection with the Closing; provided that claims relating to taxes shall
survive until sixty (60) days after the applicable statute of limitations
relating to the underlying claim. In the event that a claim has been timely
asserted but is still pending at the expiration of the survival period, such
claim shall not expire.
12.2 Indemnification by Sellers and Shareholders. Subject to the
provisions of Section 12.4 and Section 12.5, Sellers and Shareholders shall,
jointly and severally, promptly indemnify, defend and hold harmless (and upon
demand shall reimburse) Buyer, Company and the directors, officers,
stockholders, employees and agents of Buyer and, after Closing, the directors,
officers, stockholders, employees and agents of the Company (and with respect to
the ERISA matters, Buyer and all affiliated corporations within a controlled
group relationship with Buyer (as determined under Section 414 of the Internal
Revenue Code), and their employees) against any and all claims, actions,
demands, suits, proceedings, assessments, judgments, losses, costs, and expenses
(including reasonable costs of investigation, court costs, legal fees and
expenses incident to any of the foregoing or incurred in attempting to avoid the
same or oppose the imposition thereof) and other damages resulting from any of
the following (i) any inaccuracy in or any breach by Sellers of any of their
covenants, obligations, representations or warranties contained in this
Agreement or any certificate or document of Sellers delivered pursuant to this
Agreement, (ii) the ownership, licensing, operation, action, inaction or conduct
of Company, Hospital, or any of the Assets or any of Company's employees, agents
or independent contractors, relating to all periods of time prior to Closing,
except the Continuing Liabilities, (iii) the Excluded Liabilities, and (iv) any
other liabilities of Company not expressly retained by Company hereunder. Any
indemnification payment pursuant to the foregoing shall include interest at a
floating rate equal to three points over the prime rate of Citibank N.A., from
time to time, (the "RATE") from the date the loss, costs, expenses or damages
were incurred until the date of payment. The maximum aggregate liability of all
indemnitors for indemnification under this Section 12.2 shall not exceed the Cap
as defined in Section 12.5.
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12.3 Indemnification by Company and Buyer. Subject to the provisions of
Section 12.4, Company and Buyer shall promptly indemnify, defend, and hold
harmless (and upon demand shall reimburse) Sellers and Shareholders against any
and all claims, actions, demands, suits, proceedings, assessments, judgments,
losses, costs, and expenses (including reasonable costs of investigation, court
costs, legal fees and expenses incident to any of the foregoing or incurred in
attempting to avoid the same or oppose the imposition thereof) and other damages
resulting from any of the following: (i) any inaccuracy in or any breach by
Buyer of any of its covenants, obligations, representations or warranties
contained in this Agreement or any certificate or document of Buyer delivered
pursuant to this Agreement, and (ii) any claim which is brought or asserted by
any third party(s) against Sellers or any Shareholders for failure to pay or
perform any of the Continuing Liabilities. Any indemnification payment pursuant
to the foregoing shall include interest at the Rate from the date the loss,
costs, expenses or damages were incurred until the date of payment.
12.4 Procedure for Indemnification.
(1) Notice. Promptly after receipt of written or actual notice
of any action or claim (the "CLAIM") as to which it asserts a right to
indemnification, the party seeking indemnification hereunder (the "INDEMNITEE")
shall give written notice thereof (the "NOTICE") to the person from whom
indemnification is sought (the "INDEMNITOR"), provided that the failure of the
Indemnitee to give the Indemnitor prompt notice shall not relieve the Indemnitor
of any of its obligations hereunder, but may create a cause of action for breach
for damages directly attributable to such delay.
(2) Third Party Claims. (a) If any claim for indemnification
by Indemnitee arises out of a Claim by a person other than Indemnitee, the
Indemnitor shall be entitled to assume the defense thereof, by written notice to
the Indemnitee within fifteen (15) days after receipt of the notice. Indemnitor
shall thereupon undertake all steps or proceedings to defeat or compromise any
such Claim, including retaining counsel reasonably satisfactory to the
Indemnitee. Except as otherwise provided herein, all costs, fees and expenses
with respect to any such Claim shall be borne by Indemnitor. If the Indemnitor
assumes the defense of a Claim, it shall not settle such Claim unless such
settlement includes an unconditional release by the claimant of the Indemnitee,
reasonably satisfactory to the Indemnitee and except that Indemnitor shall not,
without the prior written consent of Indemnitee, directly or indirectly require
Indemnitee to take or refrain from taking any action, or make any public
statement, or consent to any settlement, which it reasonably considers to be
against its interest. Indemnitee shall have the right to participate at its own
expense, in such proceedings, but control of such proceedings shall remain
exclusively with Indemnitor.
(b) If the Indemnitor shall fail to notify the
Indemnitee of its desire to assume the defense of any such Claim within the
prescribed period of time, then the
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Indemnitee may assume such defense in such manner as it may deem appropriate,
and the Indemnitor shall be bound by any determinations made or any settlements
thereof effected by the Indemnitee. The Indemnitor shall be permitted, at its
own expense, to join in such defense and to employ its own counsel but control
of such proceedings shall remain exclusively with Indemnitee.
(c) Indemnitor and Indemnitee agree to make available
to each other, their counsel and other representatives, all information and
documents reasonably available to them reasonably requested by the other which
relate to any such Claim, and to render to each other such reasonable assistance
as may be reasonably requested in order to insure the proper and adequate
defense of such Claim, but any costs or expenses related thereto shall be borne
by Indemnitor; and provided that any failure (after written notice with
specificity and an opportunity to cure) shall not relieve the Indemnitor of any
of its obligations hereunder but may create a cause of action for breach for
damages directly attributable to such failure.
(3) Other Claims. In the event of any Claim other than those
provided for in subsection (2) hereof, Indemnitee shall be entitled to
indemnification hereunder as provided herein.
(4) Payment of Claims. Amounts payable by the Indemnitor to
the Indemnitee under this Section 12.4 shall be payable by the Indemnitor as
incurred by the Indemnitee. In the event, Indemnitor fails to pay, timely and
fully, any such amounts, Indemnitee may pay such amount. In such event,
Indemnitee may recover from the Indemnitor, in addition to the amount so paid,
plus (i) interest on the amount claimed at the Rate, and (ii) reasonable
attorneys' fees in connection with the enforcement of payment under this Section
12.4.
(5) No Set-Off. The Indemnitee's right to indemnification
under this Section 12.4 shall not be subject to set-off for any claim by the
Indemnitor against the Indemnitee.
(6) Claims by a Straddle Patient. Any claim by a patient
relating to professional negligence or similar matters involving a patient of
the Hospital served both prior to Closing and subsequent to Closing will be the
responsibility of either Buyer or Sellers and Shareholders in accordance with
the following guidelines: (i) if it is a claim in which clearly the incident
giving rise to liability arose prior to Closing, Sellers and Shareholders shall
respond to the loss and defense expenses; (ii) if it is a claim in which clearly
the incident giving rise to liability arose subsequent to Closing, Buyer shall
respond to the loss and defense expenses; and (iii) in the event that the
incident giving rise to liability as to time is not clear, Shareholders and
Sellers on the one hand and Buyer on the other, will jointly defend the case and
each will fully cooperate with the other in such defense. Once the case is
closed, if Buyer and Shareholders and Sellers cannot agree to
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the allocation of both indemnity and expenses, then the matter shall be
submitted to binding arbitration in accordance with the rules and procedures of
the American Arbitration Association.
12.5 Limitations on Obligations. Notwithstanding anything else to the
contrary, any liabilities and obligations under Sections 12.2 and 12.3 shall be
limited as follows:
(1) Maximum liability. The maximum aggregate liability of
Sellers and Shareholders in the aggregate, on the one hand, and Buyer, on the
other hand, for indemnification under Sections 12.2 and 12.3 of this Agreement
shall be equal to One Million Five Hundred Thousand Dollars ($1,500,000.00) (the
"CAP"). Notwithstanding the foregoing, the Cap shall not be applicable if the
indemnification claim is the result of a claim under Excluded Liabilities,
actual fraud or a purchase price adjustment pursuant to Article II.
(2) Escrow Upon Certain Conditions. In the event that prior to
eighteen (18) months after Closing a Sale Event, as later defined, occurs then,
Sellers and Shareholders, jointly and severally, agree that they shall escrow
One Million Five Hundred Thousand Dollars ($1,500,000.00) pursuant to the terms
of the Escrow Agreement attached hereto as Exhibit 12.5 (the "ESCROW
AGREEMENT"). The Escrow Agreement shall be to fund indemnification obligations
pursuant to Section 12.2 and shall expire with respect to all unasserted claims
upon eighteen (18) months after Closing; provided, however, with respect to any
claims which were timely asserted but are still pending at the expiration of the
eighteen (18) months period, money shall continue to be held in escrow in the
amount of Buyers reasonable estimate of the claims until resolution of the
pending claims. Additionally, the Escrow Agreement will provide that in the
event that a Sale Event occurs after the eighteen (18) months, but while a claim
is still pending but has not been paid, the escrow described in the foregoing
sentence shall be made. A "SALE EVENT" shall have occurred in the event Parent
or Park sells all or substantially all of its assets or Parent sells or
otherwise conveys a controlling interest in Park, or Park issues additional
stock to any entity or person other than Parent so that there is a change in
control of Park, or Park no longer owns and operates all of the interest in
Lincoln Trail Behavioral Health System, Radcliff, Kentucky. A "controlling
interest" or "change in control" shall mean 51% or more of the voting equity of
Park no longer is beneficially and legally owned by Parent. Sellers and
Shareholders each covenant to not vote for and prohibit a Sale Event from
occurring unless simultaneous therewith or prior thereto the escrow has been
established and funded as provided above.
12.6 Company not Liable. Notwithstanding anything to the contrary
contained in this Agreement, the indemnification obligations under Section 12.2
are solely that of Shareholders and Sellers, and are not the obligations of the
Company. Shareholders and Sellers will not seek contribution, recourse or
redress of any kind against the Company in
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connection with such indemnification obligations whether pursuant to corporate
law or contractual rights of Sellers and Shareholders.
12.7 Assignment by Buyer. No consent shall be required for any
assignment or reassignment of the rights of Buyer under this Article XII.
ARTICLE XIII. RESTRICTIVE COVENANTS
13.1 Covenant Not to Compete. Shareholders and Sellers hereby covenant
and agree with Buyer that during the "NONCOMPETE PERIOD" within the "NONCOMPETE
AREA" they shall not directly or indirectly without prior written consent of
Buyer, (a) acquire, lease, manage, consult for, finance or own any part of (as
member, shareholder or partner) any health care facility which provides any
services similar to the services provided by the Hospital, including general
surgical, acute care, and diagnostic services, including laboratory work related
thereto, or (b) solicit for employment or employ any person who at Closing
remained an employee of Company, or (c) disrupt or attempt to disrupt any past,
present or reasonably foreseeable future relationship, contractual or otherwise
between Buyer, on the one hand, and any physician, physician group, or other
healthcare provider with whom Buyer contracts in connection with the Hospital,
on the other hand. The "NONCOMPETE PERIOD" shall commence at the Closing and
terminate on the second anniversary thereof. The "NONCOMPETE AREA" shall mean
the following counties in Texas: Nacogdoches, Panola, Rusk, San Augustine,
Shelby and Sabine, and the following counties in Louisiana: DeSoto and Sabine.
Ownership of less than five percent (5%) of the stock of a publicly held company
shall not be deemed a breach of this covenant.
13.2 Enforceability. In the event of a breach of Section 13.1 hereof,
Shareholders and Sellers recognize that monetary damages shall be inadequate to
compensate Company and Buyer and Company and Buyer shall be entitled, without
the posting of a bond, to an injunction restraining such breach, with the costs
including attorneys fees of securing such injunction to be borne by Shareholders
and Sellers. Nothing herein contained shall be construed as prohibiting Buyer
from pursuing any other remedy available to it for such breach or threatened
breach.
All parties hereto hereby acknowledge the necessity of protection
against the competition of Shareholders and Sellers and that the nature and
scope of such protection has been carefully considered by the parties. The
period provided and the area covered are expressly represented and agreed to be
fair, reasonable and necessary. The consideration provided for herein is deemed
to be sufficient and adequate to compensate for agreeing to the restrictions
contained in Section 13.1 hereof. If, however, any court determines that the
foregoing restrictions are not reasonable, such restrictions shall be modified,
rewritten or interpreted to include as much of their nature and scope as will
render them enforceable.
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ARTICLE XIV. MISCELLANEOUS
14.1 Assignment. No party may assign its rights or obligations under
this Agreement without the express written consent of the other party. No
assignment shall relieve the assignor of any liability or obligation hereunder.
14.2 Other Expenses. Except as otherwise provided in this Agreement,
each party shall pay all of their own expenses in connection with the
negotiation, execution, and/or implementation of the transactions contemplated
by this Agreement. Buyer shall pay the cost of any engineering fees,
mechanical/electrical/structural and environmental reports. Sellers shall be
solely responsible for the payment of any fee to any finder, broker, or similar
person engaged by Shareholders, Sellers or Company in connection with the
transactions contemplated by this Agreement. Buyer is solely responsible for the
payment of any fee to any finder, broker or similar person engaged by Buyer in
connection with the transactions contemplated by this Agreement. All applicable
transfer fees, state and local taxes, or other fees and costs due to any
governmental entity as a result of the transactions contemplated in this
Agreement shall be borne by Sellers.
14.3 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given: (a) if delivered
personally or sent by facsimile, on the date received, (b) if delivered by
overnight courier, on the date due to be delivered by such courier, and (c) if
mailed, five (5) days after mailing with postage prepaid. Any such notice shall
be sent as follows:
To Shareholders or Sellers, or to the Company prior to Closing:
Southeastern Hospital Corporation
104 East Park Drive, Suite 309
Brentwood, Tennessee 37027
Attention: Larry F. McFall
(615) 371-6673; (615) 371-6675 (Fax)
with a copy to:
Boult, Cummings, Conners & Berry
1600 NationsBank Plaza
414 Union Street, Suite 1600
Nashville, Tennessee 37219
Attention: John E. Gillmor, Esq.
(615) 244-2582; (615) 252-2380 (Fax)
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<PAGE> 55
To Buyer, or to the Company after Closing:
New American Healthcare Corporation
109 Westpark Drive, Suite 440
P. O. Box 3689
Brentwood, Tennessee 37024
Attention: Dana C. McLendon, Jr., Sr. Vice President
(615) 221-5070; (615) 221-5009 (Fax)
with a copy to:
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
Attention: Ernest E. Hyne II, Esq.
(615) 256-0500; (615) 251-1059 (Fax)
14.4 Controlling Law. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the State of Tennessee, without
giving effect to provisions thereof regarding conflicts of laws. Any action or
claim relating to or arising out of this Agreement may be brought in any
appropriate state or federal court in Davidson County, Tennessee, and each party
hereto irrevocably consents to personal jurisdiction in any such court for such
action or claim.
14.5 Headings. Any table of contents and paragraph headings in this
Agreement are for convenience of reference only and shall not be considered or
referred to in resolving questions of interpretation.
14.6 Benefit. Subject to Section 14.1 hereof, this Agreement shall be
binding upon and shall inure to the exclusive benefit of the respective heirs,
legal representatives, successors and assigns of the parties hereto.
14.7 Partial Invalidity. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted.
14.8 Waiver. Neither the failure nor any delay on the part of any party
hereto in exercising any rights, power or remedy hereunder shall operate as a
waiver thereof, or of any other right, power or remedy; nor shall any single or
partial exercise of any right, power or remedy preclude any further or other
exercise thereof, or the exercise of any other right, power or remedy.
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<PAGE> 56
14.9 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
14.10 Interpretation. All pronouns and any variation thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the person or entity, or the context, may require. Further, it is
acknowledged by the parties that this Agreement including exhibits have
undergone several drafts with the negotiated suggestions of both; and,
therefore, no presumptions shall arise favoring either party by virtue of the
authorship of any of its provisions or the changes made through revisions.
14.11 Entire Agreement. This Agreement, including the Exhibits,
constitutes the entire agreement between the parties hereto with regard to the
matters contained herein and it is understood and agreed that all previous
undertakings, negotiations and agreements between the parties are merged herein.
This Agreement may not be modified orally, but only by an agreement in writing
signed by Buyer, Shareholders or after Closing by Shareholders and Buyer. Except
as expressly provided herein, no waiver of any of the provisions of this
Agreement shall be valid unless it is in writing and signed by the party against
which it is sought to be enforced.
14.12 Legal Fees and Costs. Except as otherwise provided herein, each
party hereto shall pay its own expenses, including, without limitation, legal
and accounting fees and expenses, incident to its negotiation and preparation of
this Agreement and to its performance and compliance with the provisions
contained herein. In the event that any part hereto elects to incur legal
expenses to enforce or interpret any provision of this Agreement, the prevailing
party will be entitled to recover legal expenses, including without limitation,
attorneys' fees, costs and necessary disbursements, in addition to any other
relief to which such party shall be entitled.
14.13 Exclusivity. Buyer contemplates the expenditure of substantial
sums of time and money in connection with legal, accounting, financial, and due
diligence work to be performed in conjunction with the transactions contemplated
under this Agreement. To induce Buyer to proceed with the transactions,
Shareholders and Sellers shall not, and shall cause the Company to not directly
or indirectly, without Buyer's prior written consent, initiate or hold
discussions with any person or entity concerning a purchase, affiliation, or
lease of all or a material part of the Assets, directly or indirectly, whether
by sale of stock, merger, consolidation, sale or lease of material assets,
affiliation, joint venture, or other material transaction for the while this
Agreement is in effect. Shareholders and Sellers will promptly notify Buyer by
telephone and confirm in writing via fax, if any such discussions or
negotiations are sought to be initiated with, or any such proposal or possible
proposal is received directly or indirectly, by Company, Sellers or
Shareholders. In the event Company, Sellers or Shareholders receive an
unsolicited offer related to a type of transaction described in this paragraph,
Company and Shareholders shall promptly inform
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<PAGE> 57
the person making such unsolicited offer of the existence of its obligations
under this Section 14.13, and, subject to legal and fiduciary obligations,
Shareholders and Sellers shall reject and cause the Company to reject such offer
and promptly notify Buyer thereof.
14.14 Completion of Exhibits. The Exhibits have not been prepared in
their final form at the time of execution of this Agreement. Input by Sellers
and Buyer is necessary to finalize the Exhibits and each party agrees to use its
reasonable best efforts to finalize them. The parties will promptly determine
which party will submit drafts of exhibits to the other party. The parties will
work diligently and use reasonable efforts to timely submit drafts of exhibits
for which they are responsible. Submission of Exhibits shall be in writing
delivered via same day courier to the other party's counsel. Either party may
supplement the Exhibits by like written delivery. The submitted Exhibits and
supplements shall be deemed accepted and thereby become an Exhibit to this
Agreement unless: (i) such proposed Exhibit would, individually or in aggregate
with the effect of items disclosed in other Exhibits, constitute a material
adverse effect on the receiving party in the receiving party's sole discretion,
and (ii) within five (5) business days after receipt of such proposed Exhibit,
such receiving party provides written notice to opposing counsel reasonably
detailing the objection thereof and changes in such proposed Exhibit which would
make the same acceptable. Should the parties not be able to resolve written
objections within ten (10) business days thereafter, then either party may
withdraw from this Agreement and terminate it without any obligation or
liability of any sort and this Agreement shall be treated as never having been
executed or delivered. Acceptance of Exhibits (e.g., list of lawsuits in the
supplemental letter referred to in Section 3.20) shall not mean that the
underlying information (e.g., understanding claim, likelihood of successful
defense and adequacy of insurance coverage) is acceptable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"BUYER":
NEW AMERICAN HEALTHCARE
CORPORATION
By:
---------------------------------------
Title:
------------------------------------
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<PAGE> 58
"PARENT":
SOUTHEASTERN HOSPITAL CORPORATION
By:
---------------------------------------
Title:
------------------------------------
"PARK":
PARK HEALTHCARE COMPANY
By:
---------------------------------------
Title:
------------------------------------
49
<PAGE> 59
"SHAREHOLDERS":
-------------------------------------------
LARRY F. MCFALL
-------------------------------------------
PHIL SANDERSON
-------------------------------------------
D. L. PATTERSON
-------------------------------------------
CHARLES F. DANIEL
-------------------------------------------
SAM C. YEAGER
-------------------------------------------
MACK R. CHOPLIN
-------------------------------------------
DAVID R. CARVER
-------------------------------------------
TIMOTHY L. YEAGER
50
<PAGE> 1
Exhibit 10.27
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "AGREEMENT"), is made the 1st day of
May, 1997, by and among EASTWOOD HOSPITAL, INC., a Delaware corporation
("SELLER"), HEALTHCARE AMERICA, INC., a Delaware corporation ("SHAREHOLDER"),
NAHC OF TENNESSEE, INC., a Tennessee corporation ("BUYER"), and NEW AMERICAN
HEALTHCARE CORPORATION, a Tennessee corporation ("PARENT").
R E C I T A L S
A. Seller operates Eastwood Hospital, located on approximately 18 acres
of land at 3000 Getwell Road, Memphis, Tennessee, including a hospital comprised
of 243 licensed beds, a separate maintenance building, three medical office
buildings, on-site parking, and other related assets (the "HOSPITAL"), and
Shareholder owns and leases to Seller the real property relating to the
Hospital.
B. Seller operates and, in the case of items 1-4 below, Shareholder
owns the following additional assets, properties, businesses and interests in
and around Memphis, Tennessee and Olive Branch, Mississippi associated with the
Hospital:
1. a physicians office consisting of approximately 2,940 square
feet located at 3055 Watson Street, Memphis, Tennessee.
2. a support office consisting of approximately 2,832 square feet
located at 3992 Knight Arnold Road, Memphis, Tennessee.
3. a storage facility consisting of approximately 3,042 square
feet located at 3976 Knight Arnold Road, Memphis, Tennessee.
4. approximately five acres of excess land located in the rear of
the main hospital building and fronting on Watson Street,
Memphis, Tennessee;
5. a clinic building leased in Olive Branch, Mississippi and
located at 8938 Midsouth Avenue;
6. a clinic building leased in Dillard's Square, Memphis,
Tennessee and located at 3445 Poplar, Suite 1; and
7. a management services organization doing business as "Total
Practice Management."
The properties, operations and facilities described in paragraph B of these
Recitals are referred to as the "RELATED ASSETS".
<PAGE> 2
C. Shareholder owns all of the issued and outstanding securities of
Seller, and Parent owns all of the issued and outstanding securities of Buyer.
D. Except for the Excluded Assets described in Section 1.2, Seller and
Shareholder desire to sell and transfer to Buyer or its designee the Hospital,
the Related Assets and the Assets (as defined in Section 1.1), and Buyer or its
designee desires to purchase the same from Seller and Shareholder, subject to
the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual terms, covenants,
agreements and conditions contained in this Agreement, acknowledged by each of
the undersigned, the undersigned agree as follows:
ARTICLE I. PURCHASE AND SALE
1.1 Purchase and Sale. Except as provided in Section 1.2, Seller and
Shareholder agree to sell, transfer, assign, convey and deliver to Buyer (or
Buyer's designee) and Buyer (or Buyer's designee) shall purchase from Seller and
Shareholder all right, title and interest of Seller or Shareholder in all of the
following assets utilized in the operation of the Hospital (collectively, the
"ASSETS"):
(1) Good and marketable fee simple (or leasehold with respect
to items noted as such on the exhibit, as the case may be), right, title and
interest in the Hospital and the Related Assets, as described in Exhibit 1.1(1),
subject only to the Permitted Exceptions, including, without limitation, all
interests in real property, including leaseholds, easements and improvements
thereon, plants, fixed assets, buildings, structures, fixtures (including fixed
machinery and fixed equipment) situated thereon or forming a part thereof and
all appurtenances, easements and rights-of-way, and air, mineral or other rights
related thereto (collectively, the "REAL ESTATE");
(2) All medical and other equipment, machinery, data
processing hardware and software, furniture, furnishings, appliances, vehicles
and other tangible personal property of every description and kind and all
replacement parts therefor which are either owned by Seller or used or
maintained or operated by Seller in connection with the Hospital and Related
Assets, wherever located, including but not limited to the items listed on
Exhibit 1.1(2) (collectively, the "EQUIPMENT AND FURNISHINGS"). Seller has
verified the existence of all individual items of Equipment and Furnishings
listed on Exhibit 1.1(2) with a value greater than $10,000. Seller has not
verified the existence of any other items of Equipment and Furnishings and does
not represent that the other items listed on such exhibit exist;
(3) All inventory of goods and supplies used or maintained in
connection with or located in the Hospital and Related Assets, including, but
not limited to, food, cleaning materials, disposables, linens, consumables,
office supplies, drugs and medical supplies (collectively, the "INVENTORY");
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<PAGE> 3
(4) To the extent transferable, all patient accounts, notes
and other receivables, including those from third party payors, whether or not
written off, and to the extent a receivable is not transferable, the right to
receive from Seller the proceeds from such receivable (collectively, the
"RECEIVABLES");
(5) Subject to patient rights with respect to medical records,
all patient, medical, personnel, clinical and other records of the Hospital and
Related Assets (including both hard and microfiche copies), and all manuals,
books and records used in operating the Hospital and Related Assets, including
personnel policies and manuals, and computer software;
(6) To the extent transferable, all licenses, permits,
registrations, certificates, consents, accreditations, approvals and franchises,
held by Seller and Shareholder and all applications therefor, necessary to
construct, operate and conduct the business of the Hospital and Related Assets,
together with assignments thereof, if required, and all waivers which Seller or
Shareholder currently have, if any, of any requirements pertaining to such
licenses, permits, registrations, certificates, consents, accreditations,
approvals and franchises;
(7) All plans and surveys, including "as-built" plans, all
plats, specifications, engineers' drawings, and architectural renderings and
similar items relating to the Assets, and further including, without limitation,
those relating to utilities, easements and roads, which are in the possession of
Seller or its agents, employees or consultants;
(8) All goodwill and other intangible assets associated with
the Hospital and Related Assets including, but not limited to, the exclusive
rights to use the name "Eastwood Hospital" and all derivations thereof and the
other trade names listed on Exhibit 4.13(4) and, to the extent assignable by
Seller, all warranties (express or implied) and rights and claims assertable by
(but not against Seller) related to the operation of the Hospital and Related
Assets, and all telephone and facsimile numbers as currently used in the
operation of the Hospital and Related Assets;
(9) All prepaid assets;
(10) Seller's and Shareholder's rights and interests pursuant
to contracts for purchase or lease of real and personal property, rights of
first refusal, construction contracts, managed care and third party payor
contracts, contracts for purchase, sale or lease of equipment, goods or services
currently furnished or to be furnished at or to the Hospital and the other
facilities constituting the Related Assets of which Buyer will assume the future
performance after Closing pursuant to Section 1.3;
(11) All assets reflected on the Financial Statements, as
defined in Section 4.3(l), and any additions thereto up through the Closing less
deletions therefrom sold or consumed in the ordinary course of business;
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<PAGE> 4
(12) Seller's interest in all property used in connection with
or for the benefit of the Hospital or Related Assets, other than Excluded
Assets, whether real, personal or mixed, tangible or intangible, arising or
acquired after the date of this Agreement and prior to Closing;
(13) All insurance proceeds arising in connection with damage
to the Assets occurring after the date of this Agreement and prior to the
Closing, provided that such damage has not been repaired to Buyer's reasonable
satisfaction prior to Closing and to the extent such proceeds have not been
expended for the repair and restoration of the Assets;
(14) All security or other deposits and prepayments made by
tenants of Seller or Shareholder pursuant to leases or subleases assumed by
Buyer;
(15) All of Seller's interests in Eastwood Preferred Provider
Organization, Inc. a Tennessee non-profit corporation ("EPPO"), which interests
are more completely described in Exhibit 4.1;
(16) All other property, other than Excluded Assets, of every
kind, character or description owned by Seller and/or Shareholder and used or
held for use in the business of the Hospital or the Related Assets, whether or
not reflected on the Financial Statements, wherever located and whether or not
similar to the items specifically set fort above, and all other businesses and
ventures directly or indirectly owned by Seller in connection with the
operations of the Hospital or the Related Assets; and
(17) All cash in and subsequent receipts of the Lockbox
Account (defined below) at or after Closing;
1.2 Excluded Assets. Seller is not selling and Buyer is not purchasing
or assuming obligations with respect to the following (collectively, the
"EXCLUDED ASSETS"):
(1) Cash, certificates of deposit, bank overdrafts and other
cash equivalents, except that Buyer will take possession of and own all cash and
subsequent receipts of the Lockbox Account (defined below) at Closing;
(2) All receivables from Shareholder or any affiliate of
Shareholder;
(3) All receivables, claims and other rights to payment from
Eastwood Medical Center, L.P., Regent Health Group, Inc., Brent W. Jorgenson,
Stephen J. Bell and William L. Billingsley (collectively, the "PRIOR
OPERATORS");
(4) All corporate books and records of Seller and any document
reasonably related thereto, including all correspondence of Seller with the
Internal Revenue Service, provided that Buyer shall be provided copies of such
records which relate to the Assets;
(5) All insurance policies of Seller and claims arising
thereunder prior to Closing, subject to Section 6.5; and
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<PAGE> 5
(6) Any other assets specifically identified on Exhibit 1.2
hereof.
All tangible Excluded Assets shall be removed from the Hospital by
Seller prior to Closing without damage or defacement to the Hospital or other
Assets.
1.3 Assumed Contracts, Leases and Liabilities. At Closing, Buyer will
assume and agree to pay or perform, as the case may be, all of the following
(collectively, the "ASSUMED LIABILITIES"):
(1) All obligations accruing after Closing with respect to
those contracts, purchase orders and leases which are described on Exhibit 1.3
hereto;
(2) All accrued compensation, vacation time, holiday and build
up of sick leave, together with all related taxes, for all of Seller's employees
who become employees of Buyer which have accrued prior to Closing; provided,
however, that Buyer's performance will extend only to granting a credit under
Buyer's fringe benefit policies for any accrued vacation, holiday and sick leave
build up that such employees have accrued under the Seller's fringe benefit
policies;
(3) All amounts payable under the Medicare and Medicaid
Programs applicable to cost reports filed for services rendered through the
Closing, including all terminating cost reports. Buyer will prepare all
terminating cost reports, and Seller will fully cooperate with Buyer in the
preparation of all terminating cost reports required as a result of this
transaction;
(4) All of Seller's current liabilities (except corporate
franchise and excise taxes but including real estate and personal property taxes
for the current year); and
(5) All obligations of Seller to remit payments payable to the
Prior Operators (to the extent received by Buyer) or to provide access to the
Prior Operators under Section 29 of that certain Settlement Agreement, Asset
Transfer and Release Agreement, dated September 16, 1994.
1.4 Excluded Liabilities. The obligations for which Seller shall remain
responsible shall include (and the following are not Assumed Liabilities)
(collectively, the "EXCLUDED LIABILITIES"):
(1) All of the Seller's long-term and bank or other funded
debt, including but not limited to all obligations pursuant to or related to the
following: all obligations secured by liens or security interests against any of
the Assets, in favor of Bank of Tokyo-Mitsubishi Trust Company ("BOT") or Texas
Commerce Bank National Association as Collateral Trustee (the "COLLATERAL
TRUSTEE"), but excluding any capital leases described on Exhibit 1.3;
(2) Liabilities, indebtedness, commitments or obligations,
claims, suits, mortgages, contingent liabilities and responsibilities of any
kind whatsoever arising from the Hospital or its operations relating to the
period prior to Closing, except for Assumed Liabilities;
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(3) Liabilities or obligations with respect to the ownership
or operation of any assets owned or operated by Seller or Shareholder other than
the Assets;
(4) Liabilities and obligations arising from or relating to
the Excluded Assets;
(5) The assets and liabilities of all employee benefit plans
except with respect to the vacation/holiday and sick leave assumed pursuant to
Section 1.3(2);
(6) All liabilities and commitments relating to the time
periods prior to and including Closing for all of the following: all impositions
of income tax and other taxes; except pursuant to Section 6.20, any liabilities
under environmental laws; except pursuant to Section 1.3(2) all employee (and
former employee) wages, salaries and benefits including, without limitation,
ERISA, and COBRA liabilities and obligations, and all obligations to give notice
of and to provide continuation health care coverage for employees, former
employees, and their dependents or any qualified beneficiary of such employees
in accordance with the requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended (hereinafter referred to as "COBRA
COVERAGE"), including, without limitation, all liabilities, taxes, sanctions,
interest and penalties imposed upon, incurred by or assessed against Buyer or
any affiliated corporation within a controlled group relationship with Buyer (as
determined under Section 414 of the Internal Revenue Code), and any of their
employees, arising by reason of or relating to any failure to provide the COBRA
coverage.
(7) Any intercompany payables, any payables to Eastwood
Medical Center, L.P., and any liabilities or obligations connected to any
previous bankruptcy or reorganization of Eastwood Medical Center, L.P.; and
(8) Any liabilities or obligations of Seller or Shareholder
which are not specifically assumed by Buyer pursuant to this Agreement.
1.5 Additional Real Estate. Other than the Excluded Assets, the parties
hereto acknowledge and agree that it is their intent to transfer to Buyer all
real estate used in, usable with or related to the operation of the Hospital and
the Related Assets that is owned or leased directly by the Seller or
Shareholder, or by a direct or indirect affiliate of the Seller or Shareholder.
To the extent any tract or parcel of real estate (or buildings, improvements and
fixtures on or forming a part of the real estate or any easement, appurtenances,
rights of way, air, mineral or other rights), whether owned or leased,
identified on Exhibit 1.1(1) (or which should have been identified on such
Exhibit) is (1) misidentified, incorrectly described, or incorrectly identified
as being owned or leased by a particular entity, or (2) any such real estate,
whether owned or leased, which should have been included on Exhibit 1.1(1) is
inadvertently not included on Exhibit 1.1(1) and such errors are discovered
subsequent to execution of this Agreement, the parties agree that Exhibit 1.1(1)
shall be amended by mutual agreement prior to Closing to correct such errors and
such amended Exhibit shall then be deemed to be controlling in determining the
Real Estate subject to this Agreement.
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1.6 Nonassignability. Anything herein to the contrary notwithstanding,
the Agreement and any instruments executed pursuant hereto shall not constitute
an assignment of any claim, contract, license, lease, purchase order, or other
commitment (collectively referred to as a "COMMITMENT") if any attempted
assignment or transfer of the same without the consent of the other party
thereto or the applicable governmental agency would be ineffective or would
constitute a breach or violation thereof so that Buyer would not in fact receive
all of the rights and benefits of Seller thereunder. If by Closing any such
consent has not been obtained, and Buyer desires to have Seller's assistance in
obtaining such consent, Seller shall cooperate with Buyer in any reasonable
arrangement designed to provide for Buyer the benefits under any such Commitment
without causing a breach or violation of such Commitment; provided, however,
that any such Commitment shall be deemed to be an Excluded Asset and an Excluded
Liability until such consent for assignment to Buyer is obtained.
ARTICLE II. ACCOUNTS RECEIVABLE
2.1 Seller's Accounts Receivable. As provided in Section 1.1(4), Buyer
is purchasing all of Seller's accounts receivable, including patient accounts
receivable, long-term patient accounts receivable, income guarantee advances,
amounts receivable from third party payor programs, notes and other receivables,
whether or not written off, to the extent transferable. After the Closing,
Seller shall remit to Buyer any payments received by Seller with respect to the
accounts receivable and the right to the proceeds from accounts receivable
transferred pursuant to Section 1.1 (4) hereof. Any funds so collected will be
remitted to the Buyer within five (5) business days following receipt of such
payments.
ARTICLE III. PURCHASE PRICE
3.1 Purchase Price. Subject to the terms and conditions hereof, the
purchase price (the "PURCHASE PRICE") will be payable by Buyer to the Seller
for the Assets in cash or equivalent funds as provided in Section 8.1 hereof and
shall be an amount derived in the following manner:
(1) Twelve Million Two Hundred Ninety-Two Thousand and No/100
Dollars ($12,292,000.00);
(2) PLUS an amount equal to $4,750.00 multiplied by the number
of days occurring from and including April 12, 1997 through the date of Closing;
(3) MINUS the sum of (a) amounts deposited by Seller or
Shareholder in NationsBank Account #0112989124 (the "Local Depository
Account"), (b) amounts transferred from NationsBank Account #2141191410 (the
"Lockbox Account") into Shareholder's account and (c) amounts deposited in any
bank account other than the Local Depository Account or the Lockbox Account
related to the operations of the Seller, all for the period from and including
April 12, 1997 through the date of Closing;
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(4) PLUS the sum of all of Seller's disbursements by cash or
check from and including April 12, 1997 through the date of Closing, excluding
any disbursements to or for the benefit of Shareholder or any affiliate thereof.
(5) LESS Five Hundred Thousand Dollars and No/100 ($500,000)
by deposit of good funds into an interest bearing escrow account pursuant to the
terms of an escrow agreement (the "Escrow Agreement"), to be attached hereto as
Exhibit 3.1(5), which shall be for a term of one year after the Closing, the
purpose of which is to protect the Buyer from any breach of representations,
warranties and covenants contained herein or to satisfy any obligations of
Seller and Shareholder hereunder.
3.2 Taxes and Assessments, Prorations; Adjustments. Seller shall pay or
credit against the Purchase Price the amount of all delinquent real estate and
personal property taxes, including penalties and interest, and all special
assessments that are a lien as of the day of Closing. There shall be no
proration for unpaid real estate and personal property taxes and assessments not
yet due for the year of Closing. There shall be no proration of rents received
or paid, utilities or any other items.
3.3 [Intentionally Deleted]
3.4 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Assets in the manner set forth in Exhibit 3.4. The parties shall use
their best efforts to agree to the Purchase Price allocation no later than three
(3) days prior to Closing. The parties agree that this allocation will be used
by them for all purposes including tax, reimbursement and other purposes. Each
party hereto agrees that it will report the transaction in accordance with such
allocation, including under Section 1060 of the Internal Revenue Code of 1986,
as amended (the "Code"), and that it will not take a position inconsistent with
such allocation except with the written consent of the other party hereto.
3.5 Earnest Money Deposit. As a condition to the validity and
effectiveness of this Agreement, and in any event no later than two (2) business
days after the date of this Agreement, Buyer shall deliver an earnest money
deposit in cash of $100,000 (the "Earnest Money") to the Title Company
(hereinafter defined). Upon the Closing the Earnest Money shall be applied to
the Purchase Price. In the event the Closing does not occur as required pursuant
to this Agreement by reason of Buyer's default hereunder, then the Title Company
shall disburse the Earnest Money to Seller. The Title Company shall be
authorized, at Buyer's option, to invest the Earnest Money in such manner as
Buyer may direct; provided, however, that the Title Company shall invest the
Earnest Money only in such manner as will allow the Title Company to disburse
the Earnest Money upon two (2) days' notice. All interest or other earnings on
the Earnest Money shall become a part of the Earnest Money and be disbursed to
the party entitled to the Earnest Money.
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER
As inducements to Buyer to enter into this Agreement and to consummate
the transactions contemplated herein, Seller and Shareholder hereby jointly and
severally represent and warrant to Buyer, which representations and warranties
shall be true and correct on the date hereof, and on Closing, as if then
restated, and which shall survive Closing, as follows:
4.1 Organization, Qualification and Authority. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and is in good standing and duly qualified to do business as a
foreign corporation in Tennessee. Shareholder is a corporation duly organized,
validly existing and in good standing in the State of Delaware. Each of Seller
and Shareholder has fall corporate power and authority to own, lease and operate
its facilities and assets as presently owned, leased and operated and to carry
on its business as it is now being conducted, and is duly qualified to do
business and is in good standing in each state in which its operations make it
necessary to be so qualified, and has the requisite corporate power and
authority to enter into and perform its obligations under this Agreement. Except
for Shareholder, no other person or entity owns or holds, has any interest in,
whether legal, equitable or beneficial, or has the right to purchase, any
capital stock or other security of Seller. Seller, directly or indirectly, owns
no capital stock, security, interest or other right, or any option or warrant
convertible into the same, of any corporation, partnership, joint venture or
other business enterprise except those listed on Exhibit 4.1, and the businesses
carried on by Seller have not been conducted, directly or indirectly, through
any entity except as described on Exhibit 4.1. Seller has the full right, power
and authority to execute, deliver and carry out the terms of this Agreement and
all documents and agreements necessary to give effect to the provisions of this
Agreement and to consummate the transactions contemplated on the part of Seller
hereby. Shareholder has the full right, power and authority to execute, deliver
and carry out the terms of this Agreement and all documents and agreements
necessary to give effect to the provisions of this Agreement, to consummate the
transactions contemplated on the part of Shareholder hereby, and to take all
actions necessary to permit or approve the actions of Shareholder taken in
connection with this Agreement. Subject to obtaining the approval of
Shareholder's board of directors, the execution, delivery and consummation of
this Agreement and all other agreements and documents executed in connection
herewith by Seller and Shareholder have been duly authorized by all necessary
action on the part of Seller and/or Shareholder. This Agreement and all other
agreements and documents executed in connection herewith by Seller and/or
Shareholder, upon due execution, delivery and authorization thereof, shall
constitute valid and binding obligations of each of Seller and Shareholder,
enforceable in accordance with their respective terms, except as enforcement may
be limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally and by general principles of equity.
4.2 Absence of Default. Upon receipt of the consents specified in
Exhibit 4.2, the execution, delivery and consummation of this his Agreement and
all other agreements and documents executed in connection herewith by Seller
and/or Shareholder will not constitute a violation of, or be in conflict with,
and will not, with or without the giving of notice or the passage of time, or
both, result in a breach of, constitute a default under, or create (or cause the
acceleration of the maturity of) any debt, indenture, obligation or liability
affecting the Assets pursuant to, or
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result in the creation or imposition of any security interest, lien, charge or
other encumbrance upon any of the Assets under: (a) any term or provision of the
Certificate of Incorporation or corporate Bylaws of Seller or Shareholder; (b)
any contract, lease, purchase order, agreement, indenture, mortgage, pledge,
assignment, permit, license, approval or other commitment to which Seller and/or
Shareholder are a party or by which Seller and/or Shareholder or the Assets are
bound; (c) any judgment, decree, order, regulation or rule of any court or
regulatory authority, or (d) any law, statute, rule, regulation, order, writ,
injunction, judgment or decree of any court or governmental authority or
arbitration tribunal to which Seller, Shareholder and/or the Assets are subject
that would have a material adverse effect on the Assets after the Closing.
4.3 Financial Statements.
(1) Attached as Exhibit 4.3 are true and correct copies of the
unaudited Balance Sheets of Seller for the fiscal years ended December 31, 1995
and December 31, 1996, the related Statements of Revenue and Expenses for the
respective periods then ended along with the interim unaudited financial
statements of Seller for the four and two-month periods ending April 30, 1996
and February 28, 1997 (collectively, the "UNAUDITED FINANCIAL STATEMENTS"
together with the financial statements described in Section 4.3(2) shall be the
"FINANCIAL STATEMENTS"). The Financial Statements present fairly in all material
respects the financial position of Seller, the results of its operations and all
costs and expenses for the periods specified. The Financial Statements have been
prepared in conformity with generally accepted accounting principles on an
accrual basis, applied consistently for the periods involved. The Financial
Statements are in accordance with the books and records of Seller. Except as set
forth in Exhibit 4.3 or in the Financial Statements, Seller has no material
contingent liabilities or obligations.
(2) Seller shall cause to be prepared interim unaudited
monthly financial statements of Seller for each month since the most recent
delivered Unaudited Financial Statements, which shall be delivered to Buyer
within two (2) days after they are created (but the delivery shall be no later
than thirty days after the end of the month which the Unaudited Financial
Statement relates to), and after delivery shall be deemed a part of the
Unaudited Financial Statements.
(3) In conjunction with Buyer's preparation of financial
statements relating to prior periods and Buyer's filing in a timely manner
registration statements, private placement memoranda and periodic reports, if
any, pursuant to applicable federal and state securities laws after Closing,
Seller shall cooperate with Buyer, at Buyer's expense, in the preparation
thereof and shall make the books and records of the Seller available to Buyer
and Buyers auditors at reasonable times and in a manner so as to not unduly
interfere with Sellers operations, and otherwise cooperate with Buyer in order
to permit Buyer to conduct an audit of the Seller's financial statements for any
period prior to Closing and subsequent to October 7, 1994. Such audit, if any,
shall be at Buyer's expense. The books and records of Seller are in such order
and completeness so that an unqualified audit may be performed for such periods.
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4.4 Operations Since February 28. 1997. Except as set forth on Exhibit
4.4, since February 28, 1997, Seller has conducted its business only in the
ordinary course and there have been no:
(1) material adverse changes in the condition, financial or
otherwise, of the Assets, the business or prospects of, or in the results of
operations of, the Hospital, Related Assets or Seller;
(2) terminations of any contract, lease or other agreement to
which Seller is a party except by Seller;
(3) sales, leases, transfers or other dispositions by Seller
of any of the Assets, mortgages or pledges of or the imposition of any liens,
charges or encumbrances in excess of, in the aggregate, Fifty Thousand and
No/100 Dollars ($50,000.00) on any of the Assets or removal of any of the Assets
from the Real Estate, other than those made in the ordinary course of business;
(4) increases in the compensation payable by Seller to any
shareholders, employees, directors, independent contractors or agents, or any
increase in, or institution of, any bonus, insurance, pension, profit sharing or
other employee benefit plan, remuneration or arrangements made to, for or with
such employees, directors, any shareholder or independent contractors of the
Seller;
(5) capital expenditures, additions or betterments to the
Hospital or Related Assets in excess of $50,000.00 in the aggregate;
(6) Adjustments or write-offs of Receivables or reductions in
reserves for Receivables outside of the ordinary course of business;
(7) Changes in the accounting methods or practice employed by
Seller or change in depreciation or amortization policies;
(8) Issuance or sales by Seller or Shareholder, or contracts
or other commitments entered into by Seller or Shareholder, for the issuance or
sales of any shares of capital stock or securities convertible into or
exchangeable for capital stock of Seller;
(9) Strikes, work stoppages or other labor disputes adversely
affecting Seller's business operations; or
(10) Losses or other damages or destruction of or to any of
the Assets, whether or not covered by insurance, in excess of $50,000.00
individually or in the aggregate.
4.5 Taxes. All taxes, including, without limitation, income, property,
sales, use, franchise, added value, employees' income withholding and social
security taxes, license fees and taxes deposits and fees for waste disposal,
pharmaceutical, nursing facilities, and taxes on
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disproportionate share hospitals imposed by the United States, by any foreign
country or by any state, municipality, subdivision or instrumentality of the
United States or any foreign country, or by any other taxing authority, which
are due or payable by Seller and all interests and penalties thereon, whether
disputed or not, have been paid in full prior to delinquency and all tax returns
required to be filed in connection therewith have been accurately prepared and
timely filed (without any extension or waiver). All deposits required to be made
by Seller with respect to employees' withholding taxes have been duly made.
Seller is not delinquent in the payment of any tax, assessment or governmental
charge or deposit and Seller has no knowledge of any tax deficiency or claim
outstanding, proposed or assessed against it.
4.6 Employment. Except as disclosed in Exhibit 4.6 hereto, to Seller's
knowledge no person or party (including, but not limited to, any governmental
agency) has any claim or basis for any action or proceeding, against Seller (or
any officer, director, employee, agent or shareholder of Seller) arising out of
any statute, ordinance or regulation relating to wages, collective bargaining,
discrimination in employment or employment practices or occupational safety and
health standards (including, but not limited to, the Fair Labor Standards Act,
Title VII of the Civil Rights Act of 1964, as amended, the Occupational Safety
and Health Act, or the Age Discrimination in Employment Act of 1967 or the
Americans With Disabilities Act of 1990).
4.7 Licenses and Permits.
(1) Seller has all local, state and federal licenses, permits,
registrations, certificates; contracts, consents, accreditations and approvals
(collectively, "LICENSES AND PERMITS") necessary for Seller to occupy, operate
and conduct its business. To Seller's knowledge, there is no default under any
of such Licenses and Permits. To Seller's knowledge, there exists no grounds for
revocation, suspension or limitation of such Licenses or Permits. True and
correct copies of these Licenses and Permits have been previously provided to
Buyer and are listed on Exhibit 4.7(l). The most recent licensure surveys and
deficiency reports related to each of these items have also been previously
provided to Buyer and are listed on Exhibit 4.7(l). Seller is and at the Closing
Date will have duly registered with the Tennessee Department of Health and
Environment as a short term, acute care hospital authorized to operate 152 acute
care beds (8 of which are ICU) and 91 psychiatric beds. Except as described in
Exhibit 4.7(l), no notices have been received by Seller or Shareholder with
respect to complaints lodged with any regulatory authority or agency or with
respect to threatened, pending, or possible revocation, termination, suspension
or limitation of any of the Licenses and Permits nor to Seller's knowledge are
there any valid grounds for revocation, suspension or limitation.
(2) Seller has all certificates of need, exemptions or
non-review letters from the State of Tennessee necessary to operate its business
as it has been historically and currently conducted by Seller. Seller has
complied with the requirements, and conditions thereof. True and correct copies
of all unimplemented certificates of need, exemption and non-review letters
issued or related to the Hospital, Related Assets, or to Seller have been
previously provided to Buyer and are listed on Exhibit 4.7(2). True and correct
copies of all implemented certificates of need and non-review letters issued to
the Hospital, Related Assets, or to Seller have been previously provided to
Buyer and are listed on Exhibit 4.7(2). All implemented certificates of
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need and non-review letters have been implemented in substantial accordance with
their terms. All implemented certificates of need are clearly identified as such
on Exhibit 4.7(2), and no progress has been made on such unimplemented
certificates of need which would violate the terms or conditions of said
certificates of need.
4.8 JCAHO and Accreditations.
(1) The Hospital is duly accredited for operation of its
various beds by the Joint Commission on Accreditation of Healthcare
Organizations ("JCAHO"). Included in Exhibit 4.8 are each Certificate of
Accreditation, copies of the most recent JCAHO accreditation survey report, and
a list of deficiencies, if any.
(2) The Hospital's laboratory operated by Seller is duly
accredited by the Commission on Laboratory Accreditation of the College of
American Pathologists ("CAP"). Included in Exhibit 4.8 are copies of the most
recent letter and list of accredited services from CAP.
(3) The radiology facilities operated by Seller are duly
accredited by the American College of Radiology ("ACR"). Included in Exhibit 4.8
are copies of the most recent letter(s) and list(s) of accredited services from
ACR.
(4) Except as described in Exhibit 4.8(4), Seller and
Shareholder have received no notice with respect to any threatened, pending or
possible revocation, early termination, suspension or limitation of any of the
accreditations listed in this Section 4.8 nor are there any grounds for such
action.
4.9 Medicare, Medicaid, and Other Third-Party Payors.
(1) The Hospital is duly certified to participate, and does
participate in the Medicare Program and the Medicaid Programs in the States of
Tennessee (including TennCare), Arkansas and Mississippi (the "PROGRAMS").
Copies of its existing Medicare and Medicaid contracts (the "PROGRAM
AGREEMENTS") are included in Exhibit 4.9. The Hospital is and will be at the
time of Closing, in material compliance with all of the terms, conditions and
provisions of such contracts, as well as state and federal laws related thereto.
(2) Attached as part of Exhibit 4.9(2) is a copy of the
Hospital's most recent Statement of Deficiencies and Plan of Correction (Form
HCFA-2567) for the Hospital, if any.
(3) Except as set forth in Exhibit 4.9, no notice of any
offsets against future reimbursement has been received by Seller or Shareholder
nor, to Seller's or Shareholders knowledge, is there any valid basis therefor.
There are no pending appeals, adjustments, challenges, audits, litigation,
notices of intent to reopen or open cost reports with respect to the Programs
except as set forth in Exhibit 4.9. Neither the Hospital nor the Related Assets
has been subject to or threatened with loss of waiver of liability for
utilization review denials with respect to the Programs during the past twelve
(12) months, nor has it received notice of pending,
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threatened or possible decertification or other loss of participation in, any of
the Programs, except as set forth in Exhibit 4.9.
(4) All existing third party payor contract(s) are described
in Exhibit 4.9. The Hospital is and will be at the time of Closing, in
compliance with all of the terms, conditions and provisions of such contract(s),
except to the extent non-compliance would not have a material adverse effect on
the Hospital.
(5) Seller has previously furnished Buyer the Medicare and
Medicaid cost reports of Seller and Related Assets (to the extent applicable)
for the years ending June 30, 1995 and June 30, 1996. Except as reflected in
Exhibit 4.9, the cost reports are complete and accurate for the periods
indicated. All liabilities and contractual adjustments of the Hospital under any
third party payor or reimbursement programs have been properly reflected and
adequately reserved for in the Financial Statements. Seller has previously
furnished to Buyer true, accurate and correct statement of Seller's and
Shareholder's cost basis for property, plant, equipment, land and land
improvements.
(6) Seller and Shareholder have received no notice of any
violation of federal or state fraud and abuse or self-referral laws, except as
set forth in Exhibit 4.9(6), nor are Seller and Shareholder aware of any such
violations in connection with the operation of its business.
4.10 Peer Review. The Hospital (to the extent applicable) has entered
into one or more valid memorandums of understanding with the Hospital's peer
review organizations. A copy of each memorandum of understanding, if any, is
included in Exhibit 4.10.
4.11 Compliance with Zoning, Land Use and Other Laws. Seller has
received no notice of any violation of any zoning, land use, public health,
building code or other similar laws, ordinances and regulations applicable to
the Hospital or the Related Assets or to the ownership, occupancy and/or
operation thereof, and except as disclosed to Buyer there do not exist any
variances, conditional use permits, waivers, exemptions or violations relating
to the Real Estate with respect to any non-conforming use or other zoning, land
use or building codes matters.
4.12 Easements. To Seller's and Shareholder's knowledge, the Hospital
and the Related Assets have all easements and similar rights necessary to
continue operation of the business of the Hospital and the Related Assets as
currently conducted.
4.13 Title to Assets.
(1) Seller or Shareholder is, and at Closing will be, the only
record, legal and beneficial owner of and has, and at Closing will have, good
title to all the Assets other than the Real Estate, free and clear of all
mortgages, security interests, liens, leases, covenants, assessments, easements,
options, rights of refusal, restrictions, reservations, defects in the title,
encroachments, adverse claims and other encumbrances, except for the Permitted
Exceptions. The Assets, together with the Excluded Assets, include all assets
set forth on the Financial
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Statements, include all assets owned or leased by Seller and are all assets
utilized by Seller or Shareholder in the operation of the Hospital and the
Related Assets.
(2) The Real Estate described in Exhibit 1.1(1) includes all
real estate owned by Shareholder and used in connection with the Hospital and
the Related Assets. Shareholder is, and at Closing will be, the sole and
exclusive record, legal and equitable owner of and has, and at Closing will
have, good, marketable and insurable title in fee simple or leasehold, as the
case may be, to, all the Real Estate including the buildings, structures and
improvements situated thereon and appurtenances thereto, in each case free and
clear of all mortgages, liens, leases, assessments, easements, covenants,
options, rights of refusal, restrictions, reservations, defects in title,
encroachments and other encumbrances, whether or not the same render the title
to such Real Estate uninsurable or unmarketable, except for the items listed on
Exhibit 4.13(2) (the "PERMITTED EXCEPTIONS").
(3) The Hospital, the Related Assets and the other Assets,
together with the Excluded Assets, constitute all of the assets and business
operations related to the operation of the Hospital. Neither Seller nor
Shareholder has sold, exchanged or transferred any assets outside the
ordinary course of business in excess of $50,000 in the aggregate within the
last six months which were used by the Hospital or any businesses of Seller.
(4) The only names, tradenames or fictitious names under which
the business of the Hospital, Related Assets, and businesses of Seller have been
operated for the last five years are listed on Exhibit 4.13(4). Seller has
complied with all fictitious name filing statutes.
(5) Exhibit 4.13(5) lists all post office boxes and addresses
where accounts receivable sold to Buyer are to be paid and all names under which
payment is to be received. Seller hereby grants to Buyer effective as of Closing
the irrevocable power of attorney to execute and endorse any checks or receive
any payments with respect to any accounts receivable which are sold to Buyer.
4.14 Leases and Contracts.
(1) Exhibit 4.14 hereto sets forth a complete and accurate
list of all material contracts, agreements, purchase orders, leases, subleases,
options and commitments, oral or written, and all assignments, amendments,
schedules, exhibits and appendices thereof, affecting or relating to any Asset
or any interest therein, to which Seller or Shareholder is a party or by which
Seller or the Assets are bound or affected, including, without limitation,
service contracts, management agreements, equipment leases, leases of space, and
ground leases pertaining to any part of the Real Estate (collectively, the
"LEASES AND CONTRACTS"). (The agreements listed above shall be deemed material
if (i) one of the parties thereto is a physician, physician group or other
referral source or (ii) it involves payments in the aggregate of Ten Thousand
Dollars ($10,000) or greater.) Seller and Shareholder will provide or cause to
be provided to Buyer a copy of all written Leases and Contracts, and detailed
summary of the provisions of all oral Leases and Contracts, prior to Closing.
Except for Assumed Liabilities, all Leases and Contracts shall be retained and
paid or performed by Seller.
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(2) None of the Leases and Contracts has been modified,
amended, assigned or transferred, except as noted on Exhibit 4.14, and, to
Sellers knowledge, each is in full force and effect and is valid, binding and
enforceable in accordance with its respective terms;
(3) To Seller's knowledge and except as disclosed on Exhibit
4.14, no event or condition has happened or presently exists which constitutes a
default or breach or, after notice or lapse of time or both, would constitute a
default or breach by any party under any of the Leases and Contracts, and Seller
shall do no act nor omit to do any act which would cause such a default or
breach. To Seller's knowledge, there are no counterclaims or offsets under any
of the Leases and Contracts which are part of the Assumed Liabilities;
(4) None of the Leases and Contracts shall be amended in any
material respect between the date hereof and Closing without the prior written
consent of Buyer;
(5) Except as expressly identified on Exhibit 4.14, none of
the Leases and Contracts is: (i) a capitalized lease within the meaning of
generally accepted accounting principles; or (ii) a lease with a remaining term
of one (1) year or more from Closing and which cannot be canceled within thirty
(30) days at the option of Seller without penalty; or (iii) a lease containing
an option to purchase.
(6) All leases of office space or other space in the Hospital
or Related Assets to third parties are described in Exhibit 4.14. To Seller's
knowledge and except as set forth in Exhibit 4.14, all such leases are in full
force and effect and are not in default. Seller has no outstanding unperformed
obligations under any of such leases including without limitation any
obligations to make any repairs or improvements or renovations (whether such
improvements or renovations are to be made prior to or after Closing). Except as
set forth on Exhibit 4.14, there are no outstanding negotiations with any such
lessees regarding any matter relating to the leased space.
(7) All Leases and Contracts which are not Assumed Liabilities
will be terminated on or prior to Closing or will be retained by and at the sole
expense of Seller.
4.15 Environmental Matters.
(1) Hazardous Substances. As used in this Section, the term
"HAZARDOUS SUBSTANCES" means any hazardous or toxic substances, pollutants,
contaminants, materials or wastes, including but not limited to those
substances, pollutants, contaminants, materials, and wastes listed in the United
States Department of Transportation Table (49 CFR 172.101) or by the
Environmental Protection Agency as hazardous substances pursuant to 40 CFR Part
302, or such substances, materials and wastes which are regulated under any
federal environmental law or any applicable local or state environmental law,
including, but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA") as supplemented and amended or
the Resource Conservation and Recovery Act, as amended ("RCRA"), 42 U.S.C.
ss.6901 et seq.; toxic substances as defined under the Toxic Substance Control
Act, 15 U.S.C. 2601 et seq; or any of the following: hydrocarbons, petroleum and
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petroleum products, asbestos, polychlorinated biphenyls, formaldehyde,
radioactive substances, flammables and explosives.
(2) Compliance with Laws and Regulations.
(a) All operations or activities upon, or any use or
occupancy of the Real Estate, or any portion thereof, by Seller, Shareholder or
any tenant or subtenant of Seller or Shareholder of any part of the Real Estate,
are and have been in all material respects in compliance with all laws,
regulations or orders relating to Hazardous Substances.
(b) The Real Estate is free of any lien imposed
pursuant to any laws, regulations or orders relating to Hazardous Substances.
(c) Except for uses and temporary storage of
Hazardous Substances reasonably necessary to the customary operation of a
hospital and in material compliance with all applicable federal, state and local
laws, statutes, ordinances, codes, rules, regulations, orders, decrees, and
other applicable requirements of governmental authorities and except as
disclosed on Exhibit 4.15, neither Seller, Shareholder, nor to Seller's
knowledge, any prior owners, operators, or occupants of the Real Estate have
allowed the manufacture, use, generation, voluntary transmission, storage or
presence of any Hazardous Substances over, in or upon the Real Estate.
(d) Except as disclosed on Exhibit 4.15, neither
Seller nor Shareholder has received any written communication that alleges that
Seller is not or was not in compliance with all applicable environmental laws.
(e) Seller and Shareholder have obtained all
environmental permits necessary for the operation of a hospital and related
activities, all such permits are in good standing and Seller is in compliance
with all terms and conditions of its environmental permits.
(f) Neither Seller nor Shareholder has installed or
permitted to be installed any asbestos or has knowledge of friable asbestos or
any other substance deemed hazardous by federal or state laws or regulations
respecting such material in or on the Real Estate except as disclosed on Exhibit
4.15.
(g) Except as disclosed on Exhibit 4.15, Seller and
Shareholder have not at any time engaged in, permitted or have knowledge of, nor
to the best knowledge of Seller and Shareholder, has any tenant or subtenant
engaged in or permitted any dumping, discharge, disposal, spillage, or leakage
(whether legal or illegal, accidental or intentional) of Hazardous Substances,
at, on, in or about the Real Estate.
(h) Except as disclosed on Exhibit 4.15, none of the
Real Estate, nor any part thereof, nor Seller, nor Shareholder is subject to any
pending or threatened investigation or inquiry by any governmental authority, or
any remedial or removal obligations under any applicable rules, regulations or
orders pertaining to health, safety or the environment.
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(i) Except as disclosed on Exhibit 4.15, to Seller's
and Shareholder's knowledge, no work, repairs, remedy, construction or capital
expenditures is required by any environmental or land use laws or regulations
with respect to the Real Estate in order for the continued lawful use of the
Real Estate as a hospital or the Related Assets on such Real Estate.
(j) Except as disclosed on Exhibit 4.15, to Seller's
and Shareholder's knowledge, the Real Estate is not listed nor has it ever been
listed on the National Priorities List or the Comprehensive Environmental
Response, Compensation and Liability Information System, both promulgated under
CERCLA, or any comparable state list.
(k) Except as disclosed on Exhibit 4.15, to the
knowledge of Seller and Shareholder, no petroleum hydrocarbons have migrated on
or below the surface of any portion of the Real Estate. Except as disclosed on
Exhibit 4.15, to the knowledge of Seller and Shareholder, there are no
underground storage tanks, or related pipes on any portion of the Real Estate.
To the extent there is known to be an underground storage tank on the Real
Estate (including any diesel storage tank associated with the medical office
building complex), Seller shall provide evidence satisfactory to Buyer that (i)
such tank has been tightness tested with all related lines, within the past six
months, or (ii) such tank and lines are currently leak-free as evidenced by
applicable tank detection systems. Any prior leaks have been remediated or
cleaned up in compliance with all federal, state and local laws. Seller shall
provide evidence satisfactory to Buyer that such tank(s) is registered with the
State of Tennessee and that Seller is in full compliance with all underground
storage tank laws and regulations. For any underground storage tanks which were
formerly located on the Real Estate, or which were closed in place, Seller shall
provide evidence satisfactory to Buyer that such tank(s) were removed, or
closed, in full compliance with all federal, state and local laws in effect at
the time of such removal or closure and that any reportable hydrocarbons in the
Real Estate were properly removed or treated in accordance with applicable
governmental requirements.
(1) To the knowledge of Seller and Shareholder, no
portion of the Real Estate has ever been used as a landfill, garbage or refuse
dump site, waste disposal facility, transfer station or other type of facility
for the processing, treatment or disposal of waste materials.
(m) Except for the temporary storage of Hazardous
Substances reasonably necessary for the customary operation of a hospital and in
compliance with all applicable federal, state and local laws, statutes,
ordinances, codes, rules, regulations, orders, and decrees, the Real Estate is
free of any Hazardous Substances in such quantities as would be in violation of
any applicable federal, state or local environmental law or regulation or which
would be required to be reported to any governmental agency.
(3) Seller and Shareholder shall promptly notify Buyer in
writing of their receipt of any notice of violation or noncompliance with any
applicable law, rule, regulation, standard or order, any threatened or pending
action of which it is aware by any regulatory agency or their governmental
authority, or any claims made by any third party of which it is aware relating
to Hazardous Substances on, emanations on or from, releases on or from, or
threats or
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threats of releases on or from any of the Real Estate which relate to the period
prior to Closing; and shall promptly furnish the Buyer with copies of any
correspondence, notices, or legal pleadings in connection therewith.
(4) Seller shall prior to Closing provide Buyer with a copy of
all environmental audits or reports, and any other engineering reports or
inspections which have been prepared relating to the Real Estate and are in the
possession of Seller, its employees, agents or consultants.
4.16 Miscellaneous Representations Relating to Real Estate.
(1) No part of the Real Estate is currently subject to
condemnation proceedings, and to Seller's knowledge, no condemnation or taking
is threatened or contemplated. To Seller's knowledge, there are no public
improvements which may result in special assessments against or otherwise affect
the Real Estate.
(2) Seller has furnished to Buyer complete copies of all
mechanical and structural studies or reports or assessments, engineering plans,
architectural drawings, soil studies, surveys and other similar documents which
have been prepared by or at the direction of Seller or Shareholder within the
last two (2) years relating to any of the Assets in the possession of Seller,
its employees, agents or consultants.
(3) All utilities serving the Hospital and the Related Assets
are, and shall be at Closing adequate to operate the Real Estate in the manner
it is currently operated. Any so-called tap fees, hook-up fees or other
associated charges accrued to date have been fully paid with respect to all
potable and industrial water and all gas, electrical, steam, compressed air,
telecommunication, sanitary and storm sewage lines and systems and other
similar systems serving the Hospital and the Related Assets.
(4) Except for those tenants in possession of the Real Estate
under Leases and Contracts described in Exhibit 4.14, there are no parties in
possession of, or claiming any possession, adverse or not, to or other interest
in, any portion of the Real Estate as lessees, tenants at sufferance,
trespassers or otherwise. No tenant is entitled to any rebate, concession or
free rent, other than as set forth in the lease or contract with such tenant; no
commitments have been made to any tenant for repairs or improvements other than
for normal repairs and maintenance in the future; and no rents due under any of
the tenant Leases and Contracts have been assigned or hypothecated to, or
encumbered by, any person, except for assignments to be released at Closing.
4.17 Conditions of Assets. Except as set forth on Exhibit 4.17, to the
knowledge of Seller and Shareholder, all material components of all of the
Assets (a) are free from structural (including electrical and mechanical)
defects, and (b) are in good working order sufficient for purposes of Seller's
operation of the Hospital and Related Assets. Seller has received no written
recommendation from any insurer to repair or replace any of the Assets with
which Seller has not complied.
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4.18 Construction. There is no construction in progress with respect to
the Hospital or the Related Assets.
4.19 Litigation. Neither Seller nor Shareholder has received notice of
any violation of any law, rule, regulation, ordinance or order of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality (including, without limitation, legislation
and regulations applicable to the Medicare and Medicaid programs, environmental
protection, civil rights and public health and safety and occupational health).
Except as set forth in Exhibit 4.19, there are no lawsuits, proceedings,
actions, arbitrations, governmental investigations, claims, inquiries or
proceedings pending or, to the knowledge of Seller and Shareholder, threatened,
involving or related to the Seller, Shareholder (to the extent involving the
Hospital), or the Assets, and Seller and Shareholder have no knowledge of any
meritorious basis therefor.
4.20 Seller's Employees. Seller has furnished to Buyer: (a) a complete
list of all of Seller's employees and Shareholder's employees (based at the
Hospital or the Related Assets) and rates of pay, together with true and correct
copies of any and all employment contracts, fringe benefits and personnel
policies, (b) the employment dates and job titles of each such person, and (c)
categorization of each such person as a full-time or part-time employee of
Seller. Seller shall furnish Buyer with an updated list at Closing. Buyer shall
offer employment to substantially all of Seller's employees pursuant to Section
6.17. There are no employees of Shareholder based at the Hospital. Seller shall
be solely responsible for any notice which may be required under WARN, as
hereinafter defined, and Tenn. Code Ann. ss.50-1-601 et. seq. for periods prior
to Closing and shall indemnify Buyer therefrom. For purposes of this paragraph,
"PART-TIME EMPLOYEE" means an employee who is employed for an average of fewer
than twenty (20) hours per week or who has been employed for fewer than six (6)
of the twelve (12) months preceding the date on which notice is required
pursuant to the "Worker Adjustment and Retraining Notification Act" ("WARN"), 29
U.S.C. ss.2102 et seq., and Tenn. Code Ann. ss.50-1-601 et. seq. Except as
provided in Exhibit 4.20, Seller has no employment agreements with its employees
and all such employees are employed on an "at will" basis. Exhibit 4.20 lists
all ex-employees of Seller utilizing or eligible to use COBRA (health
insurance). Exhibit 4.20 sets forth a complete list of all of Seller's full and
part time employees who have been terminated within ninety (90) days before
Closing.
The Seller and Buyer agree that the unemployment experience of the
Seller will be transferred to the Buyer if such a transfer of unemployment
experience is allowed by law and elected by the Buyer. If the payroll of the
transferred hospital is reported in an unemployment insurance account with other
payroll prior to the date of transfer, the portion of the unemployment
experience transferred to the Buyer shall be the same portion as the transferred
hospital's state unemployment taxable payroll bears to the total state
unemployment taxable payroll of the Seller's unemployment insurance account.
Funds which are in group accounts for the purpose of paying reimbursable
unemployment benefits will be transferred to the Buyer if the Buyer elects such
transfer. Obligations to reimburse the state for unemployment benefits relating
to persons who do not become Buyer employees at Closing shall continue to be the
obligations of Seller.
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The Seller agrees to make available to the Buyer the records of
individual wages of all employees, as well as copies of state unemployment tax
returns, to the extent necessary for the Buyer to verify future unemployment tax
rates and to calculate the correct taxable payroll for the remainder of the
calendar year in which the transaction occurs.
4.21 Labor Relations. Neither Seller nor Shareholder (with respect to
Hospital based employees) is a party to any labor contract, collective
bargaining agreement, contract, letter of understanding (or to the knowledge of
Seller and Shareholder, any other arrangement, formal or informal) with any
labor union or organization which obligates Seller to compensate its employees
at prevailing rates or union scale, nor are any of Seller's employees
represented by any labor union or organization. There is no pending, or to the
knowledge of Seller and Shareholder, threatened labor dispute, work stoppage,
unfair labor practice complaint, strike, administrative or court proceeding or
order between Seller and any present or former employees (or a union) of Seller.
There is no pending, or to the knowledge of Seller and Shareholder, threatened
suit, action, investigation or claim between Seller, Shareholder (with respect
to Hospital based employees) and any present or former employees (or a union) of
Seller or Shareholder (with respect to Hospital based employees) not disclosed
on Exhibit 4.19. There has not been any labor union organizing activity at the
Hospital or the Related Assets or elsewhere with respect to employees of the
Hospital or the Related Assets within the last two (2) years.
4.22 Insurance. Seller has in effect and has continuously, since
October 7, 1994, maintained insurance coverage for its operations, personnel and
assets. Exhibit 4.22 sets forth a summary of the Seller's current insurance
coverage (listing type, carrier and limits). Exhibit 4.22 includes a list of any
pending insurance claims relating to Seller. Seller is not in default or breach
with respect to any provision contained in any such insurance policies, nor has
Seller failed to give any notice or to present any claim thereunder in due and
timely fashion. Seller will continue to maintain all its insurance policies and
coverage amounts in full force and effect until the Closing. All of such
policies are valid, outstanding, in full force and effect with insurers
unaffiliated with Seller, and enforceable with no premium arrearages. Complete
genuine copies of all policies and endorsements thereto have been provided to
Buyer. At no time has Seller been denied, or reduced or requested a reduction in
the scope of amount of, any insurance or indemnity bond coverage with respect to
the Assets. No insurance carrier has canceled or reduced, or given notice of its
intention to cancel or reduce, any insurance coverage with respect to the Assets
and, to the knowledge of Seller and Shareholder, there exist no grounds to
cancel or avoid any such policies or the coverage provided thereby. Seller has
received no written recommendation from any insurer to repair or replace any of
the Assets with which Seller has not complied.
4.23 Broker's or Finder's Fee. Other than Ernst & Young LLP, the fees
and expenses of which will be the sole responsibility of Seller and Shareholder,
Seller has not employed and is not liable for the payment of any fee to any
finder, broker or similar person in connection with the transactions
contemplated by this Agreement.
4.24 Medical Staff Seller has previously delivered to Buyer, to the
extent allowed by law, a true and correct copy of medical staff privilege and
membership application forms, a
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description of medical staff privileges, all current medical staff bylaws, rules
and regulations and amendments thereto, all credentials and appeals procedures
not incorporated therein, the name of each current member of the medical staff
of the Hospital, the age of each medical staff member to the knowledge of Seller
and Shareholder, the specialty, if any, of each medical staff member, and all
contracts with physicians, physician groups, or other members of the medical
staff of the Hospital, and Seller will update such information prior to the
Closing. There are no pending or, to the best knowledge of Seller and
Shareholder, any threatened appeals, challenges, disciplinary or corrective
actions, or disputes involving applicants, staff members, or health
professionals and neither Seller nor Shareholder know of any basis therefor.
4.25 Conflicts of Interest. Except as disclosed in Exhibit 4.25, no
shareholder, director, officer, employee or agent of Seller or Shareholder is
either a supplier of goods or services to Seller, or directly or indirectly
controls or is a shareholder, officer, director, employee or agent of any
corporation, firm, association, partnership or other business entity which is a
supplier of goods or services to Seller or a Related Entity or a party to any
contract or other agreement with Seller.
4.26 For Profit Status. At no time since its initial construction has
the Hospital been owned or operated by a non-profit entity (under Section
501(c)(3) of the Internal Revenue Code or other applicable sections) or other
entity eligible for loans or grants under the Hill-Burton program or any similar
program providing for the recovery of any public funds advanced under said
programs.
4.27 [Intentionally Deleted]
4.28 Intellectual Property; Computer Software. All trademarks, service
marks, trade names, patents, copyrights, inventions, processes and applications
therefor (whether registered or common law) owned by Seller are listed and
described in Exhibit 4.28 (collectively the "INTELLECTUAL PROPERTY"). No
proceedings have been instituted or pending or, to the knowledge of Seller and
Shareholder, threatened which challenge the validity of the ownership by Seller
of such Intellectual Property. Seller has not licensed anyone to use such
Intellectual Property and Seller and Shareholder have no knowledge of the use or
the infringement of any of such Intellectual Property by any other person.
Seller owns (or possesses adequate and enforceable licenses or other rights to
use) all Intellectual Property, and all computer software programs and similar
systems used in the conduct of its business except as set forth on Exhibit 4.28.
4.29 Inventories. The Inventory is, and on Closing will be, of a
quality and quantity presently usable in the ordinary course of business at the
Hospital and Related Assets, determined and valued consistent with generally
accepted accounting principles.
4.30 Motor Vehicles. All motor vehicles used in the business of Seller,
identified as either owned or leased, are listed in Exhibit 1.1(2) hereto. All
such vehicles are properly licensed and registered in accordance with applicable
law.
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4.31 Employee Benefit Plans.
(1) Except as set forth in Exhibit 4.31, Seller does not
maintain, and is not required to contribute to or otherwise participate in an
"employee benefit plan" or a "multi-employer plan" (as such terms are defined in
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
including without limitation, any pension, profitsharing, retirement, stock
purchase or stock option plan, or any other retirement, compensation, welfare or
fringe benefit plan, program or arrangement of any kind whatsoever, whether
formal or informal, providing for benefits for, or for the welfare of, any or
all of the employees of Seller, any member of a group defined in Section 414(b),
(c), (e), (m) or (o) of the Code to which Seller belongs or has belonged, or any
predecessor of Seller, or for the welfare of the beneficiaries of such employees
(each an "EMPLOYEE PLAN"). Seller shall be liable for any withdrawal liability
with regard to such employees under the Multi-Employer Pension Plan Amendments
Act of 1980. Seller has no liability for unpaid compensation or fringe benefits,
including without limitation accrued vacation, sick leave, post retirement
medical or other benefits, severance pay, or golden parachute payments within
the meaning of Section 280G of the Code, not disclosed on Exhibit 4.31.
(2) Except as specified in Section 1.3(2) relating to accrued
vacation and sick leave, and as set forth on Exhibit 4.31, Buyer will not be
liable and will not be responsible for any debt, obligation, contribution,
responsibility, withdrawal liability or other liability of Seller under any
Employee Plans, including, without limitation, any penalty, fee or funding
obligation. The Seller will be liable under the Employee Plans for all claims
due and unpaid at Closing and for all claims incurred before or after the
Closing, whether or not paid or presented before Closing, and for any
liabilities arising from any failure before or after the Closing to comply with
the requirements of ERISA, the Code, the Tennessee Code Annotated or regulations
thereunder.
(3) Seller has provided or caused to be provided notice of the
availability of COBRA coverage for all of its present and former employees, and
their dependents entitled to such notice because of a qualifying event occurring
on or before the Closing, and Seller shall be responsible for providing COBRA
coverage for all such employees, or their dependents, who elect or have elected
such coverage. All COBRA coverage has been and will be fully insured. The only
persons entitled to receive COBRA coverage or in the future elect COBRA coverage
as a result of a qualifying event occurring on or prior to Closing are persons
listed on Exhibit 4.20(a). Upon Closing, all of Seller's employees shall cease
participation in all Employee Plans maintained by Seller, except to the extent
provided herein or as to benefits owed such employees.
4.32 Compliance with Laws. Seller has complied with all existing laws,
rules, regulations, ordinances, orders, judgements and decrees applicable to its
business or the Assets in all ways other than those which in the aggregate have
and will have only an immaterial impact on its business and its operations and
prospects.
4.33 No Omissions or Misstatements. None of the information included in
this Agreement and Exhibits contains any untrue statement of a material fact or
is misleading in any material respect or omits to state any material fact
necessary in order to make any of the
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statements herein or therein not misleading. Copies of all documents referred to
in any Exhibit hereto have been delivered or made available to Buyer and, to
Seller's knowledge, constitute true, correct and complete copies thereof and
include all amendments, exhibits, schedules, appendices, supplements or
modifications thereto or waivers thereunder. The representations and warranties
of Seller and Shareholder set forth in this Agreement or in any document
delivered pursuant hereto shall not be affected or deemed waived by reason of
the fact that the Buyer knew or should have known that any such representation
or warranty is, or might be, inaccurate in any respect.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Seller and Shareholder to enter into this Agreement
and to consummate the transactions contemplated herein, Buyer and Parent hereby
jointly and severally represent and warrant to Seller and Shareholder, which
representations and warranties shall be true and correct on the date hereof, and
on Closing, as if then restated, and which shall survive Closing, as follows:
5.1 Organization, Qualification and Authority. Each of Parent and Buyer
is a corporation duly organized, validly existing and in good standing under the
laws of its state of organization. Each of Parent and Buyer has the full
corporate power and authority to own, lease and operate its properties and
assets as presently owned, leased and operated and to carry on its business as
it is now being conducted, and is in good standing in Tennessee and has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement without the consent, approval or authorization
of, or obligation to notify, any person, entity or governmental agency. Each of
Parent and Buyer has the full right, power and authority to execute, deliver and
carry out the terms of this Agreement and all documents and agreements necessary
to give effect to the provisions of this Agreement and to consummate the
transactions contemplated on the part of Buyer or Parent hereby. Subject to
obtaining the approval of Buyer's board of directors, the execution, delivery
and consummation of this Agreement and all other agreements and documents
executed in connection herewith by Buyer or Parent have been duly authorized by
all necessary action on the part of Buyer or Parent. No other action on the part
of Buyer or Parent or any other person or entity is necessary to authorize the
execution, delivery and consummation of this Agreement and all other agreements
and documents executed in connection herewith. This Agreement and all other
agreements and documents executed in connection herewith by Buyer or Parent,
upon due execution, delivery and authorization thereof shall constitute valid
binding obligations of Buyer or Parent, enforceable in accordance with their
respective terms.
5.2 Absence of Default. The execution, delivery and consummation of
this Agreement and all other agreements and documents executed in connection
herewith by Buyer or Parent will not constitute a violation of, be in conflict
with, or, with or without the giving of notice or the passage of time, or both,
result in a breach of, constitute a default under, or create (or cause the
acceleration of the maturity of) any debt, indenture, obligation or liability or
result in the creation or imposition of any security interest, lien, charge or
other encumbrance upon any of the Assets
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under: (a) any term or provision of the Articles of Incorporation or Bylaws of
Buyer or Parent; (b) any Contract, lease, agreement, indenture, mortgage,
pledge, assignment, permit, license, approval or other commitment to which Buyer
is a party or by which Buyer or Parent is bound; (c) any judgment, decree,
order, regulation or rule of any court or regulatory authority, or (d) any law,
statute, rule, regulation, order, writ, injunction, judgment or decree of any
court or governmental authority or arbitration tribunal to which Buyer or Parent
is subject.
5.3 Brokerage Fees. Buyer has not employed and is not liable for the
payment of any fee to any finder, broker or similar person in connection with
the transactions contemplated by this Agreement.
ARTICLE VI. COVENANTS OF PARTIES
6.1 Preservation of Business and Assets. From the date hereof until the
Closing, each of Seller and Shareholder shall use its commercially reasonable
efforts and shall do or cause to be done all such acts and things as may be
reasonably necessary to preserve, protect and maintain intact the Assets and the
business and operation of the Hospital and Related Assets as a going concern
consistent with prior practice and not other than in the ordinary course of
business, and to preserve, protect and maintain the good will of the Hospital's
and Related Assets' medical staff, suppliers, employees, clientele, patients,
tenants and others having business relations with Seller. Seller shall use its
commercially reasonable efforts to retain its employees in their current
positions up to Closing and shall use its commercially reasonable efforts to
obtain all documents called for by this Agreement. From and after the date of
this Agreement until Closing, Seller will maintain and keep the Assets in a
sanitary, well-maintained condition and in good order and repair, consistent
with past practice. Buyer, Parent, Seller and Shareholder shall use their
commercially reasonable efforts to the consummation of the transactions
contemplated by this Agreement. Until termination of this Agreement, Seller and
Shareholder agree that they will not sell or transfer, or negotiate the sale or
transfer of, either the Assets or any capital stock of Seller. From and after
the date of this Agreement until Closing, Seller shall pay no dividend, and
shall make no distribution or extraordinary payment to any of the Shareholder,
affiliate or any third party or pay any intercompany payable other than in the
ordinary course of business and Seller will not sell, discard, dispose of or
move any of the Assets, other than in the ordinary course of business. None of
the Leases and Contracts being assumed by Buyer shall be amended between the
date hereof and Closing without the prior written consent of Buyer, except for
renewals in the ordinary course of business.
6.2 Absence of Material Change. From the date hereof until the Closing,
neither Seller nor Shareholder shall make any material change in the business
and operation of the Hospital and Related Assets and in the utilization of the
Assets and shall not enter jointly or separately into any other significant
contract or commitment or any other transaction with respect thereto without the
prior written consent of Buyer, which shall not be unreasonably withheld.
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6.3 Access to Books and Records.
(1) From the date hereof until the Closing, Seller shall give
to Buyer and to Buyer's counsel, accountants, and other representatives, full
access during normal business hours to all of Seller's offices, properties,
books, contracts, commitments, records and affairs relating to the Assets so
that Buyer may inspect and audit them and shall furnish to Buyer a copy of all
documents and information concerning the properties and affairs of the Assets as
Buyer may reasonably request, subject to patient and physician confidentiality
rights. If any such books, records and materials are in the custody of third
parties, Seller shall direct such third parties to promptly provide them to
Buyer. Copies of documents furnished to Buyer by Seller will be promptly
returned by Buyer upon request if the transaction is not consummated. Seller
shall provide Buyer promptly with interim financial statements of Seller in
accordance with Section 4.3, and any other management reports as and when they
are available. Additionally, from the date hereof until Closing, Seller grants
Buyer full access to Seller's personnel and computers as is reasonably necessary
to assist Buyer in the transition to be prepared for the ownership change, to
the extent such access does not interfere with patient care.
(2) Following the Closing, for a period of four (4) years,
Buyer shall permit Seller's and Shareholder's representatives (including,
without limitation, their counsel and auditors), during normal business hours
and upon appropriate advance notice, to (i) have reasonable access to, and
examine and make copies of all books and records of the Hospital and Related
Assets, including all medical records and medical charts of any patient admitted
to the Hospital and Related Assets, which are transferred to Buyer hereunder and
(ii) have reasonable access to the Hospital's employees, relating to
transactions or events occurring prior to the Closing, to the maximum extent
permitted by law as long as such requests do not unreasonably interfere with the
operation of the Hospital. For a period not to exceed the earlier of (a) four
(4) years after the later of the receipt from Medicare of a Notice of Program
Reimbursement or the receipt from Medicare of a Notice of Reopening, and (b)
eight (8) years after the Closing, Buyer agrees that, prior to the destruction
or disposition of any such books or records, Buyer shall provide not less than
forty-five (45) days', nor more than ninety (90) days' prior written notice to
Seller and Shareholder of such proposed destruction or disposal. If Seller or
Shareholder desires to obtain any of such documents, it may do so by notifying
Buyer in writing at any time prior to the date scheduled for such destruction or
disposal. In such event, Buyer shall not destroy such documents and the parties
shall then promptly arrange for the delivery of such documents to Seller or
Shareholder or their successors or assigns. All out-of-pocket costs associated
with the delivery of the requested documents shall be paid by Seller or
Shareholder (as the case may be).
(3) Following the Closing, Seller shall permit Buyer and its
representatives (including, without limitation, their counsel and auditors),
during normal business hours, and upon appropriate advance notice, to have
reasonable access to, and examine and make copies of, all books and records of
Seller and its affiliates relating to the Hospital, Related Assets, or the other
Assets, which books and records, are retained by Seller and which relate to
transactions or events contemplated by this Agreement occurring prior to the
Closing, to the maximum extent permitted by law. For a period of three (3) years
after the Closing, Seller agrees that, prior to
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the destruction or disposition of any such books or records, Seller shall
provide not less than forty-five (45) days', nor more than ninety (90) days'
prior written notice to Buyer of such proposed destruction or disposal. If Buyer
desires to obtain any such documents, it may do so by notifying Seller in
writing at any time prior to the date scheduled for such destruction or
disposal. In such event, Seller shall not destroy such documents and the parties
shall then promptly arrange for the delivery of such documents to Buyer, its
successors or assigns. All out-of-pocket costs associated with the delivery of
the requested documents shall be paid by Buyer.
6.4 Consents. Seller shall use its commercially reasonable efforts to
obtain all consents required for the assignment of the Leases and Contracts
constituting Assumed Liabilities, and transfer of the Seller's interest in EPPO.
In the event Seller is unable to obtain any one or more consents required
pursuant to Section 11.6(l), and if the failure to obtain such consent
materially adversely affects the anticipated operations of the Assets (as
reasonably determined by Buyer), Buyer, at its sole option, may elect to
terminate this Agreement in its entirety.
6.5 Risk of Loss. In the event there is any damage to or loss of any of
the Assets (whether by fire, theft, vandalism or other cause or casualty),
between the date hereof and the Closing and Buyer reasonably determines that (i)
the amount necessary to repair the damage exceeds $600,000, and (ii) such damage
cannot be repaired within 60 days, Buyer, at its sole option, may elect to
terminate this Agreement in its entirety.
6.6 Condemnation. From the date hereof until the Closing, in the event
that any portion of the Assets becomes subject to or is threatened with any
condemnation or eminent domain proceedings which in Buyer's reasonable opinion
materially adversely affects the businesses or operations or prospects of any of
the Assets, then Buyer, at its sole option, may elect to terminate this
Agreement in its entirety.
6.7 Good Faith. All parties shall act in good faith and use their
commercially reasonable efforts to satisfy all conditions to their respective
obligations to close.
6.8 Preserve Accuracy of Representations and Warranties. Seller and
Shareholder shall refrain from taking any action which would render any
representations and warranty contained in Article IV hereof inaccurate as of
Closing. Seller and Shareholder will promptly notify Buyer of any lawsuit,
claim, audit, investigation, administrative action or other proceeding asserted
or commenced against Seller or its directors, officers, Shareholder or
affiliates, that may involve or relate in any way to Seller, Shareholder, the
Assets or the business and operations of Seller or the Assets. Each party hereto
shall promptly notify the other parties hereto of any facts or circumstances
which come to either's attention and which cause, or through the passage of time
may cause, any of that party's or the other party's representations and
warranties to be untrue or misleading at any time from the date hereof to
Closing.
6.9 Maintain Books and Accounting Practices. From the date hereof until
the Closing, Seller shall maintain its books of account in the usual, regular
and ordinary manner in accordance with generally accepted accounting principles
consistently applied and on a basis consistent with
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prior years and shall make no change in its accounting methods or practices or
the accounting methods or practices.
6.10 Indebtedness; Liens. Other than in the ordinary course of
business, from the date hereof until the Closing, with respect to the Assets,
including business operations conducted with the Assets, Seller shall not
create, incur, assume, guarantee or otherwise become liable or obligated with
respect to any indebtedness for borrowed money, nor make any loan or advance to,
or any investment in, any person or entity, nor create any lien, security
interest, mortgage, right or other encumbrance in any of the Assets, without
Buyer's prior written approval which will not be unreasonably withheld. Until
Closing, Seller shall make all payments required with respect to its long-term
debt, including, without limitation, any bonds, loans or other obligations as
described in Section 1.4(l) and fully and timely comply with and satisfy all its
obligations with respect thereto. Seller shall take all action necessary to
cause all collateral and security against the Assets to be fully released to
Buyer's satisfaction as contemplated hereunder, and Buyer will cooperate with
Seller in this regard.
6.11 Compliance with Laws and Regulatory Consents. From the date hereof
until the Closing, (a) Seller shall comply with all applicable statutes, laws,
ordinances and regulations, except to the extent non-compliance would not have a
material adverse effect on the assets or operations of Seller; (b) Seller shall
keep, hold and maintain all certificates, certificates of need, certificates of
exemption, accreditations, participations, licenses, and other permits necessary
for the business and operation of the Assets; (c) Seller and Shareholder shall
use their commercially reasonable efforts to obtain all consents, approvals,
exemptions and authorizations of third parties, whether governmental or private,
necessary to consummate the transactions contemplated by this Agreement; and (d)
Seller and Shareholder shall make and cause to be made all filings and give and
cause to be given all notices which may be necessary or desirable on its part
under all applicable laws and under its contracts, agreements and commitments in
order to consummate the transactions contemplated by this Agreement.
6.12 No Sale, Merger or Consolidation. From the date hereof until the
Closing, Shareholder shall not sell, pledge or transfer any of the capital stock
in Seller, and Seller shall not sell all or substantially all of its assets,
merge or consolidate with any other entity; neither of Seller and Shareholder
shall solicit any inquiries, proposals or offers relating to such transactions;
and both shall promptly notify Buyer orally, and confirm in writing, of all
relevant details relating to inquiries, proposals or offers which it may receive
relating to any of the matters referred to in this Section.
6.13 Maintain Insurance Coverage. From the date hereof until the
Closing, Seller shall maintain and cause to be maintained in full force and
effect, without change of coverage or insurance carrier unless approved of in
writing by the Buyer (which approval shall not be unreasonably withheld), the
existing insurance on the Assets and the operations of the Hospital and the
Related Assets and shall provide, upon request by Buyer, evidence satisfactory
to Buyer that such insurance continues to be in effect and that all premiums due
have been paid.
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Prior to Closing, Seller will obtain "tail" insurance coverage for a
malpractice and general liability insurance policy with limits no less than
$1,000,000.00 per occurrence and $3,000,000.00 in the aggregate and umbrella
coverage with limits no less than $9,000,000.00 from a carrier acceptable to
Buyer and naming Buyer as additional insured.
6.14 Medicare and Medicaid Reporting. From the date hereof until the
Closing, on behalf of the Hospital and Related Assets, Seller shall timely file
or cause to be filed all cost reports and other reports of every kind, nature or
description, required by law or by written or oral contract to be filed with
respect to the purchase of services by third party payors, including, but not
limited to, Medicare, Medicaid, and Blue Cross prior to Closing. Seller has paid
or properly estimated and recorded on its Financial Statements all liabilities
for contracted adjustments, discounts, refunds and other offsets in
connection with the filing of such reports and claims up to Closing; provided,
however, that if any material adverse adjustments or offsets regarding
operations on or after Closing are the result of the willful acts or omissions,
or gross negligence, of Seller and/or its employees, representatives or agents,
Seller and Shareholder shall provide indemnification to Buyer with respect
thereto pursuant to Section 13.2. Buyer shall prepare and file the terminating
cost reports for the Hospital. Seller shall assist the Buyer in any way needed
to complete the cost report in a timely manner. Seller will not amend any cost
report for any periods before and through Closing.
6.15 Current Return Filing. Seller shall be responsible for the
preparation and filing of the federal, state and local income tax returns for
all the tax periods of Seller ending on or before the Closing. Seller shall
prepare and timely file the Federal, state and/or local income tax returns and
shall pay such tax when due.
6.16 Performance. Seller, Shareholder, Parent and Buyer shall take
appropriate steps to satisfy their respective obligations, and the conditions to
Closing, including without limitation, the filing of Hart-Scott-Rodino notices,
if any, and the obtaining of necessary contracts and application for necessary
licenses and permits.
6.17 WARN Act. Prior to Closing, Seller will not temporarily or
permanently close or shut down any "single site of employment" or any "facility"
or any "operating unit" or any "workplace," department or service within a
single site of employment, as such terms are used in, and as would require
notice under, WARN and Tenn. Code Ann. ss.50-1-601 et seq., and Seller and
Shareholder represent that there have been no such closures or shutdowns within
the period of at least 90 days before Closing. Buyer agrees to offer employment
to substantially all of Seller's employees on substantially the same terms and
conditions as provided by Seller, and Buyer agrees to hire at Closing all of
Seller's employees who accept such offer of employment. Within twenty-one (21)
days after the date hereof, Buyer will notify Seller of the specific employees
of Seller, not to exceed twenty (20) employees, who will not be offered
employment by Buyer. In reliance upon this covenant, Seller will not have any
obligation to comply with the WARN Act or Tennessee Code Ann. ss.50-1-601 et
seg. in connection with the transactions contemplated by this Agreement. After
Closing, Buyer shall not take any action which will violate the WARN Act with
respect to the employees of the Hospital.
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6.18 Employee Plans. If any employees of Seller have existing vested
account balances in any employee pension benefit plan, including any 401(k)
plan, Seller and Shareholder will use reasonable efforts to assist such
employees who desire to roll over any of such vested account balances.
6.19 Power to Endorse Checks. As specified in Section 4.13(5), Buyer
has been granted the power, effective as of Closing, to execute and endorse for
payment all payments on accounts receivable sold to Buyer.
6.20 Environmental Assessment; Additional Environmental Inspections.
Seller and Shareholder shall permit Buyer prior to Closing to conduct an
environmental assessment on any of the Real Estate, in accordance with the
proposal submitted by Williams & Associates, dated August 8, 1996 and October
25, 1996 previously provided to Seller, the results of which shall be approved
or disapproved by Buyer within ten (10) days after its receipt thereof. Buyer
and Seller will share equally in the cost of such environmental assessment. If
such environmental assessment discloses the presence of any Hazardous Substances
on the Real Estate, including hydrocarbons, in quantities or concentrations
which require remediation or removal under Environmental Law, Buyer shall have
the right, subject to Seller's prior written approval, to conduct additional
investigation (including the taking of soil and groundwater samples). The cost
of such additional investigation shall be borne by Buyer. The results of such
additional investigation shall be approved or disapproved by Buyer with ten (10)
days of the receipt thereof. Buyer shall promptly deliver to Seller a copy of
any environmental assessment obtained by Buyer pursuant to the provisions
hereof. In the event that any remediation or removal is required pursuant to
Environmental Law for matters disclosed in reports furnished to Buyer by
Williams & Associates, Buyer shall bear the cost of such remediation or removal.
In the event that Buyer elects to remove any friable asbestos contained in the
Real Estate which remediation and removal is not required under Environmental
Law, the amount of the Purchase Price shall be increased by the amount of the
cost of such removal and such additional funds shall be placed into escrow
pursuant to Section 3.1(6) and the cost of the removal shall be paid from the
funds placed in escrow.
ARTICLE VII. TITLE AND SURVEY
7.1 Title Report and Policy. Seller has delivered to Buyer an ALTA
Commitment for Title Insurance issued by Lawyers Title Insurance Corporation
(the "TITLE COMPANY") setting forth the condition of title to each tract of Real
Estate (the "COMMITMENT"). At the Closing, Seller shall deliver to Buyer, at
Buyer's expense, an Owner Policy of Title Insurance in the form of the
Commitment in an amount equal to the Purchase Price allocated to the Real
Estate, as improved, and containing no additional exceptions other than the
Permitted Exceptions (the "Title Policy"). The Title Policy will also contain,
to the extent said endorsements can be provided without any expense to Seller:
(a) a so-called "tax parcel endorsement" listing all of the tax parcel
identification numbers affecting the Real Estate covered by the Policy and that
no other property is included in the Real Estate and that no other tax parcel
identification numbers affect such Real Estate, (b) a contiguity endorsement,
(c) a 3.1 zoning endorsement or its equivalent
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as then in use by the title company in form and substance acceptable to Buyer,
(d) extended coverage deleting all standard and general exceptions, (e)
affirmative coverage against any Hill-Burton or other similar lien under any
other law or act described in Section 4.26 of this Agreement, and (f) an owner's
comprehensive endorsement; provided, however, Buyer shall have the right to, at
its own expense, obtain any endorsements for which there is a charge by the
Title Company. At Closing, there shall be issued to Buyer, at Buyer's expense, a
modified title commitment so as to update the Commitment to the time of
recording so that there is no gap period. In the event Buyer requests, and at
Buyer's expense, the Title Company shall issue a mortgagee title policy in an
amount up to the Purchase Price which is allocated to the Real Estate as
improved, at simultaneous issue rates. Shareholder shall execute such
certificates and affidavits as may be reasonably required in connection with the
issuance of the Title Policy and endorsements, whether such endorsements are
obtained by Shareholder or Buyer.
7.2 Survey. Seller has delivered to Buyer, at Seller's expense, an
as-built survey of the Real Estate prepared by Davis Engineering Inc. dated
August 28, 1996 (the "SURVEY"). Buyer has approved the Survey in all respects.
7.3 U.C.C. Searches. U.C.C. Financing Statement searches, local and
central, including fixtures, and federal and state tax lien and judgment
searches, with respect to Seller and Shareholder, including all "DBA's",
tradenames and fictitious names of Seller (including, but not limited to, all
names set forth in Exhibit 4.13(4)), from each of the jurisdictions in which
Seller does business or has done business within the preceding five (5) years
(the "UCC SEARCHES"), shall be obtained, at Seller's cost, and delivered to
Buyer within 10 days after the date hereof. The results shall be updated so that
said results do not predate Closing by more than 14 days.
7.4 Defects and Cure. Buyer shall notify Seller within 7 days of
receipt of the last UCC Search of any liens or claims disclosed in the UCC
Searches which either: (a) do not constitute Permitted Exceptions, or (b) even
if they constitute Permitted Exceptions, adversely affect the value of the
Assets or the financeability thereof in the reasonable opinion of Buyer
(collectively, "DEFECTS"). Seller, at its sole cost and expense, may elect to
not cure the objection and shall give written notice to Buyer within seven (7)
days of its receipt of Buyer's objections of its decision whereupon Buyer may
waive such objection and close or may terminate this Agreement, which election
shall be made within seven (7) days of receipt of notice from Seller. If Seller
fails to timely give such notice, Seller shall be deemed to have elected not to
cure the objection, whereupon Buyer may waive such objection and close or may
terminate this Agreement, which election by Buyer shall be made within ten (10)
days following notice of objection to Seller. Upon termination of this Agreement
under the terms of this Section 7.4, no party to this Agreement shall have any
further claims under this Agreement against any other party. Any Defect to which
Buyer does not object or which Buyer waives shall be deemed to be a Permitted
Exception.
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ARTICLE VIII. CLOSING
8.1 Closing. If all of the conditions to Closing set forth in Articles
IX and X hereof are satisfied, the closing shall occur on May 30, 1997, at the
offices of Harwell Howard Hyne Gabbert & Manner, P.C., Nashville, Tennessee, or
at such other time or place as the parties may mutually agree. Upon transfer of
the assets and payment of the Purchase Price (the "CLOSING"), the Closing shall
be deemed to be effective and the transfer of the Assets shall be deemed to have
occurred as of 12:01 a.m. local time on the day of Closing. On the day of
Closing, the Collateral Trustee (for the account of Shareholder and Seller)
shall receive good funds in the amount of the Purchase Price.
8.2 Termination. Notwithstanding anything in this Agreement to the
contrary, this Agreement and the obligations of the parties hereunder may be
terminated on or prior to Closing as follows:
(a) By Seller (i) in the event the transactions contemplated
by this Agreement have been prohibited or enjoined by reason of any final
judgment, decree or order entered or issued by a court of competent jurisdiction
in litigation or proceedings involving either Buyer, Seller or Shareholder; (ii)
pursuant to Section 6.20 or 10.9; or (iii) in the event Buyer breaches or
violates any material provision of this Agreement or fails to perform any
material covenant or agreement to be performed by Buyer under the terms of this
Agreement, and Seller has provided written notice thereof to Buyer giving
reasonable specificity and Buyer has not cured same within ten (10) days and
such breach is not waived by Seller in writing.
(b) By Buyer (i) in the event the transactions contemplated by
this Agreement have been prohibited or enjoined by reason of any final judgment,
decree or order entered or issued by a court of competent jurisdiction in
litigation or proceedings involving either Buyer, Seller or Shareholder; (ii)
pursuant to Section 6.4, 6.5, 6.6 or 6.20; or (iii) in the event Seller or
Shareholder breach or violate any material provision of this Agreement or fail
to perform any material covenant or agreement to be performed by Seller and/or
Shareholder under the terms of this Agreement and Buyer has provided written
notice thereof to Seller and/or Shareholder giving reasonable specificity and
Seller and/or Shareholder have not cured same within ten (10) days and such
breach is not waived by Buyer in writing.
(c) By Buyer or Seller if the Closing hereunder shall not have
taken place by June 1, 1997, or, by such later date as shall be agreed upon by
an appropriate amendment to this Agreement if the parties agree in writing to an
extension, provided that a party shall not have the right to terminate under
this Section 8.2(c) if the conditions precedent to such party's obligation to
close have been fully satisfied and such party has failed or refused to close
after being requested in writing to close by the other party.
In the event of a termination pursuant to Section 8.2(a)(iii), the Earnest Money
shall be paid to Seller, or in the event of a termination for any other reason,
the Earnest Money shall be returned to Buyer.
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ARTICLE IX. SELLER'S AND SHAREHOLDER'S CONDITIONS TO CLOSE
The obligations of Seller and Shareholder under this Agreement are
subject to the satisfaction, on or prior to Closing, of the following conditions
(which may be waived specifically in writing by Seller in whole or in part):
9.1 Representations and Warranties True at Closing; Compliance with
Agreement. The representations and warranties of Buyer contained in this
Agreement (including the Exhibits hereto) or in any certificate or document
delivered to Seller and/or Shareholder pursuant hereto, shall be deemed to have
been made again at the Closing and shall then be true in all material respects;
and Buyer and Parent shall have performed and complied with all covenants,
agreements and conditions required by this Agreement to be performed or complied
with by them prior to or at Closing.
9.2 Regulatory Approvals. Buyer shall have obtained (at its own cost),
or shall have reasonable assurances that it will obtain (at its own cost), all
consents, licenses, permits, approvals, provider contracts, determinations or
certificates of need from the appropriate governmental agencies, including the
filing of Hart-Scott-Rodino notices, required for Buyer to acquire and operate
the Assets as contemplated hereunder. Buyer shall have filed a Hart-Scott-Rodino
notice with the Federal Trade Commission within 3 business days after the date
hereof.
9.3 No Action/Proceeding. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transaction herein contemplated, and no governmental
agency or body shall have taken any other action or made any request of Seller
or Buyer as a result of which Seller reasonably and in good faith deems that to
proceed with the transactions hereunder would constitute a violation of law.
9.4 Compliance with Article XII. The Buyer shall have made to the
Seller and Shareholder the deliveries required by Article XII hereof.
9.5 Order Prohibiting Transaction. No order shall have been entered in
any action or proceeding before any court or governmental agency, and no
preliminary or permanent injunction by any court shall have been issued which
would have the effect of (a) making the transactions contemplated by this
Agreement illegal, (b) otherwise preventing consummation of such transactions,
or (c) imposing material limitations on the ability of Seller or Shareholder
effectively to sell the Assets. There shall have been no federal or state
statute, rule or regulations enacted or promulgated after the date of this
Agreement that would reasonably, directly or indirectly, result in any of the
consequences referred to in this Section.
9.6 Completion of Exhibits. All exhibits to this Agreement will be
completed to the mutual satisfaction of the parties.
9.7 Certain Approvals. This Agreement and the consummation of the
transactions contemplated hereunder shall have been approved by (a) the Board of
Directors of Shareholder
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within 5 business days after the date hereof and (b) the participants of Bank of
Tokyo within 10 business days after the date hereof.
9.8 Minimum Purchase Price. Shareholder shall have determined that the
Purchase Price, as calculated pursuant to Section 3.1, less the premium for the
tail insurance required pursuant to Section 10.8 and the other expenses payable
pursuant to Section 15.2, shall be not less than $11,592,000.
ARTICLE X. BUYER'S CONDITIONS TO CLOSE
The obligations of Buyer under this Agreement are subject to the
satisfaction, on or prior to Closing, of the following conditions (which may be
waived in writing by Buyer in whole or in part):
10.1 Representations and Warranties True at Closing: Compliance with
Agreement. The representations and warranties of Seller and Shareholder
contained in this Agreement (including the Exhibits hereto) or in any
certificate or document delivered to Buyer pursuant hereto, shall be deemed to
have been made again at the Closing and shall then be true in all material
respects; and Seller and Shareholder shall have performed and complied with all
covenants, agreements and conditions required by this Agreement to be performed
or complied with by it prior to or at Closing.
10.2 No Material Adverse Change. There shall have occurred no material
adverse change or change known to have a future material adverse effect on the
condition or prospects, financial or otherwise, of Seller or the Assets. There
shall not be any material claims, litigation or governmental proceedings pending
or threatened against Seller and/or Shareholder which would adversely affect the
Assets or the consummation of the transactions contemplated hereby at Closing.
10.3 Regulatory Approvals. Buyer shall have obtained (at its own cost),
or shall have reasonable assurances that it will obtain (at its own cost) within
30 days after the date hereof (a) certification for participation in the
Medicaid Programs of the states of Tennessee (including TennCare), Mississippi
and Arkansas, (b) certification from the appropriate agency of the federal
government for participation in the federal Medicare Program, (c) all other
consents, licenses, permits, approvals, material provider contracts,
determinations or certificates of need reasonably necessary in the judgment of
Buyer, and (d) any applicable waiting period required by Hart-Scott-Rodino
Antitrust Improvements Act shall have expired and no other review, approval or
other action of the Federal Trade Commission or the Antitrust Division of the
United States Department of Justice shall be required in order to consummate the
transactions contemplated hereby.
10.4 No Action/Proceeding. No action or proceeding before a court or
any other governmental agency or body shall have been instituted or threatened
to restrain or prohibit the transaction herein contemplated, and no governmental
agency or body shall have taken any other
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action or made any request of Seller or Buyer as a result of which Buyer
reasonably and in good faith deems that to proceed with the transactions
hereunder would constitute a violation of law.
10.5 Compliance with Articles VII and XI. The Seller and/or Shareholder
shall have made to Buyer the deliveries required by Articles VII and XI hereof
within the time periods required thereunder.
10.6 Order Prohibiting Transaction. No order shall have been entered in
any action or proceeding before any court or governmental agency, and no
preliminary or permanent injunction by any court shall have been issued which
would have the effect of (a) making the transactions contemplated by this
Agreement illegal, (b) otherwise preventing consummation of such transactions,
or (c) imposing material limitations on the ability of Buyer effectively to
acquire and hold Assets, or, in either case, to exercise rights of ownership
pursuant thereto. There shall have been no federal or state statute, rule or
regulations enacted or promulgated after the date of this Agreement that would
reasonably result, directly or indirectly, in any of the consequences referred
to in this Section.
10.7 Release of Liens. Seller shall obtain the full release of any
liens or security interests securing any of the indebtedness described in
Section 1.4(1).
10.8 Tail Insurance. Seller shall deliver evidence of its tail
insurance coverage required by Section 6.13 hereof.
10.9 Certain Approvals. This Agreement and consummation of the
transactions contemplated hereunder shall have been approved by (a) the Board of
Directors of Buyer within 5 business days after the date hereof, and (b) Buyer's
bank group within 10 business days after Buyer's receipt of the environmental
assessment and any additional inspections conducted pursuant to Section 6.20. If
all of such approvals are not obtained by May 15, 1997, Seller may terminate
this Agreement.
10.10 Completion of Exhibits. All exhibits to this Agreement will be
completed to the mutual satisfaction of the parties.
ARTICLE XI. OBLIGATIONS OF SELLER AND SHAREHOLDER AT CLOSING
At Closing, Seller and Shareholder shall deliver or cause to be
delivered to Buyer or Buyer's designee, at Seller's expense, the following in a
form and substance reasonably satisfactory to Buyer or Buyer's designee:
11.1 Documents Relating to Title. Seller or Shareholder shall execute,
acknowledge and deliver or cause to be executed, acknowledged and delivered, to
Buyer or Buyer's designee:
(1) Special warranty deeds, in form satisfactory to Buyer or
Buyer's designee and the Title Company, and conveying to Buyer good, valid and
marketable title in fee simple
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to the Real Estate free and clear of all liens, mortgages, pledges,
encumbrances, security interests, covenants, easements, rights of way, equities,
options, rights of first refusal, restrictions, special tax or governmental
assessments, defects in title, encroachments and other burdens, except for
Permitted Exceptions.
(2) Special warranty bills of sales and assignments, in form
satisfactory to Buyer, warranting and conveying to Buyer good and valid title to
all Assets (other than Real Estate) free and clear of all liens, mortgages,
pledges, encumbrances, security interests, covenants, easements, rights of way,
equities, options, rights of first refusal, restrictions, special tax or
governmental assessments, defects in title, encroachments and other burdens,
except for Permitted Exceptions.
(3) Certificates of title to all vehicles which constitute
Assets endorsed by Seller (or its affiliates, as is appropriate) together with
completed originals of any forms required by the State of Tennessee to transfer
the same, free and clear of liens.
(4) An assignment to Buyer of each lease and contract (subject
to Buyer's assumption) constituting an Assumed Liability.
(5) Title Policy as specified in Section 7.1 hereof.
11.2 Possession. Seller shall deliver to Buyer full possession and
control of the Assets, free and clear of all liens, mortgages, pledges, security
interests, restrictions, encumbrances, mortgages, easements, liabilities, and
burdens of any kind whatsoever, except for Permitted Exceptions.
11.3 Opinion of Seller's Counsel. Seller shall deliver to Buyer and
its lender the favorable opinion of counsel for Seller and Shareholder, dated as
of Closing, in form and substance reasonably acceptable to Buyer and its lender.
11.4 Good Standing and Resolutions. Each of Seller and Shareholder
shall deliver to Buyer Certificates of Good Standing from the Secretary of State
of its state of organization, and from each jurisdiction in which it is
qualified to do business, certified copies of its Bylaws and Charter, and a
certified copy of the resolutions of the Board of Directors and Shareholder of
Seller authorizing the execution, delivery and consummation of this Agreement
and the execution, delivery and consummation of all other agreements and
documents executed in connection herewith by them, including all deeds, bills of
sale and other instruments required hereunder, sufficient in form and content to
meet the requirements of the law of the State of Tennessee relevant to such
transactions and certified by officers of Seller to be validly adopted and in
full force and effect and unamended as of Closing.
11.5 Closing Certificate. Seller shall deliver to Buyer a certificate
of an officer of Seller and of Shareholder, dated as of Closing, certifying that
(a) each covenant and obligation of Seller and/or Shareholder has been complied
with by such parties in all material respects, and
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(b) each representation and warranty of Seller and Shareholder is true and
correct on the Closing in all material respects as if made on and as of the
Closing.
11.6 Third Party Consents. Seller shall deliver to Buyer:
(1) Any consents, estoppels, approvals, releases, filings and
authorizations of third parties which are necessary for the execution, delivery
and consummation of this Agreement, and the transactions contemplated hereunder,
as set forth on Exhibit 11.6(l).
(2) To the extent obtainable after diligent efforts, the
consents required by Section 6.4;
(3) To the extent obtainable after diligent efforts, the
estoppel and attornment letters from tenants of the Real Estate and Related
Assets, in form of Exhibit 11.6(3).
11.7 Taxes and Other Payments. Seller or Shareholder shall deliver to
Buyer:
(1) Proof of cash payment directly to the tax authorities or
cash payment (or credit on the Purchase Price) to Buyer in the amount of all
delinquent real estate taxes and assessments which are a lien on the date of
Closing, general and special.
(2) A certificate of non-foreign status signed by the
appropriate party and sufficient in form and substance to relieve Buyer of all
withholding obligations under Section 1445 of the Code. In the event that Seller
or Shareholder cannot furnish such a certificate or is not entitled to rely upon
such a certificate under the provisions of Section 1445 and the regulations
thereunder, Seller or Shareholder shall take and/or permit Buyer or Buyer's
nominee to take any and all steps necessary to allow Buyer or Buyers nominee to
satisfy the requirements or Section 1445.
(3) Receipt or other evidence from the Commissioner of the
Tennessee Department of Revenue showing that all liability for sale and use
taxes and employment taxes due from Seller have been paid.
(4) Receipt or other evidence from the Tennessee Department of
Employment Security evidencing that all contributions under the Tennessee
unemployment compensation law due from Seller have been paid.
11.8 Releases and Other Matters. Seller or Shareholder shall deliver to
buyer releases of mortgages, security interests, etc. which are not Permitted
Exceptions.
11.9 Notice to Third-Party Payors. Seller shall deliver executed
notices of the sale of the Hospital, to be furnished to all third-party payors
including the Programs, in the form of Exhibit 11.9 hereto.
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11.10 Additionally Requested Documents: Post Closing Assistance. At the
reasonable request of Buyer at Closing and at any time or from time to time
thereafter without any additional cost or liability to Seller or Shareholder,
Seller and Shareholder shall cooperate with Buyer to put Buyer in actual
possession and operating control of the Assets, execute and deliver such further
instruments of sale, conveyance, transfer and assignment, as Buyer may
reasonably request in order to effectively sell, convey, transfer and assign the
Assets to Buyer, to execute and deliver such further instruments and to take
such other actions as Buyer may reasonably request to release Buyer from all
obligation and liability with regard to any obligation or liability retained by
Seller and/or Shareholder and to execute and deliver such further instruments
and to cooperate with Buyer as Buyer may reasonably request or to enable Buyer
to obtain all necessary health care or regulatory certifications, approvals,
consents and licenses, accreditations or permits.
ARTICLE XII. OBLIGATIONS OF BUYER AT CLOSING
At Closing, Buyer and Parent shall deliver or cause to be delivered to
Seller the following in a form and substance reasonably satisfactory to Seller
and Shareholder:
12.1 Purchase Price. Buyer and Parent shall deliver to the Collateral
Trustee for the account of Shareholder and Seller cash or other immediately
available funds in the aggregate amount of the Purchase Price as specified in
this Agreement.
12.2 Corporate Good Standing and Certified Board Resolutions. Each of
Buyer and Parent shall deliver to Seller a certificate of good standing from the
Secretary of State of its state of organization dated the most recent practical
date prior to Closing and a certified copy of the resolutions of the Board of
Directors of the Buyer and Parent approving this Agreement and consummation of
the transactions hereunder contemplated.
12.3 Opinion of Buyer's Counsel. Buyer shall deliver to Seller a
favorable opinion of counsel for Buyer, dated as of Closing, in form and
substance reasonably acceptable to Seller.
12.4 Assumption of Liabilities. Buyer shall assume and covenant to
fully perform and comply with all of the Assumed Liabilities by instruments
reasonably acceptable to Seller and Shareholder.
12.5 Closing Certificate. Buyer shall deliver to Seller a certificate
of an officer of the Buyer and Parent, dated as of Closing, certifying that (a)
each covenant and condition precedent of Buyer and Parent has been complied with
by such parties in all material respects and (b) each representation and
warranty of Buyer is true and correct on the Closing as if made on and as of the
Closing.
12.6 Seller's Employees. For Seller's employees who accept Buyer's
offer of employment, Buyer shall recognize the employee's length of service with
Seller (but not any predecessor) for eligibility and vesting under Buyer's
employee benefit programs, including vacation and pension.
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12.7 Health Insurance. Employees who accept Buyer's offer of employment
shall be entitled to such medical, dental, disability and life insurance and
other employee benefits as are comparable to those benefits currently provided
to employees of Parent in similar positions, without any exclusion for
preexisting conditions or evidence of insurability.
12.8 Transfer Taxes. Buyer shall pay all state and local sales taxes
and transfer taxes incurred in connection with the transactions contemplated
hereby and shall provide Seller with proof of payment thereof.
ARTICLE XIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION
13.1 Survival. The covenants, obligations, representations and
warranties of Buyer, Parent, Seller and Shareholder contained in this Agreement,
or in any certificate or document delivered pursuant to this Agreement, shall be
deemed to be material and to have been relied upon by the parties hereto
notwithstanding any investigation prior to the Closing and shall survive the
date of Closing for a period of two (2) years after Closing, and shall not be
merged into any deeds or other documents delivered in connection with the
Closing; provided that claims relating to (a) Medicare and Medicaid cost reports
with respect to the period that the Hospital was owned or operated by the Prior
Operators, (b) title to Assets which constitute personal property, (c) lack of
corporate power and authority, (d) ERISA and employee benefit matters, and (e)
taxes (all of the foregoing claims specified in (a)-(e) being collectively the
"EXCLUDED CLAIMS") shall survive until sixty (60) days after the applicable
statute of limitations relating to the underlying claim, and shall be subject to
the limits on indemnification as set forth in Section 13.4(8).
13.2 Indemnification by Seller and Shareholder. Subject to Sections
13.4(7) and (8), Seller and Shareholder, jointly and severally, promptly shall
indemnify, defend and hold harmless (and upon demand shall reimburse) Buyer and
the directors, officers, shareholders, employees and agents of Buyer against any
and all claims, actions, demands, suits, proceedings, assessments, judgments,
losses, costs, and expenses (including reasonable cost of investigation, court
costs, legal fees and expenses incident to any of the foregoing or incurred in
attempting to avoid the same or oppose the imposition thereof or in enforcing
this indemnity) and other damages (individually a "LOSS" and collectively,
"LOSSES") resulting from (i) any breach by either Seller or Shareholder of any
of its covenants, obligations, representations or warranties contained in this
Agreement or any certificate or document of Seller and/or Shareholder delivered
pursuant to this Agreement (or which would not have been suffered or incurred if
such representation or warranty were true or had not been breached or such
covenant or obligation had been fully performed), and (ii) any claim which is
brought or asserted by any third party against Buyer for failure to pay or
perform any of the Excluded Liabilities or otherwise related to any of the
Excluded Liabilities.
13.3 Indemnification by Buyer and Parent. Subject to Section 13.4(7)
and (8), Buyer and Parent shall promptly indemnify, defend, and hold harmless
(and upon demand shall reimburse) Seller and Shareholder and the directors,
officers, shareholders, employees and agents of Seller and Shareholder against
any and all Losses resulting from (i) any breach by Buyer or
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Parent of any of its covenants, obligations, representations or warranties
contained in this Agreement or any certificate or document of Buyer delivered
pursuant to this Agreement (or which would not have been suffered or incurred if
such representation or warranty were true or had not been breached or such
covenant or obligation had been fully performed), (ii) any claim which is
brought or asserted by any third party(s) against Seller or Shareholder for
failure to pay or perform any of the Assumed Liabilities, and (iii) any claim
arising out of the ownership, licensing or operation of the Assets or the
conduct of the business of the Hospital after Closing, except for failure to
obtain consents for the assignment of the contracts and except those directly
resulting from a breach by the Seller of any representations or covenants of
this Agreement. Notwithstanding the foregoing, so long as Buyer maintains a
minimum net worth of $4,000,000 for a period of twelve (12) months after the
Closing, Parent shall have no liability for any claim for indemnification
hereunder.
13.4 Procedure for Indemnification.
(1) Notice. Within thirty (30) days after receipt of written
or actual notice of any action or claim (the "CLAIM") as to which it asserts a
right to indemnification, the party seeking indemnification hereunder (the
"INDEMNITEE") shall give written notice thereof (the "NOTICE") to the person
from whom indemnification is sought (the "INDEMNITOR), provided that the failure
of the Indemnitee to give the Indemnitor notice within the specified number of
days shall not relieve the Indemnitor of any of its obligations hereunder, but
may create a cause of action for breach for damages directly attributable to
such delay. Indemnitor shall be liable to Indemnitee with respect to Losses
only so long as Indemnitee gives Indemnitor written notice thereof prior to the
expiration of the survival periods set forth in Section 13.1.
(2) Third Party Claims.
(a) If any claim for indemnification by Indemnitee
arises out of a Claim by a person other than Indemnitee, the Indemnitor shall be
entitled to assume the defense thereof, by written notice to the Indemnitee
within fifteen days after receipt of the Notice. Indemnitor shall thereupon
undertake to take all steps or proceedings to defeat or compromise any such
Claim, including retaining counsel reasonably satisfactory to the Indemnitee.
Except as otherwise provided herein, all costs, fees and expenses with respect
to any such Claim shall be borne by Indemnitor. If the Indemnitor assumes the
defense of a Claim, it shall not settle such Claim unless such settlement
includes as an unconditional term thereof a release by the claimant of the
Indemnitee, reasonably satisfactory to the Indemnitee and except that Indemnitor
shall not, without the prior written consent of Indemnitee, directly or
indirectly require Indemnitee to take or refrain from taking any action, or make
any public statement, or consent to any settlement, which it reasonably
considers to be against its interest. Indemnitee shall have the right to
participate at its own expense, in such proceedings, but control of such
proceedings shall remain exclusively with Indemnitor.
(b) If the Indemnitor shall fail to notify the
Indemnitee of its desire to assume the defense of any such claim or action
within the prescribed period of time, then the Indemnitee may assume such
defense in such manner as it may deem appropriate, and the
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Indemnitor shall be bound by any determinations made or any settlements thereof
effected by the Indemnitee. The Indemnitor shall be permitted, at its own
expense, to join in such defense and to employ its own counsel but control of
such proceedings shall remain exclusively with Indemnitee.
(c) Indemnitor and Indemnitee agree to make available
to each other, their counsel and other representatives, all information and
documents reasonably available to them and reasonably requested by the other
which relate to any such claim or action, and to render to each other such
reasonable assistance as may be reasonably requested in order to insure the
proper and adequate defense of such claim or action, but any costs or expenses
related thereto shall be borne by Indemnitor; and provided that any failure
(after written notice with specificity and an opportunity to cure) shall not
relieve the Indemnitor of any of its obligations hereunder but may create a
cause of action for breach for damages directly attributable to such failure.
(3) Other claims. In the event of any Claim other than those
provided for in subsection (2) hereof, Indemnitee shall be entitled to
indemnification hereunder as provided herein.
(4) Payment of Claims. Amounts payable by the Indemnitor to
the Indemnitee under this Section 13.4 shall be payable by the Indemnitor (or
the escrow agent under the Escrow Agreement) as incurred by the Indemnitee. In
the event Indemnitor (or the escrow agent under the Escrow Agreement) fails to
pay, timely and fully, any such amounts, Indemnitee may pay such claim. In such
event, the Indemnitee may recover from the Indemnitor, in an addition to the
amount so paid but subject to the Cap, (i) interest on the amount claimed from
the date of payment at the rate of 8% per annum, and (ii) reasonable attorneys'
fees in connection with the enforcement of payment under this Section 13.4.
(5) No Set-Off. The Indemnitee's right to indemnification
under this Section 13.4 shall not be subject to set-off for any claim by the
Indemnitor against the Indemnitee.
(6) Claims by a Straddle Patient. Any claim by a patient
relating to professional negligence or similar matters involving a patient of
the Hospital served both prior to Closing and subsequent to Closing will be the
responsibility of either Buyer or Seller in accordance with the following
guidelines: (i) if it is a claim in which clearly the incident giving rise to
liability arose prior to Closing, Seller shall respond to the loss and defense
expenses; (ii) if it is a claim in which clearly the incident giving rise to
liability arose subsequent to Closing, Buyer shall respond to the loss and
defense expenses; and (iii) in the event that the incident giving rise to
liability as to time is not clear, Seller and Buyer will jointly defend the case
and each will fully cooperate with the other in such defense. Once the case is
closed, if Buyer and Seller cannot agree to the allocation of both indemnity and
expenses, then the matter shall be submitted to binding arbitration in
accordance with the rules and procedures of the American Arbitration
Association.
(7) Indemnification Threshold. The parties agree not to seek
recourse against, and shall not recover from, the others under this Article XIII
on account of any Loss arising out
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of (i) a breach of Seller's representations and warranties contained in Article
IV hereof, or (ii) a breach of Buyer's representations and warranties contained
in Article V hereof, unless and until the aggregate amounts thereof (including
all prior Losses) exceeds $50,000 (the "INDEMNIFICATION THRESHOLD"), but once it
exceeds the Indemnification Threshold recovery shall be with respect to the
entire amount of the Loss and not just for the excess above the Indemnification
Threshold. Notwithstanding the foregoing, the Indemnification Threshold shall
not be applicable if the indemnification claim is a Purchase Price adjustment
pursuant to Article III.
(8) Indemnification Caps. The maximum aggregate liability of
Seller and Shareholder for indemnification under this Agreement shall be equal
to One Million One Hundred Thousand Dollars ($1,100,000) (the "One Million One
Hundred Thousand Dollar Cap") for all indemnification claims except for Excluded
Claims or for a Purchase Price adjustment pursuant to Article III. The maximum
aggregate liability of Seller and Shareholder for a Purchase Price adjustment
pursuant to Article III or indemnification under this Agreement for Excluded
Claims shall not exceed the lesser of the Purchase Price or $12,292,000.00 (the
"PURCHASE PRICE CAP"). The maximum aggregate liability of Buyer and Parent for
indemnification pursuant to Section 13.3(i) hereof shall be equal to the
Purchase Price, for indemnification pursuant to Section 13.3(ii) hereof shall be
unlimited, and for indemnification pursuant to Section 13.3(iii) hereof shall be
equal to $4,000,000.00.
(9) Insurance Provisions. Notwithstanding the Indemnification
Threshold, the One Million One Hundred Thousand Dollar Cap and the Purchase
Price Cap, all proceeds received by Seller or Shareholder under any insurance
policy shall be paid over to Buyer to satisfy any Losses and shall not be
counted against the Indemnification Threshold, the One Million Four Hundred
Thousand Dollar Cap or the Purchase Price Cap.
13.5 Assignment by Buyer. No consent by Seller and/or Shareholder shall
be required for any assignment or reassignment of the rights of Buyer under this
Article XIII.
ARTICLE XIV. PRESERVATION OF HOSPITAL BUSINESSES
AND NONCOMPETE RESTRICTIONS
14.1 Covenant Not to Compete. Seller, Shareholder, and their respective
affiliates hereby covenant and agree with Buyer that during the "Noncompete
Period" within the "Noncompete Area" they shall not directly or indirectly, (a)
acquire, lease, manage, consult for, finance or own any part of (as member,
shareholder or partner) any health care facility which provides any services
similar to the services provided by the Hospital or what are normally provided
by a suburban hospital, including but not limited to skilled nursing,
obstetrics, psychiatric, alcohol/chemical dependency, rural health, primary
care, urgent care, ambulatory surgery, diagnostics, psychiatric counseling or
any other health related services (provided, however, that Shareholder's
interest as secured lender with respect to that certain medical office building
located at 658 North Perkins, Memphis, Tennessee, shall not be deemed to be a
violation of this Section 14.1) or (b) solicit for employment or employ any
person who at Closing became an employee of Buyer, or (c) solicit for employment
or participation in any management
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services organization, preferred provider organization or other organization or
entity, any physician, physician group, or other health care provider with whom
Buyer contracts in connection with the Hospital. The "Noncompete Period." shall
commence at the Closing and terminate on the second anniversary thereof. The
"Noncompete Area" shall mean the area within a fifty (50)-mile radius of the
Hospital. Ownership of less than five percent (5%) of the stock of a publicly
held company shall not be deemed a breach of this covenant.
14.2 Enforceability. In the event of a breach of Section 14.1 hereof,
Seller and Shareholder recognize that monetary damages shall be inadequate to
compensate Buyer and Buyer shall be entitled, without the posting of a bond or
similar security, to an injunction restraining such breach, with the costs
(including attorneys fees) of securing such injunction to be borne, jointly and
severally, by Seller and Shareholder. Nothing contained herein shall be
construed as prohibiting Buyer from pursuing any other remedy available to it
for such breach or threatened breach.
All parties hereto hereby acknowledge the necessity of protection
against the competition of Seller, Shareholder and their affiliates and that the
nature and scope of such protection has been carefully considered by the
parties. The period provided and the area covered are expressly represented and
agreed to be fair, reasonable and necessary. The consideration provided for
herein is deemed to be sufficient and adequate to compensate for agreeing to the
restrictions contained in Section 14.1 hereof. If, however, any court determines
that the foregoing restrictions are not reasonable, such restrictions shall be
modified, rewritten or interpreted to include as much of their nature and scope
as will render them enforceable.
ARTICLE XV. MISCELLANEOUS
15.1 Assignment. Following Closing, Buyer freely may assign any or all
rights or delegate any or all of its obligations under this Agreement without
the express written consent of Seller or Shareholder. No assignment shall
relieve the assignor of any liability or obligation hereunder. Neither Seller
nor Shareholder may assign any rights or delegate any obligations under this
Agreement without the prior written consent of Buyer, and any prohibited
assignment or delegation will be null and void.
15.2. Other Expenses. Except as otherwise expressly provided in this
Agreement, Seller and Shareholder shall pay all of their own expenses in
connection with the negotiation, execution and implementation of the
transactions contemplated by this Agreement and Buyer and Parent shall pay all
of their own expenses in connection with the negotiation, execution, and
implementation of the transactions contemplated by this Agreement. State and
local sales and use taxes incurred in connection with the transactions
contemplated under this Agreement shall be borne and timely paid by Buyer. Buyer
will pay the cost of all appraisals and shall pay all transfer taxes. Buyer will
pay the cost of the environmental assessment set out in Section 6.20.
15.3 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed
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to have been duly given: (a) if delivered personally or sent by facsimile, on
the date received, (b) if delivered by overnight courier, on the day after
mailing, and (c) if mailed, five (5) days after mailing with postage prepaid.
Any such notice shall be sent as follows:
To Seller and Shareholder:
Healthcare America, Inc.
1407 W. Stassney Lane
Austin, Texas 78745
Attn: President
with a copy to:
James A. Markus
Winstead Sechrest & Minick P.C.
5400 Renaissance Tower
1201 Elm Street
Dallas, TX 75270
To Buyer:
NAHC of Tennessee, Inc.
109 Westpark Drive
Suite 440
P.O. Box 3689
Brentwood, TN 37024
Attn: Robert M. Martin, President & CEO
with a copy to:
Ernest E. Hyne, II
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
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15.4 Controlling Law. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the State of Tennessee.
15.5 Headings. Any table of contents and paragraph headings in this
Agreement are for convenience of reference only and shall not be considered or
referred to in resolving questions of interpretation.
15.6 Benefit. Subject to Section 15.1 hereof, this Agreement shall be
binding upon and shall inure to the exclusive benefit of the respective heirs,
legal representatives, successors and assigns of the parties hereto and Buyer
shall require any of its successors to assume Buyer's obligations under this
Agreement. This Agreement is not intended to, nor shall it, create any rights in
any other party.
15.7 Partial Invalidity. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted.
15.8 Waiver. Neither the failure nor any delay on the part of any
party hereto in exercising any rights, power or remedy hereunder shall operate
as a waiver thereof, or of any other right, power or remedy; nor shall any
single or partial exercise of any right, power or remedy preclude any further or
other exercise thereof, or the exercise of any other right, power or remedy.
15.9 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
15.10 Interpretation; Knowledge. All pronouns and any variation
thereof shall be deemed to refer to the masculine, feminine, neuter, singular or
plural as the identity of the person or entity, or the context, may require.
Further, it is acknowledged by the parties that this Agreement including
exhibits has undergone several drafts with the negotiated suggestions of both;
and, therefore, no presumptions shall arise favoring either party by virtue of
the authorship of any of its provisions or the changes made through revisions.
15.11 Entire Agreement. This Agreement, including the Exhibits hereto,
constitutes the entire agreement between the parties hereto with regard to the
matters contained herein and it is understood and agreed that all previous
undertakings, negotiations and agreements between the parties are merged herein.
This Agreement may not be modified orally, but only by an agreement in writing
signed by Buyer, Parent, Seller and Shareholder. Except as expressly provided
herein, no waiver of any of the provisions of this Agreement shall be valid
unless it is in writing and signed by the party against which it is sought to be
enforced.
15.12 Further Assurance of Seller and Shareholder After Closing.
Subsequent to the Closing, Seller and Shareholder shall from time to time, at
Buyer's request and expense, execute and deliver such other instruments of
conveyance and transfer, and take such other action as
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Buyer may reasonably request, in order to more effectively sell, transfer,
assign and deliver and vest in Buyer the benefits of, title to and possession of
the Assets.
15-13 Legal Fees and Costs. In the event any party hereto elects to
incur legal expenses to enforce or interpret any provision of this Agreement,
the prevailing party will be entitled to recover such legal expenses, including,
without limitation, attorney's fees, costs and necessary disbursements, in
addition to any other relief to which such party shall be entitled.
15.14 Exclusivity. Buyer contemplates the expenditure of substantial
sums of time and money in connection with legal, accounting, financial, and due
diligence work to be performed in conjunction with the transactions contemplated
under this Agreement. For purposes of inducing Buyer to proceed with the
transactions, Seller and Shareholder shall not, directly or indirectly, without
Buyer's prior written consent, initiate or hold discussions with any person or
entity (other than Buyer) concerning a purchase, affiliation, or lease of all or
a material part of the Assets, directly or indirectly, whether by sale of
capital stock, merger, consolidation, sale or lease of material assets,
affiliation, joint venture, or other material transaction for the period of time
from the date hereof until the termination of this Agreement. Seller will
promptly notify Buyer by telephone and thereafter confirm in writing via fax, if
any such discussions or negotiations are sought to be initiated with, or any
such proposal or possible proposal is received directly or indirectly, by
Seller. In the event Seller receives an unsolicited offer related to a type of
transaction described in this paragraph, Seller shall promptly inform the person
making such unsolicited offer of the existence of its obligations under this
Section 15.14 but shall not disclose the contents of this Section or this
Agreement, and Seller shall reject such offer and promptly notify Buyer thereof.
15.15 Seller's Knowledge. Whenever the term "Seller's or Shareholder's
knowledge", or the like is used in this Agreement, the Seller or the Shareholder
(as the case may be) shall be deemed to have the knowledge of the persons listed
on Exhibit 15.15 without any duty of due inquiry.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"SELLER":
EASTWOOD HOSPITAL, INC.
By:
------------------------------------
Title:
---------------------------------
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"SHAREHOLDER":
HEALTHCARE AMERICA, INC.
By:
------------------------------------
Title:
---------------------------------
"BUYER":
NAHC OF TENNESSEE, INC.
By:
------------------------------------
Title:
---------------------------------
"PARENT":
NEW AMERICAN HEALTHCARE CORPORATION
By:
------------------------------------
Title:
---------------------------------
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Exhibit 10.28
INTERIM MANAGEMENT AGREEMENT
This Interim Management Agreement (the "Agreement") is made and entered
into as of May 16, 1997, by and between EASTWOOD HOSPITAL, INC., a Delaware
corporation ("Eastwood"), and NAHC OF TENNESSEE, INC., a Tennessee corporation
("NAHC").
W I T N E S S E T H:
WHEREAS, Eastwood owns and operates a Mental Health Outpatient Facility
(the "Business") at 3960 Knight Arnold Road, Suite 303, Memphis, Tennessee
38118, licensed by the State of Tennessee Department of Mental Health and Mental
Retardation (the "Department") under License Number L-214-037-557; and
WHEREAS, NAHC and Eastwood, among others, have entered into an Asset
Purchase Agreement dated May 1, 1997, as amended, with respect to the sale by
Eastwood, and the acquisition by NAHC of certain assets related to Eastwood
Hospital (the "Purchase Agreement"), including those related to the Business;
and
WHEREAS, approval of the transfer of the Business by the Department
(the "Approval") is a condition precedent to such transfer and, pursuant to
Section 1.6 of the Purchase Agreement, the parties have agreed that until such
time as the Approval is received, the Business shall be retained by Eastwood,
and considered an "Excluded Asset" until such approval is received; and
WHEREAS, during the period that the parties are awaiting the Approval,
NAHC desires to manage, and Eastwood desires that NAHC manage, the operations of
the Business, subject to the terms and conditions provided herein;
NOW, THEREFORE, in consideration of the recitals set forth above, the
covenants set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
Section 1. Appointment of NAHC as Manager. Eastwood hereby appoints
NAHC as the sole and exclusive manager of the operations of the Business as
encompassed within this Agreement, and NAHC hereby accepts such appointment. As
exclusive manager, NAHC shall have the right to control and maintain the
operational aspects of the Business in all respects. It is acknowledged that
NAHC shall operate the Business as an independent contractor. NAHC shall operate
the Business in the same manner as is customary and usual in the operation of
comparable businesses, and provide such services as are customarily provided by
operators of comparable businesses. In this connection and except as otherwise
set forth herein, NAHC shall have, subject in all instances to the direction of
Eastwood, discretion in the operation, management and
<PAGE> 2
supervision of the Business, but shall have no authority, power
or right to sell, pledge, gift or otherwise alienate any assets of Eastwood
except sales of assets in the ordinary and customary course of the Business.
Section 2. Operations. During the term hereof, the duties of NAHC with
respect to the operation of the Business shall include, without limitation:
a. Selection, hiring and supervision of all personnel.
b. Invoicing and collection services with respect to all
services performed during the term of this Agreement and processing and
payment of all accounts payable with respect to all such items incurred
during the term of this Agreement.
c. Providing all necessary bookkeeping services for the
operation of the Business.
d. Payment of all rents and operating costs arising during the
term of this Agreement.
e. Compliance with all applicable statutes and regulations
pertaining to the operation of the Business.
f. Preparation, processing and payment of payrolls out of the
revenues of the Business, including withholding taxes.
g. Payment of all federal, state and local taxes related to
the operation of the Business during the term of this Agreement.
Section 3. Maintenance. During the term hereof, NAHC shall pay for out
of the revenues of the Business all utility charges and other expenses incurred
in the operation of the Business, and shall be responsible for maintenance and
repair of the equipment and facilities of the Business as required to maintain
them in good operating order, present inoperative conditions and ordinary wear
and tear excepted.
Section 4. Employees. NAHC shall, at its expense, hire, supervise and
direct the work of, and discharge if necessary, all personnel working at the
Business pursuant to NAHC's policies and procedures. All employees shall be
employees of NAHC. NAHC shall comply with applicable laws and regulations
concerning workers' compensation, Social Security, unemployment insurance, hours
of labor, wages, working conditions and like subjects affecting employees as
such.
Section 5. Term. The term of this Agreement shall begin on 12:01 a.m.,
May 16, 1997, and terminate upon NAHC's receipt of the Approval. Upon receipt of
the Approval,
2
<PAGE> 3
the Business shall automatically, with no further acts by either party, no
longer be considered to be "Excluded Assets," and shall be considered a part of
the "Assets," each as defined in the Purchase Agreement. NAHC shall promptly
notify Eastwood upon receipt of the Approval.
Section 6. Leases/Contracts. Except as otherwise permitted by the
provisions of this Agreement, NAHC shall not enter into or renew any lease or
contract for a term exceeding the term of this Agreement without the prior
written consent of Eastwood.
Section 7. Insurance. NAHC shall maintain, at its expense, all
insurance coverage on its premises and the Business covering risks and
liabilities in amounts consistent with current coverages; provided, however,
that NAHC shall be responsible for professional liability insurance for its
employees.
Section 8. Management Fees. In consideration of, and as remuneration
for, the services provided in this Agreement, NAHC shall receive and retain all
revenues generated by the Business, irrespective of whether received by NAHC or
Eastwood during or after the term hereof. NAHC shall, however, bear the risk of
all operating losses generated by the Business during said term.
Section 9. Notice. Any notice required or permitted to be given or
served by either party to this Agreement shall be given in accordance with the
Purchase Agreement.
Section 10. Government Access to Books and Records. To the extent
required by Section 1861(v)(1)(I) of the Federal Social Security Act, and until
the expiration four (4) years after the furnishing of services pursuant to this
Agreement, NAHC shall make available, upon written request to the Secretary of
Health and Human Services, or upon request to the Comptroller General, or any of
their duly authorized representatives, this Agreement and books, documents and
records of NAHC that are necessary to certify the nature and extent of the cost
claimed to Medicare with respect to the services provided under this Agreement.
If NAHC carries out any of the duties of this Agreement through a subcontract,
with a value or cost of Ten Thousand Dollars ($10,000) or more over a twelve
(12) month period, with a related organization, then until the expiration of
four (4) years after the furnishing of such services pursuant to such
subcontract, NAHC shall cause the related organization to make available, upon
written request to the Secretary of Health and Human Services, or upon request
to the Comptroller General, or any of their duly authorized representatives, the
subcontract and books, documents and records of such related organization that
are necessary to verify the nature and extent of the costs claimed to Medicare
with respect to the services provided under this Agreement.
Section 11. Governing Law. This Agreement is made and entered into in
the State of Delaware and shall be construed under the laws of the State of
Tennessee.
3
<PAGE> 4
Section 12. Assignment. Neither party may assign or delegate any of its
rights, duties or obligations under this Agreement to any third party without
the prior written consent of the other party, and any prohibited assignment or
delegation shall be deemed null and void.
Section 13. Entire Agreement and Agreements. This Agreement, along with
the Purchase Agreement, contains the entire agreement between the parties hereto
with respect to the subject matter hereof. The terms of this Agreement shall not
be amended, nullified or supplemented except by written agreement duly executed
by both parties.
[Signatures Appear on Following Page]
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Management Agreement on the date first written above.
EASTWOOD HOSPITAL, INC.
By:
---------------------------------------
Title:
------------------------------------
NAHC OF TENNESSEE, INC.
By:
---------------------------------------
Title:
------------------------------------
5
<PAGE> 1
Exhibit 10.29
================================================================================
ASSET PURCHASE AGREEMENT
BETWEEN
THE DOLLY V L.C.
AS SELLER
AND
ITS MEMBERS
AND
NAHC II OF TEXAS, INC.
AS BUYER
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE I. PURCHASE AND SALE.....................................................................................1
1.1 Purchase and Sale...........................................................................1
1.2 Excluded Assets.............................................................................4
1.3 Assumed Contracts, Leases and Liabilities...................................................4
1.4 Excluded Liabilities........................................................................4
1.5 Additional Real Estate......................................................................5
ARTICLE II. ACCOUNTS RECEIVABLE..................................................................................6
2.1 Seller's Accounts Receivable................................................................6
ARTICLE III. PURCHASE PRICE......................................................................................6
3.1 Purchase Price..............................................................................6
3.2 Taxes and Assessments; Prorations; Adjustments..............................................7
3.3 Closing Statements..........................................................................8
3.4 Allocation of Purchase Price. ..............................................................8
3.5 Escrow Agreement............................................................................8
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER.............................................................9
4.1 Organization, Qualification and Authority...................................................9
4.2 Absence of Default..........................................................................9
4.3 Financial Statements.......................................................................10
4.4 Operations Since December 31, 1996.........................................................11
4.5 Taxes......................................................................................12
4.6 Employment.................................................................................13
4.7 Licenses and Permits.......................................................................13
4.8 JCAHO and Accreditations...................................................................13
4.9 Medicare, Medicaid, and Other Third-Party Payors...........................................14
4.10 Peer Review................................................................................15
4.11 Compliance with Zoning, Land Use and Other Laws............................................15
4.12 Easements..................................................................................15
4.13 Title to Assets............................................................................15
4.14 Leases and Contracts.......................................................................16
4.15 Environmental Matters......................................................................18
4.16 Miscellaneous Representations Relating to Real Estate......................................20
4.17 Conditions of Assets.......................................................................21
4.18 Capital Expenditure and Construction.......................................................22
4.19 Future Construction........................................................................22
4.20 Litigation.................................................................................22
4.21 Seller's Employees.........................................................................23
4.22 Labor Relations............................................................................23
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
4.23 Insurance..................................................................................24
4.24 Broker's or Finder's Fee...................................................................24
4.25 Medical Staff..............................................................................24
4.26 Conflicts of Interest......................................................................25
4.27 Hill-Burton and Other Liens................................................................25
4.28 Experimental Procedures....................................................................25
4.29 Intellectual Property; Computer Software...................................................25
4.30 Inventories................................................................................25
4.31 Motor Vehicles.............................................................................26
4.32 Employee Benefit Plans.....................................................................26
4.33 Compliance with Laws.......................................................................27
4.34 No Omissions or Misstatements..............................................................28
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER..............................................................28
5.1 Organization, Qualification and Authority..................................................28
5.2 Absence of Default.........................................................................29
ARTICLE VI. COVENANTS OF PARTIES................................................................................29
6.1 Preservation of Business and Assets........................................................29
6.2 Absence of Material Change.................................................................29
6.3 Access to Books and Records................................................................30
6.4 Consents...................................................................................31
6.5 Risk of Loss...............................................................................32
6.6 Condemnation...............................................................................32
6.7 Good Faith.................................................................................33
6.8 Preserve Accuracy of Representations and Warranties........................................33
6.9 Maintain Books and Accounting Practices....................................................33
6.10 Indebtedness; Liens........................................................................33
6.11 Compliance with Laws and Regulatory Consents...............................................33
6.12 No Sale, Merger or Consolidation...........................................................34
6.13 Maintain Insurance Coverage................................................................34
6.14 Medicare and Medicaid Reporting............................................................34
6.15 Current Return Filing......................................................................35
6.16 Performance................................................................................35
6.17 WARN Act...................................................................................35
6.18 Termination of Employee Plans..............................................................35
6.19 Power to Endorse Checks....................................................................36
6.20 Phase I Environmental Assessment; Additional Environmental
Inspections................................................................................36
ARTICLE VII. TITLE AND SURVEY...................................................................................37
7.1 Title Report and Policy....................................................................37
7.2 Survey.....................................................................................38
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
7.3 U.C.C. Searches...........................................................................38
7.4 Defects and Cure...........................................................................38
ARTICLE VIII. CLOSING...........................................................................................39
8.1 Closing....................................................................................39
8.2 Termination................................................................................39
ARTICLE IX. SELLER'S AND MEMBERS' CONDITIONS TO CLOSE...........................................................40
9.1 Representations and Warranties True at Closing; Compliance with
Agreement..................................................................................40
9.2 Regulatory Approvals.......................................................................40
9.3 No Action/Proceeding.......................................................................40
9.4 Compliance with Article XII................................................................40
9.5 Approval by Counsel........................................................................41
9.6 Order Prohibiting Transaction..............................................................41
9.7 Completion of Exhibits.....................................................................41
ARTICLE X. BUYER'S CONDITIONS TO CLOSE..........................................................................41
10.1 Representations and Warranties True at Closing; Compliance with
Agreement..................................................................................41
10.2 No Loss, Damage or Destruction.............................................................41
10.3 No Material Adverse Change.................................................................41
10.4 Regulatory Approvals.......................................................................42
10.5 No Action/Proceeding.......................................................................42
10.6 Compliance with Articles VII and XI........................................................42
10.7 Inspection of Assets; U.C.C. Searches, etc.................................................42
10.8 Approval by Counsel........................................................................42
10.9 Order Prohibiting Transaction..............................................................43
10.10 Repayment of Loans.........................................................................43
10.11 Consents...................................................................................43
10.12 Tail Insurance.............................................................................43
10.13 Approvals..................................................................................43
10.14 Completion of Exhibits.....................................................................43
ARTICLE XI. OBLIGATIONS OF SELLER AND MEMBERS AT CLOSING........................................................43
11.1 Documents Relating to Title................................................................43
11.2 Possession.................................................................................44
11.3 Opinion of Seller's Counsel................................................................44
11.4 Good Standing and Resolutions..............................................................45
11.5 Closing Certificate........................................................................45
11.6 Third Party Consents.......................................................................45
11.7 Taxes and Other Payments...................................................................45
11.8 Releases and Other Matters.................................................................46
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
11.9 Notice to Third-Party Payors...............................................................46
11.10 Additionally Requested Documents; Post Closing Assistance..................................46
ARTICLE XII. OBLIGATIONS OF BUYER AT CLOSING....................................................................47
12.1 Purchase Price.............................................................................47
12.2 Corporate Good Standing and Certified Board Resolutions....................................47
12.3 Opinion of Buyer's Counsel.................................................................47
12.4 Assumption of Liabilities..................................................................47
12.5 Closing Certificate........................................................................47
12.6 Seller's Employees.........................................................................47
12.7 Health Insurance...........................................................................47
ARTICLE XIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION........................................................47
13.1 Survival...................................................................................47
13.2 Indemnification by Seller..................................................................48
13.3 Indemnification by Buyer...................................................................48
13.5 Procedure for Indemnification..............................................................49
13.6 Assignment by Buyer. .....................................................................51
ARTICLE XIV. PRESERVATION OF BUSINESS
AND NONCOMPETE RESTRICTIONS.............................................................................52
14.1 Covenant Not to Compete....................................................................52
14.2 Enforceability.............................................................................52
ARTICLE XV. MISCELLANEOUS.......................................................................................53
15.1 Assignment.................................................................................53
15.2 Other Expenses.............................................................................53
15.3 Notices....................................................................................53
15.4 Controlling Law............................................................................54
15.5 Headings...................................................................................54
15.6 Benefit....................................................................................54
15.7 Partial Invalidity.........................................................................54
15.8 Waiver.....................................................................................54
15.9 Counterparts...............................................................................55
15.10 Interpretation; Knowledge..................................................................55
15.11 Entire Agreement...........................................................................55
15.12 Legal Fees and Costs.......................................................................55
15.13 Exclusivity................................................................................55
15.14 Completion of Exhibits.....................................................................56
</TABLE>
iv
<PAGE> 6
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Matter
- ----------- --------------
<S> <C>
1.1(1) Real Estate
1.1(2) Equipment and Furnishings
1.2 Excluded Assets
1.3 Assumed Liabilities
1.4(1) Long Term Notes Payable
3.1(5) Escrow Agreement
3.4 Purchase Price Allocation
3.5 Escrow Agreement
4.2 Absence of Default; Consents
4.3 Financial Statements
4.4 Operations since December 31, 1996
4.5 Tax Payment Delinquencies
4.6 Employment Matters
4.7 Licenses and Permits
4.8 JCAHO and Other Accreditations
4.9 Program Agreements
4.10 Peer Review Memorandum of Understanding
4.11 Exceptions to Zoning, Land Use and Other Laws
4.13(2) Permitted Exceptions
4.13(3) Transferred Assets
4.13(4) Trade names and Fictitious Names
4.13(5) Addresses for Accounts Receivable
4.14 Leases and Contracts
4.15 Hazardous Materials
4.19 Future Construction
4.20 Litigation
4.21(a) Employees, Fringe Benefits and Personnel Policies
4.21(b) Terminated Employees
4.23 Insurance
4.26 Conflicts of Interest
4.29 Intellectual Property
4.32 Employee Benefit Plans
4.32(2) Employee Benefit Plans - Prohibited Transactions
4.32(3) Employee Benefit Plans - Noncompliance
4.32(4) Employee Benefit Plan Obligations being assumed by Buyer
11.6(3) Estoppel and attornment letters from tenants
11.9 Form of Notice to Third Party Payors
</TABLE>
v
<PAGE> 7
GLOSSARY
<TABLE>
<CAPTION>
Section Defined Term
- ------- ------------
<S> <C>
13.1 Absolute Covenants
3.3 Accountants
4.8(3) ACR
4.15(2) Affiliates
4.15(2) Agents
1.1 Assets
4.14(1) Assumed Contracts
1.3 Assumed Liabilities
4.33 Bulk Sales Law
Page 1 Buyer
13.2 Buyer Indemnified Parties
4.8(2) CAP
4.15(1) CERCLA
13.5(1) Claim
8.1 Closing
3.1(2) Closing Net Working Capital
1.4(6) COBRA coverage
3.4 Code
7.1 Commitment
4.15(2) control
14.1 Davis
7.4 Defects
4.32(1) Employee Plan
1.1(2) Equipment and Furnishings
4.32(1) ERISA
3.1(5) Escrow Agreement
1.2 Excluded Assets
1.4 Excluded Liabilities
3.3 Final Closing Statement
4.3(1) Financial Statements
13.4 Foundation
4.15(1) Hazardous Substances
Recital A Hospital
13.5(1) Indemnitee
13.5(1) Indemnitor
4.29 Intellectual Property
1.1(3) Inventory
4.8(1) JCAHO
</TABLE>
vi
<PAGE> 8
<TABLE>
<S> <C>
Page 1 Seller
4.14(1) Leases and Contracts
4.7 Licenses and Permits
13.2 Loss
Page 1 Member
Page 1 Members
3.1(2) Net Working Capital
14.1 Noncompete Area
14.1 Noncompete Period
13.5(1) Notice
4.21 part-time employee
4.13(2) Permitted Exceptions
3.3 Preliminary Closing Statement
13.4 Prior Period Loss
4.9(1) Program Agreements
4.9(1) Programs
1.3(2) PTO
3.1 Purchase Price
13.2 Rate
4.15(1) RCRA
1.1(1) Real Estate
1.1(4) Receivables
Page 1 Seller
7.2 Survey
13.6 Tangible Net Worth
7.4 Title Evidence
7.1 Title Policy
7.3 U.C.C. Searches
4.3(1) Unaudited Financial Statements
4.21 WARN
14.1 Warren
</TABLE>
vii
<PAGE> 9
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, is made the 31st day of July, 1997, by
and among THE DOLLY V L.C., a Texas limited liability company ("SELLER"),
EDUARDO ATKINSON, M.D., EVE Y. BERRY, TIM BOTHWELL, M.D., LYNN DAVIS, HEJAR,
LTD., CECIL SIMMONS, M.D., LONNIE STANTON, M.D., ROGER PHILO, R. WILLIAM WARREN,
ROBERT R. WEBB, DANA WILKE and L. NATHAN WINTERS (collectively, the "MEMBERS,"
and individually, a "MEMBER") (the Members are party to this Agreement to
evidence their consent to the transaction described herein and to affirm their
specific representations, covenants and agreements herein, and not to guaranty
the obligations of Seller hereunder), and NAHC II OF TEXAS, INC., a Tennessee
corporation ("BUYER").
R E C I T A L S:
A. Seller owns and operates Dolly Vinsant Memorial Hospital, located on
approximately 7.498 acres of land and with a building consisting of 49,589
square feet at 400 East Highway 77, San Benito, Texas 78586, including a
hospital comprised of 81 licensed beds, and other inpatient and outpatient
hospital and health care related businesses and programs (the "HOSPITAL"); and
B. Members own 100% of the equity (including both financial and
governance rights) in Seller; and
C. Except for the Excluded Assets described in Section 1.2, Seller and
Members desire to sell and transfer to Buyer or its designee the Hospital and
the Assets (as defined in Section 1.1), and Buyer or its designee desires to
purchase the same from Seller and the Members, subject to the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual terms, covenants,
agreements and conditions contained in this Agreement, the undersigned agree as
follows:
ARTICLE I. PURCHASE AND SALE
1.1 Purchase and Sale. Except as provided in Section 1.2, Seller agrees
to sell, transfer, assign, convey and deliver to Buyer (or Buyer's designee) and
Buyer (or Buyer's designee) shall purchase from Seller all right, title and
interest in all of the following assets (collectively, the "ASSETS"):
(1) Good and indefeasible fee simple (or leasehold with
respect to items noted as such on the exhibit, as the case may be), right, title
and interest in all of the
<PAGE> 10
Hospital's interests in real property, as described in Exhibit 1.1(1);
including, leaseholds, easements and improvements thereon, plants, fixed assets,
buildings, structures, fixtures (including fixed machinery and fixed equipment)
situated thereon or forming a part thereof and all appurtenances, easements and
rights-of-way, and air, mineral or other rights related thereto (collectively,
the "REAL ESTATE");
(2) All tangible business and personal property, medical and
other equipment, machinery, data processing hardware and software, furniture,
furnishings, appliances, vehicles and other tangible personal property of every
description and kind and all replacement parts therefor which are either owned
by Seller or used or maintained or operated by Seller in connection with the
Hospital, wherever located, including but not limited to the items listed on
Exhibit 1.1(2) (collectively, the "EQUIPMENT AND FURNISHINGS");
(3) All inventory of goods and supplies used or maintained in
connection with or located in the Hospital, including, but not limited to, food,
cleaning materials, disposables, linens, consumables, office supplies, drugs and
medical supplies (collectively, the "INVENTORY");
(4) All Seller's patient accounts, notes and other
receivables, including those from third party payors, whether or not written off
(collectively, the "RECEIVABLES");
(5) All patient, medical, personnel, clinical and other
records of the Hospital (including both hard and microfiche copies), and all
manuals, books and records used in operating the Hospital, including personnel
policies and manuals, and computer software;
(6) To the extent transferable, all licenses, permits,
registrations, certificates, consents, accreditations, approvals and franchises,
and all applications therefor, necessary to construct, operate and conduct the
business of the Hospital, together with assignments thereof, if required, and
all waivers which Seller currently has, if any, pertaining thereto;
(7) All plans and surveys, including "as-built" plans, all
plats, specifications, engineers' drawings, and architectural renderings and
similar items relating to the Assets (including, without limitation, those
relating to utilities, easements and roads), in Seller's possession or
obtainable by Seller (without unreasonable cost and if it is unreasonable,
Seller will provide notice to Buyer prior to Closing);
(8) All goodwill associated with the Hospital and other
intangible assets including, but not limited to, the exclusive rights to use the
name "Dolly Vinsant Memorial Hospital" and all derivations thereof and the other
trade names listed on Exhibit 4.13(4)
2
<PAGE> 11
and, to the extent assignable by Seller, all warranties (express or implied) and
rights and claims assertable by (but not against Seller) related to the
operation of the Hospital and all telephone and facsimile numbers as currently
used in the operation of the Hospital;
(9) All prepaid assets;
(10) Seller's contract and leasehold rights and interests
pursuant to contracts for purchase or lease of real and personal property,
rights of first refusal, options, construction contracts, contracts for
purchase, sale or lease of equipment, goods or services currently furnished or
to be furnished at or to the Hospital which are identified as Assumed Contracts
on Exhibit 4.14;
(11) All assets reflected on the Financial Statements, as
defined in Section 4.3(1), and any additions thereto up through the Closing less
deletions therefrom sold or consumed in the ordinary course of business;
(12) Seller's interest in all property used in connection with
or for the benefit of the Hospital, other than Excluded Assets, as defined in
Section 1.2, whether real, personal or mixed, tangible or intangible, arising or
acquired after the date of this Agreement and prior to Closing;
(13) All insurance proceeds (including deductibles,
co-payments or self insured requirements) arising in connection with damage to
the Assets occurring after the date of this Agreement and prior to Closing, to
the extent not expended for repair and restoration of the Assets;
(14) Any claims of Seller against third parties relating to
the Assets, choate or inchoate, known or unknown, contingent or otherwise;
(15) All security or other deposits and prepayments made by
tenants of Seller pursuant to leases or subleases;
(16) Seller's 45% interest in San Benito Medical Associates
After Hours Clinic (the "Night Clinic"); and
(17) All other property, other than Excluded Assets, of every
kind or description owned by Seller and used or held for use in the business of
the Hospital, whether or not reflected on the Financial Statements, wherever
located and whether or not similar to the items specifically set forth above,
and all other businesses and ventures directly or indirectly owned by Seller in
connection with the operations of the Hospital.
3
<PAGE> 12
1.2 Excluded Assets. Seller is not selling and Buyer is not purchasing
or assuming obligations with respect to those items identified on Exhibit 1.2
(collectively, the "EXCLUDED ASSETS"). All tangible Excluded Assets owned by
Seller shall be removed from the Assets by Seller prior to Closing without
damage or defacement to the Assets.
1.3 Assumed Contracts, Leases and Liabilities. At Closing, Buyer will
assume all of the following (collectively, the "ASSUMED LIABILITIES"):
(1) All obligations accruing after Closing with respect to
those contracts, purchase orders and leases which are identified as Assumed
Contracts on Exhibit 1.3 hereto, and the obligation to administer the COBRA
coverage (as defined below) with respect to those individuals listed on Exhibit
4.21(a) (but excluding any obligations to give notice, or other liabilities or
obligations related to COBRA).
(2) All accrued compensation, vacation time and paid time off
("PTO") and build up of sick leave for periods of employment with Seller and
Seller's predecessor, together with all related taxes, for Seller's employees
who become employees of Buyer, which time accrued prior to Closing; provided,
however, that Buyer shall assume (or pay, if applicable) the same only to the
extent that the same is included in the calculation of Net Working Capital, as
defined in Section 3.1, or Buyer has received a credit therefor under Section
3.1(5). Notwithstanding the preceding, Buyer will assume all taxes with respect
to PTO and such taxes will not be included in the computation of Net Working
Capital.
(3) All amounts payable under the Medicare and Medicaid
Programs applicable to cost reports filed for services rendered through the
Closing.
(4) Seller's current liabilities, but only to the extent
included in the calculation of Net Working Capital.
1.4 Excluded Liabilities. Seller shall remain responsible for all
liabilities and obligations not expressly assumed by Buyer (collectively, the
"EXCLUDED LIABILITIES"), including but not limited to the following:
(1) All of the Seller's long-term debt, including but not
limited to all obligations pursuant to or related to the long term notes payable
listed on the attached Exhibit 1.4(1).
(2) Obligations or liabilities to any donor with respect to
any and all gifts, devises, bequeaths or donations in any way related to the
Hospital;
4
<PAGE> 13
(3) Liabilities or obligations with respect to the ownership
or operation of any assets owned or operated by Seller other than the Assets
(including the Excluded Assets);
(4) The assets and liabilities of all employee benefit plans
except with respect to the vacation/PTO and sick leave assumed pursuant to
Section 1.3(2);
(5) All current liabilities up to and through Closing except
those which are included in the calculation of Net Working Capital;
(6) All liabilities and commitments relating to the time
periods prior to and including Closing for all of the following: suits, claims,
indemnities, mortgages, contingent liabilities and other obligations of Seller
(including, without limitation, malpractice claims or suits and other forms of
liability for acts and omissions or events whether scheduled or unscheduled);
any and all investment tax credit recapture; all impositions of income tax and
other taxes; Hill-Burton liabilities; violation or liabilities under
environmental laws; except pursuant to Section 1.3(2), all employee (and former
employee) wages, salaries and benefits (other than as assumed pursuant to
Section 1.3(2)), including, without limitation, any claims (including penalties
and interest) under ERISA, and any COBRA liabilities and obligations, including
all obligations to give notice of and to provide continuation health care
coverage for employees, former employees, and their dependents or any qualified
beneficiary of such employees in accordance with the requirements of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (hereinafter
referred to as "COBRA COVERAGE"); provided, that after Closing, Buyer shall
provide COBRA coverage (with costs paid by COBRA recipients), and administer
COBRA coverage for those employees of Seller identified as being entitled to
COBRA coverage on Exhibit 4.21(a);
(7) Any intercompany receivables;
(8) All amounts now or hereafter payable under the Medicare or
Medicaid programs with respect to periods through the Closing, including any
amount payable if any gain occurs as a result of the sale of the Hospital,
except for amounts included in the Net Working Capital computation; and
(9) Any other liabilities or obligations of Seller not
specifically assumed by Buyer pursuant to this Agreement.
1.5 Additional Real Estate. Other than the Excluded Assets, Seller and
Buyer acknowledge and agree that it is their intent to transfer to Buyer all
real estate used in or related to the operation of the Hospital that is owned or
leased directly by the Seller or by an affiliate of the Seller. If any tract or
parcel of real estate (or buildings, improvements and fixtures thereon or any
easement, appurtenances, rights of way or other rights related
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thereto), whether owned or leased which should have been identified on Exhibit
1.1(1) is inadvertently not included on Exhibit 1.1(1) and such errors are
discovered after execution of this Agreement, the parties agree that Exhibit
1.1(1) shall be amended prior to Closing to correct such errors and such amended
Exhibit shall then be controlling. In the event that any such errors are
discovered subsequent to the Closing, to the extent necessary to effect the
intent of this Agreement, the parties agree that Exhibit 1.1(1) shall be amended
to correct such errors and such amended Exhibit 1.1(1) shall be controlling, and
the Seller shall execute and deliver or cause to be executed and delivered,
deeds, instruments of correction, or such other instruments, and to take or
cause to be taken, such other steps as may be necessary to correctly vest or
convey the right title to any such real estate to Buyer in accordance with the
terms and provisions of this Agreement. The obligations pursuant to this Section
shall survive Closing.
ARTICLE II. ACCOUNTS RECEIVABLE
2.1 Seller's Accounts Receivable. Buyer is purchasing all of Seller's
accounts receivable, including patient accounts receivable, long-term patient
accounts receivable, income guarantee advances, amounts receivable from third
party payor programs (governmental or commercial), notes, other receivables,
whether or not written off. After the Closing, Seller shall remit to Buyer any
payments received by Seller with respect to the accounts receivable sold to
Buyer. Any funds so collected will be remitted to the Buyer within 5 days
following receipt of such payments.
ARTICLE III. PURCHASE PRICE
3.1 Purchase Price. Subject to the terms and conditions hereof
(including Section 3.5), the purchase price payable by Buyer to Seller for the
Assets shall be an amount derived in the following manner (the "PURCHASE
PRICE"):
(1) Seven Million Seven Hundred Fifty Thousand and No/100
Dollars ($7,750,000.00);
(2) PLUS or MINUS the amount of the Closing Net Working
Capital. The term "CLOSING NET WORKING CAPITAL" shall mean the Net Working
Capital calculated as of Closing. The term "NET WORKING CAPITAL" shall mean the
value of the following asset accounts less the value of the following liability
accounts as those terms are used in the Financial Statements, all recorded and
valued in accordance with generally accepted accounting principles, consistently
applied: Assets - cash, accounts receivable (less allowances for
uncollectibles), inventories and prepaid expenses; Liabilities - accounts
payable, accrued expenses payable, and short-term and long-term portions of
leases
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payable. If there are any third-party cost report estimates or payables/
receivables, they are specifically included in the definition of Net Working
Capital.
(3) LESS the amount of any credit for accrued compensation,
vacation/holiday, sick leave (whether or not recognized on the Financial
Statements) and related taxes assumed by Buyer pursuant to Section 1.3(2) (but
not otherwise included in the calculation of Net Working Capital);
(4) PLUS or MINUS, as appropriate, the proration of property
taxes, utilities, rentals and payments under Assumed Contracts (as more clearly
detailed in Section 3.2), except to the extent already included in the
calculation of Net Working Capital;
(5) PLUS $150,000 as payment in full for all long-term patient
pay receivables written off by Seller prior to Closing.
Buyer and Seller will work together to agree on adjustments to the Net
Working Capital by making a good faith estimate at Closing and to agree as to
the final amount within ninety (90) days after Closing as set forth in Section
3.3 hereof.
The Purchase Price will be payable in immediately available funds as
provided in Section 8.1.
3.2 Taxes and Assessments; Prorations; Adjustments. Seller shall pay or
credit against the Purchase Price the amount of all delinquent real estate and
personal property taxes, including penalties and interest, and all special
assessments that are a lien as of the day of Closing, both current and
reassessed. Seller shall also credit on the Purchase Price all unpaid real
estate and personal property taxes and assessments not yet due for the years
prior to the Closing and a portion of such taxes for the year of Closing
prorated through the date of Closing not already included in the calculation of
Net Working Capital. The proration of the undetermined taxes and assessments
shall be based upon a 365-day year and on the most recently available tax rate
and valuation. It is the intention of the parties in making the tax proration to
allow Buyer a credit as close in amount as possible to the amount which Buyer
will be required to pay, giving effect to applicable exemptions, discounts,
recently voted millage, changes in valuation or other similar matters which may
have an effect on the amount of the real estate and personal property taxes,
whether or not they have been certified.
To the extent not included in the calculation of Net Working Capital,
Seller shall prorate rentals received from tenants and subtenants with respect
to leased facilities covering the period from and after Closing, none of which
may be applied by Seller to delinquent rents by credit against the Purchase
Price. Rents collected by Seller for the
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month in which Closing occurs shall be prorated to the Closing. Rents collected
by Buyer after Closing shall be attributed to current rent first and then to
delinquent rent in reverse chronological order. Any deposits (including any
capital occupancy fee or occupancy deposit) from tenants or the like, which are
refundable shall be a credit towards any purchase price and the obligation to
refund the same shall be an assumed obligation of Buyer and entitle Buyer to a
credit.
Utilities and payments under Assumed Contracts, as defined in Section
4.14(1), shall be prorated at Closing.
3.3 Closing Statements. The adjustments specified in Sections 3.1 and
3.2 shall be estimated by the parties hereto in good faith at the Closing based
on the most current interim financial statements with provisional adjustments as
shall be mutually agreed at Closing and shall be called the "PRELIMINARY CLOSING
STATEMENT." No later than ninety (90) days after the Closing, the parties hereto
shall prepare the "FINAL CLOSING STATEMENT" reflecting the items listed above
determined in accordance with generally accepted accounting principles on an
accrual basis applied consistently with prior periods. Adjustments made after
the Closing based on the Final Closing Statement shall be payable in cash, on or
before the tenth day following the day the Final Closing Statement is agreed
upon, with interest on any adjustments at the Rate (as defined in Section 13.2)
commencing at Closing. If Buyer and Seller are unable to agree on the Final
Closing Statement within ninety (90) days after the Closing, they shall appoint
Deloitte & Touche (the "ACCOUNTANTS"), to make such determination which
determination shall be final and binding on the parties hereto for the purpose
of this Agreement, and Buyer and Seller shall each pay one-half the cost of the
Accountants.
3.4 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Assets in the manner set forth in Exhibit 3.4, which Exhibit shall be
provided by Buyer at or before the Closing. The parties agree that this
allocation will be used by them for all purposes including tax, reimbursement
and other purposes. Each party hereto agrees that it will report the transaction
in accordance with such allocation, including under Section 1060 of the Internal
Revenue Code of 1986, as amended (the "CODE"), and that it will not take a
position inconsistent with such allocation except with the written consent of
the other party hereto.
3.5 Escrow Agreement. One Million Five Hundred Thousand and No/100
Dollars ($1,500,000.00) of the Purchase Price shall be deposited into an
interest bearing escrow account pursuant to the terms of an escrow agreement
(the "ESCROW AGREEMENT"), attached hereto as Exhibit 3.5, the purpose of which
is to (i) provide amounts to cover any adjustment in the Net Working Capital and
(ii) protect the Buyer from any breach of representations, warranties and
covenants contained herein.
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER
As inducements to Buyer to enter into this Agreement and to consummate
the transactions contemplated herein, Seller hereby represents and warrants to
Buyer, which representations and warranties shall be true and correct on the
date hereof and on Closing, as if then restated, as follows:
4.1 Organization, Qualification and Authority. Seller is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Texas. Seller has full power and authority to (i) own,
lease and operate its facilities and assets as presently owned, leased and
operated, (ii) carry on its business as it is now being conducted, and (iii)
execute, deliver and carry out the terms of this Agreement and all documents and
agreements necessary to give effect to the provisions of this Agreement and to
consummate the transactions contemplated on the part thereof without the
consent, approval or authorization of, or obligation to notify, any person,
entity or governmental agency (other than the notification required to be made
to the Texas Department of Health). Seller is in good standing in each state in
which its operations make it necessary to be so qualified. Except for Members,
no other person or entity owns or holds, has any interest in, whether legal,
equitable or beneficial, or has the right to purchase, any equity interest,
voting interest or financial interest or other security of Seller. Seller,
directly or indirectly, owns no capital stock, security, interest or other
right, or any option or warrant convertible into the same, of any corporation,
partnership, joint venture or other business enterprise and Seller has no
commitments to purchase any such interests, other than its forty-five percent
(45%) interest in the Night Clinic pursuant to the Letter of Agreement between
San Benito Medical Associates and Dolly Vinsant Memorial Hospital. The
execution, delivery and consummation of this Agreement and all other agreements
and documents executed in connection herewith by Seller have been duly
authorized by all necessary action on the part of Seller. No other action,
consent or approval on the part of Seller, Members or any other person or entity
is necessary to authorize Seller's due and valid execution, delivery and
consummation of this Agreement and all other agreements and documents executed
in connection herewith. This Agreement and all other agreements and documents
executed in connection herewith by Seller and/or Members, upon due execution and
delivery thereof, shall constitute valid and binding obligations of each of
Seller and/or Members, enforceable in accordance with their respective terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally and by general principles
of equity.
4.2 Absence of Default. Upon receipt of the consents specified in
Exhibit 4.2 and the payment in full by Seller of those obligations listed on
Exhibit 1.4(1), the execution, delivery and consummation of this Agreement and
all other agreements and documents executed in connection herewith by Seller
and/or the Members will not constitute a violation of, or be in conflict with,
and will not, with or without the giving of notice or the passage of
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time, or both, result in a breach of, constitute a default under, or create (or
cause the acceleration of the maturity of) any debt, indenture, obligation or
liability affecting the Assets pursuant to, or result in the creation or
imposition of any security interest, lien, charge or other encumbrance upon any
of the Assets under: (a) any term or provision of the organizational documents
of Seller or the Members; (b) any contract, lease, purchase order, agreement,
indenture, mortgage, pledge, assignment, permit, license, approval or other
commitment to which Seller and/or the Members are a party or by which Seller
and/or the Members or the Assets are bound (except for such consent requirements
with respect to the Assumed Contracts as are identified in Exhibit 4.14(1)); (c)
any judgment, decree, order, regulation or rule of any court or regulatory
authority, or (d) any law, statute, rule, regulation, order, writ, injunction,
judgment or decree of any court or governmental authority or arbitration
tribunal to which Seller, Members and/or the Assets are subject that would have
a material adverse effect on Buyer or the Assets.
4.3 Financial Statements.
(1) Attached as Exhibit 4.3 are true and correct copies of the
unaudited Financial Statements of Seller for the fiscal years ended December 31,
1994, 1995 and 1996, along with the interim unaudited financial statements of
Seller for the five (5) month period ending May 31, 1997 (collectively, the
"UNAUDITED FINANCIAL STATEMENTS" together with the financial statements
described in Section 4.3(2) shall be the "FINANCIAL STATEMENTS"). The Financial
Statements accurately reflect the results of the Hospital. The Financial
Statements present fairly and accurately the financial position of Seller, the
results of its operations and all costs and expenses for the periods specified.
The Financial Statements are true, complete and correct, and have been prepared
in conformity with generally accepted accounting principles, applied
consistently for the periods involved; provided, that certain long term patient
pay receivables of Seller, and Seller's interest in the San Benito Medical
Associates Night Clinic (both as more particularly described in Exhibit 4.3) are
not reflected therein. The Financial Statements are in accordance with the books
and records of Seller. Except as set forth in the Financial Statements, or as
otherwise specified on Exhibit 4.3, Seller has no known contingent liabilities
or obligations.
(2) Seller shall cause to be prepared interim unaudited
monthly financial statements for each month after the most recent delivered
Unaudited Financial Statements, which shall be delivered to Buyer within two (2)
business days after they are created (but the delivery shall be no later than
twenty (20) days after the end of the month which the Unaudited Financial
Statements relates to), and after delivery shall be deemed a part of the
Unaudited Financial Statements.
(3) After Closing, Seller shall make its books and records
available to Buyer and Buyer's auditors at reasonable times and in a manner so
as to not unduly interfere with Seller's operations, and otherwise cooperate
with Buyer in order to permit
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Buyer to conduct an audit of Seller's financial statements for any period prior
to Closing. Such audit, if any, shall be at Buyer's expense. The books and
records of Seller are in such order and completeness so that an unqualified
audit may be performed for such periods. Seller agrees to cooperate, at Buyer's
expense, with Buyer in Buyer's preparation of financial statements relating to
such periods and Buyer's filing in a timely manner registration statements,
private placement memoranda and periodic reports, if any, pursuant to applicable
federal and state securities laws. Seller intends to leave Seller's books and
records (other than corporate records) with Buyer after the Closing.
4.4 Operations Since December 31, 1996. Except as set forth on Exhibit
4.4 since December 31, 1996, Seller has conducted its business only in the
ordinary course and there have been no:
(1) material adverse changes in the condition, financial or
otherwise, of the Assets, the business or prospects of, or in the results of
operations of the Hospital or Seller;
(2) terminations of any contract, lease or other agreement to
which Seller is a party except by Seller, or damage or destruction to the Assets
(other than related to current renovation projects), whether or not covered by
insurance;
(3) sales, leases, transfers or other dispositions by Seller
of any of the Assets, mortgages or pledges of or the imposition of any liens,
charges or encumbrances in excess of, in the aggregate Five Thousand and No/100
Dollars ($5,000.00) on any of the Assets or removal of any of the Assets from
the Real Estate, other than those made in the ordinary course of business;
(4) increases in the compensation payable by Seller to any
Members, employees, directors, managers, governors, independent contractors or
agents, or any increase in, or institution of, any bonus, insurance, pension,
profit-sharing or other employee benefit plan, remuneration or arrangements made
to, for or with such persons;
(5) changes in the composition of the medical staff of the
Hospital, other than normal turnover;
(6) changes in the rates charged by the Hospital for its
service;
(7) any net operating losses incurred in the operation of the
Hospital;
(8) any dividends, distributions or extraordinary payments by
Seller;
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(9) capital expenditures, additions or betterments to the
Hospital in excess of, in the aggregate Ten Thousand and No/100 Dollars
($10,000.00);
(10) discharges or satisfactions of, or unscheduled payments
against, any lien, charge or encumbrance, other than current liabilities shown
on the Financial Statements or incurred since December 31, 1996, and paid
consistent with past practice;
(11) Adjustments or write-offs of Receivables or reductions in
reserves for Receivables outside of the ordinary course of business;
(12) Changes in the accounting methods or practice employed by
Seller or change in depreciation or amortization policies;
(13) Issuance or sales by Seller, or contracts or other
commitments entered into by Seller, for the issuance or sales of any ownership
interest in or securities convertible into or exchangeable for any ownership
interest in Seller;
(14) Mergers, consolidations or similar transactions; or
solicitations therefor;
(15) Federal, state or local statutes, rules, regulations,
orders or cases adopted, promulgated or decided which, to the best knowledge of
Seller, adversely affect the Assets; or
(16) Strikes, work stoppages or other labor disputes adversely
affecting the Hospital.
4.5 Taxes. All taxes, including, without limitation, income, property,
sales, use, franchise, added value, employees' income withholding and social
security taxes, license fees and taxes, deposits and fees for waste disposal,
pharmaceutical, nursing facilities, and taxes on disproportionate share
hospitals imposed by the United States, by any foreign country or by any state,
municipality, subdivision or instrumentality of the United States or any foreign
country, or by any other taxing authority, which are due or payable by Seller
and all predecessors and affiliates of Seller and all interests and penalties
thereon, whether disputed or not, have been paid in full and all tax returns
required to be filed in connection therewith have been accurately prepared and
timely filed. All deposits required to be made by Seller and all predecessors
and affiliates of Seller with respect to employees' withholding taxes have been
duly made. Except as set forth in Exhibit 4.5, Seller has not been delinquent in
the payment of any tax, assessment or governmental charge or deposit and has no
tax deficiency or claim outstanding, proposed or assessed against it, and there
is no basis therefor.
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4.6 Employment. Except as disclosed in Exhibit 4.6 hereto, to the best
of Seller's knowledge, no person or party (including, but not limited to, any
governmental agency) has any claim or basis for any action or proceeding,
against Seller (or any officer, director, employee, agent or the Members of
Seller), arising out of any statute, ordinance or regulation relating to wages,
collective bargaining, discrimination in employment or employment practices or
occupational safety and health standards (including, but not limited to, the
Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, as amended,
the Occupational Safety and Health Act, or the Age Discrimination in Employment
Act of 1967 or the Americans With Disabilities Act of 1990). None of such claims
shall result in any liability to or obligation of Buyer, or lien or encumbrance
against the Assets.
4.7 Licenses and Permits. Seller has all local, state and federal
licenses, permits, registrations, certificates, contracts, consents,
accreditations and approvals (collectively, "LICENSES AND PERMITS") necessary
for Seller to occupy, operate and conduct its business, all of which are listed
on Exhibit 4.7. There is no default under any of such Licenses and Permits. True
and correct copies of these Licenses and Permits have previously been provided
to Buyer. The most recent licensure surveys and deficiency reports related to
each of these items has also been included in Exhibit 4.7. Seller is and at the
Closing Date will have duly registered the following beds with the Texas
Department of Health as a general, acute care hospital authorized to operate 81
beds. Except as described in Exhibit 4.7, no notices have been received by
Seller or Members with respect to complaints lodged with any regulatory
authority or agency or with respect to threatened, pending, or possible
revocation, termination, suspension or limitation of any of the Licenses and
Permits nor are there any grounds for revocation, suspension or limitation.
4.8 JCAHO and Accreditations.
(1) The Hospital is duly accredited for operation of its
various beds by the Joint Commission on Accreditation of Healthcare
Organizations ("JCAHO"). Included in Exhibit 4.8 are each Certificate of
Accreditation, copies of the most recent JCAHO accreditation survey report, and
a list of deficiencies, if any.
(2) The Hospital's laboratory is duly accredited by the
Commission on Laboratory Accreditation of the College of American Pathologists
("CAP"). Included in Exhibit 4.8 are copies of the most recent letter and list
of accredited services from CAP.
(3) The Hospital has a certificate from the American College
of Radiology ("ACR") for mammography. Included in Exhibit 4.8 is a copy of the
most recent certificate from ACR.
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(4) Seller has received no notice with respect to any
threatened, pending or possible revocation, early termination, suspension or
limitation of any of the accreditations listed in this Section 4.8 nor are there
any grounds for such action.
4.9 Medicare, Medicaid, and Other Third-Party Payors.
(1) The Hospital is duly certified to participate, and does
participate in the Medicare Program and the Medicaid Programs in the State of
Texas (the "PROGRAMS"). Copies of the Hospital's existing Medicare and Medicaid
contracts (the "PROGRAM AGREEMENTS") are included in Exhibit 4.9. The Hospital
is in full compliance with all of the terms, conditions and provisions of such
contracts, as well as state and federal laws related thereto.
(2) Attached as part of Exhibit 4.9 is a copy of the
Hospital's most recent Statement of Deficiencies and Plan of Correction (Form
HCFA-2567).
(3) No notice of any offsets against future reimbursement has
been received by Seller or the Members nor is there any basis therefor. There
are no pending appeals, adjustments, challenges, audits, litigation, notices of
intent to reopen or open cost reports with respect to the Programs except as set
forth in Exhibit 4.9. The Hospital has not been subject to or threatened with
loss of waiver of liability for utilization review denials with respect to the
Programs during the past twelve (12) months, nor has it received notice of
pending, threatened or possible decertification or other loss of participation
in, any of the Programs, except as set forth in Exhibit 4.9.
(4) The Hospital currently has contractual arrangements with
Blue Cross and other third party payors. Copies of all existing Blue Cross
contracts are included in Exhibit 4.9. The Hospital is in full compliance with
all of the terms, conditions and provisions of such contract(s).
(5) Seller has previously furnished Buyer the Medicare and
Medicaid cost reports of Seller for the years of 1994, 1995 and 1996. The cost
reports are complete and accurate for the periods indicated. All liabilities and
contractual adjustments of the Hospital under any third party payor or
reimbursement programs have been properly reflected and adequately reserved for
in the Financial Statements.
(6) Seller has received no notice of any violation of federal
or state fraud and abuse or self-referral laws, nor are Seller and Members aware
of any such violations in connection with the operation of its business.
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4.10 Peer Review. The Hospital has entered into one or more valid
memorandums of understanding with the Hospital's peer review organizations. A
copy of each memorandum of understanding is attached as Exhibit 4.10.
4.11 Compliance with Zoning, Land Use and Other Laws. Except as
disclosed in Exhibit 4.11 hereto, the Hospital has received no notice of any,
and to the best of Seller's knowledge, there exists no, violation of any zoning,
land use, public health, building code or other similar laws, ordinances and
regulations applicable thereto and there does not exist any variances,
conditional use permits, waivers or exemptions relating to the Real Estate with
respect to such matters. There is presently located within the Real Estate an
adequate number of parking spaces to satisfy the requirements of all applicable
zoning and land use ordinances and regulations for the Hospital's current
operations. Final, permanent and unconditional certificates of occupancy and/or
use have been duly issued by the applicable governmental authority having
jurisdiction for all buildings located on the Real Estate.
4.12 Easements. The Hospital has all easements and rights necessary to
continue operation of the business of the Hospital as currently conducted.
4.13 Title to Assets.
(1) Seller is the only record, legal and beneficial owner of
and has, and at Closing will have, good indefeasible and insurable fee simple or
leasehold, as the case may be, absolute title to all the Assets, free and clear
of all mortgages, security interests, liens, leases, covenants, assessments,
easements, options, rights of refusal, restrictions, reservations, defects in
the title, encroachments, adverse claims and other encumbrances, except for the
Permitted Exceptions (as defined below).
(2) The Real Estate is accurately described in Exhibit 1.1(1)
and includes all real estate owned by Seller set forth on the Financial
Statements and used in connection with the Hospital. Seller is the sole and
exclusive record, legal and equitable owner of all right, title and interest in
and has good, indefeasible and insurable title in fee simple or leasehold, as
the case may be, to, and at Closing will be in possession of, all the Real
Estate including the buildings, structures and improvements situated thereon and
appurtenances thereto, in each case free and clear of all mortgages, liens,
leases, assessments, easements, covenants, options, rights of refusal,
restrictions, reservations, defects in title, encroachments and other
encumbrances, whether or not the same render the title to such Real Estate
uninsurable or unmarketable, except for the items listed on Exhibit 4.13(2) (the
"PERMITTED EXCEPTIONS").
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(3) The Seller has not sold, exchanged or transferred any
material assets outside the ordinary course of business which were used by the
Hospital within the last five years, except as listed on Exhibit 4.13(3).
(4) The only names, trade names or fictitious names under
which the business of the Hospital has been operated for the last five years are
listed on Exhibit 4.13(4). Seller has complied with all fictitious name filing
statutes.
(5) Exhibit 4.13(5) lists all post office boxes and addresses
where accounts receivable sold to Buyer are to be paid and all names under which
payment is to be received. Seller hereby grants to Buyer the irrevocable power
of attorney to execute and endorse any checks or receive any payments with
respect to any accounts receivable which are sold to Buyer.
4.14 Leases and Contracts.
(1) Exhibit 4.14 hereto sets forth a complete and accurate
list of all contracts, agreements, purchase orders, service contracts,
management agreements, equipment leases, leases of space, and ground leases,
leases, subleases, options and commitments, oral or written, and all
assignments, amendments, schedules, exhibits and appendices thereof, affecting
or relating to any Asset or any interest therein, to which Seller is a party or
by which Seller, the Hospital or the Assets are bound or affected (collectively,
the "LEASES AND CONTRACTS"). Said Exhibit also indicates which of the Leases and
Contracts are to be assumed by Buyer (herein, the "ASSUMED CONTRACTS") and
whether the assignment and assumption of such Assumed Contracts require the
consent of any third party. Seller will provide or cause to be provided to Buyer
a copy of all written Leases and Contracts, and detailed summary of the
provisions of all oral Leases and Contracts, prior to Closing. Except for
Assumed Contracts, all Leases and Contracts and all other obligations relating
to the Assets and the business of Seller shall be retained and paid or performed
by Seller.
(2) None of the Leases and Contracts has been modified,
amended, assigned or transferred, except as noted on Exhibit 4.14, and each is
in full force and effect and is valid, binding and enforceable in accordance
with its respective terms;
(3) No event or condition has happened or presently exists
which constitutes a default or breach or, after notice or lapse of time or both,
would constitute a default or breach by any party under any of the Leases and
Contracts (other than with respect to those notes payable listed on Exhibit
1.4(1) which shall be paid in full by Seller at Closing), and Seller shall do no
act nor omit to do any act which would cause such a default or breach. There are
no counterclaims or offsets under any of the Leases and Contracts which are part
of the Assumed Liabilities;
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(4) There does not exist any security interest, lien,
encumbrance or claim of others created or suffered to exist on any interest
created under any of the Leases and Contracts;
(5) No purchase commitment by Seller is in excess of Seller's
ordinary business requirements;
(6) Except as expressly identified on Exhibit 4.14, none of
the Leases and Contracts is: (i) a capitalized lease within the meaning of
generally accepted accounting principles; or (ii) a lease with a remaining term
of one (1) year or more from Closing and which cannot be canceled within thirty
(30) days at the option of Seller without penalty; or (iii) a lease containing
an option to purchase.
(7) Except as specifically set forth on Exhibit 4.14, the
assignment to Buyer of the Assumed Contracts will not default, alter or
terminate any of the Assumed Contracts, and such assignment will confer all
Seller's rights thereunder to Buyer, without resulting penalty, premium or
variation.
(8) Seller has no outstanding obligations to make any repairs
or improvements or renovations under any leases of office space or other space
included in the Leases and Contracts, including without limitation any
obligations other than normal repairs and maintenance. There are no outstanding
negotiations with any such lessees regarding any matter relating to the leased
space. Except for those tenants in possession of the Real Estate under Leases
and Contracts, there are no parties in possession of, or claiming any
possession, adverse or not, to or other interest in, any portion of the Real
Estate as lessees, tenants at sufferance, trespassers or otherwise. No tenant is
entitled to any rebate, concession or free rent, other than as set forth in the
Lease or Contract with such tenant. No rents due under any of the Leases and
Contracts have been assigned or hypothecated to, or encumbered by, any person.
(9) Except as identified on Exhibit 4.14:
(a) There are no contracts, agreements or
arrangements, direct or indirect, providing for payments based in any manner on
the revenues, purchases or profits of Seller or the Hospital; and
(b) There are no contracts, agreements or
arrangements, direct or indirect, with referral sources to the Hospital.
(10) The performance after Closing of obligations under the
Leases and Contracts will not violate any law, rule, regulation or judgment
applicable to the business of the Hospital or to the subject matter of or
parties to the Leases and Contracts.
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4.15 Environmental Matters.
(1) Hazardous Substances. As used in this Section, the term
"HAZARDOUS SUBSTANCES" means any hazardous or toxic substances, pollutants,
contaminants, materials or wastes, including but not limited to those
substances, pollutants, contaminants, materials, and wastes listed in the United
States Department of Transportation Table (49 CFR 172.101) or by the
Environmental Protection Agency as hazardous substances pursuant to 40 CFR Part
302, or such substances, materials and wastes which are regulated under any
federal environmental law or any applicable local or state environmental law,
including, but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA") as supplemented and amended or
the Resource Conservation and Recovery Act, as amended ("RCRA"), 42 U.S.C.
ss.6901 et seq.; toxic substances as defined under the Toxic Substance Control
Act, 15 U.S.C. 2601 et seq; or any of the following: hydrocarbons, petroleum and
petroleum products, asbestos, polychlorinated biphenyls, formaldehyde,
radioactive substances, flammables and explosives.
(2) Compliance with Laws and Regulations.
(a) To the best of Seller's knowledge, all operations
or activities upon, or any use or occupancy of the Real Estate, or any portion
thereof, by Seller, any Affiliates of Seller (the term "AFFILIATES" shall mean
any person or entity controlling, controlled by or under common control with
Seller or a predecessor of Seller, and the term "CONTROL" shall mean the power,
directly or indirectly to direct the management or policies of such person or
entity), and any agent, contractor or employee of Seller or its Affiliates
("AGENTS"), or any tenant or subtenant of Seller of any part of the Real Estate,
are and have been in all respects in compliance with all laws, regulations or
orders relating to Hazardous Substances.
(b) Seller, Affiliates and Agents have kept the Real
Estate free of any lien imposed pursuant to any laws, regulations or orders
relating to Hazardous Substances.
(c) To the best of Seller's knowledge, except for
uses and temporary storage of Hazardous Substances reasonably necessary to the
customary operation of a hospital and in compliance with all applicable federal,
state and local laws, statutes, ordinances, codes, rules, regulations, orders,
decrees, and other applicable requirements of governmental authorities, neither
Seller, Affiliates nor Agents nor any prior owners, operators, or occupants of
the Real Estate have allowed the manufacture, use, generation, voluntary
transmission, storage or presence of any Hazardous Substances over, in or upon
the Real Estate. Seller has obtained all environmental permits necessary for the
operation of a hospital and related activities, all such permits are in good
standing and Seller is in compliance with all terms and conditions of its
environmental permits.
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(d) Neither Seller, Affiliates nor Agents have
received any communication (written or oral) that alleges that Seller is not or
was not in compliance with all applicable environmental laws (including CERCLA
or any comparable state or local law). None of the Real Estate, nor any part
thereof, nor Seller, nor Affiliates, nor any present owner or operator of the
Real Estate is subject to any pending or threatened investigation or inquiry by
any governmental authority, or any remedial or removal obligations under any
applicable rules, regulations or orders pertaining to health, safety or the
environment.
(e) To the best of Seller's knowledge, neither
Seller, Affiliates nor Agents have installed or permitted to be installed or
have knowledge of friable asbestos or any substance containing asbestos or any
other substance deemed hazardous by federal or state laws or regulations
respecting such material in or on the Real Estate except as disclosed on Exhibit
4.15.
(f) To the best of Seller's knowledge, except as
disclosed on Exhibit 4.15, Seller, its Agents and Affiliates have not at any
time engaged in, permitted or have knowledge of, nor to the best knowledge of
Seller, after due inquiry, has any tenant or subtenant engaged in or permitted
any dumping, discharge, disposal, spillage, or leakage (whether legal or
illegal, accidental or intentional) of Hazardous Substances, at, on, in or about
the Real Estate. No portion of the Real Estate has ever been used as a landfill,
garbage or refuse dump site, waste disposal facility, transfer station or other
type of facility for the processing, treatment or disposal of waste materials.
(g) To the best of Seller's knowledge, except as
disclosed on Exhibit 4.15, no work, repairs, remedy, construction or capital
expenditures is required by any environmental or land use laws or regulations
with respect to the Real Estate in order for the continued lawful use of the
Real Estate as a hospital.
(h) The Real Estate is not currently nor has it ever
been listed on the National Priorities List or the Comprehensive Environmental
Response, Compensation and Liability Information System, both promulgated under
CERCLA, or any comparable state list and no off-site location at which Seller
has disposed or arranged for the disposal of any waste is listed on the National
Priorities List or on any comparable state list.
(i) To the best of Seller's knowledge, except as
disclosed on Exhibit 4.15, no petroleum hydrocarbons have migrated on or below
the surface of any portion of the Real Estate, and there are no underground
storage tanks, or related pipes on any portion of the Real Estate. To the extent
there is an underground storage tank on the Real Estate (including any diesel
storage tank associated with the medical office building complex), Seller shall
provide evidence satisfactory to Buyer that such tank has been tightness tested
with all related lines, within the past six months, that such tank and lines are
currently leak-free and that any prior leaks have been remediated or cleaned up
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in compliance with all federal, state and local laws. There has been no release
of hydrocarbons or other Hazardous Substances from or rupture of such tank or
line, including without limitation, any release from or in connection with the
filling or emptying of such tank. Seller shall provide evidence satisfactory to
Buyer that such tank(s) is registered with the State of Texas and that Seller is
in full compliance with all underground storage tank laws and regulations. For
any underground storage tanks which were formerly located on the Real Estate, or
which were closed in place, Seller shall provide evidence satisfactory to Buyer
that such tanks were removed, or closed, in full compliance with all federal,
state and local laws, and that any reportable hydrocarbons in the Real Estate
were properly removed or treated. At or before Closing, Seller will provide
Buyer with a certificate, letter or other evidence from the appropriate agency
of the State of Texas that Seller's current use of any underground storage tanks
is in full compliance with all state requirements.
(j) To the best of Seller's knowledge, the Real
Estate is free of dangerous levels of naturally-emitted radon.
(3) Seller shall promptly notify Buyer in writing of any order
of which it is aware, receipt of any notice of violation or noncompliance with
any applicable law, rule, regulation, standard or order, any threatened or
pending action of which it is aware by any regulatory agency or their
governmental authority, or any claims made by any third party of which it is
aware relating to Hazardous Substances on, emanations on or from, releases on or
from, or threats or threats of releases on or from any of the Real Estate which
relate to the period prior to Closing; and shall promptly furnish Buyer with
copies of any correspondence, notices, or legal pleadings in connection
therewith. Buyer shall have the right, but shall not be obligated, to notify any
governmental authority of any state of facts which may come to its attention
with respect to Hazardous Substances, on, released from or emanating from any
part of the Real Estate.
(4) Seller shall prior to Closing provide Buyer with a copy of
all Phase I environmental audits or reports, and any other engineering reports
or inspections which have been prepared relating to the Real Estate.
4.16 Miscellaneous Representations Relating to Real Estate.
(1) No part of the Real Estate is currently subject to
condemnation proceedings, and no condemnation or taking is threatened or known
by Seller or the Members to be contemplated. There are no public improvements
which may result in special assessments against or otherwise affect the Real
Estate.
(2) Seller has furnished to Buyer complete copies of all
appraisals, mechanical and structural studies or reports or assessments,
engineering plans,
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architectural drawings, soil studies, surveys and other documents which have
been prepared by or at the direction of Seller or its Affiliates within the last
ten years relating to any of the Assets.
(3) From and after the date hereof until Closing, Seller will
not perform or permit any material grading or excavation, construction or
removal of any improvement, or make any other material change or improvement
upon or about the Real Estate.
(4) All utilities serving the Hospital are, and shall be at
Closing adequate to operate the Real Estate in the manner it is currently
operated and all utility lines, pipes, hook-ups and wires serving the Hospital
are located within the Real Estate or recorded easements for the benefit of the
Real Estate. Any so-called tap fees, hook-up fees or other associated charges
accrued to date have been fully paid with respect to all potable and industrial
water and all gas, electrical, steam, compressed air, telecommunication,
sanitary and storm sewage lines and systems and other similar systems serving
the Hospital. There are no encroachments upon the Real Estate or upon any
dominant easement appurtenant thereto and no encroachment of any improvements to
the Real Estate onto adjacent property, except as shown on the Survey (as
defined in Section 7.2). None of the improvements to the Real Estate violate
set-back, building or side lines, nor do they encroach on any easements located
on the Real Estate, except as shown on the Survey.
(5) Any division of the Real Estate has been done in full
compliance with all applicable subdivision, zoning or other land use laws,
regulations, ordinances or other requirements.
(6) No portion of the Real Estate constitutes wetlands and no
portions of the Real Estate has been or is used as a cemetery, burial ground or
other site for the internment, burial or location of the remains of any deceased
person or persons.
4.17 Conditions of Assets. To the best knowledge of Seller, except as
set forth on Exhibit 4.17, all material components of all of the Assets (a) are
free from material structural (including electrical and mechanical) defects, and
(b) are in good working order sufficient for current operations of the Hospital.
Seller has no knowledge of any physical condition of the Real Estate and
improvements which Seller is aware could have a material adverse effect on Buyer
or Buyer's operation of the Hospital, consistent with its current operations.
All potable and industrial water and all gas, electrical, steam, compressed air,
telecommunication, sanitary and storm sewage lines and systems and other similar
systems serving the Real Estate are installed and operating and are sufficient
currently to enable the Real Estate to be used and operated in the manner
currently being used and operated, and any so-called hook-up fees or other
associated charges accrued to date have been fully paid. Seller has received no
written recommendation from any insurer to repair or replace any of the Assets
with which Seller has not complied. The Assets together
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with the Excluded Assets comprise all of the following: all assets owned by
Seller and all assets used in connection with the Hospital and its related
businesses.
4.18 Capital Expenditure and Construction. Seller shall pursue the
completion of all current capital expenditures and construction with reasonable
diligence from the date hereof until the Closing pursuant to the capital
expenditure budget and construction schedule currently in effect. All current
construction has been constructed to the date hereof in a good workmanship
manner, in accord with good construction practice and in accordance with the
appropriate plans, specifications and architectural renderings, applicable
requirements, restrictions, and limitations of federal, state, county and local
statutes, laws, ordinances and regulations, including, but not limited to, those
related to zoning, building, fire, health and safety and environmental control
and protection. All bills for labor, services and materials previously rendered
with respect to construction projects have been paid in full by Seller. Such
construction-in-progress has been and will be completed within budget. All
building permits and licenses necessary to complete construction in accordance
with the plans, specifications and architectural renderings have been obtained.
When the construction-in-progress is completed in accordance with the plans and
specifications, such construction will comply with zoning, public health,
building code and similar laws applicable thereto including ownership, occupancy
and operation. All contracts and agreements necessary in order to complete the
construction in accordance with the plans and specifications have been entered
into and are included in Exhibit 4.14.
4.19 Future Construction. Except as described on Exhibit 4.19, Seller
has entered into no agreements, including oral agreements or understandings
regarding the development of future or pending construction of facilities in
connection with the Hospital.
4.20 Litigation. Except as set forth in Exhibit 4.20 hereto, neither
Seller nor the Members have received notice of any violation of any law, rule,
regulation, ordinance or order of any court or federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, legislation and regulations
applicable to the Medicare and Medicaid programs, environmental protection,
civil rights and public health and safety and occupational health). Except as
set forth in Exhibit 4.20, there are no lawsuits, proceedings, actions,
arbitrations, governmental investigations, claims, inquiries or proceedings
pending or, to the best knowledge of Seller, threatened, involving or related to
the Seller, the Hospital or the Assets, and Seller knows of no basis therefore.
Whether or not listed on Exhibit 4.20, Seller shall indemnify Buyer with respect
to such matters in accordance with the provisions of Article XIII, subject to
the limitations on indemnification contained in said Article XIII.
4.21 Seller's Employees. Exhibit 4.21(a) hereto sets forth: (a) a
complete list of all of Seller's employees and rates of pay, together with true
and correct copies of any and
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all employment contracts, fringe benefits and personnel policies, (b) the
employment dates and job titles of each such person, and (c) categorization of
each such person as a full-time or part-time employee of Seller. Buyer shall
have no obligation to hire Seller's employees and has made and will make no
promise or representation to any of Seller's employees with respect to
employment by Buyer. Seller shall be solely responsible for any notice which may
be required under WARN, as hereinafter defined, and any similar state laws, and
shall indemnify Buyer therefrom. For purposes of this paragraph, "PART-TIME
EMPLOYEE" means an employee who is employed for an average of fewer than twenty
(20) hours per week or who has been employed for fewer than six (6) of the
twelve (12) months preceding the date on which notice is required pursuant to
the "Worker Adjustment and Retraining Notification Act" ("WARN"), 29 U.S.C.
ss.2102 et seq., and any similar state laws. Except as provided in Exhibit
4.21(a), Seller has no employment agreements and all such employees are employed
on an "at will" basis. Exhibit 4.21(a) lists all ex-employees of Seller
utilizing or eligible to use COBRA (health insurance). Exhibit 4.21(b) shall be
attached at Closing and shall set forth a complete list of all of Seller's full
and part time employees who have been terminated within ninety (90) days before
Closing.
Seller and Buyer agree that the unemployment experience of the Seller
will be transferred to the Buyer if such a transfer of unemployment experience
is allowed by law and elected by the Buyer. If the payroll of the Hospital is
reported in an unemployment insurance account with other payroll prior to the
Closing, the portion of the unemployment experience transferred to the Buyer
shall be the same portion as the Hospital's state unemployment taxable payroll
bears to the total state unemployment taxable payroll of the Seller's
unemployment insurance account. Funds which are in group accounts for the
purpose of paying reimbursable unemployment benefits will be transferred to the
Buyer if the Buyer elects such transfer. Obligations to reimburse the state for
unemployment benefits relating to persons who do not become employees of Buyer
at Closing shall continue to be the obligations of Seller.
Seller agrees to make available to the Buyer the records of individual
wages of all employees, as well as copies of state unemployment tax returns, to
the extent necessary for the Buyer to verify future unemployment tax rates and
to calculate the correct taxable payroll for the remainder of the calendar year
in which the transaction occurs.
4.22 Labor Relations. Seller is not a party to any labor contract,
collective bargaining agreement, contract, Letter of Understanding or any other
arrangement, formal or informal, with any labor union or organization which
obligates Seller to compensate its employees at prevailing rates or union scale,
nor are any of Seller's employees represented by any labor union or
organization. There is no pending, or to the best knowledge of Seller,
threatened labor dispute, work stoppage, unfair labor practice complaint,
strike, administrative or court proceeding or order between Seller and any
present or former employees (or a union) of Seller, and Seller knows of no basis
therefore.
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There is no pending, or to the knowledge of Seller, threatened suit, action,
investigation or claim between Seller and any present or former employees (or a
union) of Seller and Seller knows of no basis therefore. There has not been any
labor union organizing activity at the Hospital or elsewhere with respect to
employees of the Hospital within the last three (3) years.
4.23 Insurance. Seller has in effect and has continuously, for at least
the last five (5) years, maintained insurance coverage for its operations,
personnel and assets. Exhibit 4.23 sets forth a summary of the Seller's current
insurance coverage (listing type, carrier and limits). Exhibit 4.23 also
includes a list of any pending insurance claims relating to Seller. Seller is
not in default or breach with respect to any provision contained in any such
insurance policies, nor has Seller failed to give any notice or to present any
claim thereunder in due and timely fashion. Such insurance is adequate to cover
all business risks normally insured against by owners and operators of health
care facilities. Seller will continue to maintain all its insurance policies and
coverage amounts in full force and effect until the Closing. All of such
policies are valid, outstanding, in full force and effect with insurers
unaffiliated with Seller, and enforceable with no premium arrearages. Complete
genuine copies of all policies and endorsements thereto have been provided to
Buyer. At no time has Seller been denied, or reduced or requested a reduction in
the scope of amount of, any insurance or indemnity bond coverage with respect to
the Assets. No insurance carrier has canceled or reduced, or given notice of its
intention to cancel or reduce, any insurance coverage with respect to the
Hospital, and there exist no grounds to cancel or avoid any such policies or the
coverage provided thereby.
4.24 Broker's or Finder's Fee. Neither Seller nor Members has engaged
any finder, broker or similar person in connection with the transactions
contemplated by this Agreement.
4.25 Medical Staff. Seller has previously delivered to Buyer a true and
correct copy of medical staff privilege and membership application forms, a
description of medical staff privileges, all current medical staff bylaws, rules
and regulations and amendments thereto, all credentials and appeals procedures
not incorporated therein, the name of each current member of the medical staff
of the Hospital, the age of each medical staff member, the specialty, if any, of
each medical staff member, and all contracts with physicians, physician groups,
or other members of the medical staff of the Hospital. There are no pending or,
to the knowledge of Seller, any threatened appeals, challenges, disciplinary or
corrective actions, or disputes involving applicants, staff members, or health
professionals and Seller knows of no basis therefor.
4.26 Conflicts of Interest. Except as disclosed in Exhibit 4.26, no
members, director, officer, employee or agent of Seller or any Affiliates is
either a supplier of goods or services to Seller, or directly or indirectly
controls or is a shareholder, officer, director,
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employee or agent of any corporation, firm, association, partnership or other
business entity which is a supplier of goods or services to Seller or a party to
any contract or other agreement with Seller.
4.27 Hill-Burton and Other Liens. Neither Seller nor any of its
predecessors have received any loans, grants or loan guarantees pursuant to the
Hill-Burton Act program, the Health Professions Educational Assistance Act, the
Nurse Training Act, the National Health Pharmacy and Resources Development Act,
and the Community Mental Health Centers Act, as amended, or other, similar laws
or acts providing for the recovery of any public funds advanced under the
provisions of such laws or acts relating to health care facilities for which
Seller has any outstanding obligations. Seller and Members, jointly and
severally, promise to pay all amounts owing with respect to any such loans,
grants or loan guarantees, if any, and shall hold harmless and indemnify the
Buyer from any liability therefor.
4.28 Experimental Procedures. Seller has not performed or permitted the
performance of any experimental or research procedures or studies involving
patients in the Hospital.
4.29 Intellectual Property; Computer Software. All trademarks, service
marks, trade names, patents, copyrights, inventions, processes and applications
therefor (whether registered or common law) owned by Seller are listed and
described in Exhibit 4.29 (collectively the "INTELLECTUAL PROPERTY"). No
proceedings have been instituted or pending or, to the knowledge of Seller,
threatened which challenge the validity of the ownership by Seller of such
Intellectual Property, and Seller knows of no basis therefore. Seller has not
licensed anyone to use such Intellectual Property and Seller has no knowledge of
the use or the infringement of any of such Intellectual Property by any other
person. Seller owns (or possesses adequate and enforceable licenses or other
rights to use) all Intellectual Property, and all computer software programs and
similar systems used in the conduct of its business.
4.30 Inventories. The Inventory is of a quality and quantity presently
usable in the ordinary course of business at the Hospital determined and valued
consistent with generally accepted accounting principles. The Inventory is
maintained at normal levels for medical/surgical general acute care hospitals of
its size. Since the date of the most recent Financial Statements, Seller has not
decreased or substituted its items of Inventory other than in the ordinary
course of business.
4.31 Motor Vehicles. All motor vehicles used in the business of Seller,
identified as owned or leased, are listed in Exhibit 1.1(2) hereto. All such
vehicles are properly licensed and registered in accordance with applicable law.
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4.32 Employee Benefit Plans.
(1) Except as set forth in Exhibit 4.32, Seller does not
maintain, and is not required to contribute to or otherwise participate in an
"employee benefit plan" or a "multi-employer plan" (as such terms are defined in
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
including without limitation, any pension, profit-sharing, retirement, stock
purchase or stock option plan, or any other retirement, compensation, welfare or
fringe benefit plan, program or arrangement of any kind whatsoever, whether
formal or informal, providing for benefits for, or for the welfare of, any or
all of the employees of Seller, any member of a group defined in Section 414(b),
(c), (e), (m) or (o) of the Code to which Seller belongs or has belonged, or any
predecessor of Seller, or for the welfare of the beneficiaries of such employees
(each an "EMPLOYEE PLAN"). Seller shall be liable for any withdrawal liability
with regard to such employees under the Multi-Employer Pension Plan Amendments
Act of 1980. Seller has no liability for unpaid compensation or fringe benefits,
including without limitation accrued vacation, sick leave, post retirement
medical or other benefits, severance pay, "parachutes," or vacation pay, not
disclosed on Exhibit 4.32.
(2) Except as set forth in Exhibit 4.32(2), no "party in
interest" (as such term is defined in Section 3(14) of ERISA) or "disqualified
person" (as such term is defined in Section 4975(e) of the Code) with respect to
any of the Employee Plans has engaged in any "prohibited transaction" (as such
term is defined in ERISA or the Code) which could subject any of the Employee
Plans, any trusts thereunder, any trustee, custodian or administrator thereof,
any person or entity holding or controlling assets of any of the Employee Plans,
any party in interest or disqualified person or any other person or entity
dealing with such Employee Plans to any tax, penalty or other cost or liability
of any kind. No "reportable events" (as such term is defined in Section 4043 of
ERISA) have occurred by reason of any act or omission of Seller or any other
person with respect to any of the Employee Plans.
(3) Except as set forth in Exhibit 4.32(3), Seller and its
Affiliates have fully complied with all of its and their obligations under each
of the Employee Plans and all provisions of ERISA, the Code, and any and all
other laws, rules, regulations, releases and other official pronouncements
applicable to the Employee Plans, each Employee Plan that is intended to qualify
under Section 401(a) of the Code has, at all times, so qualified and each
Employee Plan has, at all times, been administered so as to comply with all
applicable law including, but not limited to, ERISA, the Code, applicable state
laws and any regulations thereunder.
(4) Except as specified in Section 1.3(2) relating to accrued
vacation, PTO and sick leave, and as set forth on Exhibit 4.32(4) Buyer will not
be liable and will not be responsible for any debt, obligation, contribution,
responsibility, withdrawal liability or other
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liability of Seller under any Employee Plans, including, without limitation, any
penalty, fee or funding obligation related to the termination of any plan
pursuant to Section 6.18. Seller will be liable under the Employee Plans for all
claims due and unpaid at or after Closing and for all claims incurred before or
after the Closing, whether or not paid or presented before Closing, and for any
liabilities arising from any failure before or after the Closing to comply with
the requirements of ERISA, the Code, applicable state laws or regulations
thereunder.
(5) Seller has provided or caused to be provided notice of the
availability of COBRA coverage for all of its present and former employees, and
their dependents entitled to such notice because of a qualifying event occurring
on or before the Closing. All COBRA coverage has been fully insured. The only
persons entitled to receive COBRA coverage or in the future elect COBRA coverage
as a result of a qualifying event occurring on or prior to Closing are persons
listed on Exhibit 4.21(a). Upon Closing, all of Seller's employees shall cease
participation in all Employee Plans maintained by Seller, except to the extent
provided herein or as to benefits owed such employees.
4.33 Compliance with Laws. To the best of Seller's knowledge, Seller
has complied with all existing laws, rules, regulations, ordinances, orders,
judgments and decrees applicable to their businesses or the Assets in all ways
other than exceptions which in the aggregate have and will have only an
immaterial impact on the business and its operations and prospects. To the best
knowledge of Seller, there are no proposed laws, rules, regulations, ordinances,
orders, judgments, decrees, governmental takings, condemnations or other
proceedings which could, before or after Closing, adversely affect the Hospital.
Seller has made no kickback, bribe or payment to any person or entity, directly
or indirectly, for referring, recommending or arranging business or patients
with, to or for Seller. To the best of Seller's knowledge, none of the Leases
and Contracts and no activity of Seller violates Section 1877 of the Social
Security Act or any similar provision of applicable state law. To the best of
Seller's knowledge, none of the Leases and Contracts and no activity of Seller
violates provisions of applicable state law relating to the corporate practice
of medicine. Seller shall pay when due all of its debts and obligations (other
than the Assumed Liabilities) including, but not limited to, any debt or
obligation which could give rise to transferee liability because of taxes,
penalties, interest, assessments, and deficiencies related thereto and related
to the period ending on the Closing Date. Seller hereby agrees that it will
remain responsible for the Excluded Liabilities and any other obligations for
which Buyer may otherwise be liable under any bulk sales laws, other than the
Assumed Liabilities and Seller will indemnify Buyer with respect to all such
liabilities.
4.34 No Omissions or Misstatements. There is no fact material to the
assets, liabilities, business or prospects of Seller or the Hospital which has
not been set forth or described in this Agreement or in the Exhibits hereto
which, to the best knowledge of Seller
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and Members, is material to the business, operations or financial condition of
the Hospital. To the best of Seller's knowledge, none of the information
included in this Agreement and Exhibits or other documents furnished or to be
furnished by Seller or any of its representatives contains any untrue statement
of a material fact or is misleading in any material respect or omits to state
any material fact necessary in order to make any of the statements herein or
therein not misleading. Copies of all documents referred to in any Exhibit
hereto have been delivered or made available to Buyer and constitute true,
correct and complete copies thereof and include all amendments, exhibits,
schedules, appendices, supplements or modifications thereto or waivers
thereunder. The representations and warranties of Seller and Members set forth
in this Agreement or in any document delivered pursuant hereto shall not be
affected or deemed waived by reason of the fact that the Buyer knew or should
have known that any such representation or warranty is, or might be, inaccurate
in any respect.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Seller to enter into this Agreement and to
consummate the transactions contemplated herein, Buyer represents and warrants
to Seller, which representations and warranties shall be true and correct on the
date hereof, and on Closing, as if then restated by it, and which shall survive
Closing, as follows:
5.1 Organization, Qualification and Authority. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Tennessee. Buyer has the full corporate power and authority to own,
lease and operate its properties and assets as presently owned, leased and
operated and to carry on its business as it is now being conducted, and is in
good standing in Texas and has the requisite corporate power and authority to
enter into and perform its obligations under this Agreement without the consent,
approval or authorization of, or obligation to notify, any person, entity or
governmental agency. Buyer has the full right, power and authority to execute,
deliver and carry out the terms of this Agreement and all documents and
agreements necessary to give effect to the provisions of this Agreement and to
consummate the transactions contemplated on the part of Buyer hereby. The
execution, delivery and consummation of this Agreement and all other agreements
and documents executed in connection herewith by Buyer has been duly authorized
by all necessary action on the part of Buyer. No other action on the part of
Buyer or any other person or entity is necessary to authorize the execution,
delivery and consummation of this Agreement and all other agreements and
documents executed in connection herewith. This Agreement and all other
agreements and documents executed in connection herewith by Buyer, upon due
execution and delivery thereof shall constitute valid binding obligations of
Buyer, enforceable in accordance with their respective terms.
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5.2 Absence of Default. The execution, delivery and consummation of
this Agreement and all other agreements and documents executed in connection
herewith by Buyer will not constitute a violation of, be in conflict with, or,
with or without the giving of notice or the passage of time, or both, result in
a breach of, constitute a default under, or create (or cause the acceleration of
the maturity of) any debt, indenture, obligation or liability or result in the
creation or imposition of any security interest, lien, charge or other
encumbrance upon any of the Assets under: (a) any term or provision of the
Articles of Incorporation or Bylaws of Buyer; (b) any contract, lease,
agreement, indenture, mortgage, pledge, assignment, permit, license, approval or
other commitment to which Buyer is a party or by which Buyer is bound; (c) any
judgment, decree, order, regulation or rule of any court or regulatory
authority, or (d) any law, statute, rule, regulation, order, writ, injunction,
judgment or decree of any court or governmental authority or arbitration
tribunal to which Buyer is subject.
ARTICLE VI. COVENANTS OF PARTIES
6.1 Preservation of Business and Assets. From the date hereof until the
Closing, Seller shall use its best efforts and shall do or cause to be done all
such acts and things as may be necessary to preserve, protect and maintain
intact the Assets and the business and operation of the Hospital as a going
concern consistent with prior practice and not other than in the ordinary course
of business, and to preserve, protect and maintain for Buyer the goodwill of the
Hospital's medical staff, suppliers, employees, clientele, patients, tenants and
others having business relations with Seller. Seller shall use its best efforts
to retain its employees in their current positions up to Closing and shall use
its best efforts to obtain all documents called for by this Agreement. From and
after the date of this Agreement until Closing, Seller will maintain and keep
the Assets in a sanitary, well-maintained condition and in good order and
repair. Buyer, Seller and Members shall use their best efforts to facilitate the
consummation of the transactions contemplated by this Agreement. From and after
the date of this Agreement until Closing, Seller shall pay no dividend, and
shall make no distribution or extraordinary payment to any of the Members,
Affiliate or any third party or pay any intercompany payable and, other than in
the ordinary course of business. Seller will not sell, discard, dispose of or
move any of the Assets. None of the Leases and Contracts shall be amended
between the date hereof and Closing without the prior written consent of Buyer.
6.2 Absence of Material Change. From the date hereof until the Closing,
neither Seller nor Members shall make any material change in the business and
operation of the Hospital and shall not enter into any other significant
contract or commitment or any other transaction with respect thereto without the
prior written consent of Buyer, which shall not be unreasonably withheld.
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6.3 Access to Books and Records.
(1) From the date hereof until the Closing, Seller shall give
to Buyer and to Buyer's counsel, accountants, and other representatives, full
access during normal business hours to all of Seller's offices, properties,
books, contracts, commitments, records and affairs relating to the Assets so
that Buyer may inspect and audit them and shall furnish to Buyer a copy of all
documents and information concerning the properties and affairs of the Assets as
Buyer may reasonably request. If any such books, records and materials are in
the custody of third parties, Seller shall direct such third parties to promptly
provide them to Buyer. Copies of documents furnished to Buyer by Seller will be
returned by Buyer upon request if the transaction is not consummated. Seller
shall provide Buyer promptly with interim financial statements of Seller in
accordance with Section 4.3, and any other management reports as and when they
are available. Additionally, from the date hereof until Closing, Seller grants
Buyer full access to Seller's personnel and computers as is reasonably necessary
to assist Buyer in the transition to be prepared for the ownership change.
(2) Buyer shall permit Seller's representatives (including,
without limitation, their counsel and auditors), during normal business hours
and upon appropriate advance notice, to (i) have reasonable access to, and
examine and make copies of all books and records of the Hospital, including all
medical records and medical charts of any patient admitted to the Hospital,
which are transferred to Buyer hereunder and (ii) have reasonable access to the
Hospital's employees, relating to transactions or events occurring prior to the
Closing, to the maximum extent permitted by law as long as such requests do not
unreasonably interfere with the operation of the Hospital. Buyer agrees to
maintain Seller's records in accordance with the record retention guidelines set
forth by the Texas Hospital Association. For a period of three (3) years after
the Closing, Buyer agrees that, prior to the destruction or disposition of any
such books or records, Buyer shall provide not less than forty-five (45) days',
nor more than ninety (90) days' prior written notice to Seller of such proposed
destruction or disposal. If Seller desires to obtain any of such documents, it
may do so by notifying Buyer in writing at any time prior to the date scheduled
for such destruction or disposal. In such event, Buyer shall not destroy such
documents and the parties shall then promptly arrange for the delivery of such
documents to Seller, its successors or assigns. All out-of-pocket costs
associated with the delivery of the requested documents shall be paid by Seller.
(3) Following the Closing, Seller shall permit Buyer and its
representatives (including, without limitation, their counsel and auditors),
during normal business hours, to have reasonable access to, and examine and make
copies of, all books and records of Seller and its Affiliates relating to the
Hospital, which books and records, are retained by Seller and which relate to
transactions or events contemplated by this Agreement occurring prior to the
Closing, to the maximum extent permitted by law. For a period of three (3)
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years after the Closing, Seller agrees that, prior to the destruction or
disposition of any such books or records, Seller shall provide not less than
forty-five (45) days', nor more than ninety (90) days' prior written notice to
Buyer of such proposed destruction or disposal. If Buyer desires to obtain any
such documents, it may do so by notifying Seller in writing at any time prior to
the date scheduled for such destruction or disposal. In such event, Seller shall
not destroy such documents and the parties shall then promptly arrange for the
delivery of such documents to Buyer, its successors or assigns. All
out-of-pocket costs associated with the delivery of the requested documents
shall be paid by Buyer.
6.4 Consents. Seller shall use its best efforts to obtain all consents
required in form and substance reasonably acceptable to Buyer for the assignment
of the Assumed Contracts. In the event Seller is unable to obtain any one or
more consents required pursuant to this section, Buyer may elect either (i) if
the failure to obtain such consent materially adversely affects the anticipated
operations of the Assets, to terminate this Agreement in its entirety, or (ii)
whether or not the failure to obtain such consent materially adversely affects
the anticipated operations of the Assets by Buyer, to terminate this Agreement
but only with respect to the Assets for which no consent was obtained and
delivered by Closing with a reduction in the Purchase Price determined as
follows. The reduction in Purchase Price shall be determined based on the value
on the date of this Agreement of the underlying business for which no consent
was obtained and delivered by Closing multiplied by Seller's percentage
ownership of such business, the value of which shall be determined by agreement
of Seller and Buyer, and failing agreement by an MAI appraiser to be mutually
selected and paid equally by Seller and Buyer. If Seller and Buyer are unable to
mutually select an appraiser, then one (1) MAI appraiser shall be selected and
paid by Buyer and one (1) MAI appraiser shall be selected and paid by Seller. If
a party does not select an appraiser as provided in the preceding sentence
within ten (10) days after the other party has given notice of the name of its
appraiser, such party shall lose its right to appoint an appraiser. If the two
appraisers are selected by the parties as provided above, they shall meet
promptly to determine the reduction in Purchase Price. If they are unable to
agree within fifteen (15) days after the second appraiser has been selected,
they shall jointly select a third MAI appraiser. The reduction in Purchase Price
shall be set by agreement of any two (2) of the three (3) appraisers. If the two
(2) appraisers are unable to agree on a third appraiser within thirty (30) days
after the second appraiser has been selected, either party, by giving written
notice to the other, may apply to the American Arbitration Association for the
purpose of determining the reduction in Purchase Price. The Seller and Buyer
shall each bear one-half (1/2) of the cost of selecting the third appraiser and
of paying the third appraiser's fee. If any two (2) appraisers are unable to
determine the reduction in Purchase Price within fifteen (15) days after the
third appraiser has been selected, then the three (3) appraisals shall be added
together and their total divided by three (3); the resulting quotient shall be
the reduction in Purchase Price.
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6.5 Risk of Loss. In the event there is any damage to or loss of any of
the Assets (whether by fire, theft, vandalism or other cause or casualty),
between the date hereof and the Closing, the Purchase Price shall be reduced by
the amount necessary to repair the damage, which reduction shall be offset by
any amounts paid by Seller's insurance company and assigned to Buyer; provided,
however, in the event of a casualty which in Buyer's sole judgment materially
adversely affects the business or operation or prospects of any of the Assets,
Buyer, at its sole option, may elect either (i) to terminate this Agreement in
its entirety, or (ii) to terminate this Agreement but only with respect to the
damaged property with a reduction in the Purchase Price determined as follows.
The reduction in Purchase Price shall be determined, based on the value on the
date of this Agreement of the Assets damaged or lost, the value of which shall
be determined by an MAI appraiser to be mutually selected and paid equally by
Seller and Buyer. If Seller and Buyer are unable to mutually select an
appraiser, then one (1) MAI appraiser shall be selected and paid by Buyer and
one (1) MAI appraiser shall be selected and paid by Seller. If a party does not
select an appraiser as provided in the preceding sentence within ten (10) days
after the other party has given notice of the name of its appraiser, such party
shall lose its right to appoint an appraiser. If the two (2) appraisers are
selected by the parties as provided above, they shall meet promptly to determine
the reduction in Purchase Price. If they are unable to agree within fifteen (15)
days after the second appraiser has been selected, they shall jointly select a
third MAI appraiser. The reduction in Purchase Price shall be set by agreement
of any two (2) of the three (3) appraisers. If the two (2) appraisers are unable
to agree on a third appraiser within thirty (30) days after the second appraiser
has been selected, either party, by giving written notice to the other, may
apply to the American Arbitration Association for the purpose of determining the
reduction in Purchase Price. The Seller and Buyer shall each bear one-half (1/2)
of the cost of selecting the third appraiser and of paying the third appraiser's
fee. The third appraiser, however selected, shall be a person who has not
previously acted in any capacity for either party. If any two (2) appraisers are
unable to determine the reduction in Purchase Price within fifteen (15) days
after the third appraiser has been selected, then the three (3) appraisals shall
be added together and their total divided by three (3); the resulting quotient
shall be the reduction in Purchase Price. In determining the reduction in
Purchase Price, each appraiser shall take into consideration, understand, and
correctly employ those recognized techniques that are necessary to produce a
credible appraisal.
6.6 Condemnation. From the date hereof until the Closing, in the event
that any portion of the Assets becomes subject to or is threatened with any
condemnation or eminent domain proceedings which in Buyer's sole opinion
materially adversely affects the businesses or operations or prospects of any of
the Assets, then Buyer, at its sole option, may elect either (i) to terminate
this Agreement in its entirety or (ii) to terminate this Agreement with respect
only to that part which is condemned or threatened to be condemned with a
reduction in the Purchase Price determined as provided in Section 6.5.
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6.7 Good Faith. All parties shall act in good faith and use their
reasonable best efforts to satisfy all conditions to their respective
obligations to close.
6.8 Preserve Accuracy of Representations and Warranties. Seller and
Members shall refrain from taking any action which would render any
representations and warranties contained in Article IV hereof inaccurate as of
Closing. Seller and Members will promptly notify Buyer of any lawsuit, claim,
audit, investigation, administrative action or other proceeding asserted or
commenced against Seller or its directors, officers, Members or Affiliates, that
may involve or relate in any way to Seller, Members, the Assets or the business
and operations of Seller or the Assets. Seller and Members shall promptly notify
Buyer of any facts or circumstances which come to either's attention and which
cause, or through the passage of time may cause, any of Seller's and Members'
representations and warranties to be untrue or misleading at any time from the
date hereof to Closing.
6.9 Maintain Books and Accounting Practices. From the date hereof until
the Closing, Seller shall maintain its books of account in the usual, regular
and ordinary manner in accordance with generally accepted accounting principles
consistently applied and on a basis consistent with prior years and shall make
no change in its accounting methods or practices or the accounting methods or
practices. Notwithstanding the foregoing, Buyer is aware of (and consents to)
the fact that long-term patient pay receivables and Seller's interest in the
Night Clinic are not reflected in Seller's books in accordance with generally
accepted accounting principles.
6.10 Indebtedness; Liens. Other than in the ordinary course of business
as reflected in the Financial Statements, from the date hereof until the
Closing, Seller shall not create, incur, assume, guarantee or otherwise become
liable or obligated with respect to any indebtedness for borrowed money, nor
make any loan or advance to, or any investment in, any person or entity, nor
create any lien, security interest, mortgage, right or other encumbrance in any
of the Assets, without Buyer's prior written approval which will not be
unreasonably withheld. Until Closing, Seller shall make all payments required
with respect to its long-term debt, including, without limitation, any bonds,
loans or other obligations as described in Section 1.4(1) and fully and timely
comply with and satisfy all its obligations with respect thereto. Seller shall
take all action necessary to fully defease any such bonds and retire any such
loans or other obligations and cause all collateral and obligations and security
against the Assets to be fully released to Buyer's satisfaction as contemplated
hereunder, and Buyer will cooperate with Seller in this regard.
6.11 Compliance with Laws and Regulatory Consents. From the date hereof
until the Closing, (a) Seller shall comply with all applicable statutes, laws,
ordinances and regulations; (b) Seller shall keep, hold and maintain all
certificates, certificates of need, certificates of exemption, accreditations,
participations, licenses, and other permits necessary for the business and
operation of the Assets; (c) Seller and Members shall use
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their best efforts to obtain all consents, approvals, exemptions and
authorizations of third parties, whether governmental or private, necessary to
consummate the transactions contemplated by this Agreement; (d) Seller and
Members shall make and cause to be made all filings and give and cause to be
given all notices which may be necessary or desirable on its part under all
applicable laws and under its contracts, agreements and commitments in order to
consummate the transactions contemplated by this Agreement; and (e) Seller and
Members shall use reasonable efforts to consummate the transactions contemplated
by this Agreement and the agreements and documents to be executed in connection
with this Agreement as soon as is practicable.
6.12 No Sale, Merger or Consolidation. From the date hereof until the
Closing, Members shall not sell, pledge or transfer any of their interest in
Seller, and Seller shall not sell all or substantially all of its assets, merge
or consolidate with any other entity; neither of Seller nor Members shall
solicit any inquiries, proposals or offers relating to such transactions; and
both shall promptly notify Buyer orally, and confirm in writing, of all relevant
details relating to inquiries, proposals or offers which it may receive relating
to any of the matters referred to in this Section.
6.13 Maintain Insurance Coverage. From the date hereof until the
Closing, Seller shall maintain and cause to be maintained in full force and
effect, without change of coverage or insurance carrier unless approved of in
writing by the Buyer (which approval shall not be unreasonably withheld), the
existing insurance on the Assets and the operations of the Hospital and shall
provide, upon request by Buyer, evidence satisfactory to Buyer that such
insurance continues to be in effect and that all premiums due have been paid.
Prior to Closing, Seller will obtain "tail" insurance coverage for a
malpractice and general liability insurance policy with limits no less than
$1,000,000.00 per occurrence and $3,000,000.00 in the aggregate from a carrier
with coverages naming Buyer and its affiliates as additional insureds with an
insurer and having coverages acceptable to Buyer with a $10,000,000.00 umbrella
coverage extending back a period of five (5) years and forward a period of three
(3) years. Seller will provide Buyer evidence thereof acceptable to Buyer.
6.14 Medicare and Medicaid Reporting. From the date hereof until the
Closing, Seller shall timely file or cause to be filed all cost reports and
other reports of every kind, nature or description, required by law or by
written or oral contract to be filed with respect to the purchase of services by
third party payors, including, but not limited to, Medicare, Medicaid, and Blue
Cross prior to Closing. Seller has paid or will pay all liabilities for
contracted adjustments, discounts, refunds and other offsets in connection with
the filing of such reports and claims up to Closing; provided, however, that if
any adverse adjustments or offsets regarding operations on or after Closing are
the result of the willful
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acts or omissions, or gross negligence, of Seller and/or its employees,
representatives or agents, Seller shall be responsible for such adjustments and
offsets. Seller shall be entitled to receive any refund or other benefit which
may result from the filing of said reports and claims for operations up to
Closing, and Buyer shall likewise be so entitled on and after Closing. Buyer
will prepare and file the terminating cost reports for the Hospital. Seller
shall assist the Buyer in any way needed to complete the cost report in a timely
manner. Seller shall have the right to review and approve said report.
6.15 Current Return Filing. Seller shall be responsible for the
preparation and filing of the federal, state and local income tax returns for
all the tax periods of Seller ending on or before the Closing. Seller shall be
responsible for returns for organizations exempt from income tax for Seller and
related parties for all periods ending on or before the Closing. Seller shall
prepare and timely file the Federal, state and/or local income tax returns and
shall pay such tax when due.
6.16 Performance. Seller, Members and Buyer shall take appropriate
steps to satisfy their respective obligations, and the conditions to Closing,
including without limitation, the obtaining of necessary contracts and
application for necessary licenses and permits.
6.17 WARN Act. Prior to Closing, Seller will not temporarily or
permanently close or shut down any "single site of employment" or any "facility"
or any "operating unit" or any "workplace," department or service within a
single site of employment, as such terms are used in WARN and any similar state
law. Seller and Members represent that there have been no such closures or
shutdowns within the period of at least ninety (90) days before Closing. Seller
will not, for any reason, permanently or temporarily reduce the number of its
full-time employees by five hundred (500) or one-third (1/3), whichever is less,
and in any case not more than forty-nine (49), during the ninety (90) days prior
to Closing.
6.18 Termination of Employee Plans.
(1) At or as soon as possible after Closing, Seller will take
the following steps with respect to the Employee Plans:
(a) With respect to any Employee Plan that is an
"employee pension benefit plan" (as defined in Section 3(2) of ERISA),
Seller shall freeze the Employee Plan at Closing and as soon as
possible after Closing Seller shall take all steps necessary to
terminate the Employee Plan effective on or before the Closing, to the
extent allowable by applicable law, including, but not limited to,
notice of the termination to all participants and the adoption by
Seller's Board of Directors of a written resolution providing that the
Employee Plan will be terminated as soon as possible after the Closing,
that all participants in the Employee Plan will
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be fully vested in their benefits accrued to the date of termination
and that Seller shall make such additional contributions to the
Employee Plan as may be necessary to fully fund all benefits accrued
under the Employee Plan on a terminated basis.
(b) With respect to each other Employee Plan, Seller
shall terminate the Employee Plan as soon as possible after the Closing
including, but not limited to, notice of the termination to all
participants and affected third parties (including insurance companies)
and the adoption of written resolutions of the Seller's Board of
Directors providing for the termination of the Employee Plan.
(c) With respect to the termination of each Employee
Plan, Seller agrees to terminate the plan in accordance with all
applicable laws and in such a manner so as to ensure the payment of any
benefit to which a participant may have become entitled and that the
best interests of plan participants are otherwise served. Seller
further agrees that to the extent necessary, it will contract with one
or more third parties to effect or facilitate the termination of the
Employee Plan in a timely and efficient manner.
(d) Seller shall reasonably consult with Buyer in the
process of terminating all Employee Plans and all such actions shall be
taken by Seller as soon as possible following Closing. Decisions of
Seller with respect to Employee Plans that are "employee pension
benefit plans" that impact employees who have been hired by Buyer in a
potentially adverse manner must be satisfactory to Buyer in Buyer's
reasonable discretion. Actions taken by Seller after the Closing in
terminating the plans are actions taken on behalf of Seller and Seller
agrees that the indemnification of Buyer provided in Section 13.2 of
the Agreement shall include all direct or indirect consequences
thereof.
(2) Buyer agrees that it will make its on-site personnel
reasonably available during normal business hours to assist Seller in gathering
information necessary to terminate the Employee Plans, so long as such
cooperation with Seller does not interfere with the normal job responsibilities
of such employees.
6.19 Power to Endorse Checks. As specified in Section 4.13(5), Buyer
has been granted the power to execute and endorse for payment all payments on
Receivables sold to Buyer.
6.20 Phase I Environmental Assessment; Additional Environmental
Inspections. Seller and the Members shall permit Buyer prior to Closing to
conduct a Phase I Environmental Assessment on any of the Real Estate, the
results of which shall be satisfactory to Buyer. Buyer shall bear the cost of
such Phase I Environmental Assessment. If Buyer becomes aware of the presence of
any Hazardous Substances on
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the Real Estate, including hydrocarbons, Buyer shall have the right to make
whatever additional borings or inspections it deems necessary to determine the
condition of the Real Estate. Such additional borings or inspections shall be at
Buyer's expense. The results of such additional borings or inspections shall be
satisfactory to Buyer.
ARTICLE VII. TITLE AND SURVEY
7.1 Title Report and Policy. At least ten (10) days prior to Closing,
Seller shall deliver to Buyer, at Seller's expense, a current ALTA preliminary
title commitment issued by Chicago Title Insurance Company setting forth the
condition of title to each tract of Real Estate (the "COMMITMENT") (or such
reasonably equivalent commitment as is available in Texas) which Commitment
shall commit for the issuance of a title insurance policy, ALTA Owner's Policy
(or leasehold, as appropriate) Form 1992 (or such equivalent policy as is
available in Texas) (the "TITLE POLICY") as to each tract of Real Estate. The
Commitment and Title Policy shall show that the Real Estate is owned in fee
simple (or leased, as the case may be) by Seller, free from all liens,
restrictions, encumbrances, easements and clouds on title whatsoever, except the
Permitted Exceptions. The Commitment and Title Policy will also contain, to the
extent available, (a) a so-called "tax parcel endorsement" listing all of the
tax parcel identification numbers affecting the Real Estate covered by the Title
Policy and that no other property is included in the Real Estate and that no
other tax parcel identification numbers affect such Real Estate, (b) a
contiguity endorsement, (c) a 3.1 zoning endorsement or its equivalent as then
in use by the title company in form and substance acceptable to Buyer, (d)
extended coverage deleting all standard and general exceptions, (e) affirmative
coverage against any Hill-Burton or other similar lien under any other law or
act described in Section 4.27 of this Agreement, (f) an owner's comprehensive
endorsement, and (g) any additional endorsements or insurance as Buyer may
reasonably require. The Title Policy shall be in form acceptable to Buyer's
lender and shall permit a simultaneous issue rate for the lender's mortgage
title policy. When delivering the Commitment, the title company shall provide
Buyer one (1) copy of all recorded documents affecting title of the Real Estate.
At Closing, there shall be issued to Buyer, at Seller's expense, the Title
Policy in the amount of the Purchase Price which is allocated to the Real Estate
as improved. In the event Buyer requests, and at Buyer's expense, the title
company shall issue a mortgage title policy in an amount up to the Purchase
Price which is allocated to the Real Estate as improved, at simultaneous issue
rates. Seller and Buyer shall execute such certificates and affidavits as may be
reasonably required in connection with the issuance of the Title Policy and
endorsements.
7.2 Survey. At least ten (10) days prior to Closing, Seller shall
obtain and deliver to Buyer, at Seller's expense, an as-built survey of the Real
Estate (the "SURVEY") accompanied by a certificate of a registered surveyor
licensed in the State of Texas, certified as directed by Buyer, sufficient to
cause the title company to delete the standard
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printed survey exception (or modified to read "shortages in area") and to issue
the Title Policy free from any survey objections or exceptions whatsoever other
than as shown on the Survey. The Survey shall show the boundaries of the Real
Estate, separate legal descriptions and boundaries for the tracts, the location
and dimension of all improvements, the physical location of all utilities, and
the location of all streets, highways, alleys and public ways crossing or
abutting said Real Estate, all dominant and servient easements identified by
recording information, all building lines and all buildings and structures as
are situated thereon as of said date. Said certificate shall be in form and
substance acceptable to Buyer. Said certificate shall also state whether or not
the Real Estate or any part thereof lies within the boundaries of a local, state
or federal flood plain designation. If available, the Survey shall also provide,
zoning information and other data sufficient for the title company to provide
the title insurance coverage as described in Section 7.1 above.
7.3 U.C.C. Searches. U.C.C. Financing Statement searches, local and
central, including fixtures, and federal and state tax lien and judgment
searches, with respect to Seller, its affiliates and predecessors, including all
"DBA's", trade names and fictitious names of Seller (including, but not limited
to, all names set forth in Exhibit 4.13(4)), from each of the jurisdictions in
which such entity does business or has done business within the preceding five
(5) years (the "U.C.C. SEARCHES"), shall be obtained, at Seller's cost, and
delivered to Buyer at least ten (10) days prior to Closing. The results shall be
updated to Closing to reflect Closing and the release of all financing statement
liens other than the Permitted Exceptions.
7.4 Defects and Cure. The Commitment and Title Policy and the Survey
and U.C.C. Searches described in this Article are collectively referred to as
"TITLE EVIDENCE." Buyer shall notify Seller as soon as reasonably possible of
any liens, claims, encroachments exceptions or defects disclosed in the Title
Evidence which either: (a) do not constitute Permitted Exceptions, or (b) even
if they constitute Permitted Exceptions, adversely impact any of the Assets or
the financeability thereof in the reasonable opinion of Buyer (collectively,
"DEFECTS"). Seller, at its sole cost and expense, may elect to not cure the
objection and shall give written notice to Buyer within ten (10) days of its
receipt of Buyer's objections of its decision whereupon Buyer may waive such
objection and close or may terminate this Agreement, which election shall be
made within ten (10) days of receipt of notice from Seller. If Seller fails to
timely give such notice, Seller shall be deemed to have elected not to cure the
objection, whereupon Buyer may waive such objection and close or may terminate
this Agreement, which election by Buyer shall be made within thirty (30) days
following notice of objection to Seller. Upon termination of this Agreement
under the terms of this Section 7.4, no party to this Agreement shall have any
further claims under this Agreement against any other party.
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ARTICLE VIII. CLOSING
8.1 Closing. If all of the conditions to Closing set forth in Articles
IX and X hereof are satisfied, the closing shall occur on July 31, 1997, at the
offices of Harwell Howard Hyne Gabbert & Manner, P.C., Nashville, Tennessee, or
at such other time (whether earlier or later) or place as the parties may
mutually agree. If all of the conditions to Closing set forth in Articles IX and
X hereof are not satisfied by July 31, 1997, the closing shall occur on the last
business day of any month following the date upon which all of the conditions to
Closing set forth in Articles IX and X hereof are satisfied or at such other
time as the parties may mutually agree. Upon transfer of the assets and payment
of the Purchase Price, the Closing shall be deemed to be effective (the
"CLOSING") and the transfer of the Assets shall be deemed to have occurred as of
12:01 a.m. local time on August 1, 1997 (or such later first of the month if
execution of all necessary and contemplated documents occurs after July 31,
1997). On the day of the effectiveness of Closing, Seller shall receive good
funds in the amount of the Purchase Price. In the event that the Purchase Price
is received by Seller before or after the date of effectiveness of the Closing,
the Purchase Price shall be reduced or increased on a per diem basis, based on
the Rate as defined in Section 13.2 of this Agreement.
8.2 Termination. Notwithstanding anything in this Agreement to the
contrary, this Agreement and the obligations of the parties hereunder may be
terminated on or prior to Closing as follows:
(1) By Seller (i) in the event the transactions contemplated
by this Agreement have been prohibited or enjoined by reason of any final
judgment, decree or order entered or issued by a court of competent jurisdiction
in litigation or proceedings involving either Buyer, Seller or Members; or (ii)
in the event Buyer breaches or violates any material provision of this Agreement
or fails to perform any material covenant or agreement to be performed by Buyer
under the terms of this Agreement, and Seller has provided written notice
thereof to Buyer giving reasonable specificity and Buyer has not cured same
within a reasonable period of time and such breach is not waived by Seller in
writing.
(2) By Buyer (i) in the event the transactions contemplated by
this Agreement have been prohibited or enjoined by reason of any final judgment,
decree or order entered or issued by a court of competent jurisdiction in
litigation or proceedings involving either Buyer, Seller or Members; (ii)
pursuant to Section 6.5 or 6.6; or (iii) in the event Seller or Members breach
or violate any material provision of this Agreement or fail to perform any
material covenant or agreement to be performed by Seller and/or the Members
under the terms of this Agreement and Buyer has provided written notice thereof
to Seller and/or the Members giving reasonable specificity and Seller and/or
Members have not cured same within a reasonable period of time and such breach
is not waived by Buyer in writing.
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(3) By Buyer or Seller if the Closing hereunder shall not have
taken place by September 30, 1997, or, by such later date as shall be agreed
upon by an appropriate amendment to this Agreement if the parties agree in
writing to an extension, provided that a party shall not have the right to
terminate under this Section 8.2(3) if the conditions precedent to such party's
obligation to close have been fully satisfied and such party has failed or
refused to close after being requested in writing to close by the other party.
ARTICLE IX. SELLER'S AND MEMBERS' CONDITIONS TO CLOSE
The obligations of Seller and Members under this Agreement are subject
to the satisfaction on or prior to Closing, of the following conditions (which
may be waived specifically in writing by Seller in whole or in part):
9.1 Representations and Warranties True at Closing; Compliance with
Agreement. The representations and warranties of Buyer contained in this
Agreement (including the Exhibits hereto) or in any certificate or document
delivered to Seller and/or Members pursuant hereto, shall be deemed to have been
made again at the Closing and shall then be true in all respects; and Buyer
shall have performed and complied with all covenants, agreements and conditions
required by this Agreement to be performed or complied with by it prior to or at
Closing.
9.2 Regulatory Approvals. Buyer shall have obtained (at its own cost)
all consents, licenses, permits, approvals, provider contracts, determinations
or certificates from the appropriate governmental agencies, required for Buyer
to acquire and operate the Assets as contemplated hereunder.
9.3 No Action/Proceeding. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transaction herein contemplated, and no governmental
agency or body shall have taken any other action or made any request of Seller
or Buyer as a result of which Seller reasonably and in good faith deems that to
proceed with the transactions hereunder may constitute a violation of law.
9.4 Compliance with Article XII. The Buyer shall have made to the
Seller the deliveries required by Article XII hereof.
9.5 Approval by Counsel. All matters, proceedings, instruments and
documents required to carry out this Agreement or incidental thereto and all
other relevant legal matters shall have been approved at or before the Closing
by counsel for Seller and Members, which approval will not be unreasonably
withheld.
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9.6 Order Prohibiting Transaction. No order shall have been entered in
any action or proceeding before any court or governmental agency, and no
preliminary or permanent injunction by any court shall have been issued which
would have the effect of (a) making the transactions contemplated by this
Agreement illegal, (b) otherwise preventing consummation of such transactions,
or (c) imposing material limitations on the ability of Buyer effectively to
acquire and hold Assets, or, in either case, to exercise rights of ownership
pursuant thereto. There shall have been no federal or state statute, rule or
regulations enacted or promulgated after the date of this Agreement that would
reasonably, directly or indirectly, result in any of the consequences referred
to in this Section.
9.7 Completion of Exhibits. All exhibits to this Agreement will be
completed to the mutual satisfaction of the parties.
ARTICLE X. BUYER'S CONDITIONS TO CLOSE
The obligations of Buyer under this Agreement are subject to the
satisfaction, on or prior to Closing, of the following conditions (which may be
waived in writing by Buyer in whole or in part):
10.1 Representations and Warranties True at Closing; Compliance with
Agreement. The representations and warranties of Seller, Members and Affiliates
contained in this Agreement (including the Exhibits hereto) or in any
certificate or document delivered to Buyer pursuant hereto, shall be deemed to
have been made again at the Closing and shall then be true in all respects; and
Seller and the Members shall have performed and complied with all covenants,
agreements and conditions required by this Agreement to be performed or complied
with by it prior to or at Closing.
10.2 No Loss, Damage or Destruction. In the event there is any damage
to or loss of any of the Assets (whether by fire, theft, vandalism or other
cause or casualty), the terms of Sections 6.5 and 6.6 hereof shall have been
complied with to the satisfaction of Buyer.
10.3 No Material Adverse Change. There shall have been no material
adverse change or change known to have a future material adverse affect in the
condition or prospects, financial or otherwise, of Seller, the Assets or the
operations. There shall not be any material claims, litigation or governmental
proceedings pending or threatened against Seller and/or Members which would
adversely affect the Assets or the consummation of the transactions contemplated
hereby at Closing.
10.4 Regulatory Approvals. Buyer shall have obtained or have reasonable
assurance that it will obtain (at its own cost) (a) certification for
participation in the Medicaid Programs of the State of Texas, (b) certification
from the appropriate agency of the federal
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government for participation in the federal Medicare Program, and (c) all other
consents, licenses, permits, approvals, material provider contracts,
determinations or certificates of need necessary in the judgment of Buyer.
10.5 No Action/Proceeding. No action or proceeding before a court or
any other governmental agency or body shall have been instituted or threatened
to restrain or prohibit the transaction herein contemplated, and no governmental
agency or body shall have taken any other action or made any request of Seller
or Buyer as a result of which Buyer reasonably and in good faith deems that to
proceed with the transactions hereunder may constitute a violation of law.
10.6 Compliance with Articles VII and XI. Seller and/or Members shall
have made to Buyer the deliveries required by Articles VII and XI hereof within
the time periods required thereunder.
10.7 Inspection of Assets; U.C.C. Searches, etc. Buyer shall have
obtained environmental engineering reports and mechanical and electrical
engineering reports and surveys, if Buyer elects to obtain them, at Buyer's
cost, indicating a condition of the Assets acceptable to Buyer. Buyer and its
representatives shall have had and continue to have reasonable rights of
inspection of the Assets in connection with Buyer's due diligence review, and
the results of Buyer's inspection and due diligence review shall be acceptable
to it in Buyer's sole discretion. Seller shall have delivered to Buyer, at
Seller's expense, all U.C.C. financing statements, local and central, including
fixtures, and federal and state pending litigation, tax lien and judgment
searches, with respect to Seller, its affiliates and predecessors, Seller's
business operations and the Assets, including all "DBA's," trade names and
fictitious names of Seller (including, but not limited to, all names set forth
in Exhibit 4.13(4)), from each of the jurisdictions in which such entity does
business within the preceding five (5) years, and shall be delivered to Buyer at
least ten (10) days prior to Closing with results satisfactory to Buyer.
10.8 Approval by Counsel. All matters, proceedings, instruments and
documents required to carry out this Agreement or incidental thereto and all
other relevant legal matters shall have been approved at or before the Closing
by counsel for Buyer, which approval will not be unreasonably withheld.
10.9 Order Prohibiting Transaction. No order shall have been entered in
any action or proceeding before any court or governmental agency, and no
preliminary or permanent injunction by any court shall have been issued which
would have the effect of (a) making the transactions contemplated by this
Agreement illegal, (b) otherwise preventing consummation of such transactions,
or (c) imposing material limitations on the ability of Buyer effectively to
acquire and hold Assets, or, in either case, to exercise rights of ownership
pursuant thereto. There shall have been no federal or state statute, rule or
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regulations enacted or promulgated after the date of this Agreement that would
reasonably result, directly or indirectly, in any of the consequences referred
to in this Section.
10.10 Repayment of Loans. The completion by Seller of repayment of any
bonds, loans or other long-term obligations as described in Section 1.4(1) on
such terms as are reasonably acceptable to Buyer and full release of any
security relating thereto and of any claims by any such lenders or obligors.
10.11 Consents. Seller shall have obtained all of the consents
described in Section 6.4.
10.12 Tail Insurance. Buyer shall deliver evidence of its tail
insurance coverage required by Section 6.13 hereof.
10.13 Approvals. This Agreement and consummation of the transactions
contemplated hereunder shall have been approved by the Board of Directors of
Buyer and Buyer's primary lenders.
10.14 Completion of Exhibits. All exhibits to this Agreement will be
completed to the mutual satisfaction of the parties.
ARTICLE XI. OBLIGATIONS OF SELLER AND MEMBERS AT CLOSING
At Closing, Seller and Members shall deliver or cause to be delivered
to Buyer or Buyer's designee, at Seller's expense, the following in a form and
substance reasonably satisfactory to Buyer or Buyer's designee:
11.1 Documents Relating to Title. Seller shall execute, acknowledge,
deliver and cause to be executed, acknowledged and delivered to Buyer or Buyer's
designee:
(1) General warranty deeds, in form satisfactory to Buyer or
Buyer's designee and the title insurer, and conveying to Buyer good, valid and
indefeasible title in fee simple to the Real Estate free and clear of all liens,
mortgages, pledges, encumbrances, security interests, covenants, easements,
rights of way, equities, options, rights of first refusal, restrictions, special
tax or governmental assessments, defects in title, encroachments and other
burdens, except for Permitted Exceptions.
(2) General warranty bills of sale and assignments, in form
satisfactory to Buyer, warranting and conveying to Buyer good title to all
Assets free and clear of all liens, mortgages, pledges, encumbrances, security
interests, covenants, easements, rights of way, equities, options, rights of
first refusal restrictions, special tax or governmental
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assessments, defects in title, encroachments and other burdens, except for
Permitted Exceptions.
(3) Certificates of title to all vehicles which constitute
Assets endorsed by Seller (or its affiliates, as is appropriate) together with
completed originals of any forms required by the State of Texas to transfer the
same, free and clear of liens.
(4) An assignment to Buyer of all Leases and Contracts
constituting the Assumed Contracts.
(5) Title Policy and Survey as specified in Sections 7.1 and
7.2 hereof; provided, however, that in lieu of the Title Policy, Seller may
deliver to Buyer at Closing the Title Commitment marked by the title agent to
show the final form in which the Title Policy will be issued (including the
deletion of all exceptions other than the Permitted Exceptions), and in each
case Seller shall provide the Title Policy to Buyer within five (5) business
days after Closing.
(6) U.C.C. Financing Statement searches as specified in
Section 7.3 hereof, together with evidence satisfactory to Buyer of the right to
full release at Closing of all liens noted thereon except for the Permitted
Exceptions.
11.2 Possession. Seller shall deliver to Buyer full possession and
control of the Assets, free and clear of all liens, mortgages, pledges, security
interests, restrictions, encumbrances, mortgages, easements, liabilities, and
burdens of any kind whatsoever, including, without limitation, limitations on
use and rights of reclamation by donees, except for Permitted Exceptions.
11.3 Opinion of Seller's Counsel. Seller shall deliver to Buyer and its
lender the favorable opinion of counsel for Seller, dated as of Closing, in form
and substance reasonably acceptable to Buyer and its lender. The form of opinion
will generally follow the format of the Legal Opinion accord of the ABA Section
of Business Law (1991), as modified by the Report of the ABA Section of Real
Property, Probate and Trust Law and the American College of Real Estate Lawyers
(1993).
11.4 Good Standing and Resolutions. Seller shall deliver to Buyer
Certificates of Good Standing from the Secretary of State of its state of
organization, and from each jurisdiction in which Seller is qualified to do
business, certified copies of its Certificate of Organization, Operating
Agreement and any other governance resolutions, and a certified copy of the
resolutions of its Members and its governing body authorizing the execution,
delivery and consummation of this Agreement and the execution, delivery and
consummation of all other agreements and documents executed in connection
herewith by them, including all deeds, bills of sale and other instruments
required hereunder,
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sufficient in form and content to meet the requirements of the law of the State
of Texas relevant to such transactions and certified by officers of Seller to be
validly adopted and in full force and effect and unamended as of Closing.
11.5 Closing Certificate. Seller shall deliver to Buyer a certificate
of an officer of Seller, dated as of Closing, certifying that (a) each covenant
and obligation of Seller has been complied with by such parties in all material
respects, and (b) each representation and warranty of Seller is true and correct
on the Closing as if made on and as of the Closing.
11.6 Third Party Consents. Seller shall deliver to Buyer:
(1) Any consents, estoppels, approvals, releases, filings and
authorizations of third parties which are necessary in the reasonable opinion of
Buyer (in form reasonably acceptable to Buyer) for the execution, delivery and
consummation of this Agreement, and the transactions contemplated hereunder,
including without limitation, those necessary for the assignment of the leases
and contracts included in the Assumed Liabilities;
(2) All consents required by Section 6.4;
(3) Estoppel and attornment letters from tenants of Seller, in
form of Exhibit 11.6(3).
11.7 Taxes and Other Payments. Seller shall deliver to Buyer:
(1) Proof of cash payment directly to the tax authorities or
cash payment (or credit on the Purchase Price) to Buyer in the amount of all
real estate taxes and assessments which are a lien on the date of Closing,
general and special.
(2) A certificate of non-foreign status signed by the
appropriate party and sufficient in form and substance to relieve Buyer of all
withholding obligations under Section 1445 of the Code. In the event that Seller
cannot furnish such a certificate or is not entitled to rely upon such a
certificate under the provisions of Section 1445 and the regulations thereunder,
Seller shall take and/or permit Buyer or Buyer's nominee to take any and all
steps necessary to allow Buyer or Buyer's nominee to satisfy the requirements or
Section 1445.
(3) Receipt or other evidence from the Texas Comptroller of
Public Accounts showing that all liability for sale and use taxes and employment
taxes due from Seller have been paid through the most recent reporting date, in
form reasonably acceptable to Buyer.
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11.8 Releases and Other Matters. Seller shall deliver to Buyer:
(1) Full releases of all obligations described in Section
1.4(1).
(2) Releases of mortgages, security interests, etc. as
required after completion of due diligence.
(3) Environmental representations and indemnifications set
forth in a separate agreement acceptable to the parties and Buyer's lender.
11.9 Notice to Third-Party Payors. Seller shall deliver executed
notices, of the sale of the Hospital, to be furnished to all third-party payors
including the Programs, in the form of Exhibit 11.9 hereto.
11.10 Additionally Requested Documents; Post Closing Assistance. At the
reasonable request of Buyer at Closing and at any time or from time to time
thereafter, Seller and Members shall cooperate with Buyer to put Buyer in actual
possession and operating control of the Assets, execute and deliver such further
instruments of sale, conveyance, transfer and assignment, as Buyer may
reasonably request in order to effectively sell, convey, transfer and assign the
Assets to Buyer, to execute and deliver such further instruments and to take
such other actions as Buyer may reasonably request to release Buyer from all
obligation and liability with regard to any obligation or liability retained by
Seller and/or Members and to execute and deliver such further instruments and to
cooperate with Buyer as Buyer may reasonably request or to enable Buyer to
obtain all necessary health care or regulatory certifications, approvals,
consents and licenses, accreditations or permits. In addition, in the event that
after Closing Buyer elects to sell any ownership interest to local physicians,
Members shall provide such assistance to Buyer as Buyer may reasonably request.
ARTICLE XII. OBLIGATIONS OF BUYER AT CLOSING
At Closing, Buyer shall deliver or cause to be delivered to Seller the
following in a form and substance reasonably satisfactory to Seller and Members;
12.1 Purchase Price. Buyer shall deliver to Seller in immediately
available funds, the aggregate amount of the Purchase Price as specified in this
Agreement.
12.2 Corporate Good Standing and Certified Board Resolutions. Buyer
shall deliver to Seller a certificate of good standing from the Secretary of
State of its state of organization dated the most recent practical date prior to
Closing and a certified copy of
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the resolutions of the Board of Directors of the Buyer approving this Agreement
and consummation of the transactions hereunder contemplated.
12.3 Opinion of Buyer's Counsel. Buyer shall deliver to Seller a
favorable opinion of counsel for Buyer, dated as of Closing, in form and
substance reasonably acceptable to Seller.
12.4 Assumption of Liabilities. Buyer shall assume and covenant to
fully perform and comply with all of the Assumed Liabilities by instruments
reasonably acceptable to Seller and Seller's counsel.
12.5 Closing Certificate. Buyer shall deliver to Seller a certificate
of an officer of the Buyer, dated as of Closing, certifying that (a) each
covenant and condition precedent of Buyer has been complied with by Buyer in all
material respects and (b) each representation and warranty of Buyer is true and
correct on the Closing as if made on and as of the Closing.
12.6 Seller's Employees. For employees who accept Buyer's offer of
employment, Buyer shall recognize the employee's length of service with Seller
for eligibility and vesting under Buyer's employee benefit programs, including
vacation and pension.
12.7 Health Insurance. Employees who accept Buyer's offer of employment
shall be entitled to such medical (without pre-existing condition limitations
beyond those currently imposed by Seller) and other employee benefits as are
provided to employees of Buyer in similar positions.
ARTICLE XIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION
13.1 Survival. The covenants, obligations, representations and
warranties of Buyer and Seller contained in this Agreement, or in any
certificate or document delivered pursuant to this Agreement, shall be deemed to
be material and to have been relied upon by the parties hereto notwithstanding
any investigation prior to the Closing and shall survive the date of Closing for
a period of three (3) years after Closing, and shall not be merged into any
deeds or other documents delivered in connection with the Closing; provided that
claims relating to the following matters (collectively, the "ABSOLUTE
COVENANTS") shall survive until sixty (60) days after the applicable statute of
limitations relating to the underlying claim: Assumed Liabilities, Excluded
Liabilities, title to Assets, lack of corporate authority, ERISA and employee
benefit matters, taxes, claims by third parties whether founded on negligence,
malpractice or statutory or regulatory violations, any failure of Seller to
transfer all of the Assets to Buyer, and claims for breach of the
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covenants of Sections 6.3, 6.18 and Article XIV and representations set forth in
Sections 4.1, 4.5, 4.6 and 4.15.
13.2 Indemnification by Seller. Subject to the provisions of Section
13.4, Seller promptly shall indemnify, defend and hold harmless (and upon demand
shall reimburse) Buyer and the directors, officers, shareholders, employees and
agents of Buyer (and with respect to the COBRA coverage, Buyer and all
affiliated corporations within a controlled group relationship with Buyer (as
determined under Section 414 of the Internal Revenue Code), and their employees)
(the "BUYER INDEMNIFIED PARTIES") against any and all claims, actions, demands,
suits, proceedings, assessments, judgments, losses, costs, and expenses
(including reasonable cost of investigation, court costs, legal fees and
expenses incident to any of the foregoing or incurred in attempting to avoid the
same or oppose the imposition thereof or in enforcing this indemnity) and other
damages (individually and collectively a "LOSS") resulting from (i) any breach
by either Seller or Members of any of their covenants, obligations,
representations or warranties or breach or untruth of any covenant, obligation,
representation, warranty, fact or conclusion contained in this Agreement or any
certificate or document of Seller and/or Members delivered pursuant to this
Agreement (or which would not have been suffered or incurred if such
representation, warranty, fact or conclusion were true or had not been breached
or such covenant or obligation had been fully performed), (ii) arising out of
the ownership, licensing, operation, action, inaction or conduct of Seller,
Members, Hospital, or any of the Assets or any of Seller's employees, agents or
independent contractors, relating to all periods of time prior to Closing,
except the Assumed Liabilities, (iii) the Excluded Liabilities, and (iv) in
respect of any other liabilities of Seller not expressly assumed by Buyer
hereunder. Any indemnification payment pursuant to the foregoing shall include
interest at a rate equal to ten percent (10%) (the "RATE") from the date the
loss, costs, expenses or damages were incurred until the date of payment;
provided, however, the Rate shall not be payable with respect to attorneys' fees
incurred until such date as the underlying claim is determined to be payable.
13.3 Indemnification by Buyer. Buyer shall promptly indemnify, defend,
and hold harmless (and upon demand shall reimburse) Seller, its Members and the
officers, employees and agents of Seller against any Loss resulting from (i) any
breach by Buyer of any of its covenants, obligations, representations or
warranties or breach or untruth of any covenant, obligation, representation,
warranty, fact or conclusion contained in this Agreement or any certificate or
document of Buyer delivered pursuant to this Agreement (or which would not have
been suffered or incurred if such representation, warranty, fact or conclusion
were true or had not been breached or such covenant or obligation had been fully
performed), (ii) any claim which is brought or asserted by any third party(ies)
against Seller for failure to pay or perform any of the Assumed Liabilities, and
(iii) any claim arising out of the ownership of the Assets or the conduct of the
business of the Hospital after Closing, except for failure to obtain consents
for the assignment of the contracts and
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except those directly or indirectly resulting from a breach by the Seller of any
representations or covenants of this Agreement. Any indemnification payment
pursuant to the foregoing shall include interest at the Rate from the date of
the loss, costs, expenses or damages were incurred until the date of payment;
provided, however, the Rate shall not be payable with respect to attorneys' fees
incurred until such date as the underlying claim is determined to be payable.
13.4 Indemnification by Foundation. Buyer and Seller acknowledge that a
portion of the Purchase Price will be paid by Seller to the Foundation (as
defined below). As a condition precedent to Foundation's receipt of said
payment, Seller shall obtain Foundation's agreement that with respect to any
Losses incurred by Buyer with respect to matters for which Dolly Vinsant
Memorial Foundation ("FOUNDATION"), as successor in interest to Dolly Vinsant
Memorial Hospital, agreed to indemnify the Dolly, Inc., predecessor in interest
to Seller, pursuant to the terms of the Closing Affidavit dated September 27,
1991, between Dolly Vinsant Memorial Hospital and Warren Healthcare Group, Inc.
(herein, a "PRIOR PERIOD LOSS"), Foundation shall indemnify and hold the Buyer
Indemnified Parties harmless for any Prior Period Loss. Buyer agrees that
notwithstanding the provisions of Section 13.2, Seller shall have no liability
to the Buyer Indemnified Parties with respect to any Prior Period Loss so long
as Foundation (i) delivers an opinion of counsel in form and substance
satisfactory to Buyer to the effect of the due organization of Foundation, and
the valid, binding nature of execution of this Agreement by Foundation and its
full enforceability in accordance with its terms, and such other matters as
Buyer shall reasonably determine are needed, (ii) delivers certified resolutions
authorizing execution of the foregoing, and (iii) enters into an agreement
acceptable to Buyer evidencing Foundation's indemnification obligation to Buyer.
13.5 Procedure for Indemnification.
(1) Notice. Within thirty (30) days after receipt of written
or actual notice of any action or claim (the "CLAIM") as to which it asserts a
right to indemnification, the party seeking indemnification hereunder (the
"INDEMNITEE") shall give written notice thereof (the "NOTICE") to the person
from whom indemnification is sought (the "INDEMNITOR"), provided that the
failure of the Indemnitee to give the Indemnitor notice within the specified
number of days shall not relieve the Indemnitor of any of its obligations
hereunder, but may create a cause of action for breach for damages directly
attributable to such delay. Indemnitor shall be liable to Indemnitee with
respect to Losses only so long as Indemnitee gives Indemnitor written notice
thereof prior to the expiration of the survival periods set forth in Section
13.1.
(2) Third Party Claims.
(a) If any claim for indemnification by Indemnitee
arises out of a Claim by a person other than Indemnitee, the Indemnitor shall be
entitled to assume the
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defense thereof, by written notice to the Indemnitee within fifteen (15) days
after receipt of the Notice. Indemnitor shall thereupon undertake to take all
steps or proceedings to defeat or compromise any such Claim, including retaining
counsel reasonably satisfactory to the Indemnitee. Except as otherwise provided
herein, all costs, fees and expenses with respect to any such Claim shall be
borne by Indemnitor. If the Indemnitor assumes the defense of a Claim, it shall
not settle such Claim unless such settlement includes as an unconditional term
thereof a release by the claimant of the Indemnitee, reasonably satisfactory to
the Indemnitee and except that Indemnitor shall not, without the prior written
consent of Indemnitee, directly or indirectly require Indemnitee to take or
refrain from taking any action, or make any public statement, or consent to any
settlement, which it reasonably considers to be against its interest. Indemnitee
shall have the right to participate at its own expense, in such proceedings, but
control of such proceedings shall remain exclusively with Indemnitor.
(b) If the Indemnitor shall fail to notify the
Indemnitee of its desire to assume the defense of any such claim or action
within the prescribed period of time, then the Indemnitee may assume such
defense in such manner as it may deem appropriate, and the Indemnitor shall be
bound by any determinations made or any settlements thereof effected by the
Indemnitee. The Indemnitor shall be permitted, at its own expense, to join in
such defense and to employ its own counsel but control of such proceedings shall
remain exclusively with Indemnitee.
(c) Indemnitor and Indemnitee agree to make available
to each other, their counsel and other representatives, all information and
documents reasonably available to them reasonably requested by the other which
relate to any such claim or action, and to render to each other such reasonable
assistance as may be reasonably requested in order to insure the proper and
adequate defense of such claim or action, but any costs or expenses related
thereto shall be borne by Indemnitor; and provided that any failure (after
written notice with specificity and an opportunity to cure) shall not relieve
the Indemnitor of any of its obligations hereunder but may create a cause of
action for breach for damages directly attributable to such failure.
(3) Other Claims. In the event of any Claim other than those
provided for in subsection (2) hereof, Indemnitee shall be entitled to
indemnification hereunder as provided herein.
(4) Payment of Claims. Amounts payable by the Indemnitor to
the Indemnitee under this Section 13.5 shall be payable by the Indemnitor (or
the escrow agent under the Escrow Agreement) as incurred by the Indemnitee. In
the event Indemnitor (or the escrow agent under the Escrow Agreement) fails to
pay, timely and fully, any such amounts, Indemnitee may pay such Claim. In such
event, the Indemnitee may recover from the Indemnitor, in an addition to the
amount so paid but subject to the Cap,
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(i) interest on the amount claimed at the Rate, and (ii) reasonable attorneys'
fees in connection with the enforcement of payment under this Section 13.5.
(5) No Set-Off. The Indemnitee's right to indemnification
under this Section 13.5 shall not be subject to set-off for any claim by the
Indemnitor against the Indemnitee.
(6) Claims by a Straddle Patient. Any claim by a patient
relating to professional negligence or similar matters involving a patient of
the Hospital served both prior to Closing and subsequent to Closing will be the
responsibility of either Buyer or Seller in accordance with the following
guidelines: (i) if it is a claim in which clearly the incident giving rise to
liability arose prior to Closing, Seller shall respond to the loss and defense
expenses; (ii) if it is a claim in which clearly the incident giving rise to
liability arose subsequent to Closing, Buyer shall respond to the loss and
defense expenses; and (iii) in the event that the incident giving rise to
liability as to time is not clear, Seller and Buyer will jointly defend the case
and each will fully cooperate with the other in such defense. Once the case is
closed, if Buyer and Seller cannot agree to the allocation of both indemnity and
expenses, then the matter shall be submitted to binding arbitration in
accordance with the rules and procedures of the American Arbitration
Association.
(7) Cap. Notwithstanding any other provision herein, the
aggregate indemnification obligation of any party hereunder shall in no event
exceed the Purchase Price.
13.6 Assignment by Buyer. No consent by Seller and/or Members shall be
required for any assignment or reassignment of the rights of Buyer under this
Article XIII.
ARTICLE XIV. PRESERVATION OF BUSINESS
AND NONCOMPETE RESTRICTIONS
14.1 Covenant Not to Compete. Seller and Members hereby covenant and
agree with Buyer that during the "NONCOMPETE PERIOD" within the "NONCOMPETE
AREA" they shall not, directly or indirectly, (a) acquire, lease, manage,
consult for, finance or own any part of (as member, shareholder or partner) any
health care facility which provides any services similar to the services
provided by the Hospital or what are normally provided by a hospital, including
but not limited to skilled nursing, obstetrics, psychiatric, alcohol/chemical
dependency, rural health, primary care, urgent care, ambulatory surgery,
diagnostics, psychiatric counseling or any other health related services or (b)
solicit for employment or employ any person who at Closing became an employee of
Buyer, or (c) disrupt or attempt to disrupt any past, present or reasonably
foreseeable future relationship, contractual or otherwise between Buyer, on the
one hand, and any physician, physician group, or other
51
<PAGE> 60
health care provider with whom Buyer contracts with in connection with the
Hospital, on the other hand. Notwithstanding the above, the restriction
described in this Section as item (a) above shall apply only to Seller, Lynn
Davis ("DAVIS") and R. William Warren ("WARREN"). The Members other than Davis
and Warren hereby covenant and agree with Buyer that in lieu of said
restriction, during the Noncompete Period and within the Noncompete Area, they
shall not, directly or indirectly, acquire, lease, manage, finance or own any
part of (as member, shareholder or partner) any hospital (other than the
Hospital) or outpatient diagnostic center. The "NONCOMPETE PERIOD" shall
commence at the Closing and terminate on the second anniversary thereof. The
"NONCOMPETE AREA" shall mean the area within a fifty (50) mile radius of the
Hospital. Ownership of less than five percent (5%) of the stock of a publicly
held company shall not be deemed a breach of this covenant.
14.2 Enforceability. In the event of a breach of Section 14.1 hereof,
Seller and Members recognize that monetary damages shall be inadequate to
compensate Buyer and Buyer shall be entitled, without the posting of a bond or
similar security, to an injunction restraining such breach, with the costs
(including attorneys' fees) of securing such injunction to be borne, jointly and
severally, by Seller and Members. Nothing contained herein shall be construed as
prohibiting Buyer from pursuing any other remedy available to it for such breach
or threatened breach.
All parties hereto hereby acknowledge the necessity of protection
against the competition of Seller and Members and that the nature and scope of
such protection has been carefully considered by the parties. The period
provided and the area covered are expressly represented and agreed to be fair,
reasonable and necessary. The consideration provided for herein is deemed to be
sufficient and adequate to compensate for agreeing to the restrictions contained
in Section 14.1 hereof. If, however, any court determines that the forgoing
restrictions are not reasonable, such restrictions shall be modified, rewritten
or interpreted to include as much of their nature and scope as will render them
enforceable.
ARTICLE XV. MISCELLANEOUS
15.1 Assignment. Following Closing, Buyer freely may assign any or all
rights or delegate any or all of its obligations under this Agreement without
the express written consent of Seller or Members. No assignment shall relieve
the assignor of any liability or obligation hereunder. Neither Seller nor
Members may assign any rights or delegate any obligations under this Agreement
without the prior written consent of Buyer, and any prohibited assignment or
delegation will be null and void.
52
<PAGE> 61
15.2 Other Expenses. Except as otherwise provided in this Agreement,
Seller and Members shall pay all of their own expenses in connection with the
negotiation, execution, and implementation of the transactions contemplated by
this Agreement and Buyer shall pay all of its own expenses in connection with
the negotiation, execution, and implementation of the transactions contemplated
by this Agreement. State and local sales and use taxes incurred in connection
with the transactions contemplated under this Agreement shall be borne and
timely paid by Seller. Buyer will pay the cost of all appraisals and shall pay
all transfer taxes. Buyer will pay the cost of the Phase I Environmental
Assessment set out in Section 6.20 and the costs of any additional environmental
reports, borings or inspections as set out in Section 6.20.
15.3 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given: (a) if delivered
personally or sent by facsimile, on the date received, (b) if delivered by
overnight courier, on the day after mailing, and (c) if mailed, five (5) days
after mailing with postage prepaid. Any such notice shall be sent as follows:
To Seller or Members:
c/o Warren Health Group, Inc.
4800 Lakewood Drive, Suite 5
Waco, Texas 76710
Attention: R. William Warren, President
with a copy to:
Rountree & Kithcart, L.L.P.
222 East Van Buren Street, #101
Harlingen, Texas 78550
Attention: William C. Rountree III, Esq.
To Buyer:
NAHC II of Texas, Inc.
109 Westpark Drive, Suite 440
P.O. Box 3689
Brentwood, Tennessee 37024
Attn: Robert M. Martin, President & CEO
53
<PAGE> 62
with a copy to:
Ernest E. Hyne II, Esq.
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
15.4 Controlling Law. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the State of Texas.
15.5 Headings. Any table of contents and paragraph headings in this
Agreement are for convenience of reference only and shall not be considered or
referred to in resolving questions of interpretation.
15.6 Benefit. Subject to Section 15.1 hereof, this Agreement shall be
binding upon and shall inure to the exclusive benefit of the respective heirs,
legal representatives, successors and assigns of the parties hereto and Buyer
shall require any of its successors to assume Buyer's obligations under this
Agreement. This Agreement is not intended to, nor shall it, create any rights in
any other party.
15.7 Partial Invalidity. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted.
15.8 Waiver. Neither the failure nor any delay on the part of any party
hereto in exercising any rights, power or remedy hereunder shall operate as a
waiver thereof, or of any other right, power or remedy; nor shall any single or
partial exercise of any right, power or remedy preclude any further or other
exercise thereof, or the exercise of any other right, power or remedy.
15.9 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
15.10 Interpretation; Knowledge. All pronouns and any variation thereof
shall be deemed to refer to the masculine, feminine, neuter, singular or plural
as the identity of the person or entity, or the context, may require. Further,
it is acknowledged by the parties that this Agreement including exhibits has
undergone several drafts with the negotiated suggestions of both; and,
therefore, no presumptions shall arise favoring either party by virtue of the
authorship of any of its provisions or the changes made through revisions.
Whenever in this Agreement the term "to the knowledge of Seller" or the like is
used, Seller shall be deemed to have the knowledge of each Member and Seller's
officers, directors and key employees; and Seller shall be under a duty of due
inquiry.
54
<PAGE> 63
15.11 Entire Agreement. This Agreement, including the Exhibits hereto,
constitutes the entire agreement between the parties hereto with regard to the
matters contained herein and it is understood and agreed that all previous
undertakings, negotiations and agreements between the parties are merged herein.
This Agreement may not be modified orally, but only by an agreement in writing
signed by Buyer, Seller and Members. Except as expressly provided herein, no
waiver of any of the provisions of this Agreement shall be valid unless it is in
writing and signed by the party against which it is sought to be enforced.
15.12 Legal Fees and Costs. In the event any party hereto elects to
incur legal expenses to enforce or interpret any provision of this Agreement,
the prevailing party will be entitled to recover such legal expenses, including,
without limitation, attorneys' fees, costs and necessary disbursements, in
addition to any other relief to which such party shall be entitled.
15.13 Exclusivity. Buyer contemplates the expenditure of substantial
sums of time and money in connection with legal, accounting, financial, and due
diligence work to be performed in conjunction with the transactions contemplated
under this Agreement. For purposes of inducing Buyer to proceed with the
transactions, Seller and Members shall not, directly or indirectly, without
Buyer's prior written consent, initiate or hold discussions with any person or
entity (other than Buyer) concerning a purchase, affiliation, or lease of all or
a material part of the Assets, directly or indirectly, whether by sale of
equity, merger, consolidation, sale or lease of material assets, affiliation,
joint venture, or other material transaction for the period of time from the
date hereof until the date specified in the first sentence of Section 8.2(3) (or
such later period of time as the parties mutually agree pursuant to Section
8.2(3)). Seller will promptly notify Buyer by telephone and thereafter confirm
in writing via fax, if any such discussions or negotiations are sought to be
initiated with, or any such proposal or possible proposal is received directly
or indirectly, by Seller. In the event Seller receives an unsolicited offer
related to a type of transaction described in this paragraph, Seller shall
promptly inform the person making such unsolicited offer of the existence of its
obligations under this Section 15.13 but shall not disclose the contents of this
Section or this Agreement, and Seller shall reject such offer and promptly
notify Buyer thereof.
15.14 Completion of Exhibits. Certain of the Exhibits have not been
prepared in their final form at the time of execution of this Agreement. Input
by Seller and Buyer is necessary to finalize the Exhibits and each party agrees
to use its reasonable best efforts to finalize them. Submission of Exhibits
shall be in writing delivered via overnight courier to the other party's
counsel. Either party may supplement the Exhibits by like written delivery. The
submitted Exhibits shall be deemed accepted and thereby become an Exhibit to
this Agreement unless: (i) such proposed Exhibit would, individually or in
aggregate with the effect of items disclosed in other Exhibits which were first
submitted after signing of this Agreement, constitute a material adverse effect
on the receiving party
55
<PAGE> 64
in the receiving party's sole discretion, and (ii) within five (5) business days
after receipt of such proposed Exhibit, such receiving party provides written
notice to opposing counsel reasonably detailing the objection thereof and
changes in such proposed Exhibit which would make the same acceptable. Should
the parties not be able to resolve written objections within ten (10) business
days thereafter, then either party may withdraw from this Agreement and
terminate it without any obligation or liability of any sort and this Agreement
shall be treated as never having been executed or delivered. Acceptance of
Exhibits shall not mean that the underlying information (e.g. understanding
claim, likelihood of successful defense and adequacy of insurance coverage) is
acceptable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"SELLER":
THE DOLLY V L.C.
By:
-------------------------------------------
Title:
----------------------------------------
"BUYER":
NAHC II OF TEXAS, INC.
By:
-------------------------------------------
Title:
----------------------------------------
MEMBERS":
-----------------------------------------------
EDUARDO ATKINSON, M.D.
-----------------------------------------------
EVE Y. BERRY
-----------------------------------------------
TIM BOTHWELL, M.D.
-----------------------------------------------
LYNN DAVIS
56
<PAGE> 65
HEJAR, LTD.
By:
-------------------------------------------
HERMAN KEILLOR, M.D., General Partner
-----------------------------------------------
CECIL SIMMONS, M.D.
-----------------------------------------------
LONNIE STANTON, M.D.
-----------------------------------------------
ROGER PHILO
-----------------------------------------------
R. WILLIAM WARREN
-----------------------------------------------
ROBERT R. WEBB
-----------------------------------------------
DANA WILKE
-----------------------------------------------
L. NATHAN WINTERS
57
<PAGE> 1
Exhibit 10.31
ASSIGNMENT AND ASSUMPTION OF LEASE
(LANDER VALLEY MEDICAL Center)
THIS ASSIGNMENT AND ASSUMPTION OF LEASE ("ASSIGNMENT") is made and
entered into as of January 31, 1998 to be effective on the "Effective Date" (as
hereinafter defined) by and between QUALICARE OF WYOMING, INC., a Wyoming
corporation ("ASSIGNOR") and NAHC OF WYOMING, INC., a Tennessee corporation
("ASSIGNEE") with reference to the following facts:
A. Pursuant to that certain Asset Sale Agreement dated December 22,
1997 ("SALE AGREEMENT") between Assignor, Davenport Medical Center, Inc., EGH,
Inc. and Woodland Park Hospital, Inc. (collectively, as "SELLER"), on the one
hand and New American Healthcare Corporation ("BUYER") on the other hand, Seller
has agreed to sell to Buyer and Buyer has agreed to purchase from Seller,
substantially all of Seller's assets.
B. Among the assets included in that transaction, is Lander Valley
Medical Center ("HOSPITAL"). Assignor leases the real property upon which the
Hospital is located from the City of Lander pursuant to that certain Lease
between the City of Lander, as lessor and Lander Valley Regional Medical Center,
as lessee dated July 10, 1982 and recorded October 16, 1984 in Book 233, Page
844, Fremont County, Wyoming records, as modified by Amendment No. One to Lease
dated April 24, 1985 and recorded in Book 245, Page 20, Fremont County, Wyoming
records and the First Amendment to Lease dated July 1, 1991, a copy of which is
attached hereto as EXHIBIT "A" (collectively, "LEASE"). The real property
subject to the Lease is more particularly described in EXHIBIT "B" attached
hereto and incorporated herein by this reference. Lander Valley Regional Medical
Center was merged into Assignor pursuant to Articles of Merger filed with the
Wyoming Secretary of State on November 21, 1997.
C. Assignee is a wholly-owned subsidiary of Buyer. Pursuant to the Sale
Agreement, Buyer has assigned its right to acquire the Hospital to Assignee.
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
1. Assignment. Assignor hereby assigns to Assignee all of Assignor's
right, title, interest and obligations in, to and under the Lease.
2. Assumption. Assignee hereby assumes all of Assignor's right, title,
interest and obligations in, to and under the Lease and agrees to abide by the
terms and conditions thereof as if Assignee were the original lessee thereunder.
3. Effective Date. This Assignment shall be effective at 12:01 a.m on
February 1, 1998 ("EFFECTIVE DATE").
<PAGE> 2
4. Successors and Assigns. This Assignment shall be binding upon the
successors and assigns of both parties.
5. Governing Law. To the maximum extent possible, this Assignment shall
be construed and enforced in accordance with the laws of the State of
California, without regard to the principles of conflicts of law theory.
6. Counterparts. This Assignment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Rest of this Page Intentionally Left Blank
2
<PAGE> 3
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment
as of the day and year first above written.
Assignor:
QUALICARE OF WYOMING, INC.
By: /s/ Donald W. Thayer
----------------------------------
Name: Donald W. Thayer
Title: Vice President
Attest:
/s/ Diane Quin
- -----------------------------
Name: Diane Quin
Title: Administrative Asst
Assignee:
NAHC OF WYOMING, INC.
By: /s/ Robert M. Martin
-----------------------------------
Name: Robert M. Martin
Title: President
Attest:
/s/ Dana C. McLendon, Jr.
- --------------------------------
Name: Dana C. McLendon, Jr.
Title: Secretary/Treasurer
3
<PAGE> 4
ACKNOWLEDGMENT OF LESSOR
The City of Lander, a Wyoming municipal corporation, by its signature
below, hereby acknowledges the foregoing assignment of Lease and hereby agrees
to recognize Assignee as lessee thereunder as of the Effective Date. Lessor
hereby releases and forever discharges Assignor from any and all obligations
under the Lease from and after the Effective Date of the Assignment.
CITY OF LANDER
By: /s/ Mick Wolfe
------------------------------
Name: Mick Wolfe
Title: Acting Mayor
Attest:
/s/ Sharon Anderson
- ---------------------------
Name: Sharon Anderson
Title: City Clerk-Treasurer
4
<PAGE> 5
STATE OF TEXAS )
) ss
COUNTY OF DALLAS )
The foregoing instrument was acknowledged before me by DONALD W. THAYER
and ______________, the Vice President and Diane Quin, respectively, of and
acting for and on behalf of Qualicare of Wyoming, a Wyoming corporation, this
___ day of January, 1998.
Witness my hand and official seal.
/s/ Janis A. Hooker
--------------------------------------
Notary Public
My commission expires: January 7, 2002
(Seal)
STATE OF TENNESSEE )
) ss
COUNTY OF DAVIDSON )
The foregoing instrument was acknowledged before me by ROBERT M. MARTIN
and DANA C. MCLENDON, JR., the President and Secretary/Treas., respectively, of
and acting for and on behalf of NAHC of Wyoming, a Tennessee corporation, this
27th day of January, 1998.
Witness my hand and official seal.
/s/ Julie M. Rowenczak
-----------------------------------
Notary Public
My commission expires: May 30, 1999
(Seal)
STATE OF WYOMING )
) ss
COUNTY OF FREMONT )
The foregoing instrument was acknowledged before me by MICK WOLFE
and SHARON ANDERSON, the Acting Mayor and Clerk-Treasurer, respectively,
of and acting for and on behalf of the City of Lander, a Wyoming municipal
corporation, this 27th day of January, 1998.
Witness my hand and official seal.
/s/ Robin A. Griffin
----------------------------------------
Notary Public
My commission expires: November 11, 1999
(Seal)
<PAGE> 1
Exhibit 10.32
ASSIGNMENT AND ASSUMPTION OF LEASE
(WOODLAND PARK HOSPITAL)
THIS ASSIGNMENT AND ASSUMPTION OF LEASE ("ASSIGNMENT") is made and
entered into as of January 31, 1998 to be effective on the "Effective Date" (as
hereinafter defined) by and between WOODLAND PARK HOSPITAL, INC., an Oregon
corporation ("ASSIGNOR") and NAHC OF OREGON, INC., a Tennessee corporation
("ASSIGNEE") with reference to the following facts:
A. Pursuant to that certain Asset Sale Agreement dated December 22,
1997 ("SALE AGREEMENT") between Assignor, Davenport Medical Center, Inc., EGH,
Inc. and Qualicare of Wyoming, Inc. (collectively, as "SELLER"), on the one hand
and New American Healthcare Corporation ("BUYER"), on the other hand, Seller has
agreed to sell to Buyer and Buyer has agreed to purchase from Seller,
substantially all of Seller's assets.
B. Among the assets included in that transaction, is Woodland Park
Hospital ("HOSPITAL"). Assignor leases a portion of the real property upon which
the Hospital is located from The Les Ashbar Trust; Ernest B. Martin; The Connie
L. McNight Trust dated April 6, 1993; David L. Harris as Successor Trustee FBO
Joan K. Bailey (nka Joan K. Ayala), Marti Ridout and Jan L. Schilded; A.E. Brim;
Milton Zusman, Melvin Weinstein; Melvin Weinstein and Anne Weinstein, Trustees
U/T/A dated April 7, 1992, Michael Zusman, Steven Zusman, Bruce Weinstein and
Lisa Marie Weinstein (collectively, "LESSOR") pursuant to that certain Lease
dated December 27, 1968 by and between Woodland Park Corporation, an Oregon
corporation (Lessor's predecessor-in-interest) and W.P.H., Inc., an Oregon
corporation (Assignor's predecessor-in-interest), as amended by the Amendment
to Lease dated March 4, 1971, as assigned by Notice of Assignment of Lease and
Authorization for Payment of Lease Rentals dated April 1, 1972 and as further
amended by the Second Amendment to Lease dated January 30, 1998 (collectively,
"LEASE"). The real property subject to the Lease is more particularly described
in EXHIBIT "A" attached hereto and incorporated herein by this reference.
C. Assignee is a wholly-owned subsidiary of Buyer. Pursuant to the Sale
Agreement, Buyer has assigned its right to acquire the Hospital to Assignee.
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
1. Assignment. Assignor hereby assigns to Assignee all of Assignor's
right, title, interest and obligations in, to and under the Lease.
2. Assumption. Assignee hereby assumes all of Assignor's right, title,
interest and obligations in, to and under the Lease and agrees to abide by the
terms and conditions thereof as if Assignee were the original lessee thereunder.
<PAGE> 2
3. Effective Date. This Assignment shall be effective at 12:01 a.m. on
February 1, 1998 ("EFFECTIVE DATE").
4. Successors and Assigns. This Assignment shall be binding upon the
successors and assigns of both parties.
5. Governing Law. To the maximum extent possible, this Assignment shall
be construed and enforced in accordance with the laws of the State of
California, without regard to the principles of conflicts of law theory.
6. Counterparts. This Assignment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Rest of this Page Intentionally Left Blank
2
<PAGE> 3
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment
as of the day and year first above written.
Assignor:
WOODLAND PARK HOSPITAL, INC.
By: /s/ Donald W. Thayer
----------------------------------
Name: Donald W. Thayer
Title: Vice President
Assignee:
NAHC OF OREGON, INC.
By: /s/ Robert M. Martin
----------------------------------
Name: Robert M. Martin
Title: President
3
<PAGE> 4
STATE OF TEXAS )
) ss
COUNTY OF DALLAS )
This instrument was acknowledged before me on January 27, 1998 by
DONALD W. THAYER as Vice President of Woodland Park Hospital, Inc.
/s/ Janis A. Hooker
--------------------------------------
Notary Public for Texas
My commission expires: January 7, 2002
<PAGE> 5
STATE OF TENNESSEE )
) ss
COUNTY OF DAVIDSON )
This instrument was acknowledged before me on January 27, 1998 by
ROBERT M. MARTIN as President of NAHC of Oregon, Inc.
/s/ Julie M. Rowenczak
-----------------------------------
Notary Public for Tennessee
My commission expires: May 30, 1999
<PAGE> 6
STATE OF _________________ )
) ss
COUNTY OF ________________ )
This instrument was acknowledged before me on January ___, 1998 by
DAVID L. HARRIS as Trustee of the Les Ashbar Trust
________________________________________
Notary Public for ______________________
My commission expires:__________________
STATE OF _________________ )
) ss
COUNTY OF ________________ )
This instrument was acknowledged before me on January ___, 1998 by
ERNEST B. MARTIN
________________________________________
Notary Public for ______________________
My commission expires:__________________
STATE OF _________________ )
) ss
COUNTY OF ________________ )
This instrument was acknowledged before me on January ___, 1998 by
DAVID L. HARRIS as Trustee of the Connie L. McKnight Trust Dated April 6, 1993
________________________________________
Notary Public for ______________________
My commission expires:__________________
STATE OF _________________ )
) ss
COUNTY OF ________________ )
This instrument was acknowledged before me on January____, 1998 by
DAVID L. HARRIS as Successor Trustee, FBO Joan K. Bailey (NKA Joan L Ayala),
Marti Ridout and Jan L. Schilded
________________________________________
Notary Public for ______________________
My commission expires:__________________
<PAGE> 7
STATE OF _________________ )
) ss
COUNTY OF ________________ )
This instrument was acknowledged before me on January ___, 1998 by
A.E. BRIM
________________________________________
Notary Public for ______________________
My commission expires:__________________
STATE OF _________________ )
) ss
COUNTY OF ________________ )
This instrument was acknowledged before me on January ___, 1998 by
MILTON ZUSMAN
________________________________________
Notary Public for ______________________
My commission expires:__________________
STATE OF _________________ )
) ss
COUNTY OF ________________ )
This instrument was acknowledged before me on January __, 1998 by
MELVIN WEINSTEIN and ANNE WEINSTEIN, Trustees U/T/A dated April 7,1992
________________________________________
Notary Public for ______________________
My commission expires:__________________
STATE OF _________________ )
) ss
COUNTY OF ________________ )
This instrument was acknowledged before me on January ___, 1998 by
MICHAEL ZUSMAN
________________________________________
Notary Public for ______________________
My commission expires:__________________
<PAGE> 8
STATE OF _________________ )
) ss
COUNTY OF ________________ )
This instrument was acknowledged before me on January___, 1998 by
STEVEN ZUSMAN
________________________________________
Notary Public for ______________________
My commission expires:__________________
STATE OF _________________ )
) ss
COUNTY OF ________________ )
This instrument was acknowledged before me on January ___, 1998 by
BRUCE WEINSTEIN
________________________________________
Notary Public for ______________________
My commission expires:__________________
STATE OF _________________ )
) ss
COUNTY OF ________________ )
This instrument was acknowledged before me on January __, 1998 by
LISA MARIE WEINSTEIN
________________________________________
Notary Public for ______________________
My commission expires:__________________
<PAGE> 9
EXHIBIT "A"
LEGAL DESCRIPTION
PARCEL I:
The West 230 feet of the following described tract: The South one-half of the
Northwest quarter of the Southwest quarter of the Southwest quarter of Section
27, Township 1 North, Range 2 East of the Willamette Meridian, in the County of
Multnomah and State of Oregon, except that portion thereof lying within the
boundaries of N.E. 102nd Avenue; and except that portion thereof lying within
the boundaries of N.E. Hancock Street; and excepting therefrom the South 111
feet thereof.
PARCEL II:
The South one-half of the Northwest quarter of the Southwest quarter of the
Southwest quarter of Section 27, Township 1 North, Range 2 East of the
Willamette Meridian, in the County of Multnomah and State of Oregon, except that
portion thereof lying within the boundaries of N.E. Hancock Street; excepting
therefrom the West 230 feet thereof; and excepting the East 25 feet thereof.
PARCEL III:
The following property, located in Section 27, Township 1 North of Range 2 East
of the Willamette Meridian, Multnomah County, Oregon:
BEGINNING at the Southwest corner of the South one-half of the Northwest quarter
of the Southwest quarter of the Southwest quarter of said Section 27; thence
East, along the South line of said legal subdivision, 230 feet; thence North,
parallel with the West line of said Section 27, a distance of 111 feet; thence
West, parallel with the South line of said legal subdivision, 230 feet to the
West line of said Section 27; thence South, along said West line, 111 feet to
the place of beginning.
<PAGE> 1
Exhibit 10.33
LICENSE AGREEMENT
(PULSE HEALTH SERVICES)
THIS LICENSE AGREEMENT ("AGREEMENT") is made as of January 31, 1998, by
and among Tenet HealthSystem HealthCorp, a Delaware corporation ("LICENSOR"),
NAHC of Oregon, Inc., a Tennessee corporation ("LICENSEE") and New American
Healthcare Corporation, a Tennessee corporation ("LICENSEE'S PARENT"), with
reference to the following facts:
A. Pursuant to that certain Asset Sale Agreement ("SALE AGREEMENT")
dated December 22, 1997 between Davenport Medical Center, Inc., EGH, Inc,
Qualicare of Wyoming, Inc. and Woodland Park Hospital, Inc. (collectively,
"SELLER") and Licensee's Parent, Seller has agreed to sell to Licensee's Parent
substantially all of Seller's assets. The assets subject to the Sale Agreement
include Davenport Medical Center, Eastmoreland Hospital, Lander Valley Medical
Center and Woodland Park Hospital.
B. Woodland Park Hospital, Inc. uses the tradename "Pulse Health
Services" (hereinafter "TRADENAME") in connection with its operation of Woodland
Park Hospital. Pursuant to the Sale Agreement, Licensee wishes to obtain a
limited license to use the Tradename, and Licensor desires to grant Licensee the
right to use the Tradename only at Woodland Park Hospital, for the term hereof
and on the conditions hereinafter set forth, in connection with the ownership
and operation of Woodland Park Hospital by Licensee.
NOW, THEREFORE, in consideration of the foregoing and the covenants and
conditions hereinafter set forth, and in consideration of the compensation
payable to Licensor pursuant to the Agreement, Licensor, Licensee and Licensee's
Parent hereby agree as follows:
1. Grant of License.
(a) Subject to the terms and conditions hereinafter set forth,
Licensor grants to Licensee, and Licensee hereby accepts, the right, license and
privilege to use the Tradename only in connection with the development,
ownership and operation of Woodland Park Hospital by Licensee. The license
hereby granted extends only to Woodland Park Hospital at its current location or
at such other locations as shall be approved by Licensor.
(b) Licensee agrees to pay to Licensor a license fee in the
amount of $10.00 per year during the term of this Agreement.
(c) The rights granted hereunder to Licensee with respect to
the use of the Tradename are non-exclusive and Licensee acknowledges that (i)
Licensor may grant other licenses for the use of the Tradename, the name "Pulse"
or any abbreviations or variations
<PAGE> 2
thereof, and (ii) that Affiliates of Licensor may use the Tradename, the name
"Pulse" or abbreviations or variations thereof.
(d) Licensee shall not sub-license or assign any of its rights
under this Agreement without Licensor's prior written consent, which consent may
be granted or withheld in Licensor's sole and absolute discretion.
(e) Licensor represents and warrants that the name "Pulse" was
registered with the United States Patent and Trademark Office on October 3, 1995
and that it is the sole owner of the name "Pulse".
2. Term. The term of the license granted herein shall commence on
the date hereof and shall continue until January 31, 2001 unless sooner
terminated in accordance with the provisions of this Agreement.
3. Termination.
(a) Licensor shall have the right to terminate this Agreement,
prior to the expiration of the term hereof, upon the occurrence of any of the
following events:
i) The voluntary or involuntary, actual or attempted,
alienation, sale, assignment, pledge, hypothecation, or transfer of any right,
interest, benefit, performance or obligation of Licensee set forth herein or
arising hereunder without the prior written consent of Licensor. The foregoing
notwithstanding, the hypothecation, mortgage or pledge by Licensee of all of its
assets (including its rights under this Agreement) to secure borrowings from an
institutional lender shall not constitute an event of default hereunder.
ii) Licensee or Licensee's Parent is dissolved or
declared insolvent or bankrupt; or Licensee or Licensee's Parent makes an
assignment for the benefit of creditors; or a receiver, trustee or similar
official is appointed for Licensee, Licensee's Parent or for any of their
respective properties; or any petition is filed or any proceeding is demanded
by, for or against Licensee or Licensee's Parent under any provision of a
bankruptcy or similar law.
(b) Notwithstanding anything contained herein to the contrary,
either Licensee or Licensee's Parent, at its sole option, may terminate this
Agreement at any time during the term of this Agreement upon written notice to
Licensor.
(c) Upon expiration of the term or other termination (for any
reason) of this Agreement all of Licensee's rights under this Agreement shall
(i) terminate and Licensee shall immediately and forever thereafter cease in any
manner whatsoever to use in any way the Tradename, or any variation thereof, and
(ii) remove the Tradename from all materials in
2
<PAGE> 3
Licensee's possession that bear the Tradename and certify to Licensor within 30
days of such termination that the Tradename has been so removed.
4. Quality Control. At all times during the duration of this
Agreement, Licensee shall maintain the quality standards set forth herein in
connection with its use of the Tradename hereunder. Licensee may continue using
the Tradename in the manner in which it is used by Woodland Park Hospital, Inc.
on the date hereof, but may not use the name New American Healthcare
Corporation, NAHC of Oregon, Inc., or any variation thereof as an integral part
of the Tradename. Licensee shall use the Tradename only in association with
services (a) that are at least equal in quality to those provided by Woodland
Park Hospital, Inc. at the date of this Agreement, and (b) that conform with the
accreditation standards of the Joint Commission on Accreditation of Healthcare
Organizations or any successor accreditation body, and all rules and regulations
of any applicable regulatory agency, including without limitation the Health
Care Financing Administration. Licensee agrees that it will not use the
Tradename in a manner that will, or would be likely to, cause harm to the
reputation of Licensor or the goodwill of the Tradename. Any violation of this
Paragraph 4 shall constitute a material breach of this Agreement by Licensee.
5. Indemnification.
(a) Indemnification by Licensee and Licensee's Parent.
Maintenance of the required quality standards for the goods or services with
which the Tradename is associated is solely the joint and several responsibility
of Licensee and Licensee's Parent. Licensee and Licensee's Parent shall jointly
and severally indemnify and hold Licensor harmless from and against any and all
claims, losses, liabilities, damages, demands, suits, actions, proceedings,
costs and expenses of any kind, including reasonable attorneys' fees (including
a reasonable estimate of the allocable costs of in-house legal counsel and
staff) and court costs (whether incurred, paid or required, including without
limitation, those required under penalty of law) resulting from or in connection
with the activities of Licensee pursuant to the license granted herein,
including without limitation, the services offered by Licensee under the
Tradename, or the failure of Licensee to satisfy any of its obligations
hereunder.
(b) Indemnification by Licensor. Neither Licensee nor
Licensee's Parent assumes any liability for any trademark or other infringement
arising from or related to use of the Tradename by Licensor or its Affiliates
(as hereinafter defined). Licensor hereby indemnifies and holds harmless
Licensee from and against all claims, losses, liabilities, damages, demands,
suits, actions, proceedings, costs and expenses of any kind, including
reasonable attorneys' fees and court costs, incurred by Licensee as a result of
or related to any claims arising from or related to use of the Tradename by
Licensor or its Affiliates. As used herein, an "Affiliate" of an entity shall
mean any corporation, partnership, sole proprietorship or any other entity of
any kind whatsoever, whether for profit or not for profit which directly or
indirectly
3
<PAGE> 4
through one or more intermediaries, controls, is controlled by or is under
common control with the entity specified. The term "control" means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of an entity.
(c) Notification and Settlement of Claims. Paragraph 16.3
(Notification and Settlement of Claims) of the Sale Agreement shall apply to
claims made under this Paragraph 5 and is incorporated herein by reference.
6. Enforcement. Licensee recognizes Licensor's rights in and to
the Tradename and the name "Pulse". It is understood that Licensee shall not
acquire or claim any title to the Tradename or the name "Pulse" adverse to
Licensor by virtue of the license granted herein or through Licensee's use of
the Tradename, it being the intention of the parties that any use of the
Tradename by Licensee shall at all times inure to the benefit of Licensor.
Licensee agrees to cooperate fully with Licensor to the extent reasonably
necessary to document, secure and protect any and all of Licensor's rights to
the Tradename or the name "Pulse". Licensee agrees during the term of this
Agreement and thereafter to execute and deliver to Licensor such forms as
Licensor shall reasonably request and any and all documents which Licensor deems
reasonably necessary or desirable to protect the rights of Licensor, the
Tradename and the name "Pulse". In the event Licensee learns of any infringement
upon the Tradename or the name "Pulse", it shall promptly notify Licensor of the
same. Licensor reserves the right to decide whether legal proceedings shall be
instituted in the event a third party infringes the Tradename or the name
"Pulse" and shall have the sole responsibility and control over such
proceedings. Any recovery in such legal proceedings shall belong exclusively to
Licensor.
7. Successors and Assigns. Subject to Paragraph 1(d), this
Agreement shall be binding upon the successors and assigns of both parties.
8. Notices. All notices, requests, demands, waivers, consents and
other communications hereunder shall be in writing, may be delivered in person,
by telegraphic, facsimile or other electronic means, by overnight air courier or
by mail, and shall be deemed to have been duly given and to have become
effective (a) upon receipt, if delivered in person or by telegraphic, facsimile
or other electronic means, (b) one business day after having been delivered to
an air courier for overnight delivery or (c) three business days after having
been deposited in the mails as certified or registered mail, return receipt
requested, all fees prepaid, directed to the parties at the following addresses
(or at such other address as shall be given in writing by a party hereto):
4
<PAGE> 5
If to Licensee or Licensee's Parent:
New American Healthcare Corporation
109 Westpark Drive, Suite 440
Brentwood, TN 37024
Attn: Neil G. McLean, Vice President
Facsimile: (615) 221-5009
With a copy to counsel for Licensee:
Mike Hill, Esq.
Harwell Howard Hyne Gabbert & Manner
315 Deaderick Street
Nashville, TN 37238
Facsimile: (615) 251-1059
If to Licensor:
c/o Tenet HealthSystem
14001 Dallas Parkway, Suite 105
Dallas, TX 75240
Attn: Donald W. Thayer, Vice President
Facsimile: (972) 789-2318
With copies to:
Tenet HealthSystem
14001 Dallas Parkway, Suite 200
Dallas, TX 75240
Attn: William A. Barrett, Esq.
Facsimile: (972) 702-6598
and
Gary Q. Michel, Esq.
Ervin, Cohen & Jessup
9401 Wilshire Boulevard, 9th Floor
Beverly Hills, CA 90212-2974
Facsimile: (310) 859-2325
5
<PAGE> 6
9. Further Assurances; Entire Agreement; Amendment. The parties
hereto agree to execute any further documents and instruments which are
necessary to effectuate the substance and intent of this Agreement. This
Agreement sets forth and constitutes the entire agreement and understanding
between the parties with respect to the subject matter hereof, and supersedes
any and all prior agreements, understandings, promises and representation,
whether written or oral, between the parties with respect to the subject matter
hereof. This Agreement may not be released, discharged, amended or modified in
any manner except by an instrument in writing, making specific reference to this
Agreement, and signed duly by authorized representatives of both parties.
10. No Partnership. The relationship hereby established between
Licensor and Licensee is solely that of independent contractors. This Agreement
shall not create an agency, partnership, joint venture, or employer/employee
relationship, and nothing hereunder shall be deemed to authorize either party to
act for, represent or bind the other except as expressly provided in this
Agreement.
11. Severability. If and solely to the extent that any provision of
this Agreement shall be invalid or unenforceable, or shall render this entire
Agreement to be unenforceable or invalid, such offending provision shall be of
no effect and shall not affect the validity of the remainder of this Agreement
or any of its provisions; provided, however, the parties shall use their
respective reasonable efforts to renegotiate the offending provisions to best
accomplish the original intentions of the parties.
12. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of California, without regard to the
principles of conflicts of law theory.
13. Attorneys' Fees. In any litigation or other proceeding relating to
this Agreement or the license granted hereby, the prevailing party shall be
entitled to recover its costs, expenses and disbursements in connection with
such action, including the costs of reasonable investigation, preparation, and
professional or expert consultation and reasonable attorneys' fees (including a
reasonable estimate of the allocable costs of in-house legal counsel and staff).
14. Waiver. No waiver of any right under this Agreement shall be deemed
effective unless contained in writing and signed by the party charged with such
waiver, and no waiver of any right shall be deemed to be a waiver of any future
right or any other right arising under this Agreement. All rights, remedies,
undertakings, obligations, and agreements contained in this Agreement shall be
cumulative and none of them shall be a limitation of any other remedy, right,
undertaking, obligation, or agreement.
6
<PAGE> 7
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16. Effective Date. This Agreement and the license granted hereby shall
be effective at 12:01 a.m. on February 1, 1998.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
LICENSOR:
TENET HEALTHSYSTEM HEALTHCORP
By: /s/ Donald W. Thayer
------------------------------------
Name: Donald W. Thayer
Title: Vice President
LICENSEE:
NAHC OF OREGON, INC.
By: /s/ Dana C. McLendon, Jr.
------------------------------------
Name: Dana C. McLendon, Jr.
Title: Vice President
LICENSEE'S PARENT:
NEW AMERICAN HEALTHCARE
CORPORATION
By: /s/ Robert M. Martin
------------------------------------
Name: Robert M. Martin
Title: President
7
<PAGE> 1
Exhibit 10.34
LICENSE AGREEMENT
(PULSE HOME HEALTH)
THIS LICENSE AGREEMENT ("AGREEMENT") is made as of January 31, 1998, by
and among Tenet HealthSystem HealthCorp, a Delaware corporation ("LICENSOR"),
NAHC of Iowa, Inc., a Tennessee corporation ("LICENSEE") and New American
Healthcare Corporation, a Tennessee corporation ("LICENSEE'S PARENT"), with
reference to the following facts:
A. Pursuant to that certain Asset Sale Agreement ("SALE AGREEMENT")
dated December 22,1997 between Davenport Medical Center, Inc., EGH, Inc,
Qualicare of Wyoming, Inc. and Woodland Park Hospital, Inc. (collectively,
"SELLER") and Licensee's Parent, Seller has agreed to sell to Licensee's Parent
substantially all of Seller's assets. The assets subject to the Sale Agreement
include Davenport Medical Center, Eastmoreland Hospital, Lander Valley Medical
Center and Woodland Park Hospital.
B. Davenport Medical Center, Inc. uses the tradename "Pulse Home
Health" (hereinafter "TRADENAME") in connection with its operation of Davenport
Medical Center. Pursuant to the Sale Agreement, Licensee wishes to obtain a
limited license to use the Tradename, and Licensor desires to grant Licensee the
right to use the Tradename only at Davenport Medical Center, for the term hereof
and on the conditions hereinafter set forth, in connection with the ownership
and operation of Davenport Medical Center by Licensee.
NOW, THEREFORE, in consideration of the foregoing and the covenants and
conditions hereinafter set forth, and in consideration of the compensation
payable to Licensor pursuant to the Agreement, Licensor, Licensee and Licensee's
Parent hereby agree as follows:
1. Grant of License.
(a) Subject to the terms and conditions hereinafter set forth,
Licensor grants to Licensee, and Licensee hereby accepts, the right, license and
privilege to use the Tradename only in connection with the development,
ownership and operation of Davenport Medical Center by Licensee. The license
hereby granted extends only to Davenport Medical Center at its current location
or at such other locations as shall be approved by Licensor.
(b) Licensee agrees to pay to Licensor a license fee in the
amount of $10.00 per year during the term of this Agreement.
(c) The rights granted hereunder to Licensee with respect to
the use of the Tradename are non-exclusive and Licensee acknowledges that (i)
Licensor may grant other licenses for the use of the Tradename, the name "Pulse"
or any abbreviations or variations
<PAGE> 2
thereof, and (ii) that Affiliates of Licensor may use the Tradename, the name
"Pulse" or abbreviations or variations thereof.
(d) Licensee shall not sub-license or assign any of its rights
under this Agreement without Licensor's prior written consent, which consent may
be granted or withheld in Licensor's sole and absolute discretion.
(e) Licensor represents and warrants that the name "Pulse" was
registered with the United States Patent and Trademark Office on October 3, 1995
and that it is the sole owner of the name "Pulse".
2. Term. The term of the license granted herein shall commence on
the date hereof and shall continue until January 31, 2001 unless sooner
terminated in accordance with the provisions of this Agreement.
3. Termination.
(a) Licensor shall have the right to terminate this Agreement,
prior to the expiration of the term hereof, upon the occurrence of any of the
following events:
i) The voluntary or involuntary, actual or attempted,
alienation, sale, assignment, pledge, hypothecation, or transfer of any right,
interest, benefit, performance or obligation of Licensee set forth herein or
arising hereunder without the prior written consent of Licensor. The foregoing
notwithstanding, the hypothecation, mortgage or pledge by Licensee of all of its
assets (including its rights under this Agreement) to secure borrowings from an
institutional lender shall not constitute an event of default hereunder.
ii) Licensee or Licensee's Parent is dissolved or declared
insolvent or bankrupt; or Licensee or Licensee's Parent makes an assignment for
the benefit of creditors; or a receiver, trustee or similar official is
appointed for Licensee, Licensee's Parent or for any of their respective
properties; or any petition is filed or any proceeding is demanded by, for or
against Licensee or Licensee's Parent under any provision of a bankruptcy or
similar law.
(b) Notwithstanding anything contained herein to the contrary,
either Licensee or Licensee's Parent, at its sole option, may terminate this
Agreement at any time during the term of this Agreement upon written notice to
Licensor.
(c) Upon expiration of the term or other termination (for any
reason) of this Agreement all of Licensee's rights under this Agreement shall
(i) terminate and Licensee shall immediately and forever thereafter cease in any
manner whatsoever to use in any way the Tradename, or any variation thereof, and
(ii) remove the Tradename from all materials in
2
<PAGE> 3
Licensee's possession that bear the Tradename and certify to Licensor within 30
days of such termination that the Tradename has been so removed.
4. Quality Control. At all times during the duration of this
Agreement, Licensee shall maintain the quality standards set forth herein in
connection with its use of the Tradename hereunder. Licensee may continue using
the Tradename in the manner in which it is used by Davenport Medical Center,
Inc. on the date hereof, but may not use the name New American Healthcare
Corporation, NAHC of Iowa, Inc., or any variation thereof as an integral part of
the Tradename. Licensee shall use the Tradename only in association with
services (a) that are at least equal in quality to those provided by Davenport
Medical Center, Inc. at the date of this Agreement, and (b) that conform with
the accreditation standards of the Joint Commission on Accreditation of
Healthcare Organizations or any successor accreditation body, and all rules and
regulations of any applicable regulatory agency, including without limitation
the Health Care Financing Administration. Licensee agrees that it will not use
the Tradename in a manner that will, or would be likely to, cause harm to the
reputation of Licensor or the goodwill of the Tradename. Any violation of this
Paragraph 4 shall constitute a material breach of this Agreement by Licensee.
5. Indemnification.
(a) Indemnification by Licensee and Licensee's Parent.
Maintenance of the required quality standards for the goods or services with
which the Tradename is associated is solely the joint and several responsibility
of Licensee and Licensee's Parent. Licensee and Licensee's Parent shall jointly
and severally indemnify and hold Licensor harmless from and against any and all
claims, losses, liabilities, damages, demands, suits, actions, proceedings,
costs and expenses of any kind, including reasonable attorneys' fees (including
a reasonable estimate of the allocable costs of in-house legal counsel and
staff) and court costs (whether incurred, paid or required, including without
limitation, those required under penalty of law) resulting from or in connection
with the activities of Licensee pursuant to the license granted herein,
including without limitation, the services offered by Licensee under the
Tradename, or the failure of Licensee to satisfy any of its obligations
hereunder.
(b) Indemnification by Licensor. Neither Licensee nor
Licensee's Parent assumes any liability for any trademark or other infringement
arising from or related to use of the Tradename by Licensor or its Affiliates
(as hereinafter defined). Licensor hereby indemnifies and holds harmless
Licensee from and against all claims, losses, liabilities, damages, demands,
suits, actions, proceedings, costs and expenses of any kind, including
reasonable attorneys' fees and court costs, incurred by Licensee as a result of
or related to any claims arising from or related to use of the Tradename by
Licensor or its Affiliates. As used herein, an "Affiliate" of an entity shall
mean any corporation, partnership, sole proprietorship or any other entity of
any kind whatsoever, whether for profit or not for profit which directly or
indirectly
3
<PAGE> 4
through one or more intermediaries, controls, is controlled by or is under
common control with the entity specified. The term "control" means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of an entity.
(c) Notification and Settlement of Claims. Paragraph 16.3
(Notification and Settlement of Claims) of the Sale Agreement shall apply to
claims made under this Paragraph 5 and is incorporated herein by reference.
6. Enforcement. Licensee recognizes Licensor's rights in and to
the Tradename and the name "Pulse". It is understood that Licensee shall not
acquire or claim any title to the Tradename or the name "Pulse" adverse to
Licensor by virtue of the license granted herein or through Licensee's use of
the Tradename, it being the intention of the parties that any use of the
Tradename by Licensee shall at all times inure to the benefit of Licensor.
Licensee agrees to cooperate fully with Licensor to the extent reasonably
necessary to document, secure and protect any and all of Licensor's rights to
the Tradename or the name "Pulse". Licensee agrees during the term of this
Agreement and thereafter to execute and deliver to Licensor such forms as
Licensor shall reasonably request and any and all documents which Licensor deems
reasonably necessary or desirable to protect the rights of Licensor, the
Tradename and the name "Pulse". In the event Licensee learns of any infringement
upon the Tradename or the name "Pulse", it shall promptly notify Licensor of the
same. Licensor reserves the right to decide whether legal proceedings shall be
instituted in the event a third party infringes the Tradename or the name
"Pulse" and shall have the sole responsibility and control over such
proceedings. Any recovery in such legal proceedings shall belong exclusively to
Licensor.
7. Successors and Assigns. Subject to Paragraph 1(d), this
Agreement shall be binding upon the successors and assigns of both parties.
8. Notices. All notices, requests, demands, waivers, consents and
other communications hereunder shall be in writing, may be delivered in person,
by telegraphic, facsimile or other electronic means, by overnight air courier or
by mail, and shall be deemed to have been duly given and to have become
effective (a) upon receipt, if delivered in person or by telegraphic, facsimile
or other electronic means, (b) one business day after having been delivered to
an air courier for overnight delivery or (c) three business days after having
been deposited in the mails as certified or registered mail, return receipt
requested, all fees prepaid, directed to the parties at the following addresses
(or at such other address as shall be given in writing by a party hereto):
4
<PAGE> 5
If to Licensee or Licensee's Parent:
New American Healthcare Corporation
109 Westpark Drive, Suite 440
Brentwood, TN 37024
Attn: Neil G. McLean, Vice President
Facsimile: (615) 221-5009
With a copy to counsel for Licensee:
Mike Hill, Esq.
Harwell Howard Hyne Gabbert & Manner
315 Deaderick Street
Nashville, TN 37238
Facsimile: (615) 251-1059
If to Licensor:
c/o Tenet HealthSystem
14001 Dallas Parkway, Suite 105
Dallas, TX 75240
Attn: Donald W. Thayer, Vice President
Facsimile: (972) 789-2318
With copies to:
Tenet HealthSystem
14001 Dallas Parkway, Suite 200
Dallas, TX 75240
Attn: William A. Barrett, Esq.
Facsimile: (972) 702-6598
and
Gary Q. Michel, Esq.
Ervin, Cohen & Jessup
9401 Wilshire Boulevard, 9th Floor
Beverly Hills, CA 90212-2974
Facsimile: (310) 859-2325
5
<PAGE> 6
9. Further Assurances; Entire Agreement; Amendment. The parties hereto
agree to execute any further documents and instruments which are necessary to
effectuate the substance and intent of this Agreement. This Agreement sets forth
and constitutes the entire agreement and understanding between the parties with
respect to the subject matter hereof, and supersedes any and all prior
agreements, understandings, promises and representation, whether written or
oral, between the parties with respect to the subject matter hereof. This
Agreement may not be released, discharged, amended or modified in any manner
except by an instrument in writing, making specific reference to this Agreement,
and signed duly by authorized representatives of both parties.
10. No Partnership. The relationship hereby established between
Licensor and Licensee is solely that of independent contractors. This Agreement
shall not create an agency, partnership, joint venture, or employer/employee
relationship, and nothing hereunder shall be deemed to authorize either party to
act for, represent or bind the other except as expressly provided in this
Agreement.
11. Severability. If and solely to the extent that any provision of
this Agreement shall be invalid or unenforceable, or shall render this entire
Agreement to be unenforceable or invalid, such offending provision shall be of
no effect and shall not affect the validity of the remainder of this Agreement
or any of its provisions; provided, however, the parties shall use their
respective reasonable efforts to renegotiate the offending provisions to best
accomplish the original intentions of the parties.
12. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of California, without regard to the
principles of conflicts of law theory.
13. Attorneys' Fees. In any litigation or other proceeding relating to
this Agreement or the license granted hereby, the prevailing party shall be
entitled to recover its costs, expenses and disbursements in connection with
such action, including the costs of reasonable investigation, preparation, and
professional or expert consultation and reasonable attorneys' fees (including a
reasonable estimate of the allocable costs of in-house legal counsel and staff).
14. Waiver. No waiver of any right under this Agreement shall be deemed
effective unless contained in writing and signed by the party charged with such
waiver, and no waiver of any right shall be deemed to be a waiver of any future
right or any other right arising under this Agreement. All rights, remedies,
undertakings, obligations, and agreements contained in this Agreement shall be
cumulative and none of them shall be a limitation of any other remedy, right,
undertaking, obligation, or agreement.
6
<PAGE> 7
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16. Effective Date. This Agreement and the license granted hereby shall
be effective at 12:01 a.m. on February 1, 1998.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the date first set forth above.
LICENSOR:
TENET HEALTHSYSTEM HEALTHCORP
By: /s/ Donald W. Thayer
------------------------------------
Name: Donald W. Thayer
Title: Vice President
LICENSEE:
NAHC OF OREGON, INC.
By: /s/ Dana C. McLendon, Jr.
------------------------------------
Name: Dana C. McLendon, Jr.
Title: Vice President
LICENSEE'S PARENT:
NEW AMERICAN HEALTHCARE
CORPORATION
By: /s/ Robert M. Martin
------------------------------------
Name: Robert M. Martin
Title: President
7
<PAGE> 1
Exhibit 10.35
ASSET SALE AGREEMENT
* * * * *
PSH., INC.
as Seller
AND
NEW AMERICAN HEALTHCARE CORPORATION
as Buyer
Dated: December 22, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Paragraph Description Page
- --------- ----------- ----
<S> <C>
Preamble ..................................................................................... 1
Recitals...................................................................................... 1
1. Transfer of Assets....................................................................... 1
1.1 Transferred Assets ............................................................. 1
1.2 Retained Assets ................................................................ 4
2. Purchase Price........................................................................... 5
2.1 Amount ......................................................................... 5
2.2 Closing Schedule and Determination of Purchase Price ........................... 5
2.3 Payment of Purchase Price ...................................................... 6
3. Assumption of Obligations of Seller ..................................................... 7
3.1 Obligations Assumed ............................................................ 7
3.2 Obligations Not Assumed ........................................................ 8
4. Disclosure Statement..................................................................... 10
5. Representations and Warranties of Seller................................................. 11
5.1 Organization of Seller ......................................................... 11
5.2 Authority ...................................................................... 11
5.3 Financial Statements ........................................................... 12
5.4 Title to Transferred Assets .................................................... 12
5.5 Third Party Rights ............................................................. 12
5.6 Governmental Consents .......................................................... 13
5.7 Hazardous Substances ........................................................... 13
5.8 Litigation ..................................................................... 13
5.9 Licenses and Permits ........................................................... 13
5.10 Compliance with Laws ........................................................... 14
5.11 Employee Relations ............................................................. 14
5.12 Personnel ...................................................................... 14
5.13 Assumed Contracts .............................................................. 15
5.14 Brokerage and Finder's Fees .................................................... 15
5.15 U.S. Persons ................................................................... 15
5.16 Inventory ...................................................................... 15
5.17 Changes Since Interim Statements ............................................... 15
5.18 Cost Reports, Third Party Receivables and Conditions of Participation .......... 16
5.19 Medical Staff .................................................................. 17
5.20 Hill-Burton Care ............................................................... 17
5.21 Taxes .......................................................................... 17
</TABLE>
i--
<PAGE> 3
<TABLE>
<S> <C>
5.22 ERISA Plans .................................................................... 18
5.23 No Negotiations with Third Parties ............................................. 18
5.24 Miscellaneous Representations Relating to Real Property ........................ 18
5.25 Motor Vehicles ................................................................. 19
6. Obligations and Covenants of Seller ..................................................... 19
6.1 Conduct of Business ............................................................ 19
6.2 Access and Information ......................................................... 20
6.3 Encumbrances ................................................................... 21
6.4 Consent of Others .............................................................. 21
6.5 No Transfer of Assets .......................................................... 22
6.6 Seller's Efforts to Close ...................................................... 22
6.7 Monthly Statements ............................................................. 22
7. Representations and Warranties of Buyer ................................................. 23
7.1 Organization and Good Standing ................................................. 23
7.2 Authority ...................................................................... 23
7.3 Brokerage and Finder's Fees .................................................... 23
7.4 Permits and Accreditations ..................................................... 24
7.5 No Knowledge of Seller's Breach ................................................ 24
7.6 No Assurance ................................................................... 24
8. Obligations and Covenants of Buyer ...................................................... 25
8.1 Consent of Others .............................................................. 25
8.2 Inspection ..................................................................... 25
8.3 Buyer's Efforts to Close ....................................................... 26
8.4 Waiver of Bulk Sales Law Compliance ............................................ 26
8.5 Ability to Perform ............................................................. 26
9. Conditions Precedent to Obligations of Buyer ............................................ 26
9.1 Accuracy of Warranties and Representations ..................................... 26
9.2 Performance of Obligations ..................................................... 27
9.3 Approval of Inspection ......................................................... 27
9.4 Permits and Program Participation .............................................. 27
9.5 Tax Matters .................................................................... 27
9.6 Title Insurance ................................................................ 28
9.7 Instruments of Transfer ........................................................ 28
9.8 Officer's Certificate .......................................................... 28
9.9 Certified Resolutions .......................................................... 29
9.10 Hart-Scott-Rodino Act .......................................................... 29
9.11 Adverse Action ................................................................. 29
9.12 Parent Guaranty ................................................................ 29
9.13 Opinion of Seller's Counsel .................................................... 30
</TABLE>
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10. Conditions Precedent to Obligations of Seller ........................................... 30
10.1 Accuracy of Warranties and Representations ..................................... 30
10.2 Performance of Obligations ..................................................... 30
10.3 Payment of Purchase Price ...................................................... 30
10.4 Officer's Certificate .......................................................... 31
10.5 Certified Resolutions .......................................................... 31
10.6 Hart-Scott-Rodino Act .......................................................... 31
10.7 Adverse Action ................................................................. 31
10.8 Continued Existence of Commitment Letter ....................................... 32
10.9 Opinion of Buyer's Counsel ..................................................... 32
11. Closing ................................................................................. 32
11.1 Pre-Closing .................................................................... 33
11.2 Escrow ......................................................................... 33
11.3 Deliveries at Closing .......................................................... 33
12. "AS IS" Purchase ........................................................................ 34
13. Exclusivity Fee ......................................................................... 35
14. Additional Covenants .................................................................... 35
14.1 Further Documentation or Action ................................................ 35
14.2 Preservation of and Access to Records .......................................... 36
14.3 Litigation Cooperation ......................................................... 38
14.4 Employee Benefit Plans ......................................................... 38
14.6 Confidentiality ................................................................ 39
14.7 Cure of Disapproved Items ...................................................... 40
14.8 Excluded Assets and Receivables ................................................ 40
14.9 Cost Report Audits and Contests ................................................ 45
14.10 Filing Cost Reports; Amounts Due To or From Third Party Payors ................. 46
14.11 Employee Matters ............................................................... 46
14.12 Medical Staff Privileges/Bylaws ................................................ 49
14.13 Antitrust Laws Compliance ...................................................... 49
14.14 Filing Tax Returns ............................................................. 50
14.15 Use of Controlled Substance Permits ............................................ 50
14.16 Limited Use of Manuals and Software ............................................ 50
14.17 Puget Sound Union Negotiations ................................................. 51
14.18 Purchase of Supplies ........................................................... 52
15. Survival of Representations ............................................................. 52
16. Indemnification ......................................................................... 52
16.1 Indemnification of Buyer By Seller ............................................. 52
16.2 Indemnification of Seller By Buyer ............................................. 52
16.3 Notification and Settlement of Claims .......................................... 53
</TABLE>
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<TABLE>
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16.4 Limitations on Indemnification Obligations ..................................... 54
16.5 Time Limitations ............................................................... 54
16.6 Exclusive Remedy ............................................................... 54
17. Termination ............................................................................. 55
17.1 Termination Upon Certain Events ................................................ 55
17.2 Effect of Termination .......................................................... 56
18. Liquidated Damages. ..................................................................... 56
19. General Provisions ...................................................................... 57
19.1 Notices ........................................................................ 57
19.2 Form of Instruments ............................................................ 59
19.3 Attorneys' Fees ................................................................ 59
19.4 Remedies Not Exclusive ......................................................... 59
19.5 Successors and Assigns ......................................................... 60
19.6 Counterparts ................................................................... 62
19.7 Captions and Paragraph Headings ................................................ 62
19.8 Entirety of Agreement; Amendments .............................................. 62
19.9 Expenses and Prorations ........................................................ 62
19.10 Construction ................................................................... 63
19.11 Waiver ......................................................................... 63
19.12 Severability ................................................................... 64
19.13 Certain Definitions ............................................................ 64
19.14 Consents Not Unreasonably Withheld ............................................. 68
19.15 Time Is of the Essence ......................................................... 68
19.16 Interest on Amounts Due ........................................................ 69
19.17 Governing Law .................................................................. 69
19.18 Tax and Medicare Effect ........................................................ 69
19.19 Casualty ....................................................................... 69
19.20 Condemnation ................................................................... 70
19.21 Tax-Deferred Exchange .......................................................... 70
Signatures.................................................................................... 71
ANNEX I - LIST OF SCHEDULES .................................................................. 72
ANNEX II - LIST OF EXHIBITS .................................................................. 74
</TABLE>
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ASSET SALE AGREEMENT
THIS ASSET SALE AGREEMENT ("Agreement") is made and entered into as of the
22nd day of December, 1997, by and between NEW AMERICAN HEALTHCARE CORPORATION,
a Tennessee corporation ("BUYER"), and PSH, INC., a Washington corporation
("SELLER"), with reference to the following facts:
A. Seller owns the acute-care general Hospital commonly known as Puget
Sound Hospital (the "HOSPITAL") and owns, leases or operates the medical office
buildings and other activities and businesses related thereto (collectively,
together with the Hospital, the "HOSPITAL BUSINESSES").
B. Buyer desires to purchase from Seller, and Seller desires to sell to
Buyer, the Hospital Businesses and all of the equipment, fixtures and other real
and personal property which are related to Seller's operation of the Hospital
Businesses and located at the Hospital as specified herein on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE in consideration of the foregoing recitals, and the
representations, warranties and covenants herein contained, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto, intending to be legally bound, do hereby agree
as follows:
1. TRANSFER OF ASSETS
1.1 TRANSFERRED ASSETS
At the Closing (as hereinafter defined in Paragraph 11), for the
consideration hereinafter provided and in reliance upon the representations and
warranties of the parties set forth herein, Seller shall sell, transfer, convey
and assign to Buyer, and Buyer shall purchase from Seller, all right, title and
interest of Seller in and to the following assets (the "TRANSFERRED ASSETS"):
1.1.1 The real property owned in fee by Seller upon which the
Hospital or any medical office buildings included in the Hospital Businesses are
situated, and all other real property owned in fee by Seller including any real
property owned by Seller in the Hospital's market area, whether developed or
undeveloped, and whether or not contiguous (other than any Retained Assets) (all
of which real property is identified on SCHEDULE "1.1.1"), together with all
land improvements, the Hospital, construction work-in-progress located at the
Hospital Businesses, the medical office buildings and any other buildings and
other improvements thereon, and all rights, privileges and easements appurtenant
thereto (the "REAL PROPERTY").
<PAGE> 7
1.1.2 The leasehold estates of Seller, as tenant, and the related
lease and sublease agreements (all such leases shall collectively be referred to
as the "REAL PROPERTY LEASES") with respect to the Hospital Businesses, the real
property upon which Hospital Businesses are situated and the other buildings and
other improvements and fixtures thereon (whether owned or leased), which Real
Property Leases are identified on SCHEDULE "1.1.2", together with all
construction work-in-progress in respect of the same and all rights privileges
and easements appurtenant thereto (the "LEASED REAL PROPERTY").
1.1.3 All tangible personal property (other than items of
tangible personal property that are consumed, disposed of or held for sale or
inventoried in the ordinary course of business) owned by Seller and located at
the Hospital Businesses, excluding, however, any such personal property which is
a Retained Asset (as hereinafter defined in Paragraph 1.2). The current list of
such tangible personal property is set forth on SCHEDULE "1.1.3".
1.1.4 All inventories of supplies, drugs, food, janitorial and
office supplies, maintenance and shop supplies, and other disposables which are
existing as of the Closing Date (the "PURCHASED INVENTORY").
1.1.5 All contracts, agreements and leases to which Seller is a
party at the Closing Date, other than the Real Property Leases, and all other
obligations, purchase orders, commitments or covenants to which Seller is a
party at the Closing Date (all such contracts, agreements, leases, other
obligations, purchase orders, commitments or covenants are collectively referred
to as the "CONTRACTS") including, but not limited to, the Contracts (a) that are
set forth on SCHEDULE "1.1.5", (b) pursuant to which Seller paid or received
less than $15,000 during its last fiscal year or pursuant to which it expects to
pay or receive less than $15,000 during its current fiscal year, whether or not
listed on Schedule "1.1.5", or (c) with respect to the Contracts which are
entered into after the date hereof, the requirements of Paragraph 6.1(d) have
been satisfied. Schedule "1.1.5" shall include a listing of all Contracts
entered into prior to the date hereof and pursuant to which Seller paid more
than $15,000 during its last fiscal year and shall list such Contracts
alphabetically by appropriate categories (such as leases, service agreements,
affiliation agreements, provider agreements, and agreements with physicians).
Notwithstanding the foregoing, the Contracts shall not include any contract
respecting an intercompany transaction between Seller, on the one hand, and an
Affiliate of Seller, on the other, whether or not such transaction relates to
the provision of goods and services, tax sharing arrangements, payment
arrangements, intercompany charges or balances, or the like (the "INTERCOMPANY
TRANSACTIONS"), except that transactions arising in connection with open
purchase orders where the Seller's Affiliates have acted as an intermediary for
Seller shall not be regarded as Intercompany Transactions.
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1.1.6 To the extent lawfully transferable, all certificates of
need (including those that have been issued but have not been fully implemented
or that have been applied for), accreditations, registrations, licenses, permits
and other governmental consents or approvals necessary to or intended for the
operation of the Hospital Businesses as presently conducted by Seller.
1.1.7 Only those advance payments, prepayments, prepaid expenses,
deposits and the like (the "PREPAIDS") which are existing as of the Closing
Date, which were incurred by Seller solely with respect to Seller's operation of
the Hospital Businesses and which are determined by Buyer to be usable by and
transferrable to Buyer concurrently with Buyer's approval of the Disclosure
Statement pursuant to Paragraph 4 (the "PURCHASED PREPAIDS"), the current
categories and amounts of which are set forth on SCHEDULE "1.1.7".
1.1.8 All of Seller's right, title and interest in and to the
business names set forth in SCHEDULE "1.1.8".
1.1.9 All unexpired warranties and covenants not to compete that
are transferrable to Buyer which Seller has received from third parties with
respect to the Transferred Assets (but not directly or indirectly with respect
to any of the Retained Assets) including, without limitation, such warranties
and covenants as are set forth in any construction agreement, lease agreement,
equipment purchase agreement, consulting agreement, agreement for architectural
and engineering services or purchase and sale agreement.
1.1.10 All goodwill of the business evidenced by the Transferred
Assets.
1.1.11 All Hospital Records, including the personnel records of
the Hired Employees (as hereinafter defined in Paragraph 14.11), that are
maintained at the Hospital in the ordinary course of business; provided that
Seller shall have the right of access thereto as set forth in Paragraph 14.2.
1.1.12 All Receivables (as hereinafter defined in Paragraph
19.13(a)), other than the Government Receivables (as hereinafter defined in
Paragraph 19.13(a)) (the "PURCHASED RECEIVABLES").
1.1.13 All right, title and interest of Seller in and to any and
all joint ventures, partnerships, limited liability companies, the current list
of which is set forth on SCHEDULE "1.1.13", together with all of Seller's right,
title and interest in and to the joint venture, partnership or operating
agreements relating thereto and in and to all distributions and allocations
which Seller is entitled to receive as of the Closing.
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1.2 RETAINED ASSETS
At the Closing, Seller shall retain all assets owned directly or
indirectly by Seller or any of its Affiliates, other than the Transferred
Assets, whether or not such assets are used in connection with or are necessary
for the operation of the Hospital Businesses. Without limiting the generality of
the foregoing, such retained assets (the "RETAINED ASSETS") shall include the
following:
1.2.1 Except for the Purchased Inventory, the Purchased Prepaids
and the Purchased Receivables, all assets constituting working capital, whether
cash, cash equivalents, securities or other current assets, all Government
Receivables and all claims, choses in action, rights of recovery, rights of set
off, rights to refunds and similar rights relating thereto.
1.2.2 Except for the business names referred to in Paragraph
1.1.8 and the Assumed Contracts and except for manuals relating to equipment and
other tangible property included in the Transferred Assets, all privileged or
proprietary materials, documents, information, media, methods and processes
owned by Seller, and any and all rights to use the same, including, but not
limited to, all intangible assets of an intellectual property nature, all
proprietary computer software, all clinical and policy and procedure manuals,
all promotional, marketing and recruiting materials (including all marketing
computer hardware and software and all telephone numbers) and the names "Tenet",
"OrNda" and any and all derivations, abbreviations and variations thereof.
1.2.3 Any and all rights respecting computer and data processing
hardware that is proprietary to Seller or any Affiliate of Seller, and any
computer and data processing hardware, whether or not located at the Hospital,
that is part of a computer system whether or not the central processing unit for
which is located at such Hospital.
1.2.4 All amounts due to Seller arising from Intercompany
Transactions or from Medicare or other Payors with respect to the cost reports
and other filings referred to in Paragraph 14.10.
1.2.5 All personnel records other than those of the Hired
Employees.
1.2.6 All assets of or dedicated to the Plans.
1.2.7 Such other assets, if any, specifically described in
SCHEDULE "1.2.7."
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<PAGE> 10
Buyer acknowledges and agrees that Seller shall have the right to
remove, and may remove at any time prior to or within 30 days following the
Closing Date (at Seller's expense, but without charge by Buyer for storage),
from time to time all or any part of the Retained Assets; provided, however,
that such removal by Seller shall take place during normal business hours and
with reasonable prior written notice to Buyer of the time when such removal
shall take place. Seller's employees, representatives and agents shall conduct
themselves during such removal process in such a manner so that Buyer's normal
business activities shall not be unduly or unnecessarily disrupted thereby.
2. PURCHASE PRICE
2.1 AMOUNT
The purchase price (the "PURCHASE PRICE") to be paid by Buyer to
Seller for the Transferred Assets shall be equal to the sum of (a) $25,000,000
plus (b) an amount equal to the net book values of the Purchased Inventory, the
Purchased Prepaids and the Purchased Receivables as of the Closing Date, less
(c) 100% of the Paid Time Off of the Hired Employees which Buyer has assumed
pursuant to Paragraph 3.1(b), less (d) 20% of the Sick Pay of the Hired
Employees which Buyer has assumed pursuant to Paragraph 3.1(b), less (e) the net
book value of the Accrued Operating Expenses (as defined in Paragraph 3.1(d)) as
of the Closing Date, less (f) the net book value of the capitalized leases
outstanding as of the Closing Date.
2.2 CLOSING SCHEDULE AND DETERMINATION OF PURCHASE PRICE
As soon as practicable, but in no event later than 75 days after
the Closing Date, Seller shall cause a schedule (the "CLOSING SCHEDULE") to be
prepared and delivered to Buyer which shall calculate the Purchase Price ant
include (a) a revised Schedule 1.1.7 showing the net book value of the Purchased
Prepaids as of the Closing Date, and (b) a schedule showing the net book value
of the Purchased Inventory, the Purchased Receivables and the Accrued Operating
Expenses (exclusive of the amounts set forth on Schedule "3.1(b)"), all as of
the Closing Date, (c) a revised Schedule "3.1(b)" showing as of the Closing Date
the amount of the Paid Time Off and Sick Pay of the Hired Employees assumed by
Buyer pursuant to Paragraph 3.1(b) and not paid to a Hired Employee by Seller,
and (d) a revised Schedule "3.1(h)" showing as of the Closing Date the net book
value of the then outstanding capitalized leases calculated in accordance with
generally accepted accounting principles, consistently applied. If the Closing
Schedule as submitted by Seller is challenged by Buyer, then, unless otherwise
resolved by agreement of the parties within 30 days from the date of Buyer's
challenge or such later date as the parties may mutually agree, the Closing
Schedule shall be deemed in dispute, which dispute shall be resolved by the
independent certified public accountants of Buyer, on the one hand, and the
independent certified public accountants of Seller, on the other hand. If such
accountants cannot resolve the disagreement within 30 days
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of such submission, or such later date as the parties may mutually agree upon,
such disagreement shall be mutually submitted by the parties to one of the
so-called "big five" accounting firms (other than the parties' respective
independent certified public accountants) to be selected by the mutual agreement
of such parties' independent certified public accountants, whose determination
shall be final and binding and shall be rendered within 30 days of the date on
which the matter is submitted to such firm. Any such selected accounting firm
shall determine the issues in dispute after following such procedures,
consistent with the language of this Agreement, as it deems appropriate to the
circumstances and with reference to the amounts at issue. No particular
procedures are intended to be imposed upon such accounting firm, it being the
desire of the parties that any such dispute shall be resolved as expeditiously
and inexpensively as reasonably practicable. If Buyer does not give written
notice to Seller of its challenge of the Closing Schedule within 30 days
following Buyer's receipt of the Closing Schedule, Buyer shall be deemed to have
accepted the same. The Closing Schedule, either as accepted by Buyer or as
resolved in the manner herein provided, shall fix the Purchase Price. The
pendency of a dispute shall not affect the payment obligation hereunder of
either Buyer or Seller to the extent such payment is not disputed.
2.3 PAYMENT OF PURCHASE PRICE
No less than three business days prior to the Closing, Seller
shall prepare and deliver to Buyer an estimate of the Closing Schedule (the
"ESTIMATED STATEMENT") based upon (and if determined by Seller to be reasonably
practicable, updated or estimated from) the books and records of Seller with
respect to the Hospital Businesses for the most recent month ending prior to the
Closing for which data is available and shall reflect on the Estimated Statement
the allocation of expenses and the prorations required by Paragraph 19.9. All
determinations made with respect to the Estimated Statement shall be based upon
the internal records of, and the valuations customarily used by, Seller and
shall be consistent with generally accepted accounting principles used by Seller
with respect to the recording and accruing of the types of assets, the Purchased
Inventory, the Purchased Prepaids, the Purchased Receivables, and the Accrued
Operating Expenses, and under no circumstances shall a physical inventory or
audit be required. The Purchase Price determined by reference to the Estimated
Statement (the "TENTATIVE PURCHASE PRICE") shall be paid to Seller by Buyer at
the Closing. The Purchase Price shall be paid at and after the Closing as
follows:
(a) Purchase Price Paid at Closing. At the Closing, the Purchase
Price shall be paid as follows:
(i) Buyer shall wire transfer immediately available funds to
one or more accounts designated by Seller prior to the Closing in an amount
equal to the Tentative Purchase Price (subject to payment of Seller's
obligations under 19.9); and
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(ii) Buyer shall assume Seller's liability under the Assumed
Obligations by delivering to Seller one or more Bills of Sale and
Assignment and Assumption of Assumed Obligations (the "Bill of Sale")
substantially in the form and substance of Exhibit "2.3(a)(ii)".
(b) Post Closing Purchase Price Adjustment. Within five business
days of the final determination of the amount of the Purchase Price as provided
in Paragraph 2.2, either Buyer shall pay to Seller or Seller shall pay to Buyer,
as the case may be, in immediately available funds, the amount by which the
Purchase Price as so finally determined is different from the Tentative Purchase
Price. The pendency of a dispute shall not affect the payment obligation
hereunder of either Buyer or Seller to the extent such payment is not disputed.
3. ASSUMPTION OF OBLIGATIONS OF SELLER
3.1 OBLIGATIONS ASSUMED
Buyer shall assume, effective as of the Closing and as part of
the Purchase Price, and shall pay, discharge and perform as and when due, each
of the following obligations of Seller (the "ASSUMED OBLIGATIONS"):
(a) (i) all obligations and liabilities of Seller which pertain
to or are to be performed during any period commencing on or after the Closing
Date and which arise under any contract, license, permit, agreement,
arrangement, understanding or undertaking included in the Transferred Assets,
including the Contracts, the Real Property Leases and the Permits, and any
obligation or liability of Seller's Affiliates which is in the nature of a
guaranty of any of the foregoing (including letters of credit and performance
bonds) and (ii) all obligations and liabilities of Seller under those open
purchase orders which were entered into by Seller in the ordinary course of
business with respect to the Hospital Businesses before the Closing Date and
which provide for the delivery of goods or services subsequent to the Closing
Date (collectively, the "ASSUMED CONTRACTS").
(b) All obligations and liabilities to the Hired Employees for
(i) accrued and earned paid time off or vacation pay of any kind whatsoever
through the Closing Date, whether or not the same has been recorded on the
financial records of Seller ("PAID TIME OFF") and (ii) accrued sick pay (both
regular sick pay and extended sick leave), whether or not the same has been
recorded on the financial records of Seller ("SICK PAY"). SCHEDULE "3.1(b)" is a
listing of accrued Paid Time Off and Sick Pay as of the date indicated thereon
with respect to all current employees of the Hospital Businesses, which schedule
includes all Paid Time Off accrued and earned by such employees as of such date,
whether or not the same has been recorded on the financial records of Seller.
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(c) All obligations and liabilities concerning employee matters
assumed by Buyer pursuant to Paragraph 14. 11.
(d) Any accrued and unpaid liabilities (whether or not due) of
Seller in existence on the Closing Date, which were incurred in the ordinary
course of the operation of the Hospital Businesses, which are reasonably
acceptable to Buyer and which represent the following current liabilities
(collectively, the "ACCRUED OPERATING EXPENSES") (i) trade payables incurred to
suppliers of goods or services, (ii) water, gas, electricity and other utility
charges, (iii) license fees, (iv) rent, common area maintenance charges,
operating expenses and other charges arising under the Real Property Leases, (v)
insurance premiums but only with respect to policies that will be continued in
force by Buyer after the Closing, (vi) salaries and other payroll costs (but
only to the extent recorded by Seller on its financial statements in accordance
with generally accepted accounting principles) respecting Hired Employees
accrued in accordance with normal accounting practices of Seller (but not
including bonuses or other incentive compensation or accrued benefits with
respect to benefit plans that are not assumed by Buyer), and (vii) similar
liabilities incurred in the ordinary course of the operation of the Hospital
Businesses and customarily recorded as a current liability, other than the
current portion of long term liabilities and obligations, income taxes (whether
deferred or currently payable) and the obligations and liabilities specified in
Paragraph 3.2(a) through (f), but only up to the amount received as a credit
under Paragraph 2.1.
(e) Any obligation to make changes or improvements needed to the
Hospital Businesses for them to be in material compliance following the Closing
with safety, building, fire, land use, access (including, without limitation,
the Americans With Disabilities Act) or similar Laws respecting the physical
condition of the Hospital.
(f) Any Tax liability of Seller incurred as a result of the sale
of the Transferred Assets hereunder to Buyer, and any Taxes imposed upon the
right or privilege of doing business from the Hospital after the Closing.
(g) All obligations and liabilities of Seller with respect to
only those capitalized lease obligations and other recorded indebtedness set
forth on SCHEDULE "3.1(g)", but only to the extent of the amounts set forth
thereon as of the Closing Date and only up to the amount received as a credit
under Paragraph 2.1.
3.2 OBLIGATIONS NOT ASSUMED
Except for the Assumed Obligations, Buyer shall not assume or
become obligated with respect to any other obligation or liability of Seller or
any of its Affiliates of any nature whatsoever and Seller shall retain and shall
pay, discharge and perform such obligations and liabilities (whether express or
implied, fixed or contingent, liquidated or unliquidated, known or unknown, due
or to become due) (the "EXCLUDED LIABILITIES"), including, without limiting the
generality of the foregoing, the following:
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<PAGE> 14
(a) Obligations or liabilities arising from the breach or default
(or any act or omission by Seller which, with or without notice or lapse of time
or both, would constitute a breach or default) by Seller on or prior to the
Closing of any term, covenant or provision of any of the Assumed Contracts.
(b) Obligations or liabilities of Seller now existing or which
may hereafter exist by reason of any liability to refund any payment or
reimbursement received by Seller from Medicare, Medicaid, CHAMPUS or any other
Payor which is attributable to any period of time ending on or prior to the
Closing (including, but not limited to, any liability to Medicare, Medicaid,
CHAMPUS or any other Payor resulting from the sale of the Transferred Assets by
Seller to Buyer hereunder, including any recapture or gain from sale liability).
(c) Amounts due from Seller arising from Intercompany
Transactions.
(d) Liabilities or obligations of Seller, or its Affiliates now
existing or which may hereafter exist by reason of any violation or alleged
violation of Law by Seller or any of its Affiliates, or by an employee or
independent contractor of any of the foregoing where any of the foregoing is
alleged to be responsible for the acts or omissions of any such person, relating
to the ownership, use or operation of the Transferred Assets on or prior to the
Closing Date (including any event or circumstance occurring or existing on or
prior to the Closing Date and which constituted a violation of Law on or prior
to the Closing Date).
(e) Liabilities of Seller either arising from or in connection
with (i) the litigation described in Paragraph 5.8, (ii) any other litigation
relating to events occurring prior to the Closing Date of which Seller has no
Knowledge, and (iii) any and all liabilities or obligations of Seller for claims
for personal injury (including sickness, trauma, disease, pain and suffering,
loss of future earnings, punitive damages and the like), property damage and any
other damage or injury in existence or arising out of an event which occurred at
or prior to the Closing Date whether or not any claim has been made or
litigation has been instituted with respect thereto and whether or not any such
claim is covered partially or fully by insurance.
(f) Except as expressly assumed under Paragraphs 3.1 or 14.11,
liabilities and obligations for benefits under the Plans or any penalties or
other amounts related thereto, including any obligations relating to any
underfunding of the Plans.
(g) All ERISA liabilities and obligations, and all obligations to
give notice of and to provide continuation health care coverage for employees
(other than the Hired Employees), former employees and their dependents or any
qualified beneficiary of such employees in accordance with the requirements of
COBRA, including, without limitation, all liabilities, taxes, sanctions,
interest and penalties imposed upon, incurred by or
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<PAGE> 15
assessed against Buyer or any affiliated corporation within a controlled group
relationship with Buyer (as determined under Section 414 of the Code), and any
of their employees, arising by reason of or relating to any failure to provide
the COBRA coverage to all employees other than the Hired Employees, former
employees and their dependents or any qualified beneficiary of such employees.
The Excluded Liabilities shall remain the sole responsibility of
Seller. Buyer acknowledges and agrees that the ongoing operations of Buyer
after the Closing, including Buyer's operation of the Hospital Businesses and
the continuation by Buyer after the Closing of any Assumed Contract or practice
or procedure of Seller shall be the sole responsibility of Buyer and Seller
shall have no liability for such operation and such continuation.
4. DISCLOSURE STATEMENT
On or before January 20, 1998, Seller shall deliver to Buyer a
disclosure statement (the "DISCLOSURE STATEMENT") which includes the schedules
described in the List of Schedules attached hereto as Annex I (other than; any
schedules intended to be provided by Buyer) and such other schedules as may be
attached to the Disclosure Statement and which includes the exhibits to this
Agreement described in the List of Exhibits attached hereto as Annex II.
Notwithstanding the subsequent delivery of the Disclosure Statement, Buyer and
Seller agree that Seller's representations and warranties set forth in this
Agreement shall be deemed modified as of the date of this Agreement by the
information contained in the Disclosure Statement. Within 15 business days after
Buyer's receipt of the Disclosure Statement, Buyer shall either approve the
Disclosure Statement or notify Seller that it disapproves the Disclosure
Statement and thereby cleats, subject to the provisions of Paragraph 14.7, to
terminate this Agreement. If Buyer fails to give notice to Seller within such
15-day period that it disapproves the Disclosure Statement or any portion
thereof, then Buyer shall be deemed to have approved the Disclosure Statement.
After the execution of this Agreement, Seller may amend any one or more of the
schedules included in the Disclosure Statement by the delivery of one or more
suppler rental disclosure statements (the "SUPPLEMENTAL DISCLOSURE STATEMENTS,
to Buyer, and Buyer and Seller agree that Seller's representation and warranties
set forth in this Agreement shall be deemed modified as of the date of this
Agreement by the information contained in any of the Supplemental Disclosure
Statements provided that Seller shall promptly disclose such new information
within five business days of learning of such information. Seller hereby agrees
not to intentionally withhold information of which it has Knowledge relates to
any Schedule previously delivered by Seller to Buyer. Upon receipt of a
Supplemental Disclosure Statement, Buyer shall have a period of ten business
days either to approve the Supplemental Disclosure Statement or to notify
Seller that it disapproves the Supplemental Disclosure Statement and thereby
elects, subject to the provisions of Paragraph 14.7, to terminate this
Agreement. If such ten-day period would expire after the date for the Closing
specified in Paragraph 11 or the date for termination specified in Paragraph
17.l(d), then each such date shall be extended
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to coincide with the date on which such ten-day period expires. If Buyer shall
notify Seller within the time periods herein specified that it disapproves a
Supplemental Disclosure Statement, subject to the provisions of Paragraph 14.7,
this Agreement shall terminate without liability to Buyer or Seller and shall be
of no further force or effect, except as otherwise expressly provided herein. If
Buyer shall fail to give notice to Seller within the time periods herein
specified that it disapproves a Supplemental Disclosure Statement, then Buyer
shall be deemed to have approved the applicable Supplemental Disclosure
Statement.
5. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
5.1 ORGANIZATION OF SELLER
Seller is a corporation duly incorporated and validly existing
under the laws of, and is authorized to exercise its corporate powers, rights
and privileges and is in good standing in, the State of Washington and is in
good standing and duly qualified to do business as a foreign corporation in any
jurisdiction in which the nature of its business requires it to be so qualified
(each of which is listed on SCHEDULE "5.1") and has full corporate power to
carry on its business as presently conducted and as will be conducted through
the Closing and to own or lease and operate its properties and assets now owned
or leased and operated by it, and is duly qualified to operate its business and
is in good standing under the Laws of the state of its incorporation. Schedule
5.1 also contains a list of all subsidiaries of Seller.
5.2 AUTHORITY
Seller has the full corporate power and the authority to (i) own,
lease and operate its facilities and assets as presently owned, leased and
operated, (ii) carry on its business as it is now being conducted and (iii)
execute, deliver and perform the obligations and covenants set forth in this
Agreement and all other agreements contemplated hereby and to carry out the
transactions contemplated hereby. The execution and delivery of this Agreement
by Seller and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Seller. No
further corporate action is necessary to make this Agreement valid and binding
upon and enforceable against Seller in accordance with its terms except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar Laws now or hereafter in effect relating to
creditors' rights generally and except that the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding may be
brought. Except as set forth in the Disclosure Statement, the execution,
delivery and performance of this Agreement and all other agreements contemplated
hereby or executed in connection herewith and the consummation of the
transactions contemplated hereby will not (a) violate any Law applicable to
Seller, (b) violate or conflict with any provision of the Articles of
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Incorporation or Bylaws of Seller, or (c) violate any applicable judgment,
decree, order, regulation or rule of any court or regulatory authority.
5.3 FINANCIAL STATEMENTS
(a) Financial Statements. SCHEDULE "5.3" contains (i) the
unaudited balance sheets of Seller with respect to the Transferred Assets as of
May 31, 1997 and 1996 (and, if available, 1995) and the related statements of
income for each fiscal year then ended (the "PRIOR YEARS' STATEMENTS") and (b)
the unaudited balance sheet of Seller with respect to the Transferred Assets as
of August 31, 1997 and the related statements of income for the three months
then ended (the "INTERIM STATEMENTS"). The Prior Years' Statements, the Interim
Statements and the Monthly Statements are collectively referred to as the
"FINANCIAL STATEMENTS". The Financial Statements have been prepared from, and
are in accordance with, the books and records of Seller and in all material
respects present fairly the financial position an' results of operations of
Seller with respect to the Transferred Assets as of the dates and for the
periods indicated, in each case in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated.
(b) Qualification to Statements. Notwithstanding the foregoing,
the Financial Statements do not reflect all intercompany eliminations,
adjustments and accruals (which are not material, in the aggregate), do not
contain footnotes or other explanatory materials associated with financial
statements prepared in accordance with generally accepted accounting principles
and do not contain normal and recurring year-end adjustments. The Financial
Statements are to be read in conjunction with, and are subject to, all notes and
other explanatory materials, if any, set forth therein.
5.4 TITLE TO TRANSFERRED ASSETS
Except for the Assumed Obligations and except as set forth on
SCHEDULE "5.4" (collectively, the "PERMITTED EXCEPTIONS"), Seller has good and
marketable fee simple title to the Real Property and good and defensible title
to the remaining Transferred Assets all of which are free and clear of all
liens, encumbrances (including security interests of any kind whatsoever),
covenants, conditions, restrictions, easements, encroachments, rights of way,
charges or other rights, claims or interests of any third party whatsoever
(collectively the "LIENS") which, to Seller's Knowledge, were created by Seller
or any of its Affiliates.
5.5 THIRD PARTY RIGHTS
Except for the governmental consents referred to in Paragraph 5.6
and except as otherwise disclosed on SCHEDULE "5.5", as of the Closing, Seller
may transfer and assign to Buyer all of its right, title and interest in and to
the Transferred Assets without obtaining the consent or approval of any other
Person or party.
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5.6 GOVERNMENTAL CONSENTS
Except as disclosed on SCHEDULE "5.6" or "5.9", no consent,
approval, authorization or order of, and no exemption by or filing any court or
governmental agency is required on behalf of Seller in connection with the
execution and delivery of this Agreement or any other agreement contemplated
hereby or executed in connection herewith or for the consummation and
fulfillment by Seller of the transactions contemplated hereby or thereby or
performance by Seller of each and every one of its obligations hereunder or
thereunder.
5.7 HAZARDOUS SUBSTANCES
(a) SCHEDULE "5.7" contains a list of all surveys or reports
obtained by or otherwise in the possession of Seller which relate to the
environmental condition of the Hospital and the Real Property and Seller has
provided or will provide to Buyer copies of all such reports and surveys. Except
as disclosed by the Environmental Survey or otherwise on SCHEDULE "5.7", to
Seller's Knowledge: (a) the current operations of the Hospital are not in
violation in any material respect of any Environmental Regulations, (b) there
are no Hazardous Materials present on the premises of the Hospital or on the
Real Property in any manner which constitutes a violation in any material
respect of any Environmental Regulations, and (c) there is no proceeding or
action pending or threatened by any Person or governmental agency regarding the
environmental condition of the Hospital, the Real Property.
(b) Seller has not received any written communication that
alleges that Seller is not or was not in compliance with all applicable
Environmental Regulations, and Seller shall promptly notify Buyer in writing if
any such communication is received prior to Closing.
5.8 LITIGATION
Except as set forth on SCHEDULE "5.8", there are no actions,
suits, claims (other than medical or dental claims made by employees under any
self insurance program of Seller or any Affiliate of Seller) or proceedings
pending, or to Seller's Knowledge, threatened against or affecting the
Transferred Assets or relating to the operations of the Hospital, at law or in
equity, or before or by any federal, state, municipal or other governmental
department, commission, agency or instrumentality.
5.9 LICENSES AND PERMITS
Seller possesses all certificates of need, licenses, permits, and
other governmental consents and approvals (the "PERMITS") necessary for Seller's
operation of the Hospital at the location and in the manner presently operated
except where Seller's failure to
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have such Permit would not materially adversely Seller's impact operations of
the Hospital at the location and in the manner presently operated. Except as
otherwise disclosed on SCHEDULE "5.9", the Hospitals are fully accredited by the
Joint Commission on Accreditation of Healthcare Organizations ("JCAHO"), is
certified for participation in the Medicare, Medicaid and, if applicable CHAMPUS
programs, has a current and valid provider contact with each such program and,
to Seller's Knowledge, is in substantial compliance with the material conditions
of participation in each such program and with the indigent care conditions, if
any, contained in or related to any Permits obtained in connection with the
Hospital. Schedule "5.9" contains a list of all Permits held or applied for by
Seller which have an effect on the operation of the Hospital. Except as
described in Schedule "5.9", no written notices have been received by Seller
with respect to complaints lodged with any regulatory authority or agency or
with respect to threatened, pending, or possible revocation, termination,
suspension or limitation of any of said licenses and permits, nor, to Seller's
Knowledge, are there any grounds for revocation, suspension or limitation.
5.10 COMPLIANCE WITH LAWS
To Seller's Knowledge and with respect solely to the Transferred
Assets and the operation of the Hospital, except as disclosed on SCHEDULE
"5.10", Seller is in compliance in all material respects with all material
applicable Laws other than the Environmental Regulations (the compliance with
which is governed by Paragraph 5.7), including, but not limited to, Laws
relating to the employment of labor, including any provisions thereof relating
to wages, hours, collective bargaining and the payment of social security and
similar taxes, and Seller is not liable for any arrearages in wages or any taxes
or penalties for failure to comply with any of the foregoing.
5.11 EMPLOYEE RELATIONS
Except as disclosed on SCHEDULE "5.11", (a) neither Seller, nor
the Hospital is a party to any agreement with any union, trade association or
other employee organization with respect to the employees of the Hospital, (b)
no written demand has been made for recognition by a labor organization with
respect to any employees of the Hospital, and (c) to Seller's Knowledge no union
organizing activities by or with respect to any such employees are taking place.
5.12 PERSONNEL
SCHEDULE "5.12" contains (a) a complete list of all of Seller's
current employees (by employee number) and rates of pay, fringe benefits and
written personnel policies, and (b) the date of hiring and job title of each
such person. Except as provided in Schedule "1.1.5", Seller has no employment
agreements with any of the employees and all current employees are employed on
an "at will" basis. Schedule "5.12" shall be revised as of the Closing to
reflect the employees who have been terminated within 90 days of the Closing.
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5.13 ASSUMED CONTRACTS
Schedule "1.1.5" contains a true and correct list of all Contacts
other than those Contracts described in Paragraph 1.1.5(b). To Seller's
Knowledge, except as set forth on SCHEDULE "5.13", (a) there is no default by
Seller under any Assumed Contract, (b) Seller has not received written notice
that any Person intends to cancel or terminate any Assumed Contract or exercise
or not exercise any right, remedy or other option thereunder, (c) all of the
Assumed Contracts are in full force and effect without amendment or
modification, (d) the consummation of the transactions contemplated by this
Agreement will not constitute and, no event has occurred which, with or without
the passage of time or the giving of notice, would constitute a breach or
default by any party to any such Assumed Contract or would cause the
acceleration of any obligation of any party thereto or the creation of any Lien
upon any Transferred Asset, and (e) Seller has not waived any material right
under any Assumed Contract.
5.14 BROKERAGE AND FINDER'S FEES
None of Seller, its Affiliates or any of their officers or
directors has employed, contracted for the services of, or authorized any
broker, finder or investment banker with respect to the negotiations leading up
to the execution of this Agreement or the consummation of the transactions
contemplated hereby, and Seller shall be solely responsible for any fees or
commissions payable to any such broker, finder or investment banker by reason of
the actions (or alleged actions) of Seller, its Affiliates or any of their
officers or directors.
5.15 U.S. PERSONS
Seller is not a "foreign person" for purposes of Section 1445 of
the Internal Revenue Code of 1986, as amended (the "CODE"), or any other Laws
requiring withholding of amounts paid to foreign Persons.
5.16 INVENTORY
All of the Purchased Inventory will consist of items actually on
hand of a quality and quantity usable and saleable in the ordinary course of
business of the Hospital as currently operated by Seller, consistent with past
practices.
5.17 CHANGES SINCE INTERIM STATEMENTS
From and after the date of the Interim Statements and until the
Closing Date, other than as contemplated or permitted by this Agreement, Seller
has conducted the Hospital Businesses only in the ordinary and normal course,
and except as shown on SCHEDULE
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"5.17", the institution or completion of compliance programs, or events in
anticipation of the divestiture of the Hospital Businesses, there has not been:
(a) Any entry into or termination by Seller of any material
commitment, contract, agreement or transaction (including, without limitation,
any borrowing or lending transaction or capital expenditure) related to the
Hospital Businesses except for transactions in the ordinary course of business;
(b) Other than in the ordinary course of business, (i) any sale or
other disposition of any asset included in the Interim Statements having net
book value in excess of $75,000 (except to the extent such asset is replaced by
assets serving a similar purpose), or (ii) any material mortgage, pledge or
imposition of any lien or other encumbrances on any such asset, or (iii) any
sale or other disposition of Inventory included in the Interim Statements;
(c) Any change, or any request or application for a change in, the
provider numbers of the Hospital, or any creation, modification or termination
of any agreement with any Payor, or any change in the method of accounting
with respect to the Hospital; or
(d) Any general increase made in the compensation levels or
severance benefits of the employees of the Hospital or rates charged by the
Hospital, except in the ordinary course of business.
(e) Material adverse changes in the financial condition of the
Transferred Assets, the Hospital Businesses, or in the results of operations of
the Hospital or Seller.
(f) Strikes, work stoppages or other labor disputes adversely
affecting the Hospital.
5.18 COST REPORTS, THIRD PARTY RECEIVABLES AND CONDITIONS OF
PARTICIPATION
Notices of Program Reimbursement have been issued by the
applicable fiscal intermediary with respect to the cost reports of the Hospital
for Medicare, Medicaid (if required) and Blue Cross (if required) reimbursement
have been audited through the periods set forth in SCHEDULE "5.18". True and
correct copies of these cost reports and any cost reports since the date of the
last audited cost report have been provided to Buyer. Except as disclosed on
Schedule 5.18, the Cost reports of the Hospital for Blue Cross and Medicare were
filed when due in substantial compliance with the then existing Laws pertaining
thereto. Except as set forth in Schedule 5.18, to the Knowledge of Seller, (a)
Seller has not received notice of any adjustments, challenges, intent to
reopen, and/or material dispute between the
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Hospital and Blue Cross, governmental authorities or the Medicare fiscal
intermediary regarding such cost reports for the periods subsequent to the
period specified in Schedule 5.18 other than with respect to adjustments thereto
made in the ordinary course of business which do not involve individual amounts
in excess of $50,000 per cost report; (b) there are no pending or threatened
material claims by any of such programs against the Hospital or Seller; and (c)
no Hospital or Seller has been subject to loss of waiver of liability for
utilization review denials with respect to any such program during the past two
years.
5.19 MEDICAL STAFF
Seller has previously delivered to Buyer, with respect to each
Hospital, (a) a true and correct copy of the blank forms generally used with
respect to medical staff privilege and membership application or delineation of
privilege; (b) all current medical staff bylaws, rules and regulations and
amendments thereto respecting the Hospital; and (c) all written contracts with
physicians, physician groups, or other members of the medical staff of the
Hospital. Except as disclosed in SCHEDULE "5.19", there are no material pending
or, to Seller's Knowledge, threatened disciplinary or corrective actions or
appeals therefrom involving physician applicants, active medical staff members
or affiliated health professionals initiated by Seller.
5.20 HILL-BURTON CARE
Except as disclosed on SCHEDULE "5.20", neither the Hospital nor
Seller has received any loans, grants or loan guarantees pursuant to the
Hill-Burton Act (42 U.S.C. Section 291a, et seq.), the Health Professions
Educational Assistance Act, the Nurse Training Act, the National Health Pharmacy
and Resources Development Act, and the Community Mental Health Centers Act, as
amended, or any other federal, state or local statute or regulation or
government program whatsoever and the transactions contemplated hereby will not
result in any obligation on the part of the Buyer to repay any such loans,
grants or loan guarantees or provide uncompensated care in consideration thereof
5.21 TAXES
All tax returns of every kind (including, without limitation,
returns of all income taxes, franchise taxes, real and personal property taxes,
intangibles taxes, patient revenue or other health care taxes, withholding
taxes, employee compensation taxes and all other Taxes of any kind applicable to
Seller) that are due to have been filed in accordance with applicable Laws in
fact have been duly filed, ant all taxes shown to be due and payable on such
returns and any other Taxes (whether or not evidenced by a return) have been
paid in full and correctly reflect the liabilities of Seller for taxes for the
period covered by each tax return.
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5.22 ERISA PLANS
For purposes of this Agreement, the term "PLANS" shall mean (i)
all "Employee Benefit Plans" (as such term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of which
Seller ever was a sponsor or participating employer or as to which Seller makes
contributions or is required to make contributions and (ii) any similar
employment, severance or other arrangement or policy of Seller (whether written
or oral) providing for insurance coverage (including self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits or retirement benefits, or for profit sharing, deferred
compensation, bonuses, stock options, stock appreciation or other forms of
incentive compensation or post-retirement insurance, compensation or benefits.
Notwithstanding any statement or indication in this Agreement to the contrary,
except as provided in Paragraph 3.1(b), there are no Plans as to which Buyer
will be required to make any contributions or with respect to which Buyer shall
have any obligation or liability whatsoever, whether on behalf of any of the
current employees of the Hospital Businesses after the Closing.
5.23 NO NEGOTIATIONS WITH THIRD PARTIES
Neither Seller nor its Affiliates have entered into any
negotiations, letters of intent, or understandings which are presently in
effect, with any Person (other than Buyer) with respect to the sale or other
disposition of any of the Transferred Assets (other than Inventory in the
ordinary course of business). Neither Seller nor its Affiliates is a party to
any presently effective executory agreement with any Person other than Buyer
with respect to any such sale or disposition.
5.24 MISCELLANEOUS REPRESENTATIONS RELATING TO REAL PROPERTY
(a) To Seller's Knowledge, the Hospital is nor in material
violation of applicable building code, safety, fire, land use or access Laws.
(b) No part of the Real Property is currently subject to
condemnation proceedings and, to Seller's Knowledge, no condemnation or taking
is threatened or contemplated.
(c) Seller has furnished to Buyer complete copies of all
mechanical and structural studies or reports or assessments, engineering plans,
architectural drawings, soil studies, surveys and other documents in Seller's
possession which have been prepared by or at the direction of Seller or its
Affiliates relating to any of the Transferred Assets.
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5.25 MOTOR VEHICLES
All motor vehicles used in the business of Seller, identified as
owned or leased, are listed in SCHEDULE "5.25" hereto. All such vehicles are
properly licensed and registered in accordance with applicable Law.
6. OBLIGATIONS AND COVENANTS OF SELLER
Seller hereby covenants and agrees as follows:
6.1 CONDUCT OF BUSINESS
From the date hereof to the Closing Date, Seller agrees that, with
respect to the Hospital Businesses, unless Buyer otherwise consents in writing
and except for actions taken pursuant to Assumed Contracts in effect on the date
hereof or which arise from or are related to the anticipated transfer of the
Hospital Businesses or as otherwise contemplated by this Agreement, Seller shall
do or comply with each of the following:
(a) Subject to the limitations set forth in this Paragraph 6.1,
operate the Hospital Businesses as presently operated and only in the ordinary
course, and, consistent with such operation, will comply in all material
respects with all applicable legal and contractual obligations.
(b) Use its best efforts to preserve the business organization of
the Hospital Businesses intact and to preserve the Hospital Businesses'
relationships with doctors, patients, Payors, suppliers and others having
business relations with the Hospital Businesses.
(c) Not incur or commit to incur any obligation with respect to
purchase orders for the Hospital Businesses which exceed $40,000 for any one
purchase order or $150,000 for all such purchase orders.
(d) Not enter into any contract or amendment of a contract (other
than a contract which is described in Paragraph 1.1.5(b)) unless Buyer has
failed to disapprove of such contract or amendment in a written notice to Seller
given within five business days of Seller's written notice to Buyer of such
contract or amendment accompanied by a copy thereof. Buyer's disapproval of such
contract or amendment shall not be unreasonable. Any contract or amendment
entered into in compliance with this Paragraph 6.1(d) shall constitute an
Assumed Contract for all purposes of this Agreement as if it were originally set
forth on Schedule 1.1.5. Notwithstanding the foregoing, Seller may enter into
any contract which can be terminated without cause, premium or payment within 90
days of the Closing Date or, if such contract is a lease under which Seller is
lessor, such contract contains terms which are consistent with its past
practices, are commercially reasonable and not in violation of any Law or safe
harbor therein contained.
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(e) Not (i) purchase or sell, or make any contract for the
purchase or sale of, any assets or properties which would be included in the
Transferred Assets other than purchases in the thresholds set forth in
subparagraph (c) above unless concurrently with or within a reasonable time
before or after such sale, Seller replaces such asset with a similar item of
equal or greater value; or (ii) accelerate or delay the purchase of Inventory in
a manner inconsistent with past practice, except as required by subparagraph (c)
above.
(f) Not grant any general or uniform increase in the rates of pay
or benefits to the employees of the Hospital Businesses (or a class thereof),
except for compensation previously agreed to prior to the date hereof and merit
pay increases agreed to prior to the date hereof.
(g) Maintain, without change of coverage or insurance carrier
unless approved of in writing by the Buyer (which approval shall not be
unreasonably withheld or delayed), the existing insurance on the Transferred
Assets and the operations of the Hospital.
(h) Timely file or cause to be filed all cost reports and other
reports of every kind, nature or description, required by law or by contract to
be filed with respect to the purchase of services by Payors prior to Closing.
Nothing in this Paragraph 6.1 shall, without the mutual written
agreement of Buyer and Seller, obligate Seller to make expenditures other than
in the ordinary course of business or to make any commitment on behalf of or
which would be binding upon Buyer. Notwithstanding any provision contained in
this Agreement to the contrary, Seller may give notice of termination or may
terminate at any time prior to the Closing Date any contract which is not an
Assumed Contract, and any change in the operation of the Hospital Businesses or
the Hospital Businesses' relationships with the Persons listed in subparagraph
(b) above (including, without limitation, a loss of any or all of the employees
or patients of, or doctors of other professional providing services to, the
Hospital Businesses) as a result of such notice of termination or termination or
as a result of Seller's compliance with its obligations under this Agreement
shall not constitute a violation of this Paragraph 6.1.
6.2 ACCESS AND INFORMATION
Subject to the restrictions set forth in Paragraph 14.6 ant
provided that Buyer has complied with each and every provision thereof, Seller
shall afford Buyer, any prospective lender of Buyer, and the counsel,
accountants and other representatives of Buyer and any such lender, reasonable
access, throughout the period from the date hereof to the Closing, to the
Transferred Assets and the employees, personnel and medical staff of the
Hospital Businesses and all the properties, books, contracts, commitments, cost
reports and records of the Hospital Businesses (regardless of where such
information may be located), including, without limitation, the right to conduct
an Environmental Survey (as such term is defined in Paragraph 8.2). Until the
first anniversary of the Closing Date, under no
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circumstances shall Buyer directly or indirectly solicit the employment of any
employees of Seller based at the Hospital except as Hired Employees pursuant to
the terms hereof or except as may be permitted with the prior written consent of
a responsible officer of Seller. Such access shall be afforded after no less
than 24 hours prior notice, during normal business hours and only in such manner
so as not to disturb patient care or to interfere with the normal operations of
the Hospital Businesses; provided, however, that notwithstanding the foregoing
and subject to the provisions concerning nondisclosure as set forth in Paragraph
14.6, without first obtaining the consent of Donald W. Thayer, neither Buyer,
any prospective lender of Buyer, nor their respective counsel, accountants and
other representative, shall tour or visit the Hospital Businesses or contact any
of the employees, personnel or medical staff of the Hospital Businesses and any
such tour, visit or contact during the Inspection Period shall take place only
during a period of time, not to exceed ten days, to be mutually agreed upon by
Buyer and Seller. Seller also shall furnish to Buyer all such information
concerning the affairs of the Hospital Businesses as is in the possession or
control of Seller and as Buyer may reasonably request, including the right to
have copies and/or extracts of pertinent records, documents and contracts. In
addition, Seller shall provide such written consents and authorizations as may
be necessary for Buyer to have access to materials on file with governmental
agencies. Nothing in this Agreement to the contrary shall in any manner restrict
the ability of Buyer to discuss the business and affairs of the Hospital
Businesses with any governmental agency having jurisdiction over the Hospital
and/or this transaction or the fiscal intermediaries administering the
Hospital's Payor programs. Seller's covenants under this Paragraph 6.2 are made
with the understanding that Buyer and any other Person provided with access to
information under this Paragraph 6.2 shall use all such information in
compliance with all Laws. Neither Buyer nor any other Person shall have access
to employee records, Patient Records or any other records to the extent that the
disclosure of such records would be prohibited by any Law, accreditation
standards, or rule or agreement (express or implied) of confidentiality or
violate or breach any attorney-client privilege.
6.3 ENCUMBRANCES
From the date hereof and until the Closing, Seller shall not
create any new Lien to attach upon any of the Transferred Assets, except for
statutory liens for Taxes not delinquent as of Closing. The provisions of this
Paragraph shall not apply to any Liens resulting from acts or omissions of
Buyer.
6.4 CONSENT OF OTHERS
Prior to the date hereof, Buyer has designated in writing which
Assumed Contracts Buyer desires the written consent to the assignment from
Seller to Buyer from the other party thereto (the "DESIRED CONSENTS"), the list
of which is attached hereto as SCHEDULE "6.4". As soon as reasonably practicable
after the date hereof, and in any event prior to the Closing, Seller shall use
its reasonable commercial efforts to obtain the Desired Consents; provided,
however, that it shall not be a condition precedent to Buyer's obligations
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hereunder that Seller obtain the Desired Consents prior to the Closing. The
foregoing notwithstanding, it shall be the responsibility of Buyer to use its
reasonable commercial efforts to obtain any consents required in connection with
the Permits, participations, and accreditations referred to in Paragraph 9.5
(including Buyer's licensing requirements), provided, however, Seller shall
cooperate with Buyer in obtaining such consents so long as such cooperation is
at no cost to Seller. Seller shall have no liability to Buyer if, after using
its reasonable commercial efforts, it is unable to obtain any of the consents
referred to in the first sentence of this Paragraph.
6.5 NO TRANSFER OF ASSETS
Except as otherwise provided in Paragraph 6.1, from and after the
date hereof and until the Closing Date, Seller shall not, without the prior
written consent of Buyer: (a) offer for sale or other disposition (whether by
lease, merger or otherwise) the Transferred Assets (or any material portion
thereof) or any ownership interest in any entity owning any of the Transferred
Assets, (b) solicit offers to acquire (whether by lease, merger or otherwise)
the Transferred Assets (or any material portion thereof) or any ownership
interest in any entity owning any of the Transferred Assets, (c) hold
discussions with, or furnish any information to, any Person (other than Buyer)
looking toward such an offer or solicitation or looking toward a merger or
consolidation of any entity owning any of the Transferred Assets or (d) enter
into any agreement (including, but not limited to, any confidentiality or
similar agreement, letter of intent, memorandum or letter of understanding, or
definitive agreement) with any Person (other than Buyer) with respect to the
sale or other disposition (whether by lease, merger or otherwise) of the
Transferred Assets (or any material portion thereof) or any ownership interest
in any entity owning any of the Transferred Assets or with respect to any
merger, consolidation, or similar transaction involving any entity owning any of
the Transferred Assets.
6.6 SELLER'S EFFORTS TO CLOSE
Seller shall use its reasonable commercial efforts to satisfy all
of the conditions precedent set forth in Paragraphs 9 and 10 to its or Buyer's
obligations under this Agreement to the extent that Seller's action or inaction
can control or influence the satisfaction of such conditions.
6.7 MONTHLY STATEMENTS
From the date hereof to the Closing, Seller shall deliver to Buyer
within 15 days after the end of each calendar month copies of the unaudited
balance sheet of the Transferred Assets and the related statement of income for
the immediately preceding calendar month (the "MONTHLY STATEMENTS").
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7. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants the following:
7.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly incorporated, and validly existing
under the laws of, and is authorized to exercise its corporate powers, rights
and privileges and is in good standing in, the State of Tennessee and has full
corporate power to carry on its business as contemplated hereby and to own or
lease and operate its properties and assets now owned or leased and operated by
it.
7.2 AUTHORITY
Buyer has the full corporate power and authority to execute,
deliver and perform the obligations and covenants set forth in this Agreement
and to carry out the transactions contemplated herein. The execution, delivery
and performance of this Agreement by Buyer and the consummation of the
transactions contemplated herein have been duly authorized by the Board of
Directors of Buyer. No further corporate action is necessary on the part of
Buyer to make this Agreement binding upon and enforceable against Buyer in
accordance with its terms except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar Laws now or hereafter in
effect relating to creditors' rights generally and except that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding may be brought. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(a) violate any Law applicable to Buyer or (b) violate or conflict with any
provision of the Articles of Incorporation or Bylaws of Buyer.
7.3 BROKERAGE AND FINDER'S FEES
As of the date hereof, none of Buyer, its Affiliates or any of
their officers or directors has employed, contracted for the services of or
authorized any broker, finder or investment banker with respect to the
negotiations leading up to the execution of this Agreement or the consummation
of the transactions contemplated hereby, and Buyer shall be solely responsible
for any fees or commissions payable to any such broker, finder or investment
banker by reason of the actions (or alleged actions) of Buyer, its Affiliates or
any of their officers or directors making a claim for such fees or commissions
whether pursuant to an agreement entered into after the date hereof or
otherwise.
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7.4 PERMITS AND ACCREDITATIONS
There is no matter known to Buyer which would adversely affect the
obtaining by Buyer of any Permits or accreditations necessary for the operation
by Buyer of the Hospital Businesses as of the Closing in the same manner as the
Hospital Businesses are presently operated by Seller. Each of Buyer and its
Affiliates possess all Permits and accreditations necessary to permit them to
operate the health care facilities operated by them. All such health care
facilities have been accredited by the JCAHO. Neither Buyer nor any of its
affiliates has received any notice or has any knowledge of any matter which
would materially adversely effect the maintenance of any such Permits or
accreditations.
7.5 NO KNOWLEDGE OF SELLER'S BREACH
Neither Buyer nor any of its Affiliates has Knowledge of any breach
of any representation or warranty by Seller or of any other condition or
circumstance that would excuse Buyer from its timely performance of its
obligations hereunder. If any of Buyer's Designated Representatives (as deemed
herein) shall have received or reviewed any written information (a "WRITTEN
STATEMENT") indicating that Seller has made a misstatement in or omission from
any representation or warranty of Seller under this Agreement before the Closing
Date (whether through Seller or otherwise), then for the purpose of Seller's
liability under the corresponding representations and warranties in this
Agreement after the Closing Date, the effect shall be as if the corresponding
representations and warranties were so modified in this Agreement as of the
Closing Date; provided, however, that (a) Buyer's opportunity to make an
investigation (including, but not limited to its due diligence investigation) of
the Transferred Assets shall not limit the express representations and
warranties of Seller made herein, unless any of Buyer's Designated
Representatives has received or reviewed a Written Statement, and (b) Buyer must
notify Seller within 48 hours (or promptly, if 15 days or less prior to the
Closing Date) if any such information comes to its attention before the Closing
Date, and Buyer's failure to so notify Seller shall constitute a waiver by Buyer
of Seller's breach, if any, of any representation or warranty to which such
Written Statement relates, or a waiver of such condition or circumstance insofar
as it would excuse Buyer from its timely performance of obligations. As used
herein, "BUYER'S DESIGNATED REPRESENTATIVES" shall mean Neil G. McLean and Dana
C. McLendon, Jr.
7.6 NO ASSURANCE
Buyer acknowledges and agrees that the rates or bases used in
calculating payments or reimbursements to it by any Payor (including but not
limited to Medicare) may differ from the rates and bases used in calculating
such payments or reimbursements to Seller; provided, however, that Seller will
notify Buyer of any changes in said rates arising prior to Closing of which
Seller has Knowledge.
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8. OBLIGATIONS AND COVENANTS OF BUYER
Buyer hereby covenants and agrees as follows:
8.1 CONSENT OF OTHERS
As soon as reasonably practicable after the date of this Agreement,
and in any event prior to the Closing, Buyer shall use its reasonable commercial
efforts to obtain the consents required to be obtained by Buyer hereunder of all
necessary Persons and governmental agencies having jurisdiction over this
transaction to the consummation of the transactions contemplated hereunder,
including, without limitation, the Permits, participations and accreditations
referred to in Paragraph 9.4.
8.2 INSPECTION
Prior to the date of this Agreement, Buyer commenced its due
diligence investigation and inspection of the Transferred Assets (structural,
operational, environmental, title or otherwise) and of the business, prospects
and affairs of the Transferred Assets and the Hospital Businesses (the
"INSPECTION"). As Buyer has not completed the Inspection prior to the date of
this Agreement, Buyer hereby covenants and agrees that Buyer shall complete the
Inspection on or before the expiration of the Inspection Period referred to in
Paragraph 9.3, provided that Seller has fully and timely responded to all due
diligence requests made by Buyer or its representatives, and all costs and
expenses incurred in connection with the Inspection shall be borne by Buyer
except as otherwise specifically set forth herein. As part of the Inspection,
(i) Seller has obtained and delivered to Buyer (a) a preliminary title report
(the "PRELIMINARY TITLE REPORT") issued by Chicago Title Insurance Company (the
"TITLE COMPANY") with respect to the Real Property, together with true, correct
and legible copies of all instruments referred to therein as conditions or
exceptions to title, (b) UCC search reports covering Seller (and, to Seller's
Knowledge, all trade names and d/b/a's used by the Hospital and the Hospital
Businesses ("UCC REPORTS"), and (ii) Buyer has obtained (x) written
environmental surveys of the Real Property (collectively, the "ENVIRONMENTAL
SURVEY") prepared by an environmental consulting firm (the "CONSULTANT"), and
(y) an ALTA survey complying with the Minimum Standard Detail Requirements for
ALTA/ASCM Land Title Surveys (the "SURVEY") for the Real Property, and Buyer has
delivered copies of the Environmental Survey (including the final reports and
all draft reports) and the Survey to Seller. Buyer and Seller acknowledge and
agree that the Environmental Survey as of the date of this Agreement is only an
initial environmental site assessment (the "PHASE I ASSESSMENT") but will
include, if subsequently determined by Buyer and the Consultant to be necessary
or prudent, and if Buyer thereafter directs the Consultant to undertake the same
(at Buyer's sole cost and expense) a further investigation with respect thereto
(the "PHASE II INVESTIGATION") a the Real Property and that thereafter all
references in this Agreement to the Environmental Survey shall mean both the
Phase I Assessment and all Phase II Investigations. The right of access granted
to Buyer pursuant to Paragraph 6.2 shall include the right to inspect, sample,
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test or perform any other service or procedure reasonably necessary for the
preparation of the Environmental Survey. Buyer shall give Seller no less than 24
hours' notice before the Consultant enters onto the Real Property to conduct the
Phase II Investigation, which shall be conducted so as not to interfere with the
normal operation of the Hospital Businesses. Seller shall be permitted to have
one of its employees present during all inspections of and sample gatherings
(including borings) from the soil or any floor tile, insulation or other
internal component of the Real Property.
8.3 BUYER'S EFFORTS CLOSE
Buyer shall use its reasonable commercial efforts to satisfy all
the conditions precedent set forth in Paragraphs 9 and 10 to its or Seller's
obligations under this Agreement to the extent that Buyer's action or inaction
can control or influence the satisfaction of such conditions.
8.4 WAIVER OF BULK SALES LAW COMPLIANCE
Subject to the indemnification provisions of Paragraph 16.1, Buyer
hereby waives compliance by Seller to the extent permitted by Law with the
requirements, if any, of Article 6 of the Uniform Commercial Code as in force in
any state in which the Transferred Assets are located and all other similar Laws
applicable to bulk sales and transfers.
8.5 ABILITY TO PERFORM
Attached hereto as EXHIBIT "8.5" is a letter from TD Securities to
Dana McLendon, Jr. dated December 10, 1997 (the "COMMITMENT LETTER"), wherein TD
Securities has listed the lenders who have committed definitively to participate
in Buyer's $132,500,000 Senior Secured Credit Facility. Buyer hereby agrees from
and after the date hereof, to take no action which would cause such lenders to
withdraw their commitment to participate in the Senior Secured Credit Facility.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are subject to the
satisfaction or Buyer's waiver in writing, at or prior to the Closing, of each
of the following additional conditions:
9.1 ACCURACY OF WARRANTIES AND REPRESENTATION
Each of the representations and warranties of Seller set forth in
this Agreement and in the Disclosure Statement delivered pursuant hereto shall
be true and correct in all material respects as of the date of this Agreement
and at and as of the Closing Date with the same force and effect as though such
representations and warranties had been made as of
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the Closing Date, except as to changes occurring in the ordinary course of
business of the Hospital Businesses after the date of this Agreement and not
materially adversely affecting the business, properties or financial condition
of the Hospital.
9.2 PERFORMANCE OF OBLIGATIONS
Seller shall have performed in all material respects all agreements
and covenants required by this Agreement to be performed by it on or prior to
the Closing.
9.3 APPROVAL OF INSPECTION
Buyer shall have approved, subject to the provisions of Paragraph
14.7, the results of the Inspection in the manner set forth in this Paragraph
9.3. Buyer shall complete the Inspection on or before the date which is ten days
from the date hereof (the "INSPECTION PERIOD"). On or prior to the expiration of
the Inspection Period, Buyer shall give Seller written notice of its approval or
disapproval of the Inspection. If Buyer gives notice of its disapproval of the
Inspection, such notice must specify the items to which Buyer objects which led
Buyer to disapprove the Inspection and the satisfaction of the requirements of
this Paragraph 9.3 shall be governed by Paragraph 14.7. If Buyer fails to
deliver to Seller a proper and timely notice of disapproval of the Inspection,
Buyer shall be deemed to have approved the Inspection.
9.4 PERMITS AND PROGRAM PARTICIPATION
Buyer shall have obtained (or received reasonable assurances that
it shall obtain) all Permits and accreditations required for the operation of
the Hospital by Buyer following the Closing in substantially the same manner as
currently operated, and Buyer shall have obtained (or received reasonable
assurances that it shall obtain within a reasonable period of time after the
Closing) Medicare, Medicaid and CHAMPUS certification of the Hospital and the
participation by the Hospital in the program of any other Payor reasonably
determined by Buyer that will in each instance be effective as of the Closing
and that within a reasonable period of time after the Closing the Hospital may
participate in or receive reimbursement from all such programs effective as of
the Closing.
9.5 TAX MATTERS
Seller shall have delivered to Buyer a duly executed certificate of
non-foreign status in the form required by Section 1445 of the Code.
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9.6 TITLE INSURANCE
At the Closing, Buyer shall have received either (a) ALTA (or the
local equivalent thereof) extended coverage owner's policies of title insurance
issued by the Title Company to Buyer insuring title to the Real Property in an
amount equal to the portion of the Purchase Price allocated to the Real Property
pursuant to Paragraph 14.5, showing good and marketable title to the Real
Property vested in Buyer free and clear of all Liens except (i) statutory liens
not yet delinquent, (ii) the Permitted Exceptions, (iii) any matter that may be
disclosed by the Surveys, and (iv) all other matters and exceptions approved,
deemed approved or waived by Buyer during the Inspection Period (collectively
the "TITLE POLICY"), or (b) the written commitments or binders of the Title
Company to issue the Title Policy in the aforementioned condition within a
reasonable time after the Closing Date. Seller shall, at Buyer's expense,
execute and deliver such certificates and affidavits as may be reasonably
required to delete exceptions (including the standard printed exceptions which
are capable of being deleted) from the Title Policy.
9.7 INSTRUMENTS OF TRANSFER
At the Closing, Seller shall have delivered to Buyer or Escrow
Agent (as hereinafter defined in Paragraph 11), as the case may be, such special
or limited warranty deeds for the Real Property, assignments of lease for the
Real Property Leases, Bills of Sale and other good and sufficient instruments of
transfer, conveyance and assignment as are reasonably requested by Buyer and
reasonably satisfactory to counsel for Buyer and Seller and which shall be
effective to vest in Buyer title to the Transferred Assets in accordance with
Section "5.4". Seller shall also execute and deliver, at no additional expense
to Seller, such instruments as may be reasonably required by the Title Company
in order to issue any endorsements obtained by Buyer, at Buyer's expense;
provided, however, that the issuance of any such endorsements shall not be a
condition to Closing.
9.8 OFFICER'S CERTIFICATE
Seller shall have delivered to Buyer (a) a certificate, dated the
Closing, executed by its President, any Vice President or any authorized
signatory on behalf of Seller (and not in such person's individual capacity),
stating that as of the Closing (i) Seller knows of no facts except as
specifically disclosed in writing in such certificate which would cause Seller
to be in breach of any of its representations and warranties hereunder, (ii) to
Seller's Knowledge, Seller has duly performed in all material respects all
obligations and covenants to be performed by it hereunder and (b) good standing
certificates for Seller from the Secretary's of State of their respective states
of incorporation, dated as of a date not earlier than ten business days prior to
the Closing Date.
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9.9 CERTIFIED RESOLUTIONS
A copy of the following shall have been delivered to Buyer: the
resolutions of the Board of Directors of Seller (and any shareholder of Seller,
if required) authorizing the execution of this Agreement and the performance of
the transactions contemplated hereby, together with an incumbency certificate
from Seller, all of which shall be certified as true, correct and effective as
of the Closing Date by the Secretary or Assistant Secretary of Seller.
9.10 HART-SCOTT-RODINO ACT
Seller shall have complied with the Hart-Scott-Rodino Antitrust
Improvements Act of 1975 (15 U.S.C. Section 18A) and the rules promulgated
thereunder (said statute and rules are collectively referred to hereinafter as
the "PREMERGER RULES"), together with all other Laws concerning antitrust and
fair trade. The applicable waiting period required under the Premerger Rules
shall have expired without objection or shall have been waived, and all other
consents or approvals required by such other Laws shall have been obtained.
9.11 ADVERSE ACTION
No bona fide action or proceeding shall be pending against either
Buyer or Seller wherein an unfavorable judgment, decree or order would prevent
or make unlawful the carrying out of the transactions contemplated by this
Agreement or would compel Buyer's divestiture of all or any part of the
Transferred Assets or otherwise restrict Buyer's operation of the Transferred
Assets; and no governmental agency shall have notified either Buyer or Seller
that the consummation of the transactions contemplated by this Agreement would
constitute a violation of Laws of any jurisdiction or would compel Buyer's
divestiture of all or any part of the Transferred Assets or otherwise restrict
Buyer's operation of the Transferred Assets or that it has commenced or intends
to commence proceedings to restrain the consummation of the transactions
contemplated hereunder and such agency has not withdrawn such notice.
9.12 PARENT GUARANTY
At the Closing, Seller's ultimate parent, Tenet Healthcare
Corporation, a Nevada corporation ("SELLER'S PARENT") shall have delivered to
Buyer a guaranty of Seller's performance of its obligations hereunder, which
guaranty shall be substantially in the form of EXHIBIT "9.13".
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9.13 OPINION OF SELLER'S COUNSEL
Buyer shall have received an opinion from the general counsel,
associate general counsel or senior counsel of Seller, dated as of the Closing
Date and addressed to Buyer stating that (a) Seller is a corporation validly
existing and in good standing under the laws of the state of its incorporation
and (b) this Agreement has been duly and validly authorized, executed and
delivered by Seller and is not contrary to the Articles of Incorporation or
bylaws of such Seller. In rendering such opinion, such counsel may rely upon
certificates of governmental officials and may place reasonable reliance upon
certificates of officers of Seller. The opinion of counsel shall be limited,
however, to California and federal laws and shall be subject to such other
customary conditions and limitations as are applicable.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller under this Agreement are subject to the
satisfaction or Seller's waiver in writing, at or prior to the Closing, of each
of the following additional conditions:
10.1 ACCURACY OF WARRANTIES AND REPRESENTATIONS
Each of the representations and warranties of Buyer set forth
in this Agreement shall be true and correct in all material respects as of the
date of this Agreement and at and as of the Closing Date with the same force and
effect as though such representations and warranties had been made as of the
Closing Date, except as to changes occurring in the ordinary course of business
of Buyer after the date of this Agreement and not materially adversely affecting
the business, properties or financial condition of the Buyer.
10.2 PERFORMANCE OF OBLIGATIONS
Buyer shall have performed in all material respects all
agreements and covenants required by this Agreement to be performed by it on or
prior to the Closing.
10.3 PAYMENT OF PURCHASE PRICE
Buyer shall have delivered, or caused to be delivered, to
Seller at the Closing (a) the immediately available funds described in Paragraph
2.3(a)(i), (b) the Bills of Sale and (c) immediately available funds in an
amount equal to the costs to be reimbursed to Seller by Buyer pursuant to
Paragraph 19.9, net of amounts owed to third parties by Seller pursuant to
Paragraph 19.9.
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10.4 OFFICER'S CERTIFICATE
Buyer shall have delivered to Seller (a) a certificate, dated
the Closing, executed by its President or any Vice President, on behalf of Buyer
(and not in such person's individual capacity), stating that as of the Closing
(i) Buyer knows of no facts except as specifically disclosed in writing in such
certificate which would cause Buyer to be in breach of any of its
representations and warranties hereunder (ii) to the best of Buyer's Knowledge,
Buyer has duly performed all obligations and covenants to be performed by it
hereunder and (b) good standing certificates for Buyer from the Secretary of
State of Tennessee, dated as of a date not earlier than ten business days prior
to the Closing Date.
10.5 CERTIFIED RESOLUTIONS
Copies of the following shall have been delivered to Seller:
(a) the resolutions of the Board of Directors of Buyer authorizing the execution
of this Agreement and the performance of the transactions contemplated hereby
which shall be certified as true, correct and effective as of the Closing Date
by the Secretary or Assistant Secretary of Buyer and (b) an incumbency
certificate of Buyer which shall be certified as true, correct and effective as
of the Closing Date by the Secretary or Assistant Secretary of Buyer.
10.6 HART-SCOTT-RODINO ACT
Buyer shall have complied with the Premerger Rules and all
other Laws concerning antitrust and fair trade. The applicable waiting period
required under the Premerger Rules and such other Laws shall have expired
without objection or shall have been waived, and all other consents or approvals
required by such other Laws shall have been obtained.
10.7 ADVERSE ACTION
No bona fide action or proceeding shall be pending against
either Buyer or Seller wherein an unfavorable judgment, decree or order would
prevent or make unlawful the carrying out of the transactions contemplated by
this Agreement or would compel Buyer's divestiture of all or any part of the
Transferred Assets or otherwise restrict Buyer's operation of the Transferred
Assets; and no governmental agency shall have notified either Buyer or Seller
that the consummation of the transactions contemplated by this Agreement would
constitute a violation of Laws of any jurisdiction or would compel Buyer's
divestiture of all or any part of the Transferred Assets or otherwise restrict
Buyer's operation of the Transferred Assets or that it has commenced or intends
to commence proceedings to restrain the consummation of the transactions
contemplated hereunder and such agency has not withdrawn such notice.
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10.8 CONTINUED EXISTENCE OF COMMITMENT LETTER
The Commitment Letter shall be in full force and effect and all
lenders listed therein shall have taken such action as is necessary to enable
them to fund Buyer's Senior Secured Credit Facility on or before the Closing
Date.
10.9 OPINION OF BUYER'S COUNSEL
Seller shall have received an opinion from Harwell Howard Hyne
Gabbert & Manner, P.C., counsel to Buyer, dated as of the Closing Date and
addressed to Seller stating that (a) Buyer (and Buyer's Subsidiary if Buyer's
Subsidiary will, pursuant to Paragraph 19.5, take title to the Transferred
Assets at the Closing) is a corporation validly existing and in good standing
under the laws of the State Tennessee (and, in the case of such Buyer's
Subsidiary, its state of incorporation) and (b) this Agreement has been duly
and validly authorized, executed and delivered by Buyer and is not contrary to
the Articles of Incorporation or bylaws of Buyer. In rendering such opinion,
such counsel may rely upon certificates of governmental officials and may place
reasonable reliance upon certificates of officers of Buyer. The opinion of
counsel shall be limited, however, to Tennessee and federal laws and shall be
subject to such other customary conditions and limitations as are applicable.
11. CLOSING
The Closing shall take place on the date which is ten business days
after the date that the State of Washington Department of Health, Certificate of
Need Unit has issued to Buyer or its Subsidiary a Certificate of Need ("CON"),
at a time and a place mutually agreeable to the parties, or, subject to the
limitations set forth in Paragraph 17.1(d), such later date as all conditions
precedent to the parties' obligations set forth in Paragraphs 9 and 10 shall
have been satisfied, waived or are capable of being performed as of such date.
The date on which the Closing actually occurs shall be referred to herein as the
"CLOSING DATE". The Closing shall be effective for all purposes as of 12:01 a.m.
(determined by reference to the local time zones in which the Hospital
Businesses are located) on the day immediately following the Closing. The term
"CLOSING" as used in this Agreement shall mean the meeting of Buyer and Seller
at which (or, if an escrow is established with Escrow Agent (as hereinafter
defined in Paragraph 11.2), the actions of Escrow Agent by which) the documents
and instruments referred to in Paragraph 9.8 are delivered to Buyer, the
documents and funds referred to in Paragraph 10.3 are delivered to Seller and
the other actions required to be taken hereunder shall have been taken.
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11.1 PRE-CLOSING
A pre-closing of the transactions contemplated hereunder may,
if either party so elects, held at a time and place mutually agreeable to
counsel to each of the parties on the day preceding the Closing Date.
11.2 ESCROW
If either of the parties desires to consummate the Closing
through an escrow, an escrow shall be opened with (and the escrow agent shall
be) Chicago Title Company, an Affiliate of the Title Company ("ESCROW AGENT"),
by depositing a fully executed copy of this Agreement with Escrow Agent to serve
as escrow instructions. This Agreement shall be considered the primary escrow
instructions between the parties, but the parties shall execute such additional
standard escrow instructions as Escrow Agent shall require in order to clarify
the duties and responsibilities of Escrow Agent. In the event of any conflict
between this Agreement and such additional standard escrow instructions, this
Agreement shall prevail. On the Closing Date, Escrow Agent shall (a) cause the
special or limited warranty deeds for the Real Property, together with any
other documents which the parties hereto may mutually designate, to be recorded
in the official records of the appropriate county on the Closing Date, (b) issue
and deliver to Buyer the Title Policy, or the binding commitment of the Title
Company to issue the Title Policy, (c) deliver to Seller by wire transfer of
immediately available funds to the account or accounts designated by Seller the
Purchase Price referred to in Paragraph 2.3(a)(i) and the costs to be reimbursed
to Seller by Buyer pursuant to Paragraph 19.9 (net of the amount of costs to be
reimbursed to Buyer by Seller), (d) deliver to Buyer the other agreements,
documents and instruments set forth in Paragraph 11.3(a), and (e) deliver to
Seller the other agreements, documents and instruments set forth in Paragraph
11.3(b).
11.3 DELIVERIES AT CLOSING
At the Closing, Buyer shall cause the Purchase Price referred
to in Paragraph 2.3(a)(i) and the costs to be reimbursed to Seller by Buyer
pursuant to Paragraph 19.9 to be wired to the account or accounts designated by
Seller and, upon written confirmation from the sending bank that said wire
transfer has commenced (which written confirmation shall include the
confirmation number of such wire transfer), the parties shall take the actions
set forth below; provided, however, that if the Closing is to be consummated
through Escrow Agent, then on or prior to the Closing Date, Buyer shall cause
such funds to be wired to the Escrow Agent and upon Escrow Agent's confirmation
of its receipt of such funds, the parties shall undertake such actions by making
the deliveries described below to Escrow Agent for recordation and/or delivery
on the Closing Date.
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(a) Seller. Seller shall deliver to Buyer the deeds and
other instruments of transfer, conveyance and assignment as described in
Paragraph 9.7, the other agreements, documents and instruments referred to in
Paragraph 9.
(b) Buyer. Buyer shall deliver to Seller the agreements,
certificates, documents and instruments referred to in Paragraph 10.
12. "AS IS" PURCHASE
Buyer acknowledges and agrees (and upon which Seller shall have
materially relied in selling the Transferred Assets to Buyer at the Purchase
Price and on the other terms and conditions herein set forth) that prior to the
expiration of the Inspection Period Buyer shall have completed the Inspection
(including its full and complete inspection of the Transferred Assets) and upon
the Closing shall conclusively be deemed to have been satisfied with the results
of the Inspection and with any cure of any Disapproved Item by Seller pursuant
to Paragraph 14.7. Based on the Inspection, Buyer is purchasing the Transferred
Assets on an "AS IS" basis and in "WITH ALL FAULTS" condition and except as
otherwise specifically provided in this Agreement, Seller makes no
representation or warranty, whether expressed or implied, regarding the
physical condition of the Transferred Assets, their fitness or suitability for
any particular purpose, or their compliance with applicable local building
codes, safety, fire, land use or access laws (including, without limitation, the
Americans With Disabilities Act), or any similar Law.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, BUYER, BY ITS SIGNATURE BELOW,
HEREBY ACKNOWLEDGES THAT, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THIS
AGREEMENT, NEITHER SELLER, NOR ANY OF ITS OFFICERS, EMPLOYEES, AFFILIATES OR
AGENTS, HAS MADE ANY REPRESENTATION OR WARRANTY REGARDING THE TRANSFERRED
ASSETS, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF HABITABILITY OR WARRANTY
OF MERCHANTABILITY OR WARRANTY OF SUITABILITY FOR A PARTICULAR PURPOSE, AND
BUYER HEREBY EXPRESSLY DISCLAIMS THE IMPLIED WARRANTY OF HABITABILITY, THE
IMPLIED WARRANTY OF MERCHANTABILITY, THE IMPLIED WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE, AND ALL EXPRESSED OR IMPLIED WARRANTIES RELATING TO THE
QUALITY OF OR OTHERWISE RELATING TO THE PHYSICAL CONDITION OF THE TRANSFERRED
ASSETS.
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13. EXCLUSIVITY FEE
Prior to the execution of this Agreement, Buyer has deposited
the sum of $300,000 (the "EXCLUSIVITY FEE") into an escrow account (the
"ESCROW") at the Escrow Agent as consideration for Seller's covenants set forth
in Paragraphs 6.2, 6.5, 8.2 and as a good faith deposit for Buyer's performance
under this Agreement. The Exclusivity Fee shall be held and administered by the
Escrow Agent pursuant to the terms of that certain Escrow Agreement dated
September 18, 1997 among Buyer, Tenet Healthcare Corporation on behalf of
Seller, and Escrow Agent (as may be amended from time to time, the "ESCROW
AGREEMENT"). The Exclusivity Fee shall be distributed as follows:
13.1 If the transaction contemplated by this Agreement fails to
close because of (a) the breach by Buyer of its material representation,
warranties or obligations hereunder, or (b) the conditions precedent set forth
in Paragraphs 10.1, 10.2, 10.3, 10.4, 10.5, 10.6 or 10.9 have not been satisfied
by Buyer or waived by Seller, then, subject to the rights of the Escrow Agent
under the Escrow Agreement, all funds in the Escrow shall be distributed to
Seller.
13.2 If the transaction contemplated by this Agreement fails to
dose for any reason other than (a) a breach by Buyer of its material
representations, warranties or obligations hereunder, or (b) the conditions
precedent set forth in Paragraphs 10.1, 10.2, 10.3, 10.4, 10.5, 10.6 or 10.9
have not been satisfied by Buyer or waived by Seller, then, subject to the
rights of the Escrow Agent under the Escrow Agreement, all funds in the Escrow
shall be distributed (x) first to Seller in an amount equal to the costs to be
reimbursed by Buyer pursuant to Paragraph 19.9, and (y) thereafter, to Buyer in
an amount equal to the balance of such funds.
13.3 If the transaction contemplated by this Agreement shall
close, then, subject to the rights of the Escrow Agent under the Escrow
Agreement, all funds in the Escrow shall be wire transferred on the Closing Date
to Seller in partial satisfaction of Buyer's obligation to pay the Purchase
Price in immediately available funds.
14. ADDITIONAL COVENANTS
The following provisions shall apply, and the following actions
shall be taken, on, before or after the Closing:
14.1 FURTHER DOCUMENTATION OR ACTION
From time to time, at the request of either party, whether
on or after the Closing, without further consideration, either party, at its
expense and within a reasonable amount of time after request hereunder is made,
shall execute and deliver such further instruments of assignment and transfer
and take such other action as may be reasonably required to more effectively
assign and transfer the Transferred Assets to Buyer, deliver or
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make the payment of the Purchase Price to Seller or any amounts due from one
party to the other pursuant to the terms of this Agreement or confirm Seller's
ownership of the Retained Assets or carry out the purposes of any provision of
this Agreement. Notwithstanding anything contained in this Agreement to the
contrary, this Agreement shall not constitute an agreement to assign any
Transferred Asset, or assume any Assumed Obligation, if the attempted assignment
or assumption of the same, as a result of the absence of a consent or
authorization of a third party, would constitute a breach or default under any
lease, agreement or commitment or would in any way adversely affect the rights,
or increase the obligations, of Buyer or Seller with respect thereto; provided,
however, that the assignment of any contract, including, without limitation
Medicare, Medicaid and similar provider agreements, which may lawfully be made
subject to customary conditions subsequent (such as need surveys, evaluations of
Buyer or other determinations by the counter parties to such agreements) shall
be deemed not to constitute a default under, or in any way adversely affect the
rights or increase the obligations of Buyer with respect to, such lease,
agreement or commitment, unless the counter party indicates prior to the Closing
that such condition or conditions subsequent are not likely to be met. If any
such consent or authorization is not obtained, or if an attempted assignment or
assumption would be ineffective or would adversely affect the rights or increase
the obligations of Seller or Buyer with respect to any such lease, agreement or
commitment, so that Buyer would not, in fact, receive all such rights, or assume
the obligations, of Seller with respect thereto as they exist prior to such
attempted assignment or assumption, then Seller and Buyer shall enter into such
reasonable cooperative arrangements as may be reasonably acceptable to both
Buyer and Seller (including, without limitation, sublease, agency, indemnity or
payment arrangements and enforcement at the cost and for the benefit of Buyer of
any and all rights of Seller against an involved third party) to provide for
Buyer the benefits of such Transferred Asset or to relieve Seller from the
obligations of such Assumed Obligation, and any transfer or assignment to Buyer
by Seller of any such Transferred Asset, or any assumption by Buyer of any such
Assumed Obligation, which shall require such consent or authorization of a third
party that is not obtained shall be made subject to such consent or
authorization being obtained.
14.2 PRESERVATION OF AND ACCESS TO RECORDS
(a) Owner of Hospital Records. The term "HOSPITAL RECORDS"
shall mean (a) all or any portion of the medical, clinical and other records
directly or indirectly associated with the admission, care and treatment of
patients (excluding, however, all billing, other financial and marketing
information related thereto) for periods ending on or prior to the Closing Date
(the "PATIENT RECORDS") and (b) all or any portion of the financial and other
records and files of the Hospital (including patient billing, other financial
and marketing information, whether or not included as part of the "financial
jacket" of the Patient Records) for periods ending on or prior to the Closing
Date (the "BUSINESS RECORDS") including, without limiting the generality of the
foregoing, any records, documents or other material (but excluding any such
privileged or confidential records, documents or other materials that relate
directly to the negotiation of this Agreement and the consummation of the
transactions
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contemplated hereby). As set forth in Paragraph 1.1, the Hospital Records are
Transferred Assets. Notwithstanding the foregoing, the parties shall cooperate
in providing copies and access to the Hospital Records as set forth below.
(b) Seller's Access. Buyer shall retain the Hospital Records
pertaining to a particular Hospital at such Hospital (or at such other locations
as Buyer shall determine from time to time provided Buyer has given Seller
written notice of such locations) at Buyer's cost, until the expiration of five
years from the Closing (and, if at the expiration thereof any tax or Payor audit
or judicial proceeding is in process or the applicable statute of limitations
has been extended or has not then expired or terminated, for such longer period
if such audit or proceeding is in process or such statutory period is extended
and for such longer period until such expiration or termination) (the "Document
RETENTION PERIOD"). After the Closing, Buyer shall grant, and Seller shall have,
access to the Hospital Records (including any Patient Records) as needed for any
lawful purpose (including Seller's inspection and copying of the same), and
Seller shall have the same rights of access to inspect and copy that Buyer had
prior to the Closing; provided, however, that any Hospital Records delivered to
or made available to Seller and its representatives will be treated as strictly
confidential by Seller and its representatives, will not be directly or
indirectly divulged, disclosed or communicated to any other Person other than
Seller and its representatives who are reasonably required to have access to
such information (unless Seller is compelled to disclose the same by judicial or
administrative process), and will be returned to Buyer when Seller's use
therefor has terminated. Buyer shall instruct the appropriate employees of the
Hospital Businesses to cooperate in providing access to such records to Seller
and its authorized representatives as contemplated herein. Access to such
records shall be, wherever reasonably possible, during normal business hours,
with 24 hours' prior notice to Buyer of the time when such access shall be
needed. Seller's employees, representatives and agents shall conduct themselves
in such a manner so that Buyer's normal business activities and patient care
shall not be unduly or unnecessarily disrupted. After the expiration of the
aforementioned Document Retention Period, Buyer shall not, without 90 days prior
written notification to Seller (the "DESTRUCTION NOTICE"), destroy any Hospital
Records in its possession. Within 80 days after its receipt of the Destruction
Notice, Seller shall have the right, at its own expense, to require Buyer to
deliver any such records to Seller and Buyer shall thereupon deliver the same to
Seller. Within ten business days following the Closing, Buyer shall apprise the
executive officers and such other appropriate employees of the Hospital
Businesses of, and shall instruct such officers and employees to adopt and
follow a records retention/destruction policy with respect to the Hospital
Records which complies with, the foregoing record maintenance and destruction
program for the Hospital Records.
(c) Buyer's Access. To the extent not included in the Hospital
Records, after Closing Seller shall (i) make its books and records available to
Buyer and Buyer's auditors on 24 hours' prior notice and in a manner so as no to
unduly or unnecessarily interfere with Seller's operations, and (ii) otherwise
cooperate with Buyer in order to permit Buyer to conduct an audit of Seller's
financial statements for any period prior
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to Closing, provided that such audit is conducted in accordance with generally
accepted auditing principles.
14.3 LITIGATION COOPERATION
After the Closing, upon prior reasonable written request, each
party shall cooperate with the other, at the requesting party's expense (but
including only out-of-pocket expenses to third parties and not the costs
incurred by any party for the wages or other benefits paid to its officers,
directors or employees), in furnishing reasonably available information,
testimony and other assistance in connection with any actions, tax or cost
report audits, proceedings, arrangements or disputes involving either of the
parties hereto (other than in connection with disputes between the parties
hereto) and based upon contracts, arrangements or acts of Seller or any of their
respective Affiliates which were in effect or occurred on or prior to the
Closing and which related to the Transferred Assets, including, without
limitation, arranging discussions with, and the calling as witnesses of,
officers, directors, employees, agents and representatives of Buyer.
14.4 EMPLOYEE BENEFIT PLANS
The parties hereto recognize and agree that Buyer is not
assuming any of the Plans and, except as provided in Paragraph 3.1(b), is not
assuming any obligation or liability related to the Plans. Seller (a) shall
terminate as of the Closing Date the active participation of all Hired Employees
in all of the Plans covering such employees, (b) shall cause the Plans to make
timely appropriate distributions, to the extent required, to the Hired Employees
in accordance with, and to the extent permitted by, the terms and conditions of
such Plans and (c) in connection with the termination of the active
participation of all Hired Employees in such Plans and the termination of
employment with Seller of all Hired Employees, shall comply, and shall cause
each Plan to comply, with all applicable Laws. Prior to the Closing, Seller
shall have delivered to Buyer, for information purposes only, forms of any
letters or other communications which Seller shall distribute to the employees
of the Hospital notifying such employees of their rights in respect of their
cessation of active participation in the Plans.
14.5 ALLOCATION OF PURCHASE PRICE
The Purchase Price shall be allocated among each of the
Transferred Assets (or, where more practical, each category of Transferred
Assets) in accordance with SCHEDULE "14.5". Seller and Buyer hereby agree to
allocate the Purchase Price in accordance with Schedule 14.5, to be bound by
such allocations for all purposes, to account for and report the purchase and
sale of the Transferred Assets contemplated hereby for all purposes (including,
without limitation, financial, accounting, Medicare reimbursement (to the extent
required by applicable Law) and federal and state tax purposes) in accordance
with such allocations, and not to take any position (whether in financial
statements, cost reports, tax
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returns, cost report or tax audits, or otherwise) unless required by applicable
Law, which is inconsistent with such allocations without the prior written
consent of the other party.
14.6 CONFIDENTIALITY
The parties hereto recognize and agree that all information,
instruments, documents and details concerning the business of Buyer and Seller
are strictly confidential, and Seller and Buyer expressly covenant and agree
with each other that they will not, nor will they allow any of their respective
officers, directors, employees or agents (including professional advisors) to,
reproduce, distribute or disclose any matters relating to the business of the
other or relating to this Agreement, its negotiation, terms, provisions or
conditions, including Purchase Price (collectively, the "CONFIDENTIAL
INFORMATION"), except for disclosure to their respective professional advisors
(who shall agree not to reproduce, distribute or disclose the same) which is
reasonably necessary to effectuate the transactions contemplated hereby and in a
manner consistent with the provisions of this Agreement. Notwithstanding the
foregoing, (a) Buyer shall be entitled to disclose Confidential Information to
any prospective lender of Buyer, and nothing contained in this Paragraph 14.6
shall prohibit Buyer from disclosing, and Seller hereby consents to Buyer's
disclosure of, the transactions contemplated hereby to governmental agencies to
the extent reasonably necessary to obtain the Permits, participations and
accreditations contemplated by Paragraph 9.4, and (b) Buyer and Seller shall be
entitled to disclose to third parties such information regarding the
transactions contemplated hereby as is necessary to obtain such third parties'
consents to the assignment of any Assumed Contract. Without limiting the
generality of the foregoing, except as specifically permitted by this Paragraph
14.6, no public announcement or other disclosure of the proposed sale or
acquisition of the Transferred Assets or of this Agreement or its contents shall
be made by or on behalf of either party without the prior written consent of
other party and such other party's prior approval of the form and content of the
same, which consent and approval shall not be unreasonably withheld or delayed.
Except as specifically permitted by this Paragraph 14.6, each party shall keep
all Confidential Information obtained from the other either before or after the
date of this Agreement confidential, and neither party shall reveal such
information to, nor produce copies of any written information for, any Person
outside its management group or its professional advisors without the prior
written consent of the other party, unless such party is compelled to disclose
such information by judicial or administrative process or by any other
requirements of Law. If the sale contemplated by this Agreement should fail to
close for any reason, each party shall return to the other as soon as possible
all originals and copies of written information provided to such party by or on
behalf of the other party and none of such information shall be used by either
party, or their employees, agents or representatives in the business operations
of any Person. Notwithstanding the foregoing, each party's obligations under
this Paragraph 14.6 shall not apply to any information or document which is or
becomes available to the public other than as a result of a disclosure by the
other party in violation of this Agreement or other obligation of
confidentiality under which such information may be held or becomes available to
the party on a non-confidential basis from a
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source other than the other party or its officers, directors, employees or
agents. The parties' obligations under this Paragraph 14.6 shall survive the
termination of this Agreement or the Closing.
14.7 CURE OF DISAPPROVED ITEMS
If Buyer disapproves the Disclosure Statement, any
Supplemental Disclosure Statement or the Inspection within the time periods
applicable thereto (a "DISAPPROVED ITEM"), Seller shall have the right, but not
the obligation, within ten days following its receipt of notice of Buyer's
disapproval, to elect to cure such Disapproved Item by the delivery of an
appropriate written notice to Buyer. Seller's notice shall set forth its
proposed manner of cure of the Disapproved Item, which shall be subject to the
prior approval of Buyer, and the anticipated period of time necessary to
complete the cure. Buyer shall have five days after receipt to approve or
disapprove Seller's notice to cure. If Buyer fails to disapprove Seller's notice
to cure within said five day period, Buyer shall be deemed to have approved
Seller's notice to cure. If Seller elects to cure a Disapproved Item, Seller
shall commence the cure promptly following the delivery of its written notice to
Buyer (and Buyer's approval or deemed approval of the proposed manner of cure)
and thereafter shall diligently pursue the cure to completion, provided,
however, in all events any cure by Seller of a Disapproved Item must be
completed prior to the Closing. If Seller completes the cure of the Disapproved
Item to Buyer's reasonable satisfaction within the time period herein specified,
Buyer shall have no right to terminate this Agreement as a result of the
Disapproved Item. If Seller fails to give notice to Buyer within the time period
herein specified that it elects to cure the Disapproved Item, then, at the
election of either party, the parties shall negotiate in good faith the
resolution of the Disapproved Items (including Seller's cure of all or some of
the same). If the Disapproved Items cannot be so resolved within 30 days from
the date of such election and if Buyer does not within five days thereafter
withdraw its notice of disapproval of the Disclosure Statement, any Supplemental
Disclosure Statement or the Inspection or if, notwithstanding Seller's election
to cure, Seller fails to complete the cure within the time period herein
specified or Buyer timely disapproves Seller's notice to cure, this Agreement
shall terminate without liability to Buyer or Seller and shall be of no further
force or effect except as otherwise expressly provided herein and the
Exclusivity Fee shall be returned to Buyer; provided, however, that if Seller
fails to complete the cure before the Closing, Buyer, at its discretion, may
elect to proceed with the Closing and Seller shall promptly reimburse Buyer for,
and indemnify and hold Buyer harmless from and against, all Losses incurred by
Buyer after the Closing with respect to the cure of the Disapproved Items.
14.8 EXCLUDED ASSETS AND RECEIVABLES
(a) General Rule. Any asset (including all remittances and all
mail and other communications) that is determined by the parties' agreement, or,
absent such agreement, determined by litigation, to be or otherwise relate to a
Retained Asset (including, without limitation, the proceeds of the Government
Receivables) and that is or comes into the
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possession, custody or control of Buyer or any of its Affiliates (or their
successors in interest or assigns, or their respective shall forthwith be
transferred, assigned or conveyed by Buyer and its Affiliates (or their
respective successors in interest or assigns and their respective Affiliates) to
Seller, and until such transfer, assignment and conveyance, Buyer and its
Affiliates (and their respective successors in interest and assigns and their
respective Affiliates) shall not have any right, title or interest in such asset
but instead shall hold such asset in trust for the benefit of Seller. Any asset
(including all remittances and mail and other communications) that is determined
by the parties' agreement or, absent such agreement, determined by litigation,
to be or otherwise relate to a Transferred Asset and that is or comes into the
possession, custody or control of Seller or any of their Affiliates (or their
respective successors in interest or assigns) shall forthwith be transferred,
assigned and conveyed by Seller and their Affiliates (or their respective
successors in interest or assigns) to Buyer and until such transfer, assignment
and conveyance, Seller and their Affiliates (and their respective successors in
interest and assigns) shall not have any right, title or interest in such asset,
but instead shall hold such asset in trust for the benefit of Buyer. Seller and
its agents and representatives shall have the right upon reasonable written
notice and subject to applicable privileges and confidentiality Laws, during
regular business hours, to examine and inspect all the books and records of
Buyer and its Affiliates and to have access to the Hospital or other locations
from which Buyer and its Affiliates conduct their business operations for the
sole purpose of investigating the existence of any Retained Asset in the
possession of Buyer or any of its Affiliates and of auditing Buyer's collection
of the Receivables. If, as a result of any dispute by Seller of any payments due
from Buyer pursuant to this Paragraph 14.8, an amount is due from Buyer to
Seller in excess of $5,000, then Buyer shall, in addition to all other
obligations of Buyer hereunder, reimburse Seller for all out-of-pocket costs and
expenses incurred by Seller m connection with such dispute, including, without
limitation, the cost and expense of any audit conducted by Seller.
(b) Straddle Patient Receivables. To compensate Seller for
services rendered and medicine, drugs and supplies provided through the Closing
Date with respect to patients ("STRADDLE PATIENTS") who were admitted to any
Hospital on or before the Closing Date and discharged by such Hospital after the
Closing Date, the following shall apply:
(i) Cut-Off Billings. Seller shall prepare cut-off
billings for all Straddle Patients as of the close of business on the
Closing Date. All payments which are received by Buyer (or its
successors in interest or assigns) after the Closing Date with respect
to Straddle Patients and which relate to such cut-off billings shall
constitute Receivables. All Receivables relating to such cut-off
billings which are not Government Receivables shall be considered
Purchased Receivables pursuant to Paragraph 1.1.12. All such cutoff
billings which are Government Receivables shall constitute a Retained
Asset and shall immediately be paid to Seller in the manner described
in subparagraphs (a) above and (b)(iii) below.
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(ii) Cut-Off Billings Not Accepted. If the Payor of
any Straddle Patient cannot for any reason accept cut-off billings,
then Seller shall deliver to Buyer a statement calculating the total
charges made by Seller for services rendered and medicine, drugs and
supplies provided through the Closing Date with respect to such
Straddle Patient. Within ten days following the discharge of each such
Straddle Patient, Buyer shall deliver to Seller a statement reflecting
the total charges for the services rendered and medicine, drugs and
supplies billed to such Straddle Patient after the Closing Date and the
payments receivable (the "STRADDLE PATIENT PAYMENTS") by Buyer with
respect to such Straddle Patient (including any cost per discharge
limit imposed by TEFRA and all deductibles and co-insurance payments).
The prorate share of the Straddle Patient Payments to which Seller
shall be entitled for the services, medicine, drugs and supplies
provided by Seller to each such Straddle Patient through the Closing
Date shall be paid by Buyer to Seller in the manner herein provided and
shall be equal to the amount obtained by multiplying the Straddle
Patient Payments by a fraction, the numerator of which is the total
charges made by Seller with respect to such Straddle Patient through
the Closing Date and the denominator of which is the total charges made
by Buyer and Seller with respect to such Straddle Patient. Seller or
Buyer, as may be applicable, may have such statements as submitted by
Buyer or Seller verified by their respective independent certified
public accountants within 30 days from delivery. If such statements, as
submitted by Buyer or Seller, are acceptable, then such statements
shall fix the value of the services, medicine, drugs and supplies
provided by Seller and Buyer to each such Straddle Patient. If any such
statement is challenged by Seller or Buyer, then, unless otherwise
resolved by agreement of the parties within 30 days of any such
challenge, such statement shall be deemed in dispute, which dispute
shall be resolved by the parties' independent certified public
accountants. If such accountants cannot resolve the matter within 30
days, then it shall be submitted by them to a third accounting firm for
resolution in accordance with the procedures contained in Paragraph
2.2. If Seller or Buyer does not give written notice to the party
preparing the statement of its challenge of such statement within the
first said 30 day period, the receiving party shall be deemed to have
accepted the same. Within five business days of the later of the final
determination of the value of the services, medicines, drugs and
supplies provided by Seller and Buyer to each such Straddle Patient or
the date Buyer receives payment for such Straddle Patient, Buyer shall
pay to Seller such value in the manner described in subparagraph (iii)
below. The pendency of a dispute shall not effect the payment
obligation hereunder of Buyer to the extent such payment is not in
dispute.
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(iii) Payments. All payments to be made pursuant to the
foregoing subparagraphs of this Paragraph 14.8 shall be paid in
immediately available funds.
(c) Government Receivables. The following provisions shall
apply with respect to the collection and administration of the Government
Receivables:
(i) Appointment of Collection Agent. Seller hereby
appoints Buyer as its agent to collect the Government Receivables, and
Buyer hereby accepts such appointment. As soon as possible after the
Closing, Seller shall deliver to Buyer a schedule of all Government
Receivables outstanding as of the Closing Date, which schedule shall
show the amount due from each Payor, patient or other third party and
shall deliver to Buyer possession of the Business Records pertaining to
the Government Receivables.
(ii) Collection. Buyer shall exercise its reasonable
commercial efforts to collect the Government Receivables on behalf of
and as agent for Seller. Buyer shall not have any right, title or
interest in the Government Receivables, any proceeds received with
respect to the Government Receivables or in the Business Records
pertaining to the Government Receivables, but instead shall hold all
such Government Receivables, proceeds and Business Records in trust for
the sole benefit of Seller. All payments received by Buyer after the
Closing Date from Payors, patients and other third parties shall be
applied to the oldest remaining Government Receivables due from such
Payor, patient or other third party in the order in which they arose,
unless otherwise indicated on or suggested by any remittance advice
from such Payor, patient or other third party which accompanies the
payment. Any Government Receivables settled or compromised by Buyer
without Seller's prior written consent shall be deemed to have been
collected in full by Buyer. All payments received by Buyer with respect
to the Government Receivables shall be paid by Buyer to Seller weekly
commencing on the first Monday following the Closing Date and covering
the seven day period ending on the immediately preceding Saturday.
Buyer shall promptly notify Seller if it receives notice from any Payor
or patient, whether orally or in writing, stating that the amount of
any Medicare Receivable is in dispute, including in such notice, to the
extent known, a reasonably detailed description of the amount and
nature of the dispute. Buyer shall not be required to file any lawsuit
or commence any other proceeding to collect any Medicare Receivable.
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(iii) Termination of Collection Efforts. Buyer's
obligations under this Paragraph 14.8(c) shall commence on the Closing
Date and end on the first anniversary of the Closing Date (the
"COLLECTION PERIOD"). At any time during the Collection Period, Seller
may instruct Buyer to terminate its efforts to collect any Medicare
Receivable, whereupon Buyer shall promptly transmit to Seller all
records (including any Hospital Records) pertaining to such Medicare
Receivable. With respect to any Government Receivables which have not
been collected by the end of the Collection Period or with respect to
which Seller has instructed Buyer to terminate its collection efforts,
Seller and its Affiliates shall be free to institute such collection
efforts with respect thereto (including, without limitation,
instituting legal proceedings) as they in their sole discretion shall
determine.
(iv) Cooperation. Buyer agrees to cooperate with Seller
and to provide access to any and all records (including the Hospital
Records) to assist Seller in the collection, rebilling and auditing of
the Government Receivables or in the monitoring of Buyer's collection
efforts hereunder. Until all Government Receivables have been collected
and paid over to Seller, Buyer and Seller agree as follows: (A) Seller
may, without charge, locate one or more of its employees at the places
of business where Buyer then maintains the records relating to the
Government Receivables or otherwise exercises its efforts to collect
the Government Receivables in order to assist with and monitor Buyer's
collection of the Government Receivables and Seller's collection,
rebilling ant auditing of the Government Receivables, (B) Buyer shall
provide any such employees of Seller, without charge, adequate and
proper space to facilitate the performance of such duties, and (C)
Buyer shall provide the reasonable assistance of its employees, without
charge, in connection with the performance of such duties by such
employees of Seller.
(v) Security Interest. Buyer hereby grants to Seller a
security interest in the Government Receivables and all proceeds
therefrom to secure Buyer's performance of its obligations
to distribute the proceeds of the Government Receivables to Seller
pursuant to this Paragraph 14.8. Buyer shall execute ant deliver to
Seller a form UCC-1 Financing Statement in with the Washington
Secretary of State and in Pierce County, Washington to perfect such
security interest in furtherance of the parties' intent that Seller
shall have all rights of a secured party under all applicable laws.
Seller agrees to terminate its security interest by filing a UCC-3
Termination Statement in each such jurisdiction one year from the
Closing Date.
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(vi) Cost Reports. Notwithstanding the foregoing to the
contrary, Buyer shall not have any responsibility for, and Buyer's
obligations under this Paragraph 14.8 shall not include, collecting or
handling any pending or administrative appeal, claim or contested
settlement with Medicare, Medicaid or any other Payor with respect to
the cost reports and filings referred to in Paragraph 14.10.
14.9 COST REPORT AUDITS AND CONTESTS
(a) After the Closing and for the period of time necessary to
conclude any pending or potential audit or contest of any cost reports with
respect to the Hospital Businesses concerning periods ending on or before the
Closing Date, Buyer shall within five days of Buyer's receipt of the same,
forward to Seller all information received from Payors relating to periods prior
to and as of the Closing Date, including, without limitation, cost report
settlements, notices of program reimbursements, demand letters for payment and
proposed audit adjustments. Upon the reasonable request of Seller, Buyer shall
assist Seller (including by providing the reasonable support of its employees at
no cost to Seller) in obtaining information deemed by Seller to be necessary or
convenient in connection with any audit or contest of such reports.
(b) If any Payor determines that Seller is liable to refund
any payment or reimbursement received by Seller from such Payor which is
attributable to any period of time ending on or prior to the Closing and which
arises out of or by reason of the sale of the Transferred Assets hereunder
(including any such determination based on such Payor's disregard of the
provisions of Paragraph 14.5) and if Buyer (or its successors or assigns)
thereby realize an increase in its reimbursements from any such Payor
(including, without limitation, an increase by reason of a step up in the basis
of the Transferred Assets by Buyer, or its successors or assigns), then Buyer
and its successors and assigns shall pay to Seller an amount equal to all such
increases in reimbursements as such increases are received by Buyer, or its
successors or assigns, no less frequently than quarterly until such time as
Seller has received the full amount of such refund. Buyer and its successors and
assigns agree to seek from such Payor an increase in its reimbursements upon the
receipt from Seller of written notice stating that such an adverse determination
has been made by such Payor and the cost of pursuing such increased
reimbursement by Buyer shall be paid by Seller promptly on demand for such
payment by Buyer. Notwithstanding the foregoing, to the extent that the Health
Care Financing Administration promulgates regulations pursuant to Section 4404
of the Balanced Budget Act of 1997 that definitively remove any and all
obligation on the part of Seller to refund any payment or reimbursement received
by Seller pursuant to this subparagraph (b) from any Payor, then Buyer's
obligations under this subparagraph (b) shall terminate.
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14.10 FILING COST REPORTS: AMOUNTS DUE TO OR FROM THIRD PARTY
PAYORS
Seller shall prepare and timely file all cost (including,
without limitation, the terminated cost report) and all other filings which are
required to be filed with Medicare, any other Payors or any governmental agency
with respect to the operations of the Hospital Businesses for any and all
periods ending on or prior to the Closing Date; Buyer shall assist Seller in the
preparation of such cost reports and other filings by promptly completing and
returning to Seller the year end cost report package for the terminated cost
report which Seller delivers to Buyer. Seller shall retain all rights to any
amounts receivable from Medicare or other Payors with respect to such filed cost
reports or filings (as reflected thereon or as finally determined by the audit,
contest or other adjustment of such reports or filings) and shall remain
obligated for all amounts due Medicare with respect to such filed cost reports
or filings (as reflected thereon or as finally determined by the audit, contest
or other adjustment of such cost reports or filings) and the parties hereby
acknowledge and agree that Buyer is not being assigned or otherwise receiving
and is not hereby assuming any of the same. Buyer shall promptly notify Seller
of such amounts due to Medicare from Seller or any amounts due from Medicare to
Buyer which are being withheld by Medicare by reason of Seller's breach of its
obligations under this Paragraph 14.10 or by reason of any other event or
occurrence taking place or otherwise attributable to the operations of the
Hospital and the Transferred Assets on or prior to the Closing Date (including,
without limitation, any periodic interim payments governed by the provisions of
Paragraph 14.8(c)). On receipt of such notice, together with written evidence
from Medicare or such other Payors in support thereof, if any exist, Seller
shall remit all such amounts or comply with its obligations hereunder within
sufficient time to avoid the imposition of any interest charges or the
withholding of any payment due from Medicare or other Payors to Buyer; provided,
however, that if any such withholding has occurred, for whatever reason, Seller
shall reimburse Buyer for the full amount of all payments so withheld within
three business days of Buyer's written notice to Seller of the same.
14.11 EMPLOYEE MATTERS
(a) Retained Employees. Buyer shall offer to hire at the
Closing each of Seller's then active employees who are in good standing to
perform comparable services, in such position and for such compensation as is
comparable to the position such employee held with, and the compensation paid to
such employee by, Seller at the Closing, provided that Buyer shall not be
obligated to offer employment to Hospital based personnel who are on the
corporate payroll of an Affiliate of Seller (including each Hospital's Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, Director of
Nursing and Director of Development). For purposes of this Agreement, active
employees in good standing are those employees who are actually providing
services to the Hospital Businesses (including those employees who are
temporarily absent due to vacation or other routine matter in compliance with
Law or Seller's policies pertaining to employee matters), but shall exclude any
employee whose employment status currently is restricted, suspended or
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otherwise affected as a result of disciplinary, corrective or other similar
action. Seller has identified on Schedule "5.12" only those employees as of the
date indicated thereon who meet the requirements of the preceding sentence and
who Buyer shall offer to hire (the "RETAINED EMPLOYEES"). The list of the
Retained Employees shall be adjusted by Seller as of the Closing Date to reflect
changes in the employees of Seller, and Buyer shall offer to hire the Persons
identified by Seller on such adjusted list of Retained Employees. Seller or its
Affiliates shall have the right to employ or offer to employ any Retained
Employee (including, without limitation, the Chief Executive Officer, the Chief
Operating Officer, the Chief Financial Officer and the Director of Nursing of
each Hospital) who declines Buyer's offer of employment, provided that neither
Seller nor its Affiliates shall offer employment to, or solicit such persons
until Buyer has notified Seller that it toes not intend to offer employment to
such Person(s) or such Person(s) has declined Buyer's offer.
(b) Hiring of Retained Employees by Buyer. Buyer shall hire
at the Closing the Retained Employees who elect to accept employment with Buyer
(the "HIRED EMPLOYEES") and shall continue to employ the Hired Employees for a
period of no less than 90 days following the Closing Date, unless Buyer sooner
terminates the employment of any Hired Employee for cause or any Hired Employee
resigns or accepts another position with Buyer. Except as may be limited hereby
or by contract, the Hired Employees' employment with Buyer will be for no
definite term and the Hired Employees' positions and compensation levels will be
subject to Buyer's policies. Buyer agrees to give the Hired Employees full
credit for the Paid Time Off and Sick Pay of such employees as reflected on the
revised Schedule "3.1(b)", either by allowing such employees such Paid Time Off
or Sick Pay reflected on such revised Schedule "3.1(b)" as to which such
employees would have been entitled under the policies of Seller if such
employees had remained employees of Seller or, upon termination of employment,
by making full payment to such employees of the Paid Time Off that such
employees would have received had they taken such Paid Time Off. Buyer shall be
fully responsible for providing or paying Paid Time Off and, as applicable, Sick
Pay to any Hired Employee and for any unemployment compensation or any other
unemployment benefits payable to a Hired Employee whose employment is terminated
by Buyer and Buyer shall indemnify, and hold Seller harmless from and against
all Losses actually incurred, paid or required (including those required under
penalty of Law or by a governmental entity) to be paid by Seller resulting from
Buyer's termination of a Hired Employee and/or failure to provide or pay Paid
Time Off or, as applicable, Sick Pay.
(c) Health and Other Employee Benefits. Buyer shall provide
the Hired Employees the program of health care benefits that are made available
to its employees in general; provided, however, that such health care benefits
shall be immediately available to the Hired Employees as of the Closing Date who
were then participants of and entitled to receive benefits under Seller's health
care plans without any limitation with respect to preexisting conditions, and
such Hired Employees shall become as of the Closing Date participants
thereunder, without regard to any applicable waiting period or any limitation
with respect to preexisting conditions. Buyer shall give each other Hired
Employee credit for
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his or her prior service with Seller for purposes of satisfying any waiting
periods of Buyer's health care plans with respect to eligibility to participate
or preexisting conditions. Buyer shall also give each Hired Employee credit for
his or her prior service with Seller for those purposes for which length of
service may be considered in connection with determining all other employee
benefits of Buyer made available to its employees in general, including without
limitation, retirement, severance, Paid Time Off and Sick Pay. Buyer
acknowledges and agrees that Buyer is a successor employer for purposes of
COBRA, that the Hired Employees will not, as a result, be deemed to have had a
termination of employment for purposes of COBRA and that any COBRA notices or
coverages to be given or made available to any Hired Employee shall be given or
made by Buyer and not Seller. Seller shall be responsible for COBRA notices and
coverages with respect to any employees other than the Hired Employees.
(d) Acknowledgment of Responsibility. Buyer acknowledges and
agrees that as of the date and time the Closing is effective pursuant to
Paragraph 11, Buyer is considered for purposes of the Worker Adjustment and
Retraining Notification Act, 29 U.S.C. Section 2101, et seq. . (the "WARN Act",)
the employer of the Retained Employees and that Buyer (and not Seller) shall
thereupon be responsible for complying with the WARN Act respect to the Retained
Employees and that prior to such time none of the Retained Employees shall be,
nor shall they be deemed to be, terminated. Buyer shall indemnify and hold
Seller harmless from and against all losses, liabilities, fines, penalties,
charges, costs and expenses, including reasonable attorneys' fees (including a
reasonable estimate of the allocable costs of in-house counsel and staff)
actually incurred, paid or required under penalty of Law to be paid by Seller
(i) resulting from any compliance obligation (including, without limitation, the
obligation to give notice or pay money) Seller or Buyer has under the WARN Act
with respect to the termination of any Retained Employee whose name appears on
the adjusted list of Retained Employees on the Closing Date or (ii) resulting
from any claims of the Hired Employees (including, without limitation, claims
for health care coverage or benefits). Buyer's indemnification obligation
hereunder is separate and apart from and in addition to its indemnification
obligations under Paragraph 16.2.
(e) No Employment Contract. The understandings set forth in
this Paragraph 14.11 are solely for the purpose of defining the obligations
between Buyer and Seller with respect to the individuals employed in the
operation of the Hospital Businesses as of the Closing Date and shall not be
construed as creating any employment contract or other contract between either
Buyer or Seller, on the one hand, and any such employee, on the other, nor to
create or modify any Plan. All such employees shall remain terminable at will by
Buyer or Seller, as the case may be, except to the extent otherwise required by
Law or any preexisting employment or other contracts which have been
specifically assumed by Buyer hereunder.
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14.12 MEDICAL STAFF PRIVILE ES/BYLAWS
For a period of 30 days after the Closing, Buyer shall not
change or modify either (a) the medical staff privileges for physicians on staff
at the Hospital on the Closing Date, or (b) the medical staff bylaws in effect
on the Closing Date for each Hospital.
14.13 ANTITRUST LAWS COMPLIANCE
The parties acknowledge that the transaction contemplated by
this Agreement is subject to the provisions of the Premerger Rules and other
Laws concerning antitrust and fair trade. Accordingly, the following provisions
shall apply:
(a) Initial Filings. Buyer and Seller shall promptly prepare
and file with the Federal Trade Commission ("FTC") and with the United States
Department of Justice ("JUSTICE DEPARTMENT') the notification and report forms
required under the provisions of the Premerger Rules and shall promptly make all
filings with any other governmental agencies as are required by any other Laws
pertaining to antitrust and fair trade. Each such filing shall not, to the
knowledge of the filing party, fail to conform to the requirements of the
Premerger Rules or such other Laws. The filing fee required with respect to each
such filing shall be paid by the party filing the same.
(b) Additional Filings. Buyer and Seller shall each promptly
notify the other of any request by the FTC, Justice Department or such other
governmental agencies for additional information with respect to such filings.
The party who receives such request shall promptly respond thereto and the other
party shall cooperate in supplying any information required to enable the
responding party to so comply. Each such filing shall not, to the knowledge of
the filing party, fail to conform to the requirements of the Premerger Rules or
such other Laws.
(c) Cooperation. All analyses, appearances, presentations,
memoranda, briefs, arguments, opinions and proposals made or submitted on behalf
of either party hereto in connection with the proceedings under or relating to
the Premerger Rules or any Law pertaining to antitrust or fair trade shall be
subject to the joint approval or disapproval and the joint control of Buyer and
Seller, acting with the advice of their respective counsel, it being the intent
of the foregoing that the parties hereto will consult and cooperate with one
another, and consider in good faith the views of one another, in connection with
any such analysis, presentation, memorandum, brief, argument, opinion or
proposal. Nothing herein shall prevent either party or their respective
Affiliates from making or submitting any such analysis, appearance,
presentation, memorandum, brief, argument, opinion or proposal in response to a
subpoena or other legal process or as otherwise required by Law or submitting
factual information to the Justice Department, FTC, any other governmental
agency or any court or administrative law judge in response to requests therefor
or as otherwise required by Law.
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14.14 FILING TAX RETURNS
Buyer shall cause its employees, at no cost to Seller, to
assist Seller, in the same manner and to the extent that employees of the
Hospital Businesses currently provide such assistance, in the preparation and
filing of all returns relating to taxes imposed upon the businesses operated
through the Transferred Assets that relates to periods-ending on or prior to the
Closing Date but which are due after the Closing Date.
14.15 USE OF CONTROLLED SUBSTANCE PERMITS
To the extent permitted by Law, Buyer shall have the right,
for a period not to exceed 180 days following the Closing Date, to operate under
the Permits of Seller relating to controlled substances and the operations of
pharmacies, until Buyer is able to obtain such permits for itself; provided,
however, that nothing herein shall require Seller to renew any Permits which may
expire during such 180-day period. Seller shall execute and deliver to Buyer the
special limited powers of attorney substantially in the form and substance of
EXHIBIT "14.15". Buyer acknowledges that it shall apply for all such permits as
soon as reasonably possible before and after the Closing Date and shall
diligently pursue such applications. Buyer shall indemnify and hold Seller
harmless from and against all Losses actually incurred, paid or required under
penalty of Law to be paid by Seller resulting in whole or in part from the use
of such permits by Buyer. Buyer's indemnification application hereunder is
separate and apart from, and in addition to, its indemnification obligations
under Paragraph 16.2, which shall be subject to and governed by the provisions
of Paragraph 16.3.
14.16 LIMITED USE OF MANUALS AND SOFTWARE
Subject to obtaining any necessary consent or permission from
third-party vendors or licensors, Seller agrees to make available to Buyer,
solely in connection with Buyer's operation of the Hospital: (i) the
royalty-free, nonexclusive right and license to use, for a period not to exceed
one year from the Closing Date, the clinical policy and procedure manuals of
Seller which are Retained Assets (the "MANUALS"); and (ii) information services
(the "SERVICES") using only the proprietary computer software and hardware
described in Exhibit 14.16 (the "SOFTWARE") presently used at the Hospital for a
period not to exceed one year from the Closing Date, on the following terms and
conditions:
(a) Buyer shall accept the Manuals and Software in their
present condition, "AS IS" and "WITH ALL FAULTS" and without any representation
or warranty of any kind whatsoever, either expressed or implied, by Seller
including, but not limited to, any representation or warranty that the Manuals
or Software are adequate for Buyer's operation of the Hospital after the Closing
or are in compliance with any Laws. Any and all fees, cost and expenses
incurred in connection with the transition by Buyer from the Software and
Manuals to other manuals, software and hardware shall be borne solely by
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Buyer, including, without limiting the generality of the foregoing, all fees,
costs and expenses incurred in creating extract files and reports in connection
with such transition.
(b) Buyer agrees that Seller shall have no obligation
whatsoever to update or otherwise revise the Manuals or the Software, even if
Seller or its Affiliates are revising similar manuals or software or hardware at
other health care facilities, as Buyer shall assume full responsibility therefor
provided, however, that Seller will provide to Buyer, for Buyer's use during the
term of the license granted by this Paragraph 14.16, any routine upgrade to base
operating systems licensed hereunder at the time and in the manner of Seller's
general distributions to its facilities using such systems.
(c) Buyer acknowledges and agrees that the Manuals and
Software are strictly confidential and proprietary information of Seller and its
Affiliates, and Buyer hereby expressly covenants and agrees that it will not
(nor will it allow any of its officers, directors, employees or agents to),
directly or indirectly, reproduce, distribute or disclose all or any part of the
Manuals or Software, unless Buyer's disclosure is compelled by judicial or
administrative process or except as may be required in the operation of the
Hospital (including, but not limited to, as required by any Laws). Upon the
expiration of the license hereby granted to Buyer or the sooner termination of
Buyer's use of the Manuals and/or Software, Buyer shall return to Seller all
originals and copies of the Manuals and/or Software.
(d) As a material inducement to Seller's agreement to license
the Manuals and Software to Buyer, (i) Buyer hereby releases and forever
discharges Seller and its Affiliates from and against any and all claims,
demands, debts, liabilities, obligations and causes of action of every kind in
law, equity or otherwise, whether known or unknown, suspected or unsuspected,
which Buyer or its Affiliates now or may hereafter have against Seller or its
Affiliates by reason of the use by Buyer of the Manuals and/or Software and (ii)
Buyer shall indemnify and hold Seller and its Affiliates harmless from and
against all losses, liabilities, fines, penalties, charges, costs and expenses,
including reasonable attorneys' fees (including a reasonable estimate of the
allocable COStS of in-house counsel and staff) actually incurred, paid or
required under penalty of Law to be paid by Seller or its Affiliates resulting
in whole or in part from the use by Buyer of the Manuals and/or Software.
14.17 Puget Sound Union Negotiations
Buyer hereby recognizes that PSH, Inc.'s contract with the
United Staff Nurses Union (the "UNION") will expire on December 31, 1997, and
that Seller currently is negotiating with the Union to extend such contract
until September, 1998. In the event such contract is not so extended, Seller
will undertake negotiations with the Union for a new contract In such event,
Seller hereby agrees to (a) allow Buyer to attend any face-to-face negotiations
with the Union, (b) from time to time, keep Buyer apprised of the status of the
negotiations, and (c) obtain Buyer's input in connection with such negotiations;
provided, however, that all decisions relating to the Union contract shall be
made by PSH, Inc.
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14.18 PURCHASE OF SUPPLIES
Buyer has asked to participate in Seller's Affiliate's group
purchasing organization called BuyPower for a period of two years from the
Closing Date. In connection therewith, at the Closing, Buyer shall execute a Buy
Power purchasing assistance agreement in the form attached hereto as EXHIBIT
"14.18". Buyer shall not be required to pay the base participation fee for the
two years that it participates in Buy Power.
15. SURVIVAL OF REPRESENTATIONS
Notwithstanding any investigation made by Seller or Buyer, any
distribution in liquidation or dissolution, or any voluntary or involuntary act
of Seller or Buyer, subject to the provisions of Paragraph 16.5, the
representations, warranties, covenants, agreements and indemnifications made by
the parties shall survive the Closing and shall be deemed to be material and to
have been relied upon by Buyer and Seller.
16. INDEMNIFICATION
16.1 INDEMNIFICATION BUYER BY SELLER
Subject to the provisions of Paragraphs 15, 16.3, 16.4, 16.5
and 16.6, Seller shall indemnify and hold Buyer harmless from and against claims
incurred or asserted against and all losses, liabilities, damages, COStS and
expenses, including reasonable attorneys' fees (including a reasonable estimate
of the allocable costs of in-house legal counsel and staff) (all such claims,
losses, liabilities, damages, costs and expenses shall collectively be referred
to as "LOSSES"), actually incurred, paid or required (including those required
under penalty of Law) to be paid by Buyer, resulting from (a) any breach of any
representation, warranty, covenant or agreement made herein by such Seller, or
(b) if the Closing occurs, any obligation, liability or claim relating to (i)
the Excluded Liabilities, or (ii) the Retained Assets; provided, however, that
except for personal injury claims made by third parties for injuries occurring
prior to the Closing Date and caused solely by the condition of the Real
Property, nothing in this Paragraph 16.1(b) shall obligate Seller to indemnify
Buyer for any such obligation, liability or claim relating to the physical
condition of the Transferred Assets as Buyer is purchasing the Transferred
Assets "AS IS. and "WITH ALL FAULTS".
16.2 INDEMNIFICATION OF SELLER BY BUYER
Subject to the provisions of Paragraphs 15, 16.3, 16.4, 16.5
and 16.6, Buyer shall indemnify and hold Seller harmless from and against all
Losses, actually incurred, paid or required (including those required under
penalty of Law) to be paid by Seller resulting in whole or in part from (a) any
breach of any representation, warranty, covenant or agreement made herein by
Buyer, (b) the activities of Buyer or its agents which arise in connection with
the Inspection or otherwise (including, without limitation, the compliance
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by Seller or its agents with any request made by Buyer or its agents) of the
Hospital and the Hospital Businesses or (c) if the Closing occurs, any
obligation, liability or claim relating to (i) the Assumed Obligations, or (ii)
the Transferred Assets relating to, or the operations of, the Hospital and the
Hospital Businesses to the extent such obligation, liability or claim is based
upon acts or omissions occurring after the Closing Date, and is not an Excluded
Liability or a Retained Asset, including the ongoing operations of the
Transferred Assets after the Closing Date and the continuance or performance by
Buyer after the Closing Date of any agreement or practice of such Seller.
16.3 NOTIFICATION AND SETTLEMENT OF CLAIMS
Any party seeking indemnification hereunder (the "INDEMNITEE")
shall, (a) within 30 days from the date the Indemnitee received actual knowledge
of the claim (or by such earlier date after the Indemnitee has received actual
knowledge of the claim as may be necessary to avoid material prejudice to the
other party), notify the other party (the "INDEMNITOR") of such claim (the
"INDEMNIFICATION NOTICE") and provide the Indemnitor with a copy of such claim
or other documents received, and (b) upon request, otherwise make available to
the Indemnitor all relevant information material to the defense of such claim
and' within the Indemnitee's possession. The failure of the Indemnitee to give
the Indemnitor notice within the specified number of days shall not relieve the
Indemnitor of any of its obligations hereunder, but may create a cause of action
for breach for damages directly attributable to such delay. If the Indemnitor
notifies the Indemnitee in writing within ten days after an Indemnification
Notice is given to the Indemnitor that the Indemnitee is entitled to
indemnification hereunder or defense with respect to such claim (subject,
however, to any reservation of rights the Indemnitor may have to contest the
Indemnitee's right to indemnification hereunder), then the Indemnitor shall have
the right by notice given to the Indemnitee within 15 days after the date of the
Indemnification Notice to assume and control the defense thereof, including the
employment of counsel selected by the Indemnitor, and the Indemnitor shall pay
all expenses of such defense. The Indemnitee shall have the right to employ
separate counsel in any such proceeding and to participate in (but not control)
the defense of such claim, but the fees and expenses of such counsel shall be
borne by the Indemnitee unless the employment thereof has been specifically
authorized by the Indemnitor in writing; provided, however, that if the named
parties to any such proceeding (including any impleaded parties) include both
the Indemnitee and the Indemnitor, and if the Indemnitor requires that the same
counsel represent both the Indemnitee and the Indemnitor and if representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them, then the Indemnitee shall have the
right to retain its own counsel at the cost and expense of the Indemnitor. If
the Indemnitor shall have failed to assume the defense of any claim in
accordance with the provisions of this Paragraph 16.3, then the Indemnitee shall
have the absolute right to control the defense of such claim and, if and when it
is finally determined that the Indemnitee is entitled to indemnification from
the Indemnitor hereunder, the fees and expenses of the Indemnitee's counsel
shall be borne by the Indemnitor and paid by Indemnitor to Indemnitee within
five business days of written
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demand therefor, but the Indemnitor shall be entitled, at its own expense, to
participate in (but not control) such defense. The Indemnitor shall have the
right to settle or compromise any such claim in its sole and absolute discretion
and without consultation with the Indemnitee so long as such settlement or
compromise does not impose any obligations on the Indemnitee (except with
respect to providing releases of the third party). The Indemnitee shall not
settle or compromise the claim without satisfying one of the following
conditions (otherwise the Indemnitor shall be released from all indemnification
obligations hereunder to the Indemnitee with respect to such claim): (a) the
Indemnitee shall first obtain the written consent of the Indemnitor or (b) the
Indemnitor shall have failed, after written notice to it of such suit, to take
action to defend the same within the 15-day period described above.
16.4 LIMITATIONS ON INDEMNIFICATION OBLIGATIONS
(a) Buffer and Deductible. Notwithstanding anything to the
contrary contained in this Paragraph 16, no claim for indemnification hereunder
shall be made by the Indemnitee against the Indemnitor with respect to a
particular Hospital until the aggregate amount of Losses resulting from such
claims by the Indemnitee against the Indemnitor with respect to such Hospital
shall exceed $300,000 but thereafter Indemnitee shall be entitled to recovery of
the full amount of all such Losses, including the first $300,000; provided,
however, that individual claims of less than $10,000 shall not be aggregated for
purposes of the foregoing $300,000 limitation. The provisions of this Paragraph
16.4 shall not apply to any claim based on the parties' obligations set forth in
Paragraphs 1, 2, 3 and 14.
(b) Maximum Limit on Seller's Indemnification Obligation. If
the Closing occurs, then in no event shall Seller be liable to Buyer under
Paragraph 16.1 for amounts which, in the aggregate, exceed the Purchase Price.
16.5 TIME LIMITATIONS
Seller shall not be liable for any breach of any
representation, warranty, covenant or agreement contained herein or made by
Seller under or in connection with this Agreement unless Buyer shall have given
written notice to Seller of the basis of its claim within two years of the
Closing. Buyer shall not be liable for any breach of any representation,
warranty, covenant or agreement contained herein or made by Buyer under or in
connection with this Agreement unless Seller shall have given written notice to
Buyer of the basis of its claim within two years of the Closing. The provisions
of this Paragraph 16.5 shall not apply to any claim based on the parties'
obligations set forth in Paragraphs 2, 3 and
16.6 EXCLUSIVE REMEDY
Absent fraud, the sole exclusive remedy for damages of a party
hereto for any breach of the representations, warranties, covenants and
agreements of the other party
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contained in this Agreement, or any document or instrument delivered in
connection herewith, shall be the remedies contained in this Paragraph 16;
provided, however, that the remedy for breaches of the covenants set forth in
Paragraph 14.6 shall not be limited to the remedies set forth in this Paragraph
16 and shall include injunctive and other equitable remedies, as appropriate. If
the Closing occurs, Buyer shall not be entitled to indemnity under Paragraph
16.1, and Seller shall not be entitled to indemnity under Paragraph 16.2, except
for out-of-pocket Losses actually suffered or sustained by Buyer or Seller, as
the case may be, and such indemnity shall not include Losses in the nature of
consequential damages, lost profits, diminution in value, carnage to reputation
or goodwill, or the like. In computing Losses, such amount shall be computed net
of any related recoveries to which the Indemnitee is entitled under insurance
policies or other related payments received or receivable from any other Person
and net of any tax benefits actually received by the Indemnitee, taking into
account the income tax treatment of the receipt of indemnification.
17. TERMINATION
17.1 TERMINATION UPON CERTAIN EVENTS
Either Buyer or Seller may, at or prior to the time set for
Closing, terminate this Agreement under any one of the following circumstances:
(a) If at the time for Closing (i) a bona fide action or
proceeding shall be pending against any party wherein an unfavorable judgment,
decree or order would prevent or make unlawful the carrying out of the
transactions contemplated by this Agreement or (ii) any governmental agency
shall have notified any party to this Agreement that the consummation of the
transactions contemplated by this Agreement would constitute a violation of the
Laws of any jurisdiction and that it has commenced or intends to commence
proceedings to restrain the consummation of the transactions contemplated
hereunder, and such agency has not withdrawn such notice prior to such
termination; provided, however, that, notwithstanding Paragraph 17.1(d) to the
contrary, the Closing shall be extended so long as either party hereto is
diligently attempting to obtain the dismissal of such action or proceeding or
cause such notice to be withdrawn; or
(b) If the conditions of this Agreement to be complied with or
performed by the other party at or before the Closing shall not have been
complied with or performed on or before the date specified for the Closing in
Paragraph 11 or, subject to Paragraph 17.1(d) below, such later date upon which
the parties shall mutually agree, and such noncompliance or nonperformance shall
not have been waived by the party giving notice of termination;
(c) If the State of Washington Department of Health, Certificate
of Need Unit conclusively denies the CON; or
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(d) If for any reason the Closing shall not have occurred on the
date which is 45 days after the CON is issued by the State of Washington
Department of Health, Certificate of Need Unit, but in no event later then duly
31, 1998.
17.2 EFFECT OF TERMINATION
If there has been a termination under this Paragraph 17,
then-this Agreement shall be deemed terminated, and all further obligations of
the parties hereunder shall terminate except that those obligations set forth in
Paragraphs 13, 14.6, 16, and 18 shall survive. Any termination under this
Paragraph 17 shall be without liability to the parties hereto, except that such
termination shall be without prejudice to the rights and remedies which any
party seeking to terminate this Agreement may have if (a) a default shall be
made by the other party in the observance or in the due and timely performance
by such party of any of the covenants herein contained, or (b) there shall have
been a breach by the other party of any of the warranties and representations
herein contained, and except for fraudulent acts by a party, the remedies for
which shall not be limited by the provisions of this Agreement. Notwithstanding
the foregoing to the contrary, if Seller shall have made such default or breach,
then Buyer need not terminate this Agreement but may seek to specifically
enforce Seller's obligations hereunder.
18. LIQUIDATED DAMAGES.
IN THE EVENT THAT THE TRANSACTIONS CONTEMPLATED HEREUNDER SHALL
FAIL TO CLOSE BECAUSE OF (A) THE BREACH BY BUYER OF ITS MATERIAL
REPRESENTATIONS, WARRANTIES OR OBLIGATIONS HEREUNDER, OR (B) THE CONDITIONS
PRECEDENT SET FORTH IN PARAGRAPHS 10.1, 102, 10.3, 10.4, 10.5, 10.6 OR 10.9 HAVE
NOT BEEN SATISFIED BY BUYER OR WAIVED BY SELLER, THEN BUYER SHALL BE IN
DEFAULT, SELLER SHALL BE RELEASED FROM SELLER'S OBLIGATION TO SELL THE
TRANSFERRED ASSETS TO BUYER. THE PARTIES HEREBY EXPRESSLY AGREE THAT SELLER
SHALL RECEIVE AS SELLER'S LIQUIDATED DAMAGES AN AMOUNT EQUAL TO THE EXCLUSIVITY
FEE AND THE PARTIES EXPRESSLY AGREE THAT BECAUSE THE PRECISE AMOUNT OF SELLER'S
DAMAGES CAUSED BY BUYER'S DEFAULT WOULD BE EXTREMELY DIFFICULT TO CALCULATE
ACCURATELY, SUCH AMOUNT IS NOT UNREASONABLE UNDER THE CIRCUMSTANCES EXISTING AT
THE TIME THIS AGREEMENT IS ENTERED INTO. SELLER AND BUYER ACKNOWLEDGE AND AGREE
THAT THEY HAVE MADE A REASONABLE ENDEAVOR TO ESTIMATE THE ACTUAL DAMAGES SELLER
WOULD SUSTAIN AS A RESULT OF BUYER'S DEFAULT. HOWEVER, THE PROSPECTIVE
IMPRACTICABILITY AND EXTREME DIFFICULTY OF FIXING SELLER'S ACTUAL DAMAGES HAS
REQUIRED THE PARTIES TO ATTEMPT TO LIQUIDATE SELLER'S DAMAGES IN THE EVENT OF
BUYER'S DEFAULT, SINCE SELLER'S DAMAGES WILL
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RESULT FROM, AMONG OTHER THINGS, MARKET FLUCTUATION, SELLER'S COSTS AND EXPENSES
OF THIS TRANSACTION (INCLUDING, WITHOUT LIMITATION, SELLER'S LEGAL AND OTHER
EXPENSES INCURRED IN CONNECTION WITH THIS AGREEMENT AND PREPARING FOR THE
CLOSING), AND LOSSES WHICH WOULD RESULT FROM SELLER HAVING REMOVED THE
TRANSFERRED ASSETS FROM THE MARKET FOR ANY LENGTH OF TIME. NOTWITHSTANDING ANY
OTHER PROVISION HEREOF, RECEIPT OF LIQUIDATED DAMAGES SHALL BE SELLER'S SOLE AND
EXCLUSIVE REMEDY FOR BUYER'S FAILURE TO COMPLETE THE PURCHASE OF THE TRANSFERRED
ASSETS.
19. GENERAL PROVISIONS
19.1 NOTICES
All notices, requests, demands, waivers, consents and other
communications hereunder shall be in writing, shall be delivered either in
person, by telegraphic, facsimile or other electronic means, by overnight air
courier or by mail, and shall be deemed to have been duly given and to have
become effective (a) upon receipt if delivered in person or by telegraphic,
facsimile or other electronic means calculated to arrive on any business day
prior to 6:00 p.m. local time at the address of the addressee, or on the next
succeeding business day if delivered on a non-business day or after 6:00 p.m.
local time, (b) one business day after having been delivered to an air courier
for overnight delivery or (c) five business days after having been deposited in
the mails as certified or registered mail, return receipt requested, all fees
prepaid, directed to the parties or their assignees at the following addresses
(or at such other address as shall be given in writing by a party hereto):
If to Seller, addressed to:
c/o TENET HEALTHSYSTEM
14001 Dallas Parkway
Dallas, TX 75240
Attn: Donald W. Thayer
Facsimile: (972) 789-2318
with a copy to counsel for Seller:
Tenet HealthSystem
14001 Dallas Parkway
Dallas, TX 75240
Attn: General Counsel
Facsimile: (972) 789-2370
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and
Gary Q. Michel, Esq.
Ervin, Cohen & Jessup LLP
9401 Wilshire Blvd., 9th Floor
Beverly Hills, CA 90212-2974
Facsimile: (310) 859-2325
If to Buyer, addressed to:
NEW AMERICAN HEALTHCARE CORPORATION
109 Westpark Drive, Suite 440
Brentwood, TN 37024
Attn: Neil G. McLean
Facsimile: (615) 221-5009
with a copy to counsel for Buyer:
Michael R. Hill, Esq.
Harwell, Howard, Hyne, Gabbert & Manner
315 Deaderick Street
Nashville, TN 37238
Facsimile: (615) 251-1059
19.2 FORM OF INSTRUMENTS
To the extent that a form of any document to be delivered
hereunder is not included within the Disclosure Statement, such documents shall
be in form and substance, and shall be executed and delivered in a manner,
reasonably satisfactory to the recipient thereof and consistent with the
provisions of this Agreement.
19.3 ATTORNEYS' FEES
In any litigation or other proceeding relating to this
Agreement, including litigation with respect to any instrument, document or
agreement made under or in connection with this Agreement, the prevailing party
shall be entitled to recover its costs and reasonable attorneys' fees
(including a reasonable estimate of the allocable costs of in-house legal
counsel and staff).
19.4 REMEDIES NOT EXCLUSIVE
Except as otherwise expressly set forth in this Agreement, no
remedy conferred by any of the specific provisions of this Agreement is
intended to be exclusive of
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any other remedy, and each and every remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute or otherwise. The election of any one or more
remedies by a party shall not, except as otherwise expressly provided for
herein, constitute a waiver of the right to pursue other available remedies.
19.5 SUCCESSORS AND ASSIGNS
(a) Buyer's Limited Right to Assign. Prior to the
Closing Date, Buyer, in its sole discretion, may assign any or all of its
rights and obligations with respect to the Transferred Assets and the Assumed
Obligations to a corporation, partnership, limited liability company or any
other Person which is not an individual in which Buyer and its Affiliates hold
at least 80% of the voting stock, partnership interests, membership interests
or other ownership interests ("BUYER'S SUBSIDIARY"), provided that no such
assignment shall relieve Buyer of any obligation or liability to Seller
hereunder, and provided further that the following shall apply:
(i) Buyer shall provide Seller of prompt
written notice of any such assignment.
(ii) No such assignment shall be effected if the
making of the assignment will result in Buyer's inability to obtain
any Permit required by Paragraph 9.4.
(iii) Buyer's Subsidiary shall irrevocably
appoint Buyer as its sole and exclusive representative and agent
authorized to act for and to receive notices and payments on its
behalf in all matters arising from or related to this Agreement.
(iv) As a condition to Seller's agreement to
such assignments, Buyer hereby agrees that prior to the Closing Buyer
will be the ultimate parent entity of the consolidated group of
companies of which Buyer is a group member or that, in the event of
any reorganization involving Buyer and its subsidiaries prior to the
Closing, the ultimate parent entity of the consolidated group of
companies emerging from such reorganization that includes Buyer and
its successors and assigns shall, prior to any such reorganization
execute such documents as are reasonably necessary to confirm the
assumption by such ultimate parent entity of Buyer's obligations to
Seller hereunder.
(v) Buyer shall remain jointly and severally
liable to Seller and to third parties with respect to any Assumed
Obligations transferred to Buyer's Subsidiary, and, without limiting
the generality of the foregoing,
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hereby absolutely and unconditionally guarantees the full, prompt and faithful
performance by Buyer's Subsidiary of all covenants and obligations to be
performed by Buyer's Subsidiary under this Agreement and any agreement
delivered in connection herewith which are assigned to Buyer's Subsidiary,
including but not limited to, the payment of all sums stipulated to be paid by
such Buyer is Subsidiary pursuant to such assignment, it being understood that
each such covenant and obligation constitutes the direct and primary obligation
of Buyer, is independent of the covenants and obligations of Buyer's Subsidiary
and that a separate action or actions may be brought and prosecuted against
Buyer whether action is brought against Buyer's Subsidiary or whether Buyer's
Subsidiary is Joined in any such action or actions (Buyer hereby waiving any
right to require Seller to proceed against Buyer's Subsidiary). Buyer hereby
authorizes Seller, without notice and without affecting Buyer's liability
hereunder, from time to time to (A) renew, compromise, extend, accelerate, or
otherwise change the terms of any obligation of Buyer's Subsidiary hereunder
with the agreement of Buyer's Subsidiary, (B) take and hold security for the
obligations guaranteed, and exchange, enforce, waive and release any such
security, and (C) apply such security and direct the order or manner of sale
thereof as Seller in its discretion may determine. Buyer hereby further waives:
(I) Any right to subrogation, reimbursement,
exoneration or contribution or any other rights that would result in
Buyer being deemed a creditor of Buyer's Subsidiary under the federal
Bankruptcy Code or any other law, in each case arising from the
existence or performance of Buyer's guaranty of the obligations of
Buyer's Subsidiary hereunder;
(II) Any defense that may arise by reason of the
incapacity or lack of authority of Buyer's Subsidiary;
(III) Any defense based upon a statute or rule of
law which provides that the obligations of a surety must be neither
larger in amount nor in other respects more burdensome than those of
the principal; and
(IV) Any duty on the part of Seller to disclose
to Buyer any facts that Seller may now or hereafter know about Buyer's
Subsidiary, since Buyer hereby acknowledges that it is fully
responsible for being and keeping informed of the financial condition
of Buyer's Subsidiary and all circumstances bearing on the risk of
non-payment of any obligations assigned to Buyer's Subsidiary.
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(b) No Third Party Rights. Subject to the provisions of
Paragraph 19.5(a), the rights under this Agreement shall not be assignable nor
the duties delegable by any party without the written consent of the other; and
nothing contained in this Agreement, express or implied, is intended to confer
upon any Person or entity, other than the parties hereto and their permitted
successors-in-interest and permitted assignees, any rights or remedies under or
by reason of this Agreement unless so stated to the contrary.
19.6 COUNTERPARTS
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
19.7 CAPTIONS AND PARAGRAPH HEADINGS
Captions and paragraph headings used herein are for
convenience only and are not a part of this Agreement and shall not be used in
construing it.
19.8 ENTIRETY OF AGREEMENT; AMENDMENTS
This Agreement (including the Schedules hereto), the other
documents and instruments specifically provided for in this Agreement and the
letter agreement of even date herewith between Seller and Buyer regarding
Seller's remediation of certain environmental matters on the Real Property,
contain the entire understanding between the parties concerning the subject
matter of this Agreement and such other documents and instruments and, except
as expressly provided for herein, supersede all prior understandings and
agreements, whether oral or written, between them with respect to the subject
matter hereof and thereof. There are no representations, warranties, agreements,
arrangements or understandings, oral or written, between the parties hereto
relating to the subject matter of this Agreement and such other documents and
instruments which are not fully expressed herein or therein. This Agreement may
be amended or modified only by an agreement in writing signed by all of the
parties hereto.
19.9 EXPENSES AND PRORATIONS
Each party shall bear and pay its own costs and expenses
relating to the transactions contemplated by, or the performance of or
compliance with any condition or covenant set forth in, this Agreement. In
determining the costs and expenses of each party hereunder, the following rules
shall apply: (a) all costs of the Preliminary Title Report and each Title
Policy shall be paid by Seller up to an amount equal to the amount Seller would
have incurred if each Title Policy were a standard coverage owner's or
leasehold owner's policy of title insurance (without deletion of survey
exceptions), and the remaining costs of each Title Policy (including any
endorsements required by Buyer), if any, shall be borne by
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Buyer; (b) all costs of the Survey, the Environmental Survey and all UCC
Reports borne by Buyer; (c) all fees, charges and costs of economists and other
experts, if any, jointly retained by Buyer and Seller in connection with the
submissions made to any governmental agency and advice in connection therewith
respecting the approval of the transactions contemplated hereby will be borne
one-half by Seller and one-half by Buyer except for all fees relating to the
Hart-Scott-Rodino filing, which fees shall be paid by Buyer; (d) all escrow
charges and related fees shall be borne one-half by Seller and one-half by
Buyer; (e) if not properly reflected as an Accrued Operating Expense as of the
Closing Date, all real and personal property taxes (including all special
assessments and any installment payments thereof) shall be prorated between
Seller and Buyer as of the Closing Date based on the assessed valuations of
such property for the taxable year in which the Closing occurs and the property
tax rates for such taxable year of all applicable taxing jurisdictions; and (f)
all other costs, charges and expenses shall, except as otherwise provided in
this Agreement, be allocated between Buyer and Seller in accordance with the
customs of the county in which the Real Property is located.
19.10 CONSTRUCTION
This Agreement and any documents or instruments delivered
pursuant hereto shall be construed without regard to the identity of the Person
who drafted the various provisions of the same. Each and every provision of
this Agreement and such other documents and instruments shall be construed as
though the parties participated equally in the drafting of the same.
Consequently, the parties acknowledge and agree that any rule of construction
that a document is to be construed against the drafting party shall not be
applicable either to this Agreement or such other documents and instruments.
19.11 WAIVER
The failure of any party to insist, in any one or more
instances, on performance of any of the terms, covenants and conditions of this
Agreement shall not be construed as a waiver or relinquishment of any rights
granted hereunder or of the future performance of any such term, covenant or
condition, but the obligations of the parties with respect thereto shall
continue in full force and effect. No waiver of any provision or condition of
this Agreement by any party shall be valid unless in writing and signed by such
party or operational by the terms of this Agreement. A waiver by one party of
the performance of any covenant, condition, representation or warranty of the
other party shall not invalidate this Agreement, nor shall such waiver be
construed as a waiver of any other covenant, condition, representation or
warranty. A waiver by any party of the time for performing any act shall not
constitute a waiver of the time for performing any other act or the time for
performing an identical act required to be performed at a later time.
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19.12 SEVERABILITY
The provisions of this Agreement are severable, and if any
one or more provisions may be determined to be judicially unenforceable, in
whole or in part, the remaining provisions and any partially unenforceable
provisions, to the extent enforceable, shall nevertheless be binding upon and
enforceable against the parties hereto.
19.13 CERTAIN DEFINITIONS
(a) Newly Defined Terms. For purposes of this Agreement,
the following terms shall have the following meanings:
"AFFILIATE" of a specified Person shall mean any corporation,
partnership, sole proprietorship or other Person or entity which directly or
indirectly through one or more intermediaries controls, is controlled by or is
under common control with the Person specified. The term "CONTROL" means the
possession, direct or indirect, of the power to direct or cause the direction
of the management and policies of a Person or entity.
"COBRA" shall mean Sections 601 through 609 of ERISA and
Section 4980B of the Code.
"ENVIRONMENTAL REGULATIONS" shall mean all Laws and all
policies and guidelines as of the date of this Agreement relating to the use,
handling, treatment, storage, transportation, disposal, emissions, discharges
or releases of Hazardous Materials or otherwise relating to the protection of
the environment or industrial hygiene (including, without limitation, ambient
air, surface water, ground water, land surface or subsurface strata).
"GOVERNMENT RECEIVABLES" shall mean any and all Receivables
due from Medicare, Medicaid or CHAMPUS, or any other Receivable (including any
such Receivables respecting a Straddle Patient), the assignment of which is
either prohibited by Law or by the terms of any contract with a Payor, and
including all deductibles and co-insurance payments receivable from the patient
or other Payor and including all Receivables which represent amounts due from
Payors with respect to the cost reports and other filings referred to in
Paragraph 14.10.
"HAZARDOUS MATERIALS" shall mean any substance, material or
waste (including, without limitation, medical wastes, asbestos in any form,
formaldehyde, radon, radioactive substance, hydrocarbons, petroleum, gasoline,
crude oil or any products, byproducts or fractions thereof, polychlorinated
biphenyls, industrial solvents, flammables, explosives and any other substance
or material defined o or listed as "hazardous substances", "hazardous waste",
"toxic substances", "toxic pollutant" or similarly identified substances,
materials or mixtures in or pursuant to the Environmental Regulations) which,
in any
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material respect, is known to cause as of the date of this Agreement a health
or environmental hazard and require remediation at the behest of any
governmental agency.
"KNOWLEDGE" of (i) a party or Person other than Seller shall
mean the current conscious awareness of the Persons who serve as of the date of
this Agreement as the duly elected officers of such party or Person after
reasonable inquiry, and (ii) Seller shall mean, the current conscious awareness
of the Chief Executive Officer, the Chief Financial Officer, the Chief
Operating Officer, the Director of Nursing and the Plant Manager of the
Hospital as communicated to Seller's representatives in response to inquiries
made in the course of Seller's preparation of the Disclosure Statement.
"LAWS" shall mean all statutes, rules, regulations,
ordinances, orders, codes, permits, licenses, policies, and agreements with or
of federal, state, local and foreign governmental and regulatory authorities
and any order, writ, injunction or decree issued by any court, arbitrator or
governmental agency or in connection with any judicial, administrative or other
nonjudicial proceeding (including, without limitation, arbitration or
reference).
"PAYOR" shall mean Medicare, Medicaid, CHAMPUS and Medically
Indigent Assistance programs, Blue Cross, Blue Shield or any other third party
payor (including an insurance company), or any health care provider (such as a
health maintenance organization, preferred provider organization, peer review
organization, or any other managed care program).
"PERSON" shall mean any individual, partnership, corporation,
limited liability company, trust, unincorporated association, joint venture or
any other entity of any kind whatsoever, whether for profit or not for profit,
and any governmental agency.
"REASONABLE COMMERCIAL EFFORTS" OR "REASONABLE EFFORTS" do
not include the provision of any consideration to any third party or the
suffering of any economic detriment to a party's ongoing operations for the
procurement of any consent, authorization or approval required under this
Agreement except for the costs of gathering and supplying data or other
information or making any filings, fees and expenses of counsel and consultants
ant for customary fees and charges of governmental authorities and
accreditation organizations.
"RECEIVABLES" shall mean all accounts, notes or other amounts
receivable recorded or otherwise accrued by Seller as of the Closing Date as
accounts, notes or other amounts receivable (excluding any amount not so
recorded or accrued and any amount which ever was recorded or accrued before
the Closing Date but which has been written off or fully reserved as of the
Closing Date) from Payors, patients, physicians or any other Person (whether or
not billed) including, without limiting the generality of the foregoing, any
amount due to Seller arising from or in connection with the treatment of
patients at, or the
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operation of, the Hospital Businesses, including (to the extent not already
included) rights to payment for services rendered through the Closing Date to
Straddle Patients, but excluding all such Receivables constituting Buyer's
share of Straddle Patient Payments payable to Buyer pursuant to Paragraph
14.8(b).
"TAXES" shall mean (i) all federal, state, county and local
sales, use, property, payroll, recordation and transfer taxes, (ii) all
federal, state, county and local taxes, levies, fees, assessments or surcharges
(however designated, including privilege taxes, room or bed taxes and user
fees) which are based on the gross receipts, net operating revenues or patient
days of the Hospital for a period ending on, before or including the Closing
Date or a formula taking any one of the foregoing into account, and (iii) any
interest, penalties and additions to tax attributable to any of the foregoing,
but shall not include any income tax or other tax based on net income or any
taxes payable by Seller relating to Seller's 1031 exchange as described in
Paragraph 19.21.
(b) Table of Previously Defined Terms. The terms listed
below are defined elsewhere in this Agreement and, for ease of reference, the
Paragraph containing the definition of each such term is set forth opposite
such term.
<TABLE>
<CAPTION>
Term Paragraph
---- ---------
<S> <C>
Accrued Operating Expenses 3.1(d)
Assumed Contracts 3.1(a)
Assumed Obligations 3.1
Bill of Sale 2.3(a)(ii)
Business Records 14.2(a)
Buyer's Designated Representatives 7.5
Buyer's Subsidiary 19.5(a)
Closing 11
Closing Date 11
Closing Schedule 2.2
Code 5.15
Collection Period 14.8(d)(iii)
Commitment Letter 8.5
CON 11
Confidential Information 14.6
Consultant 8.2
Contracts 1.1.5
Desired Consents 6.4
Destruction Notice 14.2(b)
Disapproved Item 14.7
Disclosure Statement 4
Document Retention Period 14.2(b)
</TABLE>
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<TABLE>
<S> <C>
Environmental Survey 8.2
ERISA 5.22
Escrow 13
Escrow Agent 11.2
Escrow Agreement 13
Estimated Statement 2.3
Excluded Liabilities 3.2
Exclusivity Fee 13
Financial Statements 5.3(a)
FTC 14.13(a)
Hired Employees 14.11(b)
Hospital A
Hospital Businesses A
Hospital Records 14.2
Indemnification Notice 16.3
Indemnitee 16.3
Indemnitor 16.3
Inspection 8.2
Inspection Period 9.3
Intercompany Transactions 1.1.5
Interim Statements 5.3(a)
Inventory 1.1.4
JCAHO 5.9
Justice Department 14.13(a)
Leased Real Property 1.1.2
Liens 5.4
Losses 16.1
Manuals 14.16
Monthly Statements 6.7
Paid Time Off 3.1(b)
Patient Records 14.2(a)
Permits 5.9
Permitted Exceptions 5.4
Phase I Assessment 8.2
Phase II Investigation 8.2
Plans 5.22
Preliminary Title Report 8.2
Premerger Rules 9.11
Prepaids 1.1.7
Prior Years' Statements 5.3(a)
Purchase Price 2.1
Purchased Inventory 1.1.4
Purchased Prepaids 1.1.7
</TABLE>
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<TABLE>
<S> <C>
Purchased Receivables 1.1.12
Real Property 1.1.1
Real Property Leases 1.1.2
Retained Employees 14.11(a)
Retained Assets 1.2
Seller's Parent 9.13
Services 14.16
Software 14.16
Straddle Patients 14.8(b)
Straddle Patient Payments 14.8(b)(ii)
Supplemental Disclosure Statement 4
Survey 8.2
Tentative Purchase Price 2.3
Title Company 8.2
Title Policy 9.7
Transferred Assets 1.1
UCC Reports 8.2
WARN Act 14.11(d)
Written Statement 7.5
</TABLE>
19.14 CONSENTS NOT UNREASONABLY WITHHELD
Wherever the consent or approval of any party is
required under this Agreement, such consent or approval shall not be
unreasonably withheld, delayed or conditioned, unless such consent or approval
is to be given by such party at the sole and absolute discretion of such party
or is otherwise similarly qualified.
19.15 TIME IS OF THE ESSENCE
Time is hereby expressly made of the essence with
respect to each and every term and provision of this Agreement. The parties
acknowledge that each will be relying upon the timely performance by the other
of its obligations hereunder as a material inducement to each party's execution
of this Agreement. Consequently, the parties agree that they are bound strictly
by the provisions concerning timely performance of their respective obligations
contained in this Agreement and that if any attempt is made by either party to
perform an obligation required to be performed or to comply with a provision of
this Agreement required to be complied with in a manner other than in strict
compliance with the time period applicable thereto, even if such purported
attempt is but one day late, then such purported attempt at performance or
compliance shall be deemed a violation of this Paragraph 19.15, shall be deemed
in contravention of the intention of the parties hereto, shall be null and void
and of no force or effect and shall constitute such party's material default
under this Agreement.
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19.16 INTEREST ON AMOUNTS DUE
Any amount due from either party to the other which
is not paid when due shall bear interest at a rate equal to the prime rate
reported by the Wall Street Journal under "Money Rates" from time to time or
the highest rate permitted by Law, whichever is lower.
19.17 GOVERNING LAW
This Agreement shall be construed and enforced in
accordance with the laws of the State of California, without regard to the
principles of conflicts of law theory; provided, however, that the validity,
interpretation and effect of any documents or instruments by which real
property is conveyed shall be governed by the laws of the State in which such
real property is located.
19.18 TAX AND MEDICARE EFFECT
Except as otherwise expressly provided for in this
Agreement, neither party (nor such party's counsel or accountant) has made or
is making any representations to the other party (nor such party's counsel or
accountant) concerning any of the Tax, income or franchise tax, or Medicare
effects arising by reason of the transactions provided for in this Agreement as
each party has obtained independent professional advice with respect thereto
and upon which it has solely relied. Except as otherwise provided in this
Agreement, no party shall be liable or in any way responsible to any other
party because of any Tax, income or franchise tax, or Medicare effect resulting
from the transactions provided for in this Agreement and each party shall be
responsible for the payment of any Tax, income or franchise tax, or Medicare
related charge or payment for which it becomes liable by reason of the
consummation of the transactions provided for in this Agreement.
19.19 Casualty
If any part of the Transferred Assets are damaged,
lost or destroyed (whether by fire, theft, vandalism or other casualty) in
whole or in part on or prior to the Closing Date, Seller shall promptly notify
Buyer of the same; and if the fair market value of such damage or destruction
does not (according to Seller's reasonable estimate) exceed $2,000,000, Seller
shall, at Seller's option, either (a) reduce the Purchase Price by the fair
market value of the assets destroyed as reasonably determined by Seller, such
value to be determined as of the day immediately prior to such destruction or,
as the case may be, by the estimated cost to restore damaged goods, (b)
provided that the insurance proceeds are obtainable without delay and are, in
Seller's reasonable judgment, sufficient to fully restore the damaged assets,
upon the Closing, transfer the insurance proceeds or the rights to insurance
proceeds of applicable insurance to Buyer and Buyer may restore the
improvements, or (c) repair or restore such damaged or destroyed improvements.
If any part of the
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Transferred Assets are damaged, lost or destroyed (whether by fire, theft,
vandalism or other cause or casualty) in whole or in part prior to Closing and
the fair market value of such damages exceeds (according to Buyer's reasonable
estimate) $2,000,000, Buyer may elect either to (x) require Seller to transfer
so much of the proceeds (or the right to the proceeds) of applicable insurance
to Buyer as is required for Buyer to restore the improvements and Buyer shall
thereafter restore the improvements or (y) terminate this Agreement, in which
case the Exclusivity Fee shall be returned to Buyer.
19.20 CONDEMNATION
From the date hereof and until the Closing, in the
event that any portion of the Real Property underlying the Hospital is taken,
reduced or restricted by any pending, threatened or contemplated condemnation
or eminent domain proceeding or otherwise, then Buyer, at its sole option, may
elect to terminate this Agreement.
19.21 TAX-DEFERRED EXCHANGE
The parties acknowledge that it is Seller's intent
to transfer some or all of the Transferred Assets as part of a tax-deferred
exchange which qualifies for nonrecognition of gain under Section 1031 of the
Code. The manner and format for such exchange shall be designated by Seller;
provided, however, that at no time shall Buyer acquire any interest in any
property other than the Transferred Assets. Buyer shall cooperate with Seller
in effecting such exchange, provided that (a) Buyer shall not incur any
additional liability in connection with such exchange, and (b) all additional
closing costs and charges attributable to the exchange shall be paid by Seller.
The exchange format to be designated may require Buyer to enter into an
exchange escrow with Seller, to acquire Seller's newly selected real property
and other tangible or intangible property, and then to transfer such real
property and other tangible or intangible property to Seller, or Seller may
elect to effect a non-simultaneous exchange wherein Seller will convey the
Transferred Assets subject to the exchange to an intermediary designated by
Seller who will convey such Transferred Assets to Buyer.
Rest of Page Intentionally Left Blank
-69-
<PAGE> 76
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first above written.
Seller:
PSH, INC.
By: /s/ Donald W. Thayer
---------------------------------------
Name: Donald W. Thayer
Title: Vice President
Buyer:
NEW AMERICAN HEALTCHARE
CORPORATION
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-70-
<PAGE> 77
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first above written.
Seller:
PSH, INC.
By:
---------------------------------------
Name: Donald W. Thayer
Title: Vice President
Buyer:
NEW AMERICAN HEALTHCARE
CORPORATION
By: /s/ ?? M. Martin
---------------------------------------
Name: ?? M. Martin
---------------------------------
Title: CEO
---------------------------------
-70-
<PAGE> 78
ANNEX I
LIST OF SCHEDULES
<TABLE>
<CAPTION>
Schedule Description
-------- -----------
<S> <C>
1.1.1 Real Property Owned
1.1.2 Real Property Leases
1.1.3 Personal Property
1.1.5 Contracts
1.1.7 Purchased Prepaids
1.1.8 Business Names
1.1.13 Joint Ventures
1.2.7 Other Retained Assets
3.1(b) Paid Time Off
3.1(g) Capital Leases
5.1 Seller's Subsidiaries
5.3 Financial Statements
5.4 Permitted Exceptions
5.5 Third Party Consents
5.6 Governmental Consents
5.7 Hazardous Substances
5.8 Litigation
5.9 Permits
5.10 Compliance with Laws
5.11 Union Matters
5.12 Personnel List
5.13 Defaults Under Assumed Contracts
5.17 Adverse Changes
5.18 Cost Reports and Participation Matters
5.19 Medical Staff Matters
5.25 Motor Vehicle Titles
5.20 Government Funds
6.4 Desired Consents
14.5 Purchase Price Allocation
</TABLE>
<PAGE> 79
ANNEX II
LIST OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
-------
<S> <C>
2 3(a)(ii) Bill of Sale and Assignment and Assumption
of Assumed Obligations
8.5 Commitment Letter
9.13 Parent Guaranty
14.15 Special Limited Power of Attorney
14.16 Licensed Software
14.18 BuyPower Agreement
</TABLE>
<PAGE> 1
Exhibit 10.36
AGREEMENT
AGREEMENT made as of the 23rd day of March, 1998 by and between
HEALTHCARE MANAGEMENT SYSTEMS, INC., a Tennessee corporation, whose address is
3401 West End Avenue, Suite 290, Nashville, Tennessee 37203 ("HMS") and NEW
AMERICAN HEALTHCARE CORPORATION, a Tennessee, whose address is 109 West Park
Drive, Nashville, Tennessee 37027 (Company").
PREMISES:
A. HMS develops and licenses proprietary computer software modules
designed for the management of hospital records and data and, in addition, sells
the computer hardware necessary to operate such software.
B. HMS agrees to license the use of its proprietary software listed on
Exhibit A the "Software", which is attached hereto and incorporated herein by
reference, and Company agrees to accept such license.
C. HMS agrees to sell and Company agrees to purchase the computer
hardware listed on Exhibit B.1 the "Hardware", which is attached hereto and
incorporated herein by reference.
D. Company agrees that the Software and Hardware will be installed at
the locations ("Installation Sites") shown on Exhibit E, including certain
hospitals owned, leased or operated by the Company (the "Hospitals").
NOW THEREFORE, for and in consideration of the premises, the payment of
the license fee, installation cost and purchase price listed below and the
mutual promises and covenants contained herein, the parties agree as follows:
1. PURCHASE PRICE AND PAYMENT TERMS. The parties agree to the paces to be
paid upon the terms set forth on Exhibits A, B and C, which is attached
hereto and incorporated herein by reference.
It is acknowledged by Company that the purchase pace is valid for the Software
modules on Exhibit A, on which payment is made on initial software delivery
until December 31,1998. After December 31, 1998, HMS may increase the purchase
pace of the financial/clinical software listed on Exhibit A by an amount equal
to fifty percent (50%) of the published HMS list price or an average annual
increase of seven percent (7%) whichever is lower. Optional Applications listed
on
<PAGE> 2
Exhibit A shall increase no more than an average annual seven percent (7%) over
the first five (5) years.
2. GENERAL TERMS AND CONDITIONS.
2.1. DEFINED TERMS.
2.1.1. The forms "Company" and "HMS" are intended to
describe parties to the Agreement and are not used in
their ordinary context.
2.1.2. Specific words used in this Agreement shall have the
meaning assigned to them in this Agreement.
2.13. "Employee" means an individual, on whose behalf
Company or HMS withholds income taxes or makes
contributions under the Federal Insurance
Contributions Act or similar statutes.
2.1.4. "Documentation" shall mean user/operator manuals and
appropriate record layouts as provided to the
Company.
2.1.5. "Software" means all software modules listed on
Exhibit A and any modifications subsequently made
thereto.
2.1.6. "Hardware" shall mean the computer hardware listed
and identified on Exhibit B.
2.1.7. "Initial Application Load" shall mean when the
Company authorizes HMS to deliver the Software to the
Installation Site and the Software is loaded onto the
Hardware at the Installation Site.
2.1.8. "Initial Application Go-Live" shall mean first use of
the Software in a, production environment.
2.2. NOTICES. All notices given under this Agreement shall be in
writing and delivered by a national courier service or by
certified mail, return receipt requested, by overnight courier
with exception of monthly invoices, or hand delivered to the
address of the recipient shown above. All notices shall be
deemed given when actually received or three (3) days after
deposit in the US. Mail as provided above, all charges
prepaid? whichever first occurs. Either party may change its
address by notice to the other party, given as provided above.
2.3. MODIFICATION. This Agreement may not be modified except by
written amendment executed by both HMS and Company. No
representative of HMS has
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<PAGE> 3
any authority to bind HMS to any affirmation, representation
or warranty other than the express terms of this Agreement.
2.4. PARTIES BOUND. This Agreement binds and inures to the benefit
of the parties and their respective successors and permitted
assigns. This Agreement binds Company and HMS and each of
their respective employees, affiliated and subsidiary firms,
corporations or other organization with which Company may
enter a joint venture or other cooperative enterprise which
utilizes the HMS Software.
2.5. ASSIGNMENT. Neither this Agreement nor the rights and
obligations of the parties hereto may be assigned without the
prior express written consent of the other party hereto;
provided, however, that Company may assign its rights
hereunder, but not its obligations to its direct and indirect
subsidiaries, and provided further, that the Company may
assign this Agreement to any person or entity that acquires
all or substantially all of the assets of the Company provided
that the acquire executes and delivers to HMS an agreement to
be bound by the terms of this Agreement. Notwithstanding the
foregoing, Company may assign its rights under this Agreement
with respect to a particular Hospital to any person or entity
that acquires all or substantially all of the assets of the
Hospital, provided that the acquiror delivers to HMS (within
thirty (30) days of the effective date of the acquisition),
(i) an amount equal to forty (40%) percent of the then current
list price for those software modules assigned and (ii) an
executed original of HMS then current form of agreement. The
parties agree that the requested consent to any such
assignment shall not be unreasonably withheld. Any attempt
by either party to assign any portion of this Agreement
without the prior express written consent of either party
shall render such assignment voidable at the election of
either party.
2.6. SEVERABILITY. If any provision of this Agreement is declared
to be invalid or unenforceable by a court of competent
jurisdiction, such provisions shall be severed here from and
the remaining provisions shall remain binding with the same
effect as if such provisions were deleted.
2.7. REMEDIES UPON BREACH.
2.7.1. Both parties agree that upon the occurrence of a
default pursuant to Section 2.15, the party failing
to perform shall be liable to the other party for all
attorneys fees, court costs and other reasonable
expenses incurred by the nondefaulting party in
connection with enforcing any part of this Agreement
in addition to any other right or remedy to which
such party may be entitled.
2.7.2. If Company attempts to use, copy, license or convey
the HMS Software in a manner contrary to the terms of
this Agreement or in competition with HMS or in
derogation of HMS's proprietary rights, whether these
rights are
3
<PAGE> 4
explicitly stated herein, determined by law or
otherwise, HMS shall have, in addition to any other
remedies available to it under applicable state or
federal laws, the right to injunctive relief
enjoining such action, Company hereby acknowledging
that all other remedies are inadequate.
2.8. LAW & JURISDICTION. The Agreement shall be construed and
governed under the laws of the United States of America and
the State of Tennessee applicable to agreements entered into
and wholly performed in such state. The parties further agree
that any and all disputes as to enforcement or construction of
any of the terms and conditions of this Agreement shall be
brought in the state or federal courts in Davidson County,
Nashville, Tennessee, which courts shall have exclusive
jurisdiction over all such matters.
2.9. NECESSARY DOCUMENTS. If additional documents are reasonably
required or desired to effectuate the terms end conditions of
this Agreement either party shall execute such documents
promptly upon the request of the other.
2.10. NOTIFICATION OF INFRINGEMENT CLAIMS. HMS shall indemnify
Company with respect to any claim that the use of the HMS
Software for its intended purpose according to the
Documentation, exclusive of any use in connection with any
other software or hardware not acquired from HMS, and in
accordance with this Agreement infringes upon the rights of
any third party. Failure of the Company to comply with the
notice requirements and other provisions of this Section shall
not relieve HAS of its indemnification obligations hereunder,
but may create a cause of action for beach for damages
directly attributable thereto.
Notice of Asserted Liability. Within thirty (30) calendar days after
Company receives notice or obtains knowledge of any claim, demand, fact
or circumstance that the use by the Company of the Software excluding
any use by Company in violation of this Agreement constitutes an
infringement of a third party's rights or properties (an "Asserted
Liability"), the Company will give notice (the "Claims Noticed") to HMS
(the "Indemnifying Party"). The Claims Notice must describe the
Asserted Liability in reasonable detail, and must indicate the amount
(estimated, if necessary and to the extent feasible) of the Loss that
has been or could be suffered by the Company.
At any time following receipt of the Claims Notice, HMS may elect to
compromise or defend any Asserted Liability which arises from the claim
or demand of a third party against the Company, at its own expense and
by its own counsel, the same extent that an election with respect to
compromise or defense is available to the Company. If HMS elects to
compromise or defend such an Asserted Liability, it will within fifteen
(15) calendar days after receipt of the Claims Notice notify the
Company of its intent to do so. Pending receipt of HMS notice of
election, the Company will use its best efforts to minimize the amount
of Loss from the Asserted Liability, and will take all reasonably
necessary interim actions to protect the
4
<PAGE> 5
interests of itself and HMS, including but not limited to filing
responsive pleadings or seeking emergency relief to maintain the status
quo. In no event shall Company compromise or settle the Asserted
Liability during that fifteen (15) calendar day period following
delivery of the Claims Notice. If HMS elects to compromise or defend
the Asserted Liability, HMS will not be liable to the Company for any
legal or other expenses incurred by the Company in connection with
the Asserted Liability, than the Company's reasonable costs of (i)
investigating the Asserted Liability before the date of the Claims
Notice, and (ii) taking any interim actions described in the preceding
sentence. If HMS elects to compromise or defend the Asserted
Liability, the Company will furnish to HMS any books, records, or
other documents within its control that are necessary or appropriate
for the defense of the Asserted Liability, and HMS will furnish to the
Company at reasonable intervals a copy of all written communications
concerning the Asserted Liability, including but not limited to
pleadings, motion, judgements, and other documents filed in court. HMS
will not, in the defense or compromise of the Asserted Liability,
consent to the entry of any judgement or enter into any compromise
or settlement which does not include an unconditional release of the
Company from all liability based upon, arising out of or otherwise in
respect of the Asserted Liability. If HMS elects not to compromise or
defend the Asserted Liability, fails to notify Company of its election
or contests its obligation to indemnify under this Agreement, the
Company may then pay, compromise, or defend the Asserted Liability as
the Company considers appropriate, at the expense of HMS.
In no event shall HMS be obligated to indemnify Company for any Loss
arising from Company's violation of this Agreement, the gross
negligence, recklessness or willful misconduct of Company, its agents,
contractors, employees, directors, officers, or others acting on
Company's behalf, or for any punitive or exemplary damages award.
2.11. INABILITY TO PERFORM. HMS shall not be liable for any failure to
perform under this Agreement if inability to obtain materials, parts,
or supplies at reasonable prices or through usual and regular sources
or on a timely basis, interruption of transportation, government
regulation, labor disputes, strikes, war, fire, flood, accident, or
other cause beyond HMS's control, makes it impracticable for HMS to
perform; provided that if HMS is unable to perform as set forth above
it shall return to the Company all sums previously paid for the
Software by the Company for the installation Site affected.
2.12. TAXES AND RECORDATION FEES. Prices and fees set forth herein are
exclusive of all excise, sales, use, occupational, or like taxes now in
force or enacted in the future and, therefore, prices are subject to an
increase equal to the amount of any tax HMS may be required to collect
or pay upon the sale or delivery of items purchased or licensed
hereunder. If a certificate of exemption or similar document or
proceeding is to be utilized in order to exempt the safe or license
from sales or use tax liability, Company will obtain and pursue such
certificate, document or proceeding. Company shall pay all taxes
(however designated, levied, or based on the price or on the product
sold or licensed or used under this Agreement,
5
<PAGE> 6
other than taxes based on HMS's income) levied against Company or HMS
immediately when due.
2.13. RISK OF LOSS. HMS bears risk of loss of any Hardware until such
Hardware is delivered to the installation site whereupon the risk of
loss passes to Company.
2.14. REMOVAL OF HARDWARE OR SOFTWARE. No Hardware or HMS Software sold or
licensed hereunder may be used or transported in any manner outside of
the territory in which the installation is performed without the
advance written permission of HMS, which permission shall not be
unreasonably withheld. Company agrees that in no event shall the
Hardware or HMS Software be used or transported in any manner outside
of the United States, its territories or possessions.
2.15. DEFAULT. This Agreement shall terminate immediately upon the occurrence
of any of the following events of "default" without liability of HMS
to Company and/or any third parties:
2.15.1. Upon the election of HMS if the Company fails to pay
any installment of the purchase price within ten (10)
days of the date when due;
2.15.2. Upon the election of the nondefaulting party if
Company or HMS fails to comply with each and every
other provision of this Agreement within thirty (30)
days after receipt of written notice of such failure;
2.15.3. Upon the election of the nondefaulting party if
Company or HMS attempts to Assign this Agreement in
violation of this Agreement;
2.15.4. In the event of the filing of a petition in voluntary
bankruptcy or an assignment for the benefit of
creditors by either party, or upon other action taken
or suffered, voluntarily or involuntarily, under any
federal or state law for the benefit of debtors by
such party, except for the filing of a petition in
involuntary bankruptcy against a party which is
dismissed within thirty (30) days thereafter, the
nondefaulting party may give notice to the immediate
termination of this Agreement.
2.16. WAIVER. No provision of this Agreement shall be deemed waived unless
such waiver is contained in a written instrument signed by the party to
be charged therewith. Should either party waive any individual default
by the other party in writing, such waiver shall not be construed as a
waiver of such party's rights upon subsequent defaults, whether or not
similar.
2.17. DELIVERY. All Hardware and Software shall be delivered by HMS to
Company at the Installation Sites. Company acknowledges that some of
the Hardware may be shipped directly from the manufacturer, and Company
agrees to store same in a reasonable manner until the installation
thereof. In no event shall HMS be liable to Company or to any other
6
<PAGE> 7
party for any losses or damages attributable to a delay in delivery of
any Hardware to be delivered hereunder.
2.18. CANCELLATION OF AGREEMENT.
2.18.1. Company may, at its option, elect to cancel this
Agreement, by notice to HMS, at any time prior to the
delivery of any module of the Software described in
Exhibit A hereto. In such event, Company will pay to
HMS the amount due with respect to all Software
modules Delivered with Company authorization prior to
receipt of such notice.
2.18.2. HMS may, at its option, cancel this Agreement at any
time with thirty (30) days notice should it determine
that Company cannot provide appropriate facilities at
each Installation Site as stated in IBM
specifications, and in such event HMS shall refund to
the Company all amounts previously paid by the
Company for that installation site hereunder less any
reasonable costs for hardware restocking
and shipping.
3. HARDWARE PURCHASE PROVISIONS.
3.1. Company hereby buys the Hardware subject to the terms of this
Agreement.
3.2. The purchase price for the Hardware is designated on the
attached Exhibit B and shall be paid in accordance with the
terms of Exhibits B and C.
3.3. Company understands and agrees that the Hardware carries
certain manufacturer's warranties. Company shall avail itself
of all such remedies available to Company under such
warranties and shall make no claim upon HMS for any defects in
same, pursuant to the terms and conditions of the warranty
limitations herein contained
4. INSTALLATION, IMPLEMENTATION AND TRAINING.
4.1. Upon execution of this Agreement, Company shall designate an
appropriate senior member of its staff to serve as Company's
project coordinator ("CPC").
4.2. Upon execution of this Agreement, HMS shall designate an
appropriate client service representative ("CSR") to serve as
its installation and coordination contact and representative.
4.3. Upon execution of this Agreement, Company and HMS shall
prepare an installation schedule showing the scheduled
activities to be accomplished during the installation of each
module of the Software to be provided hereunder, and setting
forth each party's responsibilities with respect thereto.
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<PAGE> 8
4.4. Coordination of services during the period in which a module
is being installed shall be the joint responsibility of the
CPC and CSR. Coordination of services after installation has
been completed is to be the responsibility of the CPC and
HMS's Client Support Department.
4.5. Company is responsible, at its expense, for making the
alterations to its facilities that are reasonably required to
accommodate the installation of the Hardware, including the
acquisition, installation and termination of necessary
cabling, and the provision of adequate space and electrical
sources as reasonably determined necessary by HMS.
4.6. HMS will assist Company in coordination of the installation
of the Hardware, however, installation of the Hardware at the
facilities provided at the Installation Site is not, and shall
not be construed to be, a guarantee by HMS that the location
is suitable for the proper functioning of the Hardware.
4.7. A written manual for the operation of the Hardware shall be
furnished to Company by IBM, as provided to HMS by the
manufacturer of each item of the Hardware.
4.8. Installation end implementation will proceed according to the
schedules referred to herein. The project timetable identifies
responsibilities for Company and HMS. Where possible,
discrete responsibilities for tasks are identified.
Performance milestones will be monitored by both written and
oral progress reports. The reports shall be submitted
routinely throughout the duration of the project on a schedule
mutually\agreeable to Company and HMS. Review of work
completed to date by Company shall be completed at these
progress meetings. Responsibility for project management is
shared by Company and HMO.
5. INSTALLATION AND TRAINING CHARGES.
5.1. Installation and training hours for the applications purchased
and shown on this Agreement in the financial and clinical
suites, except for eighty (80) hours for Patient Care
Charting, totaling 1,138 hours and incurred prior to eighteen
(18) months from the date of this Agreement, will be billed at
HMS's standard rates therefor which are currently $95 per hour
plus out-of-pocket expenses. Any installation and training
hours incurred prior to eighteen (18) months from the date of
this Agreement, that exceed 1,138 hours in the financial and
clinical suites except for the eighty (80) hours for Patient
Care Charting, and were a part of the agreed upon Standard
HMS implementation plan, will be billed at $65 per hour. HMS
reserves the right to increase its standard installation and
training rates upon thirty (30) days written notice to Company
after the eighteen (18) month period, but no more than a five
percent (5%) average annual rate increase for the first five
(5) years of this Agreement.
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<PAGE> 9
5.2. All payments shall be made in U.S. Dollars within thirty (30)
days after the date of invoice. HMS reserves the right to add
an interest charge not exceeding 1% per month, or the maximum
amount allowed by applicable law, whichever is less, for
failure to make payment within thirty (30) days after the
invoice date (except where payment is withheld pursuant to the
Company's rights hereunder). Such invoices will also include
the appropriate taxes (sales, excise, occupation or like
taxes) and recordation fees.
6. SOFTWARE LICENSE AGREEMENT.
6.1. MODULES LICENSED. HMS hereby grants Company a perpetual,
nontransferable and nonexclusive license to use the Software.
6.2. GUARANTEE OF TITLE. HMS represents, covenants, and warrants
that it has all rights to the Software, including all
necessary rights in any software owned by others which is
embodied in the Software, necessary to grant the license
provided herein and that the Software will not infringe upon
or violate any copyright or other property right of any third
party.
6.3. PROPRIETARY RIGHTS.
6.3.1. Company recognizes and acknowledges that the
Software, system manuals and certain other materials
identified as proprietary supplied by HMS to
Company are subject to the proprietary right of HMS.
Company agrees with HMS that the Software,
Documentation and all information or data supplied by
HMS in machine-readable form or otherwise are the
property of HMS, are protected by civil and criminal
laws, including the copyright laws of the United
States, are valuable to HMS, and that their use and
disclosure must be carefully and continuously
controlled. Company further understands that operator
manuals, training aids and other written materials,
whether created by HMS or others are also subject to
the copyright laws of the United States.
6.3.2. HMS retains title to the Software, Documentation,
information or data furnished by HMS in
machine-readable form, and the training materials
provided by HMS. HMS does not retain title to
operator manuals and other material bearing the HMS's
copyright, but these items shall not be copied except
as provided herein.
6.4. RESTRICTIONS OF USE. We Software and other items supplied by
HMS hereunder are for the sole use of Company and its
permitted assigns, supporting only terminals operated by
Company at the Installation Sites unless otherwise agreed by
HMS in writing. Company shall not use licensed software in a
service bureau, network time sharing, multiple CPU, or a
multisite arrangement beyond any facility
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specifically licensed hereunder; provided that the Company shall be
permitted to consolidate multiple facilities within a single market.
6.4.1. Company shall use the Software only for the management of
records and data of the facility or facilities as shown on
Exhibit E, and can be updated upon notification by Company.
Company may permit line access to data and the placing and
reviewing of orders by physicians affiliated or associated
with Company.
6.4.2. Company agrees that while this license is in effect, or while
if has custody or possession of any property of HMS (provided
that this provision shall expire upon the occurrence of a
Trigger Event pursuant to Section 12 below if the Company
exercises its rights under said Section IV, it will not (i)
copy or duplicate, or permit anyone else to copy or duplicate,
any physical or magnetic version of the Software in
machine-readable form except for Company's own use; or (ii)
create or attempt to create, or permit others to create or
attempt to create by reverse engineering or otherwise, the
source programs or any part thereof from the object program or
from other information made available under this license or
otherwise (whether oral, written, tangible or intangible).
6.4.3. Each module of the Software shall be used only on a single
central processing unit or mainframe (the "CPU"). Company
shall advise HMS in advance of the location of the CPU. Use of
the Software shall consist either of copying any portion of
the Software from storage units or media into the CPU, or the
processing of data with the Software, or both. All programs,
Documentation, and materials in machine-readable form
supplied under this license shall be kept in a secure place,
under access and use restrictions satisfactory to HMS, and not
less strict than those applied to Company's most valuable and
sensitive programs. The Software may be temporarily
transferred to another CPU while the specified CPU is
undergoing repairs.
6.4.4 The Software may be copied in whole or in part for use by
Company only for operations backup or archive purposes. These
copies of all or any part of the original Software shall be
marked with the copyright notice designated by HMS along with
a notice that the Software is proprietary and the property of
HMS, its agents or licensors. Company shall maintain records
of the number and location of all copies and shall make these
records available to HMS.
6.5. INSPECTION. To assist HMS in the protection of its proprietary rights,
Company shall permit representatives of HMS following receipt of prior
written notice to inspect during normal business hours any location at
which items supplied by HMS hereunder are being used or kept by or
under the authority of Company. All
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inspections shall be performed in a manner consistent with applicable
federal and state confidentiality and privacy laws and the
confidentiality provisions of this Agreement and HMS shall not
unreasonably disrupt the Company's operations.
6.6. INDEMNIFICATION AGAINST INFRINGEMENT CLAIMS.
6.6.1. Should the Software or any part thereof become, or in HMS's
opinion be likely to become, the subject of a claim of
infringement, HMS's sole obligation shall be, at HMS's option
and expense, promptly either (i) to procure for Company the
right to continue using it, (ii) to replace or modify it so
that it becomes non-infringing (providing that such
modification or replacement does not degrade the quality of
performance or materially affect the functionality,
capabilities, quality or reliability of the Software) or (iii)
after reasonable attempts have been made with respect to the
foregoing alternatives, to refund all sums paid to HMS by
Company for such allegedly infringing module, and terminate
this Agreement with respect to such allegedly infringing
Software module only; provided that the Company may terminate
this entire Agreement if it determines that the infringing
Software is an integral portion of the Software licensed
hereunder.
6.6.2. HMS shall have no liability or obligation with respect to
any infringement claim based upon the combination of the
Software and any other software not authorized by HMS in
writing.
7. CONFIDENTIAL INFORMATION. HMS shall not divulge or disclose to any
third parties or use for its own benefit any information concerning the
affairs of Company which may be communicated to HMS at any time, unless
such information becomes publicly available through no fault of HMS.
HMS shall not exploit, divulge or disclose to third parties
any proprietary systems, application programs or any business or
economic information or methods of Company of which HMS may gain
knowledge in connection with or in the course of performing
obligations under this Agreement. HMS shall execute such covenants
relating to nondisclosure of Company operations or authorized
modifications to the HMS Software as Company may reasonably request.
8. WARRANT AND LIMITATION OF LIABILITY.
8.1. SOFTWARE ADAPTION. HMS warrants that the Software will
perform according to the current version of the Documentation
and will be year 2000 compliant by March 31,1999. If Company
notifies HMS in writing of any errors in the HMS Software, HMS
will correct the errors at no charge within a reasonable
amount of time so long as Company's Software Maintenance
Program is in effect.
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8.2. MODIFICATIONS OF SOFTWARE. Company shall inform HMS in writing
of any modifications made to the Software. HMS shall not be
responsible for maintaining Company's modified portions of the
Software. Corrections for difficulties or defects traceable to
Company's errors or system changes will be billed at HMS's
standard time and materials rates then in effect.
8.3. LIMITATIONS. EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT OR
ANY AMENDMENTS HERETO, HMS MAKES NO WARRANTY EXPRESS OR
IMPLIED, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR USE.
8.3.1. HMS SHALL NOT BE LIABLE FOR PERSONAL INJURY OR
PROPERTY DAMAGE, EXCEPT PERSONAL INJURY OR
PROPERTY DAMAGED CAUSED BY HMS'S NEGLIGENCE. HMS
SHALL IN NO EVENT HAVE OBLIGATIONS OR LIABILITIES FOR
OTHER THAN ORDINARY DAMAGES. HMS SHALL NOT BE LIABLE
FOR ANY SPECIAL, INCIDENTAL, OR CONSEQUENTIAL
DAMAGES; INCLUDING BUT NOT LIMITED TO LOSS OF
PROFITS OR OTHER ECONOMIC LOSS.
8.3.2. HMS. MAKES NO WARRANTIES WITH RESPECT TO THE HARDWARE
EXCEPT THAT IT FUNCTIONS WITH THE SOFTWARE. COMPANY
ACKNOWLEDGES THAT THE MANUFACTURER'S WARRANTIES ON
THE HARDWARE ARE PROVIDED TO COMPANY AS PART OF THIS
AGREEMENT, AND COMPANY SHALL TAKE REASONABLE
MEASURES TO CONFORM TO ALL REQUIREMENTS TO
EFFECT AND ENFORCE MANUFACTURER'S WARRANTIES WITH
RESPECT TO THE HARDWARE.
8.3.3. IN NO EVENT SHALL HMS BE LIABLE FOR ANY LOSS OF DATA
WHETHER CAUSED BY THE HARDWARE OR THE HMS
SOFTWARE.
8.3.5. COMPANY ACKNOWLEDGES THAT THE LICENSED SOFTWARE
PROVIDED BY HMS CONSTITUTES PART OF A COMPANY
INFORMATION SYSTEM TO BE USED BY COMPANY, ITS STAFF,
EMPLOYEES AND AUTHORIZED AGENTS IN THE PERFORMANCE
OF THEIR PROFESSIONAL RESPONSIBILITIES AND. IS NO
WAY INTENDED TO REPLACE THEIR PROFESSIONAL SELL AND
JUDGEMENT. COMPANY AGREES THAT IT IS SOLELY
RESPONSIBLE FOR THE CARE OF ITS
12
<PAGE> 13
PATIENTS AND THAT THE USE OF THE LICENSED SOFTWARE
FOR ANY PURPOSE RELATED TO SUCH CARE CANNOT IN ANY
WAY BE CONTROLLED BY HMS. COMPANY IS RESPONSIBLE FOR
VERIFYING THE ACCURACY AND COMPLETENESS OF ANY
MEDICAL OR OTHER SIMILAR INFORMATION CONTAINED IN,
ENTERED INTO, OR USED IN CONNECTION WITH THE LICENSED
SOFTWARE.
8.3.6. COMPANY ACCEPTS ALL RESPONSIBILITY FOR DEVELOPMENT
AND EXECUTION OF ADMINISTRATIVE PROCEDURES, INCLUDING
THE PERFORMANCE OF PERIODIC BACKUPS,
SECURITY ADMINISTRATION, OR OTHER PRUDENT BUSINESS
PRACTICES NECESSARY TO CONTROL AND MAINTAIN THE
INTEGRITY OF COMPANY'S DATA.
9. SOFTWARE MAINTENANCE PROGRAM.
9.1. TERM. The term of the Software Maintenance Program shall
commence at the Initial Application Go-Live of the Software
when HMS gives written notification to Company that the
applicable Hardware and Software module have been placed in
good working order and are ready for daily operation
utilizing real patient/hospital data by Company and shall
continue until terminated as provided herein.
9.2. FEE. Maintenance fees shall be payable monthly, in advance, in
accordance with Exhibit A. After twelve (12) months HMS shall
have the right to increase such fees by giving thirty (30)
days written notice. In no event, shall the increase exceed a
five percent (am) average annual rate for the first five years
of this Agreement. In the event that Company fails to pay any
maintenance fee within thirty (30) days after such payment is
due, HMS shall have the right to terminate the Software
Maintenance Program immediately upon notice to Company.
9.3. COVERAGE. The Software Maintenance Program (herein so called)
shall consist of the following:
9.3.1. HMS will supply Company with any improvements or
modifications to the HMS Software for which HMS does
not charge separately as options, including all
federally required changes. Any corrections or
alterations to or new versions of the Software that
HMS shall provide under this Agreement shall be
limited to the delivery of one (1) copy of such HMS
Software and Documentation per installation site.
Company agrees to install all Software improvement
and modification releases no later than sixty (60)
days after Company's receipt thereof. HMS shall
provide reasonable assistance to the Company to
install such improvements and modifications.
13
<PAGE> 14
9.3.2. HMS will correct or replace the HMS Software and/or
provide services necessary to remedy any programming
error which is attributable to HMS and which
significantly affects the use of the HMS Software.
Such correction, replacement or services will be
promptly accomplished after Company has identified
and notified HMS of any such error in accordance with
HMS's reporting procedures. Company agrees to provide
HMS with file data, as requested, and with sufficient
support and test time on Company's computer system to
duplicate the problem, certify that the problem has
indeed been fixed.
9.3.3. The number of hours per month of software support by
HMS staff, including telephone, travel and on site
support is listed on Exhibit A for each module of
Software. All Company requested support exceeding the
accumulative number of hours per month will be billed
monthly at HMS's then current standard hourly rate as
provided in Section 9.5 below.
9.3.4. If the problems originate in Company's computer
network or in software not covered by this Article or
result from modifications to the licensed Software
made by any one other than HMS, HMS responsibility
shall be limited to providing assistance and advice
to enable Company to determine appropriate remedial
action to be taken by Company or authorized personnel
(not by HMS) to resolve such problems.
9.4. TERMINATION. As a condition to the continuation of the
Software Maintenance Program, Company will maintain its
operating system at the level currently supported by HMS.
9.4.1. The Software Maintenance Program shall immediately
terminate upon the termination of the License
Agreement.
9.4.2. The Software Maintenance Program may be terminated by
either party at any time following the expiration of
the initial five (5) year term, provided that at
least one hundred eighty (180) days prior written
notice is given to the other party; or
9.4.3. The Software Maintenance Program may be terminated by
the nondefaulting party in the event of a default
hereunder.
9.4.3.1. Following termination of the Software
Maintenance Program, HMS shall immediately
invoice Company for all accrued fees and
charges and all reimbursable expenses, and
Company shall pay the invoiced amount
immediately upon receipt of such invoice.
Company may continue to use any work
14
<PAGE> 15
supplied to Company by HMS for the remaining
term of the License Agreement.
9.5. ADDITIONAL CHARGES. Corrections for difficulties or defects
traceable solely to Company errors or system changes not made
or authorized by HMS will be billed at HMS's then current
standard time and material rates. HMS's current standard
hourly rate is $95 per hour. The rate for modification,
enhancement or other Company requested changes to the Software
will be the then current published programming rate. The
current rate is $100 per hour; HMS programming rate may be
increased by an amount not to exceed an average annual rate of
five percent (5%) for the first five (5) years of this
Agreement, unless the Company's request for
programming requires HMS to contract for outside programming
services.
9.6. OUT-OF-POCKET EXPENSES. Company shall reimburse HMS for any
reasonable out-of-pocket expenses incurred at Company's
request, including travel to and from the Installation
Site, lodging, meals, telephone and shipping as may be
necessary in connection with duties performed under this
Agreement by HMS.
10. SURVIVAL. NOTWITHSTANDING any termination of this Agreement or the
license granted hereunder, the provisions set forth herein concerning
the nondisclosure of information either of the confidential
information of Company by HMS or the disclosure of the proprietary
rights and information concerning the HMS Software by Company and
indemnification shall survive any such expiration or termination.
11. MISCELLANEOUS. This Agreement represents the entire, complete and
exclusive statement of the terms and the agreement between the parties,
superseding any and all understandings, prior representations and
agreements, whether oral or written, and all other communications
relating to the subject master of this Agreement. Company agrees that
it has read this Agreement, understands it, and agrees to be bound by
its terms and conditions. Special provisions of this Agreement are
provided in Exhibit G. Each party signing this Agreement has the full
authority to bind the principal.
12. SOURCE CODE ESCROW: ADDITIONAL LICENSES. HMS and the Company shall
enter into an Escrow Agreement simultaneous with the execution of this Agreement
pursuant to which HMS shall deposit the source code for the Software with Escrow
Agent (as defined in said Escrow Agreement). HMS shall also deposit with Escrow
Agent all updates and modifications to said source code and materials
(collectively, as updated, the "Code"). In the event that (i) at anytime prior
to February 1, 2005, engages in a "Change of Control" transaction, (ii) HMS at
any time discontinues the maintenance and support of the Software, or (iii) HMS
defaults under this Agreement pursuant to Section 2.15 (the occurrence of (i),
(ii) or (iii) is herein referred to as a Trigger Events), then each "Eligible
Hospital" and the Company's corporate office shall be entitled to a perpetual,
nonexclusive, non-transferable
15
<PAGE> 16
license without the right to grant sub-licenses, (except as set forth herein)
with respect to the Code.
For the purposes of this section, "Change in Control" shall mean: any
merger, consolidation, liquidation, dissolution, business combination,
recapitalization, acquisition, disposition or comparable transaction
(or series of such transactions) that results in any person, entity or
"group" (as that term is used in Section 13 (d) (3) of the Securities
Exchange Act of 1934, as amended) other than a wholly owned subsidiary
of HMS acquiring more than (a) 50% of the outstanding voting stock of
HMS or (b) all or substantially all of the assets of HMS.
Notwithstanding the above, "Change of Control" shall not mean the sale
of stock (or instrument convertible into stock) in HMS in a transaction
(including the sale of said stock pursuant to an initial public
offering by HMS or subsequent public offerings) in which Thomas E.
Givens or John R. Doss, III maintains operational control of HMS or
remains on The Board of Directors. In the event of death, disability or
retirement after the age of sixty (60) of both Thomas E. Givens
and John R. Doss, III, then for purposes of this Agreement, then
successors shall be substituted for the purposes of the foregoing
sentence.
For the purpose of this Section, an Eligible Hospital is a hospital
leased, owned or operated by the Company on the date of the Trigger
Event (the "Effective Date") and that satisfies each of the following
requirements on the Effective Date:
12.1. The Hospital is listed on the then current version of Exhibit
E of this Agreement.
12.2. The Company is not in default hereunder, and no event shall
have occurred and be continuing that with the lapse of time,
the provision of notice, or both would constituted default by
the Company.
12.3. The Hospital subscribed to monthly maintenance service from
HMS at the time of the initial installation of the HMS MONITOR
Software and continually maintained that subscription without
interruption through and including The Effective Date.
In the event that the Company desires. to purchase additional perpetual
non-exclusive, nontransferrable licenses, without the right to grant
sub-licenses, with respect to Code, after the Trigger Event, but prior
to February 1,2010, Company must send a written notice for desired
number of licenses to Escrow Agent. Upon receipt of said notice and the
applicable license. fee, Escrow Agent will grant said license to the
Company and notify HMS at last known address, and forward the license
fee to HMS.
The license fee for the Code after the Trigger Event, but prior to
February 1,2010, will be the lower of 50% of the list price of the
Software at that time, if HMS (or its succesor-in-interest) continues
to sell and support the Software, or the license fee on Exhibit A as
adjusted by allowable increases per Paragraph 1 of this Agreement on
the Effective Date multiplied by an annually compounded 10% increase
for every year beyond the Effective Date.
16
<PAGE> 17
HMS hereby represents and warrants to the Company that HMS is not
currently, and has not at any time during the prior twelve (12) months,
engaged in discussions or negotiations with any party regarding any
potential change of control transaction.
If the Company exercises its rights to obtain the Code, then as of the
date of said exercise, other than the Company's obligation to pay
license fees for new Eligible Hospitals, it shall have no obligations
to make any payments to HMS hereunder, and the Software Maintenance
program shall automatically be terminated, but other obligations
pursuant to Section 6.4 remains in place.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
written above.
New American Healthcare Corporation Healthcare Management Systems, Inc.
By: /s/ Timothy S. Hill By: /s/Thomas E. Swiner
-------------------------------- ---------------------------------
Title: Controller/VP Title: President
----------------------------- ------------------------------
Date: 3/23/98 Date: 3/23/98
------------------------------ -------------------------------
17
<PAGE> 1
EXHIBIT 21
NAHC of Missouri, Inc.
NAHC of Texas, Inc.
NAAC of Tennessee, Inc.
NAHCII of Texas, Inc.
NAHC of Iowa, Inc.
NAHC of Wyoming, Inc.
NAHC of Oregon, Inc.
NAHC II of Oregon, Inc.
NAHC Company, Inc.
NAHC Financial, Inc.
NAHC OF Washington, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
New American Healthcare Corporation:
The audits referred to in our report dated June 25, 1998, included the related
financial statement schedule for the years ended March 31, 1998 and 1997,
included in the registration statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
- -------------------------
Nashville, Tennessee
June 26, 1998
<PAGE> 2
The Board of Trustees
Doctors Hospital:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
- -------------------------
Nashville, Tennessee
June 26, 1998
<PAGE> 3
The Board of Directors
Center Hospital, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
- -------------------------
Nashville, Tennessee
June 26, 1998
<PAGE> 4
The Board of Directors
Eastwood Hospital, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/KPMG PEAT MARWICK LLP
- ------------------------
Jackson, Mississippi
June 26, 1998
<PAGE> 5
The Board of Directors
New American Healthcare Corporation:
We consent to the use of our report included herein on The Hospitals and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
- -------------------------
Nashville, Tennessee
June 26, 1998
<PAGE> 6
The Board of Directors
PSH, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
- -------------------------
Seattle, Washington
June 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF NEW AMERICAN HEALTHCARE CORPORATION FOR THE 12 MONTHS
ENDED MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,119,056
<SECURITIES> 0
<RECEIVABLES> 21,196,201
<ALLOWANCES> 9,172,000
<INVENTORY> 2,720,446
<CURRENT-ASSETS> 31,444,301
<PP&E> 87,170,381
<DEPRECIATION> 2,766,933
<TOTAL-ASSETS> 134,192,524
<CURRENT-LIABILITIES> 16,138,005
<BONDS> 67,183,773
25,617,104
2,350
<COMMON> 80,265
<OTHER-SE> 23,832,063
<TOTAL-LIABILITY-AND-EQUITY> 134,192,524
<SALES> 75,648,533
<TOTAL-REVENUES> 75,648,533
<CGS> 0
<TOTAL-COSTS> 65,320,558
<OTHER-EXPENSES> 8,957,005
<LOSS-PROVISION> 7,836,565
<INTEREST-EXPENSE> 2,637,126
<INCOME-PRETAX> 1,370,970
<INCOME-TAX> 579,200
<INCOME-CONTINUING> 791,770
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 791,770
<EPS-PRIMARY> (.18)<F1>
<EPS-DILUTED> (.18)<F1>
<FN>
<F1>EPS IS CALCULATED ON A PRO FORMA BASIS GIVING EFFECT TO 1998 ACQUISITIONS.
</FN>
</TABLE>
