<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ending September 30, 1999.
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to _________.
Commission File No.: 001-14397
NEW AMERICAN HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 62-1750169
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
109 WESTPARK DRIVE, SUITE 440
NASHVILLE, TENNESSEE 37027
(Address of principal executive offices) (Zip Code)
(615) 221-5070
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT NOVEMBER 5, 1999
----- -------------------------------
<S> <C>
Common stock, $.01 par value 17,442,455
</TABLE>
<PAGE> 2
NEW AMERICAN HEALTHCARE CORPORATION
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets
September 30, 1999 (unaudited) and March 31, 1999 1
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended
September 30, 1999 and 1998 2
Condensed Consolidated Statements of Cash Flows
Six Months Ended September 30, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES 20
</TABLE>
<PAGE> 3
NEW AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30,1999 (unaudited) and March 31, 1999
(In thousands, except per share information)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
ASSETS 1999 1999
------ ------------ ----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents 5,153 5,971
Patient accounts receivable, net of allowance for
doubtful accounts of $10,379 and $10,005 26,654 39,986
Other receivables 2,678 2,113
Inventories 2,164 3,824
Prepaid expenses and other current assets 1,429 2,393
Assets held for sale 13,652 --
-------- --------
Total current assets 51,730 54,287
Property and equipment, net 81,149 122,199
Goodwill, net of accumulated amortization of $920 and $927 22,260 41,919
Other assets 2,553 1,359
-------- --------
Total assets 157,692 219,764
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses 18,602 20,014
Estimated third-party payor settlements 4,395 7,188
Current portion of capital lease obligations 361 447
Current portion of long-term debt 6,933 --
-------- --------
Total current liabilities 30,291 27,649
Capital lease obligations, excluding current portion 5,311 5,499
Long-term debt 95,800 103,300
Deferred income taxes 262 1,473
Stockholders' equity:
Common stock, $.01 par value; 50,000 shares authorized;
16,019 and 16,172 shares issued and outstanding 160 162
Non-voting common stock, $.01 par value: 1,500
shares authorized; 1,423 shares issued and outstanding 14 14
Treasury stock, 153 and 92 shares of common stock at cost (16) (5)
Additional paid-in capital 81,968 82,082
Common stock warrants 235 235
Deferred compensation (374) (507)
Accumulated deficit (55,959) (138)
-------- --------
Total stockholders' equity 26,028 81,843
-------- --------
Total liabilities and stockholders' equity 157,692 219,764
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
1
<PAGE> 4
NEW AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three months and six months ended September 30, 1999 and 1998
(In thousands, except per share information)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
1999 1998 1999 1998
------- -------- -------- -------
<S> <C> <C> <C> <C>
Revenue:
Net patient service revenue 43,176 36,870 92,335 71,726
Other revenue 815 1,092 1,704 2,134
------- -------- -------- -------
Net operating revenue 43,991 37,962 94,039 73,860
------- -------- -------- -------
Expenses:
Salaries and benefits 21,177 16,936 44,377 33,146
Professional fees 6,299 4,913 13,633 9,628
Supplies 5,479 3,971 11,556 7,939
Provision for doubtful accounts 5,867 3,086 11,240 6,098
General and administrative 1,154 767 2,440 1,432
Asset write-down, transition and other
related costs 18,947 -- 48,575 --
Other 4,682 3,992 9,793 7,881
Depreciation and amortization 1,609 1,275 3,813 2,634
Interest 2,865 1,541 5,269 3,098
------- -------- -------- -------
68,079 36,481 150,696 71,856
------- -------- -------- -------
Income (loss) before income taxes and
extraordinary item (24,088) 1,481 (56,657) 2,004
Income taxes -- 593 (836) 802
------- -------- -------- -------
Income (loss) from operations before
extraordinary item (24,088) 888 (55,821) 1,202
Extraordinary item - loss on early
extinguishment of debt
(net of tax of $89) -- 134 -- 134
------- -------- -------- -------
(24,088) 754 (55,821) 1,068
Cumulative preferred dividend -- 273 -- 710
------- -------- -------- -------
Net income (loss) attributable to
common stockholders (24,088) 481 (55,821) 358
======= ======== ======== =======
Net income (loss) per share:
Basic
Continuing operations (1.38) 0.05 (3.19) 0.04
Extraordinary -- (0.01) -- (0.01)
------- -------- -------- -------
(1.38) 0.04 (3.19) 0.03
======= ======== ======== =======
Diluted
Continuing operations (1.38) 0.04 (3.19) 0.04
Extraordinary -- (0.01) -- (0.01)
------- -------- -------- -------
(1.38) 0.03 (3.19) 0.03
======= ======== ======== =======
Weighted average number of shares and
dilutive share equivalents outstanding:
Basic 17,442 12,544 17,473 10,475
======= ======== ======== =======
Diluted 17,442 15,360 17,473 14,235
======= ======== ======== =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
2
<PAGE> 5
NEW AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six months ended September 30, 1999 and 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
-----------------------
1999 1998
--------- --------
<S> <C> <C>
Cash flows provided by (used in) operating activities (1,480) 3,129
------ -------
Cash flows from investing activities:
Purchase of property and equipment (3,490) (2,558)
Sale of property 274 143
Cash paid for acquisitions -- (27,349)
Cash proceeds from dispositions 5,318 --
Deferred acquisition costs -- (50)
------ -------
Net cash provided by (used in) investing activities 2,102 (29,814)
------ -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 4,500 29,500
Repayment of long-term debt (5,067) (13,500)
Repayment of notes payable to affiliates -- (25,000)
Repayment of capital lease obligations (261) (338)
Purchase of treasury stock (11) --
Issuance of common stock -- 58,013
Repayment of redeemable preferred stock -- (26,326)
Deferred financing costs (601) (69)
------ -------
Net cash provided by (used in) financing activities (1,440) 22,280
------ -------
Net decrease in cash (818) (4,405)
Cash and cash equivalents at beginning of period 5,971 6,119
------ -------
Cash and cash equivalents at end of period 5,153 1,714
====== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest 4,785 3,117
Cash paid during the period for income taxes 69 1,618
NONCASH INVESTING AND FINANCING ACTIVITIES:
Assets acquired and liabilities assumed in hospital acquisitions:
Receivables -- 3,152
Inventory -- 298
Prepaid expenses and other assets -- 26
Accounts payable and accrued expenses -- 1,722
Notes receivable issued in hospital disposition 3,484 --
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
3
<PAGE> 6
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except per share information)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with interim financial reporting
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. Interim results are not necessarily indicative of results
that may be expected for the full year.
In the opinion of management, the accompanying unaudited interim
financial statements contain all material adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the
consolidated financial position, results of operations and cash flows of
New American Healthcare Corporation (the "Company") for the interim
periods presented.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended March 31, 1999.
(2) ASSET WRITE-DOWN, TRANSITION AND OTHER RELATED COSTS
Asset write-down, transition and other related costs totaling
approximately $18,947 and $29,628 were recorded during the quarter ended
September 30, 1999 and June 30, 1999, respectively. These charges were
comprised of approximately $47,842 of asset write-down costs, $703 of
severance costs and $30 of other related costs. The asset write-down
costs related to four hospitals, two of which were disposed of during the
quarter ended September 30, 1999, as discussed below, and two of which
are held for sale as of September 30, 1999.
Assets held for sale totaled approximately $13,652 at September 30, 1999,
and consisted of current assets, property and equipment and other assets
from two hospitals associated with the asset write-down during the six
months ended September 30, 1999. The Company expects to dispose of the
assets during the year ended March 31, 2000. Net revenue and pre-tax
losses from the hospitals disposed of and held for sale totaled $13,785
and $2,413, respectively, for the three months ended September 30, 1999
and $32,307 and $4,485, respectively, for the six months ended September
30, 1999. Net revenue and pre-tax income from the hospitals disposed of
and held for sale totaled $16,470 and $1,823, respectively, for the three
months ended September 30, 1998 and $33,280 and $1,980, respectively, for
the six months ended September 30, 1998.
Effective August 1, 1999, the Company sold substantially all of the
assets of Davenport Medical Center, with the exception of patient
accounts receivable and estimated third-party payor settlements. The
facility had 149 licensed beds. The sales price of approximately $5,236
was paid in cash. The value received approximated the net carrying value
of the assets sold.
Effective September 1, 1999, the Company sold substantially all of the
assets of Delta Medical Center, with the exception of estimated
third-party payor settlements. The facility had 243 licensed
4
<PAGE> 7
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except per share information)
beds. During the quarter ended September 30, 1999, the Company
increased the asset write-down recorded in the quarter ended June 30,
1999 for Delta Medical Center to reflect a decrease in the anticipated
purchase price due to generally poor market conditions related to the
sale of hospitals. The sales price of approximately $3,584 was paid by
a combination of $100 in cash and promissory notes totaling $3,484.
The promissory notes are secured by a $400 certificate of deposit held
in escrow and a lien on the property. On October 31, 1999, the
purchaser of Delta Medical Center was unable to pay a scheduled $2,000
promissory note. The note was extended for sixty days in return for a
$150 principle payment and payment of all interest owed on the $2,000
promissory note as of October 31, 1999. The Company anticipates that
it may not be able to collect a significant portion of the promissory
notes. The promissory notes are recorded at their estimated net
realizable value.
(3) LONG-TERM DEBT
On October 28, 1999, the Company amended the credit agreement to extend
the payment date of the current portion of the loan, originally due
October 31, 1999, to February 28, 2000. At September 30, 1999, the
current portion of the debt was $6,933. The Company plans to make this
payment from the proceeds of the hospitals held for sale. If the Company
is unable to close the sale of the hospitals for sufficient cash prior to
February 28, 2000, there can be no assurance that the Company will be
able to obtain another extension from its lenders.
During the six months ended September 30, 1999, the Company has received
waivers to certain debt compliance provisions of its credit agreement. At
September 30, 1999, the Company is in compliance with, or obtained
waivers for, all debt covenants under the credit agreement. The Company's
continued monthly compliance with its debt covenants is predicated on its
ability to maintain certain levels of operating performance and on its
ability to sell certain assets to reduce debt. If the Company is unable
to meet these objectives, it will be required to seek additional waivers
from its lenders. However, there can be no assurance that the Company
will be able to obtain such waivers, if needed.
(4) EARNINGS PER SHARE
The following table sets forth the components used in the computation of
basic and diluted earnings per share:
5
<PAGE> 8
NEW AMERICAN HEALTHCARE CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except per share information)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Income (loss) from operations before extraordinary item (24,088) 888 (55,821) 1,202
Cumulative preferred dividends -- (273) -- (710)
------- ------- ------- -------
Continuing operations (24,088) 615 (55,821) 492
Extraordinary item -- (134) -- (134)
------- ------- ------- -------
Net income (loss) available to common shareholders (24,088) 481 (55,821) 358
======= ======= ======= =======
Denominator:
Denominator for basic earnings per share -
weighted-average shares outstanding 17,442 12,544 17,473 10,475
Effect of dilutive securities
Stock options -- 141 -- 139
Warrants -- 373 -- 375
Series B preferred stock -- 2,302 -- 3,246
------- ------- ------- -------
Denominator for diluted earnings per share 17,442 15,360 17,473 14,235
======= ======= ======= =======
</TABLE>
(5) CONTINGENCIES
The Company previously announced its intentions to sell Crosby Memorial
Hospital. The Company is obligated to build a new, replacement facility
for Crosby Memorial Hospital within 30 months of the October 7, 1999 date
that it obtained a certificate of need for the new facility. If the
Company fails to meet this commitment, the Company must purchase the
existing facility for $15,000. In addition, the Company is obligated to
post a performance bond or other financial instrument to guarantee the
construction of the facility within ninety days after obtaining the
certificate of need for the new facility. The obligation for such bond is
due in January 2000. The Company may not be able to obtain such
performance bond or other financial instrument on reasonable commercial
terms. The failure to post such financial instrument will be default
under the agreement and subject the Company to the payment of damages to
the seller. There can be no assurance that the seller will waive this
requirement nor can there be any assurance that if the bond requirement
is waived that the Company can fund either the new facility or the
$15,000 penalty payment under the terms of the agreement.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
FORWARD-LOOKING STATEMENTS
Certain statements in this Report 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 New American
Healthcare Corporation (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 Balanced Budget Act
of 1997; changes in Medicare and Medicaid reimbursement levels; the Company's
ability to implement successfully its business strategy and changes in such
strategy; the availability and terms of financing to fund the operation of the
Company's business; 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 Report. Certain of these factors are discussed
in more detail elsewhere in this Report. There can be no assurance that the
forward-looking statements included in this Report 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.
OVERVIEW
The Company operates nine acute care hospitals, two of which are held
for sale, with a total of 955 licensed beds and located in seven states
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 which it targets. The Company acquired its first hospital
in August 1996 and through September 1999 has acquired ten additional hospitals
and disposed of two hospitals.
IMPACT OF ACQUISITIONS
Because of the financial impact of the Company's acquisitions and
dispositions, 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 can materially affect 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. 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
7
<PAGE> 10
operating results of acquisitions are included in the Company's results of
operations from the respective dates of purchase.
RESULTS OF OPERATIONS
Net operating revenue is 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 result from
differences between the hospitals' customary charges and payment rates under the
Medicare and Medicaid programs and other third-party payors. 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 primarily relate to corporate overhead.
The following table presents, for the periods indicated, information
expressed as a percentage of net operating revenue. Such information has been
derived from the Consolidated Statements of Operations of the Company included
elsewhere in the report.
8
<PAGE> 11
<TABLE>
<CAPTION>
THREE MONTHS ENDED
September 30, PERCENTAGE
------------------------- Increase (Decrease)
1999 1998 of Dollar Amounts
--------- ----------
<S> <C> <C> <C>
Net operating revenue 100.0% 100.0% 15.8%
Operating expenses before depreciation
and amortization and interest 144.5% 88.7% 88.7%
------------------------
EBITDA (1) (44.5%) 11.3% (555.8%)
Depreciation and amortization 3.6% 3.4% 23.1%
Interest 6.6% 3.9% 93.3%
------------------------
Income (loss) before income taxes and
extraordinary item (54.8%) 3.9% (1706.7%)
Income taxes 0.0% 1.6% (100.0%)
------------------------
Income (loss) before extraordinary item (54.8%) 2.4% (2500.0%)
Extraordinary item 0.0% 0.8% (10.0%)
Cumulative preferred dividend 0.0% 0.8% (30.0%)
------------------------
Net income (loss) attributable to common stockholders (54.8%) 0.8% (2460.0%)
========================
<CAPTION>
SIX MONTHS ENDED
September 30, PERCENTAGE
------------------------ Increase (Decrease)
1999 1998 of Dollar Amounts
-------- ---------
<S> <C> <C> <C>
Net operating revenue 100.0% 100.0% 27.2%
Operating expenses before depreciation
and amortization and interest 150.6% 89.6% 113.9%
------------------------
EBITDA (1) (50.6%) 10.4% (718.2%)
Depreciation and amortization 4.0% 3.5% 46.2%
Interest 5.6% 4.2% 71.0%
------------------------
Income (loss) before income taxes and
extraordinary item (60.3%) 2.7% (2935.0%)
Income taxes (1.0%) 1.1% (212.5%)
------------------------
Income (loss) before extraordinary item (59.4%) 1.6% (4750.0%)
Extraordinary item 0.0% 0.1% (100.0%)
Cumulative preferred dividend 0.0% 0.9% (100.0%)
------------------------
Net income (loss) attributable to common stockholders (59.4%) 0.5% (14050.0%)
========================
</TABLE>
(1) EBITDA represents the sum of income before income tax expense,
interest, and depreciation and amortization. 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 that an increase in EBITDA
level is an indicator of the Company's improved ability to service
existing debt, to sustain potential future increases in debt and to
satisfy capital requirements. However,
9
<PAGE> 12
EBITDA is not a measure of financial performance under generally
accepted accounting principles and should not be considered an
alternative (i) to net income as a measure of operating performance or
(ii) to 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 calculation, EBITDA, as presented,
may not be comparable to other similarly titled measures of other
companies.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
Net operating revenue was $44.0 million for the three months ended
September 30, 1999, compared to $38.0 million for the comparable period of 1998,
an increase of $6.0 million or 15.8%. Net operating revenue for the hospitals
owned during both three months ended September 30, 1999 and 1998, excluding the
hospital held for sale, was $18.9 and $19.4 million, respectively. Net operating
revenue for the hospital held for sale owned during both three months ended
September 30, 1999 and 1998 was $4.4 and $5.4 million, respectively. The
decrease for hospitals owned during both periods, excluding the hospital held
for sale, is primarily due to the effects of the Balanced Budget Act of 1997. In
addition, several markets have experienced managed care pricing pressures.
Operating expenses less depreciation and amortization and interest were
$63.6 million, or 144.5% of net operating revenue, for the three months ended
September 30, 1999, compared to $33.7 million, or 88.7% of net operating
revenue, for the comparable period of 1998. During the three months ended
September 30, 1999, the Company recorded asset write-down costs of $18.9
million. Operating expenses less depreciation and amortization and interest for
the hospitals owned during both three months ended September 30, 1999 and 1998,
excluding the hospital held for sale and asset write-down costs, was $18.4 and
$17.3 million, respectively. Operating expenses less depreciation and
amortization and interest for the hospital held for sale owned during both three
months ended September 30, 1999 and 1998 was $5.4 and $4.9 million,
respectively. The increase for hospitals owned during both periods, excluding
the hospital held for sale, is primarily due to an increase in corporate
overhead costs and salary and professional fees.
Depreciation and amortization expense was $1.6 million for the three
months ended September 30, 1999, compared to $1.3 million for the comparable
period of 1998, an increase of $0.3 million or 23.1%. The increase is primarily
due to an increase in depreciation expense relating to acquisitions and a $0.2
million increase in capital expenditures for the three months ended September
30, 1999.
Interest expense was $2.9 million for the three months ended September
30, 1999, compared to $1.5 million for the comparable period of 1998, an
increase of $1.4 million or 93.3%. The increase was primarily due to the
increase in average outstanding indebtedness associated with borrowings to
acquire two hospitals since September 1998 and an increase in the Company's
interest rate. The average debt outstanding for the three months ended September
30, 1999 and 1998 was $103.2 and $37.0 million, respectively, bearing interest
at an average rate of 9.4% and 7.9% at the end of each respective period.
SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1998
Net operating revenue was $94.0 million for the six months ended
September 30, 1999, compared to $73.9 million for the comparable period of 1998,
an increase of $20.1 million or 27.2%. Net operating revenue for the hospitals
owned during both six months ended September 30, 1999 and 1998, excluding the
hospital held for sale, remained steady at $39.0 and $38.4 million,
respectively. Net operating revenue for
10
<PAGE> 13
the hospital held for sale owned during both six months ended September 30, 1999
and 1998 was $9.7 and $10.7 million, respectively.
Operating expenses less depreciation and amortization and interest were
$141.6 million, or 150.6% of net operating revenue, for the six months ended
September 30, 1999, compared to $66.2 million, or 89.6% of net operating
revenue, for the comparable period of 1998. During the six months ended
September 30, 1999, the Company recorded asset write-down, transition and other
related costs of $48.6 million. Operating expenses less depreciation and
amortization and interest for the hospitals owned during both six months ended
September 30, 1999 and 1998, excluding the hospital held for sale and asset
write-down costs, was $38.4 and $34.7 million, respectively. Operating expenses
less depreciation and amortization and interest for the hospital held for sale
owned during both six months ended September 30, 1999 and 1998 was $10.4 and
$9.4 million, respectively. The increase for hospitals owned during both
periods, excluding the hospital held for sale, is primarily due to an increase
in corporate overhead costs and salary and professional fees.
Depreciation and amortization expense was $3.8 million for the six
months ended September 30, 1999, compared to $2.6 million for the comparable
period of 1998, an increase of $1.2 million or 46.2%. The increase is primarily
due to an increase in depreciation expense relating to acquisitions and a $0.9
million increase in capital expenditures for the six months ended September 30,
1999.
Interest expense was $5.3 million for the six months ended September
30, 1999, compared to $3.1 million for the comparable period of 1998, an
increase of $2.2 million or 71.0%. The increase was primarily due to the
increase in average outstanding indebtedness associated with borrowings to
acquire two hospitals since September 1998 and an increase in the Company's
interest rate. The average debt outstanding for the six months ended September
30, 1999 and 1998 was $103.8 and $35.8 million, respectively, bearing interest
at an average rate of 9.4% and 7.9% at the end of each respective period.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had working capital of $21.4
million including cash and cash equivalents of $5.2 million. The ratio of
current assets to current liabilities was 1.7 to 1.0 at September 30, 1999 and
2.0 to 1.0 at March 31, 1999.
Cash flows used in operating activities were $1.5 million for the six
months ended September 30, 1999 compared to cash flows provided by operating
activities of $3.1 million for the comparable period of 1998. Cash flows
provided by investing activities were $2.1 million for the six months ended
September 30, 1999, primarily related to the proceeds from the disposition of
Davenport Medical Center. Cash flows used in investing activities were $29.8
million for the six months ended September 30, 1998, primarily related to the
acquisition of Puget Sound Hospital. Net cash used in financing activities was
$1.4 million for the six months ended September 30, 1999, primarily due to the
repayment of long-term debt from the sale proceeds of Davenport Medical Center.
In addition, the Company had bank borrowings of $4.5 million related to working
capital expenditures. Net cash provided by financing activities was $22.3
million for the six months ended September 30, 1998, primarily from the
Company's initial public offering and borrowings related to the Puget Sound
Hospital acquisition, net of repayment of subordinated debt and preferred stock.
Capital expenditures, excluding acquisitions, for the six months ended
September 30, 1999 and 1998 were $3.5 million and $2.6 million, respectively.
Capital expenditures related to management information systems ("MIS") (both
financial and clinical) were approximately $0.7 million for the six months ended
11
<PAGE> 14
September 30, 1999. Capital expenditures for the Company's hospitals will vary
from year to year depending on facility improvements and service enhancements
undertaken.
The Company's credit agreement provides for a revolving credit limit of
$116.0 million, which as of September 30, 1999 has been reduced to $111.6
million as a result of a permanent reduction due to the application of the
proceeds of an asset sale. 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 2.75% or (ii) London Interbank Offered Rate as
of the date of borrowing plus a margin of up to 4%. The applicable margin is
determined by a ratio of indebtedness to EBITDAR, as defined in the Credit
Agreement, calculated on a monthly basis. The facility is due and payable
November 30, 2002, with a required permanent reduction of $12.0 and $8.0 million
by October 31, 1999 and 2000, respectively. Additionally, the Company is
required to pay down outstanding indebtedness upon the sale of any facilities
and beginning with the year ended March 31, 2000, by the amount of any excess
cash flow for the year, as defined within the agreement, less $4.0 million of
cash and cash equivalents to be maintained by the Company.
On October 28, 1999, the Company amended the credit agreement to extend
the payment date of the current portion of the loan, originally due October 31,
1999, to February 28, 2000. At September 30, 1999, the current portion of the
debt was $6.9 million. The Company plans to make this payment from the proceeds
of the hospitals held for sale. If the Company is unable to close the sale of
the hospitals for sufficient cash prior to February 28, 2000, there can be no
assurance that the Company will be able to obtain another extension from its
lenders.
During the six months ended September 30,1999, the Company has received
waivers to certain debt compliance provisions of its credit agreement. At
September 30, 1999, the Company is currently in compliance with, or obtained
waivers for, all debt covenants under the credit agreement. The Company's
continued monthly compliance with its debt covenants is predicated on its
ability to maintain certain levels of operating performance and on its ability
to sell certain assets to reduce debt. If the Company is unable to meet these
objectives, it will be required to seek additional waivers from its lenders.
However, there can be no assurance that the Company will be able to obtain such
waivers, if needed. In October 1999, the Company began preliminary discussions
with its senior lenders regarding the possible restructuring of its debt. There
can be no assurance that the Company will be able to successfully restructure
its debt.
At September 30, 1999, $102.7 million of the credit agreement was
outstanding, a decrease of $0.6 million from March 31, 1999. This decrease is
comprised of $4.5 million of working capital draws, a $4.4 million repayment
from Davenport sale proceeds, and a $0.7 million repayment. At September 30,
1999, the average borrowing rate on the credit agreement was 9.4%. As of
September 30, 1999, there is $8.9 million available on the credit agreement. The
Company's ability to access these funds is contingent on compliance with the
terms of the credit agreement.
The Company anticipates that internally generated cash flows from
earnings, existing cash balances, borrowings under the credit agreement and
proceeds from the sale of the two hospitals held for sale will be sufficient to
fund future capital and Year 2000 expenditures and working capital requirements
through fiscal year 2000. There can be no assurance that the above sources will
sufficiently fund the Company's liquidity needs, that the Company will be in
compliance with its debt covenants, that the Company will be able to close the
sale of the two hospitals held for sale for sufficient cash prior to February
28, 2000 or that future developments in the hospital industry or general
economic trends will not adversely affect the Company's operations or its
liquidity.
12
<PAGE> 15
Effective August 1, 1999, the Company sold substantially all of the
assets of Davenport Medical Center, with the exception of patient accounts
receivable and estimated third-party payor settlements. The facility had 149
licensed beds. The sales price of approximately $5.2 million was paid in cash.
The value received approximated the net carrying value of the assets sold.
Effective September 1, 1999, the Company sold substantially all of the
assets of Delta Medical Center, with the exception of estimated third-party
payor settlements. The facility had 243 licensed beds. During the quarter ended
September 30, 1999, the Company increased the asset write-down recorded in the
quarter ended June 30, 1999 for Delta to reflect a decrease in the anticipated
purchase price due to generally poor market conditions related to the sale of
hospitals. The sales price of approximately $3.6 million was paid by a
combination of $0.1 million in cash and promissory notes totaling $3.5 million.
The promissory notes are secured by a $0.4 million certificate of deposit held
in escrow and a lien on the property. On October 31, 1999, the purchaser of
Delta Medical Center was unable to pay a scheduled $2.0 million promissory note.
The note was extended for sixty days in return for a $0.2 million principle
payment and payment of all interest owed on the $2.0 million promissory note as
of October 31, 1999. The Company anticipates that it may not be able to collect
a significant portion of the promissory notes. The promissory notes are recorded
at their estimated net realizable value.
The Company previously announced its intentions to sell Crosby Memorial
Hospital. The Company is obligated to build a new, replacement facility for
Crosby Memorial Hospital within 30 months of the October 7, 1999 date that it
obtained a certificate of need for the new facility. If the Company fails to
meet this commitment, the Company must purchase the existing facility for $15.0
million. In addition, the Company is obligated to post a performance bond or
other financial instrument to guarantee the construction of the facility within
ninety days after obtaining the certificate of need for the new facility. The
obligation for such bond is due in January 2000. The Company may not be able to
obtain such performance bond or other financial instrument on reasonable
commercial terms. The failure to post such financial instrument will be default
under the agreement and subject the Company to the payment of damages to the
seller. There can be no assurance that the seller will waive this requirement
nor can there be any assurance that if the bond requirement is waived that the
Company can fund either the new facility or the $15.0 million penalty payment
under the terms of the agreement.
In addition to Crosby Memorial Hospital, the Company announced its
intentions to sell an additional hospital. The Company expects to dispose of
these assets during the year ended March 31, 2000. The funds provided by any
dispositions will be used to pay down outstanding indebtedness on the revolving
credit facility.
YEAR 2000 ISSUES
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. These products include software
applications running on desktop computers and network servers as well as in
microchips and microcontrollers incorporated into equipment. Certain of the
Company's computer hardware and software, building infrastructure components
(e.g. alarm systems and HVAC systems) and medical devices that are date
sensitive, may contain programs with the Year 2000 problem. Computer systems,
which do not include four-digit entries, could fail or produce erroneous results
causing disruptions of operations or affect patient
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<PAGE> 16
diagnosis and treatment. As a result, many software and computer systems may
need to be upgraded or replaced in order to comply with such Year 2000
requirements.
Status of the Company's Year 2000 Compliance
MIS. The Company has been in the process of converting all of its
hospitals to a new management information system (MIS), which it believes is
Year 2000 compliant. As of September 30, 1999, eight of the Company's nine
hospitals had been converted to the new system. The remaining hospital was
converted in October 1999. The provider of the MIS has represented to the
Company that the new system is Year 2000 compliant and the Company's testing of
the system has not indicated any material Year 2000 noncompliance.
Non-MIS Equipment. Various clinical and non-clinical equipment
currently in use at the Company's hospitals incorporates time/date elements. The
Company has substantially completed an itemized inventory of all of its
hospitals and identified substantially all equipment with potential Year 2000
problems. The Company has established a time frame for repairing or replacing
any non-compliant equipment. The Company is also in the process of contracting
its group-purchasing agent to determine any Year 2000 compliance problems with
respect to its sources of supplies. The Company has not received sufficient
information from its group purchasing agent to determine any Year 2000
compliance problems with respect to its sources of supplies or to establish an
estimated date for completing subsequent phases with respect to its supplies. In
addition, the Company has established a plan to inventory the infrastructure in
each of its hospitals to determine any Year 2000 compliance problems. The
Company expects to complete its Year 2000 compliance plan with respect to the
hospital's infrastructure by December 31, 1999.
Third-Party Relationships. In addition, the Company has ongoing
relationships with third-party suppliers, vendors, payors and others, which may
have computer systems with Year 2000 compliance problems that the Company does
not control. Medicare is a significant source of revenues to the Company.
According to the Health Care Financing Administration ("HCFA") web page, the
Medicare program will be ready to process acceptable claims in the Year 2000.
However, 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 Medicare and Medicaid programs, as
well as other payors, will not experience problems with Year 2000 compliance. In
addition, the Company depends upon other vendors such as utilities, which
provide electricity, water, natural gas and telephone services and vendors of
medical supplies and pharmaceuticals used in patient care. As a part of its Year
2000 strategy, the Company intends to seek assurances from these parties that
their services and products will not be interrupted or malfunction due to the
Year 2000 problem and has completed the initial contacting of these parties. The
failure of such third parties to remedy Year 2000 problems could have a material
adverse effect on the Company's business, financial condition and results of
operations and ability to provide health care services.
Costs of Year 2000 Compliance
The Company expects to make capital expenditures of approximately $7.5
million which includes (i) approximately $6.3 million for the new MIS software
and hardware, of which $4.8 million was expended in fiscal year 1999 and $0.7
million was expended in the six months ended September 30, 1999 and (ii) certain
non-MIS costs associated with Year 2000 compliance. The Company does not expect
to incur any other additional material Year 2000 compliance costs. The failure
of the Company's MIS to be Year 2000
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<PAGE> 17
compliant could have a material adverse effect on the Company's business,
financial conditions and results of operations.
Risks Related to Year 2000 Issues
The Company believes that it will be able to resolve its Year 2000
compliance problems before December 31, 1999; however, the Company has not yet
completed all of the phases of its Year 2000 compliance program. The failure of
the new MIS program, the non-MIS equipment or the hospital infrastructure to be
Year 2000 compliant could have a material adverse effect on the Company's
business, financial condition and results of operations. The failure of any of
the foregoing could result in the Company's inability to diagnose or treat
patients, bill for patient services, or collect payment from patients or
third-party payors. Finally, if there are such disruptions generally in the
economy as a result of Year 2000 compliance problems, such disruptions could
have a material adverse effect on the Company. The Company is unable to estimate
the amount of potential liability or lost revenue at this time.
The Company believes that the most likely worst case scenario of Year
2000 compliance problems is that some third-party payors will not be Year 2000
compliant. The failure of such third-party payors to be Year 2000 compliant
could result in delays and difficulties in receiving payments from such payors
for services provided by the Company. These problems could result from the
inability to file claims with certain payors by electronic filings as well as
such payors inability to process either electronic or paper filings. These
problems could seriously impact the Company's cash flows. The Company's
contingency plan is to revert to manual billing processes.
Contingency Plans for Year 2000 Issues
The Company has substantially completed and continues to update a
contingency plan for Year 2000 issues. However, in some instances (e.g. loss of
water supply), the Company may not be able to develop contingency plans which
allow the affected hospital to continue to operate. Each of the Company's
hospitals has completed a Year 2000 contingency plan, which has been reviewed at
the corporate office. In preparing their contingency plan, each hospital
contacted local utility and other critical vendors. Each hospital and the
corporate office will be staffed during the critical hours of the Year 2000
changeover with an on-site "Year 2000 Response Team".
The foregoing is based on information currently available to the
Company. The Company will revise its strategy as it completes its assessment of
Year 2000 issues. The Company can provide no assurances that applications and
equipment the Company believes to be Year 2000 compliant will not experience
difficulties or that the Company will not experience difficulties obtaining
resources needed to make modifications to or replace the Company's affected
systems and equipment. Failure by the Company or third parties on which it
relies to resolve Year 2000 issues could have a material adverse effect on the
Company's results of operations and its ability to provide health care services.
Consequently, the Company can give no assurances that issues related to Year
2000 will not have a material adverse effect on the Company's financial
condition or results of operations.
15
<PAGE> 18
ENVIRONMENTAL MATTERS
The Company acquired Puget Sound Hospital in Tacoma, Washington in
September 1998. 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 prior owner has agreed 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.
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 generally been able to offset such increases in
operating costs by its cost containment activities and expanding services. In
light of reimbursement 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 with government or
managed care payors, unless such payors correspondingly increase reimbursement
rates.
GENERAL
Hospital revenue is received primarily from Medicare, Medicaid and
commercial insurance. The federal Medicare program accounted for approximately
52.8% and 47.6% of hospital patient days for the six months ended September 30,
1999 and 1998, respectively. The state Medicaid programs accounted for
approximately 20.3% and 10.7% of hospital patient days for the six months ended
September 30, 1999 and 1998, respectively. The Company's percentage of revenue
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 prospective, based upon the diagnosis of a patient. The Medicare
payment rate increases have historically been less than actual inflation. 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 health maintenance
organizations, preferred provider organizations and other managed care payors,
may also adversely affect payment rates for the Company's services and the
Company's ability to achieve targeted growth rates in net patient service
revenue.
Both federal and state legislators are continuing to scrutinize the
health care industry for the purpose of reducing health care costs. While the
Company is unable to predict what, if any, future health reform legislation may
be enacted at the federal or state level, the Company expects continuing
pressure to limit expenditures by governmental health care programs. Payments
for Medicare outpatient services provided at acute care hospitals and home
health services historically have been paid based on costs, subject to certain
limits. The Balanced Budget Act of 1997 requires that the payment for those
services be converted to a prospective payment system, which will be phased in
over time. The 1997 Act also includes a managed care
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<PAGE> 19
option, which could direct Medicare patients to managed care organizations.
Further changes in the Medicare or Medicaid programs and other proposals to
limit health care spending could have a material adverse impact upon the health
care industry and the Company.
The Company's acute care hospitals, like most acute care hospitals in
the United States, have significant unused capacity. The result is substantial
competition for patients and physicians. Inpatient utilization continues to be
negatively affected by payor-required pre-admission authorization and by payor
pressure to maximize outpatient and alternative health care delivery services
for less acutely ill patients. The Company expects increased competition and
admission constraints to continue in the future. The ability to respond
successfully to these trends, as well as spending reductions in governmental
health care programs, will play a significant role in determining the hospitals'
ability to maintain their current rate of net revenue growth and operating
margins.
The Company expects the industry trend from inpatient to outpatient
services to continue due to the increased focus on managed care and advances in
technology. Outpatient revenue of the Company's hospitals was approximately
42.4% and 42.8% of gross patient service revenue for the six months ended
September 30, 1999 and 1998, respectively.
The complexity of the Medicare and Medicaid regulations, increases in
managed care, hospital personnel turnover, the dependence of hospitals on
physician documentation of medical records and the subjective judgment involved
complicates the billing and collections of accounts receivable by hospitals.
There can be no assurance that this complexity will not negatively impact the
Company's future cash flow or results of operations.
The federal government and a number of states are rapidly increasing
the resources devoted to investigating allegations of fraud and abuse in the
Medicare and Medicaid programs. At the same time, regulatory and law enforcement
authorities are taking an increasingly strict view of the requirements imposed
on providers by the Social Security Act and Medicare and Medicaid regulations.
Although the Company believes that it is in material compliance with such laws,
a determination that the Company has violated such laws, or even the public
announcement that the Company was being investigated concerning possible
violations, could have a material adverse effect on the Company.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
133, Accounting for Derivative Instruments and Hedging Activities, which was
amended by FAS 137 and is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. FAS 133 establishes accounting and reporting
standards for derivative instruments, including derivative instruments imbedded
in other contracts and for hedging activities. It requires that entities
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Company does
not presently have any derivative financial instruments and does not believe
that this statement will have a material impact on its financial position or
results of operations.
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PART II.
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(i) Exhibits
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
3.1 Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 of the Company's
Report on Form 10-Q for the quarter ended September 30,
1998).
3.2 Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 of the Company's Report on Form 10-Q for the
quarter ended September 30, 1998).
10.1 Asset Purchase and Liabilities Assumption Agreement dated
June 30, 1999 among Trinity Human Services Corporation, as
Buyer, Trinity Regional Health System, New American
Healthcare Corporation and NAHC of Iowa, Inc., as Seller.
10.2 Stock Purchase Agreement dated August 31, 1999 among New
American Healthcare Corporation, as Seller, Neil G. McLean,
as Buyer, and Craig B. Watson, as Buyer.
10.3 First Amendment to the Second Amended and Restated Credit
Agreement dated as of July 19, 1999 by and among New
American Healthcare Corporation, as Borrower, Toronto
Dominion (Texas), Inc., as Agent, The Toronto-Dominion Bank,
as Issuing Bank and various lenders thereto.
10.4 Second Amendment and Waiver to the Second Amended and
Restated Credit Agreement dated as of July 28, 1999 by and
among New American Healthcare Corporation, as Borrower,
Toronto Dominion (Texas), Inc., as Agent, The
Toronto-Dominion Bank, as Issuing Bank and various lenders
thereto.
10.5 Third Amendment to the Second Amended and Restated Credit
Agreement dated as of August 20, 1999 by and among New
American Healthcare Corporation, as Borrower, Toronto
Dominion (Texas), Inc., as Agent, The Toronto-Dominion Bank,
as Issuing Bank and various lenders thereto.
10.6 Fourth Amendment and Waiver to the Second Amended and
Restated Credit Agreement dated as of October 14, 1999 by
and among New American Healthcare Corporation, as Borrower,
Toronto Dominion (Texas), Inc., as
</TABLE>
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<TABLE>
<S> <C>
Agent, The Toronto-Dominion Bank, as Issuing Bank and
various lenders thereto.
10.7 Fifth Amendment to the Second Amended and Restated Credit
Agreement dated as of October 28, 1999 by and among New
American Healthcare Corporation, as Borrower, Toronto
Dominion (Texas), Inc., as Agent, The Toronto-Dominion Bank,
as Issuing Bank and various lenders thereto.
27 Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports on Form 8-K
During the three months ended September 30, 1999, the
Company filed the following reports on Form 8-K:
(i) Form 8-K dated September 14, 1999, to inform the market of
the sale of Delta Medical Center.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Dated: November 15, 1999 NEW AMERICAN HEALTHCARE CORPORATION
By: /s/ Thomas W. Singleton
------------------------------------
Chief Executive Officer
By: /s/ Timothy S. Hill
------------------------------------
Chief Financial Officer
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<PAGE> 1
EXHIBIT 10.1
ASSET PURCHASE AND LIABILITIES ASSUMPTION AGREEMENT
BY AND AMONG
TRINITY HUMAN SERVICES CORPORATION,
TRINITY REGIONAL HEALTH SYSTEM,
NEW AMERICAN HEALTHCARE CORPORATION,
AND
NAHC OF IOWA, INC.
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE 1 PURCHASE OF ASSETS AND ASSUMPTION OF LIABILITIES .....................2
SECTION 1.1 Incorporation of Recitals ...................................2
SECTION 1.2 Sale and Purchase of Assets .................................2
SECTION 1.3 Condition of Assets .........................................2
SECTION 1.4 Liabilities .................................................2
SECTION 1.5 Assumption of Contracts, Agreements, and Leases .............3
SECTION 1.6 Purchase Price; Adjustments to Purchase Price ...............3
SECTION 1.7 Adjustment Procedure ........................................3
SECTION 1.8 Tax Allocation ..............................................4
SECTION 1.9 Costs and Expenses ..........................................4
SECTION 1.10 Proration of Income and Expenses ............................4
SECTION 1.11 Real Estate Taxes ...........................................4
SECTION 1.12 Closing .....................................................4
SECTION 1.13 Abandonment Date ............................................6
ARTICLE 2 OTHER AGREEMENTS .....................................................7
SECTION 2.1 Due Diligence Review ........................................7
SECTION 2.2 Real Property ...............................................7
SECTION 2.3 Employees ...................................................9
SECTION 2.4 Noncompetition Agreement ...................................10
SECTION 2.5 Escrow Agreement ...........................................10
SECTION 2.6 Collective Bargaining Agreement ............................11
SECTION 2.7 Estoppel Certificates ......................................11
SECTION 2.8 Storage Tank Removal and Replacement .......................11
SECTION 2.9 Severance Payments to Senior Management ....................11
SECTION 2.10 Further Assurances .........................................11
SECTION 2.11 Management Information System ..............................11
SECTION 2.12 Access to Information ......................................12
SECTION 2.13 Billing Agent Agreement ....................................12
SECTION 2.14 Assumption of DTC Agreement ................................13
SECTION 2.15 Buyer's Participation in Seller's Preparation for
JCAHO Resurvey..............................................13
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER AND NAHC ...................13
SECTION 3.1 Organization, Qualification, and Corporate Power of Seller..13
SECTION 3.2 Subsidiaries and Shareholders ..............................13
SECTION 3.3 Validity ...................................................13
SECTION 3.4 Default ....................................................14
SECTION 3.5 Title to Assets ............................................14
SECTION 3.6 Contracts and Leasehold Interests ..........................14
SECTION 3.7 Trademarks, Patents, and Other Rights ......................15
SECTION 3.8 Proprietary Information of Third Parties ...................15
SECTION 3.9 Litigation and Investigations . ............................15
</TABLE>
i
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<TABLE>
<CAPTION>
<S> <C>
SECTION 3.10 Approvals ..................................................16
SECTION 3.11 Taxes ......................................................16
SECTION 3.12 Insurance Coverage .........................................16
SECTION 3.13 Fees and Commissions .......................................17
SECTION 3.14 Insider Interests ..........................................17
SECTION 3.15 Other Approvals ............................................17
SECTION 3.16 Environmental Liabilities ..................................17
SECTION 3.17 Employees ..................................................18
SECTION 3.18 Disclosure .................................................18
SECTION 3.19 FIRPTA .....................................................18
SECTION 3.20 Condemnation ...............................................19
SECT10N 3.21 Zoning .....................................................19
SECTION 3.22 Bankruptcy .................................................19
SECTION 3.23 Real Property Taxes ........................................19
SECTION 3.24 Insurance Compliance .......................................19
SECTION 3.25 Disability .................................................19
SECTION 3.26 Independence ...............................................20
SECTION 3.27 Licenses and Accreditation .................................20
SECTION 3.28 Hill Burton and FEMA .......................................20
SECTION 3.29 Payors .....................................................20
SECTION 3.30 Medical Staff ..............................................21
SECTION 3.31 Compliance with Medicare and Medicaid Programs .............21
SECTION 3.32 Compliance with Programs - Generally .......................22
SECT10N 3.33 Medicare/Medicaid Certification ............................22
SECTION 3.34 Year 2000 Compliance .......................................22
SECTION 3.35 Financial Statements .......................................22
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER AND TRHS ....................23
SECTION 4.1 Organization, Qualification, and Corporate Power of Buyer ..23
SECTION 4.2 Validity ...................................................23
SECTION 4.3 Fees and Commissions .......................................24
SECTION 4.4 Other Approvals ............................................24
SECTION 4.5 Financial Statements .......................................24
SECTION 4.6 Disclosure .................................................24
ARTICLE 5 COVENANTS OF NAHC AND SELLER ........................................24
SECTION 5.1 Operation of Business ......................................24
SECTION 5.2 Liens on Assets ............................................24
SECTION 5.3 Litigation .................................................24
SECTION 5.4 Non-Contravention ..........................................25
SECTION 5.5 Standstill .................................................25
SECTION 5.6 Insurance ..................................................25
SECTION 5.7 Third-Party Consents .......................................25
SECTION 5.8 Regulatory Approvals .......................................25
SECTION 5.9 Non-Solicitation ...........................................25
</TABLE>
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<TABLE>
<S> <C>
SECTION 5.10 General Cooperation ........................................25
SECTION 5.11 Real Property ..............................................25
SECTION 5.12 Board of Director and Lender Group Approvals ...............26
ARTICLE 6 COVENANTS OF TRHS AND BUYER .........................................26
SECTION 6.1 Third-Party Consents .......................................26
SECTION 6.2 Regulatory Approvals .......................................26
SECTION 6.3 General Cooperation ........................................26
SECTION 6.4 Employees of Seller ........................................26
SECTION 6.5 Medical Staff ..............................................26
SECTION 6.6 Board of Director and Other Approvals ......................27
SECTION 6.7 Non-Contravention ..........................................27
ARTICLE 7 CONDITIONS TO THE OBLIGATIONS OF TRHS AND BUYER .....................27
SECTION 7.1 Opinion of Sellers' Counsel ................................27
SECTION 7.2 Representations and Warranties .............................27
SECTION 7.3 Compliance with Covenants ..................................27
SECTION 7.4 Corporate Proceedings ......................................27
SECTION 7.5 No Adverse Change ..........................................27
SECTION 7.6 Regulatory Approvals .......................................28
SECTION 7.7 Supporting Documents .......................................28
ARTICLE 8 CONDITIONS TO THE OBLIGATIONS OF NAHC AND SELLER ....................28
SECTION 8.1 Opinion of Buyer's Counsel .................................28
SECTION 8.2 Representations and Warranties .............................28
SECTION 8.3 Compliance with Covenants ..................................28
SECTION 8.4 Supporting Documents .......................................28
ARTICLE 9 JOINT COVENANTS OF THE PARTIES ......................................28
SECTION 9.1 Confidentiality of Business Information . ..................28
SECTION 9.2 Confidentiality of this Agreement ..........................29
SECTION 9.3 Return of Information ......................................29
ARTICLE 10 INDEMNIFICATION ....................................................29
SECTION 10.1 Survival; Right to Indemnification Not Affected
by Knowledge ...............................................29
SECTION 10.2 Indemnification and Payment of Damages by Seller and NAHC...29
SECTION 10.3 Indemnification and Payment of Damages by Buyer ............30
SECTION 10.4 Liability and Risk of Loss .................................31
SECTION 10.5 Procedure for Indemnification - Third Party Claims .........31
SECTION 10.6 Procedure for Indemnification - Other Claims ...............32
SECTION 10.7 Time Limitations - General .................................32
SECTION 10.8 Time Limitations for Buyer and Seller
Post-Closing Obligations ...................................33
SECTION 10.9 Time Limitations for Seller's or NAHC's Breach
of Section 3.31 ............................................33
SECTION 10.10 Initial Expenditure ........................................33
SECTION 10.11 Maximum Amount - Seller and NAHC ...........................34
</TABLE>
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<TABLE>
<S> <C>
SECTION 10.12 Maximum Amount - Buyer .....................................34
ARTICLE 11 MISCELLANEOUS ......................................................34
SECTION 11.1 Termination Events ........................................34
SECTION 11.2 Notice ....................................................35
SECTION 11.3 Survival of Provisions ....................................36
SECTION 11.4 Amendment .................................................36
SECTION 11.5 Assignment ................................................36
SECTION 11.6 Severability ..............................................37
SECTION 11.7 Choice of Law .............................................37
SECTION 11.8 Binding Benefit ...........................................37
SECTION 11.9 Headings ..................................................37
SECTION 11.10 Counterparts ..............................................37
SECTION 11.11 Expenses ..................................................37
SECTION 11.12 Waiver ....................................................37
SECTION 11.13 Construction ..............................................37
SECTION 11.14 Cumulative Remedies .......................................37
SECTION 11.15 Casualty or Condemnation ..................................38
SECTION 11.16 Arbitration ...............................................38
SECTION 11.17 Knowledge of NAHC and Seller ..............................38
SECTION 11.18 Completion of Schedules ...................................39
SECTION 11.19 Entire Agreement ..........................................39
</TABLE>
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LIST OF SCHEDULES
SCHEDULE 1.2(a) ASSETS
SCHEDULE 1.2(b) EXCLUDED ASSETS
SCHEDULE 1.4 ASSUMED LIABILITIES
SCHEDULE 1.5 CONTRACTS
SCHEDULE 1.8 TAX ALLOCATION
SCHEDULE 1.12(a) THE DEEDS
SCHEDULE 1.12(b) PERMITTED EXCEPTIONS
SCHEDULE 2.4 NONCOMPETITION AGREEMENT
SCHEDULE 2.5 ESCROW AGREEMENT
SCHEDULE 2.7 FORM TENANT ESTOPPEL LETTER
SCHEDULE 2.9 SEVERANCE PACKAGE
SCHEDULE 2.11 SUBLICENSE AGREEMENT
SCHEDULE 2.13 BILLING AGENT AGREEMENT
SCHEDULE 2.14 DTC ASSIGNMENT AND ASSUMPTION AGREEMENT
SCHEDULE 3.0 SELLER'S AND NAHC'S DISCLOSURE SCHEDULE
SCHEDULE 3.12 SELLER'S INSURANCE
SCHEDULE 3.27 SELLER'S LICENSES AND PERMITS
SCHEDULE 3.30 SELLER'S MEDICAL STAFF
SCHEDULE 4.0 BUYER'S AND TRHS' DISCLOSURE SCHEDULE
SCHEDULE 7.1 OPINION OF SELLER'S COUNSEL
SCHEDULE 8.1 OPINION OF BUYER'S COUNSEL
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<PAGE> 7
ASSET PURCHASE AND LIABILITIES ASSUMPTION AGREEMENT
BY AND AMONG
TRINITY HUMAN SERVICES CORPORATION,
TRINITY REGIONAL HEALTH SYSTEM,
NEW AMERICAN HEALTHCARE CORPORATION,
AND
NAHC OF IOWA, INC.
-------------------
THIS ASSET PURCHASE AND LIABILITIES ASSUMPTION AGREEMENT (the
"AGREEMENT"), dated as of this 30th day of June, 1999 (the "Effective Date"), is
made by and among Trinity Human Services Corporation, a non-profit corporation
duly organized and validly existing under the laws of the State of Illinois
("Buyer"), Trinity Regional Health System, a non-profit corporation duly
organized and validly existing under the laws of the State of Illinois
("TRHS"), New American Healthcare Corporation, a for profit corporation duly
organized and validly existing under the laws of the State of Delaware ("NAHC"),
and NAHC of Iowa, Inc., d/b/a Davenport Medical Center, a for profit corporation
duly organized and validly existing under the laws of the State of Tennessee
("Seller").
WHEREAS, Seller owns the assets of and operates a for profit acute care
hospital with an included skilled nursing unit, located at 1111 West Kimberly
Avenue, Davenport, Iowa (the "HOSPITAL FACILITY"), as well as three (3) medical
office buildings located as 3801 Marquette Street, Davenport, Iowa, 3904 Lillie
Avenue, Davenport, Iowa, and 3906 Lillie Avenue, Davenport, Iowa, respectively
(the "MEDICAL OFFICE BUILDINGS");
WHEREAS, NAHC is the corporate parent of Seller;
WHEREAS, TRHS is the parent corporation of certain health care
providers in the State of Illinois;
WHEREAS, TRHS is the corporate parent of Buyer;
WHEREAS, Seller desires to sell, and NAHC desires to cause Seller to
sell, certain of its assets to Buyer, all as set forth herein; and
WHEREAS, Buyer desires to purchase, and TRHS desires to cause Buyer to
purchase, certain assets of Seller, all as set forth herein.
NOW THEREFORE, in consideration of the premises and covenants as set
forth herein, and subject to the representations, warranties, and conditions
contained herein, the parties agree as follows:
<PAGE> 8
ARTICLE I
PURCHASE OF ASSETS
AND ASSUMPTION OF LIABILITIES
SECTION 1.1 INCORPORATION OF RECITALS. The recitals set forth above are
incorporated herein by reference.
SECTION 1.2 SALE AND PURCHASE OF ASSETS. Subject to the terms and
conditions of this Agreement, and in reliance on the representations,
warranties, and covenants contained herein, on the Closing Date (as defined
below), Seller shall sell, convey, assign, transfer, and deliver, or cause to be
sold, conveyed, assigned, transferred, and delivered, to Buyer and Buyer shall
purchase and acquire from Seller, certain Assets (as defined below) of Seller,
free and clear of any title defect, mortgage, assignment, pledge, hypothecation,
security interest, title or retention agreement, levy, execution, seizure,
attachment, garnishment, deemed trust, lien, easement, option, right or claim of
others, or charge or encumbrance of any kind whatsoever (other than the
exceptions specifically set forth herein), in exchange for the Purchase Price
(as defined below) and Buyer's assumption of certain Assumed Liabilities (as
defined below). The term "ASSETS" shall mean certain parcels of land owned by
Seller, including all improvements and structures located on such parcels (the
"REAL PROPERTY"), a legal description of which is set forth Schedule 1.2(a),
attached hereto and incorporated by reference, and certain other tangible and
intangible assets also as specifically set forth on the incorporated Schedule
1.2(a). Specifically excluded from this Agreement, the Assets, and the purchase
obligations herein are those assets and properties set forth on Schedule 1.2(b),
attached hereto and incorporated by reference, including, without limitation,
cash and cash equivalents, insurance proceeds, accounts receivable, and rights
to claims of, and monies due, Seller if any.
SECTION 1.3 CONDITION OF ASSETS. Other than with respect to the
representations and warranties herein provided, Seller shall transfer the Assets
to Buyer and Buyer shall accept the Assets from Seller AS IS WITH NO WARRANTY OF
HABITABILITY OR FITNESS FOR HABITATION, WITH RESPECT TO THE LAND, BUILDINGS AND
IMPROVEMENTS, AND WITH NO WARRANTIES, INCLUDING WITHOUT LIMITATION, THE
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT
TO THE EQUIPMENT, INVENTORY AND SUPPLIES, AND ANY AND ALL OF WHICH WARRANTIES
SELLER HEREBY DISCLAIMS. All of the Assets shall be further subject to normal
wear and tear on the land, buildings, improvements and equipment and normal and
customary use and disposal of inventory and supplies in the ordinary course of
business up to the Closing Date.
SECTION 1.4 ASSUMPTION OF LIABILITIES. Simultaneous with its purchase
of the Assets, Buyer shall assume the payment and performance of certain
obligations of Sellers from and after the Closing (as defined below), as are
specifically described on Schedule 1.4, attached hereto and incorporated by
reference. The foregoing described liabilities shall hereinafter be referred to
collectively as the "ASSUMED LIABILITIES." Except as set forth on Schedule 1.4,
Buyer shall not satisfy or assume any liability or obligation for any liability
not specifically identified or scheduled herein, including, without limitation,
any liabilities with respect to Seller's employees, employee
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benefit plans, salaries, any unpaid overtime, back wages, associated tax
liabilities, or other benefits or obligations.
SECTION 1.5 ASSUMPTION OF CONTRACTS, AGREEMENTS, AND LEASES.
Simultaneous with the purchase of the Assets, Buyer will prospectively assume
all of the contracts, agreements, and leases of Seller, as disclosed on Schedule
1.5 (the "CONTRACTS"), to the extent such Contracts can be assumed. All
reasonable costs associated with the assignment of the Contracts to Buyer shall
be borne by Seller; provided, that Seller shall have no obligation to make such
payment. Notwithstanding the foregoing, Buyer shall have no obligation to assume
any Contract if the assumption thereof would require Buyer to make a payment in
consideration of the assignment in an amount that Buyer considers unreasonable,
unless Seller elects to make such payment instead.
SECTION 1.6 PURCHASE PRICE; ADJUSTMENTS TO PURCHASE PRICE. Buyer shall
pay to Seller as consideration for the Assets the sum of five million seven
hundred thousand dollars ($5,700,000), plus the Adjustable Amount (the "PURCHASE
PRICE"). Three hundred fifteen thousand dollars ($315,000) of the Purchase
Price, less the sum (but not more than forty thousand dollars ($40,000)) of any
amount expended by Seller prior to the Closing for the purposes described in
Section 2.8 (the "DEPOSIT REDUCTION") shall be deposited with the Escrow Agent
(as defined below) pursuant to the Escrow Agreement (as defined below) (the
"DEPOSIT"). For purposes of this Section 1.6, the "ADJUSTABLE AMOUNT" means a
sum equal to the value (positive or negative) of the "Current Assets" listed on
Schedule 1.2(a), minus the value of the "Current Assumed Liabilities" listed on
Schedule 1.4, and minus the value of any long-term liabilities of Seller set
forth on Schedule 1.4 that Buyer agrees to assume, which shall be estimated by
the parties in good faith not earlier than five (5) days prior to the Closing
based on the most current interim financial statements with provisional
adjustments as shall be mutually agreed to by the parties and subject to the
adjustment procedure set forth below.
SECTION 1.7 ADJUSTMENT PROCEDURE. No later than sixty (60) days after
the Closing, Buyer shall provide to Seller a balance sheet as of the Closing
Date, reflecting the items listed above determined in accordance with generally
accepted accounting principles applied consistently with prior periods (the
"FINAL CLOSING STATEMENT") and the recalculation of the Adjustable Amount based
on the Final Closing Statement (the "FINAL ADJUSTABLE AMOUNT"). Within ten (10)
days after Seller has received the Final Closing Statement and the Final
Adjustable Amount, Seller shall provide Buyer with notice, informing Buyer
whether or not it agrees with the Final Adjustable Amount ("Seller's Notice").
In the event that Seller agrees with Buyer's calculations and the Final
Adjustable Amount is greater than the Adjustable Amount paid by Buyer at
Closing, Buyer shall pay Seller the difference between the Final Adjustable
Amount and the Adjustable Amount within ten (10) days after Seller's Notice. In
the event that Seller agrees with Buyer's calculations and the Final Adjustable
Amount is less than the Adjustable Amount paid by Buyer at Closing, Seller shall
pay Buyer the difference between the Adjustable Amount and the Final Adjustable
Amount within ten (10) days after Seller's Notice. If Seller disagrees with
Buyer's calculations, the parties shall work in good faith to resolve any
disputes, as promptly as possible. If the parties have not agreed upon the Final
Closing Statement within thirty (30) days of Seller's delivery of notice of its
objection to the Final Closing Statement, then either party may submit the
dispute for resolution under Section 11.16 of this Agreement.
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SECTION 1.8 TAX ALLOCATION. The parties agree to allocate the Purchase
Price and the Assumed Liabilities among the Assets for all purposes (including
financial, accounting, and tax purposes) in accordance with the allocation set
forth on Schedule 1.8, attached hereto and incorporated by reference, and shall
make all necessary filings (including those required under Internal Revenue Code
Section 1060) in accordance with that allocation.
SECTION 1.9 COSTS AND EXPENSES. Except as otherwise set forth herein
and except for expenses related to the sale of the Real Property to Buyer, each
party shall pay its own expenses associated with and incident to the
transactions contemplated hereby, including, without limitation, recording fees
at the Closing (as defined below). With respect to the expenses related to the
sale of the Real Property to Buyer (i.e., the Surveys (as defined below), the
Title Policies (as defined below), and transfer taxes), Buyer shall be
responsible for paying the first twenty thousand dollars ($20,000) of such
expenses and Seller shall pay all other expenses related to such sale. The costs
and expenses shall not include the cost of any additional endorsement to the
Title Policies (as defined below) requested by Buyer. The cost of such
additional endorsements to the Title Policies shall be the sole responsibility
of Buyer.
SECTION 1.10 PRORATION OF INCOME AND EXPENSES. All rental income and
lease payments related to the Real Property and the tangible Assets shall be
prorated as of the date of the Closing (as defined below) and the Purchase Price
shall be adjusted in accordance with such proration.
SECTION 1.11 REAL ESTATE TAXES. Seller shall pay in full and all real
estate tax bills issued by the Scott County Treasurer for all periods through
the Closing Date (as defined below) for tax parcels Z0019-86, P1408D01C,
P1408DO8A, P1409-01, P1409-02 at closing or, if not issued at time of closing,
within 10 days of the issuance of such property tax bills.
SECTION 1.12 CLOSING. The closing of the transactions contemplated by
this Agreement shall be effective as of the later to occur of (i) 12:01 a.m.
(CST) on August 1, 1999, or (ii) the date fifteen (15) days after Buyer and/or
Seller have obtained all regulatory approvals and acknowledgments from federal
and state government agencies necessary for consummation of the transactions
contemplated hereby and for the operation of the Hospital Facility as an acute
care hospital with a skilled nursing unit and all waiting periods for transfer
of any license or permit to Buyer have expired (such closing being called the
"CLOSING" and such date being called the "CLOSING DATE"). At the Closing, Seller
shall deliver to Buyer the following:
(a) Bills of sale and assignments transferring to Buyer all of the
Assets (other than for the Real Property), together with
certificates or other evidence of title to the Assets (other
than for the Real Property), properly endorsed to Buyer; and
(b) Assignment and assumption agreements, transferring Seller's
rights and obligations with respect to the Contracts to
Buyer; and
(c) To the extent required and obtained, consents to the assignment
and assumption agreements from each of the other parties to
such Contracts; and
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<PAGE> 11
(d) To the extent not previously provided by Seller to Buyer,
copies of each such Contract; and
(e) An opinion of counsel to Seller and NAHC, regarding the due
organization and existence of Seller and NAHC, the authority
of Seller and NAHC to conclude the transactions provided for
herein, and the due execution of the instruments at the
Closing, and other matters set forth therein acceptable in
form and substance to Buyer and TRHS; and
(f) The Deeds (the "DEEDS") in form and substance as in Schedule
1.12(a) attached hereto and incorporated by reference, duly
executed and acknowledged by Seller, conveying to Buyer the
Real Property in marketable fee simple, free and clear of
any lien, encumbrance, or exception other than the Permitted
Exceptions (as defined in Schedule 1.12(b)) applicable to
the Real Property; and
(g) The Title Policies (as defined below) covering the Real
Property or assurance (in form satisfactory to Buyer) that
the Title Policies have been obtained by Seller and Buyer
will receive them as soon as possible after the Closing; and
(h) Ad valorem tax statements for the Real Property for the
calendar year prior to the Closing, if available and if not
previously presented; and
(i) Possession of the Real Property and all other tangible
assets; and
(j) To the extent obtained, the Tenant Estoppel Letters (as
defined below); and
(k) If not previously provided, Uniform Commercial Code financing
statement searches from the Secretary of State of Iowa and
from the county records of Scott County indicating that
there are no financing statements affecting any part of the
Real Property other than the Permitted Exceptions; and
(1) Such other evidence of the authority and capacity of Seller
and its representatives as the Title Company (as defined
below) may reasonably require; and
(m) Such other items as are set forth elsewhere in this
Agreement and as Buyer and its counsel may reasonably
request.
If Seller is not a "foreign person," as defined in the Foreign
Investment in Real Property Tax Act of 1980 and the Internal Revenue Code of
1986, as amended (the "CODE"), then at the Closing it will deliver to Buyer a
certificate so stating. If it is a "foreign person" or if it fails to deliver
the required certificate at the Closing, then in either such event the payment
of the Purchase Price to Seller at the Closing will be adjusted to the extent
required to comply with the withholding provisions of the Code; and although the
amount withheld will still be paid at the Closing by Buyer,
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<PAGE> 12
it will be retained by a mutually acceptable escrow agent for delivery to the
Internal Revenue Service together with the appropriate Code forwarding forms
(and with copies being provided both to Seller and to Buyer). The following
parties are hereby approved as mutually acceptable escrow agents in the event
that withholding is warranted in accordance with the immediately preceding
sentence (listed in order of decreasing preference): the Title Company, Buyer's
"independent CPA" (i.e., a certified public accountant who is associated with an
independent CPA firm), and a mutually acceptable federally-insured financial
institution.
At the Closing, Buyer shall deliver to Seller the following:
(i) Assignment and assumption agreements, pursuant to which
Buyer accepts assignment of Seller's rights and obligations
with respect to the Contracts; and
(ii) An opinion of counsel to Buyer and TRHS, regarding the due
organization and existence of Buyer and TRHS, the authority
of Buyer and TRHS to conclude the transactions provided for
herein, and the due execution of the instruments at the
Closing, and other matters set forth therein acceptable in
form and substance to Seller and NAHC; and
(iii) By wire transfer of federal funds, the total amount of the
Purchase Price less the amount of the Deposit; and
(iv) By wire transfer of federal funds, the Buyer's Severance
Payment (as defined below); and
(v) Such other items as are set forth elsewhere in this
Agreement and as Seller and its counsel shall reasonably
request.
At the Closing, Buyer shall deliver to Escrow Agent (as defined below)
the Deposit pursuant to the Escrow Agreement (as defined below).
SECTION 1.13 ABANDONMENT DATE. Notwithstanding anything herein to the
contrary, if the Closing does not take place by the close of business on
September 1, 1999 (the "ABANDONMENT DATE"), any party shall have the option to
terminate this Agreement on or within five (5) working days after the
Abandonment Date, in which case this Agreement will terminate in its entirety as
to all parties hereto; provided, however, that if the Closing does not take
place as a result solely of any delay in obtaining any regulatory approval and
Buyer has diligently pursued the same, the Abandonment Date automatically shall
be extended for an additional fifteen (15) days; provided further, however, that
if such regulatory approval is not obtained or the Closing does not otherwise
occur within such extended period, any party may terminate this Agreement, in
which case this Agreement shall terminate in its entirety as to all parties
hereto. The foregoing shall not be construed to terminate or otherwise affect
any claims any party may have against any of the others for breach of any
obligation arising out of this Agreement, or any other agreement entered into in
connection herewith, prior to the Abandonment Date. The parties will seek and
use their reasonable
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efforts to obtain all governmental and regulatory approvals for the consummation
of the transactions contemplated by this Agreement, and the parties will
cooperate with each other and their respective agents with respect to obtaining
such governmental and regulatory approvals.
ARTICLE 2
OTHER AGREEMENTS
SECTION 2.1 DUE DILIGENCE REVIEW. TRHS, Buyer, and their agents and
representatives shall have the right to review and inspect the Assets and the
Assumed Liabilities and to conduct, at TRHS' and Buyer's sole cost and expense,
such other due diligence as TRHS and Buyer shall deem appropriate. NAHC and
Seller shall cooperate with TRHS and Buyer by promptly providing reasonable
access to the Assets and all information and materials reasonably requested by
the TRHS and Buyer in connection therewith, and the Assumed Liabilities. Such
inspections shall not interfere with Seller's business and shall be conducted by
TRHS, Buyer, and their agents and representatives on business days during normal
business hours, unless otherwise agreed; provided, however, that in order to
minimize disruption of Seller's business, prior to any inspections or contacts
with Seller's employees, TRHS and Buyer shall coordinate such inspections and
contacts with Randy Starkweather or such other person designated by NAHC and
Seller for such purpose. Except as otherwise provided in Section 2.2(e), TRHS
and Buyer shall have the right to terminate this Agreement by written notice to
NAHC and Seller on or prior to July 1, 1999, if TRHS' and Buyer's due diligence
reveals questions or issues, in TRHS' and Buyer's sole discretion, as to the
nature or worth of the Assets, the nature or extent of the Assumed Liabilities,
the viable operation of the Hospital Facility as an acute care hospital with a
skilled nursing unit, or any other matter impacting the transactions
contemplated herein (the "DUE DILIGENCE TERMINATION DATE"). In the event this
Agreement is terminated pursuant to this Section 2.1, the parties shall have no
further liabilities or obligations to each other.
SECTION 2.2 REAL PROPERTY.
(a) Seller shall order, as soon as possible and not later than
three (3) days after the Effective Date, from Chicago Title
and Trust Company, or such other company as agreed to by the
parties (the "TITLE COMPANY"), title commitments covering
each parcel of the Real Property (the legal descriptions of
the Real Property as set forth in Schedule 1.2(a), unless
and to the extent modified by the Surveys (as defined below)
applicable thereto, shall be deemed incorporated in this
Agreement), listing Buyer as the proposed insured and showing
the value allocated to the Real Property as set forth on
Schedule 1.8 as the proposed amount for each policy. The title
commitments shall contain the express commitment of the
Title Company to issue Owner's Policies of title insurance
(the "TITLE POLICIES") to Buyer in such amount, insuring such
title as is specified in each title commitment, with the
standard printed exceptions endorsed or deleted in accordance
with the provisions hereof and with an exception for tenants
in possession. At such time as Seller causes the title
commitments to be furnished to Buyer, Seller shall further
cause to be furnished to Buyer true, correct, and legible
copies
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<PAGE> 14
of all instruments referred to in the title commitments as
conditions or exceptions to title, including liens,
certificates from the Title Company (or such other certificates
as may be acceptable to Buyer) stating that searches have been
made of both the state and county records wherein financing
statements and security agreements are filed pursuant to the
Uniform Commercial Code of the state in which the Real
Property is located, and that such searches indicate that no
security interests or liens of any kind or nature, including,
but not limited to, any equipment financing or leasing
arrangements, are claimed by any person against the Real
Property, or any part thereof other than the Permitted
Exceptions. Further, Seller shall deliver to Buyer reissued
title commitments on or before the date which is ninety (90)
days after the effective date of the title commitments if the
Closing Date is more than ninety (90) days after such
effective date thereof. Seller shall order endorsements to
the Title Policies requested by Buyer; however, the cost of
all endorsements requested by Buyer shall be the sole
responsibility of the Buyer.
(b) At the Closing, Seller shall cause the Title Policies to be
furnished to Buyer or shall provide to Buyer an assurance
(in form acceptable to Buyer) that the Title Policies have
been obtained by Seller and Seller will furnish to Buyer the
Title Policies as soon as possible after the Closing. Each
Title Policy shall be issued in the amount set forth above
and shall insure fee simple, indefeasible title to the Real
Property covered thereby in Buyer. Each Title Policy may
contain the Permitted Exceptions applicable to the Real
Property covered thereby, but shall contain no additional
exceptions to title; provided, however, the exception for taxes
and assessments in each Title Policy shall be limited only
to "taxes and assessments for the year 1999 and subsequent
years, none of which are yet due and payable." All conditions
and requirements set forth on Schedule B of each title
commitment must be resolved or satisfied prior to or at
Closing and such items must not appear on the Title Policies
issued pursuant thereto.
(c) Seller shall, as soon as possible after the Effective Date,
cause to be prepared and furnished to Buyer and the Title
Company, five (5) copies of the ALTA/ACSM surveys covering
the Real Property (the "SURVEYS"), prepared by Verbecke-Meyer
(the "SURVEYOR"). The Surveys shall be dated after the
Effective Date, shall include a metes and bounds legal
description of the Real Property (which shall be deemed
incorporated in this Agreement and shall be used in the Title
Policies and the Deeds), shall accurately show the location
and dimensions of all the improvements, encroachments, uses
(including the location of all highways, streets, roads,
easements, alleys and rights-of-way upon or adjacent to the
Real Property) and encumbrances which are visible on the
ground or listed on the title commitment (identifying each by
volume and page reference, if applicable), shall recite the
area of the Real Property, shall show all building set-back
lines, shall contain certificates specifically
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addressed to Buyer and the Title Company, and shall contain
a surveyor's certificate in a form acceptable to Buyer. The
Surveys shall be incorporated by reference in Schedule 1.2(a)
and to the extent the Surveys are inconsistent with the
description of the Real Property set forth in Schedule 1.2(a),
the Surveys shall prevail. The Surveys must be satisfactory
to the Title Company so as to permit it to amend the survey
exceptions in the Title Policies to be issued to Buyer as
required herein.
(d) If Buyer shall object to any such matters shown or referred to
in the title commitments or on the Surveys, Buyer shall
provide Seller with notice of its objections within ten (10)
days of the receipt of the title commitments and the surveys,
as the case may be, and Seller shall use its best efforts to
cure Buyer's objections prior to the Closing Date; provided,
that Seller shall not be obligated to pay to cure any of
Buyer's objections to the surveys. If Seller is unable to cure
Buyer's objections prior to the Closing Date, Buyer shall
have the option to (i) waive Buyer's objections and purchase
the Real Property as otherwise contemplated in this Agreement,
and Seller shall convey the Real Property to Buyer by the
Deed, (ii) accept an abatement of the Purchase Price
satisfactory to Buyer and Seller and purchase the Real Property
as otherwise contemplated in this Agreement, or (iii)
terminate this Agreement.
(e) TRHS and Buyer shall have the right to physically inspect the
Real Property any time prior to Closing, conduct such
feasibility studies as Buyer may elect, and determine whether
the Real Property is satisfactory for Buyer's contemplated
use thereof. TRHS and Buyer shall coordinate such inspections
and studies with Randy Starkweather or such other person
designated by NAHC and Seller for such purpose. Buyer or
Buyer's authorized representatives shall have the right from
and after the Effective Date to enter upon and make tests on
the Real Property, including, but not limited to, tests to
determine the presence of any Hazardous Materials (as defined
below), Petroleum Products (as defined below), or underground
storage tanks. Such inspections are to be conducted in a
manner as not to physically damage the Real Property or
unreasonably interfere with the usual operations on the Real
Property. In the event of the disapproval by Buyer of the
results of one or more of the inspections, studies and
inquiries concerning the Real Property, this Agreement, at
the election of Buyer, shall be terminated upon written
notice to Seller prior to the Due Diligence Termination Date.
SECTION 2.3 EMPLOYEES. Buyer shall notify Seller in writing as soon as
reasonably possible, as to which of Seller's employees Buyer intends to hire as
of and effective upon the Closing. All such offers of employment, if any, and
the terms and conditions thereof, shall be at the discretion of Buyer and Buyer
makes no guarantees of employment or continued employment to any of Seller's
employees. Buyer makes no commitments to hire any of the employees of NAHC
assigned to Seller; however, Buyer shall extend binding offers of employment to
at least such
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number of Seller's employees, and on such terms, as to relieve Seller of any
liability or obligation that otherwise would be imposed under the Worker's
Adjustment Retraining and Notification Act ("WARN ACT") and any comparable State
law.
SECTION 2.4 NONCOMPETITION AGREEMENT. As of the Closing Date, Seller
and NAHC shall enter into and deliver to TRHS and Buyer a Noncompetition
Agreement, substantially in form and substance as set forth on Schedule 2.4,
attached hereto and incorporated by reference.
SECTION 2.5 ESCROW AGREEMENT. On the Closing Date, NAHC, Seller, TRHS,
and Buyer shall enter into an Escrow Agreement with a mutually acceptable escrow
agent (the "ESCROW AGENT"), substantially in form and substance as set forth in
Schedule 2.5, attached hereto and incorporated by reference (the "ESCROW
AGREEMENT"), and Buyer shall make the Deposit to the Escrow Agent to hold such
Deposit in escrow.
The Escrow Agreement shall provide that a sum equal to forty thousand
dollars ($40,000), less the Deposit Reduction shall be deposited with the Escrow
Agent to guarantee Seller's and NAHC's removal and replacement of the
underground storage tank located on the Real Property (the "STORAGE TANK REMOVAL
DEPOSIT"). In addition, twenty-five thousand dollars ($25,000) of the Deposit
shall be deposited with the Escrow Agent to guarantee Seller's remediation of
the underground storage tank site (as may be required by applicable law) (the
"REMEDIATION DEPOSIT"). Seller shall have the right to draw on the Storage Tank
Removal Deposit to pay for the removal and the replacement of the underground
storage tank as amounts become due to the contractor. Upon completion of the
removal and replacement of the underground storage tank, the remainder of the
Storage Tank Removal Deposit, if any, shall be held as an addition to the
Remediation Deposit. Upon completion of any remediation of the underground
storage tank site required by applicable law and delivery by the Seller to the
Buyer of the certificates and reports required by law to close the site of the
underground storage tank, Escrow Agent shall disburse the remaining balance of
the Remediation Deposit to Seller.
In addition, the Escrow Agreement shall provide that if Buyer or TRHS
are obligated to spend any amount of money to fix, alter, repair, or improve any
of the Real Property, in order to correct life safety or similar code issues
identified by the JCAHO as a result of its resurvey scheduled to be conducted in
August 1999 or by any state or federal regulatory agency as a condition of the
transfer or reissuance of any license, permit, or certificate, including,
without limitation, Medicare, Medicaid, or the agency of the State of Iowa
responsible for licensing hospitals (the "NECESSARY REPAIRS"), after proper
notice to NAHC and Seller under the Escrow Agreement, Buyer will be entitled to
receive disbursement from the Repair Deposit (as defined below) in the amount of
fifty percent (50%) of the costs of such Necessary Repairs up to the amount of
the Repair Deposit, upon submission of an invoice for such Necessary Repairs to
the Escrow Agent. Notwithstanding any other provision of this Agreement,
recourse to the Repair Deposit, to the extent of the Repair Deposit, shall be
Buyer's sole and complete remedy for any and all Necessary Repairs or any breach
of a representation or warranty regarding the physical condition of the Real
Property, except for the representations and warranties set forth in Section
3.16 below. For purposes of this Agreement, the "REPAIR DEPOSIT" shall mean two
hundred fifty thousand dollars ($250,000) of the Deposit.
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SECTION 2.6 COLLECTIVE BARGAINING AGREEMENT. Seller hereby agrees that
it will not initiate negotiations with any labor union to enter into, amend, or
renew any collective bargaining agreement prior to August 1, 1999, without
Buyer's prior written consent, which consent shall not be unreasonably withheld.
In the event Seller is thereafter required by a labor union to enter into
negotiations to amend or renew a collective bargaining agreement, Seller shall
notify Buyer of such negotiations, provide Buyer the opportunity to participate
in such negotiations, and obtain the prior written consent of Buyer prior to
executing any collective bargaining agreement, amendment, or renewal.
SECTION 2.7 ESTOPPEL CERTIFICATES. NAHC and Seller shall use their best
efforts to obtain a tenant estoppel letter executed by each tenant of the Real
Property (the "TENANT ESTOPPEL LETTERS"), substantially in the form and
substance of Schedule 2.7, attached hereto and incorporated by reference.
SECTION 2.8 STORAGE TANK REMOVAL AND REPLACEMENT. NAHC and Seller
hereby agree that they will remove and replace the underground storage tank
located on the Real Property in accordance with applicable federal, state, and
local laws and regulations. To secure the performance of NAHC and Seller, Buyer
and Seller shall enter into the Escrow Agreement as described above in Section
2.5.
SECTION 2.9 SEVERANCE PAYMENTS TO SENIOR MANAGEMENT. TRHS and Buyer
hereby agree to pay to Seller at the Closing one hundred fifty-three thousand
five hundred dollars ($153,500), which amount represents fifty percent (50%) of
the cost of the severance package of the Hospital Facility's chief executive
officer, chief financial officer, and director of nursing (the "BUYER'S
SEVERANCE PAYMENT"). A copy of the severance package shall be set forth on
Schedule 2.9, attached hereto and incorporated by reference.
SECTION 2.10 FURTHER ASSURANCES. From time to time after the Closing
Date, to the extent retained by Seller, Seller and NAHC shall give to TRHS,
Buyer, and their representatives, auditors, and counsel reasonable access during
normal business hours to all of the properties, books, records, tax returns,
contracts, licenses, franchises and all of the documents of Seller relating to
the Assets, Contracts, and Assumed Liabilities, and shall furnish to TRHS and
Buyer all information with respect thereto as TRHS or Buyer may from time to
time reasonably request. From time to time after the Closing, at TRHS' and
Buyer's request and without further consideration, Seller and NAHC agree to
execute and deliver at Seller's or NAHC's reasonable expense such other
instruments of conveyance and transfer and take such other actions as TRHS and
Buyer reasonably may require more effectively to deliver and vest in Buyer, and
to put Buyer in legal and physical possession of, all of the Assets and the
Assumed Liabilities.
SECTION 2.11 MANAGEMENT INFORMATION SYSTEM. As of the Closing Date,
NAHC shall enter into and deliver to Buyer a sublicense agreement, substantially
in form and substance as set forth on Schedule 2.11, attached hereto and
incorporated by reference (the "SUBLICENSE AGREEMENT"). The Sublicense Agreement
shall permit Buyer to use, for a period of six (6) months beginning on the
Closing Date and, at the option of Buyer, for six (6) additional one (1) month
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periods, the management information system currently licensed to NAHC and
employed at the Hospital Facility.
SECTION 2.12 ACCESS TO INFORMATION.
(a) Following the Closing, for a reasonable period, Buyer shall
permit Seller's representatives (including, without limitation,
their counsel and auditors), during normal business hours
and upon reasonable advance notice, to (i) have reasonable
access to, and examine and make copies of all books and records
of the Hospital Facility, including all medical records and
medical charts of any patient admitted to the Hospital
Facility, which are transferred to Buyer hereunder, and (ii)
have reasonable access to the Buyer's employees that were
formerly employed by Seller, 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 Buyer's business. 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 at least forty-five (45) 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 reasonable
documented out-of-pocket costs associated with the delivery
of the requested documents shall be promptly paid by Seller
to Buyer.
(b) After the Closing, Buyer shall, in the ordinary course of
business and as required by law, keep, preserve, and maintain
in their original form all medical and other records of the
Hospital Facility existing as of the Closing. Buyer
acknowledges that as a result of entering into this Agreement,
it will gain access to patient and other information which
is subject to rules and regulations regarding confidentiality.
Buyer agrees to abide by any such rules and regulations
relating to the confidential information it acquires. Buyer
agrees to maintain the patient records delivered to Buyer at
the Closing after Closing, and such maintenance shall be (i)
in a manner consistent with the maintenance of patient records
generated at the Hospital Facility after Closing, and (ii)
in accordance with all applicable laws.
SECTION 2.13 BILLING AGENT AGREEMENT. As of the Closing Date, Seller
shall enter into and deliver to Buyer a billing agent agreement, substantially
in form and substance as set forth on Schedule 2.13, attached hereto and
incorporated by reference, pursuant to which Buyer shall collect all pre-Closing
patient receivables of Seller.
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SECTION 2.14 ASSUMPTION OF DTC AGREEMENT. On or prior to the Closing
Date, Seller shall enter into and deliver to Buyer and Diversified Therapy
Corporation the Assignment and Assumption Agreement, attached hereto as Schedule
2.14 and incorporated by reference, assigning all of the rights and obligations
of Seller to Buyer under the DTC Agreement, and amending the same.
SECTION 2.15 BUYER'S PARTICIPATION IN SELLER'S PREPARATION FOR JCAHO
RESURVEY. As soon as possible after the Effective Date, the parties will meet to
discuss and confer in regard to preparation for the resurvey of the Hospital
Facility by the JCAHO scheduled for August of 1999. NAHC and Seller hereby agree
that TRHS and Buyer shall actively participate in all of NAHC's and Seller's
efforts to prepare for the resurvey and NAHC and Seller shall cooperate with
TRHS and Buyer to the fullest extent possible to effectuate such active
participation. NAHC and Seller agree to continue to actively prepare for the
resurvey of the Hospital Facility.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF SELLER AND NAHC
Seller and NAHC, jointly and severally, represent and warrant to TRHS
and Buyer that except as set forth on the Disclosure Schedule attached as
Schedule 3.0 hereto and incorporated by reference (which Disclosure Schedule
makes explicit reference to the particular representation or warranty as to
which exception is taken; however, if a disclosure is made with respect to one
representation or warranty, it shall apply with respect to any and all other
representations and warranties to which such disclosure may be applicable):
SECTION 3.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER OF SELLER.
Seller (i) is a duly organized and validly existing corporation in good standing
under the laws of the State of Tennessee; (ii) has the requisite power and
authority to carry on its business as now conducted; (iii) is duly qualified to
do business as a foreign corporation and is in good standing under the laws of
the State of Iowa; and (iv) has all requisite power and authority and licenses,
permits, franchises, certificates, authorizations, approvals and consents and
rights to own the property which is the subject of this Agreement, and to be a
party to the contracts, leases, and other agreements which are the subject of
this Agreement.
SECTION 3.2 SUBSIDIARIES AND SHAREHOLDERS. Seller does not (i) own of
record or beneficially, directly or indirectly, any shares of capital stock or
securities convertible into capital stock of any other corporation or any
participating or membership interest in any partnership, joint venture, limited
liability company, or other business enterprise, or (ii) control, directly or
indirectly, any other entity. NAHC is the sole shareholder of Seller and there
are no warrants, options, or commitments outstanding by which any third party
has the right to acquire capital stock of Seller.
SECTION 3.3 VALIDITY. Seller and NAHC each have the full legal power
and authority to execute, deliver, and perform this Agreement and all other
agreements and documents necessary to consummate the contemplated transactions,
and all actions of NAHC and Seller necessary for such execution, delivery, and
performance have been or will have been duly taken by Closing. This
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Agreement and all agreements related to this transaction have been duly executed
and delivered by NAHC and Seller and constitute the legal, valid, and binding
obligation of NAHC and Seller enforceable in accordance with their terms
(subject as to enforcement of remedies to the discretion of courts in awarding
equitable relief and to applicable bankruptcy, reorganization, insolvency,
moratorium, and similar laws affecting the rights of creditors generally). Any
other agreement contemplated to be entered into by NAHC and Seller in connection
with this transaction, when executed and delivered, will constitute the legal,
valid, and binding obligation of NAHC and Seller enforceable in accordance with
its respective terms (subject as to enforcement of remedies to the discretion of
courts in awarding equitable relief and to applicable bankruptcy,
reorganization, insolvency, moratorium, and similar laws affecting the rights of
creditors generally). The execution and delivery by NAHC and Seller of this
Agreement, and the performance of their obligations hereunder, and the sale and
delivery of the Assets and delegation of the Assumed Liabilities, do not require
any action or consent of any party other than NAHC or Seller pursuant to any
contract, agreement, or other undertaking of NAHC or Seller, or pursuant to any
order or decree to which NAHC or Seller is a party or to which any of its
properties or assets are subject, and will not violate any provision of law, the
Articles of Incorporation or Bylaws of Seller, any order of any court or other
agency of the government, or any indenture, agreement, or other instrument to
which NAHC or Seller, or any of their properties or assets, are 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,
restriction, claim, or encumbrance of any nature whatsoever upon any of the
properties or assets of Seller.
SECTION 3.4 DEFAULT. Seller is not in default under, and no event has
occurred which, with the lapse of time or action by a third party, could result
in a default under, any outstanding mortgage, contract, or agreement that would
vest in a third party any rights in the Assets.
SECTION 3.5 TITLE TO ASSETS. Other than the Permitted Exceptions,
Seller has good and marketable title to the Assets and all such Assets are free
and clear of any title defect, mortgage, assignment, pledge, hypothecation,
security interest, title or retention agreement, levy, execution, seizure,
attachment, garnishment, deemed trust, lien, easement, option, right or claim of
others, or charge or encumbrance of any kind whatsoever.
SECTION 3.6 CONTRACTS AND LEASEHOLD INTERESTS. Schedule 1.5 is an
accurate list of all the Contracts (except for the Immaterial Contracts) and all
such Contracts have been disclosed and made available to TRHS and Buyer by
Seller and NAHC. Each such Contract is a valid and existing contract, lease, or
agreement without any default of Seller and to the knowledge of NAHC and Seller,
without any default thereunder of any other party thereto. No event has occurred
and is continuing which, with due notice or lapse of time or both, would
constitute a default or event of default by Seller under any Contract or, to the
knowledge of NAHC and Seller, by any other party thereto. Seller's possession of
any property has not been disturbed and no claim has been asserted or, to the
knowledge of NAHC and Seller, threatened against Seller adverse to its rights in
such leasehold interest. "IMMATERIAL CONTRACTS" shall mean all agreements (i) no
party of which is a referral source (including physicians), (ii) which require
expenditures of less than $100,000 in any 12-month period, or (iii) which
expires within ninety (90) days of Closing or which may be terminated without
cause upon ninety (90) days (or less) notice.
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SECTION 3.7 TRADEMARKS, PATENTS, AND OTHER RIGHTS. Seller and NAHC have
disclosed to TRHS and Buyer all of their patents, patent applications,
trademarks, trademark applications, service marks, service mark applications,
trade names, copyrights, manufacturing processes, formulae, trade secrets, and
know how (collectively, "INTELLECTUAL PROPERTY"). Seller owns or possesses or
has the right to use the Intellectual Property. No claim is pending or, to the
knowledge of Seller and NAHC, threatened to the effect that the operations of
Seller infringe upon or conflict with the asserted rights of any other person
under any of the Intellectual Property and, to the knowledge of NAHC and Seller,
there is no meritorious basis for any such claim (whether or not pending or, to
the knowledge of NAHC and Seller, threatened). No claim is pending or, to the
knowledge of NAHC and Seller, threatened to the effect that any of the
Intellectual Property is invalid or unenforceable by Seller, and there is no
known basis for any such claim (whether or not pending or threatened).
SECTION 3.8 PROPRIETARY INFORMATION OF THIRD PARTIES. No third party
has claimed or, to the knowledge of NAHC or Seller, has any meritorious reason
to claim that Seller's operation of the Assets and the conduct of its business
thereby (i) violated or may be violating any of the terms or conditions of such
third party's employment, non-competition, or non-disclosure agreement with
Seller; (ii) disclosed or may be disclosing or utilized or may be utilizing any
trade secret or proprietary information or documentation of such third party; or
(iii) interfered or may be interfering in the employment relationship between
such third party and any of its current or former employees. No third party has
requested information from Seller or NAHC which suggests that such a claim might
be contemplated. No person employed by or affiliated with Seller has employed or
proposes to employ any trade secret or any information or documentation
proprietary to any former employer, and no person employed by or affiliated with
Seller has violated any confidential relationship which such person may have had
with any third party in connection with the development or sale of any product
or proposed product or the development or sale of any service or proposed
service of Seller, and Seller and NAHC do not have any reason to believe there
will be any such employment or violation. The execution, delivery, or
performance of this Agreement, the carrying on of Seller's business prior to the
Closing and the operation of the Assets by the Buyer after the Closing, has not
and will not conflict with or result in a breach of the terms, conditions, or
provisions of, or constitute a default under any contract, covenant, or
instrument under which any such person is obligated.
SECTION 3.9 LITIGATION AND INVESTIGATIONS. There is no: (i) action,
suit, claim, proceeding, or investigation pending or, to the knowledge of NAHC
and Seller, threatened against or affecting NAHC or Seller or any of its
employees or agents, by any private party or any federal, state, municipal, or
other governmental department, commission, board, bureau, agency, or
instrumentality, domestic or foreign, pending, threatened against, or affecting
persons or entities who perform professional services under agreement with them
in so far as the same concerns the operation of the Assets; (ii) arbitration
proceeding relating to Seller that is pending under collective bargaining
agreements or otherwise; or (iii) governmental or professional inquiry pending
or, to the knowledge of NAHC and Seller, threatened against or directly or
indirectly affecting Seller or NAHC (including without limitation any inquiry as
to the qualification of Seller or NAHC to hold or receive any license or
permit), and, to the knowledge of Seller and NAHC, there is no meritorious basis
for any of the foregoing as to Seller and NAHC, and, to the knowledge of NAHC
and Seller, their physician employees. Seller and NAHC have not received any
opinion, memorandum, or legal
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advice from legal counsel to the effect that either of them is exposed, from a
legal standpoint, to any liability or disadvantage which may be material to the
operation of the Hospital Facility, Seller's business prospects, financial
condition, property, or affairs of Seller. Seller is not in default with respect
to any order, writ, injunction, or decree known to or served upon it of any
court or of any federal, state, municipal, or other governmental department,
commission, board, bureau, agency, or instrumentality, domestic or foreign.
There is no action or suit by Seller pending or, to the knowledge of NAHC and
Seller, threatened against others. Upon the receipt of written approval for the
transactions contemplated herein from the applicable state regulatory bodies,
Seller will be in compliance in all respects with all laws, rules, regulations,
and orders applicable to the operation of the Hospital Facility and Seller's
properties, assets, products, and services, and Seller has all necessary
permits, licenses, and other authorizations required to operate the Hospital
Facility in the manner presently operated and as such will be operated prior to
the Closing.
SECTION 3.10 APPROVALS. Seller is in Material compliance with all laws,
rules, regulations, and orders applicable to its business, operations,
properties, assets, products, and services, and Seller has all necessary
permits, licenses, and other authorizations required to operate the Hospital
Facility as presently operated and as such will be operated prior to Closing.
There is no existing order which would prohibit Seller from, or otherwise
Materially and adversely affect Seller in, conducting its business in any
jurisdiction in which it may conduct business prior to the Closing.
SECTION 3.11 TAXES. Seller has filed all tax returns, federal, state,
county, and local including, without limitation, income, sales, single business,
payroll, employee benefit plan, premium, withholding, informational and personal
property tax returns, required to be filed by it and such returns have been duly
prepared and filed. All taxes due by reason of the business conducted by Seller
have been paid, including, without limitation, all taxes which Seller is
obligated to withhold from accounts owing to employees, creditors, and third
parties. All such taxes for which any such party has become obligated pursuant
to elections made in accordance with generally accepted practice have been paid
and adequate reserves have been established for all taxes accrued but not yet
payable. The federal income tax returns of Seller have never been audited by the
Internal Revenue Service. No deficiency assessment with respect to any proposed
adjustment of Seller's federal, state, county, or local taxes is pending or, to
the knowledge of Seller and NAHC, threatened. There is no tax lien, whether
imposed by any federal, state, county, or local taxing authority outstanding
against the Assets or Seller's business. There is no pending proceeding or to
the knowledge of Seller and NAHC, examination by any authority or agency
relating to the assessment or collection of any such taxes, interest, or
penalties thereon, nor, to the knowledge of Seller and NAHC, do there exist any
facts that would provide a meritorious basis for any such assessment.
SECTION 3.12 INSURANCE COVERAGE. Seller maintains and at all times has
maintained professional liability, casualty, property loss, and other insurance
coverage of the Assets. Schedule 3.12, attached hereto and incorporated by
reference, sets forth a complete and correct list of all insurance policies in
force with respect to Seller on the Closing Date and identifies the insurer,
type, and amount of coverage for each, and the anniversary date for each. If any
of Seller's professional liability insurance policies are "claims made"
coverage, Seller has purchased, or at Closing will purchase, and shall maintain
in force an extended reporting endorsement ("TAIL COVERAGE") for each
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such policy with limits of coverage at least equal to those of the underlying
policy. Seller and NAHC shall promptly notify TRHS and Buyer of any material
changes in any insurance coverage of Seller prior to Closing.
SECTION 3.13 FEES AND COMMISSIONS. Seller has not agreed to pay or
become liable to pay any broker's, finder's, or originator's fees or commissions
by reason of services alleged to have been rendered for, or at the instance of,
Seller in connection with this Agreement and the transactions contemplated
hereby.
SECTION 3.14 INSIDER INTERESTS. No current employee, health care
provider, or ancillary health service provider of Seller: (i) owns, directly or
indirectly, in whole or in part, any of the Assets; (ii) has received a loan or
advance from Seller which is currently outstanding; (iii) has any obligation to
make any loan to Seller; or (iv) has any other business relationship with Seller
other than in his or her capacity as an employee, health care provider,
ancillary health service provider, or subscriber (except for those physicians or
medical practices that lease space located in the Medical Office Buildings).
SECTION 3.15 OTHER APPROVALS. All consents, approvals, qualifications,
orders, or authorizations of, or filings with, any governmental authority,
including any court or other third party, required in connection with Seller's
valid execution, delivery, or performance of this Agreement, or consummation of
any transactions contemplated by this Agreement, have been duly made and
obtained and shall be effective on and as of the Closing Date.
SECTION 3.16 ENVIRONMENTAL LIABILITIES.
3.16.1 Seller has not used, stored, treated, transported,
manufactured, refined, handled, produced, or disposed of any Hazardous Materials
(as defined below) or Petroleum Products (as defined below), on, under, at,
from, or in any way affecting any of its properties or assets, or otherwise, in
any manner which at the time of the action in question violated any
Environmental Laws (as defined below), governing the use, storage, treatment,
transportation, manufacture, refinement, handling, production, or disposal of
Hazardous Materials or Petroleum Products, and to the knowledge of NAHC and
Seller, no prior owner of such property or asset or any tenant, subtenant, prior
tenant, or prior subtenant thereof has used Hazardous Materials or Petroleum
Products on, from, or affecting such property or asset, or otherwise, in any
manner which at the time of the action in question violated any Environmental
Laws governing the use, storage, treatment, transportation, manufacture,
refinement, handling, production, or disposal of Hazardous Materials or
Petroleum Products.
3.16.2 No pending claims have been made against Seller and no
currently outstanding citations or notices have been issued against it and
Seller has no obligations or liabilities, matured or not matured, absolute or
contingent, assessed or unassessed, where such could reasonably be expected to
have a material adverse affect, which in the case of any of the foregoing have
been or are imposed by reason of or based upon any provision of any
Environmental Laws.
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3.16.3 As used herein, "ENVIRONMENTAL LAWS" shall mean any and
all federal, state, local, or municipal laws, rules, orders, regulations,
statutes, ordinances, codes, decrees, or requirements of any federal, state,
municipal, or other governmental department, commission, board, bureau, agency,
or instrumentality, or other court or arbitrator, in each case whether of the
United States or foreign, regulating, relating to, or imposing liability or
standards of conduct concerning any Hazardous Material or Petroleum Products or
environmental protection, as now or may at any time hereafter be in effect,
together, in each case, with any amendment thereto, and the regulations adopted
and publications promulgated thereunder and all substitutions thereof.
3.16.4 As used herein, "HAZARDOUS MATERIALS" shall mean any
hazardous materials, hazardous wastes, infectious medical wastes, hazardous or
toxic substances, asbestos, asbestos fibers, friable asbestos, any PCB's, or
constituents of the foregoing, defined or regulated as such in or under any
Environmental Laws.
3.16.5 As used herein, "PETROLEUM PRODUCTS" shall mean gasoline,
diesel fuel, motor oil, waste or used oil, heating oil, kerosene, and any other
petroleum products.
SECTION 3.17 EMPLOYEES. Seller is not a party to any written or verbal
employment agreements, commitments or understandings, and all personnel are
employed "at-will." There is no pending or, to the knowledge of NAHC and Seller,
threatened employee strike, work stoppage or labor dispute. No union
representation question exists respecting any employees of Seller. No collective
bargaining agreement exists or is currently being negotiated by Seller, no
demand has been made for recognition by a labor organization by or with respect
to any employees of Seller is taking place, and none of the employees of Seller
is represented by any labor union or organization in connection with their
employment by Seller. There is no unfair practice claim against Seller before
the National Labor Relations Board, or any strike, dispute, slowdown, or
stoppage pending, existing, or, to the knowledge of Seller or NAHC, threatened
against or involving Seller. Seller is in compliance with all federal and state
laws respecting employment and employment practices, terms and conditions of
employment, and wage and hours including compliance with any Internal Revenue
Service guidelines on employees and independent contracts. Seller has complied
with all requirements with respect to the employment of any person who is not a
citizen of the United States. Seller is not engaged in any unfair labor
practices (as defined in federal and state labor laws). There is no pending or,
to the knowledge of Seller and NAHC, threatened equal employment opportunity
claims, wage and hour claims, unemployment compensation claims, workers'
compensation claims, Department of Labor or ERISA related claims, OSHA claims,
or employment related civil claims against or involving Seller.
SECTION 3.18 DISCLOSURE. No representation or warranty by NAHC or
Seller in this Agreement, and no exhibit, schedule, or certificate furnished or
to be furnished by NAHC or Seller pursuant hereto, (i) contains any untrue
statement of a fact, or (ii) omits to state a fact required to be stated therein
or necessary to make the statements contained herein or therein, in light of the
circumstances in which they were made, not materially misleading.
SECTION 3.19 FIRPTA. Seller is not a "foreign person" but is a
"United States person" as such terms are defined in the Foreign Investment in
Real Property Tax Act of 1980 and ss.ss. 1445
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and 7701 of the Code; that is to say, Seller is a citizen or resident of the
United States, a domestic partnership, a domestic corporation, or an estate or
trust which is not a foreign estate or foreign trust within the meaning of ss.
7701 (a)(31) of the Code.
SECTION 3.20 CONDEMNATION. There is no pending condemnation or similar
proceeding affecting the Real Property or any portion thereof, and Seller has
not received any written notice and has no knowledge that any such proceeding is
contemplated.
SECTION 3.21 ZONING. There are no pending or, to the knowledge of
Seller and NAHC, threatened requests, applications or proceedings to alter or
restrict the zoning or other use restrictions applicable to the Real Property.
Neither NAHC nor Seller has received notice from any governmental authority of
zoning, building, fire, water, use, health, environmental or other violations of
applicable law issued in respect of the Real Property which have not been
heretofore corrected, and, to the knowledge of Seller and NAHC, no such
violations exist. The Real Property is not subject to any zoning variance or
other waiver of zoning or use restriction that would terminate upon transfer to
Buyer.
SECTION 3.22 BANKRUPTCY. There are no attachments, executions,
assignments for the benefit of creditors, receiverships, conservatorships or
voluntary or involuntary proceedings in bankruptcy or pursuant to any other
debtor relief laws contemplated or filed by Seller or pending against Seller or
the Real Property.
SECTION 3.23 REAL PROPERTY TAXES. The parcels of Real Property are each
individual tax parcels, taxed separately from any other property by the
applicable taxing authority. Neither NAHC nor Seller has received notice of any
proposed change in the valuation of the Real Property for real estate taxes from
that assessed for the current assessment period, nor does NAHC or Seller have
any other knowledge of any action or proceeding designed to levy any special
assessment against the Real Property. Neither NAHC nor Seller has received
notice of, and has no other knowledge of, any planned improvements by a
governmental instrumentality, any part of the cost of which will be assessed
against the Real Property, or of any contemplated future assessments of any
kind. There is no proceeding pending or presently being prosecuted for the
reduction of the assessed valuation or taxes or other impositions payable in
respect of any portion of the Real Property.
SECTION 3.24 INSURANCE COMPLIANCE. Neither NAHC nor Seller has
received, and has knowledge of, any notice from any insurance company or board
of fire underwriters requesting the performance of any work or alteration with
respect to the Real Property, or requiring an increase in the insurance rates
applicable to the Real Property. To the knowledge of NAHC and Seller, the Real
Property complies with the requirements of all insurance carriers providing
insurance therefor.
SECTION 3.25 DISABILITY. To the extent applicable, the improvements on
the Real Property are in full compliance with all federal, state, and local
legal requirements, including, without limitation, the Americans with
Disabilities Act, relative to architectural barriers or accommodations of
disabled persons.
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SECTION 3.26 INDEPENDENCE. Each parcel of Real Property is an
independent unit which does not rely on any facilities located on any property
that is not part of the Real Property to fulfill any municipal or other
governmental requirement, or for the furnishing to the Real Property of any
essential building systems or utilities (including drainage facilities, catch
basins, and retention ponds). No other building or other property that is not
part of the Real Property relies upon any part of the Real Property to fulfill
any municipal or other governmental requirement, or to provide any essential
building systems or utilities. Without limiting the generality of the foregoing,
no reciprocal easement agreements affect the Real Property.
SECTION 3.27 LICENSES AND ACCREDITATION. Seller, its activities and
business as currently conducted, the use of its properties and assets, and all
premises occupied by Seller, are and remain in sufficient compliance with all
requirements of all governmental bodies or agencies having jurisdiction over the
same, including any agency exercising authority over hospitals in the State of
Iowa, to allow Seller to operate the Hospital Facility and all services
currently provided in the Hospital Facility, and to continue doing so. Without
limiting the foregoing, Seller has all licenses, certificates, accreditations,
authorizations and permits necessary for the conduct of Seller's business and
the use of its properties and the premises occupied by it. A list of all of
Seller's licenses and permits is set forth on Schedule 3.27, attached hereto and
incorporated by reference. The Hospital Facility is licensed as a hospital, and
its skilled nursing unit is licensed as a skilled nursing unit pursuant to the
applicable provisions of the Iowa Code and the regulations promulgated
thereunder as such may be amended from time to time The total number of duly
licensed beds in the Hospital is one hundred forty-nine (149). The Hospital
Facility as presently operated, including the skilled nursing unit, is fully
accredited by the JCAHO and the American Osteopathic Association ("AOA"). Seller
and NAHC have delivered to Buyer true and correct copies of the letters of JCAHO
and AOA accreditation and the two (2) most recent survey reports in connection
with such accreditation. Seller and NAHC have prepared and continue to prepare
for inspection and resurvey by any licensing authority or accreditation agency.
SECTION 3.28 HILL BURTON AND FEMA. Except as disclosed on Schedule 3.0
hereto, Seller has no outstanding loan, grant or loan guarantee pursuant to the
Hill-Burton Act (42 U.S.C. ss.291 a, et seq.), or under the Federal Emergency
Management Administration, or any other federal, state, or local law or
governmental program whatsoever, or noncompliance with the terms and conditions
or the same. The Hospital has no Hill-Burton community service obligation
currently in force.
SECTION 3.29 PAYORS. Except as set forth on Schedule 3.0 hereto, and
except for normal turnover in the ordinary course of business consistent with
past experience, neither Seller nor NAHC has received any notice, or has any
current, actual knowledge of any threatened, termination, cancellation, or
limitation of, or material adverse modification or change in, the relationship
of the Hospital or any affiliate of the Hospital with any insurance company,
health maintenance organization, or employer or third party payor for health
care items and services, where such change in relationship will have a material
adverse change or effect on the financial condition or results of operation of
the Hospital Facility prior to the Closing.
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SECTION 3.30 MEDICAL STAFF. Seller and NAHC have delivered to Buyer (i)
a true and correct copy of the blank forms used with respect to medical staff
membership and clinical privileges application or delineation of clinical
privileges; and (ii) all current medical staff bylaws, rules, and regulations
and amendments thereto respecting the Hospital. With regard to the medical staff
of the Hospital, except as disclosed in Schedule 3.0, which disclosure shall be
made on an anonymous basis, there are no pending or, to the knowledge of Seller
and NAHC, threatened disciplinary or corrective actions or appeals therefrom
involving physician applicants or medical staff members and there are no
disputes, suits, actions, arbitration proceedings, or investigations pending or,
to the knowledge of NAHC, threatened with applicants, medical staff members, or
health professional affiliates. Since June 1, 1999, there have been no
resignations of medical staff members who, individually or collectively, account
for more than ten percent (10%) of the admissions to the Hospital. Schedule 3.30
sets forth a true, correct, and complete list and description of (a) the name of
each member of the medical staff of the Hospital; and (b) the specialty, if any,
of each medical staff member. All members of the organized medical staff of the
Hospital Facility and all other persons providing clinical services to patients
have been credentialed in substantial compliance with the applicable bylaws,
policies, standards, and procedures of the Hospital Facility and the medical
staff, and are providing services within the permitted scope of their
privileges.
SECTION 3.31 COMPLIANCE WITH MEDICARE AND MEDICAID PROGRAMS. Seller has
filed all cost reports required to be filed in connection with all state and
federal Medicare and Medicaid programs due on or before the Effective Date,
which are complete and correct. True and correct copies of all such reports in
possession of Seller have been furnished to Buyer on or before the Effective
Date. There are no claims, actions, or appeals pending before any commission,
board or agency, including, without limitation, any intermediary or carrier, the
Provider Reimbursement Review Board or the Administrator of the Health Care
Financing Administration, or the Iowa Department of Public Health, with respect
to any federal or state Medicare or Medicaid cost reports or claims filed by
Seller on or before the Effective Date or any disallowances by any commission,
board, or agency in connection with any audit of such cost reports, which would
adversely affect Seller or its operations, or the consummation of the
transactions contemplated hereby, except as specifically described and set forth
on Schedule 3.0 hereto. No validation review, program integrity review, or, to
the knowledge of NAHC and Seller, other investigation related to Seller or its
operations has been conducted by any commission, board, or agency, including,
without limitation, the Office of the Inspector General of the U.S. Department
of Health and Human Services, the U.S. Department of Justice, or the Iowa
Attorney General, in connection with any federal or state Medicare or Medicaid
program, and no such reviews or, to the knowledge of NAHC and Seller,
investigations are scheduled, pending, or, to the knowledge of NAHC and Seller,
threatened against or affecting Seller or its operations or the consummation of
the transactions contemplated hereby. NAHC and Seller and, to the knowledge of
NAHC and Seller, physician employees of Seller, have not engaged in any
activities which are prohibited under any federal, state, or local laws,
regulations, orders, and requirements in all respects, including, without
limitation, the federal Medicare and Medicaid statutes (42 U.S.C. Section
1320a-7b, 1320a-7a, or 1320a-7(b)), or the regulations promulgated pursuant to
such statutes or related state or local statutes or regulations or which are
prohibited by rules of professional conduct. Neither NAHC, nor Seller, nor, to
the knowledge of NAHC or Seller, physician employees of Seller, have received
any written claim or notice from any
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federal, state, or local government agency that they have or Seller's business
and its activities and properties have violated any such federal, state, or
local statute, regulation, order, or requirement.
SECTION 3.32 COMPLIANCE WITH PROGRAMS - GENERALLY. To the knowledge of
NAHC and Seller, no validation review, program integrity review, or other
investigation related to Seller or its operations has been conducted by any
commission, board, or agency, including, without limitation, the Office of the
Inspector General of the U.S. Department of Health and Human Services, the U.S.
Department of Justice, or the Iowa Attorney General and no such reviews or
investigations are scheduled, pending, or, to the knowledge of NAHC or Seller,
threatened against or affecting Seller or its operations or the consummation of
the transactions contemplated hereby.
SECTION 3.33 MEDICARE/MEDICAID CERTIFICATION. The Hospital and its
skilled nursing unit, as presently operated by Seller, are certified for
participation in the Medicare and Medicaid programs and Hospital is a party to a
participation agreement with Wellmark Blue Cross and Blue Shield of Iowa.
SECTION 3.34 YEAR 2000 COMPLIANCE. Seller has provided to TRHS and
Buyer all of the information it has obtained or received, regarding whether the
Hospital Facility's technologies (including, without limitation, hardware,
software, building mechanical devices, biomedical devices, and Assets that
perform date processing, used in the present operation of the Hospital Facility)
are Year 2000 compliant ("Y2K COMPLIANT"). For purposes of this Agreement, Y2K
Compliant means that the computer software will accurately receive, provide, and
process date and time data from, into, and between the 20th and 21st centuries,
including the years 1999 and 2000 and leap-year calculations, and will not
malfunction, cease to function, or provide invalid or incorrect results as a
result of date and time data.
SECTION 3.35 FINANCIAL STATEMENTS. Seller has provided Buyer with its
unaudited, year end financial statements dated March 31, 1999 ("MARCH FINANCIAL
STATEMENTS") and with its unaudited financial statements dated May 31, 1999 (the
"MAY FINANCIAL STATEMENTS"). Prior to Closing, Seller will provide Buyer with
unaudited financial statements dated June 30, 1999 (the "JUNE FINANCIAL
STATEMENTS") (the March Financial Statements, the May Financial Statements, and
the June Financial Statements are collectively referred to herein as the
"FINANCIAL STATEMENTS"). The Financial Statements fairly represent the financial
condition and the results of operations, changes in stockholders' or members'
equity, and cash flow of Seller as of the period ending on the last date of the
month preceding the Effective Date of this Agreement, all in accordance with
generally accepted accounting principles ("GAAP"). The Financial Statements
reflect the consistent application of such accounting principles throughout the
period involved.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF BUYER AND TRHS
Buyer and TRHS, jointly and severally, represent and warrant to NAHC
and Seller that except as set forth on the Disclosure Schedule attached as
Schedule 4.0 and incorporated by reference (which Disclosure Schedule makes
explicit reference to the particular representation or warranty as to which
exception is taken, which in each case shall constitute the sole representation
and warranty as to which such exception shall apply):
SECTION 4.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER OF BUYER.
Buyer is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Illinois and is duly authorized to conduct
business in the State of Iowa. Buyer has the full right, power, and authority to
execute and deliver this Agreement, to perform its obligations hereunder, and to
carry out the transactions contemplated in this Agreement, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium, or other similar
laws affecting creditors' rights generally. Without limiting the generality of
the foregoing, Buyer has taken all action necessary to authorize, and has duly
authorized, the execution, delivery, and performance of this Agreement by Buyer.
This Agreement constitutes the valid and legally binding obligation of Buyer,
enforceable in accordance with these terms and conditions.
SECTION 4.2 VALIDITY. TRHS and Buyer have the full legal power and
authority to execute, deliver, and perform this Agreement and all other
agreements and documents necessary to consummate the contemplated transactions,
and all actions of TRHS and Buyer necessary for such execution, delivery, and
performance have been or will have been duly taken by Closing. This Agreement
and all agreements related to this transaction have been duly executed and
delivered by TRHS and Buyer and constitute the legal, valid, and binding
obligation of TRHS and Buyer enforceable in accordance with their terms (subject
as to enforcement of remedies to equitable principles and to the discretion of
courts in awarding equitable relief and to applicable bankruptcy,
reorganization, insolvency, moratorium, and similar laws affecting the rights of
creditors generally). Any other agreement contemplated to be entered into by
TRHS and Buyer in connection with this Agreement and the transactions
contemplated hereby, when executed and delivered, will constitute the legal,
valid, and binding obligation of TRHS and Buyer enforceable in accordance with
its respective terms (subject as to enforcement of remedies to equitable
principles and to the discretion of courts in awarding equitable relief and to
applicable bankruptcy, reorganization, insolvency, moratorium, and similar laws
affecting the rights of creditors generally). The execution and delivery by TRHS
and Buyer of this Agreement, and the performance of their obligations hereunder,
will not violate any provision of law, the Articles of Incorporation and the
Bylaws of Buyer, any order of any court or other agency of the government, or
any indenture, agreement, or other instrument to which TRHS and Buyer, or any of
their properties or assets are 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, restriction, claim, or encumbrance of any nature
whatsoever upon any of the properties or assets of Buyer.
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SECTION 4.3 FEES AND COMMISSIONS. Buyer has not agreed to pay or become
liable to pay any broker's, finder's, or originator's fees or commissions by
reason of services alleged to have been rendered for, or at the instance of,
Buyer in connection with this Agreement and the transactions contemplated
hereby.
SECTION 4.4 OTHER APPROVALS. All consents, approvals, qualifications,
orders, or authorizations of, or filings with, any governmental authority,
including any court or other third party, required in connection with Buyer's
valid execution, delivery, or performance of this Agreement, or the consummation
of any transaction contemplated by this Agreement, shall have been duly made and
obtained and shall be effective on and as of the Closing Date.
SECTION 4.5 FINANCIAL STATEMENTS. TRHS has delivered to Seller and NAHC
the audited consolidated balance sheet of TRHS as of December 31, 1998. TRHS
has, as and when required, the funds necessary to consummate the transactions
contemplated hereby in accordance with the terms hereof.
SECTION 4.6 DISCLOSURE. No representation or warranty by TRHS or Buyer
in this Agreement, and no exhibit, schedule, or certificate furnished or to be
furnished by TRHS or Buyer pursuant hereto, (i) contains any untrue statement of
a fact, or (ii) omits to state a fact required to be stated therein or necessary
to make the statements contained herein or therein, in light of the
circumstances in which they were made, not materially misleading.
ARTICLE 5
COVENANTS OF NAHC AND SELLER
Between the Effective Date and the Closing Date, NAHC and Seller
covenant to TRHS and Buyer as follows:
SECTION 5.1 OPERATION OF BUSINESS. Seller shall operate and manage the
Hospital Facility until the Closing in substantially the same manner as such
Hospital Facility has been operated and managed by Seller in the past and shall
maintain the physical condition of the Assets, reasonable wear and tear
excepted.
SECTION 5.2 LIENS ON ASSETS. Seller shall not sell, dispose of assign,
or create, or agree to sell dispose of, assign or create, any right, title,
easement, or interest whatsoever in or to the Assets or create, or permit to
exist, or agree to create or permit to exist, any lien, encumbrance, option,
right, claim, or charge thereon, other than disposals in the ordinary course of
business.
SECTION 5.3 LITIGATION. Seller shall advise TRHS and Buyer promptly
upon notification to Seller of any pending or, to the knowledge of Seller and
NAHC, threatened Material litigation or other legal or regulatory action
affecting the Assets, the Assumed Liabilities, NAHC, Seller, or Seller's
business.
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SECTION 5.4 NON-CONTRAVENTION. Neither NAHC nor Seller shall take any
action or omit to take any action, which action or omission would have the
effect of violating any of the covenants of this Agreement or warranties or
representations of NAHC or Seller in this Agreement.
SECTION 5.5 STANDSTILL. Between the Effective Date and the Closing
Date, (a) without prior written consent of Buyer (which consent shall not be
unreasonably withheld), Seller will not execute, renew, or amend any Material
contact, agreement, or lease; and (b) Seller will not agree to do any of the
foregoing. For the purposes of Articles 3, 4, 5, and Article 7, an action is
"MATERIAL" if (x) its occurrence or failure to occur would have an economic cost
of one hundred thousand dollars ($100,000) or more in a consecutive twelve (12)
month period; (y) it has an associated cost or obligation that cannot be
terminated upon notice of thirty (30) days or less, or (z) its occurrence or
failure to occur would result in a substantial change in services, including
without limitation, a change in licensed bed capacity of the Hospital, or the
initiation or discontinuation of a major clinical service.
SECTION 5.6 INSURANCE. Seller shall cause all policies of insurance for
fire, casualty, and extended coverage risks and liability in effect on the date
of this Agreement to be maintained in full force and effect through and
including the Closing Date.
SECTION 5.7 THIRD-PARTY CONSENTS. Seller shall use its best efforts to
obtain all required approvals and consents of third parties to the assignment
and assumption of the contracts, leases, and agreements included among the
Assets and the Estoppel certificates.
SECTION 5.8 REGULATORY APPROVALS. Seller shall cooperate in Buyer's
efforts to obtain the issuance or transfer of licenses, permits, certificates of
need, Medicare and Medicaid certification, JCAHO accreditation, and/or other
necessary regulatory approvals for consummation of the transactions contemplated
hereby and the operation by Buyer of the Hospital Facility in the same uses as
presently operated by Seller.
SECTION 5.9 NON-SOLICITATION. NAHC and Seller shall not negotiate with
any other party for the sale of the Assets and Seller shall notify Buyer of the
fact of any unsolicited offer to purchase the Assets and the identity of the
offeror.
SECTION 5.10 GENERAL COOPERATION. NAHC and Seller shall cooperate in
good faith with TRHS and Buyer in addressing other matters necessary to
consummate the transaction contemplated by this Agreement. Without limiting the
foregoing, NAHC and Seller shall cooperate in good faith with TRHS and Buyer (i)
in maintaining a sufficient number of employees for Buyer to operate the Assets
as of the Closing Date; and (ii) in effecting a smooth transition of those
employees of Seller who are hired by Buyer.
SECTION 5.11 REAL PROPERTY. During the period between the Effective
Date and the Closing Date:
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(a) The improvements on the Real Property will be maintained in as
good condition and state of repair as that existing on the
Effective Date, subject, however, to normal wear and tear.
(b) Subject to any adjustments prescribed herein, other than the
Assumed Liabilities, Seller will cause to be paid all trade
accounts and costs and expenses of operation and maintenance
of the Real Property incurred or attributable to a period
prior to the Closing Date, in accordance with Seller's usual
and customary procedures.
(c) Seller will not, without the prior written consent of Buyer,
permit any structural modifications or additions to the Real
Property, or sell or permit to be sold or otherwise dispose
of any item or group of items constituting a portion of the
Real Property.
SECTION 5.12 BOARD OF DIRECTOR AND LENDER GROUP APPROVALS. NAHC and
Seller shall each obtain any and all approvals from their Board of Directors and
lender groups that may be required for either of them to consummate the
transactions contemplated hereby.
ARTICLE 6
COVENANTS OF TRHS AND BUYER
Between the Effective Date and the Closing Date, Buyer and TRHS
covenant to Seller and NAHC as follows:
SECTION 6.1 THIRD-PARTY CONSENTS. TRHS and Buyer shall cooperate with
Seller and NAHC to obtain all required consents of third parties to assignment
and assumption of the contracts, leases, and agreements included among the
Assets.
SECTION 6.2 REGULATORY APPROVALS. Buyer shall take all steps necessary
for it to obtain all required consents and approvals to the issuance or transfer
of licenses, permits, certificates of need, Medicare and Medicaid
certification, JCAHO accreditation, or other necessary regulatory approvals for
consummation of the transactions contemplated hereby or the operation by Buyer
of the Hospital Facility as an acute care hospital with a skilled nursing unit.
SECTION 6.3 GENERAL COOPERATION. TRHS and Buyer shall cooperate in good
faith with Seller and NAHC in addressing other details necessary to consummate
the transaction.
SECTION 6.4 EMPLOYEES OF SELLER. Buyer shall extend binding offers of
employment to at least such number of Seller's employees, and on such terms, as
to relieve Seller of any liability or obligation that otherwise would be imposed
under the WARN Act and any state law or similar purpose.
SECTION 6.5 MEDICAL STAFF. Subject to the limitations herein stated, as
of the Closing Date, Buyer shall continue the structure and composition of the
medical staff of the Hospital Facility.
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Buyer reserves the right, at any time subsequent to the Closing Date, to impose
its own credentialing process pursuant to medical staff bylaws adopted by Buyer.
No current medical staff member will be guaranteed continuing privileges on
Buyer's medical staff.
SECTION 6.6 BOARD OF DIRECTOR AND OTHER APPROVALS. TRHS and Buyer shall
obtain any and all further approvals as may be required for them, or either of
them, to consummate the transactions contemplated hereby.
SECTION 6.7 NON-CONTRAVENTION. TRHS and Buyer shall not take any
action or omit to take any action, which action or omission would have the
effect of materially violating any of the covenants of this Agreement or
warranties or representations of Buyer in this Agreement.
ARTICLE 7
CONDITIONS TO THE OBLIGATIONS OF TRHS AND BUYER
The obligation of TRHS and Buyer to purchase and pay for the Assets and
assume the Assumed Liabilities on the Closing Date, and consummate any other
transaction contemplated by this Agreement, is, at their option, subject to the
satisfaction, on or before the Closing Date, of the following conditions:
SECTION 7.1 OPINION OF SELLERS' COUNSEL. TRHS and Buyer shall have
received from counsel for Seller an Opinion dated as of the Closing Date,
substantially identical to the form set forth in Schedule 7. 1, attached hereto
and incorporated by reference.
SECTION 7.2 REPRESENTATIONS AND WARRANTIES. All the representations and
warranties contained in Article 3 of this Agreement (considered collectively),
and each of those representations and warranties (considered individually) must
have been materially accurate as of the date of this Agreement, and must be
materially accurate as of the Closing Date (provided that representations which
are expressly confined to a certain date shall speak only as of such date and
provided further that notwithstanding any exceptions or disclosures to those
representations and warranties, the Assets shall be conveyed to Buyer free and
clear of any Claim whatsoever other than the Permitted Exceptions), and Seller
and NAHC shall have certified to such effect to Buyer in writing.
SECTION 7.3 COMPLIANCE WITH COVENANTS. Seller and NAHC shall have
performed and complied in all material respects with all agreements contemplated
herein that are required to be performed or complied with by them prior to or at
the Closing Date.
SECTION 7.4 CORPORATE PROCEEDINGS. All corporate and other proceedings
to be taken by Seller and NAHC in connection with the transactions contemplated
hereby and all documents incident thereto shall be satisfactory in form and
substance to TRHS, Buyer, and their counsel, and TRHS, Buyer, and their counsel
shall have received all such counterpart originals or certified or other copies
of such documents as they reasonably may request.
SECTION 7.5 NO ADVERSE CHANGE. There shall have been no Material
Adverse Change in the results of operations of the Hospital Facility between the
May Financial Statements and the
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June Financial Statements. For the purpose of this Section 7.5, "MATERIAL
ADVERSE CHANGE" means a monthly decrease in EBITDA of eighty-three thousand
dollars ($83,000) or more from the end of the period reported in the
aforementioned Financial Statements.
SECTION 7.6 REGULATORY APPROVALS. All necessary corporate and
regulatory approvals for the transactions contemplated by this Agreement shall
have been obtained and must be in full force and effect.
SECTION 7.7 SUPPORTING DOCUMENTS. TRHS' and Buyer and its counsel shall
have received copies of all supporting documents reasonably requested by them.
ARTICLE 8
CONDITIONS TO THE OBLIGATIONS OF NAHC AND SELLER
The obligation of NAHC and Seller to sell the Assets and transfer the
Assumed Liabilities on the Closing Date, and consummate any other transactions
contemplated by this Agreement, is, at its option, subject to the satisfaction,
on or before the Closing Date, of the following conditions:
SECTION 8.1 OPINION OF BUYER'S COUNSEL. NAHC and Seller shall have
received from counsel for Buyer an Opinion dated as of the Closing Date,
substantially identical to the form set forth in Schedule 8.1, attached hereto
and incorporated by reference.
SECTION 8.2 REPRESENTATIONS AND WARRANTIES. All the representations and
warranties contained in Article 4 of this Agreement (considered collectively),
and each of those representations and warranties (considered individually) must
have been materially accurate as of the date of this Agreement, and must be
materially accurate as of the Closing Date (provided that representations which
are expressly confined to a certain date shall speak only as of such date); and
TRHS and Buyer shall have certified to such effect to Seller and NAHC in
writing.
SECTION 8.3 COMPLIANCE WITH COVENANTS. TRHS and Buyer shall have
performed and complied in all material respects with all agreements contemplated
herein that are required to be performed or complied with by TRHS and Buyer
prior to or at the Closing Date.
SECTION 8.4 SUPPORTING DOCUMENTS. NAHC, Seller and their counsel shall
have received copies of all supporting documents reasonably requested by them.
ARTICLE 9
JOINT COVENANTS OF THE PARTIES
SECTION 9.1 CONFIDENTIALITY OF BUSINESS INFORMATION. The parties
heretofore have received and hereafter may receive various financial and other
information concerning its and their respective activities, business, assets,
and properties. The parties agree that:
9.1.1 all such information heretofore received by the parties
related to this transaction and in prior discussions between the parties
regarding other transactions shall not at any
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time, or in any way or manner, be utilized by the parties for its and their
respective advantage or disclosed by the parties to others for any purpose
whatsoever; and
9.1.2 the parties shall take all reasonable measures to assure
that no employee or agent under its and their respective control shall at any
time use or disclose any information described in this Section; and
9.1.3 this Section shall not apply to (i) any such information
that was known to the parties prior to its disclosure to the parties in
accordance with this Section or was, is, or becomes generally available to the
public other than by disclosure by the parties or any of its and their
respective employees or agents in violation of this Section; (ii) any such
information necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the transactions
contemplated hereby; or (iii) any such information required by legal
proceedings.
SECTION 9.2 CONFIDENTIALITY OF THIS AGREEMENT. The existence and
contents of this Agreement and its Schedules and the nature and status of the
transactions described herein and therein are confidential. Without the prior
written consent of the other parties, no party will disclose to any person,
other than to its and their respective shareholders, directors, officers, and
key employees, affiliates, accounting, investment banking, and legal advisers,
any such confidential information unless, in the written opinion of counsel to
the party seeking to make the disclosure, such a disclosure is required by
applicable corporation or securities laws. The timing and content of any
announcements, press releases, or other public statements concerning the
transactions contemplated by this Agreement will occur upon, and be determined
by, the mutual agreement and consent of the parties.
SECTION 9.3 RETURN OF INFORMATION. In the event this Agreement is
terminated pursuant to Section 11.1, the parties agree that they shall promptly
return to the originating party the confidential information of the other.
ARTICLE 10
INDEMNIFICATION
SECTION 10.1. SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY
KNOWLEDGE. The right of any party to indemnification, payment of damages, or
other remedy pursuant to this Article 10 will not be affected by any
investigation conducted with respect to, or any knowledge acquired (or capable
of being acquired) at any time, whether before or after the execution and
delivery of this Agreement or the Closing Date, with respect to the accuracy or
inaccuracy of, or compliance with, any such representation, warranty, covenant,
or obligations. The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment of
damages, or other remedy based on such representations, warranties, covenants,
and obligations.
SECTION 10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER AND NAHC.
Seller and NAHC, jointly and severally, shall indemnify and hold harmless TRHS
and Buyer and their members, shareholders, officers, employees, agents,
directors, trustees, representatives, controlling
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<PAGE> 36
persons, subsidiaries, and affiliates (collectively, the "TRHS INDEMNIFIED
PERSONS") for, and will pay to the TRHS Indemnified Persons the amount of, any
loss, liability, claim, damage (excluding incidental and consequential damages),
expense (including costs of investigation and defense and reasonable attorneys'
fees) or diminution of value, whether or not involving a third-party claim,
arising, directly or indirectly, from or in connection with:
(a) any breach of any representation or warranty made by Seller
or NAHC in this Agreement or any other certificate or
document delivered by Seller or NAHC pursuant to this
Agreement;
(b) any federal, state or local tax or fee incurred, accrued,
or assessed in connection with the Assets or the operation
of the Hospital Facility by Seller with respect to any
period prior to the Closing;
(c) except for the Assumed Liabilities, any liability or
obligation related to or in connection with the Assets or
the operation of the Hospital Facility by Seller, including
those liabilities and obligations set forth on Schedule 3.0
or as otherwise disclosed to TRHS or Buyer, which are or
were incurred with respect to any period prior to the
Closing or which relate to the operation of the Business
with respect to any period prior to the Closing; or
(d) any breach by Seller or NAHC of any covenant or obligation
of Seller or NAHC in this Agreement.
The remedies provided in this Section 10.2 shall be the exclusive
remedy of TRHS, Buyer, or the TRHS Indemnified Persons with respect to the above
described matters, except for (i) claims arising from the insolvency or
bankruptcy of NAHC or Seller; (ii) claims arising from fraud of Seller or NAHC;
(iii) claims arising from the failure of Seller or NAHC to perform any of their
individual or collective obligations set forth in Sections 2.6, 2.8, 2.10, 5.2,
9.1, and 9.2; (iv) claims arising under the Noncompetition Agreement; and (v)
claims arising from any breach of this Agreement by NAHC or Seller, the result
of which is Seller's inability to transfer all or substantially all of the
Assets to Buyer pursuant to Section 1.2.
SECTION 10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. TRHS and
Buyer, jointly and severally, shall indemnify and hold harmless Seller and NAHC
and their shareholders, officers, employees, agents, directors, representatives,
controlling persons, subsidiaries, and affiliates (collectively, the "NAHC
INDEMNIFIED PERSONS") for, and will pay to the NAHC Indemnified Persons the
amount of, any loss, liability, claim, damage (excluding incidental and
consequential damages), expense (including costs of investigation and defense
and reasonable attorneys' fees) or diminution of value, whether or not involving
a third-party claim, arising, directly or indirectly, from or in connection
with:
(a) any breach of any representation or warranty made by TRHS
or Buyer in this Agreement or any other certificate or
document delivered by TRHS or Buyer pursuant to this
Agreement; or
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<PAGE> 37
(b) any liability or obligation related to or in connection with
the Assets or the Buyer's business, which are or were
incurred with respect to any period as of or after the
Closing or which relate to the operation of the Hospital
Facility with respect to any period as of and after the
Closing; or
(c) any breach by TRHS or Buyer of any covenant or obligation
of TRHS or Buyer in this Agreement and this transaction, any
breach by TRHS or Buyer of any covenant or obligation
contained in any operative document for the Assumed
Liabilities, and any failure by TRHS or Buyer to satisfy the
Assumed Liabilities.
The remedies provided in this Section 10.3 shall be the exclusive
remedy of Seller, NAHC or the NAHC Indemnified Persons, except for (i) claims
arising from the insolvency or bankruptcy of TRHS or Buyer; (ii) claims arising
from fraud of Buyer or TRHS; (iii) claims arising from the failure of Buyer or
TRHS to perform any of their individual or collective obligations set forth in
Sections 2.12, 9.1, and 9.2; and (iv) claims arising under the Noncompetition
Agreement.
SECTION 10.4 LIABILITY AND RISK OF LOSS. Except for the Assumed
Liabilities, NAHC and Seller shall remain liable for all obligations and
liabilities, costs and expenses, fixed or contingent, arising out of the
operation or ownership of any of the Assets or the Hospital Facility and out of
the conduct of any business related to the Assets or the Hospital Facility prior
to the Closing, and shall remain liable for all such obligations and liabilities
not assumed by Buyer pursuant to this Agreement following the Closing. All risk
of loss of, and related to, the Assets or the Hospital Facility shall remain
with Seller through the Closing.
SECTION 10.5 PROCEDURE FOR INDEMNIFICATION - THIRD PARTY CLAIMS.
(a) Promptly after receipt by an indemnified party under either
Section 10.2, 10.3, or 10.4 of notice of the commencement of
any proceeding against it, such indemnified party will, if a
claim is to be made against an indemnifying party under
either such Section, give notice to the indemnifying party
of the commencement of such claim, but the failure to notify
the indemnifying party will not relieve the indemnifying
party of any liability that it may have to any indemnified
party, except to the extent that the indemnifying party
demonstrates that the defense of such action is prejudiced
by the indemnifying party's failure to give such notice.
(b) If any proceeding is brought against an indemnified party
and it gives notice to the indemnifying party of the
commencement of such proceeding, the indemnifying party will
be entitled to participate in such proceeding and, to the
extent that it wishes to assume the defense of such
proceeding with counsel satisfactory to the indemnified
party and, after notice from the indemnifying party to the
indemnified party of its or their election to assume the
defense of such proceeding, the indemnifying party will not,
as long as
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<PAGE> 38
it diligently conducts such defense, be liable to the
indemnified party under this Section 10 for any fees of
other counsel or any other expenses with respect to the
defense of such proceeding, in each case subsequently
incurred by the indemnified party in connection with the
defense of such proceeding, other than reasonable costs of
investigation. If the indemnifying party assumes the defense
of a proceeding, (i) no compromise or settlement of such
claims may be effected by the indemnifying party without the
indemnified party's consent (which consent may not be
unreasonably withheld) unless (A) there is no finding or
admission of any violation of legal requirements or any
violation of the rights of any person and no effect on any
other claims that may be made against the indemnified party,
and (B) the sole relief provided is monetary damages that
are paid in full by the indemnifying party; and (ii) the
indemnified party will have no liability with respect to any
compromise or settlement of such claims effected without its
or their consent, which consent may not be unreasonably
withheld. If notice is given to an indemnifying party of the
commencement of any proceeding and the indemnifying party
does not, within ten (10) days after the indemnified party's
notice is given, give notice to the indemnified party of its
or their election to assume the defense of such proceeding,
the indemnifying party will be bound by any determination
made in such proceeding or any compromise or settlement
effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable
probability that a proceeding may adversely affect it, or
its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this
Agreement, the indemnified party, at its sole cost and
expense, may, by notice to the indemnifying party, assume
the exclusive right to defend, compromise, or settle such
proceeding, but the indemnifying party will not be bound by
any determination of a proceeding so defended or any
compromise or settlement effected without its, his, her, or
their consent (which may not be unreasonably withheld).
SECTION 10.6 PROCEDURE FOR INDEMNIFICATION - OTHER CLAIMS. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
SECTION 10.7 TIME LIMITATIONS - GENERAL.
(a) Except as provided in the following sentence, if the Closing
occurs, Seller and NAHC will have no liability (for
indemnification or otherwise) under this Agreement, unless
on or before the date two (2) years from the Closing Date,
TRHS and Buyer notify Seller or NAHC of a claim specifying
the factual basis of that claim in reasonable detail to the
extent then known by TRHS or Buyer. The time limitation
stated in the preceding sentence shall not apply to claims
based on or arising out of (a) the representations and
warranties set
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<PAGE> 39
forth in Section 3.31; (b) fraud by Seller or NAHC in
regard to the transaction contemplated hereby; and (c) and
any Seller Post-Closing Obligations. For purposes of this
Article 10, "SELLER POST-CLOSING OBLIGATIONS" shall mean
those obligations of Seller set forth in Section 2.10,
Article 9, the obligation to deliver Title Policies, and the
performance of NAHC under the Sublicense Agreement.
(b) Except as provided in the following sentence, if the Closing
occurs, Buyer and TRHS will have no liability (for
indemnification or otherwise) under this Agreement, unless
on or before the date two (2) years from the Closing Date,
NAHC and Seller notify Buyer or TRHS of a claim specifying
the factual basis of that claim in reasonable detail to the
extent then known by NAHC and Seller. The time limitation
stated in the preceding sentence shall not apply to claims
based on or arising out of (a) fraud by Buyer and TRHS in
regard to the transaction contemplated hereby; (b) the
failure of Buyer to perform on the Contracts, which, as of
the Closing Date, expire or renew on a date that is more
than two (2) years from the Closing Date; and (c) those
obligations of Buyer set forth in Section 2.12 or Article 9
("BUYER POST-CLOSING OBLIGATIONS").
SECTION 10.8 TIME LIMITATIONS FOR BUYER AND SELLER POST-CLOSING
OBLIGATIONS. If the Closing occurs, Seller and NAHC will have no liability (for
indemnification or otherwise) under this Agreement for any claim of a breach of
a Seller Post-Closing Obligation, unless on or before the date two (2) years
from the date Buyer or TRHS becomes aware of such breach, TRHS and Buyer
notifies Seller or NAHC of a claim, specifying the factual basis of that claim
in reasonable detail to the extent then known by Buyer or TRHS. Likewise, if the
Closing occurs, Buyer and TRHS will have no liability (for indemnification or
otherwise) under this Agreement for any claim of a breach of a Buyer
Post-Closing Obligation, unless on or before the date two (2) years from the
date Seller or NAHC becomes aware of such breach, Seller and NAHC notifies Buyer
or TRHS of a claim, specifying the factual basis of that claim in reasonable
detail to the extent then known by Seller or NAHC.
SECTION 10.9 TIME LIMITATIONS FOR SELLER'S OR NAHC'S BREACH OF SECTION
3.31. Except as provided in the following sentence, if the Closing occurs,
Seller and NAHC will have no liability (for indemnification or otherwise) under
this Agreement for any claim of a breach of Section 3.31, unless on or before
the date three (3) years from the Closing Date, TRHS and Buyer notify Seller or
NAHC of a claim specifying the factual basis of that claim in reasonable detail
to the extent then know by TRHS or Buyer. The time limitation stated in the
preceding sentence shall not apply to claims based on or arising out of fraud by
Seller or NAHC in regard to the transaction contemplated hereby.
SECTION 10.10 INITIAL EXPENDITURE. Seller and NAHC shall have no
liability (for indemnification or otherwise) with respect to any representation
or warranty, or covenant or obligation to be performed and complied with prior
to the Closing Date, until the total of all damages with respect to such matters
exceeds the Initial Expenditure; however, TRHS and Buyer shall have
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<PAGE> 40
no obligation to make or satisfy the Initial Expenditure with respect to any
fees, fines, or penalties imposed with respect to Seller's failure to register
the underground storage tank located on the Real Property. Likewise, Buyer and
TRHS shall have no liability (for indemnification or otherwise) with respect to
any representation or warranty, or covenant or obligation to be performed and
complied with prior to the Closing Date, until the total of all damages with
respect to such matters exceeds the Initial Expenditure. For purposes of this
Article 10, "INITIAL EXPENDITURE" means twenty-five thousand dollars ($25,000)
SECTION 10.11 MAXIMUM AMOUNT - SELLER AND NAHC.
(a) After the Initial Expenditure requirement is met, Seller and
NAHC will have no liability (for indemnification or
otherwise) with respect to any representation or warranty,
or covenant or obligation to be performed and complied with
prior to the Closing Date exceeding one million dollars
($1,000,000); provided, however, that this section will not
apply to (i) any breach of any of Seller's or NAHC's
representations or warranties contained in Section 3.31; or
(ii) any fraud by Seller or NAHC in regard to the
transactions contemplated hereby.
(b) After the Initial Expenditure requirement is met, Seller
and NAHC will have no liability (for indemnification or
otherwise) with respect to the representations and
warranties set forth in Section 3.31 exceeding one million
dollars ($1,000,000); provided, however, that this Section
will not apply to any fraud by Seller or NAHC or regard to
the transactions contemplated hereby.
SECTION 10.12 MAXIMUM AMOUNT - BUYER. After the Initial Expenditure
requirement is met, Buyer and TRHS will have no liability (for indemnification
or otherwise) with respect to any representation, or warranty, or covenant or
obligation to be performed or complied with prior to the Closing Date, exceeding
one million dollars ($1,000,000); provided, however, that this Section will not
apply to (i) Buyer's obligation to pay to Seller the Purchase Price, assume the
Assumed Liabilities, or assume the Contracts; (ii) any breach of any of Buyer's
representations and warranties of which Buyer had knowledge at any time prior to
or on the date on which such representation and warranty is made or (iii) any
intentional breach by Buyer of any of its covenants or obligations.
ARTICLE 11
MISCELLANEOUS
SECTION 11.1 TERMINATION EVENTS. This Agreement may, by notice given
prior to or at the Closing, be terminated:
(a) by TRHS and Buyer if a material breach of this Agreement has
been committed by Seller or NAHC and such breach has not
been expressly waived by TRHS and Buyer in writing and has
not been cured by the earlier
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<PAGE> 41
of (a) ten (10) days after written notice of such breach has
been provided to Seller and NAHC, or (b) the Closing Date;
(b) by Seller and NAHC if a material breach of this Agreement
has been committed by TRHS or Buyer and such breach has not
been expressly waived by Seller and NAHC in writing and has
not been cured by the earlier of (a) ten (10) days after
written notice of such breach has been provided to TRHS and
Buyer, or (b) the Closing Date;
(c) by TRHS and Buyer if any of the conditions in Article 7 have
not been satisfied as of the Closing Date or if satisfaction
of such condition is or becomes impossible (other than
through failure of TRHS and Buyer to comply with its
obligations under this Agreement) and TRHS and Buyer have
not expressly waived such condition in writing on or before
the Closing Date;
(d) by written mutual consent of Seller, NAHC, TRHS and Buyer;
(e) by either party in accordance with Section 1.10 or 11.15 of
this Agreement; and
(f) by Buyer in accordance with Section 2.1 or 2.2(e) of this
Agreement.
Termination of this Agreement shall be without prejudice to any other
right or remedy of any of the parties hereto. Notwithstanding the above, the
parties agree that Sections 9.1, 9.2, and 9.3 shall survive termination for any
reason.
SECTION 11.2 NOTICE. Whenever notice must be given under the provisions
of this Agreement, such notice must be in writing and will be deemed to have
been duly given by (a) hand-delivery (with written confirmation of receipt)
addressed to the parties at their respective addresses set forth below; (b)
certified mail, return receipt requested, postage prepaid, and addressed to the
parties at their respective addresses set forth below; or (c) telecopier (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, addressed to the parties at their respective
addresses set forth below:
If to Seller or NAHC:
New American Healthcare Corporation
Suite 440
109 West Park Drive
Nashville, Tennessee 37214
Fax: 615-221-5009
Attn: Chief Executive Officer
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with a copy to:
Harwell Howard Hyne Gabbert & Manner, P.C.
18th Floor, First American Center
315 Deaderick Street
Nashville, Tennessee 37238
Fax: 615/251-1059
Attn: Michael R. Hill, Esquire
If to TRHS and Buyer:
Trinity Medical Center-West Campus
2701 17th Street
Rock Island, IL 61201
Fax: (309) 779-2298
Attn: Eric Crowell, CEO
with a copy to:
Green, Stewart, Farber & Anderson, P.C.
2600 Virginia Avenue, N.W.
Suite 1111
Washington, D.C. 20037
Attn: Robert W. McCann, Esquire
Fax: (202) 342-8734
SECTION 11.3. SURVIVAL OF PROVISIONS. All warranties, representations,
hold harmless, and indemnity obligations and restrictions made, undertaken, and
agreed to by the parties hereto under this Agreement shall survive the Closing
and the execution and delivery of the documents and instruments executed and
delivered at the Closing.
SECTION 11.4 AMENDMENT. No modification, waiver, amendment, discharge,
or change of this Agreement shall be valid, unless in writing and signed by the
party against whom enforcement of such modification, waiver, amendment,
discharge or change is sought.
SECTION 11.5 ASSIGNMENT. This Agreement shall not be assignable by any
party without the prior written consent of the others, except that TRHS and
Buyer may assign their rights and obligations under this Agreement in whole or
in part, and from time to time, to any affiliate or affiliates of TRHS or Buyer
upon written notice to Seller and NAHC, and such assignee shall be considered
the TRHS or Buyer, as the case may be, for purposes of this Agreement and all
related documents; provided, that such assignment shall not release TRHS or
Buyer of their obligations hereunder. Except as noted above, no other person or
corporate entity shall acquire or have any rights under or by virtue of this
Agreement.
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SECTION 11.6 SEVERABILITY. If any one or more of the provisions of this
Agreement should be ruled wholly or partly invalid or unenforceable by a court
or other government body of competent jurisdiction, then: (a) the validity and
enforceability of all provisions of this Agreement not ruled to be invalid or
unenforceable shall be unaffected; (b) the effect of the ruling shall be limited
to the jurisdiction of the court or other government body making the ruling; (c)
the provision(s) held wholly or partly invalid or unenforceable shall be deemed
amended, and the court or other government body is authorized to reform the
provision(s), to the minimum extent necessary to render them valid and
enforceable in conformity with the parties' intent as manifested herein and a
provision having a similar economic effect shall be substituted; and (d) if the
ruling and/or the controlling principle of law or equity leading to the ruling,
is subsequently overruled, modified, or amended by legislative, judicial, or
administrative action, the provision(s) in question as originally set forth in
this Agreement shall be deemed valid and enforceable to the maximum extent
permitted by the new controlling principle of law or equity.
SECTION 11.7 CHOICE OF LAW. The interpretation of this Agreement and
the rights and obligations of Buyer and Seller hereunder shall be governed by
the laws of the State of Iowa, without regard to choice of law provisions.
SECTION 11.8 BINDING BENEFIT. The provisions, covenants and agreements
herein contained shall inure to the benefit of, and be binding upon, the parties
hereto and its respective legal representatives, successors and assigns.
SECTION 11.9 HEADINGS. All headings contained in this Agreement are for
reference purposes only and are not intended to affect in any way the meaning or
interpretation of this Agreement.
SECTION 11.10 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
collectively shall constitute one and the same agreement.
SECTION 11.11 EXPENSES. Except as otherwise provided herein, each of
the parties shall bear its own expenses in connection with this Agreement.
SECTION 11.12 WAIVER. The waiver by any party of a breach or violation
of any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach of such provision or any other provision of this
Agreement.
SECTION 11.13 CONSTRUCTION. This Agreement shall not be construed more
strictly against any party hereto by virtue of the fact that the Agreement may
have been drafted or prepared by such party or its counsel, it being recognized
that all of the parties hereto have contributed substantially and materially to
its preparation and that this Agreement has been the subject of and is the
product of negotiations between the parties.
SECTION 11.14 CUMULATIVE REMEDIES. Any right, power, or remedy provided
under this Agreement to any party hereto shall be cumulative and in addition to
any other right, power or
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remedy provided under this Agreement now or hereafter existing at law or in
equity, and may be exercised singularly or concurrently.
SECTION 11.15 CASUALLY OR CONDEMNATION. If prior to the Closing there
shall occur: (i) damage to any of the Real Property caused by fire or other
casualty; or (ii) the taking or condemnation of all or any portion of the Real
Property as would materially interfere with the use thereof; then in any such
event, TRHS and Buyer, within twenty (20) days after TRHS and Buyer have actual
knowledge or such damage, taking, or condemnation, may at their option (x)
negotiate with Seller for an abatement of the Purchase Price and proceed to
Closing on such terms as may be agreed to, or (y) proceed to Closing without an
abatement of the Purchase Price and accept assignment from Seller and NAHC all
interest of Seller and NAHC in and to any insurance proceeds (subject to
confirmation by Seller and NAHC that such assignment will not impair Seller's or
NAHC's insurance) or condemnation awards which may be equal to any insurance
proceeds which would be payable on account of such occurrence. If such
assignment would impair Seller's or NAHC's insurance, then Seller or NAHC shall
be obligated to pay Buyer, at Closing, an amount equal to any insurance proceeds
which would be payable to Seller or NAHC on account of such occurrence. In the
event that the damage, taking, or condemnation would Materially interfere with
the operation of the Hospital Facility as an acute care hospital, in addition to
their options set forth above, TRHS and Buyer shall have the right to terminate
this Agreement upon notice to Seller and NAHC.
SECTION 11.16. ARBITRATION. In the event of a dispute between the
parties arising from or relating to this Agreement, including, but not limited
to, construction, interpretation, implementation, or enforcement of this
Agreement or the performance or breach of any provision in this Agreement (but
specifically excluding disputes arising under any agreement among the parties
appearing as a schedule hereto, which shall be resolved according to the terms
of each such scheduled agreement), the parties shall meet and confer in good
faith to resolve such dispute. In the event such efforts do not resolve the
dispute within fifteen (15) days from the date the dispute arises, either party
may demand arbitration by the American Arbitration Association, before one (1)
arbitrator, under its Commercial Arbitration Rules, such arbitration to be
final, conclusive, and binding. Such arbitration shall be conducted in Rock
Island County, Illinois. Judgment on the award rendered by the arbitrator may be
entered by any court having proper jurisdiction. Notwithstanding the foregoing,
any party may seek or assert entitlement to injunctive relief or specific
performance in court as an initial matter and shall have no prior obligation to
establish in arbitration the entitlement to injunctive relief or specific
performance. Further, neither party shall have an obligation to arbitrate any
claim against the other party arising from the bankruptcy or insolvency of such
other party or any claim arising as a third party claim in a judicial or other
proceeding.
SECTION 11.17. KNOWLEDGE OF NAHC AND SELLER. For purposes of this
Agreement, NAHC and Seller will be deemed to have "knowledge" of a particular
fact or matter, if the Seller's Representatives (as defined below) have actual
knowledge of such fact or matter or reasonably should know of such fact or
matter upon due inquiry. For purposes of this definition, "SELLER'S
REPRESENTATIVES" shall mean the following persons: (i) Jim Fraser, Chief
Executive Officer of the Hospital Facility; (ii) Randy Strickland, the Chief
Financial Officer of the Hospital Facility; (iii)
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<PAGE> 45
Judy Moseley, the Chief Operating/Nursing Officer of the Hospital Facility; (iv)
Mary Michalek, the Business Development Director of the Hospital Facility; (v)
Ken Anderson, the Home Health Administrator of the Hospital Facility; (vi) Jeff
Wendell, the Director of Plant Operations of the Hospital Facility; (vii) Tom
Singleton, Chief Executive Officer of NAHC; (viii) Randy Starkweather, Chief
Financial Officer of NAHC; (ix) Timothy Hill, Vice President of Finance of NAHC;
(x) Dana McClendon, Corporate Compliance Officer of NAHC; (xi) Ann Price,
Manager of Operations and Administration; and (xii) any other person who is
known by NAHC or Seller to have knowledge.
SECTION 11.18 COMPLETION OF SCHEDULES. The Schedules have not been
prepared in their draft or final form at the time of execution of this
Agreement. Input by Seller and Buyer is necessary to finalize the Schedules and
each party agrees to use commercially reasonable efforts to finalize them. The
parties shall use their best efforts to complete the Schedules and submit such
Schedules to the other parties by July 10, 1999. The submitted Schedules shall
be deemed accepted and thereby become Schedules to this Agreement unless: (i) a
proposed Schedule would, individually or in aggregate with the effect of items
disclosed in other Schedules which were first submitted after signing of this
Agreement, 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 a proposed Schedule, such receiving party provides written notice to
opposing counsel reasonably detailing the objection thereof and changes in such
proposed Schedule 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 Schedules shall not mean that
the underlying information is acceptable. At or prior to Closing, either party
may supplement the Schedules by written notice, and the recipient shall have
five business days from receipt of such notice to accept such supplements. If
the recipient accepts the supplements, the Schedules shall be deemed to be
revised to reflect the supplements. If the recipient reasonably rejects any such
supplement by notice or by failing to respond within the required time period,
the recipient may withdraw from the Agreement and terminate the Agreement
without any obligation or liability of any sort and the agreement shall be
treated as never having been executed or delivered.
SECTION 11.19. ENTIRE AGREEMENT. This Agreement supersedes all prior
agreements between the parties with respect to its subject matter (including the
Letter of Intent dated May 13, 1999) and constitutes (along with the documents
referred to in this Agreement) a complete and exclusive statement of the terms
of the agreement among the parties with respect to its subject matter.
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<PAGE> 46
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
TRINITY HUMAN TRINITY REGIONAL HEALTH SYSTEM
SERVICES CORPORATION
/s/ Eric Crowell /s/ Eric Crowell
------------------------------ ----------------------------------
Signature Signature
Eric Crowell Eric Crowell
------------------------------ ----------------------------------
Print Name Print Name
President/CEO President/CEO
------------------------------ ----------------------------------
Office or Title Office or Title
NEW AMERICAN HEALTHCARE NAHC OF IOWA, INC.
CORPORATION
/s/ Thomas W. Singleton /s/ Thomas W. Singleton
------------------------------ ----------------------------------
Signature Signature
Thomas W. Singleton Thomas W. Singleton
------------------------------ ----------------------------------
Print Name Print Name
President & CEO President
------------------------------ ----------------------------------
Office or Title Office or Title
[Signature Page for the Asset Purchase and Liabilities Assumption Agreement
by and among Trinity Human Services Corporation, Trinity Regional Health
System, New American Healthcare Corporation, and NAHC of Iowa, Inc.]
40
<PAGE> 1
EXHIBIT 10.2
Execution Draft
STOCK PURCHASE AGREEMENT
FOR
NAHC OF TENNESSEE, INC.
BETWEEN
NEW AMERICAN HEALTHCARE CORPORATION
SELLER
AND
CRAIG WATSON AND NEIL MCLEAN
BUYER
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I. PURCHASE AND SALE................................................1
1.1 Purchase and Sale.............................................1
1.2 Assets At Closing.............................................1
1.3 Excluded Assets...............................................3
1.4 Continuing Liabilities........................................3
1.5 Excluded Liabilities..........................................4
1.6 Delivery of Stock.............................................4
1.7 Condition of Assets...........................................4
ARTICLE II. PURCHASE PRICE...................................................5
2.1 Purchase Price................................................5
2.2 Payment of Purchase Price.....................................5
2.3 Taxes and Assessments; Prorations; Adjustments................6
2.4 Closing Statements............................................6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER........................6
3.1 Organization, Corporate Power and Qualification...............6
3.2 Capitalization of the Company.................................7
3.3 Subsidiaries and Affiliates; Organization of Seller...........7
3.4 Financial Statements..........................................7
3.5 Absence of Undisclosed Liabilities............................8
3.6 Absence of Certain Recent Changes.............................8
3.7 Title to Assets...............................................9
3.8 Real Property................................................10
3.9 Contracts....................................................11
3.10 Defaults.....................................................12
3.11 Inventory....................................................12
3.12 Receivables..................................................12
3.13 Permits and Licenses.........................................13
3.14 Bank Accounts................................................13
3.15 Litigation...................................................13
3.16 Court Orders, Decrees and Laws...............................13
3.17 Taxes........................................................13
3.18 Program Compliance...........................................14
3.19 Reimbursement Matters........................................14
3.20 Environmental Matters........................................14
3.21 ERISA........................................................15
3.22 Employee Matters.............................................16
3.23 Insurance; Malpractice.......................................16
3.24 Labor Matters................................................16
3.25 Certain Representations With Respect to the Hospital.........17
3.26 Books of Account; Reports....................................17
</TABLE>
ii
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<TABLE>
<S> <C> <C>
3.27 Finders and Brokers..........................................17
3.28 Authority; Binding Effect....................................17
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER.........................18
4.1 Authority....................................................18
4.2 Absence of Default...........................................18
4.3 Finders and Brokers..........................................18
4.4 Investment Representations...................................18
ARTICLE V. COVENANTS OF PARTIES............................................19
5.1 Preservation of Company's Business and Assets................19
5.2 Absence of Material Change...................................19
5.3 Access to Books and Records..................................19
5.4 [Deleted]....................................................20
5.5 Risk of Loss.................................................20
5.6 Condemnation.................................................21
5.7 Good Faith...................................................21
5.8 Preserve Accuracy of Representations and Warranties..........21
5.9 Maintain Books and Accounting Practices......................21
5.10 Indebtedness; Liens..........................................21
5.11 Compliance with Laws and Regulatory Consents.................21
5.12 No Merger or Consolidation...................................22
5.13 Maintain Insurance Coverage..................................22
5.14 Medicare, Medicaid and Blue Cross Reporting..................22
5.15 CDU Payments.................................................22
5.16 [Deleted]....................................................23
5.17 Performance..................................................23
5.18 Tax Matters..................................................23
5.19 COBRA Coverage...............................................26
ARTICLE VI. DELETED.........................................................26
ARTICLE VII. CLOSING.........................................................26
7.1 Closing......................................................26
7.2 Termination..................................................26
ARTICLE VIII. SELLER'S CONDITIONS TO CLOSE....................................27
8.1 Representations and Warranties True at Closing; Compliance
with Agreement...............................................27
8.2 Regulatory Approvals.........................................27
8.3 No Action/Proceeding.........................................27
8.4 Compliance with Article XI...................................27
8.5 Order Prohibiting Transaction................................27
8.6 Consent of Lender............................................28
8.7 Completion of Exhibits.......................................28
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE IX. BUYER'S CONDITIONS TO CLOSE.....................................28
9.1 Representations and Warranties True at Closing; Compliance
with Agreement...............................................28
9.2 No Loss, Damage or Destruction...............................28
9.3 Regulatory Approvals.........................................28
9.4 No Action/Proceeding.........................................28
9.5 Compliance with Article X....................................28
9.6 Order Prohibiting Transaction................................29
9.7 Tail Insurance...............................................29
9.8 Consent of Lender............................................29
9.9 Employees....................................................29
9.10 Completion of Exhibits.......................................29
ARTICLE X. OBLIGATIONS OF SELLER AT CLOSING................................29
10.1 Documents Relating to Stock..................................29
10.2 Opinion of Counsel...........................................29
10.3 Corporate Good Standing and Corporate Resolution.............29
10.4 Closing Certificate..........................................30
10.5 Taxes and Other Payments.....................................30
10.6 Tail Insurance...............................................30
10.7 Additionally Requested Documents; Post Closing Assistance....30
ARTICLE XI. OBLIGATIONS OF BUYER AT CLOSING.................................30
11.1 Purchase Price; Security Instruments.........................30
11.2 [Deleted]....................................................30
11.3 Opinion of Buyer's Counsel...................................31
11.4 Closing Certificate..........................................31
ARTICLE XII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION......................31
12.1 Survival.....................................................31
12.2 Indemnification by Seller....................................31
12.3 Indemnification by Company and Buyer.........................32
12.4 Procedure for Indemnification................................32
12.5 Limitations on Obligations...................................34
ARTICLE XIII. RESTRICTIVE COVENANTS...........................................34
13.1 Covenant Not to Compete......................................34
13.2 Enforceability...............................................35
ARTICLE XIV. MISCELLANEOUS...................................................35
14.1 Assignment...................................................35
14.2 Other Expenses...............................................35
14.3 Notices......................................................35
14.4 Controlling Law..............................................36
</TABLE>
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<TABLE>
<S> <C> <C>
14.5 Headings.....................................................36
14.6 Benefit......................................................37
14.7 Partial Invalidity...........................................37
14.8 Waiver.......................................................37
14.9 Counterparts.................................................37
14.10 Interpretation...............................................37
14.11 Entire Agreement.............................................37
14.12 Legal Fees and Costs.........................................37
14.13 "Knowledge"..................................................38
</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(8) Trade Names
1.3(2)-A Logo
1.3(2)-B Form of License Agreement
1.3(4) Excluded Assets
3.4 Financial Statements
3.5 Undisclosed Liabilities
3.6 Recent Changes
3.7 Permitted Liens; Security Interests of Record
3.8 Real Property
3.9 Contracts
3.10 Defaults
3.12 Receivables Outside Ordinary Course
3.14 Bank Accounts
3.15 Litigation
3.16 Governmental Proceedings or Investigations
3.17A Tax Liens
3.17B Tax Examinations
3.19A Audit Status Schedule of Medicare Cost Reports
3.19B Claims by any Third-Party Payors
3.20 Environmental Matters
3.21 Employee Benefit Plans
3.22A List of Employees
3.22B List of Employee Benefits of Seller and Company
3.22C List of Ex-Employees utilizing or eligible to use continuation
coverage (health insurance)
3.22D List of Company's full- and part-time employees who have
been terminated within 90 days before Closing
3.23 Insurance; Malpractice
14.13 List of Individuals with "Knowledge" of Seller's Business
</TABLE>
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<PAGE> 7
GLOSSARY
<TABLE>
<CAPTION>
Section Defined Term
- ------- ------------
<S> <C>
12.1 Absolute Covenants
2.4 Accountants
4.4 Act
Page 1 Agreement
1.2 Assets
1.4 Continuing Liabilities
Page 1 Buyer
12.5(1) Cap
5.15 CDU
12.4(1) Claim
7.1 Closing
7.1 Closing Date
3.22 Code
Recital A Company
5.18(8) Consolidated Return Short Year
5.18(6) Contest
1.4 Continuing Liabilities
3.9 Contracts
3.21(1) ERISA
1.2(2) Equipment
1.3 Excluded Assets
1.5 Excluded Liabilities
2.4 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
1.3(2) Logo
Page 1 McLean
2.1(2) Net Working Capital
13.1 Noncompete Area
13.1 Noncompete Period
12.4(1) Notice
2.2(3) 1 Year Note
3.7 Permitted Liens
2.4 Preliminary Closing Statement
2.1 Purchase Price
1.4(2) PTO
2.2(2) Rate
</TABLE>
vii
<PAGE> 8
<TABLE>
<S> <C>
1.2(1) Real Property
1.2(4) Receivables
Page 1 Seller
5.18(8) Separate Return Short Year
2.2(2) 60 Day Note
Recital A Stock
Page 1 Watson
</TABLE>
viii
<PAGE> 9
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), is made as of August
31, 1999, by and among NEW AMERICAN HEALTHCARE CORPORATION, a Delaware
corporation ("SELLER"), NEIL G. McLEAN, an individual and resident of the State
of Tennessee ("MCLEAN"), and CRAIG B. WATSON, an individual and resident of the
state of Tennessee ("WATSON") (McLean and Watson are collectively, jointly and
severally "BUYER").
R E C I T A L S:
A. Seller owns all of the issued and outstanding capital stock (the
"STOCK") of NAHC of Tennessee, Inc., d/b/a Delta Medical Center, a Tennessee
corporation (the "COMPANY"). The Company operates a business in Memphis,
Tennessee located at 3000 Getwell Drive, Shelby County, Tennessee, including a
hospital comprised of 243 licensed medical/surgical beds, associated equipment
and other hospital related businesses and programs (all of the above are
collectively, the "HOSPITAL").
B. Seller desires to sell and transfer the Stock to Buyer, and Buyer
desires to purchase the same from Seller, 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. Seller agrees to sell, transfer, assign, convey
and deliver to Buyer, and Buyer agrees to purchase from Seller, all right, title
and interest in and to the Stock. Seller 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 shall be delivered free and
clear of all claims, liens, pledges, mortgages, restrictions, proceedings,
charges, options, security interests, assessments, covenants, rights of first
refusal and encumbrances of any kind (herein, "LIENS"), except as otherwise
permitted herein.
1.2 Assets At Closing. Except as provided in Section 1.3, at Closing
the Company shall own or lease, all assets, tangible and intangible, real and
personal, associated with the operation of the Hospital (collectively, the
"ASSETS"), free and clear of all Liens other than the Permitted Liens (as
defined in Section 3.7), which Assets shall include, without limitation, the
following:
<PAGE> 10
(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,
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"); but expressly excluding all nonpatient accounts receivable owed
to the Company and all accounts receivable related to all Medicare or Medicaid
cost reports for all periods through April 30, 1999.
(5) 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;
(6) All licenses, permits, registrations, certificates,
consents, accreditations, approvals and franchises, and applications therefor,
and all waivers, 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 Hospital, including, without limitation, those
relating to utilities, easements and roads;
(8) All goodwill and other intangible assets including, but
not limited to, all rights to use the name "Delta Medical Center," the other
trade names listed on Exhibit 1.2(8) and derivatives thereof, but expressly
excluding the name "New American Healthcare Corporation" and all derivatives
thereof, and excluding the logo described in Section 1.3(2) below;
2
<PAGE> 11
(9) The Company's rights and interests under the Contracts (as
defined in Section 3.9);
(10) All assets reflected on the Financial Statements, as
defined in Section 3.4, and additions thereto through the Closing (as defined in
Section 7.1) less deletions therefrom sold or consumed in the ordinary course of
business;
(11) 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;
(12) 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. The Assets shall expressly exclude those
items described in this Section 1.3 (the "EXCLUDED ASSETS"). Prior to conveyance
of the Stock, Company shall transfer to Seller the Excluded Assets. All tangible
Excluded Assets shall be removed from the Assets, without damage or defacement
to the Assets, by Seller prior to Closing. The Excluded Assets shall be
comprised of the following:
(1) All cash, money market accounts, investment accounts,
other accounts, certificates of deposit and other investments of the Company;
(2) All rights in the name "New American Healthcare
Corporation," "NAHC" and all derivatives thereof, and all rights to the logo
described on Exhibit 1.3(2)-A attached hereto (the "LOGO"); provided, however,
that Seller shall license to the Company for a period of one hundred eighty
(180) days following Closing certain limited rights to use the Logo and the
right to include "NAHC" in its corporate name pursuant to the terms of a License
Agreement in the form attached hereto as Exhibit 1.3(2)-B;
(3) All nonpatient accounts receivable owed to the Company as
of the Closing and all accounts receivable related to all Medicare or Medicaid
cost reports for all prior years ending through April 30, 1999; and
(4) Those items listed on Exhibit 1.3(4).
1.4 Continuing Liabilities. At Closing, Company will retain and
continue to pay or perform, as the case may be, only the following
(collectively, the "CONTINUING LIABILITIES"):
(1) All obligations accruing after Closing with respect to the
Company's contracts, agreements, purchase orders, instruments and leases;
3
<PAGE> 12
(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;
(3) All amounts payable under the Medicare or Medicaid
reimbursement programs applicable to cost reports for services rendered after
April 30, 1999, the most recently filed cost report but prior to the Closing, to
the extent properly recorded on the Company's Financial Statements; and
(4) All Current Liabilities, to the extent included in the
calculation of Net Working Capital, pursuant to Section 2.1(2) below.
1.5 Excluded Liabilities. Immediately prior to conveyance of the
Stock, Seller shall satisfy and release or Company shall transfer to Seller and
Seller shall assume responsibility from and after Closing for the following
(collectively, the "EXCLUDED LIABILITIES"):
(1) Any intercompany payables; and
(2) All liabilities, indebtedness, commitments, taxes,
assessments, claims, obligations and responsibilities of any kind whatsoever of
the Company 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 Delivery of Stock. Seller 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, except as described herein, including all amounts due and payable for
federal, state and local transfer taxes.
1.7 Condition of Assets. Other than with respect to representations
and warranties expressly provided herein, Buyer accepts the condition of the
Assets at Closing "AS IS," WITH NO WARRANTY, EXPRESS OR IMPLIED, AND EXPRESSLY
EXCLUDED ARE THE WARRANTIES OF HABITABILITY, MERCHANTABILITY AND FITNESS FOR A
PARTICULAR USE, ALL OF WHICH SELLER HEREBY DISCLAIMS. All of the Assets shall
further be subject to normal wear and tear in the ordinary course of business up
to the Closing Date. Without limiting the foregoing, Buyer acknowledges that (i)
all Year 2000 Compliance efforts of Seller with respect to the Assets will
terminate on the Closing Date; (ii) notwithstanding anything to the contrary
contained herein, Seller makes no representation or warranty regarding Year 2000
Compliance with respect to any of the Assets; and (iii) Buyer assumes all
liability with respect to Year 2000 Compliance relating
4
<PAGE> 13
to the Assets. As used herein, the term "Year 2000 Compliance" includes the
ability to perform any of the following functions: (i) to consistently handle
date information before, at and after January 1, 2000, including accepting date
input, providing date output, and performing calculations on dates or portions
of dates; (ii) to function accurately without interruption (or disruption of
other software or systems) before, at and after January 1, 2000, without any
change in operations associated with the advent of the new century; (iii) to
respond to two-digit date input in a way that resolves any ambiguity as to
century; and (iv) to store and provide output of date information in ways that
are unambiguous as to century.
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 Seller for
the Stock as provided below and shall be an amount derived in the following
manner:
(1) One Million Dollars ($1,000,000.00);
(2) PLUS the amount of Net Working Capital at Closing. The
term "NET WORKING CAPITAL" shall mean the result of the following: PLUS Current
Assets, as reflected on the Financial Statements of the Company as of the
Closing (net of Excluded Assets, as defined herein, and for purposes of this
calculation, all accounts receivable included in the Current Assets purchased
shall be valued at 90% and said valuation shall be used on the Preliminary
Closing Statement and the Final Closing Statement), MINUS Current Liabilities,
as reflected on the Financial Statements of the Company as of the Closing (net
of Excluded Liabilities) and any other balance sheet liability assumed (the
"PURCHASE PRICE"). Seller agrees that the Company's accounts payable at Closing
shall not exceed Seven Hundred Thousand Dollars ($700,000.00), based on Seller's
reasonable estimates at Closing;
(3) MINUS, a credit against the Purchase Price equal to Two
Hundred Fifty Thousand Dollars ($250,000.00) for sick leave benefits payable
which are not recorded on the balance sheet.
2.2 Payment of Purchase Price. The Purchase Price shall be
payable as follows:
(1) One Hundred Thousand Dollars ($100,000.00) payable at
Closing in immediately available funds;
(2) a promissory note (the "60 DAY NOTE") in the original
principal amount of Two Million Dollars ($2,000,000.00), which (i) shall accrue
interest at a rate (the "RATE") equal to two percent (2%) over the prime rate
(as published in The Wall Street Journal) (said Rate to adjust whenever there is
an adjustment in said prime rate), (ii) shall be payable in full sixty (60) days
after the date of said 60 Day Note, and (iii) shall be secured
5
<PAGE> 14
by a pledge of a certificate of deposit(s) from Buyer in the aggregate amount of
Four Hundred Thousand Dollars ($400,000.00), a guaranty by the Company, and by a
security interest in all of the Company's accounts receivable;
(3) a second promissory note (the "1 YEAR NOTE") for the
balance of the Purchase Price, which (i) shall accrue interest at the Rate, (ii)
shall be payable in full on the first anniversary of the date of said 1 Year
Note, and (iii) shall be secured by a pledge of the Stock, and a lien on all of
the Assets (plus any replacement or additions to the Assets) other than the
Company's accounts receivable.
2.3 Taxes and Assessments; Prorations; Adjustments. To the extent
not included as a reduction of Net Working Capital, Seller 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.
2.4 Closing Statements. The adjustments specified in Sections 2.1
and 2.3 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 (subject to the terms of this Agreement). As
part of the preparation of the Final Closing Statement, Buyer and Seller shall
prepare a cost report for the four (4) month period ending August 31, 1999 for
use in calculating the adjustments to the Purchase Price described in Sections
2.1 and 2.3 above. Adjustments made after the Closing based on the Final Closing
Statement shall be payable by an adjustment to the 1 Year Note, which the
parties agree to complete on or before the tenth day following the day the Final
Closing Statement is agreed upon. If Buyer and Seller are unable to agree upon
said Final Closing Statement within one hundred twenty (120) days after Closing,
then they shall submit their dispute to Ernst & Young, Nashville, Tennessee (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 Seller shall each pay one-half the cost of the
Accountants.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants 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
6
<PAGE> 15
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 the State of Mississippi. 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 true,
accurate and complete copy of the Company's Charter and all amendments thereto
as of the date hereof and a copy of the Company's bylaws, as amended to the date
hereof (both certified by the Secretary of the Company), have been previously
provided to Buyer. The Company is not in default under or in violation of any
provision of its Charter or bylaws.
3.2 Capitalization of the Company. The authorized capital stock of
the Company consists of 1,000 shares of no par value voting common stock, of
which as of the date hereof, 1,000 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 Seller. 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. At Closing,
the Stock shall be subject to no pledge or other Lien other than Permitted
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 Seller. 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. Seller is duly organized, validly existing and in good standing
under the laws of the State of Delaware.
3.4 Financial Statements. Exhibit 3.4 consists of the Company's
unaudited financial statements, including balance sheet and statement of
operations for the fiscal year ended March 31, 1999 (including, for comparative
purposes, income statement figures for the fiscal year ended March 31, 1998),
and the unaudited four (4) month interim period ending July 31, 1999 (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 operations for the periods ended at
the
7
<PAGE> 16
respective dates thereof, 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 the date of the most recent Financial
Statement, the Company had, or will have at Closing, no material liabilities,
claims or obligations.
3.6 Absence of Certain Recent Changes. Except as expressly
provided in this Agreement or as set forth on Exhibit 3.6 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 Fifty Thousand Dollars ($50,000.00);
(3) 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 ordinary course of
business;
(4) 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;
(5) suffered any material adverse change in its financial
condition, assets, liabilities, operations, or business;
(6) 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;
(7) 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;
8
<PAGE> 17
(8) paid, discharged or satisfied any claims, liabilities or
obligations (absolute, accrued, contingent or otherwise) other than in the usual
and ordinary course of business;
(9) 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;
(10) 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;
(11) amended, terminated or otherwise altered (whether by
action or inaction) any material contract, agreement or license of significant
value to which the Company is a party, except in the ordinary course of
business;
(12) 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;
(13) canceled, or failed to continue, insurance coverages; or
(14) agreed to take any action described in this Section 3.6.
3.7 Title to Assets. Except as disclosed in Exhibit 3.7, or
disclosed elsewhere in this Agreement, the Company 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,
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(4) liens imposed by law, such as carriers', warehousemen's or
mechanics' liens incurred in good faith in the ordinary course of business,
(5) liens set forth in the Financial Statements as securing
specified debts or otherwise described in Exhibit 3.7,
(6) any Lien approved in writing by Buyer,
(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,
(8) Certain liens in favor of Toronto Dominion (Texas), Inc.,
as Agent for Seller's primary lender group, which shall be released as to the
Receivables upon payment in full of the 60 Day Note and as to the remainder of
the Assets upon payment in full of the 1 Year Note, and
(9) Liens securing the 60 Day Note and the 1 Year Note.
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
3.7. The owned personal property included in the Assets is subject to no Liens
except the security interests of record set forth on Exhibit 3.7.
3.8 Real Property. Except as disclosed on Exhibit 3.8:
(1) The Company enjoys peaceful and undisturbed possession of
its Real Property. To the best of Seller's knowledge, 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 Seller 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.
(2) Seller does not know of any building, use or deed
restrictions relating to the Real Property that are not of public record.
(3) To the best of Seller's knowledge, there are no unrecorded
easements relating to the Real Property known to Seller, or special assessments
or proposed special assessments of which written notice has been given relating
to the Real Property, and no
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federal, state or local taxing authority has asserted any tax deficiency, lien
or assessment against the Real Property which has not been paid.
(4) 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.
(5) 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.
3.9 Contracts. Exhibit 3.9 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 Fifty Thousand Dollars ($50,000.00) in the aggregate (herein, the
"CONTRACTS"). 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, and there are no outstanding disputes
thereunder. Except as noted in Exhibit 3.9, 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 3.9 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) employee collective bargaining agreement or other contract
with any labor union;
(2) covenant not to compete;
(3) (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 One Hundred Thousand
Dollars ($100,000.00), and which is not terminable by the Company for a cost of
less than Fifty Thousand Dollars ($50,000.00);
(4) 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 Fifty Thousand Dollars
($50,000.00) (other than (i) endorsements for the purpose of collection in the
ordinary course of business, (ii) agreements or contracts
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<PAGE> 20
between the Company and Seller, and (iii) advances to employees of the Company
in the ordinary course of business);
(5) 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;
(6) 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 Ten Thousand Dollars ($10,000.00) and is not terminable
by the Company for a cost of less than Ten Thousand Dollars ($10,000.00); or
(7) 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.
3.10 Defaults. Except as disclosed in Exhibit 3.10 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 Charter or bylaws of the
Company. Except as disclosed in Exhibit 3.10, 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 Charter or bylaws 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.
3.11 Inventory. Substantially all Inventory (not disposed of in the
ordinary course), consists of a quality and quantity generally usable and
saleable in the ordinary course of business.
3.12 Receivables. Except as set forth in Exhibit 3.12, 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.
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3.13 Permits and Licenses. The Company holds all material permits,
licenses or similar authorizations necessary with respect to the operation or
ownership of the Hospital. 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.
3.14 Bank Accounts. Exhibit 3.14 is a true and complete list as of the
date hereof of all banking institutions in which the Company has accounts, plus
the account numbers thereof.
3.15 Litigation. Except as set forth in Exhibit 3.15: (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 Seller 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.
3.16 Court Orders, Decrees and Laws. There is no 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 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 3.16, to the best of Seller's
knowledge, no governmental authorities are presently conducting proceedings
against the Company and no such investigation or proceeding is pending or been
threatened in writing.
3.17 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. Except as otherwise
disclosed in this Agreement or disclosed in Exhibit 3.17A, 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. Except as otherwise disclosed in this Agreement or
disclosed in Exhibit 3.17B, there are no pending tax examinations of which
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Seller has knowledge, nor has the Company received a revenue agent's report
asserting a tax deficiency. Seller has no knowledge of any basis for any taxing
authority to claim or assess any amount of additional taxes against the Company.
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 has not been a member of an affiliated
group (as defined in ss.1504(a) of the Code) other than one of which Seller is
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.
3.18 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.
3.19 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 have been made available to Buyer. A
schedule setting forth the audit status of such Medicare Cost Reports is set
forth in Exhibit 3.19A. 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. Seller does 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 3.19B or
identified in the Financial Statements or otherwise disclosed herein.
3.20 Environmental Matters. Except as disclosed on (i) the Asbestos
Survey of the 1972, 1974 and 1981 Additions relating to Eastwood Hospital, Inc.,
prepared by Williams & Associates, Inc., dated March 7, 1996; (ii) the Soil
Sampling & Analysis dated August 30, 1988, prepared by Mid South Operations
Environmental Engineering Division of Certified Engineering & Testing Co., Inc.;
(iii) Service Order Agreement VacuTract Leak Detection including test report
dated June 26, 1996, prepared by Tanknology; (iv) Environmental Audit with
Additional Requested Services for Eastwood Medical Center dated April 21, 1997
prepared by Williams & Associates, Inc.; or (v) Exhibit 3.20:
(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 Seller, by any other person or entity at any
time) to handle, treat, store
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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 Seller, 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.
3.21 ERISA.
(1) Except as listed in Exhibit 3.21, 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 Seller nor the Company maintains an "employee pension
benefit plan" as defined under ERISA. Buyer acknowledges that the Company will
cease to be able to participate in certain of these plans, including the New
American Healthcare Corporation 401(K) Plan, once the Company is no longer a
subsidiary of Seller.
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(2) With respect to all of the plans listed in Exhibit 3.21,
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 all contract administration agreements between Seller or the Company
and third party administrators, (v) copies of all participant-related forms
currently in use in connection with such plans including, without limitation,
salary reduction agreements and beneficiary designations and (vi)
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 Company's ownership of the Hospital.
(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.
3.22 Employee Matters. Included as Exhibit 3.22A is a list of all
employees of the Company (or employees of Seller based at the Hospital, if any)
whose total annual compensation (including bonuses) in the last twelve (12)
months was in excess of Fifty Thousand Dollars ($50,000.00), together with their
annual rates of compensation. Except as identified on Exhibit 3.9, no written
employment agreement to which Seller 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 3.22B is a list
of employee benefits of Seller and the Company. Exhibit 3.22C sets forth all
ex-employees of Company utilizing or eligible to use continuation coverage
(health insurance). Exhibit 3.22D 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.
3.23 Insurance; Malpractice. Exhibit 3.23 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 until the consummation of the transactions contemplated by this
Agreement assuming all premiums which become due after the date hereof are paid
in full when due. Buyer acknowledges that the coverages described on Exhibit
3.23 will terminate with respect to the Company as of the Closing Date, except
for the "tail" insurance coverage described in Section 5.13.
3.24 Labor Matters. There are no collective bargaining agreements
with any labor union to which Seller or the Company is a party or by which
Seller or the Company is bound, and they are not currently negotiating with a
labor union. To the best of Seller's knowledge, no employees of Seller or the
Company have ever petitioned for a
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<PAGE> 25
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
Seller or the Company currently pending before the National Labor Relations
Board. There is no labor strike, dispute, slowdown or stoppage actually pending
or, to Seller's knowledge, threatened against or affecting Seller or the
Company. No employee grievance which might have a material adverse effect on
Seller 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 (3) years. Seller 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.
3.25 Certain Representations With Respect to the Hospital. The
Hospital is duly accredited as a general hospital by the Joint Commission on
Healthcare Organizations. The Hospital is qualified for participation in the
Federal Medicare Program.
3.26 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.
3.27 Finders and Brokers. Seller shall be responsible for any
finders or brokers engaged by Seller, in connection with the transactions
described herein.
3.28 Authority; Binding Effect. Seller has the full corporate
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 to approve the actions of Seller 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 Seller, 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 Seller, upon due execution and delivery
thereof, shall constitute the valid and binding obligations of Seller,
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.
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller, which representations and
warranties shall be true and correct on the date hereof, and on Closing, as
follows:
4.1 Authority. 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 under: (a) 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; (b) any judgment, decree, order, regulation or rule of any court
or regulatory authority, or (c) 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.
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.
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ARTICLE V. COVENANTS OF PARTIES
5.1 Preservation of Company's Business and Assets. From the date
hereof until the Closing, Seller shall use its best efforts to 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 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. Seller shall use their best efforts to
obtain all documents called for by this Agreement. From and after the date of
this Agreement until Closing, Seller shall cause the Company to maintain and
keep the Assets in good order and repair. Buyer and Seller shall use best
efforts to facilitate the consummation of the transactions contemplated by this
Agreement.
5.2 Absence of Material Change. From the date hereof until the
Closing, Seller 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, Seller 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 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, Seller shall cause the Company to
direct such third parties to promptly provide them to Buyer. Copies of documents
furnished to Buyer will be returned by Buyer upon request if the transaction is
not consummated. Seller 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,
Seller 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 Seller's 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
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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 Seller's 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 Seller of such proposed
destruction or disposal. If Seller desires to obtain any of such documents, 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 Seller, their 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, 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 Seller 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, 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 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.
(4) Seller shall 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 [Deleted]
5.5 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; provided, however, in the
event of a casualty which is reasonably anticipated to be in excess of One
Million Dollars ($1,000,000.00), Buyer or Seller may elect to terminate this
Agreement by providing written notice to the other party within thirty (30) days
of the occurrence of said casualty. If neither party terminates this Agreement,
the parties shall negotiate a mutually acceptable reduction to the Purchase
Price.
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5.6 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
business judgment materially adversely affects the Assets, then Buyer or Seller
may elect to terminate this Agreement in its entirety by providing written
notice to the other party. If neither party terminates this Agreement, they
shall close with respect to the Assets less that part which is condemned or
threatened to be condemned with a mutually acceptable reduction in the Purchase
Price to be negotiated by Buyer and Seller.
5.7 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.
5.8 Preserve Accuracy of Representations and Warranties. Seller
shall refrain from and shall cause the Company to refrain from taking any action
which would render any representations and warranties contained in Article III
hereof inaccurate as of Closing. Seller shall promptly notify Buyer of any
lawsuits, claims, administrative actions or other proceedings asserted or
commenced against Seller, 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. Seller 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 Seller's representations and
warranties to be untrue or misleading at any time from the date hereof to
Closing.
5.9 Maintain Books and Accounting Practices. From the date hereof
until the Closing, Seller 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.
5.10 Indebtedness; Liens. From the date hereof until the Closing,
Seller shall not and shall cause the Company to not create, incur, assume,
guarantee or otherwise become liable 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, Seller 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.
5.11 Compliance with Laws and Regulatory Consents. From the date
hereof until the Closing, Seller shall cause the Company to comply with all
applicable statutes, laws ordinances and regulations; keep, hold and maintain
all certificates, accreditations, licenses, and other permits necessary for the
business and operation of the Hospital; 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.
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5.12 No Merger or Consolidation. From the date hereof until the
Closing, Seller 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.
5.13 Maintain Insurance Coverage. From the date hereof until the
Closing, Seller 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 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 shall cause the Company to obtain, at Seller's
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
One Million Dollars ($1,000,000.00) per occurrence with a Ten Million Dollars
($10,000,000.00) umbrella. Buyer shall be named as an additional insured on all
insurance policies acquired or maintained by Company pursuant to this Section
5.13 and Seller will provide Buyer reasonable evidence thereof.
From and after the Closing for a period of five (5) years, Buyer shall
cause the Company to maintain at the expense of Company, professional and
general liability coverage with One Million Dollars ($1,000,000.00) primary
limits and Ten Million Dollars ($10,000,000.00) umbrella, specific and
aggregate.
5.14 Medicare, Medicaid and Blue Cross Reporting. From the date
hereof until Closing, Seller 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.
5.15 CDU Payments. The Company and its predecessor previously
billed Medicare for services provided to patients of its Chemical Dependency
Unit under its Medicare cost report (all such services billed prior to Closing
on a cost report basis are herein, the "CDU SERVICES"). The Company should have
billed on a DRG basis and notified Medicare of this. The Company has been
attempting to resolve this issue with Medicare and has been advised to rebill
Medicare for the CDU Services on a DRG basis.
Seller shall indemnify the Company for any sums the Company repays
after Closing with respect to the CDU Services; provided that any amounts
received from rebilling for these CDU Services on a DRG basis shall be credited
against Seller's obligation hereunder, or, at Seller's election, paid to Seller.
Buyer shall provide Seller monthly with
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evidence of amounts received by the Company with respect to the CDU Services and
amounts due from the Company to Medicare with respect to the CDU Services. In
any month where the amounts due to Medicare exceed the amounts received by the
Company, Seller will pay the Company the difference before the later of (i) the
fifth (5th) day of the following month or (ii) five (5) business days after
Seller's receipt of the documentation evidencing these amounts. In any month
where the amounts paid by Medicare with respect to CDU Services exceed amounts
due to Medicare with respect to the CDU Services, Buyer shall cause the Company
to, and the Company shall, pay to Seller such excess on or before the fifth
(5th) day of the following month.
5.16 [Deleted]
5.17 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.
5.18 Tax Matters. The following provisions shall govern the
allocation of responsibility as between Buyer and Seller for certain tax matters
after the Closing:
(1) Tax Periods Ending on or Before the Closing Date. Seller
shall prepare or cause to be prepared and file or cause to be filed on or before
the date such returns are due (taking into account any extensions of time
granted in connection with such filing) all tax returns for the Company for all
periods ending on or prior to the Closing Date that are filed after the Closing
Date. At least twenty (20) business days prior to the due date of each such
return, Seller shall deliver a copy of each such return to Buyer.
(2) Tax Periods Beginning Before and Ending After the Closing
Date. Buyer shall prepare or cause to be prepared and file or cause to be filed
on or before the date such returns are due (taking into account any extensions
of time granted in connection with such filing) all tax returns for the Company
for all tax periods that begin before the Closing Date and end after the Closing
Date.
(3) Cooperation on Tax Matters. Buyer and Seller shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with the filing of tax returns pursuant to this Section 5.18.
(4) Closing Date. Notwithstanding anything contained in this
Agreement to the contrary, Company shall not (and Buyer shall not cause Company
to) take any action on or after the Closing Date that will cause Seller to be
liable for any taxes.
(5) Amended Returns. For tax years commencing before or after
Closing Date, Buyer shall neither amend or cause the Company to amend any
Company tax returns for such tax years nor take positions in tax returns for
such tax years if such amended return or position taken by the Company would
have an adverse effect on any tax liability of Seller or Company without
Seller's advance written consent.
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(6) Controversies. After the Closing Date, Buyer and Seller
each shall promptly notify the other party in writing of the commencement of any
tax audit or administrative or judicial proceeding affecting the taxes of the
Company relating to taxable years commencing before the Closing Date. Such
notice shall include copies of any document received from any taxing authority.
If either Buyer or Seller fails to give the other party prompt notice of an
asserted tax liability as required by this Section, then (a) if the indemnifying
party is precluded by such failure from contesting any asserted tax liability in
the appropriate administrative or judicial forums, then such indemnifying party
shall not have any obligation to indemnify the other party for any loss or
damage arising out of such asserted tax liability, and (b) if the indemnifying
party is not so precluded from contesting such asserted tax liability but such
failure results in a detriment to the indemnifying party, then any amount which
the indemnifying party would otherwise be required to pay pursuant to this
Agreement shall be reduced by the amount of such detriment.
Seller may participate, through counsel of its own choosing
and at its own expense, in any audit, or administrative or judicial proceeding
involving any asserted tax liability with respect to which indemnity may be
sought herein against Seller (any such audit or proceeding relating to an
asserted tax liability is referred to herein collectively as a "CONTEST").
Seller may elect to participate in the portion of the Contest with respect to
which indemnity may be sought. If Seller so elects to participate in the Contest
of an asserted tax liability, Seller shall notify Buyer of its intent to do so,
and Buyer and Seller shall cooperate in good faith and Buyer shall cause the
Company or its successor to cooperate in good faith in each phase of such
Contest. The portion of the Contest with respect to which indemnity may be
sought shall not be settled without the consent of Seller. If Seller elects in
writing not to participate in the Contest, or contests its obligation to
indemnify hereunder, Buyer or the Company may pay, compromise or contest such
asserted tax liability. However, in such case, neither Buyer nor the Company
(including any designated representative of either) may settle or compromise any
asserted tax liability in a manner that would create an indemnification
obligation unless such settlement or compromise would be reasonable in the case
of a person that owned the Company both before and after the Closing Date.
(7) Records. Buyer will maintain and preserve all tax records
and supporting documents of the Company necessary for Seller to establish the
positions taken by the Company on any tax return for any taxable period prior to
and including the Closing Date. Buyer will provide Seller reasonable access to
such records as necessary for Seller to establish any such position in a
Contest. Buyer waives its right to indemnification to the extent its failure
either to adequately maintain and preserve the Company's books and records or to
provide Seller reasonable access to such books and records prejudices Seller's
ability to defend any Contest.
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(8) Allocation of Federal Income Tax Liabilities Among Short
Tax Years. The parties acknowledge that, after the Closing Date, the Company
will cease to be a member of an affiliated group for which a consolidated tax
income tax return will be filed. Under Treas. Reg. ss.1.1502-76(b)(1), the
Company's taxable year will end at the close of business on the Closing Date
("CONSOLIDATED RETURN SHORT YEAR") and a new taxable year will begin on the day
after the Closing Date ("SEPARATE RETURN SHORT YEAR"). The allocation of the
items to be included on the federal income tax return related to the
Consolidated Return Short Year or the federal income tax return related to the
Separate Return Short Year shall be made pursuant to Treas. Reg.
ss.1.1502-76(b)(2)(i). The Company does not intend to elect to make a ratable
allocation of tax items between the Separate Return Short Year and the
Consolidated Return Short Year under Treas. Reg.
ss.1.1502-76(b)(2)(ii).
(9) Allocation of Tax Liability for Straddle Period. For
purposes of this Agreement, in the case of taxes of any nature that are payable
with respect to a taxable period that begins before the Closing Date and ends
after the Closing Date, an allocation of such taxes between said pre Closing
Date period and said post Closing Date period shall be made pursuant to this
Subsection (9). If such taxes are (i) either (x) based upon or related to income
or receipts or (y) imposed in connection with any sale, other transfer or
assignment or any deemed sale, transfer or assignment of property (real or
personal, tangible or intangible), then the portion of such taxes allocable to
the pre Closing Date period shall be deemed equal to the amount that would have
been payable if the taxable year ended on the Closing Date, and (ii) if such
taxes are imposed on a periodic basis with respect to the assets of the Company
or otherwise measured by the level of any item, then the portion of such taxes
allocable to the pre Closing Date period shall be deemed to be the amount of
such taxes for the entire period (or, in the case of such taxes determined on an
arrears basis, the amount of such taxes for the immediately preceding period)
multiplied by a fraction the numerator of which is the number of calendar days
in the portion of such period ending on and including the Closing Date and the
denominator of which is the number of calendar days in the entire period. For
purposes of clause (i) above, any exemption, deduction, credit or other item
that is calculated on an annual basis shall be allocated to the period beginning
before the Closing Date and, pursuant to clause (i) treated as ending on the
Closing Date, based on the pro rata portion of such item determined by
multiplying the total amount of such item times a fraction, the numerator of
which is the number of calendar days in the period up to and including the
Closing Date and the denominator of which is the total number of calendar days
in the entire period.
(10) Refunds. Seller shall be entitled to all refunds of any
taxes of the Company attributable to periods ending on or prior to the Closing
Date and the Company shall cooperate with Seller in filing any claims for
refunds.
(11) IRC Section 338(h)(10) Election. Following the Closing
Date, and not later than the fifteenth day of the ninth month beginning after
the month that includes the Closing Date, Buyer shall, and shall cause the
Company to, cooperate with Seller in the preparation and filing of a joint
election under ss. 338(h)(10) of the Internal Revenue Code
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of 1986, as amended, with respect to the sale of the Stock hereunder. Buyer
shall, and shall cause the Company to, take all such action as Seller may
require in order to give effect to said election for federal, state and local
tax purposes to the greatest extent permitted by law.
5.19 COBRA Coverage. Following Closing, the Company shall continue
to administer COBRA coverage for those employees who have become eligible for
COBRA coverage prior to Closing through the Company's arrangement with Blue
Cross/Blue Shield.
ARTICLE VI. DELETED
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 August 31, 1999 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 September 1, 1999
(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 August 31, 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, Seller shall receive immediately available funds in
the amount of the cash portion of Purchase Price.
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 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, Company 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 Buyer, Company or Seller; (ii) pursuant to
Section 5.5 or 5.6; or (iii) in the event
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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 3, 1999, 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. SELLER'S CONDITIONS TO CLOSE
The obligations of Seller 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 Seller 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, and determinations from the Tennessee 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 entity shall have taken any other action or
made any request of Company, 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.
8.4 Compliance with Article XI. Buyer shall have made to Seller
the deliveries required by Article XI hereof.
8.5 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
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(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.
8.6 Consent of Lender. Seller shall have obtained the consent of
its primary lender group, including said lenders' agreement with respect to the
release of its lien on the Receivables upon the payment of the 60 Day Note and
the remainder of the Assets upon the payment of the 1 Year Note.
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 Seller 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.
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 5.5 and 5.6 hereof shall have
been complied with.
9.3 Regulatory Approvals. Buyer shall have obtained, if necessary,
or have reasonable assurance of obtaining (at its own cost) (a) certification
for participation in the Medicaid programs of the State of Tennessee, and (b)
certification from the appropriate agency of the federal government for
participation in the Medicare program.
9.4 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, body or other entity shall have taken any other action or
made any request of Company, 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.
9.5 Compliance with Article X. Seller shall have made to Buyer the
deliveries required by Article X hereof within the time periods required
thereunder.
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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 the Stock or Assets, or, in any case, to exercise rights of
ownership pursuant thereto.
9.7 Tail Insurance. Seller shall deliver to Buyer evidence of tail
insurance coverage required by Section 5.13 hereof.
9.8 Consent of Lender. Seller shall have obtained the consent of
its primary lender group, including said lenders' agreement with respect to the
release of its lien on the Receivables upon the payment of the 60 Day Note and
the remainder of the Assets upon the payment of the 1 Year Note.
9.9 Employees. At or prior to Closing, Seller shall have
transferred all Hospital senior managers, with the exception of the Hospital's
Administrator, to the Company's payroll.
9.10 Completion of Exhibits. All exhibits to this Agreement will be
completed to the mutual satisfaction of the parties.
ARTICLE X. OBLIGATIONS OF SELLER AT CLOSING
At Closing, Seller shall deliver or cause to be delivered to Buyer, the
following in a form and substance reasonably satisfactory to Buyer:
10.1 Documents Relating to Stock. Seller shall execute,
acknowledge, deliver and cause to be executed, acknowledged and delivered to
Buyer:
(1) Stock certificates, registered in the name of Seller, duly
endorsed by Seller 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. Seller shall deliver to Buyer the
favorable opinion of counsel for Seller and Company, dated as of Closing, in
form and substance reasonably acceptable to Buyer.
10.3 Corporate Good Standing and Corporate Resolution. Seller
shall deliver to Buyer a certificate of existence with respect to the Company
from the Secretary of State
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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 Charter of the Company, and a certified copy of the
resolutions of the Board of Directors 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.
10.4 Closing Certificate. Seller shall deliver to Buyer
certificates of an officer of Seller, dated as of Closing, certifying that (a)
each covenant and obligation of Seller has been complied with, and (b) each
representation and warranty of Seller is true and correct on the Closing as if
made on and as of the Closing.
10.5 Taxes and Other Payments. Seller shall deliver to Buyer:
(1) Receipt or other evidence from the Revenue Department of
the State of Tennessee showing that all liability for sales and use taxes and
employment taxes due from Company have been paid.
(2) Receipt or other evidence from the Tennessee Department of
Unemployment Security evidencing that all contributions under Tennessee
unemployment compensation law due from Company have been paid.
10.6 Tail Insurance. Seller shall deliver evidence of tail
insurance coverage as required by Section 5.13 hereof.
10.7 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 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.
ARTICLE XI. 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:
11.1 Purchase Price; Security Instruments. Buyer shall deliver the
cash portion of the Purchase Price to Seller in immediately available funds.
Buyer shall also execute and deliver to Seller the 60 Day Note, the 1 Year Note,
and the security instruments referred to in Section 2.2 above, together with
such other financing statements and other instruments as Seller may reasonably
request with respect to the security interests described in Section 2.2.
11.2 [Deleted]
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11.3 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.
11.4 Closing Certificate. Buyer shall deliver to Seller a
certificate, 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 survive the date of Closing for a period of two (2) years
after Closing, and shall not be merged into any deeds or other document
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: claims arising from the Excluded Liabilities, claims arising
from a failure to comply with ERISA and other claims arising from employee
benefit matters, claims by third parties whether founded on negligence,
malpractice or other forms of alleged liability for acts, omissions or events,
adjustments under any Medicare cost reports, claims for breach based on the
first sentence of Section 3.28, and claims arising from the failure of the
Company to pay or perform the Continuing Liabilities.
12.2 Indemnification by Seller. Subject to the provisions of
Section 12.4 and Section 12.5, Seller shall 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 Seller of any of its
covenants, obligations, representations or warranties contained in this
Agreement or any certificate or document of Seller 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. 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.
31
<PAGE> 40
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) Seller, its directors,
officers, stockholders, employees and agents 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(ies) against Seller for failure to pay or perform any of the Continuing
Liabilities. The Company further shall indemnify, defend and hold harmless (and
upon demand shall reimburse) Seller, its directors, officers, stockholders,
employees and agents against any and all claims, actions, demands, suits,
proceedings, assessments, judgments, losses, costs and expenses (including
reasonable attorneys' fees and court cost) resulting from the ownership,
licensing, operation, action, inaction or conduct of the Company or the Hospital
relating to periods of time after the Closing, but excluding any Excluded
Liabilities.
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
32
<PAGE> 41
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 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. Notwithstanding any other provision herein, in the event Seller is
determined to have an indemnification obligation to Buyer or the Company
hereunder and amounts are still owed to Seller under the 60 Day Note and/or the
1 Year Note, Seller may, at Seller's election, reduce the amount owed under one
or both of said notes by the amount of said indemnification obligation until
said notes are satisfied in full.
(5) 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 on the one
33
<PAGE> 42
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
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.
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
Seller for indemnification under Sections 12.2 of this Agreement shall be equal
to Two Million Dollars ($2,000,000.00) (the "CAP"); provided, however, that the
following types of claims shall not be subject to the Cap: (i) claims based on
the failure of Seller or the Company to pay any taxes owed with respect to any
period prior to the Closing or (ii) any breach of Section 3.09(7) or 3.18. In
addition, amounts actually paid by Buyer's or Seller's insurance coverage (and
not ultimately paid by the Indemnitor) shall not count towards determining
whether the Cap has been met or exceeded.
(2) Threshold. No party shall have any liability for any
individual claim based on a breach of a representation or warranty contained in
this Agreement if the Indemnitee's total damages with respect to such claim are
Ten Thousand Dollars ($10,000.00) or less.
ARTICLE XIII. RESTRICTIVE COVENANTS
13.1 Covenant Not to Compete. Seller hereby covenants and agrees
with Buyer that during the "NONCOMPETE PERIOD" within the "NONCOMPETE AREA" it
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, or (b) solicit for employment or employ any
person who at Closing remained an employee of Company (other than the Hospital's
CEO, CFO or DNO), 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 area within a
ten (10) 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. In addition, the following events shall not be deemed a violation of
this Section 13.1: (i) the merger of Seller with and/or into an entity that owns
or operates, directly or indirectly, a hospital, medical center, health system
or other related business within the Noncompete Area; or (ii) the acquisition by
Seller of a hospital, medical center, or health system within the Noncompete
Area as a part of a single
34
<PAGE> 43
transaction in which Seller acquires at least two (2) other hospitals, medical
centers or health systems.
13.2 Enforceability. In the event of a breach of Section 13.1
hereof, Seller recognizes 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 Seller.
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 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.
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. Seller shall be
solely responsible for the payment of any fee to any finder, broker, or similar
person engaged by Seller 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 Seller.
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:
35
<PAGE> 44
To Seller, or to the Company prior to Closing:
New American Healthcare Corporation
109 Westpark Drive, Suite 440
Brentwood Tennessee 37027
Attention: President
(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: Michael Hill, Esq.
(615) 251-1059 (Fax)
To Buyer, or to the Company after Closing:
Neil McLean
Craig Watson
c/o Delta Medical Center
3000 Getwell Road
Memphis, Tennessee
(901) 369-8503 (Fax)
with a copy to:
Kim A. Brown, Esq.
Sherrard & Roe, PLLC
424 Church Street, Suite 2000
Nashville, Tennessee 37219-2319
(615) 742-4539 (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.
36
<PAGE> 45
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. This
Agreement shall not confer any rights or remedies upon any person not a party
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.
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 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.
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.
37
<PAGE> 46
14.13 "Knowledge". The phrase, "to Seller's knowledge" or "to the
best of Seller's knowledge," or similar phrase shall mean the actual knowledge
of those individuals listed on attached Exhibit 14.13.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"BUYER":
/s/ Neil G. McLean
--------------------------------------
NEIL G. McLEAN
/s/ Craig B. Watson
--------------------------------------
CRAIG B. WATSON
"SELLER":
NEW AMERICAN HEALTHCARE
CORPORATION
By: /s/ Dana C. McClendon Jr.
-----------------------------------
Title: Senior Vice President
-------------------------------
"COMPANY":
NAHC OF TENNESSEE, INC.
By: /s/ Dana C. McClendon Jr.
-----------------------------------
Title: Vice President
--------------------------------
38
<PAGE> 1
EXHIBIT 10.3
FIRST AMENDMENT TO SECOND
AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT (this "Amendment") to the Second Amended and
Restated Credit Agreement referred to below is made as of July 19, 1999 by and
among NEW AMERICAN HEALTHCARE CORPORATION, a Delaware 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 and THE FINANCIAL INSTITUTIONS PARTY HERETO (collectively,
the "Banks"; individually, a "Bank").
WITNESSETH
WHEREAS, the Borrower, the Agent, the Issuing Bank and the Banks are
party to that certain Second Amended and Restated Credit Agreement, dated as of
May 14, 1999 (the "Credit Agreement"); and
WHEREAS, the Agent, the Issuing Bank and the Banks have agreed to amend
the Credit Agreement in the manner, and on the terms and conditions, provided
for herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. CERTAIN DEFINITIONS. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Credit
Agreement.
2. AMENDMENT. Section 7.18(a)(iii) of the Credit Agreement is hereby
amended by inserting the text "ninety percent (90%) of" at the beginning of
clause (A) thereof.
3. RATIFICATION OF CREDIT AGREEMENT. Except as hereby amended, the
provisions of the Credit Agreement are hereby in all respects ratified and
confirmed.
4. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
5. EFFECTIVENESS. This Amendment shall become effective upon receipt by
the Agent of nine original copies of this Amendment duly executed and delivered
by the Borrower, the Agent, the Issuing Bank and the Majority Banks.
<PAGE> 2
6. COUNTERPARTS. This Amendment 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.
[SIGNATURE PAGES FOLLOW]
<PAGE> 3
IN WITNESS WHEREOF, each of the parties hereto has executed this
Amendment as of date and year first above written.
NEW AMERICAN HEALTHCARE CORP.
By: /s/ Dana C. McClendon, Jr.
------------------------------------
Name: Dana C. McClendon, Jr.
Title: SVP-CAO
TORONTO DOMINION (TEXAS), INC.,
As Agent and a Bank
By:
------------------------------------
Name: Jano Mott
Title: Vice President
THE TORONTO-DOMINION BANK,
as Issuing Bank
By:
------------------------------------
Name: Jano Mott
Title: Vice President
NATIONSBANK, N.A.
By:
------------------------------------
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE> 4
FIRST UNION NATIONAL BANK
By:
------------------------------------
Name:
Title:
FIRST AMERICAN NATIONAL BANK
By: /s/ Sandy Hamrick
------------------------------------
Name: Sandy Hamrick
Title: Senior Vice President
NATIONAL CITY BANK OF KENTUCKY
By:
------------------------------------
Name:
Title:
BANK ONE, N.A.
By:
------------------------------------
Name:
Title:
AMSOUTH BANK
By:
------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.4
SECOND AMENDMENT AND WAIVER TO SECOND
AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT AND WAIVER (this "Amendment") to the Second
Amended and Restated Credit Agreement referred to below is made as of July 28,
1999 by and among NEW AMERICAN HEALTHCARE CORPORATION, a Delaware 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 and THE FINANCIAL INSTITUTIONS PARTY HERETO (collectively,
the "Banks"; individually, a "Bank").
WITNESSETH
WHEREAS, the Borrower, the Agent, the Issuing Bank and the Banks are
party to that certain Second Amended and Restated Credit Agreement, dated as of
May 14, 1999 (as amended, supplemented or otherwise modified from time to time,
prior to the date hereof, the "Credit Agreement");
WHEREAS, the Agent, the Issuing Bank and the Banks have agreed to amend
the Credit Agreement in the manner, and on the terms and conditions, provided
for herein; and
WHEREAS, the Agent, the Issuing Bank and the Banks have also agreed to
waive compliance with certain financial covenants in the manner, and on the
terms and conditions, provided for herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. CERTAIN DEFINITIONS. Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to them in the Credit Agreement.
2. AMENDMENT OF GRACE PERIODS. The text "thirty (30)" in each of
Sections 9.1(b), (c), (e) and (f) is hereby deleted and the text "ten (10)" is
hereby inserted in lieu thereof.
3. WAIVER OF FINANCIAL COVENANTS. The Banks hereby waive any Event of
Default which arises solely from the failure of Borrower (a) to maintain a Fixed
Charge Coverage Ratio of not less than 1.10 to 1.00 for the fiscal quarter ended
June 30, 1999 and (b) to have EBITDAR of at least $714,000 for the month ended
June 30, 1999, in each case as required by Section 7.18(a) of the Credit
Agreement.
4. Delivery of Certain Documents. Notwithstanding anything to the
contrary contained in the Credit Agreement, Borrower shall deliver to the Agent,
with sufficient copies for
<PAGE> 2
distribution by the Agent to each of the Banks, on or before August 20, 1999,
the portion of the unaudited Board of Director package for the month ended July
31, 1999 relating to Borrower's compliance with the minimum EBITDAR covenant set
forth in Section 7.18(a)(iv) of the Credit Agreement (including, without
limitation, a statement of revenues and EBITDA and EBITDAR), which package is
required to be delivered to the Agent pursuant to Section 7.2(a) of the Credit
Agreement. The parties hereto acknowledge and agree that any failure to comply
with the foregoing shall constitute an immediate Event of Default for any and
all purposes under the Credit Agreement and the other Loan Documents.
5. RATIFICATION OF CREDIT AGREEMENT. Except as expressly provided
herein, the Credit Agreement and all other Loan Documents shall continue to be
in full force and effect and are hereby in all respects ratified and confirmed.
6. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to the Banks that it is not aware of any Incipient Default or Event of
Default. Borrower acknowledges that the Banks are relying on the foregoing
representation and warranty in making their decision to enter into this
Amendment.
7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
8. Effectiveness. This Amendment shall become effective upon receipt by
the Agent of nine original copies of this Amendment duly executed and delivered
by the Borrower, the Agent, the Issuing Bank and the Majority Banks.
9. COUNTERPARTS. This Amendment 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.
[SIGNATURE PAGES FOLLOW]
<PAGE> 3
IN WITNESS WHEREOF, each of the parties hereto has executed this
Amendment as of date and year first above written.
NEW AMERICAN HEALTHCARE CORP.
By: /s/ Dana C. McClendon, Jr.
------------------------------------
Name: Dana C. McClendon, Jr.
Title: SVP-CAO
TORONTO DOMINION (TEXAS), INC.,
As Agent and a Bank
By:
------------------------------------
Name:
Title:
THE TORONTO-DOMINION BANK,
as Issuing Bank
By:
------------------------------------
Name:
Title:
NATIONSBANK, N.A.
By:
------------------------------------
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE> 4
FIRST UNION NATIONAL BANK
By: /s/ James A. Hobensack
------------------------------------
Name: James A. Hobensack
Title: Senior Vice President
FIRST AMERICAN NATIONAL BANK
By:
------------------------------------
Name:
Title:
NATIONAL CITY BANK OF KENTUCKY
By:
------------------------------------
Name:
Title:
BANK ONE, N.A.
By:
------------------------------------
Name:
Title:
AMSOUTH BANK
By:
------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.5
THIRD AMENDMENT TO SECOND
AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT (this "Amendment") to the Second Amended and
Restated Credit Agreement referred to below is made as of August 20, 1999 by and
among NEW AMERICAN HEALTHCARE CORPORATION, a Delaware 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 and THE FINANCIAL INSTITUTIONS PARTY HERETO (collectively,
the "Banks"; individually, a "Bank").
WITNESSETH
WHEREAS, the Borrower, the Agent, the Issuing Bank and the Banks are
party to that certain Second Amended and Restated Credit Agreement, dated as of
May 14, 1999 (as amended, supplemented or otherwise modified from time to time,
prior to the date hereof, the "Credit Agreements");
WHEREAS, the Agent, the Issuing Bank and the Banks have agreed to amend
the Credit Agreement in the manner, and on the terms and conditions, provided
for herein; and
WHEREAS, the Agent, the Issuing Bank and the Banks have also agreed to
waive compliance with certain financial covenants in the manner, and on the
terms and conditions, provided for herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. CERTAIN DEFINITIONS. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Credit
Agreement.
2. AMENDMENTS. (a) Section 7.18(a)(i) of the Credit Agreement is hereby
amended by deleting the last sentence thereof in its entirety and inserting in
lieu thereof a new sentence to read as follows:
"Borrower shall not be required to comply with this SECTION 7.18(a)(i)
until the earlier of (A) December 31, 1999 and (B) the Agent's
timely receipt of the mandatory permanent reduction in the amount of
Twelve Million Dollars ($12,000,000), payable in accordance with
SECTION 2.3(c)(iv) hereof."
<PAGE> 2
(b) Section 7.18(a)(ii) of the Credit Agreement is hereby
amended by inserting immediately after the word "below" the following
parenthetical: "(other than the fiscal quarter ending September 30, 1999)".
(c) Section 7.18(a)(iv) of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
"(iv) Have, at the end of each month set forth below, EBITDAR
for the month then ended of not less than the following, provided that
if in any month the amount of such EBITDAR exceeds the amount
designated below as "budget" EBITDAR, Borrower may carryover such
excess amount to the immediately succeeding month in calculating
"required" EBITDAR, provided that such carryover may only be used in
such succeeding month and for purposes of future carryovers shall be
deemed to have been applied first.
<TABLE>
<CAPTION>
Month Budget Requirement
----- ------ -----------
<S> <C> <C>
July-99 $1,167,000 $ 856,000
August-99 $1,213,000 $ 896,000
September-99 $1,440,000 $1,079,000
October-99 $1,326,000 $ 990,000
November-99 $1,353,000 $1,008,000
December-99 $1,491,000 $1,119,000
January-00 $1,498,000 $1,125,000
February-00 $1,781,000 $1,351,000
</TABLE>
Notwithstanding anything, to the contrary, solely for purposes of
calculating compliance with this SECTION 7.18(A)(IV), EBITDAR shall not
include any EBITDAR of Borrower and its Subsidiaries which is
attributable to the Davenport Medical Center, the Delta Medical Center
and the Picuyune Hospital. Upon the earlier of (A) December 31, 1999
and (B) the Agent's timely receipt of the mandatory permanent reduction
in the amount of Twelve Million Dollars ($12,000,000), payable in
accordance with SECTION 2.3(C)(IV) hereof, Borrower shall not be
required to comply with this SECTION 7.18(A)(IV)."
3. RATIFICATION OF CREDIT AGREEMENT. Except as amended hereby, the
Credit Agreement and all other Loan Documents shall continue to be in full force
and effect and are hereby in all respects ratified and confirmed.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to the Banks that it is not aware of any Incipient Default or Event of
Default. Borrower acknowledges that the Banks are relying on the foregoing
representation and warranty in making their decision to enter into this
Amendment.
<PAGE> 3
5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
6. EFFECTIVENESS. This Amendment shall become effective upon receipt by
the Agent of (a) nine original copies of this Amendment duly executed and
delivered by the Borrower, the Agent, the Issuing Bank and the Majority Banks
and (b) amendment fees (in immediately available funds) for the account of the
Banks signatory hereto, based upon their respective Commitments under the Credit
Agreement, determined at the rate of 10.0 basis points for each such Bank,
which fees shall be nonrefundable when paid.
7. COUNTERPARTS. This Amendment 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.
[SIGNATURE PAGES FOLLOW]
<PAGE> 4
IN WITNESS WHEREOF, each of the parties hereto has executed this
Amendment as of date and year first above written.
NEW AMERICAN HEALTHCARE CORP.
By: /s/ Dana C. McClendon Jr.
------------------------------------
Name: Dana C. McClendon Jr.
Title: Senior Vice President
TORONTO DOMINION (TEXAS), INC.,
As Agent and a Bank
By:
------------------------------------
Name:
Title:
THE TORONTO-DOMINION BANK,
as Issuing Bank
By:
------------------------------------
Name:
Title:
BANK OF AMERICA, N.A. F/K/A
NATIONSBANK, N.A.
By:
------------------------------------
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE> 5
FIRST UNION NATIONAL BANK
By:
------------------------------------
Name:
Title:
FIRST AMERICAN NATIONAL BANK
By: /s/ Sandy Hamrick
------------------------------------
Name: Sandy Hamrick
Title: Senior Vice President
NATIONAL CITY BANK OF KENTUCKY
By:
------------------------------------
Name:
Title:
BANK ONE, N.A.
By:
------------------------------------
Name:
Title:
AMSOUTH BANK
By:
------------------------------------
Name:
Title:
<PAGE> 6
The undersigned Guarantors hereby (i) acknowledge
and consent to the amendments to the Credit
Agreement effected by this Amendment and (ii)
confirm and agree that their obligations under their
respective Guaranties shall continue without any diminution
thereof and shall remain in full force and effect on and after
the effectiveness of this Amendment.
NAHC OF MISSOURI, INC.
NAHC OF TENNESSEE, INC.
NAHC OF TEXAS, INC.
NAHC II OF TEXAS, INC.
NAHC FINANCIAL, INC.
NAHC OF IOWA, INC.
NAHC OF OREGON, INC.
NAHC II OF OREGON, INC.
NAHC III OF OREGON, INC.
NAHC OF WYOMING, INC.
NAHC COMPANY, INC.
NAHC GEORGIA HOLDINGS, INC.
NAHC OF MISSISSIPPI, INC.
NAHC OF WASHINGTON, INC.
MEMORIAL HOSPITAL OF ADEL, INC.
By: /s/ Dana C. McClendon Jr.
----------------------------------
Name: Dana C. McClendon Jr.
Title: Vice President-Sec
NAHC LIMITED PARTNERSHIP
By: New American Healthcare Corporation,
Its General Partner
By: /s/ Dana C. McClendon Jr.
----------------------------------
Name: Dana C. McClendon Jr.
Title: Senior Vice President
<PAGE> 7
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
By: WCAS VII Partners,
as General Partner
By:
----------------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.6
FOURTH AMENDMENT AND WAIVER TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS FOURTH AMENDMENT AND WAIVER (this "Amendment") to the Second Amended
and Restated Credit Agreement referred to below is made as of October 14, 1999
by and among NEW AMERICAN HEALTHCARE CORPORATION, a Delaware 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 and THE FINANCIAL INSTITUTIONS PARTY HERETO
(collectively, the "Banks"; individually, a "Bank").
W I T N E S S E T H
WHEREAS, the Borrower, the Agent, the Issuing Bank and the Banks are party
to that certain Second Amended and Restated Credit Agreement, dated as of May
14, 1999 (as amended, supplemented or otherwise modified from time to time,
prior to the date hereof, the "Credit Agreement"); and
WHEREAS, the Agent, the Issuing Bank and the Banks have agreed to amend,
and to waive certain violations of, the Credit Agreement in the manner, and on
the terms and conditions, provided for herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. CERTAIN DEFINITIONS. Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to them in the Credit Agreement.
2. AMENDMENTS.
(a) The definition of "Permitted Purposes" set forth in Section 1.1 of
the Credit Agreement is hereby amended as of the Amendment Effective Date (as
hereinafter defined) by inserting the following new sentence as the end thereof:
"Notwithstanding the foregoing, no Capital Expenditure in an amount in
excess of $100,000 shall be deemed to be a Permitted Purpose unless
otherwise approved by the Agent."
(b) Section 7.2 of the Credit Agreement is hereby amended as of the
Amendment Effective Date by inserting the following new subsection at the end
thereof:
<PAGE> 2
"(u) To the Agent, with sufficient copies for distribution by the
Agent to each of the Banks, not later than Friday of each week, commencing
on October 22, 1999, a rolling cash flow forecast for the succeeding
13-week period in the form attached hereto as EXHIBIT 7.2(u)."
(c) Exhibit 2.1(c) to the Credit Agreement is hereby amended as of the
Amendment Effective Date by deleting such Exhibit in its entirety and inserting
in lieu thereof a new Exhibit in the form attached hereto as Exhibit 2.1(c).
(d) The Credit Agreement is hereby further amended as of the Amendment
Effective Date by inserting a new Exhibit 7.2(u) immediately following Exhibit
4.2-2 to the Credit Agreement.
3. CAPITAL EXPENDITURES BUDGET. On or before October 20, 1999, the
Borrower shall deliver to the Agent a revised Capital Expenditures Budget in
form and substance satisfactory to the Agent (the "Budget"). The parties hereto
agree that failure to deliver the same shall constitute an immediate Event of
Default for any and all purposes under the Credit Agreement and the other Loan
Documents. Upon delivery of the Budget, Schedule 8.11 to the Credit Agreement
shall be deemed to be amended as of such date by deleting such Schedule in its
entirety and inserting in lieu thereof a new Schedule in the form of the Budget.
4. WAIVER. The Majority Banks hereby waive any Event of Default which
arises solely from the failure of Borrower to have EBITDAR of at least $896,000
for the month ended August 31, 1999, as required by Section 7.18(a)(iv) of the
Credit Agreement.
5. RATIFICATION OF CREDIT AGREEMENT. The Credit Agreement and the other
Loan Documents shall continue to be in full force and effect in accordance with
their respective terms and, except as expressly provided herein, shall be
unmodified. In addition, except as expressly provided herein, this Amendment
shall not be deemed a waiver of any term or condition of any Loan Document by
the Agent or the Banks with respect to any right or remedy which the Agent or
the Banks may now or in the future have under the Loan Documents, at law or in
equity or otherwise or be deemed to prejudice any rights or remedies which the
Agent or the Banks may now have or may have in the future under or in
connection with any Loan Document or under or in connection with any Incipient
Default or Event of Default which may now exist or which may occur after the
date hereof. Except as expressly provided herein, the Credit Agreement and all
other Loan Documents are hereby in all respects ratified and confirmed.
6. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and
warrants to the Banks that it is not aware of any Incipient Default or Event of
Default other than those expressly waived pursuant hereto or otherwise
disclosed in writing to the Agent. The Borrower acknowledges that the Banks are
relying on the foregoing representation and warranty in making their decision
to enter into this Amendment.
2
<PAGE> 3
7. OUTSTANDING INDEBTEDNESS; WAIVER OF CLAIMS. The Borrower hereby
acknowledges and agrees that as of October 13, 1999 the outstanding principal
amount of the Loan is $102,733,072.26 and that such principal amount is payable
pursuant to the Credit Agreement without defense, offset, withholding,
counterclaim or deduction of any kind. The Borrower hereby further acknowledges
that it has no Claims (as hereinafter defined) against the Agent, the Issuing
Bank or the Banks and their respective employees, agents, representatives,
consultants, attorneys, fiduciaries, servants, officers, directors, partners,
predecessors, subsidiary corporations, parent corporations and related
corporate divisions and their respective successors and assigns (all of the
foregoing being the "Indemnified Persons") and hereby waives, releases, remises
and forever discharges Agent, the Issuing Bank, each Bank and each other
Indemnified Person from any and all Claims of any and every character, known or
unknown, direct and/or indirect, at law or in equity, of whatsoever kind or
nature, whether heretofore or hereafter arising, for or because of any matter
or things done, omitted or suffered to be done by any Indemnified Person prior
to and including the date hereof, and in any way directly or indirectly arising
out of or in any way connected to the Credit Agreement or any other Loan
Document. For purposes hereof, "Claims" shall mean all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits or claims
which may be instituted or asserted against or incurred by such Indemnified
Person as the result of credit having been extended under the Credit Agreement
or any other Loan Document or otherwise arising in connection with the
transactions contemplated thereunder.
8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
9. EFFECTIVENESS. This Amendment shall become effective as of the date
(the "Amendment Effective Date") upon which the Agent confirms to the Borrower
that each of the following conditions, in the judgment of the Agent, has been
satisfied in full:
(a) The Agent shall have received nine (9) original copies of this
Amendment duly executed and delivered by the Borrower, the Agent, the Issuing
Bank and the Majority Banks and acknowledged by the Guarantors listed on the
signatures pages hereto.
(b) The Loan Request submitted to the Agent on September 27, 1999 shall
have been revised in a manner satisfactory to the Agent and resubmitted to the
Agent.
10. COUNTERPARTS. This Amendment 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.
[SIGNATURE PAGES FOLLOW]
3
<PAGE> 4
IN WITNESS WHEREOF, each of the parties hereto has executed this
Amendment as of date and year first above written.
NEW AMERICAN HEALTHCARE CORPORATION
By: /s/ Dana C. McClendon, Jr.
------------------------------------
Name: Dana C. McClendon, Jr.
Title: SVP-CAO
TORONTO DOMINION (TEXAS), INC.,
As Agent and a Bank
By:
------------------------------------
Name:
Title:
THE TORONTO-DOMINION BANK,
as Issuing Bank
By:
------------------------------------
Name:
Title:
BANK OF AMERICA, N.A. f/k/a
NATIONSBANK, N.A.
By:
------------------------------------
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
4
<PAGE> 5
FIRST UNION NATIONAL BANK
By: /s/ James A. Hobensack
------------------------------------
Name: JAMES A. HOBENSACK
Title: SENIOR VICE PRESIDENT
FIRST AMERICAN NATIONAL BANK
By:
------------------------------------
Name:
Title:
NATIONAL CITY BANK OF KENTUCKY
By:
------------------------------------
Name:
Title:
BANK ONE, N.A.
By:
------------------------------------
Name:
Title:
AMSOUTH BANK
By:
------------------------------------
Name:
Title:
5
<PAGE> 6
The undersigned Guarantors hereby (i) acknowledge
and consent to the amendments to the Credit
Agreement effected by this Amendment and (ii)
confirm and agree that their obligations under their
respective Guaranties shall continue without any diminution
thereof and shall remain in full force and effect on and after
the effectiveness of this Amendment.
NAHC OF MISSOURI, INC.
NAHC OF TEXAS, INC.
NAHC II OF TEXAS, INC.
NAHC FINANCIAL, INC.
NAHC OF IOWA, INC.
NAHC OF OREGON, INC.
NAHC II OF OREGON, INC.
NAHC III OF OREGON, INC.
NAHC OF WYOMING, INC.
NAHC COMPANY, INC.
NAHC GEORGIA HOLDINGS, INC.
NAHC OF MISSISSIPPI, INC.
NAHC OF WASHINGTON, INC.
MEMORIAL HOSPITAL OF ADEL, INC.
By: /s/ Dana C. McClendon, Jr.
--------------------------
Name: Dana C. McClendon, Jr.
Title: VP-Secretary
NAHC LIMITED PARTNERSHIP
By: New American Healthcare Corporation,
Its General Partner
By: /s/ Dana C. McClendon, Jr.
--------------------------
Name: Dana C. McClendon, Jr.
Title: SVP-CAO
6
<PAGE> 7
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
By: WCAS VII Partners,
as General Partner
By: /s/
--------------------------
Name:
Title: General Partner
7
<PAGE> 1
EXHIBIT 10.7
FIFTH AMENDMENT TO SECOND
AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIFTH AMENDMENT (this "Amendment") to the Second Amended and
Restated Credit Agreement referred to below is made as of October 28, 1999 by
and among NEW AMERICAN HEALTHCARE CORPORATION, a Delaware 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 and THE FINANCIAL INSTITUTIONS PARTY HERETO
(collectively, the "Banks", individually, a "Bank").
W I T N E S S E T H
WHEREAS, the Borrower, the Agent, the Issuing Bank and the Banks are
party to that certain Second Amended and Restated Credit Agreement, dated as of
May 14, 1999 (as amended, supplemented or otherwise modified from time to time,
prior to the date hereof, the "Credit Agreement");
WHEREAS, the Agent, the Issuing Bank and the Majority Banks have agreed
to amend the Credit Agreement in the manner, and on the terms and conditions,
set forth herein; and
WHEREAS, the Agent, the Issuing Bank and the Majority Banks have agreed
to consent, on the terms and conditions provided for herein, to the postponement
of a certain mandatory prepayment required under the Credit Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. CERTAIN DEFINITIONS. Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to them in the Credit Agreement.
2. AMENDMENT. Section 8.11 of the Credit Agreement is hereby amended by
deleting the first sentence thereof in its entirety and inserting in lieu
thereof a new sentence to read as follows:
"The Borrower and its Subsidiaries shall not during any fiscal year
make Capital Expenditures other than in the amounts, at the times
and for the purposes identified in the Capital Expenditures Budget
attached hereto as SCHEDULE 8.11, provided, however, that, with the
prior written consent of Agent, Borrower may make Capital
Expenditures for items not identified in the Capital Expenditure
<PAGE> 2
Budget and/or in excess of the amounts set forth therein up to an
aggregate amount not to exceed $250,000 in any fiscal year."
3. CONSENT. In accordance with Section 2.3(c)(iv) of the Credit
Agreement, the Majority Banks hereby consent to the extension of the mandatory
prepayment of $12,000,000, which is otherwise due on or before October 31, 1999,
to February 28, 2000.
4. RATIFICATION OF CREDIT AGREEMENT. The Credit Agreement and the other
Loan Documents shall continue to be in full force and effect in accordance with
their respective terms and, except as expressly provided herein, shall be
unmodified. In addition, except as expressly provided herein, this Amendment
shall not be deemed a waiver of any term or condition of any Loan Document by
the Agent or the Banks with respect to any right or remedy which the Agent or
the Banks may now or in the future have under the Loan Documents, at law or in
equity or otherwise or be deemed to prejudice any rights or remedies which the
Agent or the Banks may now have or may have in the future under or in connection
with any Loan Document or under or in connection with any Incipient Default or
Event of Default which may now exist or which may occur after the date hereof.
Except as expressly provided herein, the Credit Agreement and all other Loan
Documents are hereby in all respect ratified and confirmed.
5. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to the Banks that it is not aware of any Incipient Default or Event of
Default except for those disclosed in writing to Agent. Borrower acknowledges
that the Banks are relying on the foregoing representation and warranty in
making their decision to enter into this Amendment.
6. OUTSTANDING INDEBTEDNESS; WAIVER OF CLAIMS. The Borrower hereby
acknowledges and agrees that as of October 28, 1999 the outstanding principal
amount of the Loan is $102,733,072.26 and that such principal amount is payable
pursuant to the Credit Agreement without defense, offset, withholding,
counterclaim or deduction of any kind. The Borrower hereby further acknowledges
that it has no Claims (as hereinafter defined) against the Agent, the Issuing
Bank or the Banks and their respective employees, agents, representatives,
consultants, attorneys, fiduciaries, servants, officers, directors, partners,
predecessors, subsidiary corporations, parent corporations and related corporate
divisions and their respective successors and assigns (all of the foregoing
being the "Indemnified Person") and hereby waives, releases, remises and forever
discharges Agent, the Issuing Bank, each Bank and each other Indemnified Person
from any and all Claims of any and every character, known or unknown, direct
and/or indirect, at law or in equity, of whatsoever kind or nature, whether
heretofore or hereafter arising, for or because of any matter or things done,
omitted or suffered to be done by any Indemnified Person prior to and including
the date hereof, and in any way directly or indirectly arising out of or in any
way connected to the Credit Agreement or any other Loan Document. For purposes
hereof, "Claims" shall mean all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits or claims which may be instituted or
asserted against or incurred by such Indemnified Person as the result of credit
having been extended under the Credit Agreement or
<PAGE> 3
any other Loan Document or otherwise arising in connection with the transactions
contemplated thereunder.
7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
8. EFFECTIVENESS. This Amendment shall become effective upon receipt by
the Agent of nine original copies of this Amendment duly executed and delivered
by the Borrower, the Agent, the Issuing Bank and the Majority Banks.
9. COUNTERPARTS. This Amendment 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.
[SIGNATURE PAGES FOLLOW]
<PAGE> 4
IN WITNESS WHEREOF, each of the parties hereto has executed this
Amendment as of date and year first above written.
NEW AMERICAN HEALTHCARE CORPORATION
By: /s/ Dana C. McClendon, Jr.
------------------------------------
Name: Dana C. McClendon, Jr.
Title: Senior Vice President-CAO
TORONTO DOMINION (TEXAS), INC.,
As Agent and a Bank
By:
------------------------------------
Name:
Title:
THE TORONTO-DOMINION BANK,
as Issuing Bank
By:
------------------------------------
Name:
Title:
BANK OF AMERICA, N.A. F/K/A
NATIONSBANK, N.A.
By:
------------------------------------
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE> 5
FIRST UNION NATIONAL BANK
By:
------------------------------------
Name:
Title:
FIRST AMERICAN NATIONAL BANK
By: /s/ Sandy Hamrick
------------------------------------
Name: Sandy Hamrick
Title: Senior Vice President
NATIONAL CITY BANK OF KENTUCKY
By:
------------------------------------
Name:
Title:
BANK ONE, N.A.
By:
------------------------------------
Name:
Title:
AMSOUTH BANK
By:
------------------------------------
Name:
Title:
<PAGE> 6
The undersigned Guarantors hereby (i) acknowledge
and consent to the amendments to the Credit
Agreement effected by this Amendment and (ii)
confirm and agree that their obligations under their
respective Guaranties shall continue without any diminution
thereof and shall remain in full force and effect on and after
the effectiveness of this Amendment.
NAHC OF MISSOURI, INC.
NAHC OF TEXAS, INC.
NAHC II OF TEXAS, INC.
NAHC FINANCIAL, INC.
NAHC OF IOWA, INC.
NAHC OF OREGON, INC.
NAHC II OF OREGON, INC.
NAHC III OF OREGON, INC.
NAHC OF WYOMING, INC.
NAHC COMPANY, INC.
NAHC GEORGIA HOLDINGS, INC.
NAHC OF MISSISSIPPI, INC.
NAHC OF WASHINGTON, INC.
MEMORIAL HOSPITAL OF ADEL, INC.
By: /s/ Dana C. McLendon, Jr.
----------------------------------
Name: Dana C. McLendon, Jr.
Title: Vice President-Sec
NAHC LIMITED PARTNERSHIP
By: New American Healthcare Corporation,
Its General Partner
By: /s/ Dana C. McLendon, Jr.
----------------------------------
Name: Dana C. McLendon, Jr.
Title: Senior Vice President-CAO
<PAGE> 7
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
By: WCAS VII Partners,
as General Partner
By:
----------------------------------
Name:
Title:
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,153
<SECURITIES> 0
<RECEIVABLES> 37,033
<ALLOWANCES> 10,379
<INVENTORY> 2,164
<CURRENT-ASSETS> 51,730
<PP&E> 87,982
<DEPRECIATION> 6,833
<TOTAL-ASSETS> 157,692
<CURRENT-LIABILITIES> 30,291
<BONDS> 0
0
0
<COMMON> 174
<OTHER-SE> 25,854
<TOTAL-LIABILITY-AND-EQUITY> 157,692
<SALES> 0
<TOTAL-REVENUES> 94,039
<CGS> 0
<TOTAL-COSTS> 150,696
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 11,240
<INTEREST-EXPENSE> 9,082
<INCOME-PRETAX> (56,657)
<INCOME-TAX> (836)
<INCOME-CONTINUING> (55,821)
<DISCONTINUED> 0
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