<PAGE>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
November 30, 1993.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........ to .......... .
Commission file number I-7293
NATIONAL MEDICAL ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Nevada 95-2557091
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2700 Colorado Avenue
Santa Monica, CA 90404
(Address of principal executive offices)
(310) 998-8000
(Registrant's telephone number, including area code)
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 and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
As of December 31, 1993 there were 165,851,285 shares of $0.075 par value
common stock outstanding.
<PAGE>
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets - November 30, 1993
and May 31, 1993. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Condensed Statements of Operations - Three Months and
Six Months Ended November 30, 1993 and 1992 . . . . . . . . . . . . . . . . . . 4
Consolidated Condensed Statements of Cash Flows - Six Months
Ended November 30, 1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Condensed Financial Statements. . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
Note: Items 3 and 5 of Part II are omitted because they are not applicable.
Page 1<PAGE>
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
November 30, 1993 and May 31, 1993
<TABLE>
<CAPTION>
November 30, May 31,
1993 1993
(unaudited)
(in thousands)
<S> <C> <C>
A S S E T S
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ 165,247 $ 140,919
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . 67,015 97,567
Accounts and notes receivable, less allowance for doubtful
accounts ($89,703 at November 30 and $115,103 at May 31). . . . . . . . 428,099 501,878
Inventories of supplies, at cost . . . . . . . . . . . . . . . . . . . . 57,785 62,028
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 215,470 120,185
Assets of discontinued business, at net realizable value (Note 3). . . . 254,657 -
Other property, plant and equipment held for sale, at cost,
net (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205,323 56,510
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,641 44,493
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 52,426 45,055
Total current assets . . . . . . . . . . . . . . . . . . . . . . 1,526,663 1,068,635
Long-term receivables. . . . . . . . . . . . . . . . . . . . . . . . . . 37,872 189,779
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226,816 168,241
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,083 36,775
Property, plant and equipment, at cost . . . . . . . . . . . . . . . . . 2,440,205 3,313,597
Less accumulated depreciation and amortization . . . . . . . . . . . . 671,652 821,505
Net property, plant and equipment. . . . . . . . . . . . . . . . 1,768,553 2,492,092
Intangible assets, at cost . . . . . . . . . . . . . . . . . . . . . . . 216,831 394,178
Less accumulated amortization. . . . . . . . . . . . . . . . . . . . . 92,188 176,336
Net intangible assets. . . . . . . . . . . . . . . . . . . . . . 124,643 217,842
$ 3,724,630 $ 4,173,364
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Page 2<PAGE>
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
November 30, 1993 and May 31, 1993
<TABLE>
<CAPTION>
November 30, May 31,
1993 1993
(unaudited)
(in thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt (Note 8) . . . . . . . . . . . . . . . $ 172,077 $ 121,385
Short-term borrowings and notes. . . . . . . . . . . . . . . . . . . . . 70,713 163,285
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142,160 139,761
Current portion of reserves for discontinued operations,
facility divestitures, realignment and unusual
litigation costs (Notes 2 and 3) . . . . . . . . . . . . . . . . . . . 306,699 100,691
Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 368,191 387,609
Total current liabilities. . . . . . . . . . . . . . . . . . . . 1,059,840 912,731
Notes and debentures, net of current portion . . . . . . . . . . . . . . 536,496 672,437
Convertible debentures . . . . . . . . . . . . . . . . . . . . . . . . . 220,185 219,945
Total long-term debt, net of current portion (Note 8). . . . . . 756,681 892,382
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 99,518 317,473
Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . 332,849 298,708
Stockholders' equity:
Common stock, $0.075 par value; authorized 450,000,000
shares; 185,672,524 shares issued at November 30, 1993 and
185,698,524 issued at May 31, 1993. . . . . . . . . . . . . . . . . . 13,925 13,927
Other stockholders' equity . . . . . . . . . . . . . . . . . . . . . . 1,747,874 2,024,583
Less treasury stock, at cost, 19,773,647 shares
at November 30, 1993 and 19,800,103 shares at
May 31, 1993. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (286,057) (286,440)
Total stockholders' equity . . . . . . . . . . . . . . . . . . . 1,475,742 1,752,070
$ 3,724,630 $ 4,173,364
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Page 3<PAGE>
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three Months And Six Months Ended November 30, 1993 and 1992
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
1993 1992 1993 1992
(dollars in thousands, except per share amounts)
(1992 restated, see Note 3)
<S> <C> <C> <C> <C>
Net operating revenues (Note 5). . . . . . . . . . $ 769,952 $ 785,335 $ 1,544,976 $ 1,575,753
Operating and administrative expenses
(Note 6). . . . . . . . . . . . . . . . . . . . . 625,713 642,973 1,271,971 1,297,524
Depreciation and amortization. . . . . . . . . . . 41,666 40,078 84,460 80,138
Interest, net of capitalized portion . . . . . . . 19,353 19,523 37,759 39,511
Total costs and expenses. . . . . . . . . . . . 686,732 702,574 1,394,190 1,417,173
Investment earnings. . . . . . . . . . . . . . . . 6,384 5,339 14,147 10,106
Gain on disposals of facilities and
long-term investments . . . . . . . . . . . . . . 13,576 39,932 28,975 42,730
Income from continuing operations
before income taxes and cumulative
effect of a change in accounting . . . . . . . . 103,180 128,032 193,908 211,416
Taxes on income. . . . . . . . . . . . . . . . . . 42,000 50,000 80,000 83,000
Income from continuing operations before
cumulative effect of a change in accounting. . . 61,180 78,032 113,908 128,416
Discontinued operations (Note 3):
Loss from operations, net of income
tax benefit . . . . . . . . . . . . . . . . . . (1,171) (25,651) (154,800) (25,411)
Estimated loss on disposal, including
operating losses during phase out
period, net of income tax benefit . . . . . . . (286,200) - (286,200) -
Cumulative effect of a change in accounting
for income taxes (Note 7). . . . . . . . . . . . - - 60,121 -
Net income (loss). . . . . . . . . . . . . . . . $ (226,191) $ 52,381 $ (266,971) $ 103,005
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Page 4<PAGE>
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (continued)
Three Months And Six Months Ended November 30, 1993 and 1992
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
1993 1992 1993 1992
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Earnings (loss) per share:
Primary:
Continuing operations . . . . . . . . . . . . . $ 0.37 $ 0.47 $ 0.69 $ 0.77
Discontinued operations . . . . . . . . . . . . (1.73) (0.15) (2.66) (0.15)
Change in accounting. . . . . . . . . . . . . . - - 0.36 -
Net. . . . . . . . . . . . . . . . . . . . . $ (1.36) $ 0.32 $ (1.61) $ 0.62
Fully diluted:
Continuing operations . . . . . . . . . . . . . $ 0.35 $ 0.44 $ 0.65 $ 0.72
Discontinued operations . . . . . . . . . . . . (1.71) (0.14) (2.59) (0.14)
Change in accounting. . . . . . . . . . . . . . - - 0.33 -
Net. . . . . . . . . . . . . . . . . . . . . $ (1.36) $ 0.30 $ (1.61) $ 0.58
Cash dividends per common share (Note 8) . . . . . $ - $ 0.12 $ 0.12 $ 0.24
Weighted average shares and share
equivalents outstanding -- primary . . . . . . . 166,077,250 166,023,714 166,092,879 166,214,124
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Page 5<PAGE>
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended November 30, 1993 and 1992
(unaudited)
<TABLE>
<CAPTION> 1993 1992
(in thousands)
<S> <C> <C>
Net cash provided by operating activities (including
changes in all operating assets and liabilities and including
net operating expenditures of $89,722,000 in 1993 and
$43,284,000 in 1992 for divestiture, realignment and unusual
litigation costs). . . . . . . . . . . . . . . . . . . . . . . . . . . $ 109,627 $ 167,699
Cash flows from investing activities:
Purchases of property, plant and equipment . . . . . . . . . . . . . . (58,863) (163,791)
Proceeds from sales of property, plant and equipment . . . . . . . . . 127,630 70,388
Proceeds from sales (purchases) of investments . . . . . . . . . . . . 46,207 (761)
Collections on notes . . . . . . . . . . . . . . . . . . . . . . . . . 96,249 22,860
Purchase of Hillhaven preferred stock. . . . . . . . . . . . . . . . . (63,415) -
Increase in intangible and other assets. . . . . . . . . . . . . . . . (15,581) (18,404)
Other items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (307) (19,027)
Net cash provided by (used in) investing activities. . . . . . . . . 131,920 (108,735)
Cash flows from financing activities:
Net payments of unsecured lines of credit. . . . . . . . . . . . . . . (117,820) (69,141)
Net proceeds from (payments of) reverse purchase agreements. . . . . . (31,422) 19,653
Proceeds from the sale of 7-3/8% notes . . . . . . . . . . . . . . . . - 57,853
Proceeds from other borrowings . . . . . . . . . . . . . . . . . . . . 14,370 45,915
Principal payments on borrowings . . . . . . . . . . . . . . . . . . . (42,994) (42,500)
Cash dividends paid to shareholders. . . . . . . . . . . . . . . . . . (39,584) (38,617)
Purchases of treasury stock. . . . . . . . . . . . . . . . . . . . . . - (18,857)
Other items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 (2,676)
Net cash used in financing activities. . . . . . . . . . . . . . . . (217,219) (48,370)
Net increase in cash and cash equivalents. . . . . . . . . . . . . . 24,328 10,594
Cash and cash equivalents at beginning of year . . . . . . . . . . . 140,919 113,957
Cash and cash equivalents at end of period . . . . . . . . . . . . . $ 165,247 $ 124,551
Supplemental disclosures:
Interest paid, net of amounts capitalized. . . . . . . . . . . . . . . $ 39,417 $ 45,496
Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . . . 18,399 61,840
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Page 6<PAGE>
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The unaudited financial information furnished herein, in the opinion of
management, reflects all determinable adjustments which are necessary to
fairly state the Company's financial position, its cash flows and the
results of its operations for the periods indicated. All the adjustments
are of a normal recurring nature except for those relating to the legal
proceedings discussed in Note 2, the discontinued operations discussed in
Note 3 and the accounting change discussed in Note 7. Operating results
have been adversely affected by factors discussed in the accompanying
Management's Discussion and Analysis of Financial Condition and Results
of Operations, including legal proceedings and investigations and certain
claims and lawsuits of an unusual nature. These factors are related
principally to the Company's discontinued psychiatric business, but they
also have had an impact on other lines of business.
The Company presumes that users of this interim financial information
have read or have access to the Company's audited financial statements
and Management's Discussion and Analysis of Financial Condition and
Results of Operations for the preceding fiscal year and that the adequacy
of additional disclosure needed for a fair presentation may be determined
in that context. Accordingly, footnote and other disclosure which would
substantially duplicate the disclosure contained in the Company's most
recent annual report to security holders has been omitted. The interim
financial information herein is not necessarily representative of
operations for a full year for various reasons, including levels of
occupancy, interest rates, facility acquisitions and disposals, revenue
allowance and discount fluctuations, the timing of price changes,
fluctuations in quarterly tax rates and the recording of unusual reserves
mentioned in Notes 2 and 3 herein. These same considerations apply to all
year-to-year comparisons.
2. As previously reported, the Company is and has been involved in
significant legal proceedings and investigations of an unusual nature
related principally to its psychiatric business. During the fourth
quarter of fiscal 1993, the Company recorded a $65,000,000 charge for
unusual legal fees and expenses, including an estimate for future costs
and expenses expected to be incurred in responding to these matters
through the trial stage. At August 31, 1993, the Company recorded
additional reserves of $250,000,000 to estimate the cost of the ultimate
disposition of the insurance companies' lawsuits discussed below,
shareholder litigation and psychiatric malpractice cases involving fraud
and conspiracy allegations, including settlements which may be reached
with respect to these matters.
In November the Company signed agreements to settle two of its lawsuits
with certain insurance companies and in December the Company announced an
agreement in principle to settle the remaining lawsuit. Under the
settlements, the Company agreed to pay up to $125,000,000 and
$89,900,000, respectively, as complete and final resolution of the
disputed claims. The last installment of the $125,000,000 was paid in
December 1993 and payments on the other settlement are scheduled to be
made in February and March 1994. In return, the insurers agreed on an
individual basis to strengthen standard business relations with the
Company, including, for example, allowing the Company to compete for
managed-care contracts and participate in provider networks. The
settlements also will address the processing by the insurance companies
of pending claims from psychiatric facilities owned by the Company's
subsidiaries.
In November the Company announced it had settled or reached agreements in
principle to settle 66 patient care lawsuits against certain of its
psychiatric hospitals in Texas. The Company paid the plaintiffs
approximately $15,000,000. These cases represent approximately half of
the psychiatric patient care cases which contain allegations of
conspiracy or fraud. Prior to these settlements, the Company had
successfully tried three psychiatric malpractice cases with similar
allegations, two in Texas and one in California.
Page 7<PAGE>
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
The remaining reserves for unusual litigation costs which relate to the
above matters that have not been settled as of November 30, 1993
represent management's estimate of the net costs of the ultimate
disposition of these matters. However, there can be no assurance that
the ultimate liability will not exceed such estimates.
Except for estimated legal fees and expenses, no provision for any
liability resulting from the investigations by government agencies has
been recognized in the accompanying financial statements because neither
the ultimate disposition of these investigations nor the amount of
liabilities or losses arising from them can be determined at this time.
3. On November 30, 1993, the Company decided to discontinue its psychiatric
hospital business and adopted a plan to dispose of substantially all of
its psychiatric hospitals and substance abuse facilities by May 31, 1994.
Provisions, totaling $286,200,000 (net of $146,800,000 in tax benefits)
have been made for estimated losses during the phase-out period and for
the write-down of assets to estimated net realizable value. An estimate
of the net realizable value is reported on the Consolidated Condensed
Balance Sheet as a current asset. The Consolidated Condensed Statements
of Operations reflect the operating results of the discontinued business
separately from continuing operations. Accordingly, prior periods have
been restated. Operating results for the discontinued business, excluding
the $286,200,000 discussed above, were:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30 November 30
1993 1992 1993 1992
(dollars in thousands)
<S> <C> <C> <C> <C>
Net operating revenues . . . . . . . . . . . . . . $ 121,063 $ 148,011 $ 237,839 $ 296,340
Loss before income taxes (1) . . . . . . . . . . . $ 1,771 $ 39,651 $ 266,400 $ 38,411
Income tax benefit . . . . . . . . . . . . . . . . (600) (14,000) (111,600) (13,000)
Loss from operations . . . . . . . . . . . . . . . $ 1,171 $ 25,651 $ 154,800 $ 25,411
</TABLE>
(1) The loss before income taxes for the six months ended November
30, 1993 includes the $250,000,000 charge for litigation costs
recorded at August 31, 1993. (See Note 2.)
4. In January 1994, the Company sold 28 inpatient rehabilitation
hospitals and 45 related satellite outpatient clinics for
approximately $350,000,000 in cash including the net book values of
certain inventory, receivables and other items of working capital
subject to certain adjustments. After payment of expenses related to
the transaction, associated long-term debt and other liabilities, the
Company expects the net proceeds before taxes to be approximately
$260,000,000. The sale will result in a gain to be recorded in the
quarter ended February 28, 1994. The Company retained its six
rehabilitation hospitals on or near acute care hospital campuses and
has signed a letter of intent to sell its other remaining
rehabilitation hospital.
For the three and six months ended November 30, 1993 net operating
revenues of the sold facilities were $110,250,000 and $221,835,000,
respectively. Pretax income, before general corporate overhead costs,
was $10,715,000 and $21,215,000, respectively. The net book value of
the property, plant and equipment sold was $205,323,000 at
November 30, 1993 and is reflected under current assets on the balance
sheet.
Page 8<PAGE>
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
5. The Company's net operating revenues from continuing operations consist
primarily of net patient service revenues, which are based on established
billing rates less applicable allowances and discounts. These allowances
and discounts, primarily for patients covered by Medicare, Medicaid and
other contractual programs, amounted to $661,641,000 and $617,570,000 for
the three month periods ended November 30, 1993 and 1992 and were
$1,345,550,000 and $1,237,789,000 for the six month periods.
6. The provision for doubtful accounts and notes receivable is included in
operating and administrative expenses net of any recoveries of previously
written-off accounts or notes. The net provisions related to continuing
operations for the three month periods ended November 30, 1993 and 1992
were $23,489,000 and $26,949,000, respectively, and for the six month
periods then ended were $58,472,000 and $57,419,000.
7. Effective June 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Among other
provisions, this standard requires deferred tax balances to be determined
using enacted income tax rates for the years in which the taxes actually
are paid or refunds actually are received instead of when the deferrals
were initiated. The Company has recognized $60,121,000 as income in the
quarter ended August 31, 1993, for the cumulative effect on prior years
of adopting this standard based on tax rates in effect at June 1, 1993.
Deferred tax assets and liabilities as of June 1, 1993, relate to the
following:
Deferred Tax
Assets Liabilities
(dollars in thousands)
Depreciation and fixed asset
basis differences $ - $ 271,900
Divestiture and realignment costs 86,900 -
Receivables - adjustments
and allowances 85,200 -
Cash basis accounting change - 54,400
Accruals for insurance risks 39,300 -
Intangible assets - 35,000
Other long-term liabilities 27,200 -
Benefit plans 21,200 -
Other accrued liabilities 13,100 -
Investments 11,100 -
Other 3,500 -
$ 287,500 $ 361,300
At November 30, 1993, deferred income taxes in the accompanying
Consolidated Condensed Balance Sheets had changed significantly from May
31, 1993. Such changes resulted primarily from the tax effects of
temporary differences relating to (a) the adoption of FAS 109 and (b)
losses for the period and certain reclassifications including the
classification of discontinued and other assets held for sale as current.
Management believes that the net deferred tax asset at November 30, 1993
will be realized from tax provisions against future income and tax loss
carrybacks.
Page 9<PAGE>
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
8. On September 10, 1993, the Company canceled its $120,000,000 short-term
revolving credit agreement entered into in December 1992. No loans were
outstanding under this agreement.
The Company's $300,000,000 unsecured bank revolving credit and term loan
agreement, the borrowings under which were to have been converted to a
five-year term loan on September 30, 1993, was amended by the unanimous
agreement of the participating banks and the Company as of September 27
and October 15, 1993. The principal cause for the amendment was the
Company's concern that, because of the service of search warrants on the
Company by federal government agencies on August 26, 1993 and the unknown
impact on the Company arising from these searches, certain of its lenders
might not accept the Company's representations and warranties required in
order to convert its revolving credit loans into the five-year term
loans. Under the revised agreement the Company repaid $50,000,000 of
outstanding revolving bank borrowings on September 30, 1993 and
refinanced the $246,200,000 balance of such loans with term loans
maturing on April 1, 1995. At November 30, 1993, the term loans had a
balance of $234,800,000 and provide for quarterly installments of
$11,400,000 on February 28, 1994, and May 31, 1994, and $15,000,000 on
August 31, 1994, November 30, 1994, and February 28, 1995. The new term
loans currently bear interest at the London Interbank Offered Rate
("LIBOR") plus 1.75% through March 31, 1994, LIBOR plus 2.0% from April
1, 1994 through September 30, 1994, and LIBOR plus 2.25% thereafter.
These interest rates will be increased by 0.25% per annum during any
period that the Company's long-term debt is rated below BB or Ba-2 by
either Standard & Poor's Corporation or Moody's Investors Service, Inc.,
respectively.
The revised agreement has, among other requirements, limitations on
investments, borrowings, capital expenditures and dispositions of assets,
and covenants regarding minimum operating results, net worth, working
capital and specified operating ratios. These requirements are more
comprehensive and restrictive than similar limitations and covenants
under the former agreement. The amended agreement also provides that the
Company may declare or pay dividends only if doing so will not otherwise
result in a default under the agreement and for any fiscal quarter the
dividends do not exceed the lesser of (a) $0.12 per share (up to an
aggregate total of $21,200,000), or (b) (i) 43% of consolidated net
earnings for the fiscal quarter ending November 30, 1993, and (ii) for
fiscal quarters thereafter, the amount by which 40% of consolidated net
earnings from December 1, 1993 through the relevant date of determination
exceeds the amount of dividends declared or paid from December 1, 1993
through such date. Furthermore, the aggregate amount of dividends for
the fiscal year ending May 31, 1994 shall not exceed 40% of consolidated
net earnings (excluding the $250,000,000 accrual for unusual litigation
costs, less related tax benefit, and the $60,121,000 of income for the
cumulative effect of a change in accounting for income taxes) for such
fiscal year.
The Company also has agreed to incorporate the increased pricing and more
restrictive covenants contained in the amended agreement described above
into certain other loan agreements covering its secured loans payable and
certain other notes.
The Company is in compliance with all of its loan covenants.
Page 10<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company's cash and cash equivalents at November 30, 1993 were
$165,247,000. The ratio of long-term debt to equity was 0.51:1. It was
0.51:1 and 0.64:1, respectively, at the end of the last two fiscal years.
Working capital at November 30, 1993 was $466,823,000 compared to
$155,904,000 at May 31, 1993. The increase in working capital is
principally due to the reclassifications of long-term assets related to the
psychiatric hospital business discontinued in November 1993 and the
rehabilitation hospital facilities sold in January 1994. Current deferred
income taxes also increased by $95,285,000. The ratio of current assets to
current liabilities was 1.44:1 at November 30, 1993 and 1.17:1 at May 31,
1993.
Cash provided by operating activities was $109,627,000 for the six months
ended November 30, 1993 compared to $167,699,000 for the same period last
year after expenditures of $129,012,000 and $43,284,000, respectively, for
divestiture, realignment and unusual litigation costs.
In September 1993, the Company completed a series of transactions with
The Hillhaven Corporation, which resulted in the Company receiving
approximately $135,000,000 in cash. In January 1994 the Company sold 28
inpatient rehabilitation hospitals and 45 related satellite outpatient
clinics for which the Company expects to receive net cash proceeds of
approximately $260,000,000 before taxes and after payments of expenses
related to the transaction, associated long-term debt and other liabilities.
Cash payments for property and equipment were $58,863,000 for the six
months ended November 30, 1993 and $163,791,000 for the same period last
year. The estimated cost to complete major approved construction projects at
wholly-owned subsidiaries is approximately $95,000,000, all of which is
related to expansion, improvement and equipping of existing domestic general
hospital facilities.
The Company's $300,000,000 unsecured bank revolving credit and term loan
agreement was amended by the Company and participating banks as of September
27, 1993 (see Note 8). Under the amended agreement, there are increased
interest rates and the loan covenants with which the Company must now comply
are more comprehensive and restrictive. Under the new agreement the Company
has reduced the outstanding term loan borrowings to $234,800,000 which
mature in various installments through April 1, 1995. The Company also has
agreed to incorporate the increased pricing and more restrictive covenants
into certain other loan agreements covering its secured loans payable and
certain other notes.
In June 1993 Moody's Investors Service, Inc. lowered its rating on the
Company's senior debt from Baa-1 to Baa-3 and in August placed the Baa-3
rating under review for possible further downgrading. In September 1993
Standard and Poor's Corporation lowered its rating on the Company's senior
debt from BBB- to BB. On December 15, however, Standard and Poor's placed
this rating on "CreditWatch" with positive implications, indicating the
possibility that the rating may be raised.
The Company's liquidity, including cash provided by future operating
activities is believed by management to be adequate to finance planned
fiscal 1994 capital expenditures and known operating needs, including the
scheduled 1994 maturities of its debt and the remaining payments of the
settlement of the insurance companies' lawsuits.
Management of the Company believes that the planned disposal of its
psychiatric hospital business will improve its liquidity.
Page 11<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company is attempting to resolve the government investigations and
remaining legal proceedings discussed in Note 2. Management believes that
patient volumes, cash flows and operating results at the Company's principal
health care businesses have been adversely affected by the legal proceedings
and investigations. Management cannot determine what additional
liabilities, losses, or other future effects, including effects on the
Company's liquidity and capital resources, may arise or result from these
matters. However, the uncertainties associated with these matters, as well
as the recorded and contingent liabilities arising from them, are factors
influencing decisions by the Company's lenders.
Results of Operations
The most significant transaction affecting results of operations for the
quarter ended November 30, 1993 was a $433,000,000 pretax charge for the
estimated loss on disposal of the Company's psychiatric hospitals and
substance abuse facilities. (See Note 3.) This accrual was the principal
reason for the Company's $226,191,000 net loss, compared to net income of
$52,381,000 for the same prior year period.
Income from continuing operations before income taxes and cumulative
effect of a change in accounting was $103,180,000 for the quarter ended
November 30, 1993, compared with $128,032,000 for the prior year quarter.
These results include pretax gains on sales of facilities and long-term
investments of $13,576,000 and $39,932,000, respectively.
Net operating revenues and operating profits from continuing operations
before interest for the three months and six months ended November 30, 1993
and 1992 are shown below:
<TABLE>
<CAPTION>
Three Months Ended November 30,
(in thousands)
Increase %
1993 1992 (Decrease) Change
<S> <C> <C> <C> <C>
Net Operating Revenues:
Hospitals . . . . . . . . . . . . . . . . . . $ 725,940 $ 730,519 $ (4,579) (1)%
Other Businesses. . . . . . . . . . . . . . . 44,012 54,816 (10,804) (20)%
Total . . . . . . . . . . . . . . . . . $ 769,952 $ 785,335 $ (15,383) (2)%
Operating Profits*:
Hospitals . . . . . . . . . . . . . . . . . . $ 90,072 $ 90,785 $ (713) (1)%
Other Businesses. . . . . . . . . . . . . . . 15,345 14,177 1,168 8%
Total . . . . . . . . . . . . . . . . . $ 105,417 $ 104,962 $ 455 -
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended November 30,
(in thousands)
Increase %
1993 1992 (Decrease) Change
<S> <C> <C> <C> <C>
Net Operating Revenues:
Hospitals . . . . . . . . . . . . . . . . . . $ 1,460,612 $ 1,463,177 $ (2,565) -
Other Businesses. . . . . . . . . . . . . . . 84,364 112,576 (28,212) (25)%
Total . . . . . . . . . . . . . . . . . $ 1,544,976 $ 1,575,753 $ (30,777) (2)%
Operating Profits*:
Hospitals . . . . . . . . . . . . . . . . . . $ 169,969 $ 174,769 $ (4,800) (3)%
Other Businesses. . . . . . . . . . . . . . . 23,618 28,831 (5,213) (18)%
Total . . . . . . . . . . . . . . . . . $ 193,587 $ 203,600 $ (10,013) (5)%
</TABLE>
* Before interest expense, investment earnings, minority interests, gain
on disposals of facilities and long-term investments.
Page 12<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Hospitals line of business includes the operations of domestic and
international general hospitals, rehabilitation hospitals and the management
services business. Net operating revenues for the quarter decreased by
$4,579,000 (or 1%) over the prior year quarter and by $2,565,000 for the
current six month period. Operating profits decreased by $713,000 (or 1%)
over the prior year quarter and by $4,800,000 (or 3%) for the six months
ended November 1993 over the comparable prior year period. While the
operating profit margin for the current quarter remained the same, for the
current six month period it declined to 11.6% from 11.9% a year ago.
Revenues and operating profits increased for domestic general hospitals and
international hospitals, but declined for rehabilitation hospitals.
Selected statistics for domestic general hospital operations are shown
below:
<TABLE>
<CAPTION> Three Months Ended Six Months Ended
November 30, November 30,
Increase Increase
1993 1992 (Decrease) 1993 1992 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Facilities owned or operated. . . . 34 35 (1) 34 35 (1)
Quarter-end licensed beds . . . . . 6,749 6,844 (1.4)% 6,749 6,844 (1.4)%
Average licensed beds in period . . 6,734 6,818 (1.2)% 6,732 6,792 (0.9)%
Average occupancy . . . . . . . . . 45.2% 46.2% (1.0)%* 44.9% 46.4% (1.5)%*
Patient days. . . . . . . . . . . . 276,815 286,723 (3.5)% 553,691 576,272 (3.9)%
Net inpatient revenue
per patient day. . . . . . . . . .$ 1,362 $ 1,287 5.8% $ 1,357 $ 1,278 6.2%
Admissions. . . . . . . . . . . . . 50,506 51,211 (1.4)% 101,111 103,213 (2.0)%
Average length of stay (days) . . . 5.5 5.6 (1.8)% 5.5 5.6 (1.8)%
Net inpatient
revenues (in thousands). . . . . .$377,078 $ 369,121 2.2% $ 751,288 $736,656 2.0%
Net outpatient
revenues (in thousands). . . . . .$136,023 $ 132,483 2.7% $ 273,108 $259,297 5.3%
Outpatient visits . . . . . . . . . 357,893 358,310 (0.1)% 723,624 725,456 (0.3)%
% of net patient revenues from
Medicare and Medicaid. . . . . . . 43.6% 40.6% 3.0%* 42.1% 39.2% 2.9%*
</TABLE>
* These percentage changes are the differences between the 1993 and 1992
percentages (%'s) shown.
Domestic general hospital inpatient admissions decreased by 1.4% over the
year earlier quarter and by 2.0% for the six month period whereas outpatient
visits were flat from the prior year quarter and year ago period. There
continue to be increases in inpatient acuity and intensity of services and
higher inpatient revenue per patient day as less intensive services shift
from an inpatient to an outpatient basis or to alternative health care
delivery services because of technology improvements and as cost controls by
payors become greater. Net outpatient revenues increased 2.7% over the
prior year quarter and by 5.3% over the comparable prior six month period.
Net inpatient revenues increased by 2.2% over the prior year quarter and by
2.0% over the comparable prior six month period. Allowances and discounts
are expected to continue to rise because of increasing cost controls
including utilization review by government and group health payors and
because the percentage of business from managed care programs (and related
discounts) continue to grow.
The general hospital industry in the United States and the Company's general
hospitals continue to have significant unused capacity and thus there is
substantial competition for patients. 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. Increased competition, admission
constraints and payor pressures are expected to continue. The Company
offers discounts to private payor groups, enters into capitation contracts
in some service areas, upgrades facilities and equipment where appropriate,
and offers new programs and services. The Company has been implementing
various cost control programs focused on reducing operating costs. The
Company's general hospitals have been successful in increasing operating
profits in a very competitive environment due in large part to enhanced cost
control and efficiencies being achieved throughout the Company, but it will
continue to be difficult for existing facilities to sustain the growth rate
experienced in recent years.
Page 13<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Rehabilitation hospital net inpatient revenue decreased by 7.0% over the
prior year quarter and by 9.0% for the six month period whereas net
outpatient revenue increased by 11.6% over the prior year quarter and by
10.0% for the six month period. Net inpatient revenue per patient day
declined by 5.5% over the prior year quarter and by 5.0% for the six month
period. The decline in net inpatient revenue was partially due to lower
patient days (reflecting payor's continuing efforts to avoid hospitalization
and a shift to managed care) and higher medicare/medicaid program
utilization. Average occupancy decreased 6.8% over the prior year quarter
and by 9.3% for the six month period. Medicare/medicaid utilization
increased 7.7 percentage points over the prior quarter and by 7.9 percentage
points over the prior six month period. Additional rehabilitation hospital
statistics and explanatory comments have been omitted from this discussion
and analysis because most of the facilities were sold in January 1994. (See
Note 4.)
Psychiatric hospitals statistics and commentary have not been included
herein because of the Company's decision on November 30, 1993 to discontinue
its psychiatric hospital business by disposing of substantially all of its
psychiatric hospitals and substance abuse facilities by May 31, 1994. (See
Note 3.) Even though the Company will continue to operate its psychiatric
hospital business until completion of the divestiture program, the results
of its operations will be reported as discontinued operations in the
Company's financial statements. This action to discontinue its psychiatric
hospital business and the sale of the rehabilitation hospitals described
above (see Note 4), comprise significant elements of the Company's
previously announced resolve to focus on its core general hospital business.
Other businesses include the operating results of the Company's dialysis
centers, seven domestic long-term care facilities, the Company's equity
interest in the net income of The Hillhaven Corporation, loan and lease
guarantee fees from Hillhaven, the leasing of long-term care facilities and
retirement centers to Hillhaven, international long-term care facilities
(Westminster Health Care Holdings, PLC), and other smaller businesses.
Until Westminster's April 1993 public offering of stock which reduced the
Company's ownership from approximately 90% to 42%, the revenues and expenses
of Westminster were consolidated. Since that date, the Company has been
accounting for its investment in Westminster on the equity method.
Substantially all of the declines in net operating revenues of other
businesses for the three months and six months ended November 30, 1993
compared to the year-earlier periods are due to this change in the Company's
ownership of Westminster. Operating profits have been affected for the same
reason.
In September 1993 the Company and Hillhaven substantially completed a series
of transactions which resulted in the Company no longer being a lessor or
lender to Hillhaven, but remaining a significant holder of Hillhaven common
and preferred stock. After reflecting these transactions, including the
sale of long term care facilities to Hillhaven, the Company's lease income
for the six months ended November 30, 1993 was $8,801,000 lower than in the
year-earlier period and the Company's equity in Hillhaven's net earnings was
$6,565,000 higher than the comparable period.
BUSINESS OUTLOOK
In addition to the specific items mentioned in the sections above that
continue to have an impact on the Company's liquidity, capital resources and
results of operations, there are a number of other factors affecting our
domestic business. Because of national, state and private industry efforts
to reform the system of health care delivery in this country, the Company
and the health care industry as a whole face increased uncertainty. While
the Company is unable to predict which proposals will be adopted, it
continues to analyze them and formulate its future business strategies
accordingly.
Page 14<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Material Developments in Previously Reported Legal Proceedings:
Aetna Life Insurance and Metropolitan Life Insurance Company vs.
National Medical Enterprises, Inc. et al., and Connecticut
General Life Insurance Company, Equitable Life Assurance Society
of the United States, First Equicor Life Insurance Company and
Equicor, Inc. vs. National Medical Enterprises, Inc. et al.
On November 4, 1993 the Company signed definitive
settlement agreements in these lawsuits on terms substantially
similar to the agreement-in-principle discussed in the Company's
quarterly report on Form 10-Q for the quarter ended August 31,
1993.
Travelers Insurance Co., et al. vs. National Medical
Enterprises, Inc. and
NME Psychiatric Properties, Inc. vs. Travelers Insurance Co., et
al.
On December 3, 1993 the Company announced an agreement-in-
principle with the plaintiffs in the Travelers action to settle
the lawsuit. Under the settlement the Company will pay $89.9
million subject to potential reduction in the event certain
administrative service customers fail to execute releases or
other appropriate documentation in favor of the Company. Upon
execution of the formal settlement agreement all claims between
the parties, including the Company's claims in NME Psychiatric
Properties, Inc. vs. Travelers Insurance Co., et al., will be
dismissed with prejudice. In addition, under the terms of the
settlement agreement, all of the outstanding claims for payment
from the insurers will be expeditiously processed for payment
and NME will meet, on an individual basis, with each insurer
with the express goal of strengthening the respective business
relationships.
Jerrold Schaffer and Jayne M. Furman vs. National Medical
Enterprises, Inc., Richard K. Eamer, Leonard Cohen, Jeffrey
Barbakow, and Michael H. Focht, Sr. and Bernard Weisfeld vs.
National Medical Enterprises, Inc., Richard K. Eamer, Leonard
Cohen, Jeffrey Barbakow and Michael H. Focht, Sr.
On December 20, 1993, the United States District Court for
the Central District of California ordered that these cases be
consolidated into one action, captioned In re: National Medical
Enterprises Securities Litigation II. Plaintiffs must file and
serve on or before February 22, 1994 a consolidated and amended
class action complaint which will be deemed the operative
complaint superseding all previous complaints, filed in these
actions. Defendants will have until March 28, 1994 to respond
to the complaint. As previously reported, the Company believes
that it has meritorious defenses to this action and will defend
this litigation vigorously.
Nita P. Heckendorn vs. National Medical Enterprises, Inc.;
Jeffrey C. Barbakow; Raymond A. Hay; Maurice J. DeWald; and
Peter de Wetter
As a result of the Court's previous ruling granting the
defendants' challenge to the original complaint in this matter,
plaintiff filed an amended complaint on November 4, 1993.
Defendants' challenge to the amended complaint was heard by the
Court on January 6, 1994. The Court sustained defendants'
challenge in part, dismissing certain claims, and denied
defendants' challenge in part. Defendants have 30 days to file
an answer to the remaining portions of the complaint.
Page 15<PAGE>
<PAGE>
PART II. OTHER INFORMATION (Continued)
Item 1. Legal Proceedings (Continued)
Bedrosian v. National Medical Enterprises, Inc., Jeffrey C.
Barbakow, Michael H. Focht, Sr., Bernice B. Bratter, Maurice J.
DeWald, Peter de Wetter and Lester B. Korn.
On October 14, 1993, the Company made a demand on Mr.
Bedrosian for repayment of all loans made to him by the Company.
Mr. Bedrosian did not respond to that demand. On November 16,
1993, the Company filed a Cross-Complaint against Mr. Bedrosian
for repayment of those loans. On November 7, 1993, Mr.
Bedrosian's employment-related claims in the lawsuit were
referred to a Superior Court Referee pursuant to the Company's
motion. The remainder of the lawsuit, including the Company's
Cross-Complaint for repayment of the loans, is proceeding in Los
Angeles County Superior Court.
Psychiatric Malpractice Cases
During the quarter ended November 30, 1993 the Company
settled 66 of the pending psychiatric patient care cases
involving allegations of corporate conspiracy or fraud for
approximately $15 million.
See Note 2 of the Notes to Consolidated Condensed Financial Statements.
Page 16<PAGE>
<PAGE>
PART II. OTHER INFORMATION (Continued)
Item 2. Changes in Securities
Part II Item 2 of the Company's quarterly report on Form 10-Q for the
quarter ended August 31, 1993, referred to an amendment to the
Company's $300,000,000 unsecured bank revolving credit and term loan
agreement (the "$300,000,000 Agreement"). Certain of the Company's
other credit agreements have been amended to cause the provisions
thereof to be substantially identical to the provisions of the
$300,000,000 Agreement discussed in Part II Item 2 of the Company's
quarterly report on Form 10-Q for the quarter ended August 31, 1993.
Items 3. and 5. are not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on September 29,
1993. The shareholders elected all of the Company's nominees for
director and ratified the selection of KPMG Peat Marwick as the
Company's independent auditors for the fiscal year ended May 31, 1994.
The votes were as follows:
1. Election of Directors: For Withheld
Bernice Bratter 148,791,174 2,183,768
Michael H. Focht, Sr. 148,795,986 2,178,956
Lester B. Korn 148,910,054 2,064,888
2. Ratification of selection of KPMG Peat Marwick:
For: 149,840,059
Against: 658,472
Abstaining: 476,411
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
(10) Material Contracts
(a) Asset Sale Agreement, dated December 3, 1993, by and
between National Medical Enterprises, Inc., as
Seller, and HEALTHSOUTH Rehabilitation Corporation,
as Buyer.
(b) Amendment No. 1 to Asset Sale Agreement, dated as
January 3, 1994, by and between National Medical
Enterprises, Inc., as Seller, and HEALTHSOUTH
Rehabilitation Corporation, as Buyer.
(c) Amendment No. 1 to Master Loan Agreement, dated as
of November 2, 1993, between MP Funding Corporation
and the Borrowers thereto.
(d) Amendment No. 1 to Credit Agreement, dated as of
November 2, 1993, among MP Funding Corporation,
Credit Suisse, as issuer of the letter of credit,
the Banks parties thereto and Credit Suisse, as
agent for the Banks.
(11) Statement Re: Computation of Per Share Earnings for the
three months and six months ended November 30, 1993 and 1992.
(b) Reports on Form 8-K: None.
Page 17<PAGE>
<PAGE>
PART II. OTHER INFORMATION (Continued)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL MEDICAL ENTERPRISES, INC.
(Registrant)
Date: January 13, 1994 /s/ RAYMOND L. MATHIASEN
Raymond L. Mathiasen
Senior Vice President,
Acting Chief Financial Officer
Page 18<PAGE>
<PAGE>
<PAGE>
ASSET SALE AGREEMENT
******
NATIONAL MEDICAL ENTERPRISES, INC.
As Seller
AND
HEALTHSOUTH Rehabilitation Corporation
As Buyer
Dated: December 3, 1993
<PAGE>
<PAGE>
ASSET SALE AGREEMENT
Table of Contents
PREAMBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1 . . . . . . . . . 1
DEFINITIONS
Section 1.1 Certain Defined Terms. . . . . . . . . . . . 1
Section 1.2 Index of Other Defined Terms . . . . . . . . 2
ARTICLE 2 . . . . . . . . . 5
BASIC TRANSACTIONS
Section 2.1 Purchased Assets . . . . . . . . . . . . . . 5
Section 2.2 Excluded Assets. . . . . . . . . . . . . . . 8
Section 2.3 Assumed Liabilities. . . . . . . . . . . . . 10
Section 2.4 Excluded Liabilities . . . . . . . . . . . . 12
Section 2.5 Purchase Price . . . . . . . . . . . . . . . 15
Section 2.6 Payment of Purchase Price. . . . . . . . . . 15
(a) Earnest Money Deposit . . . . . . . . . . 15
(b) Payment of Tentative Purchase Price. . . . 16
(c) Determination of Interim Net Book Values . 17
(d) Determination of Final Net Book Values . . 18
(e) Seller as Agent of Subsidiaries. . . . . . 18
Section 2.7 Allocation of Purchase Price . . . . . . . . 19
Section 2.8 Guaranty Fee . . . . . . . . . . . . . . . . 19
Section 2.9 Remittances and Receivables. . . . . . . . . 21
(a) In General . . . . . . . . . . . . . . . . 21
(b) Receivables. . . . . . . . . . . . . . . . 21
(c) Straddle Patient Receivables . . . . . . . 22
(i) Cut-off Billings. . . . . . . . . . . . 22
(ii) Cut-off Billings Not Accepted. . . . . . 23
(d) Cooperation in Collecting Receivables
and Excluded Assets. . . . . . . . . . . . 24
Section 2.10 Employee Matters. . . . . . . . . . . . . 24
(a) Pension Plans. . . . . . . . . . . . . . . 24
(b) Retained Employees . . . . . . . . . . . . 25
(i)
<PAGE>
<PAGE>
(c) Hiring of Retained Employees . . . . . . . 26
(d) Health Benefits. . . . . . . . . . . . . . 26
(e) Acknowledgment of Responsibility . . . . . 27
Section 2.11 Use of Names and Manuals. . . . . . . . . . 27
Section 2.12 No Assignment if Breach; Seller's
Discharge of Assumed Liabilities . . . . . . 29
Section 2.13 Closing . . . . . . . . . . . . . . . . . . 30
(a) Deliveries by Seller. . . . . . . . . . . 30
(b) Deliveries by Buyer. . . . . . . . . . . . 31
(c) Escrow . . . . . . . . . . . . . . . . . . 31
Section 2.14 Purchase Price Adjustment . . . . . . . . . 32
Section 2.15 Management Agreement. . . . . . . . . . . . 34
Section 2.16 Transfer of Assets in Corporate Form 38
Section 2.17 Assignments of Rights and Obligations
to Buyer Subsidiaries. . . . . . . . . . . 39
ARTICLE 3 . . . . . . . . . 41
REPRESENTATIONS AND WARRANTIES OF SELLER
Section 3.1 Organization and Corporate Power . . . . . . 41
Section 3.2 Subsidiaries . . . . . . . . . . . . . . . . 41
Section 3.3 Authority Relative to this
Agreement. . . . . . . . . . . . . . . . . . 42
Section 3.4 Absence of Breach. . . . . . . . . . . . . . 42
Section 3.5 Private Party Consents . . . . . . . . . . . 43
Section 3.6 Governmental Consents. . . . . . . . . . . . 44
Section 3.7 Brokers. . . . . . . . . . . . . . . . . . . 44
Section 3.8 Title to Personal Property . . . . . . . . . 44
Section 3.9 Assumed Contracts. . . . . . . . . . . . . . 44
Section 3.10 Licenses. . . . . . . . . . . . . . . . . . 45
Section 3.11 U.S. Person . . . . . . . . . . . . . . . . 45
Section 3.12 Employee Relations. . . . . . . . . . . . . 45
Section 3.13 Employee Plans. . . . . . . . . . . . . . . 46
Section 3.14 Litigation. . . . . . . . . . . . . . . . . 46
Section 3.15 Inventory . . . . . . . . . . . . . . . . . 46
Section 3.16 Hazardous Substances. . . . . . . . . . . . 46
Section 3.17 Financial Information . . . . . . . . . . . 47
Section 3.18 Changes Since Balance Sheet . . . . . . . . 48
Section 3.19 Lists Of Other Data . . . . . . . . . . . . 49
(ii)
<PAGE>
<PAGE>
ARTICLE 4 . . . . . . . . . 50
REPRESENTATIONS AND WARRANTIES OF BUYER
Section 4.1 Organization and Corporate Power . . . . . . 50
Section 4.2 Authority Relative to this Agreement . . . . 51
Section 4.3 Absence of Breach. . . . . . . . . . . . . . 51
Section 4.4 Private Party Consents . . . . . . . . . . . 51
Section 4.5 Governmental Consents. . . . . . . . . . . . 51
Section 4.6 Brokers. . . . . . . . . . . . . . . . . . . 52
Section 4.7 Qualified for Licenses . . . . . . . . . . . 52
Section 4.8 Financial Ability to Perform . . . . . . . . 52
Section 4.9 No Knowledge of Seller's Breach. . . . . . . 52
Section 4.10 "AS IS" Purchase. . . . . . . . . . . . . . 53
Section 4.11 No Assurance . . . . . . . . . . . . . . . 53
ARTICLE 5 . . . . . . . . . 54
COVENANTS OF EACH PARTY
Section 5.1 Efforts to Consummate Transactions . . . . . 54
Section 5.2 Cooperation. . . . . . . . . . . . . . . . . 54
Section 5.3 Further Assistance . . . . . . . . . . . . . 55
Section 5.4 Cooperation Respecting Proceedings . . . . . 55
Section 5.5 Expenses . . . . . . . . . . . . . . . . . . 56
Section 5.6 Announcements; Confidentiality . . . . . . . 57
Section 5.7 Preservation of and Access to
Certain Hospital Records . . . . . . . . . . 58
ARTICLE 6 . . . . . . . . . 60
ADDITIONAL COVENANTS OF SELLER
Section 6.1 Conduct Pending Closing. . . . . . . . . . . 60
Section 6.2 Access and Information; Environmental
Survey; Remediation or Adjustment. . . . . . 62
Section 6.3 Updating . . . . . . . . . . . . . . . . . . 64
Section 6.4 No Solicitation. . . . . . . . . . . . . . . 64
Section 6.5 Name Changes . . . . . . . . . . . . . . . . 64
Section 6.6 Filing of Cost Reports . . . . . . . . . . . 64
Section 6.7 Purchase of Data Processing Services . . . . 66
(iii)
<PAGE>
<PAGE>
ARTICLE 7 . . . . . . . . . 66
ADDITIONAL COVENANTS OF BUYER
Section 7.1 Waiver of Bulk Sales Law
Compliance . . . . . . . . . . . . . . . . . 66
Section 7.2 Resale Certificate . . . . . . . . . . . . . 67
Section 7.3 Cost Reports and Audit Contests. . . . . . . 67
Section 7.4 Tax Matters . . . . . . . . . . . . . . . . 67
Section 7.5 Letters of Credit . . . . . . . . . . . . . 68
ARTICLE 8 . . . . . . . . . 68
BUYER'S CONDITIONS TO CLOSING
Section 8.1 Performance of Agreement . . . . . . . . . . 68
Section 8.2 Accuracy of Representations and
Warranties . . . . . . . . . . . . . . . . . 68
Section 8.3 Officer's Certificate. . . . . . . . . . . . 68
Section 8.4 Consents . . . . . . . . . . . . . . . . . . 69
Section 8.5 Absence of Injunctions . . . . . . . . . . . 69
Section 8.6 Opinion of Counsel . . . . . . . . . . . . . 70
Section 8.7 Title to Real Property . . . . . . . . . . . 70
Section 8.8 Receipt of Other Documents . . . . . . . . . 71
ARTICLE 9 . . . . . . . . . 72
SELLER'S CONDITIONS TO CLOSING
Section 9.1 Performance of Agreement . . . . . . . . . . 72
Section 9.2 Accuracy of Representations and
Warranties . . . . . . . . . . . . . . . . . 72
Section 9.3 Officer's Certificate. . . . . . . . . . . . 73
Section 9.4 Consents . . . . . . . . . . . . . . . . . . 73
Section 9.5 Absence of Injunctions . . . . . . . . . . . 73
Section 9.6 Opinion of Counsel . . . . . . . . . . . . . 74
Section 9.7 Receipt of Other Documents . . . . . . . . . 74
(iv)
<PAGE>
<PAGE>
ARTICLE 10 . . . . . . . . . 75
TERMINATION
Section 10.1 Termination . . . . . . . . . . . . . 75
Section 10.2 Effect of Termination . . . . . . . . 76
ARTICLE 11 . . . . . . . . . 76
SURVIVAL AND REMEDIES; INDEMNIFICATION
Section 11.1 Survival. . . . . . . . . . . . . . . 76
Section 11.2 Exclusive Remedy 76
Section 11.3 Indemnity by Seller . . . . . . . . . 76
Section 11.4 Indemnity by Buyer 78
Section 11.5 Further Qualifications
Respecting Indemnification. . . . 80
Section 11.6 Procedures Respecting Third Party Claims 80
ARTICLE 12 . . . . . . . . . 81
GENERAL PROVISIONS
Section 12.1 Notices . . . . . . . . . . . . . . . 81
Section 12.2 Attorneys' Fees . . . . . . . . . . . 83
Section 12.3 Successors and Assigns. . . . . . . . 83
Section 12.4 Counterparts. . . . . . . . . . . . . 83
Section 12.5 Captions and Paragraph
Headings . . . . . . . . . . . . . . 83
Section 12.6 Entirety of Agreement; Amendments . . 83
Section 12.7 Construction. . . . . . . . . . . . . 84
Section 12.8 Waiver. . . . . . . . . . . . . . . . 84
Section 12.9 Governing Law . . . . . . . . . . . . 84
Section 12.10 Severability . . . . . . . . . . . . 85
Section 12.11 Consents Not Unreasonably Withheld . 85
Section 12.12 Time Is Of the Essence . . . . . . . 85
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 86
(v)
<PAGE>
<PAGE>
EXHIBITS
A. Form of Bill of Sale and Assignment
B. Form of Assignments with Respect to
Real Property Leases
C. Form of Assumption Agreement
D. Form of Management Agreement
E. Form of Data Processing Services Agreement
LIST OF SCHEDULES
A-1 Subsidiaries and Their
Respective States of Incorporation;
Ownership of Subsidiary Stock
A-2 Facilities
2.1(a) Real property owned in fee by Subsidiaries
2.1(b) Real Property Leases
2.1(c) Assigned Stock
2.1(d) Venture Agreements
2.1(g) Other Assigned Contracts
2.1(i) Transferred Business Names
2.2(f) General Hospitals, Acute Hospitals and Campus
Facilities
2.2(j) Other Excluded Assets
2.3(i) Other Assumed Liabilities
2.4(i) Indebtedness
(vi)
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<PAGE>
2.4(j) Other Excluded Liabilities
2.7 Allocation Schedule
2.10(a) Pension Plans
3 Exceptions to Representations and
Warranties of Seller
3.17(a) EBITDA Statements
3.17(b) Balance Sheet
3.19(a)-
(f) Lists of Other Data
4 Exceptions to Representations and
Warranties of Buyer
6.1 Exceptions to Conduct
7.5 Letters of Credit
8.7(b) Disapproved Title Exceptions
(vii)
<PAGE>
<PAGE>
ASSET SALE AGREEMENT
This ASSET SALE AGREEMENT (the "Agreement") is made and entered into
on the 3rd day of December 1993 by and between NATIONAL MEDICAL ENTERPRISES,
INC., a Nevada corporation ("Seller"), and HEALTHSOUTH Rehabilitation
Corporation, a Delaware corporation ("Buyer"), with reference to the follow-
ing facts:
A. Through wholly-owned subsidiary corporations identified on
Schedule A-1 hereto (each, a "Subsidiary" and collectively, the "Subsidiar-
ies"), Seller engages in the business of delivering rehabilitation health
care services to the public through hospitals, transitional living centers,
a skilled nursing center, a comprehensive outpatient rehabilitation facili-
ty, outpatient centers and satellite clinics identified in Schedule A-2 (the
"Facilities").
B. Buyer desires to purchase from the Subsidiaries, either directly
or through wholly-owned Subsidiaries of the Buyer (each, a "Buyer Subsid-
iary" and collectively, the "Buyer Subsidiaries"), and Seller desires to
cause the Subsidiaries to sell to Buyer, such Facilities together with
related assets (the "Transactions").
NOW, THEREFORE, in consideration of the foregoing recitals and the
agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto, intending to be legally bound, do hereby agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Certain Defined Terms. For purposes of this Agreement,
the following terms shall have the following meanings:
"Affiliate" of a specified person shall mean any corporation,
partnership, sole proprietorship or other person or entity which directly or
indirectly through one or more intermediaries controls, is controlled by or
is under common control with the person specified. The term "control" means
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person or entity.
"Cost Report" means the cost report required to be filed, as of
the end of a provider cost year or for any other required period, with cost-
based Payors with respect to cost reimbursement.
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<PAGE>
"knowledge" of a party shall mean the collective knowledge of
the persons who serve as of the date of this Agreement as the duly elected
officers of such party.
"Laws" shall mean all statutes, rules, regulations, ordinances,
orders, codes, permits, licenses and agreements with or of federal, state,
local and foreign governmental and regulatory authorities and any order,
writ, injunction or decree issued by any court, arbitrator or governmental
agency or in connection with any judicial, administrative or other non-
judicial proceeding (including, without limitation, arbitration or refer-
ence).
"Licenses" shall mean certificates of need, accreditations,
registrations, licenses, permits and other consents or approvals of govern-
mental agencies or accreditation organizations.
"Payor" shall mean Medicare, Medicaid, CHAMPUS and Medically
Indigent Assistance programs, Blue Cross, Blue Shield or any other third
party payor (including an insurance company), or any health care provider
(such as a health maintenance organization, preferred provider organization,
peer review organization, or any other managed care program).
"Taxes" shall mean (i) all federal, state, county and local
sales, use, property, payroll, recordation and transfer taxes, (ii) all
state, county and local taxes, levies, fees, assessments or surcharges
(however designated, including privilege taxes, room or bed taxes and user
fees) which are based on the gross receipts, net operating revenues or
patient days of a Facility for a period ending on, before or including the
Closing Date (as defined in Section 2.13) or a formula taking any one of the
foregoing into account, and (iii) any interest, penalties and additions to
tax attributable to any of the foregoing, but shall not include income and
other taxes described in Sections 2.4(a) and (b).
Section 1.2 Index of Other Defined Terms. In addition to those terms
defined above, the following terms shall have the respective meanings given
thereto in the sections indicated below:
Defined Term Section
Account Parties 2.9(b)
Accrued Operating Assets 2.5
Accrued Operating Expenses 2.3(j)
Adjustment Sections 2.14
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<PAGE>
Agreement Preamble
Allocation Schedule 2.7
Assigned Stock 2.1(c)
Assumed Contracts 2.3(a)
Assumed Guarantees 2.3(a)
Assumed Liabilities 2.3
Balance Sheet 3.17(b)
Buyer Preamble
Buyer's Affidavit 2.15(d)
Buyer's Subsidiaries Recitals
Charter Documents 3.4
Claim Notice 11.6
Closing 2.13
Closing Date 2.13
COBRA 2.10(d)
Code 3.11
Consents 8.4
Consultant 6.2(b)
Cost Report Settlements 2.2(i)
Deductible Amount 11.3(b)(i)(B)
Delivery Date 2.15(d)
Document Retention Period 5.7(b)
Earnest Money Deposit 2.6(a)
EBITDA 3.17(a)
EBITDA Statements 3.17(a)
Employee Benefit Arrangements 3.19(d)
Environmental Regulations 3.16(a)
Environmental Survey 6.2(b)
Equipment 2.1(e)
ERISA 2.10(a)
Escrow Agent 2.13(c)
Estimated Net Book Values 2.6(b)
Excluded Assets 2.2
Excluded Liabilities 2.4
Facilities Recitals
Final Delivery Date 2.15(e)
Final Net Book Values 2.6(d)
Financial Schedule 3.17
Guaranty Fee 2.8
Guaranty Fee Liabilities 2.8
Hazardous Materials 3.16
Hired Employees 2.10(c)
Hospital Records 5.7(a)
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<PAGE>
HSR Act 3.4
Indemnitee 11.5
Indemnitor 11.5(a)
Intercompany Transactions 2.1(g)(ii)
Interim Net Book Values 2.6(c)
Inventory 2.1(f)
Leased Real Property 2.1(b)
Loan Commitment Agreements 2.1(g)
Loan Commitment Notes 2.1(g)
Losses 11.3(a)
Management Agreement 2.15
Manuals 2.11(b)
Material Adverse Effect 3.4
Measurement Date 2.8
Multiemployer Plans 2.10(a)
Net Book Values 2.5
Other Assigned Contracts 2.1(g)
Owned Real Property 2.1(a)
Panel 2.12(b)
Patient Records 5.7(a)
Pension Plans 2.10(a)
Permitted Encumbrances 3.8
Prepayments 2.1(l)
Purchase Price 2.5
Real Property Leases 2.1(b)
Receivables 2.1(m)
Related Agreements 3.4
Retained Employees 2.10(b)
Seller Preamble
Seller's Affidavit 2.15(d)
Straddle Patients 2.9(c)
Straddle Patient Payments 2.9(c)(ii)
Straddle Cost Reports 6.6(b)
Subsidiaries Recitals
TEFRA 2.9(c)(ii)
Tentative Purchase Price 2.6(b)
Termination Date 10.1(b)
Third Party Claims 11.5(a)
Title Insurer 8.7
Title Policies 8.7
Transactions Recitals
Transferred Business Names 2.1(j)
Transferred Records 5.7
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<PAGE>
Trigger Amount 11.3(b)(i)(B)
Unusual Proceedings 3.14
Venture Agreements 2.1(d)
WARN Act 2.10(e)
Working Capital Adjustment Date 2.6(d)
ARTICLE 2
BASIC TRANSACTIONS
Section 2.1 Purchased Assets. On the terms and subject to the
conditions contained in this Agreement, including, but not limited to, the
provisions of Section 2.15, at the Closing (as defined in Section 2.13),
Buyer shall purchase from each Subsidiary, and Seller shall cause each
Subsidiary to sell, convey, assign, transfer and deliver to Buyer, the
following assets, and only the following assets, of such Subsidiary as of
the Closing (the "Transferred Assets"), but excluding all Excluded Assets as
defined in Section 2.2:
(a) All of the Subsidiary's right, title and interest in and to
the real property owned in fee (the "Owned Real Property") that is identi-
fied in Schedule 2.1(a) on which Facilities are located, together with the
Facilities, construction work-in-progress, and all other buildings and
improvements thereon, and all rights, privileges, permits and easements
appurtenant thereto;
(b) All of the Subsidiary's right, title and interest in and to
the leasehold estates (the "Real Property Leases") in land, Facilities and
real property improvements (whether owned or leased) (the "Leased Real
Property") identified in Schedule 2.1(b), together with all construction
work-in-progress in respect of same and all rights, privileges and easements
appurtenant thereto;
(c) All of the Subsidiary's right, title and interest in and to
the capital stock (the "Assigned Stock") shown on Schedule 2.1(c) owned by
the Subsidiary in Neuro Rehab Associates, Inc., a New Hampshire corporation,
which leases and operates Northeast Rehabilitation Hospital in Salem, New
Hampshire;
(d) All of the Subsidiary's right, title and interest in and to
the joint ventures or partnerships identified in Schedule 2.1(d) hereto that
relate to partnerships or joint ventures that own or lease Facilities or
other Transferred Assets, together with all of the Subsidiary's right, title
and
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<PAGE>
interest in and to the joint venture or partnership agreements, also identi-
fied in such Schedule (the "Venture Agreements"), that govern such partner-
ships or joint ventures;
(e) All of the Subsidiary's right, title and interest in and to
fixed machinery and equipment, other fixtures and fittings, moveable plant,
machinery, equipment and furniture, trucks, tractors, trailers and other
vehicles, tools and other similar items of tangible personal property
(collectively "Equipment") (i) that are not consumed, disposed of or held
for sale or as inventory in the ordinary course of business, (ii) that are
owned or leased by or consigned to the Subsidiary as of the Closing, and
(iii) that are used solely with respect to the operation of Facilities;
(f) All of the Subsidiary's right, title and interest in and to
inventories of supplies, drugs, food, janitorial and office supplies,
maintenance and shop supplies, and other similar items of tangible personal
property intended to be consumed, disposed of or sold in the ordinary course
of business (collectively, the "Inventory") that are owned by or consigned
to the Subsidiary as of the Closing and that are used by the Subsidiary
solely with respect to the operation of the Facilities;
(g) All of the Subsidiary's right, title and interest in and to
all contracts and agreements to which the Subsidiary is a party at the
Closing, other than the Real Property Leases and the Venture Agreements, to
the extent the same are transferable to Buyer (whether by action of the
Subsidiary or Seller or, in the case of Medicare provider agreements, the
Health Care Finance Administration) (the "Other Assigned Contracts"),
including, but not limited to, the contracts identified on Schedule 2.1(g)
which contains a list of the following categories of Other Assigned Con-
tracts: construction contracts relating to construction work-in-progress at
the Facilities; Equipment leases (whether operating or capitalized leases)
and installment purchase contracts where the annualized lease or installment
payments exceed $25,000; contracts or arrangements binding on a Facility
which contain any covenant not to compete or otherwise significantly re-
strict the nature of the business activities in which the Facility may
engage; employment contracts, if any, between the Subsidiary or a Facility
and the chief executive or chief financial officer of such Facility; collec-
tive bargaining agreements, if any; Medicare and Medicaid provider numbers
and provider agreements with other Payors; bridge and other loan commitment
agreements (the "Loan Commitment Agreements") pursuant to which a Subsidiary
has agreed to provide advances from time to time to lessors or sublessors
under the Real Property Leases, together with any promissory notes ("Loan
Commitment Notes") evidencing amounts owed
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<PAGE>
to the Subsidiary as a result of any such advances; and any other contracts
pursuant to which the Subsidiary paid or received over $25,000 during its
last fiscal year; provided that Schedule 2.1(g) need not list an Other
Assigned Contract if all material obligations of the Subsidiary thereunder
have been, or, prior to the Closing, will be completed, or the Subsidiary is
entitled, or has or by the Closing will have exercised a right, to terminate
the contract without penalty on ninety (90) days' notice or less. Notwith-
standing the foregoing, the Other Assigned Contracts shall not include:
(i) Any contract which evidences indebtedness for money
borrowed or the deferred portion of the purchase price for Owned Real
Property and is therefore an Excluded Liability under the provisions
of Section 2.4(i), unless the parties mutually agree, in accordance
with the provisions of such Section 2.4(i), that such indebtedness
will be assumed by Buyer, in which case the contract or contracts
evidencing such indebtedness will be Transferred Assets; and
(ii) Any contract respecting an intercompany transaction
between the Subsidiary, on the one hand, and Seller or an Affiliate
(as defined in Section 1.1) of Seller, on the other, whether or not
such transaction relates to the provision of goods and services, tax
sharing arrangements, payment arrangements, intercompany charges or
balances, or the like ("Intercompany Transactions").
(h) All of the Subsidiary's right, title and interest in and to
the right to receive mail and other communications addressed to Seller or
the Subsidiary insofar as such mail or other communication relates to the
operation of the Facilities after the Closing;
(i) All of the Subsidiary's right, title and interest in and to
the business names set forth in Schedule 2.1(i) (the "Transferred Business
Names");
(j) All of the Subsidiary's right, title and interest in and to
Licenses (as defined in Section 1.1) in favor of the Subsidiary as of the
Closing that are directly related to, necessary for, or used solely in
connection with the operation of the Facilities as presently operated by the
Subsidiary, provided that Licenses in favor of the Subsidiary shall be
included in the Transferred Assets only to the extent they are lawfully
transferable;
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(k) All of the Subsidiary's right, title and interest in and to
unexpired warranties as of the Closing that are transferable to Buyer which
the Subsidiary has received from third parties with respect to the Trans-
ferred Assets, including, but not limited to, such warranties as are set
forth in any construction agreement, lease agreement, equipment purchase
agreement, consulting agreement or agreement for architectural and engineer-
ing services;
(l) All of the Subsidiary's right, title and interest in and to
advance payments, prepayments, prepaid expenses, deposits and the like made
by the Subsidiary or Seller on its behalf in the ordinary course of business
prior to the Closing, which exist as of the Closing and with respect to
which Buyer will receive the benefit after the Closing, and other items
recorded as prepaid expenses by Seller and the Subsidiaries (collectively,
"Prepayments");
(m) All of the Subsidiary's right, title and interest as of the
Closing in and to accounts receivable recorded by the Subsidiary as an
account receivable from Payors, patients and other third parties together
with rights to payment for services rendered through the Closing Date to
Straddle Patients referred to in Section 2.9(c) (collectively, "Receiv-
ables"); and
(n) All of the Subsidiary's right, title and interest in and to
the goodwill of the businesses evidenced by the Transferred Assets, and,
except for Excluded Assets, any and all other assets of the Subsidiary
utilized solely in the operations of the Facilities as conducted prior to
the Closing Date, whether or not such assets have any value for accounting
purposes (including for this purpose assets of Seller which are held or used
solely in connection with the operations of the Facilities, all of which
shall be conveyed by Seller to the applicable Subsidiary on or prior to the
Closing Date); provided that with respect to NME Hospitals, Inc., Interna-
tional-NME, Inc., RHSC Hospitals, Inc. and NME Rehabilitation Hospitals,
Inc., only those assets described in Sections 2.1(a)-(m) above (other than
Excluded Assets) shall be included in the Transferred Assets.
Section 2.2 Excluded Assets. The parties hereto agree that assets of
the Subsidiaries not expressly described in Section 2.1 are not intended to
be part of the Transferred Assets and are excluded from the purchase and
sale contemplated hereby. Without limiting the generality of the foregoing,
such excluded assets (the "Excluded Assets") include the following:
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<PAGE>
(a) Except for the Inventory, Receivables, Prepayments and
current amounts represented by the Loan Commitment Notes included in the
Transferred Assets, all assets constituting working capital, whether cash,
cash equivalents, securities, or other current assets, and all claims,
choses in action, rights of recovery, rights of set-off, rights to refunds,
and similar rights, whether or not included in working capital;
(b) Except for the Transferred Business Names, Licenses and
Other Assigned Contracts included in the Transferred Assets, all privileged
or proprietary materials, documents, information, media, methods and pro-
cesses owned by Seller or a Subsidiary, and any and all rights to use same,
including, but not limited to, all intangible assets of an intellectual
property nature such as trademarks, service marks and trade names (whether
or not registered), proprietary computer software, all proprietary proce-
dures and manuals, all promotional or marketing materials (including all
marketing computer hardware and software), and any and all names under which
the Subsidiaries or the Facilities have done business or offered programs,
other than the Transferred Business Names, and all abbreviations and varia-
tions thereof provided, however that Buyer shall have the rights set forth
in Section 2.11;
(c) The rights of any Subsidiary under any insurance policy, if
any, included in the Transferred Assets which relate to any Excluded Asset
or Excluded Liability (as defined in Section 2.4) (it being understood,
however, that Buyer shall have no obligation to take any action under any
such policy to seek any recovery except at the reasonable request, and at
the sole expense, of Seller or a Subsidiary or to continue any such policies
in force);
(d) The rights of Seller or of any Subsidiary to receive mail
and other communications addressed to any of them with respect to Excluded
Assets or Excluded Liabilities;
(e) Subject to the provisions of Section 5.7, any and all
business and patient records of or related to the operation of the Facili-
ties, whether or not maintained at or by the Facilities;
(f) All property, plant, equipment and other assets pertaining
to the rehabilitation healthcare business of Seller or any subsidiary of
Seller that relate to any general hospital, acute hospital or so-called
"campus facility" of Seller or any subsidiary of Seller, as more particular-
ly described in Schedule 2.2(f), and all outpatient facilities and other
assets related thereto;
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(g) Any and all contracts and agreements pursuant to which a
Subsidiary provides management services to third parties;
(h) Any and all rights respecting computer and data processing
hardware or firmware that is proprietary to Seller or any Affiliate of
Seller, and any computer and data processing hardware or firmware, whether
or not located at a Facility, that is part of a computer system the central
processing unit for which is not located at a Facility;
(i) All of the right, title and interest of Seller and the
Subsidiaries in assets resulting from the finalization with Payors of
amounts due with respect to Cost Reports ("Cost Report Settlements") to the
extent such Cost Reports cover any period through the Closing Date and other
rights of Seller respecting Cost Reports described in Section 6.6; and
(j) (i) All assets of South Texas Rehab Corporation or other-
wise related to Rehabilitation Hospital of South Texas;
(ii) All amounts due to the Subsidiaries arising from Inter-
company Transactions; and
(iii) Such other assets, if any, specifically described in
Schedule 2.2(j) and assets which would be Transferred Assets except
for the operation of Sections 2.12, 2.15, 6.2(c), 8.5, 8.7 or 9.5.
Buyer acknowledges and agrees that Seller shall have the right to remove,
and may remove at any time prior to or within thirty (30) days following the
Closing Date or, with respect to the Hospital Records (as defined in Section
5.7(a)), within the Document Retention Period (in each case, at Seller's
expense, but without charge by Buyer for storage), from time to time any and
all of the Excluded Assets from the Facilities, provided that Seller shall
do so in a manner that does not unduly or unnecessarily disrupt Buyer's
normal business activities at the Facilities.
Section 2.3 Assumed Liabilities. Subject to the terms and conditions
set forth in this Agreement, Buyer shall assume at the Closing and pay,
discharge and perform as and when due the following obligations and liabili-
ties, but excluding all Excluded Liabilities as defined in Section 2.4 (the
"Assumed Liabilities"):
(a) All liabilities and obligations of the Subsidiaries which
pertain to or are to be performed during the period following the Closing
Date (as defined in Section 2.13), and which arise under any contract,
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license, permit, agreement, arrangement, understanding or undertaking
included in the Transferred Assets, including the Real Property Leases, the
Venture Agreements, the Other Assigned Contracts and the Licenses, and any
obligation or liability (the "Assumed Guarantees") of Seller or any Affili-
ate of Seller (including letters of credit and performance bonds) which is
in the nature of a guaranty of the foregoing or of other liabilities and
obligations of the Subsidiaries or of others in connection with the opera-
tion of the Facilities (together, the "Assumed Contracts"), including
without limitation, any capitalized lease liabilities and obligations;
(b) Without affecting the provisions of Sections 2.1(l),
2.6(b), 2.6(c) or 2.6(d), all liabilities and obligations under open pur-
chase orders that were entered into by Seller or a Subsidiary in the ordi-
nary course of business with respect to operation of a Facility on or prior
to the Closing Date and which provide for the delivery of goods or services
subsequent to the Closing Date;
(c) All obligations and liabilities to the Hired Employees (as
defined in Section 2.10(c)) for paid time off (including, for all purposes
of this Agreement, vacation pay) through the Closing Date in accordance with
the employment policies of Seller as they exist on the date of this Agree-
ment; provided that if Seller satisfies any portion of such obligations and
liabilities existing at the Closing by payment to a Hired Employee, then
Buyer will reimburse Seller for the amount of such payment at the Closing;
and provided further that except as may be expressly set forth herein,
nothing in this Agreement shall be deemed to require Buyer to continue to
follow any such employment policies of Seller with respect to services of
Hired Employees after the Closing Date.
(d) All liabilities or obligations of Seller or a Subsidiary
for Taxes (as defined in Section 1.1) incurred as a result of the sale of
the Transferred Assets hereunder to Buyer;
(e) Subject to the provisions of Sections 3.16 and 6.2(c), all
liabilities arising out of or in connection with the existence of Hazardous
Materials (as defined in Section 3.16) upon, about, beneath or migrating or
threatening to migrate to or from the Owned Real Properties or the Leased
Real Properties or the existence of any violation of any Environmental
Regulations (as defined in Section 3.16) pertaining to any such Owned Real
Properties or Leased Real Properties or the businesses operated therefrom;
(f) All liabilities and obligations respecting any changes or
improvements needed to the Facilities for them to be in material compliance
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following the Closing with safety, building, fire, land use, access (includ-
ing without limitation the Americans With Disabilities Act) or similar Laws
(as defined in Section 1.1) respecting the physical condition of the Facili-
ties;
(g) All liabilities and obligations respecting employee matters
assumed by Buyer pursuant to the provisions of Section 2.10(a);
(h) All liabilities, obligations and expenses of Seller and the
Subsidiaries arising from, or connected with, any determination by Medicare
or any other Payor (as defined in Section 1.1) to seek to recapture any
costs reimbursed or reimbursable to Seller or any Subsidiary as a result of
the purchases and sales contemplated hereby (including any gain from sale
liability), provided that Buyer shall have no liability or obligation under
this Section 2.3(h) except for Losses (as defined in Section 11.3(a)) of
Seller and the Subsidiaries related to any such recapture or attempted
recapture that exceed Five Million Dollars ($5,000,000) in the aggregate;
(i) Any liability or obligation which becomes an Assumed
Liability by operation of Section 2.4(i) and such other liabilities and
obligations, if any, specifically described in Schedule 2.3(i).
(j) Any accrued or unpaid liabilities (whether or not due) of
the Subsidiaries in existence on the Closing Date which relate to the
Facilities, which were incurred in the ordinary course of the operation of
the Facilities and which represent (i) trade payables incurred to suppliers
of goods or services; (ii) water, gas, electricity and other utility charg-
es; (iii) license fees; (iv) rent, common area maintenance charges, operat-
ing expenses and other charges arising under the Real Property Leases; (v)
insurance premiums; (vi) accrued salaries, benefits (including accrued
vacation and sick pay) and payroll taxes respecting Hired Employees; (vi) T-
axes, except for Taxes referred to in Section 2.3(d) and payroll taxes
respecting employees who are not Hired Employees; and (vii) similar liabili-
ties incurred in the ordinary course of the operation of the Facilities and
customarily recorded as a current liability, other than the current portion
of long-term liabilities and obligations (the liabilities referred to in
this Section 2.3(j) being herein referred to as "Accrued Operating Expens-
es").
Section 2.4 Excluded Liabilities. The parties hereto agree that
liabilities and obligations of Seller and the Subsidiaries not expressly
described in Section 2.3 are not intended to be part of the Assumed Liabili-
ties, and Buyer shall not assume or become obligated with respect to any
other obligation or liability of Seller or any Subsidiary or any Affiliate
of
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either (collectively, "Excluded Liabilities"), including, but not limited
to, the liabilities and obligations described in this Section, all of which
shall remain the sole responsibility of Seller or the pertinent Subsidiary
or Affiliate, as the case may be, it being understood, however, that, as
between Seller and the Subsidiaries, on the one hand, and Buyer, on the
other, Buyer shall bear the risk of and be responsible for the ongoing
operations of the Facilities after the Closing, including the continuation
or performance by Buyer after the Closing of any agreement or practice of
the Subsidiaries. Without limiting the generality of the foregoing, Buyer
shall not assume and shall have no liability or obligation of any kind for
or with respect to any of the following:
(a) Any of Seller's or any of the Subsidiaries' liabilities or
obligations (including, but not limited to, any liabilities or obligations
under any tax sharing agreements) with respect to franchise taxes and with
respect to foreign, federal, state or local taxes imposed upon or measured,
in whole or in part, by the net income for any period ending on or prior to
the Closing Date of Seller and/or such Subsidiaries or any member of a
combined or consolidated group of companies of which Seller and/or such
Subsidiaries are, or were at any time, a part, or with respect to interest,
penalties or additions to any of such taxes, it being understood that Buyer
shall not be deemed to be Seller's or any Subsidiary's transferee with
respect to any such tax liability;
(b) Any of Seller's or any of its Subsidiaries' liabilities or
obligations with respect to the recapture of foreign, federal, state or
local tax deductions or credits taken by Seller or such Subsidiary for any
period ending on or prior to the Closing Date imposed upon, or any taxable
gain recognized by, Seller or such Subsidiary on account of the Transactions
contemplated hereby;
(c) Liabilities or obligations of Seller or a Subsidiary
arising from the breach by Seller or such Subsidiary on or prior to the
Closing Date of any term, covenant, or provision of any of the Assumed
Contracts;
(d) Liabilities or obligations of Seller or its Affiliates now
existing or which may hereafter exist by reason of any alleged violation of
Laws (as defined in Section 1.1) by Seller or any of its Affiliates on or
prior to the Closing Date;
(e) Subject to the provisions of Sections 2.3(h), 2.7 and 7.3,
liabilities or obligations of Seller or a Subsidiary now existing or which
may hereafter exist by reason of any liability to refund any payment or
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reimbursement received by Seller or a Subsidiary from any Payor (as defined
in Section 1.1) which is attributable to any period of time ending on or
prior to the Closing Date;
(f) Liabilities or obligations of Seller or a Subsidiary under
any Assumed Contract which would be included in the Transferred Assets but
for the provisions of Section 2.12, unless Buyer is provided with the
benefits thereunder as contemplated in such Section;
(g) Liabilities of Seller and the Subsidiaries arising from or
in connection with litigation described in Section 3.14, including, but not
limited to, the Unusual Proceedings described therein, or from or in connec-
tion with any other litigation, whether or not pending or threatened, to
which Seller or any Subsidiary or any Affiliate of Seller or any Subsidiary
is or may become a party with respect to causes of action against them in
existence (i.e., all elements of the claim are complete) prior to the
Closing;
(h) Subject to Section 2.12(b), liabilities of Seller and the
Subsidiaries incurred in connection with their obtaining any consent,
authorization or approval necessary for them to sell, convey, assign,
transfer or deliver any Transferred Asset to Buyer hereunder;
(i) Any liability of Seller or a Subsidiary representing
indebtedness for money borrowed or the deferred portion of the purchase
price for any Owned Real Property (and any refinancing thereof), including
without limitation the indebtedness identified on Schedule 2.4(i); provided
that if, prior to Closing, the parties mutually agree that any such indebt-
edness or obligation will be assumed by Buyer and further agree upon an
equitable reduction in the Purchase Price (as defined in Section 2.5) to
reflect Buyer's assumption of such indebtedness or obligation, then any such
indebtedness or obligation will be deemed to constitute an Assumed Liability
for all purposes of this Agreement; and provided further that with respect
to any such indebtedness or obligation not so assumed by Buyer that consti-
tutes a lien or encumbrance upon any Transferred Asset, Seller agrees that
substantially concurrently with or prior to the Closing it will either pay
or discharge such indebtedness or liability in full or otherwise cause such
lien or encumbrance to be removed from such Transferred Asset, so that such
Transferred Asset is sold, conveyed, assigned, transferred and delivered to
Buyer at the Closing free and clear of such lien or encumbrance;
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(j) Such other liabilities and obligations, if any, specifi-
cally described in Schedule 2.4(j) and liabilities which would be Assumed
Liabilities but for the provisions of Sections 2.12, 2.15, 8.5, 8.7 or 9.5;
(k) Liabilities and obligations of South Texas Rehab Corpora-
tion or otherwise relating to Rehabilitation Hospital of South Texas;
(l) Amounts due from the Subsidiaries arising from Intercompany
Transactions; and
(m) Liabilities and obligations respecting Cost Report Settle-
ments to the extent such Cost Reports cover any period through the Closing
Date and other obligations of Seller respecting Cost Reports described in
Section 6.6.
Section 2.5 Purchase Price. The purchase price (the "Purchase
Price") in the aggregate for all of the Transferred Assets shall be equal to
the sum of (a) Three Hundred Million Dollars ($300,000,000) (which includes
the Earnest Money Deposit referred to in Section 2.6(a)), subject to such
adjustments, if any, as may occur pursuant to Sections 2.4(i), 2.12, 8.5,
8.7, or 9.5, plus (b) an amount equal to the net book values of the Invento-
ry, Receivables and Prepayments (collectively, "Accrued Operating Assets")
included in the Transferred Assets as of the Closing net of Accrued Operat-
ing Expenses (the "Net Book Values"), plus (c) an amount equal to any
advances made under Loan Commitment Agreements during the period following
the execution of this Agreement and through the Closing less the amount of
any principal payments received during such period with respect to Loan
Commitment Notes.
Section 2.6 Payment of Purchase Price. The Purchase Price for the
Transferred Assets shall be paid as follows:
(a) Earnest Money Deposit. Buyer acknowledges that Seller and
the Subsidiaries will incur substantial damage that may be impossible to
quantify in the event the Transactions are not consummated. In order to
induce Seller to enter into this Agreement and to terminate its discussions
with other parties with respect to the sale of the Transferred Assets, Buyer
is, contemporaneously with the execution of this Agreement, paying to
Seller, in immediately available funds, the sum of Ten Million Dollars
($10,000,000), and will pay Seller, in immediately available funds, an
additional Ten Million Dollars ($10,000,000) on or before December 17, 1993,
as earnest money deposits (the portion of such deposits as have been
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paid to Seller being referred to as the "Earnest Money Deposit") to be
applied against the Purchase Price due in the event of a Closing. In the
event that (i) this Agreement is terminated by Buyer because of Seller's
material breach of its obligations hereunder, or (ii) there is no Closing
prior to the Termination Date (as defined in Section 10.1(b)) because (A)
the express conditions in Article 8 to the obligations of Buyer are not met
or waived (except, in the case of the conditions specified in Section 8.5,
if any such action, suit or proceeding therein described shall have been
commenced or threatened by Buyer or any of its Affiliates, associates,
officers, directors, shareholders, creditors, or prospective or actual
financing sources in respect of the Transactions), or (B) the express
conditions in Section 9.5 to the obligations of Seller are not met or waived
and any such action, suit or proceeding therein described shall have been
commenced or threatened by Seller or any Subsidiary or any of its or their
Affiliates, associates, officers, directors, shareholders or creditors, then
and in either of such events, within two (2) business days after the earlier
of such termination or the occurrence of the Termination Date, as the case
may be, Seller shall return the Earnest Money Deposit to Buyer without
interest, and less any costs of Seller and the Subsidiaries to be reimbursed
by Buyer pursuant to Section 5.5, via wire transfer of immediately available
funds. In all other cases, the Earnest Money Deposit shall be retained by
Seller, and such retention shall not relieve Buyer of its obligations to
reimburse any costs of Seller and the Subsidiaries pursuant to Section 5.5.
In the event of any breach of this Agreement or other liability of Buyer to
Seller, retention of the Earnest Money Deposit by Seller shall be in addi-
tion to any other rights and remedies it may have with respect to such
breach or other liability, provided that the Earnest Money Deposit shall be
applied as a credit against any damages ultimately determined to be owed by
Buyer to Seller as a result of such breach, or against any such other
liability of Buyer to Seller other than for reimbursable expenses pursuant
to Section 5.5.
(b) Payment of Tentative Purchase Price. No less than three
(3) business days prior to the Closing, Seller shall deliver to Buyer a
certificate executed on the Seller's behalf by a responsible officer setting
forth the Seller's estimate of what the Net Book Values will be as of
Closing (the "Estimated Book Values"), and additionally setting forth (i)
the Net Book Values recorded by Seller as of the most recent month-end prior
to the delivery of such certificate for which data is available, (ii) the
results of a physical inventory taken after the date hereof of property
which would constitute Inventory if the Closing had occurred on the date of
such physical inventory, and (iii) the methodology used by Seller for
updating changes in Net Book Values since such physical inventory and month-
end data to arrive at such estimate. All determinations made with respect
to the Net
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Book Values shall be based upon the internal records of, and the valuation
methods customarily used by, Seller and the Subsidiaries, absent manifest
error, and under no circumstances shall an additional physical inventory or
audit be required. On the terms and subject to the conditions contained in
this Agreement, at the Closing Buyer shall pay to Seller, in the manner set
forth herein, an amount equal to (i) the amount set forth in Section 2.5(a),
plus (ii) an amount equal to the Estimated Net Book Values (the sum of
clauses (i) and (ii) being referred to as the "Tentative Purchase Price"),
less (iii) the Earnest Money Deposit previously delivered by Buyer to
Seller.
(c) Determination of Interim Net Book Values. As soon as
practicable, but in no event later than forty-five (45) days after the
Closing, Seller shall cause a schedule to be prepared and delivered to Buyer
showing an interim calculation of the Net Book Values (the "Interim Net Book
Values") as of the Closing Date derived by Seller from the internal books
and records of Seller and the Subsidiaries with respect to the Facilities.
If such schedule as submitted by Seller is not challenged in writing by
Buyer within thirty (30) days of its receipt of same, then it shall be
deemed accepted by Buyer. If it is so challenged, then, unless otherwise
resolved by agreement of the parties within thirty (30) days from the date
of Buyer's challenge or such later date as the parties may mutually agree
upon, such disagreement shall be mutually submitted by the parties to their
respective independent certified public accountants for resolution. If such
accountants cannot resolve the disagreement within thirty (30) days of such
submission, then they shall submit the matter to a third accounting firm of
national standing selected by them, whose determination shall be final and
binding, and shall be rendered within thirty (30) days of the date on which
the matter is submitted to such firm. Any such third accounting firm shall
determine the issues in dispute following such procedures, consistent with
the language of this Agreement, as it deems appropriate to the circumstances
and with reference to the amounts in issue. No particular procedures are
intended to be imposed upon such third accounting firm, it being the desire
of the parties that any such dispute shall be resolved as expeditiously and
inexpensively as reasonably practicable. In the event that the Interim Net
Book Values differ from the Estimated Net Book Values by more than ten
percent (10%), whether determined on the basis of the schedule prepared by
Seller, or agreement of the parties, or decision by independent public
accountants, as the case may be, then and in such event, within five (5)
business days following such determination of the Interim Net Book Values,
either Buyer shall pay to Seller, or Seller shall pay to Buyer, as the case
may be, in immediately available funds, the amount by which the Interim Net
Book Values differs from the Estimated Net Book Values. The
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pendency of a dispute shall not affect the payment obligation hereunder of
either Buyer or Seller to the extent such payment is not disputed.
(d) Determination of Final Net Book Values. Within ten (10)
business days following expiration of six (6) months from the Closing, Buyer
shall provide a certificate to Seller, executed on Buyer's behalf by a
responsible officer, setting forth a proposed calculation of final Net Book
Values (the "Final Net Book Values") as of the end of such six month period
(the "Working Capital Adjustment Date") which shall contain a reconciliation
of the Interim Net Book Values, adjusted only for (i) errors claimed by
Buyer to exist in Seller's accruals for Accrued Operating Assets and Accrued
Operating Expenses, (ii) Buyer's ability to collect Receivables in excess of
the carrying value therefor net of reserves, (iii) Buyer's inability to
collect Receivables in accordance with their net carrying values, and (iv)
Buyer's ability to pay Accrued Operating Expenses at less than their book
value. For purposes of any such calculation, (v) the accuracy of Seller's
accrual for real and personal property taxes shall be based upon the last
notice of tax assessment respecting such property prior to the Closing Date
that does not reflect the Transactions contemplated to occur at the Closing,
(vi) variable or undetermined charges arising under Real Property Leases
shall be accrued as of Closing on an historical basis, (vii) payments
received on account of Receivables shall be applied in accordance with
Sections 2.9(b) and (c), (viii) the Accrued Operating Expense in respect of
sick pay for Hired Employees shall be equal to the portion of unused sick
pay of such employees existing as of the Closing that is actually paid by
Buyer during the six month period after the Closing, and (ix) expenses for
such items as real and personal property taxes, utility charges, charges
arising under leases, insurance premiums and the like shall be pro-rated as
of the Closing. Any dispute concerning Buyer's calculation of the Final Net
Book Values that is unresolved for thirty (30) days shall be submitted for
resolution by the parties' independent certified public accountants in
accordance with the procedures contained in Section 2.6(c). Within five (5)
business days following determination of the Final Net Book Values, either
Buyer shall pay to Seller, or Seller shall pay to Buyer, as the case may be,
in immediately available funds, the amount by which the Final Net Book
Values differ from the Estimated Net Book Values, adjusted for payments, if
any, on account of the Interim Net Book Values. The pendency of a dispute
shall not affect the payment obligation hereunder of either Buyer or Seller
to the extent such payment is not disputed.
(e) Seller as Agent of Subsidiaries. Seller shall, prior to
the Closing, cause each Subsidiary to irrevocably designate Seller as its
agent to receive on its behalf delivery of that portion of all payments made
by
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Buyer hereunder to which such Subsidiary may be entitled, including without
limitation that portion of the Purchase Price attributable to the Trans-
ferred Assets sold to Buyer by it, and to acknowledge that delivery of such
payments, including the Purchase Price, to Seller in accordance with the
terms of this Agreement shall be conclusive and binding evidence against
such Subsidiary that, as between Buyer and such Subsidiary, any payments or
consideration due to such Subsidiary in respect of the Transferred Assets
sold to Buyer by it, or in respect of other payments due to it from Buyer
under the terms of this Agreement, have been delivered.
Section 2.7 Allocation of Purchase Price. The Purchase Price shall
be allocated to the Transferred Assets in accordance with Schedule 2.7 (as
the same may be updated as of the Closing to reflect changes in assets after
the as of date of such Schedule 2.7, the "Allocation Schedule"). Seller and
Buyer shall, and Seller shall cause the Subsidiaries to, allocate the
Purchase Price in accordance with the Allocation Schedule, to be bound by
such allocations for all purposes, to account for and report the purchases
and sales contemplated hereby for all purposes (including, without limita-
tion, financial, accounting, Medicare reimbursement and federal and state
tax purposes) in accordance with such allocations, and not to take any
position (whether in financial statements, Cost Reports, tax returns, Cost
Report or tax audits, or otherwise), including without limitation any claim
to a step up in the basis of such assets by Buyer or its successors and
assigns for Medicare purposes which is inconsistent with such allocations in
the Allocation Schedule without the prior written consent of the other
party, except to the extent, if any, required by applicable Law or generally
accepted accounting principles. Without limiting the generality of the
foregoing, Buyer agrees to indemnify and hold harmless Seller and the
Subsidiaries, in accordance with the provisions of Sections 11.4, 11.5 and
11.6, from and against any and all Losses in excess of Five Million Dollars
($5,000,000) in the aggregate arising from or connected with any determi-
nation by Medicare or any other Payor to seek to recapture any costs reim-
bursed or reimbursable to Seller or any Subsidiary as a result of the
purchases and sales contemplated hereby (including any gain from sale
liability).
Section 2.8 Guaranty Fee. In consideration for Seller or the Subsid-
iaries remaining contingently liable for the Assumed Liabilities, Buyer
shall pay to Seller a Guaranty Fee ("Guaranty Fee") based upon the gross
amount of the following Assumed Liabilities (the "Guaranty Fee Liabilities")
for which Seller, the Subsidiaries or Seller's other Affiliates remain
contingently liable: (i) obligations under the Real Property Leases, (ii)
capitalized lease obligations, (iii) obligations under operating leases for
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which the annualized lease payments and other lease-related charges exceed
Ten Thousand Dollars ($10,000), and (iv) obligations, including contingent
obligations, under the Assumed Guarantees. For purposes of the foregoing,
Seller and its Subsidiaries and Affiliates shall be deemed to remain contin-
gently liable with respect to a Guaranty Fee Liability unless and until the
Buyer provides to the Seller reasonable evidence of either payment of the
Guaranty Fee Liability or the agreement of the obligee releasing the Seller
and its Subsidiaries and Affiliates from further liability. The Guaranty
Fee shall be payable each January 31 hereafter, commencing January 31, 1995,
and shall be equal to one percent (1%) of the gross amount of the foregoing
Guaranty Fee Liabilities for which Seller, a Subsidiary or another Affiliate
of Seller is contingently liable as of the immediately preceding December 31
(each such December 31 being a "Measurement Date"). Each payment of the
Guaranty Fee shall be accompanied by a schedule in reasonable detail pre-
pared by Buyer and delivered to Seller setting forth the basis for the
calculation of the Guaranty Fee, and supported by such evidences of payment
and releases as Buyer relies upon to demonstrate any reduction in Guaranty
Fee Liabilities of Seller, the Subsidiaries and Seller's other Affiliates
since the Closing or the last Measurement Date before the one on which such
payment is based, as the case may be. Any dispute concerning any such
schedule that is unresolved for thirty (30) days shall be submitted for
resolution by the parties' independent certified public accountants in
accordance with the procedures contained in Section 2.6(c), but the exis-
tence of any such dispute, shall not defer the obligation to pay the Guaran-
ty Fee with respect to undisputed items. Payment of the Guaranty Fee shall
be by way of immediately available funds and shall be unaffected by the
Management Agreement referred to in Section 2.15 so that, despite the
escrowing of any instruments of assumption, the Guaranty Fee shall be paid
as though all instruments of assumption had been released from the escrow
referred to therein. For the information of the parties, at least two (2)
business days before the Closing, Seller shall prepare and deliver its
estimate of the gross amount of the foregoing Guaranty Fee Liabilities for
which it, its Affiliates and the Subsidiaries will be contingently liable
immediately after the Closing. For purposes of calculating the "gross
amount" of a Guaranty Fee Liability represented by an Assumed Guaranty, such
amount shall be deemed to be equal to the total amount guaranteed on the
pertinent Measurement Date, provided that to the extent the Assumed Guaranty
directly or indirectly guarantees payment or performance of another Guaranty
Fee Liability, then to that extent the gross amount represented by the
Assumed Guaranty shall be deemed to be zero. For purposes of calculating
the gross amount of a Guaranty Fee Liability represented by a lease (whether
respecting real or personal property), such amount shall be
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deemed to be equal to (a) in the case of a capitalized lease obligation, the
capitalized lease liability as of the applicable Measurement Date, and (b)
in the case of other leases, an amount determined by (i) dividing total
amounts due under the lease (whether for rent, taxes, maintenance charges,
etc.) for the twelve-month period ending on the applicable Measurement Date
by the number twelve (12), and (ii) multiplying such quotient by the number
of months (pro-rated for partial months) remaining during the firm term
(whether initial or extended) of the lease after such Measurement Date.
Section 2.9 Remittances and Receivables.
(a) In General. All remittances, mail and other communications
relating to the Excluded Assets or Excluded Liabilities received by Buyer at
any time after the Closing shall be immediately turned over by Buyer to the
addressee thereof, or if the addressee is no longer affiliated with Seller,
to Seller, and pending such delivery, Buyer shall have no interest in the
same and shall hold such remittances, mail and other communications in trust
for the benefit of Seller and the Subsidiaries. All remittances, mail and
other communications relating to the Transferred Assets or the Assumed
Liabilities received by Seller or any Subsidiary at any time after the
Closing shall be immediately turned over by Seller or such Subsidiary to the
addressee thereof, or if the addressee is no longer affiliated with Buyer,
to Buyer, and pending such delivery, Seller or such Subsidiary shall have no
interest in the same and shall hold such remittances, mail and other commu-
nications in trust for the benefit of Buyer.
(b) Receivables. (i) Buyer shall exercise its best efforts to
collect Receivables. Any payments received by Buyer or its successors and
assigns after the Closing, from patients, Payors, clients, customers or
others who are the obligors on Receivables as of the Closing (collectively,
"Account Parties"), shall be applied to the oldest remaining Receivables
from such Account Party in the order in which they arose unless, in the case
of an Account Party who is a patient, otherwise indicated by the patient's
Payor.
(ii) On the tenth day of the first month that begins at
least thirty (30) days after the Closing, on the tenth day of each month
thereafter until the Working Capital Adjustment Date, and on the tenth day
following the Working Capital Adjustment Date, Buyer shall execute appropri-
ate instruments of assignment to re-assign back to Seller, and shall turn
over to Seller all evidences of and documents pertaining to, any Receivable
which, as of the end of the immediately preceding month and/or the Working
Capital Adjustment Date, as the case may be, was uncollected
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and which either (A) is a Receivable as to which Buyer has decided to cease
collection activity, or (B) is a Receivable in respect of a patient which,
as of such month end or Working Capital Adjustment Date, has remained unpaid
for a period of at least one hundred twenty (120) days following such
patient's discharge from a Facility. Such Receivables which are eligible to
be turned over to Seller are herein referred to as "Eligible Receivables."
Any Eligible Receivable that is assigned back to Seller at the first oppor-
tunity to do so under the provisions of this clause (ii) shall, for purposes
of the adjustments contemplated by Section 2.6(d), be deemed to have not
been collected by Buyer, and any Eligible Receivable that is not so assigned
back to Seller at the first opportunity to do so under the provisions of
this clause (ii) shall, for purposes of the adjustments contemplated by
Section 2.6(d), be deemed to have been collected by Buyer. With respect to
any such Eligible Receivable re-assigned back to Seller, Seller and the
Subsidiaries shall be free to institute such collection efforts, including,
without limitation, initiating such legal proceedings, with respect thereto
as they shall, in their sole discretion determine.
(iii) In the event of any adjustment in the Net Book
Values arising under Section 2.6(d)(iii), then upon such determination,
Buyer shall execute instruments of assignment, effective as of the Working
Capital Adjustment Date, respecting any other unpaid Receivables which are
not collected or deemed collected as of such date (it being agreed that any
unpaid Receivables not so assigned shall be deemed collected as of or prior
to the Working Capital Adjustment Date).
(c) Straddle Patient Receivables. To compensate Seller and the
Subsidiaries for services rendered and medicine, drugs and supplies provided
through the Closing Date with respect to patients ("Straddle Patients") who
were admitted to a Facility on or before the date of the Closing and dis-
charged by the Facility after the Closing, the following shall apply:
(i) Cut-Off Billings. Seller shall, or shall cause the
Subsidiaries to, prepare cut-off billings for all Straddle Patients as
of the close of business on the Closing Date. All payments which are
received by Buyer (or its successors in interest or assigns) after the
Closing Date with respect to Straddle Patients and which relate to
such cut-off billings shall constitute Receivables for purposes of
calculating the Tentative Purchase Price and the Interim Net Book
Values.
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(ii) Cut-Off Billings Not Accepted. If the Payor of any
Straddle Patient cannot for any reason accept cut-off billings, then
Buyer shall notify Seller of same, and Seller shall, or shall cause
the Subsidiaries to, deliver to Buyer a statement calculating the
total charges made by Seller and the Subsidiaries for services ren-
dered and medicine, drugs and supplies provided through the Closing
Date with respect to such Straddle Patient. Within ten (10) days
following the discharge of each such Straddle Patient, Buyer shall
deliver to Seller a statement reflecting the total charges for the
services rendered and medicine, drugs and supplies billed to such
Straddle Patient after the Closing Date and the patient receivable
(the "Straddle Patient Payments") of Buyer with respect to such
Straddle Patient (including any cost per discharge limit imposed by
the Tax Equity and Fiscal Responsibility Act of 1982, as amended
("TEFRA") and all deductibles and co-insurance payments). For purpos-
es of calculating the Final Net Book Values, the pro rata share of the
Straddle Patient Payments which shall be treated as a Receivable shall
be equal to the amount obtained by multiplying the Straddle Patient
Payments by a fraction, the numerator of which is the total charges of
Seller and the Subsidiaries with respect to such Straddle Patient
through the Closing Date and the denominator of which is the total
charges of Buyer, Seller and the Subsidiaries with respect to such
Straddle Patient. Seller or Buyer, as may be applicable, may have
such statements as submitted by Buyer or Seller verified by their
respective independent public accountants within thirty (30) days from
delivery. If such statements, as submitted by Buyer or Seller, are
acceptable, then such statements shall fix the value of the services,
medicine, drugs and supplies provided by Seller and the Subsidiaries,
on the one hand, and by Buyer, on the other, to each such Straddle
Patient. If any such statement is challenged by Seller or Buyer, then
unless otherwise resolved by agreement of the parties within thirty
(30) days of any such challenge, such statement shall be deemed in
dispute, which dispute shall be resolved by the parties' independent
certified public accountants. If such accountants cannot resolve the
matter within thirty (30) days, then it shall be submitted by them to
a third accounting firm in accordance with the procedures contained in
Section 2.6(c). If Seller or Buyer does not give written notice to
the party preparing the statement of its challenge of such statement
within the first said thirty (30) day period, the receiving party
shall be deemed to have accepted the same.
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(d) Cooperation in Collecting Receivables and Excluded Assets.
Buyer agrees to cooperate with Seller and the Subsidiaries and to provide
access to records (both medical and financial) to assist in the collection,
rebilling and auditing (by Seller or its representatives, including its
independent public accountants) of the Receivables and the Excluded Assets
(including, but not limited to, any and all Receivables from Account Parties
or amounts due to or from any Payor). Without limiting the generality of
the foregoing agreements of Buyer to cooperate with Seller, for the six-
month period following the Closing Date, (i) Seller may locate one or more
of its or its subsidiaries' employees at any or all of the Facilities,
without charge, in order to facilitate such collection, rebilling and
auditing, (ii) Buyer shall provide such employees, without charge, adequate
and proper space to facilitate the performance of such duties, and (iii)
Buyer shall provide reasonable assistance of the employees of Buyer, without
charge.
Section 2.10 Employee Matters.
(a) Pension Plans. Schedule 2.10(a) lists all "employee
pension benefit plans" ("Pension Plans") within the meaning of Section 3(2)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"-
), and any "multiemployer plans" within the meaning of Section 3(37) of
ERISA ("Multiemployer Plans"), in which Retained Employees (as defined in
Subsection (b) below) directly employed to work at the Facilities partici-
pate. Seller shall, or shall cause the Subsidiaries to, (i) terminate as of
the Closing Date the active participation of all such employees in the
Pension Plans who constitute Hired Employees (as defined in Subsection (c)
below), (ii) cause the Pension Plans to make timely appropriate distribu-
tions, to the extent required, to such employees in accordance with, and to
the extent permitted by, the terms and conditions of such Pension Plans, and
(iii) in connection with the termination of the active participation of all
such employees in such Pension Plans, comply, and cause each Pension Plan to
comply, with all applicable Laws. Prior to the Closing, Seller shall have
delivered to Buyer, for information purposes only, forms of any letters or
other written communications which Seller or the Subsidiaries shall distrib-
ute generally to such employees notifying them of their rights in respect of
their cessation of active participation in the Pension Plans. With respect
to the Multiemployer Plans, Buyer agrees that Buyer shall contribute to such
Multiemployer Plans with respect to the operations covered thereby for
substantially the same number of contribution base units for which Seller
and/or the pertinent Subsidiaries have an obligation to contribute to such
Multiemployer Plans. Buyer shall take all action necessary to comply with
Section 4204 of ERISA, including, without limita-
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tion, posting, prior to the Closing Date, a bond or escrow for each of the
Multiemployer Plans for which a bond or escrow is required, in an amount,
for the period of time and in a form which complies with Section
4204(a)(1)(B) of ERISA, or, prior to the Closing Date, obtaining a variance
from such bonding or escrow requirement from the applicable Plan or Plans or
from the Pension Benefit Guaranty Corporation, so that a transfer of contri-
bution obligations to Buyer as set forth herein does not result in a com-
plete or partial withdrawal of Seller or any Subsidiary from any of such
Plans under ERISA, and Buyer shall furnish Seller proof thereof. The cost
of each bond or escrow required under Section 4204(a)(1)(B) of ERISA shall
be paid by Buyer and Buyer shall be the sole obligor thereunder. Seller ac-
knowledges that if Buyer completely or partially withdraws from any such
Plan at any time during the period of five Plan years of any such Plan,
commencing with the first Plan year of the applicable Plan beginning after
the Closing Date, and Buyer fails to make any withdrawal liability payment
when due, the pertinent Subsidiary shall be secondarily liable to the
applicable Plan in an amount equal to the withdrawal liability such Subsid-
iary would have had to such Plan under Part I of Subtitle E of ERISA as of
the Closing Date (but for the application of Section 4204 of ERISA). Buyer
shall in accordance with the provisions of Sections 11.4, 11.5, and 11.6,
indemnify and hold harmless Seller and the Subsidiaries for any Losses
(including such secondary liability) arising from or in connection with the
Multiemployer Plans, and any change or termination of, or any partial or
complete withdrawal from, any of such Plans, which might accrue to Seller
and the Subsidiaries from acts or omissions occurring or required on or
after the Closing Date, including but not limited to, any liability associ-
ated with any continuation of coverage under such Plans on or after the
Closing Date required by Law or contract.
(b) Retained Employees. Buyer shall offer to hire at the
Closing, on a probationary basis, each of the direct employees of Seller or
a Subsidiary who, as of the Closing, work at the Facilities (including any
such direct employees who are on medical disability or leaves of absence and
who worked at the Facilities immediately prior to such disability or leave),
except for those direct employees, if any, who are designated by Seller at
least two (2) days prior to the Closing, and shall additionally offer to
hire, on a probationary basis, at the Closing such other employees of Seller
or of any of its subsidiaries who are mutually agreed upon and who are
indirect employees with respect to the operations of the Facilities (such
direct and indirect employees being herein referred to as the "Retained
Employees"). Any such offer of employment to a Retained Employee by Buyer
shall be to perform comparable services, in such position as is comparable
to the position such Retained Employee held with Seller or any
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of its subsidiaries as of the Closing, provided that Buyer may offer compen-
sation to such Retained Employees at levels commensurate with compensation
levels paid to other employees of Buyer holding comparable positions, and
provided further that any change in compensation levels does not result in
any constructive discharge of any such Retained Employee, breach of any
employment contract assumed by Buyer hereunder or any other liability of
Seller and the Subsidiaries. Seller or its Affiliates shall have the right
to employ or offer to employ any Retained Employee (including, but not
limited to, the chief executive officer and the chief financial officer of
each Facility) who declines Buyer's offer of employment.
(c) Hiring of Retained Employees. Buyer shall hire at the
Closing, on a probationary basis, each Retained Employee who elects to
accept employment with Buyer (the "Hired Employees") and shall indemnify and
hold Seller and its Affiliates harmless, in accordance with Sections 11.4,
11.5 and 11.6, from and against any Losses arising from or relating to any
subsequent termination of any such Hired Employee by Buyer. Subject to the
proviso to Section 2.3(c), Buyer agrees to give the Hired Employees full
credit for the paid time off and sick pay earned or accrued by them during,
and to which they are entitled as a result of, their employment by Seller
and/or its subsidiaries, either by allowing such Hired Employees such paid
time off and sick pay as to which such Hired Employees would have been
entitled as of the Closing Date under the policies of Seller and/or its
subsidiaries (as in effect on the date of this Agreement) if such Hired
Employees had remained employees of Seller and/or its subsidiaries or, upon
termination of employment, by making full payment to such Hired Employees of
the paid time off that such employees would have received had they taken
such paid time off.
(d) Health Benefits. Buyer shall provide the Hired Employees a
program of health care benefits which is equivalent to the program of health
care benefits currently provided by Buyer to its existing employees, provid-
ed, however, that such health care benefits shall be immediately available
to the Hired Employees as of the Closing Date, and the Hired Employees shall
become as of the Closing Date participants thereunder, without regard to any
applicable waiting period or any limitation with respect to preexisting
conditions. Buyer acknowledges and agrees that Buyer is a successor employ-
er for purposes of the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended ("COBRA"), that the Hired Employees will not, as a result,
be deemed to have had a termination of employment for purposes of COBRA and
that any COBRA notices or coverages required to be given or made available
to any Hired Employee
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shall be given or made by Buyer and not Seller or the Subsidiaries, provided
that Buyer does not assume, and shall not be deemed to have assumed, any
COBRA obligations which Seller or any Subsidiary may have to former employ-
ees of Seller or such Subsidiary whose employment was terminated on or prior
to the Closing Date, or to any Retained Employees who do not accept employ-
ment with Buyer, and provided further that Seller shall be responsible for
any COBRA coverages required to be made available to any Hired Employee who
is entitled to COBRA coverage under existing plans of Seller or any Subsid-
iary as a result of the Transactions.
(e) Acknowledgement of Responsibility. Buyer acknowledges and
agrees that as of the date and time the Closing is effective, Buyer is
considered for purposes of the Worker Adjustment and Retraining Notification
Act (the "WARN Act") the employer of the Retained Employees and that Buyer
(and not Seller or the Subsidiaries) shall thereupon be responsible for
complying with the WARN Act with respect to the Retained Employees and that
prior to such time none of the Retained Employees shall be, nor shall they
be deemed to be, terminated. Buyer shall indemnify and hold Seller and its
Affiliates harmless, in accordance with Sections 11.4, 11.5 and 11.6, from
and against all Losses (i) resulting from any compliance obligation (includ-
ing, without limitation, the obligation to give notice or pay money) Seller
and its Affiliates or Buyer has under the WARN Act (whether or not to
Retained Employees) arising from the termination of any Retained Employee
whose name appears on the final list of Retained Employees on the Closing
Date or (ii) resulting from any claims of the Hired Employees (including,
without limitation, claims for health care coverage or benefits).
Notwithstanding the foregoing, nothing in this Section 2.10 shall, or shall
be deemed to, create any rights in favor of any person not a party hereto
or to constitute an employment agreement or condition of employment for any
employee of Seller or any Affiliate of Seller or any Retained Employee.
Section 2.11 Use of Names and Manuals.
(a) Although trade names of Seller and the Subsidiaries, other
than the Transferred Business Names, are Excluded Assets, such names appear
on certain of the fixed Transferred Assets, such as certain fixtures and
Equipment, and on supplies, materials, stationery and similar consumable
items which will be on hand at the Facilities at the Closing. Notwith-
standing that such names are Excluded Assets, Buyer shall be entitled to use
such consumable items for a period of three (3) months following the Closing
and shall have up to six (6) months following the Closing to
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remove such names from fixed Transferred Assets, provided that Buyer shall
not send correspondence or other materials to third parties on any statio-
nery that that contains a trade name (other than a Transferred Business
Name) of Seller or any Affiliate of Seller.
(b) Seller hereby grants to Buyer, for the period from the
Closing Date through the expiration of the ninetieth day thereafter, the
non-exclusive right and license to use, solely in connection with the
operation of the Facilities, the clinical policy and procedures manuals of
Seller and/or the Subsidiaries (the "Manuals") presently used at the Facili-
ties. Such license shall be on the following terms and conditions:
(i) Buyer shall accept the Manuals in their present
condition, "AS IS" and "WITH ALL FAULTS" and without any representa-
tion or warranty of any kind whatsoever, either express or implied, by
Seller, including, but not limited to, any representation or warranty
that the Manuals are adequate for Buyer's operation of the Facilities
after the Closing or are in compliance with any Laws;
(ii) Buyer agrees that Seller shall have no obligation
whatsoever to update or otherwise revise the Manuals, even if Seller
or its Affiliates are revising similar manuals at other healthcare
facilities, and that Buyer shall have sole responsibility for updating
and revising such manuals;
(iii) Buyer acknowledges and agrees that the Manuals are
confidential and proprietary information of Seller and its Affiliates
and Buyer agrees that it will not, directly or indirectly, reproduce,
distribute or disclose the contents of the Manuals except as may be
required in the operation of the Facilities (including, but not
limited to, as may be required by any Laws) and shall exercise due
care to otherwise preserve and protect the proprietary nature thereof;
(iv) Upon the termination of Buyer's use of the Manuals
pursuant to this Section, Buyer shall return to Seller all originals
and copies of the Manuals; and
(v) Buyer shall diligently implement its own policy and
procedure manuals promptly following the Closing Date, and in any
event by the date on which the license hereby granted to Buyer termi-
nates.
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Section 2.12 No Assignment If Breach; Seller's Discharge of Assumed
Liabilities.
(a) Notwithstanding anything contained in this Agreement to the
contrary, this Agreement shall not constitute an agreement to assign any
Transferred Asset, or assume any Assumed Liability, if the attempted assign-
ment or assumption of the same, as a result of the absence of the consent or
authorization of a third party, would constitute a breach or default under
any lease, agreement, encumbrance or commitment or would in any way adverse-
ly affect the rights, or increase the obligations, of Buyer, Seller or any
Subsidiary with respect thereto; provided that the assignment of any con-
tract, including without limitation Medicare, Medicaid and similar provider
agreements, which may lawfully be made subject to customary conditions
subsequent (such as needs surveys, evaluations of Buyer or other determi-
nations by the counterparties to such agreements) shall be deemed not to
constitute a default under, or to in any way adversely affect the rights or
increase the obligations of Buyer with respect to, such lease, agreement,
encumbrance or commitment, whether or not the counterparty indicates prior
to the Closing that such condition or conditions subsequent are likely or
not likely to be met. If any such consent or authorization is not obtained,
or if an attempted assignment or assumption would be ineffective or would
adversely affect the rights or increase the obligations of Seller, a Subsid-
iary or Buyer, with respect to any such lease, agreement, encumbrance or
commitment, so that Buyer would not, in fact, receive all such rights, or
assume the obligations, of Seller or Subsidiary with respect thereto as they
exist prior to such attempted assignment or assumption, then, in accordance
with the procedures described in Section 2.14, but subject to the Management
Agreement provisions of Section 2.15, Seller and Buyer shall, and Seller
shall cause each Subsidiary to, enter into such reasonable cooperative
arrangements as may be reasonably acceptable to both Buyer and Seller
(including without limitation, sublease, agency, partial closing, manage-
ment, indemnity or payment arrangements and enforcement at the cost and for
the benefit of Buyer of any and all rights of Seller and the Subsidiaries
against an involved third party) to provide for Buyer the benefits of such
Transferred Asset or to relieve Seller and the Subsidiaries from the obliga-
tions of such Assumed Liability, and any transfer or assignment to Buyer by
Seller or a Subsidiary of any such Transferred Asset, or any assumption by
Buyer of any such Assumed Liability, which shall require such consent or
authorization of a third party that is not obtained shall be made subject to
such consent or authorization being obtained. Subject to the provisions of
Section 2.15, if the parties cannot agree on any such arrangement, or any
such arrangement would not be reasonably practicable, to provide Buyer with
materially all the benefits
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of such Transferred Asset or materially all the obligations of such Assumed
Liability, then such Transferred Asset or Assumed Liability, as the case may
be, shall be excluded from the Transactions and shall be deemed to be an
Excluded Asset or an Excluded Liability, as the case may be, and Buyer and
Seller shall negotiate in good faith an equitable adjustment in the Purchase
Price, or resolve any disagreement respecting such adjustment, in accordance
with the procedures of Section 2.14.
(b) Notwithstanding any other provision of this Agreement,
during the period between the date hereof and the Closing, Seller may, for
the purpose of facilitating consummation of the Transactions, cause any
Subsidiary to acquire a fixed asset, or any direct or indirect interest
therein, that results in the simultaneous discharge of the effective cost of
all or any part of a liability that exists as of the date hereof which, but
for such acquisition, would be an Assumed Liability; provided that in each
such case it gives prompt notice of such acquisition to Buyer. In the event
of any such acquisition, Buyer and Seller shall negotiate in good faith an
equitable adjustment to the Purchase Price, or resolve any disagreement
respecting such adjustment, in accordance with the procedures of Section
2.14.
Section 2.13 Closing. Subject to the terms and conditions hereof,
the consummation of the Transactions (the "Closing") shall occur at a
mutually agreeable time and place or places within five (5) business days
after the first date on which all of the conditions set forth in Article 8
and Article 9 hereof are capable of being satisfied, but in no event later
than the Termination Date set forth in Section 10.1(b). The date on which
the Closing actually occurs is referred to herein as the "Closing Date".
The Closing shall be effective for all purposes as to each Facility (and the
Transferred Assets and Assumed Liabilities related thereto) at 11:59 p.m. on
the Closing Date, as determined by reference to the local time zone in which
the Facility is located. At the Closing and subject to the terms and
conditions hereof, the following will occur:
(a) Deliveries by Seller. Seller shall deliver, or cause the
Subsidiaries to deliver, to Buyer:
(i) A Bill of Sale and Assignment in substantially the
form of Exhibit A executed by each Subsidiary (or by Seller as its
attorney-in-fact) with respect to the Transferred Assets of the
Subsidiary covered thereby;
(ii) Grant deeds (or equivalent special or limited
warranty deeds for Owned Real Properties outside California),
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properly executed and acknowledged by each Subsidiary (or by Seller as
its attorney-in-fact) with respect to the Owned Real Properties of the
Subsidiary included in the Transferred Assets;
(iii) Assignments in substantially the form of Exhibit B
executed by each Subsidiary (or by Seller as its attorney-in-fact)
with respect to Real Property Leases of the Subsidiary included in the
Transferred Assets;
(iv) Instruments of transfer, sufficient to transfer
personal property interests of each Subsidiary that are included in
the Transferred Assets but not otherwise transferred by the Bills of
Sale and Assignment referred to in clause (i) above, executed by each
Subsidiary (or by Seller as its attorney-in-fact) in the form custom-
arily used in commercial transactions in the areas in which such other
personal property of such Subsidiary is located;
(v) Such other instruments of transfer, executed by each
of the pertinent Subsidiaries (or by Seller as its attorney-in-fact)
necessary to transfer to and vest in Buyer all of Seller's and the
Subsidiaries' rights, title and interest in and to the Transferred
Assets; and
(vi) Possession of the Transferred Assets.
(b) Deliveries by Buyer. Buyer shall deliver to Seller:
(i) Immediately available funds, by way of wire transfer
to an account or accounts designated by Seller, in an amount equal to
the Tentative Purchase Price, as adjusted by the expenses due at
Closing pursuant to Section 5.5; and
(ii) An Assumption Agreement or Assumption Agreements, in
substantially the form of Exhibit C, in favor of Seller and each of
the Subsidiaries.
(c) Escrow. If either of the parties desires to consummate the
Closing through an escrow, an escrow shall be opened with, and the escrow
agent shall be, Chicago Title Company (the "Escrow Agent"), by depositing a
fully executed copy of this Agreement with Escrow Agent to serve as escrow
instructions. This Agreement shall be considered the primary escrow in-
structions between the parties, but the parties shall execute such addition-
al standard escrow instructions as Escrow Agent shall require in
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order to clarify the duties and responsibilities of Escrow Agent. In the
event of any conflict between this Agreement and such additional standard
escrow instructions, this Agreement shall prevail. If the Closing is to be
consummated through the Escrow Agent, then on or prior to the Closing Date,
Buyer shall cause the funds required by Subsection (b)(i) above to be wired
to Escrow Agent, and the parties shall deliver the instruments of sale,
assignment, conveyance and assumption called for by Subsections (a) and (b)
above to be delivered to the Escrow Agent, and on the Closing Date, the
Escrow Agent shall close the escrow by:
(i) Causing the deeds for the Owned Real Properties, the
assignments of the Real Property Leases, and any other documents which
the parties may mutually designate to be recorded in the official
records of the appropriate counties in which the pertinent Transferred
Assets are located;
(ii) Delivering to Seller by wire transfer of immediately
available funds, to an account or accounts designated by Seller, the
amounts called for by Subsection (b)(i) above; and
(iii) Delivering to Buyer or Seller, as the case may be,
the other instruments referred to in Subsections (a) and (b) above.
Section 2.14 Purchase Price Adjustment.
(a) In the event that circumstances exist that require the
parties to negotiate in good faith cooperative arrangements under Section
2.12 or potential amendments to this Agreement pursuant to Sections 8.5 and
9.5 (dealing with possible subsequent transfers of Transferred Assets after
the Closing in the event of certain injunctions) or potential amendments to
the Management Agreement referred to in Section 2.15, or to negotiate in
good faith equitable adjustments in the Purchase Price pursuant to the
provisions of the foregoing Sections, or the provisions of Section 6.2(c)
(respecting Seller's obligations with respect to environmental conditions)
or 8.7 (respecting the condition of title to interests in real property)
(Sections 2.12, 2.15, 6.2(c), 8.5, 8.7 and 9.5 being collectively referred
to as the "Adjustment Sections"), then and in any of such events, such
negotiations, and the resolution of disagreements arising therefrom, shall
be conducted in accordance with the provisions of this Section 2.14. The
parties shall negotiate such cooperative arrangements, potential amendments
and equitable adjustments in the Purchase Price in good faith prior to any
scheduled Closing Date (as may be extended by mutual agreement of the
parties), and, in connection with an adjustment to the Purchase Price,
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shall also negotiate appropriate amendments to the Allocation Schedule
arising therefrom, provided that any adjustment in the Purchase Price shall
be consistent with the original Allocation Schedule. If the parties are
unable to agree by the day prior to such scheduled Closing Date, then such
scheduled Closing Date (and the Termination Date, if necessary) shall be
extended for up to fifteen (15) business days to provide for the opportunity
to resolve such disagreement pursuant to the provisions of this Section
2.14. On the day the Closing would have occurred but for the absence of
agreement between the parties, each party shall designate an individual (who
may not be a present or former officer, director, partner or employee of the
party or of any present or former investment banker, accounting firm, law
firm or attorney of or for the party) to mediate such disagreement, and
advise the other party in writing of the identity of such individual, which
advice shall be accompanied by a list of up to ten (10) suggested neutral
individuals to serve as a third mediator. The mediators originally desig-
nated by each party shall promptly confer about the selection of a third
mediator from such lists, and within five (5) business days following the
originally scheduled Closing Date (or Termination Date, as the case may be),
the originally designated mediators shall agree upon and (subject to avail-
ability) select the third mediator from the lists submitted by the parties
or otherwise, provided that if the originally designated mediators cannot
agree upon a third mediator by such date, the third mediator shall be a
retired judge designated by Judicial and Arbitration Mediation Services,
Inc., located in Los Angeles, California. The three mediators so selected
are herein referred to as the "Panel". Within two (2) business days follow-
ing the designation of the third mediator, each party shall submit to the
Panel in writing, its proposed cooperative arrangements, amendments to this
Agreement, amendments to the Management Agreement and/or equitable adjust-
ments in the Purchase Price in the absence of any such cooperative arrange-
ments or amendments, except that the parties need only submit their proposed
adjustments to the Purchase Price (and proposed amendments to the Allocation
Schedule) in the case of disagreements about adjustments for certain acqui-
sitions and modifications under Section 2.12(b), or for the value of an
excluded Facility under Section 6.2(c), or imperfections of title under
Section 8.7). Such proposals shall be materially in accordance with the
last proposals made by such party to the other party during the course of
the aforementioned good faith negotiations between the parties. The parties
shall additionally submit such memoranda, arguments, briefs and evidence in
support of their respective positions, and in accordance with such proce-
dures, as a majority of the Panel may determine. Within seven (7) business
days following the designation of the third mediator, the Panel shall, by
majority vote, select the proposed cooperative arrangements, amendments or
adjustments of the Purchase Price, as the
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case may be, proposed by one of the parties, it being agreed that the Panel
shall have no authority to alter any such proposal in any way. Thereafter,
the parties shall, subject to the terms and conditions of this Agreement,
consummate the Transactions on the basis of such selected cooperative
arrangements, amendments or adjustments at a mutually agreeable time and
place or places, in accordance with the provisions of Section 2.13, which
shall be no later than the fifteenth (15th) business day following the
originally scheduled Closing Date or such later date as the parties may
agree upon. Subject to the foregoing, the Panel may determine the issues in
dispute following such procedures, consistent with the language of this
Agreement, as it deems appropriate to the circumstances and with reference
to the amounts in issue. No particular procedures are intended to be
imposed upon the Panel, it being the desire of the parties that any such
disagreement shall be resolved as expeditiously and inexpensively as reason-
ably practicable. No member of the Panel shall have any liability to the
parties in connection with service on the Panel, and the parties shall
provide such indemnities to the members of the Panel as they shall request.
(b) Notwithstanding the foregoing, or any other provisions of
this Agreement, unless the parties otherwise agree, no adjustment to the
Purchase Price (except in connection with an adjustment made pursuant to
Section 2.15) shall be made which exceeds, individually or in the aggregate
of all such adjustments, thirty percent (30%) of the original Tentative
Purchase Price, it being agreed that if the conditions to consummation of
the Transactions are otherwise met but for Purchase Price adjustments
contemplated by the Adjustment Sections in excess of such percentage, then
the conditions to consummation of the Transactions shall be deemed not to
have been met.
Section 2.15 Management Agreement. In the event that the conditions
to consummation of the Closing have otherwise been met or waived, but (i)
Buyer has not been issued Licenses referred to in Section 8.4(d) respecting
the conduct of business from one or more Facilities, and the absence of such
Licenses would result in a Material Adverse Effect upon the conduct of such
business from any such Facility by Buyer following the Closing, or (ii)
Seller has not received one or more Consents (as defined in Section 8.4)
necessary to effectively assign to Buyer a Real Property Lease in respect to
a material portion of a Facility and the parties have not entered into an
alternative arrangement pursuant to Section 2.12, then and in either of such
events the parties shall nevertheless consummate the Transactions in accor-
dance with the provisions of this Agreement, as modified by the following
provisions:
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(a) At the Closing, the parties shall execute a management
agreement (the "Management Agreement"), substantially in the form of Exhibit
D hereto, pursuant to which Buyer shall undertake to manage such Facilities
under Licenses held by Seller and the Subsidiaries and/or pending the
receipt of such Consents, as the case may be.
(b) The instruments of transfer and assumption set forth in
Sections 2.13(a) and 2.13(b)(ii) respecting each such Real Property Lease,
and/or respecting those Transferred Assets and Assumed Liabilities that may
not be lawfully transferred or assumed until the requisite Licenses are
obtained, as the case may be, shall be delivered (together with a fully
executed copy of this Agreement) by the parties to, or, in the event an
escrow has been established pursuant to the provisions of Section 2.13(c),
retained by, the Escrow Agent until they are to be delivered in accordance
with the terms hereof. This Agreement shall be considered the primary
escrow instructions between the parties, but the parties shall execute such
additional standard escrow instructions as Escrow Agent shall require in
order to clarify the duties and responsibilities of Escrow Agent. In the
event of any conflict between this Agreement and such additional standard
escrow instructions, this Agreement shall prevail. All other instruments of
transfer and assumption shall be delivered in accordance with Section 2.13,
so that the Buyer will become the owner of the Transferred Assets, and the
obligor with respect to Assumed Liabilities, not described in the first
sentence of this Section 2.15(b).
(c) The provisions of Sections 5.1, 5.2 and 5.3 shall remain in
effect pending the receipt of such Licenses by Buyer, and/or such Consents
by the Seller, as the case may be.
(d) With respect to each such Facility, the Escrow Agent shall
deliver the aforementioned instruments of assumption to Seller and the
aforementioned instruments of transfer to Buyer (and cause to be recorded
any of such instruments as are contemplated by Section 2.13(c)(i)) upon the
date (each such date being a "Delivery Date") that the Escrow Agent has
received, if the provisions of clause 2.15(i) apply, an affidavit of Buyer
(a "Buyer's Affidavit"), executed by a duly authorized officer of Buyer, to
the effect that such Licenses respecting such Facility have been obtained by
Buyer, and, in any event, has also received an additional affidavit (a
"Seller's Affidavit") addressed to the Escrow Agent and Buyer and executed
by a duly authorized officer of Seller to the effect that:
(i) There is not in effect a temporary restraining order
or a preliminary or permanent injunction or other order, decree or
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ruling by a court of competent jurisdiction or by a governmental
agency which restrains or prohibits such deliveries, or any threat by
governmental authorities to exact any penalty or impose any economic
detriment upon Seller if such deliveries are made that would have a
Material Adverse Effect upon Seller, provided that the parties will
use their best efforts to litigate against the entry of, or to obtain
the lifting of, any such order or injunction or potential penalty or
imposition, and the existence of any such temporary restraining order,
preliminary injunction or potential penalty or imposition shall
operate, at the option of Seller, only to delay the delivery of such
instruments and extend the Final Delivery Date (as defined below)
until the fifth day following the lifting of any such order or injunc-
tion or threat;
(ii) Since the Closing Date, neither the Seller nor the
Subsidiaries have sold, conveyed, assigned, transferred or delivered
any Transferred Asset to any third party, or created any lien, charge,
claim, pledge, security interest or encumbrance respecting any Trans-
ferred Asset except for Permitted Encumbrances (as defined in Section
3.8), without the consent of, or participation in such transaction by,
Buyer in its role as manager of the Facility or Facilities in ques-
tion; and
(iii) If the provisions of clause 2.15(ii) apply, the
requisite Consents necessary to assign such Real Property Lease(s)
have been obtained.
(e) Subject to the provisions of this Subsection 2.15(e), all
of the aforementioned deliveries of instruments of transfer and assumption
shall be completed on or before May 31, 1994 (or such later date upon which
the parties may agree upon) (such date, or any date to which it may be
extended pursuant to any of the provisions of this Section 2.15, being
referred to as the "Final Delivery Date"), provided that if, in the reason-
able judgment of Seller, Buyer is diligently continuing to pursue the
receipt of any such Licenses, or in the reasonable judgment of Buyer, Seller
is diligently continuing to pursue the receipt of such Consents, as the case
may be, then (i) Seller and/or Buyer, as the case may be, shall deposit into
escrow its agreement to extend the Final Delivery Date for an initial
additional ninety (90) days, (ii) if no more than ten (10) Facilities remain
affected by Buyer's need to obtain Licenses, Seller shall, upon the expira-
tion of the initial extension, deposit its agreement into escrow to extend
the Final Delivery Date for an additional ninety (90) days, and (iii) if no
more than ten (10) Facilities remain affected by Seller's need to obtain
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Consents, Buyer shall, upon the expiration of the initial extension, deposit
its agreement into escrow to extend the Final Delivery Date for an addition-
al ninety (90) days. On the Final Delivery Date (including any date to
which it may be extended), the Escrow Agent shall close the escrow by
delivering to Buyer all instruments of transfer, and delivering to Seller
all instruments of assumption, remaining in escrow, provided that the Escrow
Agent shall have received a Seller's Affidavit effective as of such Final
Delivery Date. In the event that a Seller's Affidavit is not provided to
the Escrow Agent effective as of such Final Delivery Date, then and in such
event the Escrow Agent shall provide notice of such fact to Buyer and
Seller. The parties shall thereupon attempt to negotiate for a period of
thirty (30) days an equitable adjustment in the Purchase Price respecting
the Transferred Assets and the Assumed Liabilities that remain in escrow, in
the event a Seller's Affidavit cannot be delivered because of the provisions
of Section 2.15(d)(ii), or appropriate amendments to the Management Agree-
ment, in the event a Seller's Affidavit cannot be delivered because of the
provisions of Section 2.15(d)(i) or (iii). Such appropriate amendments to
the Management Agreement shall extend the term thereof for at least twenty-
five (25) years (or the remaining terms of the Real Property Leases in
question, including extensions, if shorter); shall prohibit the Seller and
the Subsidiaries during such period from transferring or encumbering the
Transferred Assets not delivered to Buyer without the Buyer's written con-
sent; shall require Seller, to the extent Buyer has not obtained the requi-
site Licenses respecting a Facility, to exercise its best efforts to main-
tain Licenses of its pertinent Subsidiaries in force as will permit the
Facilities to be maintained as rehabilitation healthcare facilities; and
shall otherwise provide the Buyer with substantially all of the economic
benefits and risks arising from the operation of the Facilities; provided
that to the extent any such amendments shall not be consistent with applica-
ble law, or shall be prohibited by the terms of any injunction or order or
result in the imposition of any material penalty upon Seller referred to in
Section 2.15(d)(i), or not be permitted by the Real Property Leases in
question, then to such extent and in lieu of any such amendment, the parties
shall negotiate an equitable adjustment in the Purchase Price respecting the
Transferred Assets and the Assumed Liabilities that remain in escrow. In
the event the parties cannot agree within such thirty (30) day period upon
such amendments to the Management Agreement and/or adjustments to the
Purchase Price, as the case may be, then such disagreement shall be resolved
pursuant to the provisions of Section 2.14 (without regard to the provisions
of Section 2.14(b)) as though the day after the expiration of such thirty
day negotiating period was the scheduled Closing Date or Termination Date
referred to therein. Upon agreement of the parties, or resolution of any
such disagreement in accordance with the provisions of Section 2.14,
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as the case may be, Buyer and Seller shall deposit into escrow executed
counterparts of amendments to the Management Agreement, if any, and Seller
shall deposit into escrow, in immediately available funds, an amount equal
to the adjustment of the Purchase Price if any (without interest), as agreed
upon by the parties or determined under the provisions of Section 2.14, and,
subject to receipt of such deposits into escrow, the Escrow Agent shall:
(i) Deliver such funds, if any, to Buyer by wire transfer
of immediately available funds;
(ii) Deliver to Buyer all instruments of assumption
remaining in escrow and a counterpart of the amendments to the Manage-
ment Agreement, if any, executed by Seller; and
(iii) Deliver to Seller all instruments of transfer
remaining in escrow and a counterpart of the amendments to the Manage-
ment Agreements, if any, executed by Buyer.
(f) Unless amended pursuant to the above provisions, the
Management Agreement shall be terminated, in accordance with its provisions,
with respect to any Facility with respect to which instruments of transfer
and assumption have been delivered out of escrow, and the escrow shall close
when all such instruments of transfer and assumption have been delivered out
of escrow.
(g) Notwithstanding the foregoing, the provisions of this
Section 2.15 shall not apply (i) to circumstances described in Section
2.15(i), to the extent that applicable laws or rules of accreditation
governing healthcare facility Licenses held by Seller or a Subsidiary would
not permit the Management Agreement arrangements contemplated hereby, or
(ii) to circumstances described in Section 2.15(ii), to the extent that the
Real Property Lease or Leases in question would not permit such Management
Agreement arrangements. In either of such events, and to such extent, the
other provisions of this Agreement shall be unaffected by this Section 2.15.
Section 2.16 Transfer of Assets in Corporate Form. By mutual agree-
ment of the parties, Seller may prior to the Closing cause any Transferred
Asset or Assumed Liability to be assigned and transferred to a newly created
subsidiary of Seller, in which case all right, title and interest of Seller
and any of its Affiliates in such newly created subsidiary (which shall
constitute all of the outstanding capital stock and rights to acquire
capital stock in such subsidiary) shall be transferred to Buyer at the
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Closing as a Transferred Asset. Any such agreement of the parties shall
become an amendment to this Agreement and shall provide, except as may be
otherwise agreed by the parties, that the only assets and liabilities of
such subsidiary at the Closing will be assets and liabilities that would
otherwise constitute Transferred Assets and Assumed Liabilities under the
provisions hereof.
Section 2.17. Assignment of Rights and Obligations to Buyer Subsid-
iaries. Notwithstanding any contrary provisions contained herein, the
parties hereto agree that, prior to the Closing Date, Buyer, in its sole
discretion, may assign any or all of its rights and obligations with respect
to the Transferred Assets and the Assumed Liabilities to one or more Buyer
Subsidiaries, provided that no such assignment shall relieve Buyer of any
obligation or liability to Seller hereunder, and provided further that the
following shall apply:
(a) Buyer will provide Seller of prompt written notice of any
such assignment.
(b) No such assignment shall be effected if the making of the
assignment will result in Seller's inability to obtain any Consent reason-
ably needed to consummate the Transactions or to avoid any economic detri-
ment to the Seller arising from the consummation of the Transactions.
(c) Each such Buyer Subsidiary that is an assignee of Buyer
shall irrevocably appoint Buyer as its sole and exclusive representative and
agent authorized to act for and to receive notices and payments on behalf of
the Buyer Subsidiaries in all matters arising from or related to this
Agreement and the Transactions.
(d) As a condition to Seller's agreement to such assignments,
Buyer hereby agrees that Buyer will at all times be the ultimate parent
entity of the consolidated group of companies of which Buyer is a group
member or that, in the event of any reorganization involving Buyer and its
subsidiaries, the ultimate parent entity of the consolidated group of
companies emerging from such reorganization that includes Buyer and its
successors and assigns shall, prior to any such reorganization, execute such
documents as are reasonably necessary to confirm the assumption by such
ultimate parent entity of Buyer's obligations to Seller hereunder.
(e) Buyer shall remain jointly and severally liable to Seller
and the Subsidiaries and to third parties with respect to any Assumed
Liabilities transferred to a Buyer Subsidiary, and, without limiting the
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generality of the foregoing, hereby absolutely and unconditionally guaran-
tees the full, prompt and faithful performance by each Buyer Subsidiary of
all covenants and obligations to be performed by such Buyer Subsidiary under
this Agreement and any Related Agreement which are assigned to such Buyer
Subsidiary, including but not limited to, the payment of all sums stipulated
to be paid by such Buyer Subsidiary pursuant to such assignment, it being
understood that each such covenant and obligation constitutes the direct and
primary obligation of Buyer, is independent of the covenants and obligations
of the Buyer Subsidiaries and that a separate action or actions may be
brought and prosecuted against Buyer whether action is brought against the
pertinent Buyer Subsidiary or whether such Buyer Subsidiary is joined in any
such action or actions (Buyer hereby waiving any right to require Seller or
a Subsidiary to proceed against a Buyer Subsidiary). Buyer hereby authoriz-
es Seller, without notice and without affecting Buyer's liability hereunder,
from time to time to (x) renew, compromise, extend, accelerate, or otherwise
change the terms of any obligation of a Buyer Subsidiary hereunder with the
agreement of such Buyer Subsidiary, (y) take and hold security for the
obligations guaranteed, and exchange, enforce, waive and release any such
security, and (z) apply such security and direct the order or manner of sale
thereof as Seller in its discretion may determine. Buyer hereby further
waives:
(i) Any right to subrogation, reimbursement, exoneration
or contribution or any other rights that would result in Buyer being
deemed a creditor of a Buyer Subsidiary under the federal Bankruptcy
Code or any other law, in each case arising from the existence or
performance of Buyer's guaranty of the obligations of a Buyer Subsid-
iary hereunder;
(ii) Any defense that may arise by reason of the incapac-
ity or lack of authority of any Buyer Subsidiary;
(iii) Any defense based upon a statute or rule of law
which provides that the obligations of a surety must be neither larger
in amount nor in other respects more burdensome than those of the
principal; and
(iv) Any duty on the part of Seller or a Subsidiary to
disclose to Buyer any facts that Seller or a Subsidiary may now or
hereafter know about a Buyer Subsidiary, since Buyer hereby acknowl-
edges that it is fully responsible for being and keeping informed of
the financial condition of each Buyer Subsidiary and all
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circumstances bearing on the risk of non-payment of any obligations
assigned to such Buyer Subsidiary.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer, as of the date hereof,
as follows, except as disclosed in Schedule 3:
Section 3.1 Organization and Corporate Power. Seller is a corpora-
tion duly incorporated and validly existing under the laws of, and is
authorized to exercise its corporate powers, rights and privileges and is in
good standing in, the State of Nevada and has full corporate power to carry
on its business as presently conducted and to own or lease and operate its
properties and assets now owned or leased and operated by it.
Section 3.2 Subsidiaries.
(a) Each Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation
(which, in the case of Subsidiaries existing on the date of this Agreement,
is indicated on Schedule A-1) and is duly qualified and in good standing as
a foreign corporation in all jurisdictions in which such qualification is
required by reason of its business, properties or activities in or relating
to such jurisdictions (which, in the case of Subsidiaries existing on the
date of this Agreement, is likewise indicated on Schedule A-1), except where
the failure to be so qualified will not have a Material Adverse Effect (as
defined in Section 3.4) on the Transferred Assets. Each Subsidiary has all
requisite power and authority (corporate and otherwise) to perform the
transactions on its part contemplated by this Agreement and all other
agreements contemplated hereby.
(b) All of the outstanding capital stock of each Subsidiary has
been duly authorized and is validly issued, fully paid and nonassessable
and, except as indicated on Schedule A-1, is owned beneficially and of
record by Seller or another wholly-owned subsidiary of Seller as indicated
on Schedule A-1. Except as provided in Schedule A-1, there are no rights,
subscriptions, warrants, options, conversion rights or agreements of any
kind outstanding to purchase or otherwise acquire any shares of capital
stock of or securities or obligations of any kind convertible into or
exchangeable for any shares of capital stock of any Subsidiary.
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(c) Upon consummation of the Transactions, Buyer will acquire
valid title to the Assigned Stock, free and clear of all liens, charges,
pledges or security interests (except for those created or allowed to be
suffered by Buyer) and free of any restrictions on voting and transfer
except as may be contained in "buy-sell" agreements with Neuro Rehab Associ-
ates, Inc. and/or with the minority owners thereof. The Assigned Stock is
validly issued, fully paid and non-assessable.
(d) The board of directors of each Subsidiary and, if required,
its shareholders, have duly and effectively authorized (i) the sale of the
Transferred Assets to be sold by such Subsidiary; and (ii) the execution,
delivery and performance of the Related Agreements (as defined in Section
3.4) and all other agreements contemplated hereby and thereby to which such
Subsidiary is a party. No other corporate act or proceeding on the part of
any Subsidiary, its board of directors or its shareholders is necessary to
authorize any Related Agreement or other agreement contemplated hereby and
thereby or the transactions contemplated hereby and thereby.
Section 3.3 Authority Relative to this Agreement. The execution,
delivery and performance of this Agreement and all other agreements contem-
plated hereby and the consummation of the transactions contemplated hereby
and thereby have been duly and effectively authorized by the board of
directors of Seller; no other corporate act or proceeding on the part of
Seller, its board of directors or its shareholders is necessary to authorize
this Agreement, any such other agreement or the transactions contemplated
hereby and thereby. This Agreement has been, and each of the other agree-
ments contemplated hereby will, as of the Closing, have been, duly executed
and delivered by Seller, and this Agreement constitutes, and each such other
agreement when executed and delivered will constitute, a valid and binding
obligation of Seller, enforceable against Seller in accordance with its
terms, except as it may be limited by bankruptcy, insolvency, reorganiza-
tion, moratorium or other similar Laws now or hereafter in effect relating
to creditors' rights generally and that the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equita-
ble defenses and to the discretion of the court before which any proceeding
may be brought.
Section 3.4 Absence of Breach. Subject to the provisions of Sections
3.5 and 3.6 below regarding private party and governmental consents, and
except for compliance with the requirements of the Hart-Scott-Rodino Anti-
trust Improvements Act of 1976, as amended (the "HSR Act"), and any regula-
tory or licensing Laws applicable to the businesses
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and assets represented by the Transferred Assets, the execution, delivery
and performance by Seller of this Agreement and all other agreements contem-
plated hereby or executed in connection herewith (the "Related Agreements"),
and the performance by the Subsidiaries of the transactions contemplated by
this Agreement and the Related Agreements to be performed by the Subsid-
iaries, do not, (a) conflict with or result in a breach of any of the
provisions of the Articles or Certificates of Incorporation or Bylaws or
similar charter documents (the "Charter Documents") of Seller or of any of
the Subsidiaries, (b) contravene any Law or cause the suspension or revoca-
tion of any License presently in effect, which affects or binds Seller or
any of the Subsidiaries, or any of their material properties, except where
such contravention, suspension or revocation will not have a Material
Adverse Effect (as defined below) on the Transferred Assets and will not
affect the validity or enforceability of this Agreement and the Related
Agreements or the validity of the Transactions contemplated hereby and
thereby, or (c) conflict with or result in a breach of or default under any
indenture or loan or credit agreement or any other agreement or instrument
to which Seller or any of the Subsidiaries is a party or by which it or they
or any of their properties may be affected or bound, the effect of which
conflict, breach, or default, either individually or in the aggregate, would
be a Material Adverse Effect on the Transferred Assets. As used herein, a
"Material Adverse Effect": (a) when used with respect to the Transferred
Assets, means a material adverse effect on the Transferred Assets and on the
businesses operated therefrom, including their condition (financial or
otherwise) and results of operations, taken as a whole; (b) when used with
respect to any portion of the Transferred Assets, means a material adverse
effect on such portion of the Transferred Assets and on the businesses
operated therefrom, including their condition (financial or otherwise) and
results of operations, taken as a whole; and (c) when used with respect to
an entity, such as Seller, a Subsidiary or Buyer, means a material adverse
effect on the business, condition (financial or otherwise) and results of
operations of such entity taken as a whole (including any subsidiaries of
such entity).
Section 3.5 Private Party Consents. The execution, delivery and
performance by Seller of this Agreement and the Related Agreements, and the
performance by the Subsidiaries of the transactions contemplated by this
Agreement and the Related Agreements to be performed by the Subsidiaries, do
not require the authorization, consent or approval of any non-governmental
third party of such a nature that the failure to obtain the same would have
a Material Adverse Effect on the Transferred Assets.
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Section 3.6 Governmental Consents. The execution, delivery and
performance by Seller of this Agreement and the Related Agreements, and the
performance by the Subsidiaries of the transactions contemplated by this
Agreement and the Related Agreements to be performed by the Subsidiaries, do
not require the authorization, consent, approval, certification, license or
order of, or any filing with, any court or governmental agency of such a
nature that the failure to obtain the same would have a Material Adverse
Effect on the Transferred Assets, except for compliance with the HSR Act and
except for such governmental authorizations, consents, approvals, certifica-
tions, licenses and orders that customarily accompany the transfer of health
care facilities such as the Facilities.
Section 3.7 Brokers. No broker, finder, or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with this Agreement or the Transactions contemplated hereby based upon any
agreements or arrangements or commitments, written or oral, made by or on
behalf of Seller or any of its Affiliates. Seller shall be solely responsi-
ble for the payment of any such fee or commission to any person or entity
listed on Schedule 3 as an exception to the foregoing.
Section usi Title to Personal Property. Each Subsidiary has good and
defensible title, or valid and effective leasehold rights in the case of
leased property, to all tangible personal property included in the Trans-
ferred Assets to be sold, conveyed, assigned, transferred and delivered to
Buyer by such Subsidiary, free and clear of all liens, charges, claims,
pledges, security interests, equities and encumbrances of any nature whatso-
ever, except for those created or allowed to be suffered by Buyer and except
for the following (individually and collectively, the "Permitted Encumbranc-
es"): (a) the lien of current taxes not delinquent, (b) matters that when
viewed in the aggregate, do not have a Material Adverse Effect on the
Transferred Assets, (c) the Assumed Liabilities, (d) such consents, authori-
zations, approvals and licenses referred to in Sections 3.5 and 3.6, and (e)
liens, charges, claims, pledges, security interests, equities and encum-
brances which will be discharged or released either prior to, or substan-
tially simultaneously with, the Closing.
Section 3.9 Assumed Contracts. Except for such matters that, when
viewed in the aggregate, do not have a Material Adverse Effect on the
Transferred Assets, (a) there is no liability to any person by reason of the
default by Seller or a Subsidiary under any Assumed Contract, (b) neither
Seller nor any Subsidiary has received written or other notice that any
person intends to cancel or terminate any Assumed Contract, (c) all of the
Assumed Contracts are in full force and effect, (d) subject to the provi-
sions
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of Sections 3.5 and 3.6, the consummation of the transactions contemplated
by this Agreement will not constitute and, to the best of Seller's current
actual knowledge, no event has occurred which, with or without the passage
of time or the giving of notice, would constitute a breach or default by
Seller or a Subsidiary of such Assumed Contract or would cause the accelera-
tion of any obligation of Seller or any Subsidiary or the creation of any
lien (except for Permitted Encumbrances) upon any Transferred Asset, and (e)
neither Seller nor any Subsidiary has waived any right under any Assumed
Contract.
Section 3.10 Licenses. To the best of Seller's current actual
knowledge, and except for such matters which, in the aggregate, do not have
a Material Adverse Affect on the Transferred Assets, (a) the Subsidiaries
possess all Licenses necessary for their operation of the Facilities at the
locations and in the manner presently operated, (b) if required, such
Facilities are accredited by applicable accrediting agencies as necessary
for their operations in the manner presently operated, (c) such Facilities
are certified for participation in the Medicare program and have current and
valid provider contracts with such program, and (d) there is no matter which
would adversely affect the maintenance of any such Licenses, program partic-
ipations or accreditations other than matters that are included within the
scope of the Unusual Proceedings.
Section 3.11 U.S. Person. Neither Seller nor any Subsidiary is a
"foreign person" for purposes of Section 1445 of the Internal Revenue Code
of 1986, as amended (the "Code"), or any other Laws requiring withholding of
amounts paid to foreign persons.
Section 3.12 Employee Relations. With respect to the Retained
Employees:
(a) Neither Seller, nor any Subsidiary nor any Facility is a
party to any agreement with any union, trade association or other similar
employee organization, no written demand has been made for recognition by a
labor organization, and to the best of Seller's current actual knowledge no
union organizing activities by or with respect to any such employees are
taking place; and
(b) There are no controversies (including, without limitation,
any unfair labor practice complaints, labor strikes, arbitrations, disputes,
work slowdowns or work stoppages) affecting a material number of such
Retained Employees pending, or to the best of Seller's current actual
knowledge, threatened.
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Section 3.13 Employee Plans. With respect to each Multiemployer
Plan, there has occurred no "complete withdrawal" or "partial withdrawal,"
as each is defined in Sections 4203 and 4205, respectively, of ERISA, and
all payments required to be made to such Multiemployer Plans by a Subsidiary
under any collective bargaining agreement have been made.
Section 3.14 Litigation. Except for matters ("Unusual Proceedings")
associated with the significant legal proceedings and investigations of an
unusual nature referred to in Seller's filings with the Securities and
Exchange Commission, ordinary routine claims and litigation incidental to
the businesses represented by the Facilities (including, but not limited to,
actions for negligence, professional malpractice, workers' compensation
claims, so-called "slip-and-fall" claims and the like), and governmental
inspections and reviews customarily made of businesses such as those operat-
ed from the Facilities, there are no actions, suits, claims or proceedings
pending, or to the current actual knowledge of Seller, threatened against or
affecting the Transferred Assets or relating to the operations of the
Facilities, at law or in equity, or before or by any federal, state, munici-
pal or other governmental department, commission, agency or instrumentality.
Section 3.15 Inventory. All Inventory included in the Transferred
Assets and included in the Net Book Values will consist of a quality and
quantity usable and salable in the ordinary course of business, except for
items of obsolete materials and materials of below-standard quality, all of
which in the aggregate are immaterial to the financial condition or results
of operations of the businesses operated from the Facilities taken as a
whole, or have been, or prior to Closing will be, written down to realizable
market value.
Section 3.16 Hazardous Substances. To the best of Seller's current
actual knowledge, except as may be disclosed by the Environmental Survey (as
defined in Section 6.2(b)):
(a) There are no Hazardous Materials (as defined below) upon,
about, beneath or migrating or threatening to migrate to or from the Owned
Real Properties or the Leased Real Properties or the existence of any
violation in any material respect of any Laws relating to industrial hy-
giene, Hazardous Materials and environmental protection ("Environmental
Regulations"); and
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(b) There is no proceeding or action pending or threatened by
any person or governmental agency regarding the environmental condition or
occupational safety of the Facilities.
"Hazardous Materials" shall mean any substance (including, without limita-
tion, any asbestos, formaldehyde, radioactive substance, hydrocarbons,
polychlorinated biphenyls, industrial solvents, flammables, explosives and
any other hazardous substance or toxic material) which, in any material
respect, is known to cause, as of the date of this Agreement, a health,
safety or environmental hazard and require remediation at the behest of any
governmental agency.
Section 3.17 Financial Information.
(a) Attached hereto as Schedule 3.17(a) is an unaudited state-
ment of certain combined earnings from the operations of the Transferred
Assets and Assumed Liabilities (as they were comprised on the as of date of
such schedule) before interest, income taxes, depreciation and amortization
("EBITDA") for the fiscal year ended May 31, 1993 (the "EBITDA Statements")
and for the fiscal quarter ended August 31, 1993. The EBITDA Statements
present fairly the combined EBITDA of such operations, taken as a whole, as
of the dates and for the periods shown, and were derived from and are in
accordance with the internal books and records of the Subsidiaries and the
regularly prepared unaudited internal financial statements of the Facili-
ties, which are prepared on a basis materially in accordance with the
generally accepted accounting principles utilized in the preparation of the
published financial statements of Seller.
(b) Attached hereto as Schedule 3.17(b) is a regularly prepared
internal unaudited combined balance sheet of the Facilities as of August 31,
1993 (the "Balance Sheet"; collectively, the Balance Sheet and the EBITDA
Statement are the "Financial Schedule"). The Balance Sheet has been pre-
pared from, and is in accordance with, the internal books and records of the
Subsidiaries and presents fairly the financial condition of the Facilities,
taken as a whole, as of the date shown. The Balance Sheet was prepared in
accordance with Seller's practices for the preparation of internal financial
statements, consistently applied, and is materially in accordance with the
generally accepted accounting principles utilized in the preparation of the
published financial statements of Seller.
(c) Notwithstanding the foregoing, the Financial Schedule does
not (i) reflect allocations of indirect costs and overhead or the corre-
sponding cost reimbursement impact of claiming such costs in a
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Facility cost report, (ii) reflect all intercompany eliminations, adjust-
ments and accruals that are reflected in financial statements of Seller,
(iii) reflect any anticipation of the divestiture of the Transferred Assets
and any adjustments to the carrying values of the Transferred Assets occa-
sioned thereby, (iv) contain footnotes or other explanatory material associ-
ated with financial statements prepared in accordance with generally accept-
ed accounting principles, or (v) contain normal year-end adjustments with
respect to interim periods. In addition, the Financial Schedule is to be
read in conjunction with, and is subject to, all notes and other explanatory
material set forth therein.
(d) The Balance Sheet reflects the amount of Receivables as of
the date thereof, net of allowances customarily recorded by the Subsidiaries
for uncollectible and doubtful accounts, and contractual allowances pursuant
to agreements with Payors, all in conformity with Seller's practices for the
preparation of internal financial statements and materially in accordance
with the generally accepted accounting principles utilized in the prepara-
tion of the published financial statements of the Seller and the past
practices employed by each Subsidiary. To the current actual knowledge of
Seller all such Receivables included in the Balance Sheet represent amounts
validly owed to the applicable Subsidiary by reason of the provision of
goods, services and other consideration by such Subsidiary, and, to the
current actual knowledge of Seller, are not valued in excess of the amounts
expected to be collected with respect thereto. Each Subsidiary maintains
its accounting records in sufficient detail to substantiate the Receivables
reflected on the Balance Sheet. Since the date of Seller's most recent
audited financial statements, neither Seller nor any Subsidiary has changed
any principle or practice with respect to the recordation of accounts
receivable or the calculation of reserves therefor, or any material collec-
tion, discount or write-off policy or procedure.
Section 3.18 Changes Since Balance Sheet. Since the date
of the Balance Sheet and up to and including the date of this Agreement,
other than as contemplated or permitted by this Agreement, the Subsidiaries
have conducted the businesses represented by the Transferred Assets only in
the ordinary and normal course, except for matters associated with the
Unusual Proceedings or in anticipation of the divestiture of the Transferred
Assets, and there has not been:
(a) Any entry into or termination by Seller or a Subsidiary of
any material commitment, contract, agreement or transaction (including,
without limitation, any borrowing or lending transaction or capital
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expenditure) related to the Transferred Assets except for transactions in
the ordinary course of business and renegotiation of credit agreements to
which Seller and certain of its subsidiaries are parties;
(b) Any casualty, physical damage, destruction or physical loss
respecting, or change in the physical condition of, the Facilities and the
Equipment that has had a Material Adverse Effect on the Transferred Assets;
(c) Any transfer of or rights granted under any contract which
would have been an Assumed Contract on the date of the Balance Sheet except
for transactions in the ordinary course of business;
(d) Other than in the ordinary course of business, any sale or
other disposition of any fixed asset included in the Balance Sheet having a
net book value in excess of $100,000 or any material mortgage, pledge or
imposition of any lien or other encumbrances on any such asset, or sales or
dispositions of, or the imposition of material encumbrances on, fixed assets
included in such Balance Sheet having a net book value that exceeds $5,000,-
000 in the aggregate, or any sale or other disposition of Inventories
included in the Balance Sheet;
(e) Any amendment (other than general amendments which the
carrier makes for a category of policy) or termination of any insurance
policy or failure to renew any insurance policy covering the Transferred
Assets, except for amendments, terminations or failures to renew that do not
have a Material Adverse Effect on the Transferred Assets;
(f) Any default or breach by Seller or a Subsidiary under any
contract that would have been an Assumed Contract on the date of the Balance
Sheet which, when viewed individually or in the aggregate of all such
breaches or defaults, has had a Material Adverse Effect on the Transferred
Assets; or
(g) Any increase made in the compensation levels of any chief
executive officer or chief financial officer of any Facility, or any general
increase made in the compensation levels of the other Retained Employees,
except in the ordinary course of business.
Section 3.19 Lists of Other Data. Except for contracts and agree-
ments already listed in Schedule 2.1(g), Schedules 3.19(a) through (h)
contain lists, complete and correct as of the dates shown thereon, of the
following:
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(a) The most recent regularly generated depreciation schedules
related to tangible personal property constituting Equipment, together with
copies of such schedules;
(b) Each lease constituting an Other Assigned Contract as of
such date (whether an operating or a capital lease) under which tangible
personal property was leased, where the annualized lease payments exceed
$25,000;
(c) A brief description of insurance in force covering fixed
assets that would constitute Transferred Assets as of such date;
(d) All compensation, bonus, incentive, deferred payments,
retirement, pension, severance, profit-sharing, stock purchase and stock
option plans, group life, automobile, medical, dental, disability, welfare
or other employee benefit plans or insurance policies, and other similar
arrangements (collectively, "Employee Benefit Arrangements") generally
applicable to the Retained Employees or a substantial part thereof or
generally applicable to the chief executive or chief financial officers, or
a substantial part thereof, of the Facilities as of such date;
(e) The aggregate accrued paid time off (including vacation
time) and earned or available sick pay for all employees at each Facility,
as of the date shown; and
(f) Material Licenses of Seller and the Subsidiaries in force,
as of the date shown, with respect to the health care facilities to be
included in the Transferred Assets.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller, as of the date hereof,
as follows, except as disclosed in Schedule 4:
Section 4.1 Organization and Corporate Power. Buyer is a corporation
duly incorporated and validly existing under the laws of, and is authorized
to exercise its corporate powers, rights and privileges and is in good
standing in, the State of Delaware and has full corporate power to carry on
its business as presently conducted and to own or lease and operate its
properties and assets now owned or leased and operated by it.
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Section 4.2 Authority Relative to this Agreement. The execution,
delivery and performance of this Agreement and the Related Agreements and
the consummation of the transactions contemplated hereby and thereby have
been duly and effectively authorized by the board of directors of Buyer; no
other corporate act or proceeding on the part of Buyer, its board of direc-
tors or its shareholders is necessary to authorize this Agreement, any such
Related Agreement or the transactions contemplated hereby and thereby. This
Agreement has been, and each of the Related Agreements contemplated hereby
will, as of the Closing, have been, duly executed and delivered by Buyer and
this Agreement constitutes, and each such Related Agreement when executed
and delivered will constitute, a valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms, except as it may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar Laws now or hereafter in effect relating to creditors' rights
generally and that the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding may be brought.
Section 4.3 Absence of Breach. Subject to the provisions of Sections
4.4 and 4.5 below regarding private party and governmental consents, and
except for compliance with the requirements of the HSR Act and any regulato-
ry or licensing Laws applicable to the businesses and assets represented by
the Transferred Assets, the execution, delivery and performance by Buyer of
this Agreement and the Related Agreements do not, (a) conflict with or
result in a breach of any of the provisions of Charter Documents of Buyer,
(b) contravene any Law or cause the suspension or revocation of any License
presently in effect, which affects or binds Buyer or any of its material
properties, or (c) conflict with or result in a breach of or default under
any indenture or loan or credit agreement or any other agreement or instru-
ment to which Buyer is a party or by which it or any of its properties may
be affected or bound.
Section 4.4 Private Party Consents. The execution, delivery and
performance by Buyer of this Agreement and the Related Agreements do not
require the authorization, consent or approval of any non-governmental third
party.
Section 4.5 Governmental Consents. The execution, delivery and
performance by Buyer of this Agreement and the Related Agreements do not
require the authorization, consent, approval, certification, license or
order of, or any filing with, any court or governmental agency, except for
compliance with the HSR Act and except for such governmental authoriza-
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tions, consents, approvals, certifications, licenses and orders that custom-
arily accompany the transfer of health care facilities such as the Facili-
ties.
Section 4.6 Brokers. No broker, finder, or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with this Agreement or the transactions contemplated hereby based upon any
agreements or arrangements or commitments, written or oral, made by or on
behalf of Buyer or any of its Affiliates. Buyer shall be solely responsible
for the payment of any such fee or commission to any person or entity listed
on Schedule 4 as an exception to the foregoing.
Section 4.7 Qualified for Licenses. Buyer is qualified to obtain any
Licenses and program participations necessary for the operation by Buyer of
the Transferred Assets in the same manner as the Transferred Assets are
presently operated by Seller and the Subsidiaries. Each of Buyer and its
Affiliates possesses all Licenses and program participations necessary to
permit them to operate the healthcare facilities operated by them. If
required, all such healthcare facilities are accredited by applicable
accrediting agencies as necessary for their operations in the manner pres-
ently operated. Neither Buyer nor any of its Affiliates has received any
notice or has any knowledge of any matter which would materially adversely
affect the maintenance of any such Licenses, program participations or
accreditations.
Section 4.8 Financial Ability to Perform. Buyer has liquid capital
or committed sources therefor sufficient to permit it to perform timely its
obligations hereunder, including, but not limited to, the payment of the
Tentative Purchase Price to Seller at the Closing and the other payments to
Seller required hereunder. Promptly after its receipt of letters of commit-
ment or other documents related to the financing of its obligations hereun-
der, Buyer will provide copies of the same to Seller.
Section 4.9 No Knowledge of Seller's Breach. Neither Buyer nor, to
the current actual knowledge of Buyer, any of its Affiliates has actual
knowledge of any breach of any representation or warranty by Seller or of
any other condition or circumstance that would excuse Buyer from its timely
performance of its obligations hereunder. If any information relevant to
the representations and warranties of Seller under this Agreement shall come
to Buyer's attention before the Closing Date (whether through Seller or
otherwise), then for the purposes of Seller's liability under such represen-
tations and warranties the effect shall be as if the representations and
warranties were so modified in this Agreement; provided, however, that (i)
Buyer's opportunity to make an investigation of the
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Transferred Assets shall not limit the express representations and warran-
ties of Seller made herein, unless specific knowledge comes to the attention
of Buyer through such investigation, (ii) nothing in this Agreement shall be
deemed to create any duty or responsibility on the part of Buyer to investi-
gate or discover any inaccuracy with respect to the express representations
and warranties made herein, and (iii) Buyer must notify Seller as promptly
as practicable if any such information comes to its attention before the
Closing Date, and Buyer's failure to so notify Seller shall constitute a
waiver by Buyer of Seller's breach, if any, of any representation or warran-
ty to which such information relates, or a waiver of such condition or
circumstance insofar as it would excuse Buyer from its timely performance of
obligations.
Section 4.10 "AS IS" Purchase. Except as set forth in Sections 3.16
and 6.2.(c), Buyer acknowledges and agrees (and upon which Seller and its
Subsidiaries shall have materially relied in selling the Transferred Assets
to Buyer at the Purchase Price and on the other terms and conditions herein
set forth) that Seller makes no representation or warranty, either express
or implied, with respect to the physical condition of the Transferred
Assets, their fitness or suitability for any particular purpose, or their
compliance with applicable local building codes, safety, fire, land use or
access laws (including, without limitation, the Americans With Disabilities
Act), or any similar Law. In this respect, Buyer confirms that it is
relying upon its investigation of the Transferred Assets to purchase the
same on an "AS IS" basis and in "WITH ALL FAULTS" condition. Without
limiting the generality of the foregoing, Buyer hereby acknowledges that,
except as otherwise specifically provided in this Agreement, neither Seller,
nor any of its officers, employees or agents, has made any warranty regard-
ing the physical condition of the Transferred Assets, including, but not
limited to, any warranty of habitability or warranty of merchantability or
warranty of suitability for a particular purpose, and Buyer hereby expressly
disclaims the implied warranty of habitability, the implied warranty of
merchantability, the implied warranty of fitness for a particular purpose,
and all expressed or implied warranties relating to the quality of or
otherwise relating to the physical condition of the Transferred Assets.
Section 4.11 No Assurance. Buyer acknowledges and agrees that the
rates or bases used in calculating payments or reimbursements to it by any
Payor (including but not limited to Medicare) may differ from the rates and
bases used in calculating such payments or reimbursements to Seller and the
Subsidiaries.
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ARTICLE 5
COVENANTS OF EACH PARTY
Section 5.1 Efforts to Consummate Transactions. Subject to the terms
and conditions herein provided, each of the parties hereto agrees to use its
reasonable commercial efforts to take, or to cause to be taken, all reason-
able actions and to do, or to cause to be done, all reasonable things
necessary, proper or advisable under applicable Laws to consummate and make
effective, as soon as reasonably practicable, the Transactions contemplated
hereby, including the satisfaction of all conditions thereto set forth
herein. Such actions shall include, without limitation, exerting their
reasonable efforts to obtain the consents, authorizations and approvals of
all private parties and governmental authorities whose consent is reasonably
necessary to effectuate the Transactions contemplated hereby, and effecting
all other necessary registrations and filings, including but not limited to
filings under Laws relating to the transfer or obtaining of necessary
Licenses, under the HSR Act and all other necessary filings with govern-
mental authorities. The foregoing notwithstanding, it shall be the respon-
sibility of Buyer to use its reasonable commercial efforts and to act
diligently and at its expense to obtain any authorizations, approvals and
consents in connection with acquiring Licenses and program participations
that will permit it to operate the Facilities after the Closing, provided
that Buyer will seek to obtain Licenses and program participations subject
to the existing conditions under which the Subsidiaries operate the Facili-
ties and will not seek to change the same until the Transferred Assets and
Assumed Liabilities respecting the Facilities in question have been trans-
ferred to and assumed by Buyer. Subject to Sections 2.6(a) and 5.5, neither
party shall have any liability to the other if, after using its reasonable
commercial efforts (and, in the case of Buyer's efforts to obtain requisite
Licenses, acting diligently), it is unable to obtain any consents, authori-
zations or approvals necessary for such party to consummate the Transac-
tions. As used herein, the terms "reasonable commercial efforts" or "rea-
sonable efforts" do not include the provision of any consideration to any
third party or the suffering of any economic detriment to a party's ongoing
operations for the procurement of any such consent, authorization or approv-
al except for the costs of gathering and supplying data or other information
or making any filings, fees and expenses of counsel and consultants and for
customary fees and charges of governmental authorities and accreditation
organizations.
Section 5.2 Cooperation. Prior to and after the Closing, upon prior
reasonable written request, each party agrees to cooperate with the other in
every reasonable commercial way to consummate the Transactions.
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Notwithstanding the foregoing, all analyses, appearances, presentations,
memoranda, briefs, arguments, opinions and proposals made or submitted by or
on behalf of either party hereto in connection with proceedings under or
relating to the HSR Act or any other federal or state antitrust or fair
trade law, or made or submitted by or on behalf of Buyer in connection with
proceedings to obtain the Licenses and program participations referred to in
Section 5.1 hereof, shall be subject to the joint approval or disapproval
and the joint control of Buyer and Seller, acting with the advice of their
respective counsel, it being the intent of the foregoing that the parties
hereto will consult and cooperate with one another, and consider in good
faith the views of one another, in connection with any such analysis,
presentation, memorandum, brief, argument, appearance, opinion or proposal;
provided that nothing herein shall prevent either party hereto or any of
their Affiliates or their authorized representatives from (a) making or
submitting any such analysis, appearance, presentation, memorandum, brief,
argument, opinion or proposal in response to a subpoena or other legal
process or as otherwise required by Law, or (b) submitting factual informa-
tion to the United States Department of Justice, the Federal Trade Commis-
sion, any other governmental agency or any court or administrative law judge
in response to a request therefor or as otherwise required by Law.
Section 5.3 Further Assistance. From time to time, at the request of
either party, whether on or after the Closing, without further consider-
ation, either party, at its expense and within a reasonable amount of time
after request hereunder is made, shall execute and deliver such further
instruments of assignment, transfer and assumption and take such other
action as may be reasonably required to more effectively assign and transfer
the Transferred Assets to, and vest the Assumed Liabilities in, Buyer,
deliver or make the payment of the Purchase Price to Seller or any amounts
due from one party to the other pursuant to the terms of this Agreement or
confirm Seller's ownership of the Excluded Assets and obligations with
respect to the Excluded Liabilities.
Section 5.4 Cooperation Respecting Proceedings. After the Closing,
upon prior reasonable written request, each party shall cooperate with the
other, at the requesting party's expense (but including only out-of-pocket
expenses to third parties and not the costs incurred by any party for the
wages or other benefits paid to its officers, directors or employees), in
furnishing information, testimony and other assistance in connection with
any inquiries, actions, tax or cost report audits, proceedings, arrangements
or disputes involving either of the parties hereto (other than in connection
with disputes between the parties hereto) and based upon contracts, arrange-
ments or acts of Seller or any of the Subsidiaries which were in effect or
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occurred on or prior to the Closing and which relate to the Transferred
Assets, including, without limitation, arranging discussions with (and the
calling as witness of) officers, directors, employees, agents, and represen-
tatives of Buyer.
Section 5.5 Expenses. Whether or not the Transactions contemplated
hereby are consummated, except as otherwise provided in this Agreement, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses. Notwithstanding the foregoing:
(a) Costs associated with preliminary title reports and title
policies shall be borne by Seller up to the costs that would have been
incurred had the title policies been standard coverage policies of title
insurance, and the remaining costs, if any, including all costs of any
surveys in connection therewith, shall be borne by Buyer;
(b) All costs of the Environmental Survey referred to in
Section 6.2(b) shall be borne by Buyer;
(c) All escrow charges, and charges of any neutral independent
public accountant or mediator, and related costs, shall be borne one-half by
Buyer and one-half by Seller (it being agreed that each party shall bear the
costs of its own independent public accountant or designated mediator);
(d) All recording costs and charges respecting real property
will be allocated between Buyer and Seller in accordance with the customs of
the counties in which the pertinent real property is located;
(e) All transfer taxes respecting real property will be borne
by Buyer;
(f) All fees and charges of governmental authorities and
accreditation agencies in connection with the transfer, issuance or authori-
zation of any License, accreditation or program participation shall be borne
by Buyer;
(g) All fees or costs associated with the issuance of any bond
or the establishment of any escrow required by Section 2.10(a) shall be
borne by Buyer; and
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(h) All fees, charges or costs, including auditing fees and
expenses, incurred as a result of Buyer's compliance with the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder,
shall be borne by Buyer.
All such charges and expenses shall be promptly settled between the parties
at the Closing or upon termination or expiration of further proceedings
under this Agreement, or with respect to such charges and expenses not
determined as of such time, as soon thereafter as is reasonably practicable.
Section 5.6 Announcements; Confidentiality. Prior to the Closing
Date, no press or other public announcement, or public statement or comment
in response to any inquiry, relating to the transactions contemplated by
this Agreement shall be issued or made by Buyer or Seller or any Subsidiary
without the joint approval of Buyer and Seller; provided that a press
release or other public announcement, statement or comment made without such
joint approval shall not be in violation of this Section if it is made in
order to comply with applicable securities Laws or stock exchange policies
and in the reasonable judgment of the party making such release or announce-
ment, based upon advice of independent counsel, prior review and joint
approval, despite reasonable efforts to obtain the same, would prevent
dissemination of such release or announcement in a timely enough fashion to
comply with such Laws or policies, provided that in all instances prompt
notice from one party to the other shall be given with respect to any such
release, announcement, statement or comment. Subject to the foregoing, the
parties hereto recognize and agree that all information, instruments,
documents and details concerning the businesses of Buyer, Seller and the
Subsidiaries are strictly confidential, and Seller and Buyer expressly
covenant and agree with each other that, prior to and after the Closing,
they will not, nor will they allow any of their respective officers, direc-
tors, employees, representatives or agents (including professional advisors)
to disclose or publicly comment upon any matters relating to the business of
the other or relating to this Agreement, including, without limitation, the
terms, timing or progress of the transactions contemplated hereby, or its
negotiation, terms, provisions or conditions, including Purchase Price,
except for disclosure to their respective professional advisors (who shall
agree not to disclose the same) which is reasonably necessary to effectuate
the Transactions contemplated hereby and in a manner consistent with the
provisions of this Agreement. Notwithstanding anything contained in this
Agreement to the contrary, except in connection with filings to obtain
Licenses necessary for consummation of the Transactions (but subject to
Section 5.2) and except as may be required by any Laws (based on advice of
independent counsel), Buyer shall not (nor shall Buyer allow any of its
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officers, directors, employees, representatives or agents to), without the
prior written consent of Seller (in Seller's sole and absolute discretion),
disclose to or otherwise discuss with any person, regulatory board, fiscal
intermediary or other entity Buyer's proposed purchase of the Transferred
Assets, Seller's proposed sale of the Transferred Assets, the contents of
this Agreement or the negotiation of this Agreement. Each party shall keep
all information obtained from the other either before or after the date of
this Agreement confidential, and neither party shall reveal such information
to, nor produce copies of any written information for, any person outside
its management group or its professional advisors without the prior written
consent of the other party, unless such party is compelled to disclose such
information by judicial or administrative process or by any other require-
ments of Law. If the Transactions contemplated by this Agreement should
fail to close for any reason, each party shall return to the other as soon
as practicable all originals and copies of written information provided to
such party by or on behalf of the other party and none of such information
shall be used by either party, or their employees, agents or representatives
in the business operations of any person. Notwithstanding the foregoing,
each party's obligations under this Section shall not apply to any informa-
tion or document which is or becomes available to the public other than as a
result of a disclosure by the other party in violation of this Agreement or
other obligation of confidentiality under which such information may be held
or becomes available to the party on a non-confidential basis from a source
other than the other party or its officers, directors, employees, represen-
tatives or agents. The parties' obligations under this Section shall
survive the termination of this Agreement. Nothing in this Section shall,
or is intended to, impair or modify any of the rights or obligations of
Buyer or its Affiliates under that certain letter agreement dated September
15, 1993, all of which remain in effect until termination of such letter
agreement in accordance with its terms.
Section 5.7 Preservation of and Access to Certain Hospital Records.
(a) As set forth in Section 2.2(e), all or any portion of the
medical, clinical and other records directly or indirectly associated with
the admission, care and treatment of patients on or prior to the Closing
Date (the "Patient Records") and all financial and other records of the
Facilities for the period ending on or prior to the Closing Date, whether or
not maintained at or by the Facilities (the Patient Records and such other
records are collectively referred to as the "Hospital Records") shall be
Excluded Assets. Notwithstanding the foregoing, the parties will cooperate
in providing copies and access to such records as set forth below.
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(b) Notwithstanding that the Hospital Records are Excluded
Assets, to the extent required by applicable Law or at Seller's election,
Seller may choose not to remove the Hospital Records from the Facilities or
otherwise acquire possession of them after the Closing. Unless and until
removed by Seller, the Buyer shall retain the Hospital Records at the
Facilities (or at such other mutually approved locations, which approval
shall not be unreasonably withheld) at Buyer's cost, and as agent of and
bailee for Seller, until the expiration of seven (7) years from the Closing
(and, if at the expiration thereof any tax or Payor audit or judicial
proceeding is in progress or the applicable statute of limitations has been
extended, for such longer period as such audit or proceeding is in progress
or such statutory period is extended)(the "Document Retention Period").
After the Closing, Buyer shall grant Seller full access to the Hospital
Records (including any Patient Records) as needed for any lawful purpose
(including Seller's inspection and copying of same), and Seller shall have
the same rights of access to inspect and copy (at Seller's cost) any or all
of the Hospital Records that Seller had prior to the Closing. Buyer shall
instruct the appropriate employees of the Facilities to cooperate in provid-
ing access to such records to Seller and its authorized representatives as
contemplated herein. Access to such records shall be, wherever reasonably
possible, during normal business hours, with reasonable prior written notice
to Buyer of the time when such access shall be needed. Seller's employees,
representatives and agents shall conduct themselves in such a manner so that
Buyer's normal business activities shall not be unduly or unnecessarily
disrupted. After the expiration of the aforementioned Document Retention
Period, Buyer shall not, without ninety-one (91) days' prior written notifi-
cation to Seller, destroy any Hospital Records in its possession. Within
ninety (90) days after its receipt of such notice of intent to destroy,
Seller shall have the right, at its own expense, to remove any such records
from the location(s) at which they may be maintained. Buyer shall adopt a
record retention policy with respect to the Transferred Records which
requires that all Transferred Records be maintained for the Document Reten-
tion Period and destroyed only after compliance with the notice provisions
of this Subsection (b) (including the passage of time), and shall take all
reasonable steps necessary to inform its employees of such policy.
(c) Buyer acknowledges and agrees that Seller shall have the
right to remove, and may remove, from time to time on or prior to the
Closing Date and during the Document Retention Period any or all of the
Hospital Records. In the event of Seller's removal of any Hospital Records
from a Facility, it shall, at Seller's cost, provide Buyer with copies of
the following Hospital Records if Buyer elects to retain such copies: (i)
the Patient Records for patients who are patients of the Facilities at the
Closing
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or who are the subject of Receivables transferred to Buyer hereunder, (ii)
the personnel records of the Hired Employees, and (iii) any records Buyer
would be required to have to comply with accreditation standards. If the
Hospital Records are removed by Seller, then it shall maintain such Hospital
Records at its expense during such period of time (but not less than the
Document Retention Period) and at such location as is deemed appropriate by
Seller in its reasonable discretion. For so long as the Hospital Records
are maintained by Seller, Seller shall make them available to Buyer as
needed by Buyer for any lawful purpose and if reasonably necessary to permit
Buyer to operate the Facilities or other Transferred Assets. Seller shall
instruct its appropriate employees to cooperate in providing access to such
records to Buyer and its authorized representatives as contemplated herein.
Buyer's access to the Hospital Records shall be, whenever reasonably possi-
ble, during normal business hours, with reasonable prior written notice to
Seller of the time when such access shall be needed. Buyer may make copies
of or extracts from any Hospital Records to which Buyer has access hereunder
at Buyer's sole cost and expense. Notwithstanding the foregoing, Buyer's
access to, or right to copies of, any Patient Records shall be subject to
any applicable Law, accreditation standard or rule or agreement (express or
implied) of confidentiality.
ARTICLE 6
ADDITIONAL COVENANTS OF SELLER
Seller hereby additionally covenants, promises and agrees as follows:
Section 6.1 Conduct Pending Closing. Prior to consummation of the
Transactions contemplated hereby or the termination or expiration of this
Agreement pursuant to its terms, unless Buyer shall otherwise consent in
writing, which consent shall not be unreasonably withheld or delayed, and
except for actions taken pursuant to Assumed Contracts, or which arise from
or are related to the anticipated transfer of the Transferred Assets, or as
otherwise contemplated by this Agreement or disclosed in Schedule 6.1 or
another Schedule to this Agreement, Seller shall, and shall cause the
Subsidiaries to:
(a) Conduct the business represented by, and otherwise deal
with, the Transferred Assets only in the usual and ordinary course, materi-
ally consistent with practices followed prior to the execution of this
Agreement;
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(b) Use reasonable efforts to keep intact the Transferred
Assets and the business they represent and to preserve relationships benefi-
cial to such business that doctors, patients, Payors, suppliers and others
have with the Facilities;
(c) Except as required by their terms, not amend, terminate,
renew, fail to renew or renegotiate any material contract, except in the
ordinary course of business and consistent with practices of the recent
past, or default (or take or omit to take any action that, with or without
the giving of notice or passage of time, would constitute a default) in any
of its obligations under any such contracts, that would be an Assumed
Contract as of the date hereof;
(d) Not sell, lease, mortgage, encumber, or otherwise dispose
of or grant any interest in, or permit or suffer to exist any lien or encum-
brance upon or the disposition of, any Facility, Inventory, or items of
Equipment having an undepreciated book value in excess of $25,000, including
without limitation any of its leasehold interests therein, whether by the
taking of action or the failure to take action, except for (i) sales of
Inventory in the ordinary course, (ii) liens constituting Permitted Encum-
brances, or (iii) sales or dispositions of Equipment in the ordinary course
of business that are consistent with practices of the recent past;
(e) Maintain in force and effect the insurance policies identi-
fied in Section 3.19(c);
(f) Not enter into any contract that will constitute an Assumed
Contract as of the Closing except in the ordinary course of business and
consistent with practices of the recent past; or
(g) Not grant any general or uniform increase in the rates of
pay or benefits to Retained Employees (or a class thereof) or any increase
in salary or benefits of any chief executive or financial officer of any
Facility, except for compensation previously agreed to prior to the date
hereof;
provided that nothing in this Section shall (i) obligate Seller or any
Subsidiary to make expenditures other than in the ordinary course of busi-
ness and consistent with practices of the recent past or to otherwise suffer
any economic detriment, (ii) preclude Seller from paying, prepaying or
otherwise satisfying any liability which, if outstanding as of the Closing
Date, would be an Assumed Liability or an Excluded Liability, or (iii)
preclude Seller from incurring any liabilities or obligations to any third
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party in connection with obtaining such party's consent to any transaction
contemplated by this Agreement or the Agreements provided such liabilities
and obligations under this clause (iii) shall be Excluded Liabilities
pursuant to Section 2.4(h) hereof.
Section 6.2 Access and Information; Environmental Survey; Remediation
or Adjustment.
(a) Subject to the restrictions set forth in Section 5.6
respecting confidentiality and provided that Buyer has complied with each
and every provision thereof, Seller shall, and shall cause the Subsidiaries
to, afford Buyer, and the counsel, accountants and other representatives of
Buyer, reasonable access, throughout the period from the date hereof to the
Closing, to the Transferred Assets and the employees, personnel and medical
staff associated therewith and all the properties, books, contracts, commit-
ments, cost reports and records respecting the Transferred Assets (regard-
less of where such information may be located). Such access shall be
afforded after no less than 24 hours prior written notice, during normal
business hours whenever reasonably possible and only in such manner so as
not to disturb patient care or to interfere with the normal operations of
the Facilities; provided, however, that, notwithstanding the foregoing and
subject to the provisions concerning nondisclosure set forth in Section 5.6,
without first obtaining the written consent of Mr. Ray L. Mathiasen, which
consent shall not be unreasonably withheld, neither Buyer nor its counsel,
accountants and other representatives shall tour or visit the Facilities or
contact any of the employees, personnel or medical staff thereof; and
provided further that until the first to occur of September 15, 1994 or the
Closing, under no circumstances shall Buyer solicit the employment of or
agree to employ any employees of Seller or its Subsidiaries, except as Hired
Employees pursuant to the terms hereof or except as may be permitted with
the prior written consent of a responsible officer of Seller. Seller's
covenants under this Section are made with the understanding that Buyer
shall use all such information in compliance with all Laws. The foregoing
notwithstanding, Buyer acknowledges and agrees that Buyer's access to the
books and records of the Transferred Assets shall not include access to any
privileged information or to any non-public information concerning any
alleged dispute or any pending litigation, investigation or proceeding
involving Seller or its Affiliates, and Seller shall not have any obligation
to deliver any such information to Buyer; moreover, Buyer shall not have
access to patient or employee records or any other records the disclosure of
which would be prohibited by any Law, accreditation standards, or rule or
agreement (express or implied) of confidentiality, except that Buyer may be
granted access to such records to the extent they are appropriately
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redacted and in conformity with such other reasonable procedures as may be
required to conform to any such requirements of Law, accreditation standards
or rule or agreement of confidentiality.
(b) At least five (5) business days prior to the Closing,
Seller shall provide to Buyer copies of an environmental survey conducted
(at Buyer's expense) with respect to each of the Facilities (the "Environ-
mental Survey"). The Environmental Survey shall be conducted by an environ-
mental consulting firm or firms (the "Consultant") and in accordance with
such reasonable procedures as are determined by Seller, in its reasonable
discretion, and Seller shall make reasonable efforts to accommodate reason-
able requests of Buyer with respect to such procedures that do not delay the
completion of the Environmental Survey. The results of any such Environ-
mental Survey shall be delivered to and owned by Seller, and all proceedings
in connection with the Environmental Survey and the results thereof shall be
subject to the confidentiality provisions of Section 5.6 and such other
restrictions as Seller may impose in its reasonable discretion. Buyer
acknowledges and agrees that the Environmental Survey shall be only an
initial "Phase I" environmental site assessment. If subsequently agreed by
Seller and Buyer, after consultation with Consultant, to be necessary or
prudent and if Seller and Buyer jointly thereafter direct the Consultant to
undertake the same (at Buyer's sole cost and expense), the Environmental
Survey may include a further "Phase II" investigation respecting certain
Facilities. In any "Phase II" investigation, Seller shall give Buyer no
less than 24 hours' notice before the Consultant enters onto any Facility,
and the "Phase II" Environmental Survey shall be conducted so as not to
interfere with the normal operation of the Facilities. Buyer shall be
permitted to have one of its employees present during all inspections of,
and sample gatherings (including borings) from the soil or any floor tile,
insulation or other internal component of, a Facility.
(c) With respect to any matters disclosed by such Environmental
Survey that would consitute a breach of Seller's warranties in Section 3.16,
but for the qualifications to such warranties based on Seller's knowledge or
disclosures in the Environmental Survey, Seller will at its election, either
(i) clean up or otherwise remediate such matters in a reasonable manner
prior to the Closing Date, at its expense; or (ii) reimburse Buyer for the
costs of such reasonable clean-up or remediation incurred by Buyer after the
Closing Date, provided Seller shall have approved such costs in advance and
in writing (such approval not unreasonably to be withheld); or (iii) elect
to exclude the affected Facility, and Transferred Assets and Assumed Liabil-
ities respecting such Facility, from the Transactions, in which case the
parties shall negotiate in good faith an
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equitable adjustment to the Purchase Price, or if they cannot agree upon the
same, such adjustment shall be determined in accordance with Section 2.14;
provided, however, that in no case will Seller be required to remove or
otherwise remediate (or bear the costs of same) any Hazardous Materials used
as construction materials in structures or improvements constituting the
Facilities.
Section 6.3 Updating. Seller shall notify Buyer of any changes or
additions to any of Seller's Schedules to this Agreement by the delivery of
updates thereof, if any, not later than two (2) business days prior to the
Closing, provided, however, that the Financial Schedule shall not be updated
to cover any period or periods subsequent to the respective dates thereof.
Subject to the provisions of Sections 4.9 and 4.10, no such updates made
pursuant to this Section shall be deemed to cure any breach of any represen-
tation or warranty made in this Agreement, unless Buyer specifically agrees
thereto in writing, nor shall any such notification be considered to consti-
tute or give rise to a waiver by Buyer of any condition set forth in this
Agreement.
Section 6.4 No Solicitation. Seller will not, and shall cause the
Subsidiaries not to, and will use its best efforts to cause its and their
officers, employees, agents and representatives (including any investment
banker) not to, directly or indirectly, solicit, encourage or initiate any
discussions with, or, subject to fiduciary duties to shareholders, negotiate
or otherwise deal with, or provide any information to, any corporation,
partnership, person or other entity or group, other than Buyer and its
officers, employees and agents, concerning any sale of or similar transac-
tions involving the Transferred Assets or the stock of the Subsidiaries.
None of the foregoing shall prohibit providing information to others in a
manner in keeping with the ordinary conduct of Seller's or the Subsidiaries'
businesses.
Section 6.5 Name Changes. To the extent that the corporate names of
any of the Subsidiaries incorporate or are substantially similar to the
Transferred Business Names, Seller agrees to cause the Subsidiaries promptly
after the Closing to take all action necessary to change such names so as
not to incorporate or be substantially similar to the Transferred Business
Names.
Section 6.6 Filing of Cost Reports. (a) Seller shall cause to be
prepared and timely filed all Cost Reports which are required to be filed
with Medicare and any other cost-based Payors with respect to the operations
of the Facilities for any and all periods ending on or prior to the
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Closing Date. Seller and the Subsidiaries shall retain all rights and all
obligations for amounts due to or from such Payors. The parties hereby
acknowledge and agree that Buyer is not being assigned or otherwise receiv-
ing and is not hereby assuming any of the same. Seller's rights shall
include, without limitation, the right to dispute or to appeal any determi-
nations relating to such reports.
(b) Notwithstanding the foregoing, with respect to any Facility
that, as of Closing, becomes the subject of a Management Agreement pursuant
to Section 2.15, Seller shall prepare and timely file any Cost Report,
including a final Cost Report, for a period that ends on or before May 31,
1994, and includes any period of time prior to the Closing (a "Straddle Cost
Agreement"). With respect to Cost Reports for managed Facilities that are
not Straddle Cost Reports, Buyer shall be responsible, as manager of the
Facility in question, for timely preparing the same, for the review, approv-
al and execution by Seller or the pertinent Subsidiary (or, at Seller's
election, for execution by a responsible official of the Facility in ques-
tion).
(c) With respect to Straddle Cost Reports, Buyer shall provide
such information at such times and in such formats as is reasonably request-
ed by Seller to allow it to file such Cost Reports in a timely manner. All
amounts due to or from Payors with respect to such Straddle Cost Reports
shall, as regards Payors, be the responsibility and for the account of
Seller or the pertinent Subsidiary. However, as between Buyer and Seller,
such amounts shall be borne or received by Buyer, for the period of time
covered by such Straddle Cost Report that follows the Closing Date, and by
Seller or the pertinent Subsidiary for the period of time ending on the
Closing Date, and the parties agree to cooperate with one another in estab-
lishing procedures, including payment procedures, to achieve such result.
The parties shall further cooperate with one another with respect to dis-
putes with or audits by Payors in respect of Straddle Cost Reports, so that
the party who, under the foregoing provisions, has the economic interest in
the matter that is the subject of dispute or audit shall have effective
control over the resolution thereof with such Payors, including effective
control over any appeals or legal proceedings with respect thereto.
(d) For purposes of arriving at a fair pro-ration between the
parties of exceptions taken in Straddle Cost Reports to TEFRA discharge
limitations and per patient day or routine service limitations, the parties
further agree as follows:
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(i) Amounts obtained from Payors with respect to such
Straddle Cost Reports for exceptions taken to TEFRA discharge limits
shall be prorated as of the Closing Date on the basis of the number of
patient discharges included in the period covered by the Straddle Cost
Report, so that Seller's and the Subsidiaries' portion of such
amounts, on the one hand, and Buyer's portion of such amounts, on the
other, shall be based upon the respective number of patient discharges
that occur on or prior to the Closing Date and the number of patient
discharges that occur after the Closing Date; provided that such
amounts as may be received with respect to Straddle Patients shall be
pro-rated between the parties as of the Closing Date on the basis of
the respective number of Straddle Patient days that are on or before,
or that are after, the Closing Date.
(ii) Amounts obtained from Payors with respect to Strad-
dle Cost Reports for exceptions taken to per patient day or routine
service limitations shall be prorated as of the Closing Date on the
basis of the number of patient days included in the period covered by
the Straddle Cost Report, so that Seller's and the Subsidiaries'
portion of such amounts, on the one hand, and Buyer's portion of such
amounts, on the other, shall be based upon the respective number of
patient days that occur on or prior to the Closing Date and the number
of patient days that occur after the Closing Date.
Section 6.7 Purchase of Data Processing Services. For a period not
to exceed six (6) months from the Closing, Buyer may purchase mutually
agreed upon data processing services of Seller or its Affiliates at one or
more Facilities at a price equal to $4.85 per patient day. If Buyer wishes
to purchase such data processing services from Seller, it shall notify
Seller no later than fifteen (15) days prior to the Closing, and at the
Closing the parties shall execute a Data Processing Services Contract
substantially in the form of Exhibit E hereto.
ARTICLE 7
ADDITIONAL COVENANTS OF BUYER
Section 7.1 Waiver of Bulk Sales Law Compliance. Subject to the
indemnification provisions of Section 11.3(a)(iii) hereof, Buyer hereby
waives compliance by Seller and the Subsidiaries with the requirements, if
any, of Article 6 of the Uniform Commercial Code as in force in any state
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in which Transferred Assets are located and all other similar laws applica-
ble to bulk sales and transfers.
Section 7.2 Resale Certificate. Buyer agrees to furnish to Seller
and the Subsidiaries any resale certificate or certificates or other similar
documents reasonably requested by Seller to comply with pertinent sales and
use tax laws.
Section 7.3 Cost Reports and Audit Contests. After the Closing and
for the period of time necessary to conclude any pending or potential audit
or contest of any Cost Reports with respect to the Facilities that include
periods ending on or before the Closing Date, Buyer shall (a) properly keep
and preserve all financial books and records delivered to Buyer by Seller
and the Subsidiaries (if any) and utilized in preparing such Reports,
including, without limitation, accounts payable invoices, Medicare logs and
billing information in accordance with Section 5.7, and (b) within five (5)
days of Buyer's receipt of the same, forward to Seller all information
received from Payors relating to periods prior to and as of the Closing Date
including, without limitation, Cost Report Settlements, notices of program
reimbursements, demand letters for payment and proposed audit adjustments.
Upon reasonable written notice by Seller, Seller (or its agents) shall be
entitled, at Seller's expense, during regular business hours, to have access
to, inspect and make copies of all such books and records. Upon the reason-
able request of Seller, Buyer shall assist Seller and the Subsidiaries in
obtaining information deemed by Seller to be necessary or desirable in
connection with any audit or contest of such reports. To the extent re-
quired to meet its obligations under this Section, Buyer shall provide the
reasonable support of its employees at no cost to Seller.
Section 7.4 Tax Matters. After the Closing, Buyer shall be respon-
sible for causing its employees, at no cost to Seller, to assist Seller and
the Subsidiaries, in the same manner and to the extent that personnel of the
Facilities currently provide such assistance, in the preparation and filing
of all returns relating to taxes imposed upon the businesses operated
through the Transferred Assets that relate to periods ending on or prior to
the Closing Date but are due after the Closing Date and that are not related
to Taxes included in the Assumed Liabilities, including without limitation,
income tax and information returns. Buyer acknowledges that either as
manager or assignee of the Assigned Stock, Buyer shall be responsible for
the preparation of tax returns for Neuro Rehab Associates, Inc. It is
further acknowledged by Buyer that Taxes (including, without limitation, the
Florida indigent care tax) imposed upon the right or privilege to do busi-
ness from the Facilities after the Closing shall be Buyer's responsibility
even if
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measured by gross receipts, net operating revenues or patient days for a
period ending on, before or including the Closing Date and that Taxes
included in Accrued Operating Expenses shall be only those properly accru-
able, in accordance with Seller's and the Subsidiaries' past practices for
the right or privilege of doing business through the Closing Date.
Section 7.5 Letters of Credit. Subject to the terms and conditions
hereof, at the Closing, Buyer shall cause letters of credit and indemnity or
performance bonds to be provided to substitute for those letters of credit
and bonds listed in Schedule 7.5, so that at and as of the Closing Seller
and its Affiliates shall have no further obligation to provide such desig-
nated letters of credit or bonds.
ARTICLE 8
BUYER'S CONDITIONS TO CLOSING
The obligations of Buyer to consummate the Transactions at the Closing
shall be subject to the fulfillment at or prior to the Closing of the
following conditions, unless Buyer waives such fulfillment:
Section 8.1 Performance of Agreement. Seller shall have performed in
all material respects its agreements and obligations contained in this
Agreement required to be performed on or prior to the Closing.
Section 8.2 Accuracy of Representations and Warranties. Subject to
Sections 4.9 and 4.10, the representations and warranties of Seller set
forth in Article 3 of this Agreement shall be true in all respects as of the
date of this Agreement (unless the inaccuracy or inaccuracies which would
otherwise result in a failure of this condition have been cured by the
Closing) and as of the Closing (as updated by the revising of Schedules
contemplated by Section 6.3) as if made as of such time, except where such
inaccuracy or inaccuracies would not individually or in the aggregate result
in a Material Adverse Effect on the Transferred Assets.
Section 8.3 Officer's Certificate. Buyer shall have received from
Seller an officer's certificate, executed on Seller's behalf by its chief
executive officer, president, chief financial officer or treasurer (in his
or her capacity as such) dated the Closing Date and stating that to the
actual knowledge of such individual, after inquiry of the other officers
identified in this Section 8.3, the conditions in Sections 8.1 and 8.2 above
have been met.
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Section 8.4 Consents. The waiting period under the HSR Act shall
have expired or been terminated, and, subject to the provisions of Sections
2.12, 2.14 and 2.15, all approvals, consents, authorizations and waivers
from governmental and accreditation agencies and from other third parties
required to consummate the Transactions shall have been obtained, except for
such approvals, consents, authorizations and waivers, the failure to obtain
which will not, individually or in the aggregate, result in a Material
Adverse Effect on the Transferred Assets. The foregoing notwithstanding,
the obtaining of any of the following approvals, consents, authorizations
and waivers (collectively, "Consents") shall not constitute a condition to
Buyer's consummation of the Transactions:
(a) Any Consent, if the result of the failure to obtain same is
either a Purchase Price adjustment or the parties' entry into a cooperative
arrangement pursuant to the provisions of Sections 2.12(a) or 2.14 or a
Management Agreement pursuant to Section 2.15;
(b) Any Consent to the sale and assignment of a Transferred
Asset, such as a Medicare or Medicaid provider agreement, or the assumption
of an Assumed Liability, if such sale, assignment or assumption may lawfully
be made subject to a customary condition subsequent that a Consent be
obtained from a third party based upon determinations of such third party,
including without limitation needs surveys or evaluations of Buyer, to be
completed after the Closing, whether or not such third party indicates prior
to the Closing that any such Consent is likely or not likely to be given;
(c) Any Consent, if the failure to obtain the same prevents
consummation of the Transactions only by Buyer; or
(d) Any Consent in respect of a License that is required to be
issued by a governmental authority in favor of Buyer as of or prior to the
Closing in order for Buyer to consummate the Transactions and operate the
Facilities as healthcare facilities, unless the failure to obtain such
Consent is solely the result of Seller's breach of the provisions of Sec-
tions 5.1, 5.2 or 5.3 hereof.
Section 8.5 Absence of Injunctions. There shall not be in effect a
temporary restraining order or a preliminary or permanent injunction or
other order, decree or ruling by a court of competent jurisdiction or by a
governmental agency which restrains or prohibits Buyer's acquisition or
operation of the Transferred Assets, provided that the parties will use
their reasonable efforts to litigate against the entry of, or to obtain the
lifting of,
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any such order or injunction, and the existence of any such temporary
restraining order or preliminary injunction shall operate, at the option of
Seller, only to delay the Closing (and extend the Termination Date) until
the thirtieth day following the lifting of any such order or injunction,
except that such delay may not extend the original Termination Date for more
than nine (9) months. Notwithstanding the foregoing, in the event that any
such order or injunction affects only a portion of the Transferred Assets,
then, at the election of Seller, the parties (x) shall negotiate an equita-
ble adjustment in the Purchase Price so as to consummate the Transactions
with respect to Transferred Assets and Assumed Liabilities relating to
Facilities that are not affected by such order or injunction, and (y) shall
either agree upon appropriate amendments to this Agreement to effect further
transfers of the remaining Transferred Assets and assumptions of the remain-
ing Assumed Liabilities when and if they are no longer subject to such order
or injunction or, if no such amendments are agreed upon, such remaining
Transferred Assets and Assumed Liabilities shall be deemed to be Excluded
Assets and Excluded Liabilities for all purposes of this Agreement; provided
that if the parties are unable to agree upon an equitable adjustment of the
Purchase Price, or appropriate amendments to effect further transfers, prior
to any scheduled Closing Date, then such disagreement shall be resolved
pursuant to the provisions of Section 2.14.
Section 8.6 Opinion of Counsel. Buyer shall have received, on and as
of the Closing Date, an opinion of Mr. Scott Brown, general counsel to
Seller, substantially as to the matters set forth in Sections 3.1, 3.3,
3.4(a), and 3.4(c) (to the knowledge of such counsel), subject to customary
conditions and limitations.
Section 8.7 Title to Real Property. Title to Transferred Assets
comprised of interests in real property shall have been evidenced by the
willingness of Chicago Title Insurance Company (or an Affiliate thereof)
(the "Title Insurer") to issue ALTA (or the local equivalents thereof)
owner's extended coverage policies of title insurance (1990 Form B) (the
"Title Policies") in amounts equal to the respective portions of the Pur-
chase Price allocated to such interests, showing title to such interests in
such real property vested in Buyer subject to transfer of such interests to
Buyer, subject only to the following conditions of title:
(a) A lien or liens to secure payment of real estate taxes, not
delinquent;
(b) Exceptions, other than those listed on Schedule 8.7(b),
disclosed by current standard ALTA Preliminary Title Reports, delivered
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to and approved (except as shown on Schedule 8.7(b)) by Buyer prior to the
date hereof (as indicated by Buyer's signature of approval appended thereto)
together with copies of all documents underlying the exceptions contained
therein; and
(c) Other possible minor matters that in the aggregate are not
substantial in amount and do not materially detract from or interfere with
the present or intended use of such real property.
The willingness of the Title Insurer to issue the Title Policies shall be
evidenced either by the issuance thereof or the written commitments or
binders of the Title Insurer to issue such Title Policies within a reason-
able time after the Closing Date, subject to actual transfer of the real
property in question. If the Title Insurer is unwilling to issue any such
Title Policy, it shall be required to provide Buyer and Seller, in writing,
notice setting forth the reason(s) for such unwillingness on or before the
Closing Date. Seller shall have the right to seek to cure any defect which
is the reason for such unwillingness, and, if such notice by the Title
Insurer is given less than ten (10) business days prior to the then sched-
uled Closing Date, then the Closing Date (and, to the extent necessary, the
Termination Date) shall be extended for a period of up to ten (10) business
days to provide to Seller such opportunity to cure. In the event that,
despite Seller's efforts to cure, the Title Insurer remains unwilling to
issue any such Title Policy on the Closing Date (as may be extended as
provided herein), then, at the election of Buyer, and without affecting the
other conditions of the parties to consummation of the Transactions, such
real property interests not covered by such a Title Policy shall not be
included in the Transferred Assets and shall be deemed to be Excluded
Assets, and liabilities associated therewith that would otherwise be Assumed
Liabilities shall be deemed to be Excluded Liabilities; and Buyer and Seller
shall negotiate in good faith prior to the Closing an equitable adjustment
in the Purchase Price. If the parties cannot agree upon such equitable
adjustment, then the disagreement shall be resolved in accordance with
Section 2.14. Notwithstanding the foregoing, Buyer may accept such title to
any such interests as the pertinent Subsidiary may be able to convey, and
such title insurance with respect to the same as the Title Insurer is
willing to issue, in which case such interests shall be conveyed as part of
the Transferred Assets without reduction of the Purchase Price or any credit
or allowance against the same and without any other liability on the part of
Seller or the Subsidiaries.
Section 8.8 Receipt of Other Documents. Buyer shall have received
the following:
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(a) Certified copies of the resolutions of Seller's and each
Subsidiary's board of directors respecting this Agreement, the Agreements
and the Transactions, together with certified copies of any shareholder
resolutions which are necessary to approve the execution and delivery of
this Agreement and any Agreements and/or the performance of the obligations
of Seller and the Subsidiaries hereunder and thereunder;
(b) Certified copies of Seller's and each Subsidiary's Charter
Documents, together with a certificate of the corporate secretary of each
that none of such documents have been amended;
(c) One or more certificates as to the incumbency of each
officer of Seller or of any Subsidiary who has signed the Agreement, any
Agreement or any certificate, document or instrument delivered pursuant to
the Agreement or any Agreement;
(d) Good standing certificates for Seller and each of the
Subsidiaries from the Secretaries of State of their respective states of
incorporation dated as of a date not earlier than fifteen (15) business days
prior to the Closing Date;
(e) Copies of all third party and governmental consents,
permits and authorizations that Seller or any Subsidiary has received in
connection with the Agreement, the Agreements and the Transactions; and
(f) Certificates of non-foreign status in the form required by
Section 1445 of the Code duly executed by Seller and the Subsidiaries.
ARTICLE 9
SELLER'S CONDITIONS TO CLOSING
The obligations of Seller to consummate the Transactions at the
Closing shall be subject to the fulfillment at or prior to the Closing of
the following conditions, unless Seller waives such fulfillment:
Section 9.1 Performance of Agreement. Buyer shall have performed in
all material respects its agreements and obligations contained in this
Agreement required to be performed on or prior to the Closing.
Section 9.2 Accuracy of Representations and Warranties. The repre-
sentations and warranties of Buyer set forth in Article 4 of this Agreement
shall be true in all material respects as of the date of this Agreement
(unless the inaccuracy or inaccuracies which would otherwise
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result in a failure of this condition have been cured by the Closing) and as
of the Closing as if made as of such time.
Section 9.3 Officer's Certificate. Seller shall have received from
Buyer an officers' certificate, executed on Buyer's behalf by its chief
executive officer, president, chief financial officer or treasurer (in his
or her capacity as such) dated the Closing Date and stating that to the
actual knowledge of such individual after inquiry of the other officers
identified in this Section 9.3, the conditions in Sections 9.1 and 9.2 above
have been met.
Section 9.4 Consents. The waiting period under the HSR Act shall
have expired or been terminated, and, subject to the provisions of Sections
2.12, 2.14 and 2.15, all approvals, consents, authorizations and waivers
from governmental and accreditation agencies and from other third parties
required for Seller to consummate the Transactions shall have been obtained,
except for such approvals, consents, authorizations and waivers the failure
to obtain which will not, individually or in the aggregate, result in a
Material Adverse Effect on Seller following the Closing. The foregoing
notwithstanding, the obtaining of any of the following Consents shall not
constitute a condition to Seller's consummation of the Transactions:
(a) Any Consent, if the result of the failure to obtain same is
either a Purchase Price adjustment or the parties' entry into a cooperative
arrangement pursuant to the provisions of Sections 2.12(a) or 2.14 or a
Management Agreement pursuant to Section 2.15;
(b) Any Consent to the sale and assignment of a Transferred
Asset, such as a Medicare or Medicaid provider agreement, or the assumption
of an Assumed Liability, if such sale, assignment or assumption may lawfully
be made subject to a customary condition subsequent that a Consent be
obtained from a third party based upon determinations of such third party,
including without limitation needs surveys or evaluations of Buyer, to be
completed after the Closing, whether or not such third party indicates prior
to the Closing that any such Consent is likely or not likely to be given.
Section 9.5 Absence of Injunctions. There shall not be in effect a
temporary restraining order or a preliminary or permanent injunction or
other order, decree or ruling by a court of competent jurisdiction or by a
governmental agency which restrains or prohibits Seller's consummation of
the Transactions, or any threat by governmental authorities to exact any
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penalty or impose any economic detriment upon Seller if it consummates the
Transactions that would have a Material Adverse Effect upon Seller following
the Closing, provided that the parties will use their reasonable efforts to
litigate against the entry of, or to obtain the lifting of, any such order,
injunction or potential penalty or imposition, and the existence of any such
temporary restraining order, preliminary injunction or potential penalty or
imposition shall operate, at the option of Seller, only to delay the Closing
(and extend the Termination Date) until the thirtieth day following the
lifting of any such order or injunction or threat, except that such delay
may not extend the original Termination Date for more than nine (9) months.
Notwithstanding the foregoing, in the event that any such order or injunc-
tion affects only a portion of the Transferred Assets, then, at the election
of Seller, the parties (x) shall negotiate an equitable adjustment in the
Purchase Price so as to consummate the Transactions with respect to Trans-
ferred Assets and Assumed Liabilities relating to Facilities that are not
affected by such order or injunction, and (y) shall either agree upon
appropriate amendments to this Agreement to effect further transfers of the
remaining Transferred Assets and assumptions of the remaining Assumed
Liabilities when and if they are no longer subject to such order or injunc-
tion or, if no such amendments are agreed upon, such remaining Transferred
Assets and Assumed Liabilities shall be deemed to be Excluded Assets and
Excluded Liabilities for all purposes of this Agreement; provided that if
the parties are unable to agree upon an equitable adjustment of the Purchase
Price, or appropriate amendments to effect further transfers, prior to any
scheduled Closing Date, then such disagreements shall be resolved pursuant
to the provisions of Section 2.14.
Section 9.6 Opinion of Counsel. Seller shall have received, on and
as of the Closing Date, an opinion of Haskell Slaughter Young & Johnston,
Professional Association, counsel to Buyer, substantially as to the matters
set forth in Sections 4.1, 4.2, 4.3(a), and 4.3(c) (to the knowledge of such
counsel), subject to customary conditions and limitations.
Section 9.7 Receipt of Other Documents. Seller shall have received
the following:
(a) Certified copies of the resolutions of Buyer's and each
Buyer Subsidiary's board of directors respecting this Agreement, the Agree-
ments and the Transactions;
(b) Certified copies of Buyer's and each Buyer Subsidiary's
Charter Documents, together with a certificate of Buyer's and each Buyer
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Subsidiary's corporate secretary that none of such documents have been
amended;
(c) One or more certificates as to the incumbency of each
officer of Buyer who has signed the Agreement, any Agreement, or any
certificate, document or instrument delivered pursuant to the Agreement or
any Agreement;
(d) Good standing certificates for Buyer and for each Buyer
Subsidiary from the Secretaries of State of their respective states of
incorporation dated as of a date not earlier than fifteen (15) business days
prior to the Closing Date;
(e) Copies of all third party and governmental consents,
permits and authorizations that Buyer has received in connection with the
Agreement, the Agreements and the Transactions; and
(f) A certificate of Buyer executed on its behalf by the Chief
Executive Officer and the Chief Financial Officer of Buyer stating that to
the best of their knowledge and belief, specifying in reasonable detail
their basis for same, after giving effect to the Transactions, neither Buyer
nor any of its Subsidiaries is insolvent or will be rendered insolvent by
obligations incurred in connection therewith, or will be left with unreason-
ably small capital with which to engage in their businesses, or will have
incurred obligations beyond their respective abilities to perform the same
as and when due.
ARTICLE 10
TERMINATION
Section 10.1 Termination. This Agreement and the transactions
contemplated hereby may be terminated at any time prior to the Closing:
(a) By mutual consent of Seller and Buyer; or
(b) By either Buyer or Seller upon written notice to the other
party, if (i) the Closing shall not have occurred by the later of January
31, 1994, the fifth business day following the expiration of the HSR waiting
period, or such later date as may be provided for in this Agreement or
agreed upon by the parties (the "Termination Date"); or (ii)(A) in the case
of termination by Seller, the conditions set forth in Article 9 cannot
reasonably be met by the Termination Date, and (B) in the case of termina-
tion by Buyer, the conditions set forth in Article 8 cannot reasonably
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be met by the Termination Date, unless in either of the cases described in
clauses (A) or (B), the failure of the condition is the result of the
material breach of this Agreement by the party seeking to terminate.
Each party's right of termination hereunder is in addition to any other
rights it may have hereunder or otherwise.
Section 10.2 Effect of Termination. In the event this Agreement is
terminated pursuant to Section 10.1, all further obligations of the parties
hereunder shall terminate, except that the obligations set forth in Sections
2.6(a), 5.5 and 5.6 and in Articles 11 and 12 shall survive. In the event
of termination of this Agreement as provided above, there shall be no
liability on the part of a party to another under and by reason of this
Agreement or the transactions contemplated hereby except as set forth in
Section 2.6(a) and Article 11 and except for fraudulent acts by a party, the
remedies for which shall not be limited by the provisions of this Agreement.
The foregoing provisions shall not, however, limit or restrict the avail-
ability of specific performance or other injunctive or equitable relief to
the extent that specific performance or such other relief would otherwise be
available to a party hereunder.
ARTICLE 11
SURVIVAL AND REMEDIES; INDEMNIFICATION
Section 11.1 Survival. Except as may be otherwise expressly set
forth in this Agreement, the representations, warranties, covenants and
agreements of Buyer and Seller set forth in this Agreement, or in any
writing required to be delivered in connection with this Agreement, shall
survive the Closing and the consummation of the Transactions.
Section 11.2 Exclusive Remedy. Absent fraud, the sole exclusive
remedy for damages of a party hereto for any breach of the representations,
warranties, covenants and agreements of the other party contained in this
Agreement and the Agreements shall be the remedies contained in this
Article 11.
Section 11.3 Indemnity by Seller.
(a) Seller shall indemnify Buyer and hold Buyer harmless from
and against any and all loss, liability, damage and expense, including
reasonable attorneys' fees and costs of investigation, litigation, settle-
ment and judgment (collectively "Losses"), which Buyer may sustain or suffer
or to which Buyer may become subject as a result of:
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(i) The inaccuracy of any representation or the breach of
any warranty made by Seller herein or in a Agreement, provided that
any such inaccuracy or breach shall be determined without regard to
any qualification of such representation or warranty based upon the
absence of a Material Adverse Effect on the Transferred Assets;
(ii) The nonperformance or breach of any covenant or
agreement made or undertaken by Seller in this Agreement or in a
Agreement; and
(iii) If the Closing occurs, the existence of, or the
failure of Seller or any Subsidiary to pay, discharge or perform as
and when due, any of the Excluded Liabilities (including, without
limitation, any Losses as a result of or in connection with the
failure of Seller and the Subsidiaries to comply with any Bulk Sales
Laws referred to in Section 7.1).
(b) The indemnification obligations of Seller provided above
shall, in addition to the qualifications and conditions set forth in Sec-
tions 11.5 and 11.6, be subject to the following qualifications:
(i) Buyer shall not be entitled to indemnity under
Subsection (a)(i) above unless:
(A) Written notice to Seller of such claim specify-
ing the basis thereof is made, or an action at law or in equity
with respect to such claim is served, before the first anniver-
sary of the earlier to occur of the Closing Date or the date on
which this Agreement is terminated, as the case may be;
(B) If the Closing occurs, the Losses sustained or
suffered by Buyer or to which it may be subject as a result of
circumstances described in such Subsection (a)(i) exceeds, in
the aggregate, the sum of Ten Million Dollars ($10,000,000) (the
"Trigger Amount"), in which case Buyer shall be entitled only to
recover the amount by which Losses exceed Five Million Dollars
($5,000,000) (the "Deductible Amount"), provided, however, that
individual claims of Ten Thousand Dollars ($10,000) or less
shall not be aggregated for purposes of calculating either the
Trigger Amount, the
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Deductible Amount or the excess of Losses over the Deductible
Amount; and
(C) If the Closing occurs, in no event shall Seller
be liable to Buyer under Subsection (a)(i) for amounts which, in
the aggregate, exceed one hundred percent (100%) of the Purchase
Price.
(ii) If the Closing occurs, Buyer shall not be entitled
to indemnity under Subsections (a)(ii)-(iii) above except for out-of-
pocket Losses actually suffered or sustained by Buyer or to which
Buyer may become subject as a result of circumstances described in
such Subsections (a)(ii)-(iii), and such indemnity shall not include
Losses in the nature of consequential damages, lost profits, diminu-
tion in value, damage to reputation or the like.
(iii) Seller shall have no liability for Losses arising
from the breach of any warranty related to Net Book Values, including
without limitation the warranties contained in Sections 3.17 and 3.18,
and no such Losses shall be applied against the Trigger Amount or the
Deductible Amount or the excess of Losses over the Deductible Amount,
it being agreed that the liability of the Seller with respect to Net
Book Values, if any, shall be resolved in accordance with the provi-
sions of Sections 2.6(b), (c) and (d).
Section 11.4 Indemnity by Buyer.
(a) Buyer shall indemnify Seller and the Subsidiaries and hold
Seller and the Subsidiaries harmless from and against any and all Losses
which they may sustain or suffer or to which they may become subject as a
result of:
(i) The inaccuracy of any representation or the breach of
any warranty made by Buyer herein or in a Agreement;
(ii) The nonperformance or breach of any covenant or
agreement made or undertaken by Buyer in this Agreement or in a
Agreement, including the indemnity obligations of Buyer in Sections
2.7 and 2.10;
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(iii) If the Closing occurs, the existence of, or the
failure of Buyer to pay, discharge or perform as and when due, any of
the Assumed Liabilities; and
(iv) If the Closing occurs, the ongoing operations of
Buyer, the Transferred Assets and the Facilities after the Closing
Date.
(b) The indemnification obligations of Buyer provided above
shall, in addition to the qualifications and conditions set forth in Sec-
tions 11.5 and 11.6, be subject to the following qualifications:
(i) Seller and the Subsidiaries shall not be entitled to
indemnity under Subsection (a)(i) above unless:
(A) Written notice to Buyer of such claim specify-
ing the basis thereof is made, or an action at law or in equity
with respect to such claim is served, before the first anniver-
sary of the earlier to occur of the Closing Date or the date on
which this Agreement is terminated, as the case may be; and
(B) If the Closing occurs, the Losses sustained or
suffered by Seller and the Subsidiaries or to which they may be
subject as a result of circumstances described in such Subsec-
tion (a)(i) exceeds, in the aggregate, the Trigger Amount, in
which case Seller and the Subsidiaries shall be entitled only to
recover the amount by which such Losses exceed, in the aggre-
gate, the Deductible Amount, provided, however, that individual
claims of Ten Thousand Dollars ($10,000) or less shall not be
aggregated for purposes of calculating either the Trigger
Amount, the Deductible Amount or the excess of Losses over the
Deductible Amount.
(ii) If the Closing occurs, Seller and the Subsidiaries
shall not be entitled to indemnity under Subsections (a)(ii)-(iv)
above except for out-of-pocket Losses actually suffered or sustained
by them or to which they may become subject as a result of circum-
stances described in such Subsections (a)(ii)-(iv), and such indemnity
shall not include Losses in the nature of consequential damages, lost
profits, diminution in value, damage to reputation or the like.
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Section 11.5 Further Qualifications Respecting Indemnification. The
right of a party (an "Indemnitee") to indemnity hereunder shall be subject
to the following additional qualifications:
(a) The Indemnitee shall promptly upon its discovery of facts
or circumstances giving rise to a claim for indemnification, including
receipt by it of notice of any demand, assertion, claim, action or proceed-
ing, judicial, governmental or otherwise, by any third party (such third
party actions being collectively referred to herein as "Third Party
Claims"), give notice thereof to the indemnifying party (the "Indemnitor"),
such notice in any event to be given within sixty (60) days from the date
the Indemnitee obtains actual knowledge of the basis or alleged basis for
the right of indemnity or such shorter period as may be necessary to avoid
material prejudice to the Indemnitor; and
(b) In computing Losses, such amounts shall be computed net of
any related recoveries to which the Indemnitee is entitled under insurance
policies or other related payments received or receivable from third parties
and net of any tax benefits actually received by the Indemnitee or for which
it is eligible, taking into account the income tax treatment of the receipt
of indemnification.
Section 11.6 Procedures Respecting Third Party Claims. In providing
notice to the Indemnitor of any Third Party Claim (the "Claim Notice"), the
Indemnitee shall provide the Indemnitor with a copy of such Third Party
Claim or other documents received and shall otherwise make available to the
Indemnitor all relevant information material to the defense of such claim
and within the Indemnitee's possession. The Indemnitor shall have the
right, by notice given to the Indemnitee within fifteen (15) days after the
date of the Claim Notice, to assume and control the defense of the Third
Party Claim that is the subject of such Claim Notice, including the employ-
ment of counsel selected by the Indemnitor after consultation with the
Indemnitee, and the Indemnitor shall pay all expenses of, and the Indemnitee
shall cooperate fully with the Indemnitor in connection with, the conduct of
such defense. The Indemnitee shall have the right to employ separate
counsel in any such proceeding and to participate in (but not control) the
defense of such Third Party Claim, but the fees and expenses of such counsel
shall be borne by the Indemnitee unless the Indemnitor shall agree other-
wise. If the Indemnitor shall have failed to assume the defense of any
Third Party Claim in accordance with the provisions of this Section, then
the Indemnitee shall have the absolute right to control the defense of such
Third Party Claim, and, if and when it is finally determined that the
Indemnitee is entitled to indemnification from the Indemnitor hereunder, the
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fees and expenses of Indemnitee's counsel shall be borne by the Indemnitor,
provided that the Indemnitor shall be entitled, at its expense, to partici-
pate in (but not control) such defense. The Indemnitor shall have the right
to settle or compromise any such Third Party Claim for which it is providing
indemnity so long as such settlement does not impose any obligations on the
Indemnitee (except with respect to providing releases of the third party).
The Indemnitor shall not be liable for any settlement effected by the
Indemnitee without the Indemnitor's consent. The Indemnitor may assume and
control, or bear the costs, of any such defense subject to its reservation
of a right to contest the Indemnitee's right to indemnification hereunder,
provided that it gives the Indemnitee notice of such reservation within
fifteen (15) days of the date of the Claim Notice.
ARTICLE 12
GENERAL PROVISIONS
Section 12.1 Notices. All notices, requests, demands, waivers,
consents and other communications hereunder shall be in writing, shall be
delivered either in person, by telegraphic, facsimile or other electronic
means, by overnight air courier or by mail, and shall be deemed to have been
duly given and to have become effective (a) upon receipt if delivered in
person or by telegraphic, facsimile or other electronic means calculated to
arrive on any business day prior to 6:00 p.m. local time at the address of
the addressee, or on the next succeeding business day if delivered on a non-
business day or after 6:00 p.m. local time, (b) one business day after
having been delivered to an air courier for overnight delivery or (c) five
(5) business days after having been deposited in the mails as certified or
registered mail, return receipt requested, all fees prepaid, directed to the
parties or their permitted assignees at the following addresses (or at such
other address as shall be given in writing by a party hereto):
If to Seller, addressed to:
National Medical Enterprises
2700 Colorado Avenue
Santa Monica, CA 90404
Attn: Treasurer
Facsimile: (310) 998-6507
with a copy to counsel for Seller:
National Medical Enterprises
2700 Colorado Avenue
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Santa Monica, CA 90404
Attn: General Counsel
Facsimile: (310) 998-6688
and
Munger, Tolles & Olson
355 South Grand Avenue
35th Floor
Los Angeles, CA 90071
Attn: Robert L. Adler, Esq.
Facsimile: (213) 687-3702
If to Buyer, addressed to:
HEALTHSOUTH Rehabilitation Corporation
Two Perimeter Park South
Birmingham, Alabama 35243
Attn: Richard M. Scrushy
Chairman of the Board, President and Chief
Executive Officer
Facsimile: (205) 969-4729
with a copy to counsel for Buyer:
HEALTHSOUTH Rehabilitation Corporation
Two Perimeter Park South
Birmingham, Alabama 35243
Attn: C. Drew Demaray, Esq.
Vice President
Facsimile: (205) 969-4732
and
J. Brooke Johnston, Jr., Esq.
Haskell Slaughter Young & Johnston,
Professional Association
1200 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35203
Facsimile: (205) 324-1133
and
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William W. Horton, Esq.
Haskell Slaughter Young & Johnston,
Professional Association
1200 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35203
Facsimile: (205) 324-1133
Section 12.2 Attorneys' Fees. In any litigation or other proceeding
relating to this Agreement, including litigation with respect to any
Agreement (but excluding any proceedings under Sections 2.6(c) and (d) or
2.14), the prevailing party shall be entitled to recover its costs and
reasonable attorneys' fees. The term "prevailing party" shall mean the
party in whose favor final judgment after appeal (if any) is rendered with
respect to the claims asserted in such litigation or other proceeding.
"Reasonable attorneys' fees" are no greater than those attorneys' fees
actually incurred in obtaining a judgment or other determination in favor of
the prevailing party.
Section 12.3 Successors and Assigns. The rights under this Agreement
shall not be assignable or transferable nor the duties delegable by either
party without the prior written consent of the other; and nothing contained
in this Agreement, express or implied, is intended to confer upon any person
or entity, other than the parties hereto and their permitted successors-in-
interest and permitted assignees, any rights or remedies under or by reason
of this Agreement unless so stated to the contrary.
Section 12.4 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 12.5 Captions and Paragraph Headings. Captions and paragraph
headings used herein are for convenience only and are not a part of this
Agreement and shall not be used in construing it.
Section 12.6 Entirety of Agreement; Amendments. This Agreement
(including the Schedules and Exhibits hereto) and the other documents and
instruments specifically provided for in this Agreement contain the entire
understanding between the parties concerning the subject matter of this
Agreement and such other documents and instruments and, except as expressly
provided for herein, supersede all prior understandings and agreements,
whether oral or written, between them with respect to the
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subject matter hereof and thereof. There are no representations, warran-
ties, agreements, arrangements or understandings, oral or written, between
the parties hereto relating to the subject matter of this Agreement and such
other documents and instruments which are not fully expressed herein or
therein. This Agreement may be amended or modified only by an agreement in
writing signed by each of the parties hereto. All Exhibits and Schedules
attached to or delivered in connection with this Agreement are integral
parts of this Agreement as if fully set forth herein, and all statements
appearing therein shall be deemed disclosed for all purposes and not only in
connection with the specific provision in which they are explicitly refer-
enced.
Section 12.7 Construction. This Agreement and any documents or
instruments delivered pursuant hereto shall be construed without regard to
the identity of the person who drafted the various provisions of the same.
Each and every provision of this Agreement and such other documents and
instruments shall be construed as though the parties participated equally in
the drafting of the same. Consequently, the parties acknowledge and agree
that any rule of construction that a document is to be construed against the
drafting party shall not be applicable either to this Agreement or such
other documents and instruments.
Section 12.8 Waiver. The failure of a party to insist, in any one or
more instances, on performance of any of the terms, covenants and conditions
of this Agreement shall not be construed as a waiver or relinquishment of
any rights granted hereunder or of the future performance of any such term,
covenant or condition, but the obligations of the parties with respect
thereto shall continue in full force and effect. No waiver of any provision
or condition of this Agreement by a party shall be valid unless in writing
signed by such party or operational by the terms of this Agreement. A
waiver by one party of the performance of any covenant, condition, represen-
tation or warranty of the other party shall not invalidate this Agreement,
nor shall such waiver be construed as a waiver of any other covenant,
condition, representation or warranty. A waiver by any party of the time
for performing any act shall not constitute a waiver of the time for per-
forming any other act or the time for performing an identical act required
to be performed at a later time.
Section 12.9 Governing Law. This Agreement shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of California, without regard to the principles of conflicts of law
thereof, provided that the validity, interpretation and effect of any
instruments by which real property is conveyed at the Closing shall be
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governed by the laws of the state in which such real property is located.
Any action arising under this Agreement shall be adjudicated in Los Angeles,
California.
Section 12.10 Severability. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be valid, binding
and enforceable under applicable law, but if any provision of this Agreement
is held to be invalid, void (or voidable) or unenforceable under applicable
law, such provision shall be ineffective only to the extent held to be
invalid, void (or voidable) or unenforceable, without affecting the remain-
der of such provision or the remaining provisions of this Agreement.
Section 12.11 Consents Not Unreasonably Withheld. Wherever the
consent or approval of any party is required under this Agreement, such
consent or approval shall not be unreasonably withheld, unless such consent
or approval is to be given by such party at the sole or absolute discretion
of such party or is otherwise similarly qualified.
Section 12.12 Time Is of the Essence. Time is hereby expressly made
of the essence with respect to each and every term and provision of this
Agreement. The parties acknowledge that each will be relying upon the
timely performance by the other of its obligations hereunder as a material
inducement to each party's execution of this Agreement. Consequently, the
parties agree that they are bound strictly by the provisions concerning
timely performance of their respective obligations contained in this Agree-
ment and that if any attempt is made by either party to perform an obliga-
tion required to be performed or comply with a provision of this Agreement
required to be complied with in a manner other than in strict compliance
with the time period applicable thereto, even if such purported attempt is
but one day late, then such purported attempt at performance or compliance
shall be deemed a violation of this Section, shall be deemed in contraven-
tion of the intention of the parties hereto, and shall be null and void and
of no force or effect.
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IN WITNESS WHEREOF, the parties have duly executed this Agree-
ment on the date first above written.
Buyer:
HEALTHSOUTH Rehabilitation
Corporation
By: Richard M. Scrushy
Name: Richard M. Scrushy
Title: Chairman of the Board, Pres-
ident and Chief Executive
Officer
Seller:
NATIONAL MEDICAL ENTERPRISES,
INC.
By: Raymond L. Mathiasen
Name: Raymond L. Mathiasen
Title: Chief Financial Officer
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EXHIBIT A
FORM OF
BULK BILL OF SALE AND ASSIGNMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency
of which are hereby acknowledged, NATIONAL MEDICAL ENTERPRISES, INC., a
Nevada corporation (the "Seller"), and each subsidiary of Seller set forth
in Rider A hereto (individually a "Subsidiary" and collectively, the "Sub-
sidiaries"), pursuant to, and subject to the terms, provisions and condi-
tions of, that certain Asset Sale Agreement dated December __, 1993 (the
"Agreement"), by and between Seller and HEALTHSOUTH REHABILITATION CORPORA-
TION, a Delaware corporation (the "Buyer"), do hereby sell, convey, assign,
transfer and deliver to Buyer, its successors and assigns, the assets (the
"Transferred Assets") set forth in Rider B hereto, but excluding those
assets set forth in Rider C hereto, all as more particularly described in
the Agreement.
The sale, conveyance, assignment, transfer and delivery made
hereunder is made "AS IS" and "WITH ALL FAULTS," all as more particularly
described in the Agreement, and without warranty of any kind, except as may
be provided in the Agreement, including the warranty of merchantability or
fitness for any purpose.
Capitalized terms not otherwise defined herein (including all
Riders hereto) shall have the meanings ascribed to them in the Agreement.
A-1
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IN WITNESS WHEREOF, the Seller and each Subsidiary have executed
this Bulk Bill of Sale and Assignment this ___ day of _____________, 199_,
effective as of the Closing specified in the Agreement.
NATIONAL MEDICAL ENTERPRISES, INC.
For Itself And As Attorney-In-Fact
For The Subsidiaries Listed In Rider A
By: ___________________________
Title: ________________________
A-2
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RIDER A
TO
BULK BILL OF SALE AND ASSIGNMENT
[List of Subsidiaries To Come]
A-3
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RIDER B
TO
BULK BILL OF SALE AND ASSIGNMENT
(a) All of the Subsidiary's right, title and interest in and to
the Owned Real Property identified in the Agreement on which Facilities are
located, together with the Facilities, construction work-in-progress, and
all other buildings and improvements thereon, and all rights, privileges,
permits and easements appurtenant thereto;
(b) All of the Subsidiary's right, title and interest in and to
the Real Property Leases identified in the Agreement, together with all
construction work-in-progress in respect of same and all rights, privileges
and easements appurtenant thereto;
(c) All of the Subsidiary's right, title and interest in and to
the capital stock owned by the Subsidiary in Neuro Rehab Associates, Inc., a
New Hampshire corporation, which leases and operates Northeast Rehabilita-
tion Hospital in Salem, New Hampshire;
(d) All of the Subsidiary's right, title and interest in and to
the joint ventures or partnerships identified in the Agreement that relate
to partnerships or joint ventures that own or lease Facilities or other
Transferred Assets, together with all of the Subsidiary's right, title and
interest in and to the Venture Agreements that govern such partnerships or
joint ventures;
(e) All of the Subsidiary's right, title and interest in and to
Equipment (i) that is not consumed, disposed of or held for sale or as
inventory in the ordinary course of business, (ii) that is owned or leased
by or consigned to the Subsidiary as of the Closing, and (iii) that is used
solely with respect to the operation of Facilities;
(f) All of the Subsidiary's right, title and interest in and to
Inventory owned by or consigned to the Subsidiary as of the Closing and that
is used by the Subsidiary solely with respect to the operation of the
Facilities;
(g) All of the Subsidiary's right, title and interest in and to
all Other Assigned Contracts to the extent specified in the Agreement and to
which the Subsidiary is a party at the Closing, in addition to the Real
Property Leases and the Venture Agreements, which are transferable to Buyer;
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(h) All of the Seller's and the Subsidiary's right, title and
interest in and to the right to receive mail and other communications
addressed to Seller or the Subsidiary insofar as such mail or other communi-
cation relates to the operation of the Facilities after the Closing;
(i) All of the Subsidiary's right, title and interest in and to
the Transferred Business Names;
(j) All of the Subsidiary's right, title and interest in and to
Licenses in favor of the Subsidiary as of the Closing that are directly
related to, necessary for, or used solely in connection with the operation
of the Facilities as presently operated by the Subsidiary, provided that
Licenses in favor of the Subsidiary shall be included in the Transferred
Assets only to the extent they are lawfully transferable;
(k) All of the Subsidiary's right, title and interest in and to
unexpired warranties as of the Closing that are transferable to Buyer which
the Subsidiary has received from third parties with respect to the Trans-
ferred Assets, including, but not limited to, such warranties as are set
forth in any construction agreement, lease agreement, equipment purchase
agreement, consulting agreement or agreement for architectural and engineer-
ing services;
(l) All of the Subsidiary's right, title and interest in and to
Prepayments;
(m) All of the Subsidiary's right, title and interest in and to
Receivables; and
(n) All of the Subsidiary's right, title and interest in and to
the goodwill of the businesses evidenced by the Transferred Assets, and,
except for Excluded Assets, any and all other assets of the Subsidiary
utilized solely in the operations of the Facilities as conducted prior to
the Closing Date, whether or not such assets have any value for accounting
purposes; provided that with respect to NME Hospitals, Inc., International-
NME, Inc., RHSC Hospitals, Inc. and NME Rehabilitation Hospitals, Inc., only
those assets described in clauses (a) through (m) above (other than Excluded
Assets) shall be included in the Transferred Assets.
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RIDER C
TO
BULK BILL OF SALE AND ASSIGNMENT
(a) Except for the Inventory, Receivables, Prepayments and
current amounts represented by the Loan Commitment Notes included in the
Transferred Assets, all assets constituting working capital, whether cash,
cash equivalents, securities, or other current assets, and all claims,
choses in action, rights of recovery, rights of set-off, rights to refunds,
and other similar rights, whether or not included in working capital;
(b) Except for the Transferred Business Names, Licenses and
Other Assigned Contracts included in the Transferred Assets, all privileged
or proprietary materials, documents, information, media, methods and pro-
cesses owned by Seller or a Subsidiary, and any and all rights to use same,
including, but not limited to, all intangible assets of an intellectual
property nature such as trademarks, service marks and trade names (whether
or not registered), proprietary computer software, all proprietary proce-
dures and manuals, all promotional or marketing materials (including all
marketing computer hardware and software), and any and all names under which
the Subsidiaries or the Facilities have done business or offered programs,
other than the Transferred Business Names, and all abbreviations and varia-
tions thereof;
(c) The rights of any Subsidiary under any insurance policy, if
any, included in the Transferred Assets which relate to any Excluded Asset
or Excluded Liability;
(d) The rights of Seller or of any Subsidiary to receive mail
and other communications addressed to any of them with respect to Excluded
Assets or Excluded Liabilities;
(e) Subject to the provisions of the Agreement, any and all
business and patient records of or related to the operation of the Facili-
ties, whether or not maintained at or by the Facilities;
(f) All property, plant, equipment and other assets pertaining
to the rehabilitation healthcare business of Seller or any subsidiary of
Seller that relate to any general hospital, acute hospital or so-called
"campus facility" of Seller or any subsidiary of Seller, as more particular-
ly described in the Agreement;
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(g) Any and all contracts and agreements pursuant to which a
Subsidiary provides management services to third parties;
(h) Any and all rights respecting computer and data processing
hardware or firmware that is proprietary to Seller or any Affiliate of
Seller, and any computer and data processing hardware or firmware, whether
or not located at a Facility, that is part of a computer system the central
processing unit for which is not located at a Facility;
(i) All of the right, title and interest of Seller and the
Subsidiaries in assets resulting from Cost Report Settlements to the extent
such Cost Reports cover any period through the Closing Date and other rights
and obligations of Seller and the Subsidiaries respecting Cost Reports
described in Section 6.6 of the Agreement;
(j) (i) All assets of South Texas Rehab Corporation or other-
wise related to Rehabilitation Hospital of South Texas;
(ii) All amounts due to the Subsidiaries arising from Inter-
company Transactions; and
(iii) Such other assets, if any, specifically described in
Schedule 2.2(j) of the Agreement and assets which would be Transferred
Assets except for the operation of Sections 2.12, 2.15, 6.2(c), 8.5,
8.7 or 9.5 of the Agreement; and
(k) Such other assets as are not expressly described as part of
the Transferred Assets.
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EXHIBIT B
FORM OF
ASSIGNMENT AND ASSUMPTION OF REAL PROPERTY LEASE
(Facility No. ___)
WHEN RECORDED, MAIL TO:
[To Come]
THIS ASSIGNMENT AND ASSUMPTION OF REAL PROPERTY LEASE (this
"Assignment") is entered into as of ______________, 199__, by and between
the undersigned assignor (the "Assignor") and the undersigned assignee (the
"Assignee"), pursuant to that certain Asset Sale Agreement dated December
__, 1993 (the "Asset Sale Agreement"), by and between the parent corporation
of the Assignor, National Medical Enterprises, Inc., a Nevada corporation
(the "Assignor's Parent"), and the parent corporation of the Assignee,
HealthSouth Rehabilitation Corporation, a Delaware corporation (the "Assign-
ee's Parent").
WITNESSETH:
WHEREAS, Assignor is the tenant under that certain real property
lease described in Rider A attached hereto wherein Assignor leases that
certain real property described in Rider B attached hereto (the "Real
Property Lease"); and
WHEREAS, Assignor desires to assign all of its right, title and
interest under the Real Property Lease and Assignee desires to assume all of
Assignor's obligations thereunder;
NOW, THEREFORE, the parties agree as follows:
1. Assignment of Lease. Assignor hereby assigns unto Assignee
all of the Assignor's right, title and interest in the Real Property Lease,
including, without limitation, any rights to renew or extend the term of the
Real Property Lease, and any rights of first refusal respecting and options
to purchase the leased premises that are the subject of the Real Property
Lease.
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2. Assumption of Real Property Lease Obligations. Assignee and
Assignee's Parent, jointly and severally, do hereby assume all of the
obligations of the Assignor under the Real Property Lease, and jointly and
severally agree, in accordance with the provisions of the Asset Sale Agree-
ment, to indemnify and hold the Assignor and the Assignor's Parent harmless
from and against any liability resulting from the breach of this covenant by
the Assignee or the Assignees's Parent.
3. General Provisions. Assignee and Assignee's Parent hereby
confirm that Assignee has irrevocably appointed Assignee's Parent as its
sole and exclusive representative, agent and attorney-in-fact with respect
to all matters arising from or related to this Assignment. Notices hereun-
der to the Assignor or the Assignor's Parent, or to the Assignee or the
Assignee's Parent, as the case may be, shall be given to the Assignor's
Parent or the Assignee's Parent, as the case may be, in accordance with the
provisions of the Agreement. The provisions of this Assignment shall be
binding upon and inure to the benefit of the respective successors and
permitted assigns of the parties hereto.
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IN WITNESS WHEREOF, the undersigned have executed this Assign-
ment as of the day and year first above written.
ASSIGNOR: ASSIGNEE:
___________________________ ___________________________
(Name of Assignor) (Name of Assignee)
A _______________ Corporation A _______________ Corporation
By: __________________________ By: _________________________
Title: _______________________ Title: ______________________
And By: ______________________ And By: _____________________
HEALTHSOUTH REHABILITATION CORPO-
Title: _______________________ RATION
By: _________________________
Title: ______________________
And By: _____________________
Title: ______________________
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STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On ___________________, 199__, before me, the undersigned, a
Notary Public in and for said County and State, personally appeared,
____________________ and _____________________, proved to me on the basis
of satisfactory evidence to be the persons whose names are subscribed to the
within instrument and acknowledged to me that they executed the same in
their authorized capacities as ____________________ and _______________,
respectively, of ___________________, a _____________ corporation, and that
by their signatures on the instrument, the entity upon behalf of which the
persons acted, executed the instrument.
WITNESS my hand and official seal.
_____________________________
Notary Public
(Notary Seal)
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RIDER A
TO
ASSIGNMENT AND ASSUMPTION OF REAL PROPERTY LEASE
[Description of Lease and Any
First Refusal Rights and/or Purchase
Options To Be Provided For Each Assignment]
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RIDER B
TO
ASSIGNMENT AND ASSUMPTION OF REAL PROPERTY LEASE
[Description of Leased Premises To Be
Provided For Each Assignment]
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EXHIBIT C
FORM OF
ASSUMPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency
of which are hereby acknowledged, and pursuant to, and subject to the terms,
provisions and conditions of, that certain Asset Sale Agreement dated
December __, 1993 (the "Agreement"), by and between NATIONAL MEDICAL ENTER-
PRISES, INC., a Nevada corporation (the "Seller") and HEALTHSOUTH REHABILI-
TATION CORPORATION, a Delaware corporation (the "Buyer"), Buyer does hereby
assume, and does hereby agree to pay, discharge and perform as and when due,
the obligations and liabilities set forth in Rider A hereto (the "Assumed
Liabilities") of Seller and of each subsidiary of Seller set forth in Rider
B hereto (individually a "Subsidiary" and collectively, the "Subsidiaries"),
but excluding those liabilities (the "Excluded Liabilities") set forth in
Rider C hereto, all as more particularly described in the Agreement.
Capitalized terms not otherwise defined herein (including all
Riders hereto) shall have the meanings ascribed to them in the Agreement.
This Assumption Agreement is being delivered in favor of Seller
and each of the Subsidiaries.
IN WITNESS WHEREOF, Buyer has executed this Assumption Agreement
this ___ day of _____________, 199_, effective as of the Closing specified
in the Agreement.
HEALTHSOUTH REHABILITATION
CORPORATION
By: ___________________________
Title: ________________________
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RIDER A
TO
ASSUMPTION AGREEMENT
(a) All liabilities and obligations of the Subsidiaries which
pertain to or are to be performed during the period following the Closing
Date and which arise under any Assumed Contract, including without limita-
tion, any capitalized lease liabilities and obligations;
(b) All liabilities and obligations under open purchase orders
that were entered into by Seller or a Subsidiary in the ordinary course of
business with respect to operation of a Facility on or prior to the Closing
Date and which provide for the delivery of goods or services subsequent to
the Closing Date;
(c) All obligations and liabilities to the Hired Employees for
paid time off (including vacation pay) through the Closing Date in accor-
dance with the employment policies of Seller as they existed on the date of
the Agreement;
(d) All liabilities or obligations of Seller or a Subsidiary
for Taxes incurred as a result of the sale of the Transferred Assets to
Buyer;
(e) Subject to the provisions of the Agreement, all liabilities
arising out of or in connection with the existence of Hazardous Materials
upon, about, beneath or migrating or threatening to migrate to or from the
Owned Real Properties or the Leased Real Properties or the existence of any
violation of any Environmental Regulations pertaining to any such Owned Real
Properties or Leased Real Properties or the businesses operated therefrom;
(f) All liabilities and obligations respecting any changes or
improvements needed to the Facilities for them to be in material compliance
following the Closing with safety, building, fire, land use, access (includ-
ing without limitation the Americans With Disabilities Act) or similar Laws
respecting the physical condition of the Facilities;
(g) All liabilities and obligations respecting employee matters
assumed by Buyer pursuant to the provisions of Section 2.10(a) of the Agree-
ment;
(h) All liabilities, obligations and expenses of Seller and the
Subsidiaries arising from or connected with any determination by Medicare or
any other Payor to seek to recapture any costs reimbursed or reimbursable to
Seller or
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any Subsidiary as a result of the Transactions (including any gain from sale
liability), provided that Buyer shall have no liability or obligation except
for Losses of Seller and the Subsidiaries related to any such recapture or
attempted recapture that exceed Five Million Dollars ($5,000,000) in the
aggregate;
(i) Any liability or obligation which becomes an Assumed
Liability by operation of Section 2.4(i) of the Agreement and such other
liabilities and obligations, if any, specifically described in Schedule
2.3(i) of the Agreement; and
(j) Any Accrued Operating Expenses.
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RIDER B
TO
ASSUMPTION AGREEMENT
[List of Subsidiaries To Come]
C-4
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<PAGE>
RIDER C
TO
ASSUMPTION AGREEMENT
(a) Any of Seller's or any of the Subsidiaries' liabilities or
obligations (including, but not limited to, any liabilities or obligations
under any tax sharing agreements) with respect to franchise taxes and with
respect to foreign, federal, state or local taxes imposed upon or measured,
in whole or in part, by the net income for any period ending on or prior to
the Closing Date of Seller and/or such Subsidiaries or any member of a
combined or consolidated group of companies of which Seller and/or such
Subsidiaries are, or were at any time, a part, or with respect to interest,
penalties or additions to any of such taxes, it being understood that Buyer
shall not be deemed to be Seller's or any Subsidiary's transferee with
respect to any such tax liability;
(b) Any of Seller's or any of its Subsidiaries' liabilities or
obligations with respect to the recapture of foreign, federal, state or
local tax deductions or credits taken by Seller or such Subsidiary for any
period ending on or prior to the Closing Date imposed upon, or any taxable
gain recognized by, Seller or such Subsidiary on account of the Transactions
contemplated hereby;
(c) Liabilities or obligations of Seller or a Subsidiary
arising from the breach by Seller or such Subsidiary on or prior to the
Closing Date of any term, covenant, or provision of any of the Assumed
Contracts;
(d) Liabilities or obligations of Seller or its Affiliates now
existing or which may hereafter exist by reason of any alleged violation of
Laws by Seller or any of its Affiliates on or prior to the Closing Date;
(e) Subject to the provisions of Sections 2.3(h), 2.7 and 7.3
of the Agreement, liabilities or obligations of Seller or a Subsidiary now
existing or which may hereafter exist by reason of any liability to refund
any payment or reimbursement received by Seller or a Subsidiary from any
Payor which is attributable to any period of time ending on or prior to the
Closing Date;
(f) Liabilities or obligations of Seller or a Subsidiary under
any Assumed Contract which would be included in the Transferred Assets but
for the provisions of Section 2.12 of the Agreement, unless Buyer is provid-
ed with the benefits thereunder as contemplated in such Section;
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(g) Liabilities of Seller and the Subsidiaries arising from or
in connection with litigation described in the Agreement, including, but not
limited to, the Unusual Proceedings described therein, or from or in connec-
tion with any other litigation, whether or not pending or threatened, to
which Seller or any Subsidiary or any Affiliate of Seller or any Subsidiary
may become a party with respect to causes of action against them in exis-
tence (i.e., all elements of the claim are complete) prior to the Closing;
(h) Subject to Section 2.12(b) of the Agreement, liabilities of
Seller and the Subsidiaries incurred in connection with their obtaining any
consent, authorization or approval necessary for them to sell, convey,
assign, transfer or deliver any Transferred Asset to Buyer hereunder;
(i) Any liability of Seller or a Subsidiary representing
indebtedness for money borrowed or the deferred portion of the purchase
price for any Owned Real Property (and any refinancing thereof), except for
such indebtedness that, under the provisions of the Agreement, Buyer has
agreed to assume;
(j) Such other liabilities as are not expressly described as
part of the Assumed Liabilities, other liabilities and obligations, if any,
specifically described in Schedule 2.4(j) of the Agreement, and liabilities
which would be Assumed Liabilities but for the provisions of Sections
2.12,2.15, 8.5, 8.7 or 9.5 of the Agreement;
(k) Liabilities and obligations of South Texas Rehab Corpora-
tion or otherwise relating to Rehabilitation Hospital of South Texas;
(l) Amounts due from the Subsidiaries arising from Intercompany
Transactions; and
(m) Liabilities and obligations respecting Cost Report Settle-
ments to the extent such Cost Reports cover any period through the Closing
Date and other rights and obligations of Seller and the Subsidiaries re-
specting Cost Reports described in Section 6.6 of the Agreement.
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EXHIBIT D
FORM OF
MANAGEMENT AGREEMENT
This MANAGEMENT AGREEMENT (the "Agreement") is made and entered into as
of the day of January, 1994, by and between HEALTHSOUTH Rehabilitation
Corporation, a Delaware corporation ("Manager"), and NATIONAL MEDICAL
ENTERPRISES, INC., a Nevada corporation ("Owner"), in its corporate capacity
and as agent for certain of its wholly-owned subsidiaries identified on Rider
A (each, a "Subsidiary" and collectively, the "Subsidiaries"), with reference
to the following facts:
A. Pursuant to that certain Asset Sale Agreement, dated December ___,
1993, between Owner and Manager (the "Asset Sale Agreement"), Owner has agreed
to sell to Manager the Transferred Assets. All capitalized terms used in this
Agreement and not otherwise defined herein shall have the same meaning such
terms have in the Asset Sale Agreement.
B. Pursuant to Section 2.15 of the Asset Sale Agreement, the
nonassignable instruments of transfer and assumption respecting those health
care facilities identified on Exhibit B (each, a "Facility" and collectively,
the "Facilities") and the Transferred Assets relating thereto, all of which are
owned by the Subsidiaries, have been delivered to Escrow Agent pending the
occurrence of such events as are set forth in the Asset Sale Agreement. With
respect to each Facility, Escrow Agent shall hold such instruments in escrow
until the earlier to occur of (a) the Delivery Date or (b) the Final Delivery
Date. Until the Licenses have been obtained by Manager with respect to any
Facility, the applicable Subsidiary shall remain the licensee of such Facility
and shall remain ultimately responsible for its operations.
C. In order to provide the Facilities with continuity of management
and to avail itself of the experience and expertise of the Manager in the
management and operation of the Facilities pending the Escrow Termination Date,
the Owner desires to engage the Manager to manage the operations of the
Facilities, and the Manager is willing to be engaged in such capacity, all on
the terms and subject to the conditions set forth herein.
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NOW, THEREFORE, in consideration of the foregoing recitals, and the
agreements herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, do hereby agree as follows:
1. Engagement of Manager
Owner hereby engages Manager for the purpose of rendering
management, administration, purchasing services, financial assistance and all
other management, support and administrative services needed for the operation
of the Facilities in the manner presently operated by the Subsidiaries, on the
basis hereinafter set forth, and the Manager hereby accepts such engagement.
Throughout the term of this Agreement, the Subsidiaries shall retain all
ultimate authority and shall exercise all ultimate control over the business,
policies, operations and assets of the Facilities and, therefore, shall have
the right to review Manager's activities as manager of the Facility. By
entering into this Agreement, Owner does not delegate to Manager the power,
duties and ultimate responsibilities vested in the Subsidiaries as licensees
of the Facilities. It is understood that, during the term of this Agreement,
the Subsidiaries are and will remain the responsible licensees of the
Facilities and, as such, are fully liable and legally accountable at all times
to all patients and governmental agencies for all patient care and funds, and
all other aspects of the operation and maintenance of the Facilities.
2. Responsibilities of Manager
2.1 Total Management Services
Manager shall provide total management services for the
Facilities in a manner consistent with and subject to the responsibilities of
the Subsidiaries as the licensees of the Facilities. Certain of these
management services are more specifically described in this Section 2. As
Manager of the Facilities, Manager shall have responsibility and commensurate
authority to conduct, supervise and effectively manage the day-to-day
operations of the Facilities. Manager shall be expected to exercise the
reasonable judgment of an experienced health care management company conforming
to high standards of professional conduct in its management activities
hereunder.
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2.2 Oversight and Staffing
Pursuant to its engagement, Manager shall have sole
responsibility for the operations of the Facilities, including, but not limited
to, overseeing and staffing all nonmedical aspects of the Facilities'
departments, including, but not limited to, those departments performing the
functions of nursing, personnel, purchasing, administration, planning, finance,
reimbursement, credit, collection, housekeeping, maintenance, medical records,
security, medical staff liaison, asset management, pharmacy, contract
administration, dietary services, data processing, laboratory, marketing,
outpatient clinics, medical library, and business office and administrative
matters.
2.3 Specific Duties
Manager shall use its best efforts to achieve the efficient
and effective operation of the Facilities consistent with the provision of high
quality services to patients of the Facilities. In this connection, Manager
shall:
(a) Establish, maintain, administer, and modify as
necessary the charge structure of the Facilities and negotiate fee payment
methods with any Payor.
(b) Recruit, hire, train, promote, assign, supervise,
manage and discharge all nonphysician personnel required in connection with the
operations of the Facilities.
(c) Prepare invoices for services and collect accounts owed
to Owner in respect thereof. In this connection, Manager shall submit all
bills and necessary documentation required by patients or Payors to obtain
payment therefrom in connection with all charges. Manager shall act as the
agent of Owner with respect to billing and collecting, and billing shall be in
the name of Owner. Accordingly, Owner hereby appoints Manager, for the
purposes of this Agreement, as its true and lawful attorney-in-fact:
(i) to bill patients on Owner's behalf;
(ii) to collect accounts receivable on Owner's behalf;
and
(iii) to receive all payments on behalf of Owner from
all Payors, and to take possession of, and endorse in the name of Owner, any
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notes, checks, money orders, insurance payments and other instruments received
as payment in respect of such billings (except as prohibited by Medicare and
Medicaid law and regulations).
(d) Establish and administer accounting procedures and
controls, in accordance with sound industry practice, and establish a system
for the development, preparation and safekeeping of books and records relating
to the business and financial affairs of Owner as they relate to the Facili-
ties, including, but not limited to:
(i) preparation and filing, from time to time, of
such forms and reports as may be required under federal or state laws or
programs applicable to wages, hours and prices; and
(ii) preparation and submission periodically to Owner
as required for timely payment of all returns relating to taxes imposed upon
the operations of the Facilities and all cost reports, supporting data and
other applicable materials pertaining to reimbursement by or from Medicare,
Medicaid, and all other Payors.
(e) Evaluate periodically all quality assurance and risk
management aspects of the operations of the Facilities.
(f) Supervise and organize the medical records of the
Facilities, which shall be obtained and maintained with respect to all
physician and non physician services rendered in or through the Facilities.
(g) Arrange for the provision of such other services as may
be required from time to time by federal, state and local law, the bylaws,
rules and regulations of the governing bodies and of the medical staffs of the
Facilities and any accreditation or governmental agencies having jurisdiction
over the Facilities.
(h) Procure, for the account of Manager, such equipment,
drugs, supplies, materials and services as Manager deems, in the reasonable
exercise of its discretion, necessary or desirable in connection with the
operations of the Facilities.
(i) Pay trade accounts, all taxes, amounts due on short and
long-term indebtedness and leases of real and personal property and all other
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obligations incurred by the Owner or the Manager in connection with the
operations of the Facilities and Assumed Liabilities.
2.4 Licenses and Approvals
Manager shall use its best efforts to assist the Subsidiaries
in obtaining and maintaining in effect at all times during the term hereof all
Licenses necessary and appropriate to operate the Facilities as presently
operated by the Subsidiaries as of the date of this Agreement. Manager shall
refrain from any and all conduct which has the effect of jeopardizing any
License of a Facility or a Facility's status as a licensed, accredited health
care facility which provides services to Medicare or Medicaid beneficiaries.
2.5 Standards
Manager shall act in good faith in the performance of its
obligations hereunder. Manager shall, at all times, operate the Facilities in
conformity with (a) the bylaws, rules and regulations of the governing bodies
and medical staffs of the Facilities, (b) the standards of performance of all
regulatory and accrediting agencies and authorities which exercise jurisdiction
over the Facilities and (c) in a manner consistent with good and ethical
business practices in the communities served by the Facilities and the health
care industry.
2.6 Employees
All personnel employed by Manager in connection with the
operations of the Facilities, including, but not limited to, those employees
hired by Manager pursuant to Section 2.10 of the Asset Sale Agreement, shall
be and remain employees of, or independent contractors in privity with,
Manager, who alone shall be responsible for their hire, compensation (including
fringe benefits), promotion and discharge subject, however, to any obligations
of Manager under Section 2.10 of the Asset Sale Agreement. In this connection,
subject to Section 2.10 of the Asset Sale Agreement, Manager shall determine
from time to time the number and qualification of employees required or
desirable in connection with the operations of the Facilities, establish,
revise and administer all wage scales, compensation rates, employee benefits
and conditions of employment, administer in-service training, seminars and
conferences and establish staff schedules and job descriptions.
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2.7 Insurance
Manager, at its own expense, shall obtain and maintain all
necessary insurance coverage pertaining to the Facilities and their operations
for the mutual protection of Owner, Manager, employees of the Facilities and
volunteers of the Facilities; provided, however, that the physicians practicing
in the Facilities shall obtain their own malpractice insurance. Such insurance
shall include, but not be limited to, property damage insurance covering the
Facilities (at replacement cost), and the furniture, fixtures and equipment
situated therein, and comprehensive general liability and professional
liability insurance. Such insurance shall cover such risks and shall be in
such amounts, in such form and written by such carriers (which carriers must
be rated A or better by A.M. Best Company) as are reasonably acceptable to
Owner. Such insurance shall designate Owner as an additional insured and shall
provide for written notice to Owner at least 30 days prior to cancellation or
material modification. On the Closing Date, and annually thereafter, Manager
shall provide Owner with certificates evidencing such insurance.
2.8 Repairs
Manager shall keep the Facilities in good order. Manager
shall make all necessary repairs to the Facilities, whether interior and
exterior, structural and nonstructural, ordinary and extraordinary, foreseen
and unforeseen, as well as such alterations or additions in or to the
improvements which are customarily made in connection with the operation of
such a Facility. The term "repairs" shall include all necessary replacements,
renewals and alterations. All repairs, if possible, shall be at least equal
in quality and class to the original work. All repairs shall be at Manager's
expense.
3. Limitations on Authority of Manager
Notwithstanding the rights and powers of Manager pursuant to
Section 2, Manager shall have no right or authority to do any of the following:
(a) Act for Owner or the Subsidiaries with respect to any
business that is not directly related to the management or operation or the
Facilities.
(b) Enter into or terminate contracts with physicians or outside
consultants on behalf of Owner or the Subsidiaries, except as Owner may
specifically authorize from time to time, but Manager shall have the authority
on behalf of Owner and the Subsidiaries to negotiate and administer such
contracts.
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(c) Enter into any contract (or terminate any contract with any
Payor) on behalf of Owner or the Subsidiaries without the prior written
approval of Owner.
4. Responsibilities and Rights of Owner
4.1 Maintenance of Licenses
Subject to and conditioned upon Manager's full compliance
with its obligations hereunder, Owner shall cause the Subsidiaries to hold and
maintain the necessary and appropriate Licenses to operate the Facilities as
presently operated by the Subsidiaries. Manager shall, no less than 30 days
prior to the date due, prepare and deliver to Owner all routine applications,
extensions and other filings necessary to maintain such Licenses for Owners'
execution of the same and shall timely file such applications, extensions and
other filings, together with any filing fees or other charges (all of which
shall be paid for by Manager), with the appropriate governmental or accredita-
tion agencies. Manager acknowledges that, except for such routine filings, the
maintenance of such Licenses shall depend entirely upon Manager's timely and
proper performance of its obligations hereunder and that if any one or more of
the Licenses are not maintained due to Manager's failure to so perform its
obligations hereunder, neither Owner nor the Subsidiaries shall have any
liability to Manager therefor and shall retain all rights and remedies against
Manager by reason of the same.
4.2 Owners' Inspection
During the term of this Agreement, Owner shall have the
right, upon no less than 24 hours prior written notice and during normal
business hours, to inspect the Facilities, to inspect and/or audit all books
and records of Manager pertaining to the operation of the Facilities and to
meet with the executive officers of Manager and the Facilities to discuss
Manager's compliance with its obligations under this Agreement.
4.3 Access to Hospital Records
Owner shall have the same right of access to, and Manager
shall have the same obligation of preservation of, all medical, clinical and
other records directly or indirectly associated with the admission, care and
treatment of patients during the term of this Agreement and all financial and
other records of
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the Facilities for the period during the term of this Agreement as Owner and
Manager have with respect to the Hospital Records under subparagraphs (b) and
(c) of Section 5.7 of the Asset Sale Agreement.
5. Compensation
In consideration of all services provided by Manager hereunder,
Manager shall retain, as its management fee, all net revenues generated by the
operations of the Facilities during the term of this Agreement (and not
collections from the Receivables or other Transferred Assets). From such
management fee, however, Manager shall be responsible for paying all costs,
expenses and expenditures of any kind or nature whatsoever incurred in connec-
tion with the operation of the Facilities during the term of this Agreement
including, but not limited to, capital expenditures, taxes (including Taxes and
income taxes and any tax based on net income or gains from the disposition of
property which arise with respect to Manager's operation of the Facilities),
litigation awards and settlements, all insurance premiums (including any
insurance premiums paid by Owner during the term of this Agreement), operating
charges, maintenance costs, construction costs and any other charges, costs,
liabilities and expenses. Manager acknowledges that Owner does not guarantee
and has not represented that the Facilities can or will be operated profitably
by Manager. All financial risk of operating the Facilities during the term of
this Agreement shall be borne entirely by Manager and neither Owner nor the
Subsidiaries shall have any liability or obligation therefor. Accordingly,
Manager shall be obligated to provide the working capital needs of the
Facilities during the term of this Agreement even if the Facilities are being
operated by Manager at a loss. Owner and the Subsidiaries shall have no
financial obligations hereunder with respect to the operations of the
Facilities or the payment to Manager of any fees or reimbursement of any costs
incurred by Manager. Manager shall be responsible for acquiring, at its own
cost, all equipment and other personal property Manager reasonably determines
is necessary for the operation of the Facilities and all such equipment and
other personal property so acquired by Manager shall be the property of
Manager. Manager, however, shall have no liability or obligation with respect
to any of the Excluded Assets or Excluded Liabilities.
6. Term and Termination
6.1 Unless sooner terminated by mutual written consent or the
occurrence of an event of default by Manager pursuant to Section 6.3, this
Agreement shall continue in full force and effect with respect to each Facility
until the earlier to occur of the Delivery Date or Final Delivery Date with
respect to
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such Facility, at which time this Agreement shall terminate with respect to
such Facility; provided, however, that if Escrow Agent shall not
have received a Seller's Affidavit with respect to any Facility effective as
of the Final Delivery Date, then, with respect to each such Facility, the term
of this Agreement shall be extended and certain other provisions of this
Agreement shall be amended as Owner and Manager shall agree pursuant to
subparagraph (e) of Section 2.15 of the Asset Sale Agreement, which agreement
shall be evidenced by a written amendment to this Agreement.
6.2 If this Agreement would terminate pursuant to Section 6.1
with respect to any Facility and Manager has not received with respect to such
Facility all Licenses for the transfer of such Facility to, and operation of
such Facility by, Manager, then with respect to such Facility this Agreement
shall not terminate pursuant to Section 6.1 but rather shall terminate on the
earlier to occur of the date which is 6 months after the Final Delivery Date
with respect to such Facility or the closure of such Facility. During such
extended term of this Agreement with respect to such Facility, Manager shall,
at its own cost and expense, undertake all actions (including the discharge and
transfer of patients) which are necessary to close such Facility on or prior
to such date.
6.3 There shall have occurred with respect to Manager an event
of default if either of the following events shall occur:
(a) Manager shall fail to keep, observe or perform any
material agreement, term or provision of this Agreement, and such failure shall
continue for a period of 30 days after notice thereof shall have been given to
Manager by Owner, which notice shall specify the event or events constituting
the failure (or, if 30 days is not reasonably sufficient to cure such failure,
such longer period as would be reasonably sufficient to cure provided Manager
commences cure with such 30 day period and diligently pursues such cure to
completion); provided, however, that Manager shall not be deemed to be in
violation of this Agreement, and no event of default shall have occurred, if
Manager is prevented from performing any of its obligations hereunder for any
reason beyond its control, including, without limitation, strikes, shortages,
war, acts of God, lack of any Payor's financial resources, or any statute,
regulation or rule of federal, state or local government or agency thereof; or
(b) Manager shall be dissolved or shall apply for or consent
to the appointment of a receiver, trustee or liquidator of Manager or of all
or a
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substantial part of its assets (or the assets of its Subsidiaries), file a
voluntary petition in bankruptcy, or admit in writing its inability to pay its
debts as they become due, make a general assignment for the benefit of
creditors, file a petition or an answer seeking reorganization or arrangement
with creditors or taking advantage of any insolvency law; or an order, judgment
or decree shall be entered by a court of competent jurisdiction, on the
application of a creditor, adjudicating Manager a bankrupt or insolvent or
approving a petition seeking reorganization of Manager, or appointing a
receiver, trustee or liquidator of Manager or of all or a substantial part of
Manager's assets (or the assets of its Subsidiaries), and such order shall
remain undismissed, undischarged or unbonded for a period of 60 days.
Upon the occurrence and during the continuation of any event of default by
Manager, Owner may, in its discretion, do any one or more of the following:
(i) terminate this Agreement, (ii) exercise any other right or remedy available
to it under applicable Law, including, without limitation, the right to recover
damages for breach or (iii) seek to cure the event of default whereupon Manager
shall pay to Owner immediately upon demand all costs and expenses incurred by
Owner in connection with such attempted cure.
6.4 Upon the termination of this Agreement, all further
obligations of the parties shall terminate, except that the obligations of
Manager set forth in Sections 7 and 8 shall survive, and such termination shall
be without prejudice to the rights and remedies that either may have against
the other.
7. Indemnification
In addition to the rights of Owner and the Subsidiaries to
indemnification under Article 11 of the Asset Sale Agreement, Manager shall
indemnify Owner and the Subsidiaries and hold Owner and the Subsidiaries
harmless from and against any and all Losses which they sustain or suffer or
to which they may become subject as a result of: (a) the nonperformance or
breach of any covenant or agreement made or undertaken by Manager in this
Agreement or (b) the ongoing operations of the Facilities during the term of
this Agreement. The provisions of Section 11.5 and 11.6 of the Asset Sale
Agreement shall govern any claim for indemnification made hereunder by Owner
or the Subsidiaries and such provisions are hereby incorporated herein by
reference.
8. Miscellaneous
8.1 Pursuant to Title 42 of the United States Code and applicable
rules and regulations thereunder, until the expiration of four years after
termination of this Agreement, the Manager shall make available, upon
appropriate written
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request by the Secretary of the United States Department of Health and Human
Services or the Comptroller General of the United States General Accounting
Office, or any of their duly authorized representatives, a copy of this
Agreement and such books, documents and records as are necessary to certify the
nature and extent of the costs of the services provided by the Manager under
this Agreement. The Manager further agrees that in the event it carries out
any of its duties under this Agreement through a subcontract with a value or
cost of $10,000 or more over a 12 months period with a related organization,
such subcontract shall contain a clause to the effect that until the expiration
of four years after the furnishing of such services pursuant to such subcon-
tract, the related organization shall make available, upon appropriate written
request by the Secretary of the United States Department of Health and Human
Services or the Comptroller General of the United States General Accounting
Office or any of their duty authorized representatives, a copy of such
subcontract and such books, documents and records of such organization as are
necessary to verify the nature and extent of such costs. Disclosure pursuant
to this Section shall not be construed as a waiver of any other legal right to
which the Manager may be entitled under law or regulation.
8.2 With respect to each Facility, this Agreement shall be
governed in all respects, including validity, interpretation and effect, by the
laws of the state in which such Facility is located, without regard to the
principles of conflicts of law thereof.
8.3 Manager hereby authorizes Owner and the Subsidiaries to state
in any advertising, promotional or other material that Manager acts as
consultant to, and Manager of, the Facilities.
8.4 Owner shall not be deemed to be in violation of this
Agreement if it is prevented from performing any of its obligations hereunder
for any reason beyond its control including, without limitation, strikes,
shortages, war, acts of God, lack of any Payor's financial resources, or any
statute, regulation or rule of federal, state or local government or agency
thereof.
8.5 This Agreement shall not change or alter in any manner the
rights and obligations of the parties under the Asset Sale Agreement. In the
event there is any inconsistency between this Agreement and the Asset Sale
Agreement, the terms of the Asset Sale Agreement shall prevail.
8.6 Each party shall keep all information concerning the
operation of the Facilities during the term of this Agreement and all
information obtained from the other either before or after the date of this
Agreement confidential and
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neither party shall reveal such information to, nor produce copies of any
written information for, any person outside its management group or its
professional advisors without the prior written consent of the other party,
unless such party is compelled to disclose such information by judicial or
administrative process or by any other requirements of Law.
8.7 This Agreement (including the Riders hereto), the Asset Sale
Agreement (including the Schedules and exhibits thereto), and the other
documents and instruments specifically provided for herein and therein contain
the entire understanding between the parties concerning the subject matter of
this Agreement and such other documents and instruments and, except as
expressly provided for herein or therein, supersede all prior understandings
and agreements, whether oral or written, between them with respect to the
subject matter hereof and thereof. There are no representations, warranties,
agreements, arrangements or understandings, oral or written, between the
parties hereto relating to the subject matters of this Agreement and such other
documents and instruments which are not fully expressed herein or therein.
This Agreement may be amended or modified only by an agreement in writing
signed by each of the parties hereto.
8.8 Incorporation of Provisions of Asset Sale Agreement. The
following provisions of the Asset Sale Agreement are incorporated herein by
reference mutatis mutandis: Sections 2.17, 12.1 through 12.5, 12.7, 12.8, and
12.10 through 12.12.
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed on the day and year first above written.
MANAGER;
HEALTHSOUTH Rehabilitation Corporation
By:__________________________________
Richard M. Scrushy
Chairman of the Board, President
and Chief Executive Officer
OWNER:
NATIONAL MEDICAL ENTERPRISES, INC.
As Agent for the Subsidiaries
By:___________________________________
Its_______________________________
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EXHIBIT E
FORM OF
DATA PROCESSING SERVICES AGREEMENT
THIS DATA PROCESSING SERVICES AGREEMENT (the "Agreement") is made and
entered into as of the ________________ day of _______________________, 199_,
by and between NATIONAL MEDICAL ENTERPRISES, INC., a Nevada corporation
("Seller"), and HEALTHSOUTH Rehabilitation Corporation, a Delaware corporation
("Buyer"), with reference to the following facts.
A. Buyer and Seller are parties to an Asset Sale Agreement dated
December ___, 1993 (the "Asset Sale Agreement"), pursuant to which Seller is
causing certain of its wholly-owned subsidiaries (the "Subsidiaries") to sell,
and Buyer and certain of its wholly-owned subsidiaries (the "Buyer Subsidiar-
ies") are buying, certain rehabilitation healthcare facilities (the "Facili-
ties") and related assets (such Facilities and related assets being referred
to as the "Transferred Assets") through which the Subsidiaries have provided
healthcare rehabilitation services to the public.
B. To assist in the orderly transition in the ownership of the
Facilities following the purchases and sales contemplated by the Asset Sale
Agreement (the "Transactions"), Seller has agreed to provide, or cause to be
provided, certain data processing services to the Facilities, and Buyer has
agreed to purchase such services, all in accordance with the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
agreements contained herein and in the Asset Sale Agreement, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, do hereby
agree as follows:
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ARTICLE 1
CERTAIN DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
Section 1.1 "Affiliate" of a specified person shall mean any corpora-
tion, partnership, sole proprietorship or other person or entity which directly
or indirectly through one or more intermediaries controls, is controlled by or
is under common control with the person specified. The term "control" means
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person or entity.
Section 1.2 "Confidential Information" means all of the trade secrets,
business and financial information, source codes, machine and operator instruc-
tions, knowhow and other information of every kind that relates to the Data
Services.
Section 1.3 "Confidential Materials" means all manuals, computer
programs (in any medium), data bases (in any medium), printouts, reports,
correspondence, memoranda, copies and other documentation and tangible things
(in any medium) that bear or relate in any way to any Confidential Information,
or to any program, operating system, computer or peripheral equipment.
Section 1.4 "Data Services" means the data processing services for
inpatient and outpatient services provided to the Facilities by Seller or one
of its Affiliates through the Closing Date (as defined in the Asset Sale
Agreement) from either Seller's national or one of its regional data centers,
as more particularly described in Rider A hereto, but excluding those data
processing services described in Rider B hereto.
Section 1.5 Capitalized terms not otherwise defined herein shall have
the meanings given to them in the Asset Sale Agreement.
ARTICLE 2
DATA SERVICES
Section 2.1 Data Services. During a transitional period of not more
than six (6) months from the date of this Agreement, and subject to the terms,
conditions and limitations of this Agreement, Seller agrees to provide, or
cause to
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be provided, the Data Services to Buyer and the Buyer Subsidiaries solely for
the purpose of supporting the operation of the Facilities. Subject to the
limitations and exclusions described in Section 1.4 and Riders A and B, the
services provided are to be the same services that Seller formerly caused to
be provided to the Facilities, with comparable quality, speed and work product,
and including any modifications or enhancements to such existing services that
Seller may provide to its own divisions generally, but excluding any new
programs or systems (except such as shall be necessary to provide the Data
Services). Buyer acknowledges that approximately one-third of the Facilities
have been converted to systems used for Seller's acute hospitals and that
approximately two-thirds have not; nothing herein shall either require Seller
to continue or to suspend further conversions. Seller will use its reasonable
efforts to have the systems included within the Data Services available during
the normal business hours of its data processing facilities. Seller reserves
the right to provide the Data Services from any of the its or its Affiliates
offices that it deems convenient or advisable. To ensure coordinated
interface, Buyer shall designate a data processing coordinator who shall serve
as the sole interface with Seller or its Affiliates for the Data Services.
Section 2.2 Consulting Services. Seller agrees to make qualified
technical personnel available to the Facilities for consultation regarding the
transition to other systems, at and for such reasonable times as Seller's own
operations may permit. For such consulting services, Buyer and the Buyer
Subsidiaries agree to pay Seller (i) the consulting charges specified on the
Schedule of Rates contained on Rider C (the "Schedule of Rates"), and (ii)
travel, lodging and other reasonable expenses. Buyer and the Buyer Subsidiar-
ies shall pay the invoices of Seller and its Affiliates for such services
within ten (10) days after receipt.
Section 2.3 Support. During the term of this Agreement, and subject to
its terms, conditions and limitations, Seller agrees to cause to be provided
"help desk" support, telephone consultation, consulting services (except as
otherwise provided in Section 2.2) and other similar support in a manner
consistent with, and to the extent of, past practices for the Facilities.
ARTICLE 3
PAYMENT
Section 3.1 Fees and Charges. In consideration for the Data Services,
and subject to the provisions hereof, Buyer agrees to pay, or to cause the
Buyer Subsidiaries to pay, basic charges for each support service as are
described in the accompanying Schedule of Rates.
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Section 3.2 Billing and Payment. Seller and the Subsidiaries shall bill
Buyer for all amounts due hereunder at monthly intervals. Buyer agrees to pay,
or to cause the Buyer Subsidiaries to pay, such invoices within ten (10) days
after receipt.
Section 3.3 Third Party Charges. Except as may be otherwise provided
herein, Buyer acknowledges and agrees that Buyer and the Buyer Subsidiaries
shall bear sole responsibility for telephone and other communication charges;
license and other fees for software installed on the Facilities' equipment and
supported by staff of the Facilities; rental, maintenance and other charges for
the Facilities' equipment, whether owned or leased; and all other charges or
fees imposed upon Buyer and the Buyer Subsidiaries by any third party in
connection with the Data Services.
Section 3.4 Price Adjustments. The parties agree that the basic charges
specified in Section 3.1 above shall be equitably decreased at such time as
Seller is advised in writing by Buyer that selected components of the systems
covered by the basic charges are no longer required to be provided by Seller
and its Affiliates.
ARTICLE 4
PROPRIETARY RIGHTS
(SELLER SOFTWARE)
Section 4.1 License. Subject to the terms and conditions of this Agree-
ment, Seller hereby grants Buyer and the Buyer Subsidiaries the nonexclusive
right to use the systems owned by Seller and its Affiliates, including all
improvements and enhancements thereto made by Seller and its Affiliates during
the term of this Agreement (collectively, "Seller Software"), solely (a) in
connection with the provision of Data Services hereunder, and (b) in connection
with the continued operation of the Facilities.
Section 4.2 Limitations. Except as may otherwise be expressly permitted
by this Agreement, neither Buyer nor any Buyer Subsidiary shall grant, assign,
convey or transfer any of its rights or obligations hereunder, and any
purported sublicense, assignment or other transfer shall be void. Buyer
acknowledges and agrees, and further agrees to cause the Buyer Subsidiaries to
acknowledge and agree, that the Seller Software (including all machine readable
instructions, in any medium, magnetic and other media, manuals, and all
updates) are and shall remain the exclusive property of Seller and its
Affiliates. Neither Buyer nor any Buyer Subsidiary acquires any right, title,
or interest in the Seller Software, other than
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the license and rights of use expressly granted or permitted by this Agreement.
Except as may be otherwise permitted hereby, Buyer shall not, and shall cause
the Buyer Subsidiaries to not, make the Seller Software available (by time-
sharing or any other means) to any other person, or in connection with any
activities other than the continued operation of the Facilities. Buyer agrees
not to, and agrees that the Buyer Subsidiaries shall not, make any copies of
any of the Seller Software or related documentation except as reasonably
required in the ordinary course of the Facilities' operations, and shall not
cause or permit any attempt to reverse engineer, reverse compile or otherwise
copy or imitate the Seller Software.
ARTICLE 5
PROPRIETARY RIGHTS
(THIRD PARTY SOFTWARE)
Section 5.1 Seller Use. Buyer acknowledges and agrees, and further
agrees to cause the Buyer Subsidiaries to acknowledge and agree, that the
provision of Data Services hereunder involves the use by Seller and its
Affiliates of certain software (the "Third Party Software") that third parties
have licensed or leased to Seller and its Affiliates for their use. Seller's
and its Affiliates' rights to use the Third Party Software, and their
obligations to make use of such software hereunder in connection with the
provision of Data Services, are subject to all of the terms, conditions,
limitations and other provisions of their agreements with such third party
licensors (the "Vendors"), and Seller and its Affiliates shall use such Third
Party Software hereunder only to the extent permitted by such agreements.
Section 5.2 Acknowledgement. Buyer acknowledges and agrees, and further
agrees to cause each Buyer Subsidiary to acknowledge and agree, that the Third
Party Software (including all machine readable instructions, in any medium,
magnetic and other media, manuals, and all updates) is and shall remain the
exclusive property of its owners, subject to the terms, conditions and other
provisions of license and other agreements between such owners and Seller and
its Affiliates. Neither Buyer nor any Buyer Subsidiary acquires any right,
title or interest in the Third Party Software, but, to the extent permitted by
applicable agreements, may use its output during its operation of the
Facilities during the term of this Agreement. Neither Buyer nor any Buyer
Subsidiary shall have any right to make the Third Party Software available to
any other person, by time sharing or any other means. Neither Buyer nor any
Buyer Subsidiary shall make any copies of any of the Third Party Software or
related documentation except as reasonably required in the ordinary course of
the Facilities' operations, and shall
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not cause or permit any attempt to reverse engineer, reverse compile or
otherwise copy or imitate the Third Party Software.
ARTICLE 6
ADDITIONAL OBLIGATIONS OF THE PARTIES
Section 6.1 Confidentiality. Each party agrees that Confidential
Information and Confidential Materials of the other party that it or its
Affiliates obtains in connection with the provision of Data Services shall be
subject to the provisions of Section 5.6 of the Asset Sale Agreement, which is
hereby incorporated herein by reference mutatis mutandis.
Section 6.2 Staff and Equipment. Buyer shall cause the Facilities to
maintain staff with qualifications and capabilities respecting the provision
of Data Services comparable to the staff formerly employed by the Facilities.
Buyer shall additionally cause the Facilities to maintain sufficient compatible
computing capacity to operate all existing systems and to interact with the
data processing equipment of Seller and its Affiliates for the purposes of this
Agreement.
Section 6.3 Technical Requirements. Buyer shall cause the Facilities
to comply with whatever technical standards Seller and its Affiliates may from
time to time prescribe for its systems and the Data Services. Such standards
shall not be materially different from those applied to Seller's and its
Affiliates' own operations.
ARTICLE 7
WARRANTY, REMEDIES
Section 7.1 Warranty. Subject to the terms, conditions and limitations
of this Agreement, Seller warrants that the Data Services will be substantially
the same as those formerly provided to the Facilities under Seller's ownership.
If any report provided to the Facilities contains any errors caused by
malfunction of equipment or software of Seller or its Affiliates, or by
operational errors of employees of Seller or its Affiliates, Seller shall, or
shall cause its Affiliates to, without additional charge, promptly rerun,
revise or supplement such affected reports, as Buyer may reasonably request.
Buyer shall give Seller prompt written notice of any claims under this Section
7.1 promptly following receipt of the relevant report. Seller and its Affili-
ates make no other warranty, and disclaim all other express or implied
warranties, including, without limitation, warranties of merchantability or
fitness for a particular purpose.
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Section 7.2 Limitations of Liability.
(a) No Consequential Damages. Seller and its Affiliates shall in
no circumstances be liable to Buyer or its Affiliates for any special,
consequential or punitive damages arising from any act or omission of Seller
or its Affiliates, officers, agents and employees in connection with the
provision of Data Services. Without limiting the generality of the foregoing,
Seller and its Affiliates shall have no liability or responsibility to any
person other than Buyer and the Buyer Subsidiaries arising from the use of any
Data Services.
(b) Loss of Data. Seller shall, or shall cause its Affiliates to,
maintain backup copies of the Facilities' data in the same manner as for
Seller's own operations. However, Seller and its Affiliates shall in no
circumstances have any liability for the loss or destruction of, or for damage
to, any of Buyer's or its Affiliates' information or data that may be furnished
or transmitted to Seller or its Affiliates. Buyer acknowledges that it and the
Buyer Subsidiaries shall have the sole obligation to take whatever action they
deem appropriate to make and retain original, duplicate or alternative copies
of all such information and data.
(c) Limited Remedy. Notwithstanding the form in which any claim
or action may be brought or asserted, the liability of Seller and its
Affiliates for acts or omissions arising from or relating to the performance
of this Agreement shall be limited to repayment, as general damages, of
payments by Buyer or its Affiliates to Seller or its Affiliates for Data
Services during the accounting periods in which such acts or omissions
occurred. Seller and its Affiliates shall in no circumstances have any other
financial liability to Buyer and its Affiliates whatsoever. Buyer agrees, and
shall cause the Buyer Subsidiaries to agree, that the provisions of this
Article 7 limiting their remedies and liquidating their damages are reasonable
in the circumstances existing on the date of this Agreement.
(d) Force Majeure. If any party's performance is prevented,
hindered or delayed by reason of any cause(s) beyond such party's reasonable
control ("Force Majeure") which cannot be overcome by reasonable diligence,
including without limitation, war, labor disputes, civil disorders, governmen-
tal acts, epidemics, quarantines, embargoes, fires, earthquakes, storms, power
failures, equipment failures, transmission failures, or acts of God, such party
shall be excused from performance to the extent that it is prevented, hindered
or delayed thereby, during the continuance of such cause(s); and such party's
obligations hereunder shall be excused so long as and to the extent that such
cause(s) prevent or delay performance. Seller agrees that if and to the extent
that Force Majeure
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may reduce or restrict its or its Affiliates' ability to provide Data Services,
Seller will, or will cause its Affiliates to, provide Data Services to the
Facilities on a proportional or restricted basis comparable to the basis on
which similar services affected by such Force Majeure are provided to Seller's
other operations.
ARTICLE 8
TERM AND TERMINATION
Section 8.1 Term. This Agreement is effective on the date first written
above, and shall remain in effect for one year, unless sooner terminated in
accordance with its terms.
Section 8.2 Termination.
(a) Buyer may terminate this Agreement upon written notice if
Seller commits any material breach of this Agreement, and fails to cure the
breach within thirty (30) days after written notice or, if the breach cannot
be cured within thirty (30) days, fails to commence diligent efforts to cure
the breach within that period.
(b) Seller may terminate this Agreement upon written notice if
Buyer (i) fails to pay any amount when due hereunder, or (ii) commits any
material breach of this Agreement and fails to cure the breach within thirty
(30) days after written notice or, if the breach cannot be cured within thirty
(30) days, fails to commence diligent efforts to cure the breach within that
period.
(c) Seller may terminate this Agreement upon written notice if
Buyer or any of its Affiliates attempts to assign, sublicense or transfer to
any person any right or purported right hereunder, other than as expressly
permitted hereby.
(d) Buyer may terminate this Agreement, with or without cause,
upon forty-five (45) days' written notice.
(e) Seller may terminate this Agreement if Buyer or any Buyer
Subsidiary becomes insolvent or admits in writing its insolvency or inability
to pay its debts as they become due; is unable or does not pay its debts as
they become due; makes or proposes an assignment for the benefit of creditors;
convenes or proposes to convene a meeting of its creditors or any class
thereof, for purposes of effecting a moratorium upon or extension or composi-
tion of its debts; proposes any such moratorium, extension or composition; or
commences or has filed against it any bankruptcy, reorganization, liquidation
or insolvency proceeding under any
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law in any jurisdiction for the relief of debtors; or if any receiver, trustee,
liquidator or custodian is appointed to take possession of any substantial
portion of its assets.
Section 8.3 Effect of Termination. Termination of this Agreement in
whole or in part, for cause, shall be without prejudice to any other remedy
otherwise available to the innocent party. Upon any termination of this Agree-
ment, Buyer shall, and shall cause its Affiliates to:
(a) Return or destroy, as Seller may instruct, all of the
Confidential Materials of Seller and its Affiliates and retain no copies; and
(b) Discontinue all use of the Seller Software, Third Party
Software and Confidential Information of Seller and its Affiliates (except to
the extent that Buyer or the Buyer Subsidiaries may enter into new licenses or
other arrangements with Seller or third parties).
If one or more systems are discontinued, or some but not all of the Buyer
Subsidiaries or Facilities discontinue Data Services, but the entire Agreement
is not terminated, the foregoing requirements shall apply to systems terminated
or discontinued, or to the Buyer Subsidiaries or Facilities which discontinue
service, as appropriate. Upon any termination or discontinuance, the parties
shall exercise reasonable efforts to assure an orderly termination or
discontinuance of service.
Section 8.4 Suspension of Service. Seller reserves the right to suspend
some or all of the Data Services at any time if, in Seller's reasonable
judgment, (a) violations by Buyer or its Affiliates of the technical
requirements of Seller or its Affiliates, (b) the use by Buyer or its
Affiliates of incompatible equipment, (c) errors by the staff of Buyer or its
Affiliates, adversely affect the operation or response times of the computers
and data centers of Seller and its Affiliates to the detriment of Seller's
operations, or (d) continuation of service would violate the terms of Third
Party Software licenses.
ARTICLE 9
GENERAL PROVISIONS
Section 9.1 No Agency. The parties shall be independent contractors
hereunder, and this Agreement shall not be construed to create any other
relationship between the parties, as principal and agent, joint venturers or
otherwise. No party is authorized to enter into agreements for or on behalf
of the
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<PAGE>
<PAGE>
other, collect any obligation due or owed to any other party, accept service
of process for any other party, or bind any other party in any manner whatever.
Section 9.2 Remedies. The parties each acknowledge and agree that money
damages would be an inadequate remedy for any breach or threatened breach of
any term or provision of this Agreement that relates to the Seller Software,
Third Party Software, or Confidential Information and Confidential Materials,
which provisions shall survive expiration or termination of this Agreement.
Accordingly, those provisions may be enforced by the preliminary or permanent,
mandatory or prohibitory injunction or other order or decree of a court of
competent jurisdiction. This Section 9.2 shall not be construed to limit or
derogate from any equitable remedy authorized by any applicable law.
Section 9.3 Entirety of Agreement; Amendments. This Agreement
(including the Riders hereto), the Asset Sale Agreement (including the
Schedules and Exhibits thereto), and the other documents and instruments
specifically provided for herein and therein contain the entire understanding
between the parties concerning the subject matter of this Agreement and such
other documents and instruments and, except as expressly provided for herein
or therein, supersede all prior understandings and agreements, whether oral or
written, between them with respect to the subject matter hereof and thereof.
The are no representations, warranties, agreements, arrangements or understand-
ings, oral or written, between the parties hereto relating to the subject
matters of this Agreement and such other documents and instruments which are
not fully expressed herein or therein. This Agreement may be amended or
modified only by an agreement in writing signed by each of the parties hereto.
Section 9.4 Incorporation of Provisions of Asset Sale Agreement. The
following provisions of the Asset Sale Agreement are incorporated herein by
reference mutatis mutandis: Sections 2.17, 12.1 through 12.5, and 12.7 through
12.12.
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement
on the date first above written.
Buyer:
HEALTHSOUTH Rehabilitation
Corporation
By __________________________
Name _______________________
Title ______________________
Seller:
NATIONAL MEDICAL ENTERPRISES,
INC.
By __________________________
Name ____________________
Title ___________________
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<PAGE>
RIDER A
TO
DATA PROCESSING SERVICES AGREEMENT
(Data Services To Be Provided)
[To Come]
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<PAGE>
<PAGE>
RIDER B
TO
DATA PROCESSING SERVICES AGREEMENT
(Data Processing Services Excluded)
[To Come]
E-13
<PAGE>
RIDER C
TO
DATA PROCESSING SERVICES AGREEMENT
(Schedule of Rates)
[To Come]
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<PAGE>
<PAGE>
<PAGE>
AMENDMENT NO. 1
TO
ASSET SALE AGREEMENT
******
NATIONAL MEDICAL ENTERPRISES, INC.
As Seller
AND
HEALTHSOUTH Rehabilitation Corporation
As Buyer
Dated: January 3, 1994
<PAGE>
<PAGE>
AMENDMENT NO. 1 TO ASSET SALE AGREEMENT
Table of Contents
PREAMBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1 Defined Terms . . . . . . . . . . . . . . . . . 1
Section 2 Transferred Assets. . . . . . . . . . . . . . . 1
Section 3 Assumption of Liabilities . . . . . . . . . . . 3
Section 4 Excluded Liabilities. . . . . . . . . . . . . . 3
Section 5 Net Book Values . . . . . . . . . . . . . . . . 4
Section 6 Non-Assignable Receivables. . . . . . . . . . . 9
Section 7 Employee Matters. . . . . . . . . . . . . . . . 10
Section 8 Absence of Consent or Authorization . . . . . . 13
Section 9 Closing Date. . . . . . . . . . . . . . . . . . 15
Section 10 Deliveries by Buyer . . . . . . . . . . . . . . 15
Section 11 Purchase Price Adjustments. . . . . . . . . . . 15
Section 12 Management Agreement. . . . . . . . . . . . . . 15
Section 13 Other Assets and Liabilities. . . . . . . . . . 17
Section 14 Loan Commitment Notes . . . . . . . . . . . . . 19
Section 15 Certain Expenses. . . . . . . . . . . . . . . . 19
Section 16 Environmental Matters . . . . . . . . . . . . . 20
Section 17 Certain Support Agreements. . . . . . . . . . . 20
Section 18 Certain Support Services. . . . . . . . . . . . 20
Section 19 Dubois RFP. . . . . . . . . . . . . . . . . . . 21
Section 20 DEA Power of Attorney . . . . . . . . . . . . . 22
Section 21 Assigned Stock and Venture Agreements . . . . . 22
Section 22 Title . . . . . . . . . . . . . . . . . . . . . 23
Section 23 Indemnification . . . . . . . . . . . . . . . . 23
Section 24 General Provisions. . . . . . . . . . . . . . . 24
Section 25 Efficacy. . . . . . . . . . . . . . . . . . . . 24
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(i)
<PAGE>
<PAGE>
LIST OF SCHEDULES
2.18(a) Choice One Program - Furniture & Equipment List
2.18(b) Career Achievement Program - Status Report
2.18(c) Digital Equipment List
(ii)
<PAGE>
<PAGE>
AMENDMENT NO. 1
TO
ASSET SALE AGREEMENT
THIS AMENDMENT NO. 1 TO ASSET SALE AGREEMENT (this "Amendment") is
entered into as of the 3rd day of January 1994 by and between NATIONAL MEDICAL
ENTERPRISES, INC., a Nevada corporation ("Seller"), and HEALTHSOUTH Rehabilita-
tion Corporation, a Delaware corporation ("Buyer"), with reference to the
following facts:
A. Buyer and Seller are parties to that certain Asset Sale Agreement
between them dated December 3, 1993 (the "Asset Sale Agreement").
B. Buyer and Seller wish to amend certain of the provisions of the Asset
Sale Agreement prior to the Closing referred to therein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, do hereby agree as follows:
1. Defined Terms. Unless otherwise defined in this Amendment, all
capitalized terms herein shall have the meanings given to them in the Asset
Sale Agreement.
2. Transferred Assets. The parties wish to make the following
clarifications respecting the Transferred Assets by amending the following
provisions of the Asset Sale Agreement:
a. Section 2.1(g) is hereby amended by deleting the introductory
language down to the first colon and inserting the following in its place:
"(g) All of the Subsidiary's right, title and interest
in and to all contracts and agreements to which the Subsidiary is
a party at the Closing, other than the Real Property Leases and the
Venture Agreements, to the extent the same are transferable to
Buyer (whether by action of the Subsidiary or Seller or, in the
case of Medicare provider agreements, the Health Care Finance
Administration), and which, or to the extent, the same relate
solely to the operations of Facilities operated by the Subsidiary
(the "Other
<PAGE>
<PAGE>
Assigned Contracts"), including, but not limited to, the contracts
identified on Schedule 2.1(g),which contains a list of the
following categories of Other Assigned Contracts:".
b. Section 2.1(j) is hereby amended to read in its entirety as
follows:
"(j) All of the Subsidiary's right, title and interest
in and to Licenses (as defined in Section 1.1) in favor of the
Subsidiary as of the Closing that are directly related to,
necessary for, or used solely in connection with the operation of
the Facilities as presently operated by the Subsidiary, provided
that Licenses in favor of the Subsidiary shall be included in the
Transferred Assets only to the extent they are lawfully transfer-
able, and, to the extent a Facility is the subject of a Management
Agreement by virtue of Section 2.15(i), the Subsidiary shall remain
the licensee of such Facility under those Licenses contained on
Schedule 3.19(f) to the extent contemplated by the Management
Agreement;".
c. Section 2.1(l) is hereby amended to read in its entirety as
follows:
"(l) To the extent lawfully and contractually
transferable, all of the Subsidiary's right, title and interest in
and to advance payments, prepayments, prepaid expenses, deposits
and the like made by the Subsidiary or Seller on its behalf in the
ordinary course of business prior to the Closing, which exist as
of the Closing and with respect to which Buyer will receive the
benefit after the Closing, and other items recorded as prepaid
expenses by Seller and the Subsidiaries (collectively, "Prepay-
ments");".
d. Section 2.1(m) is hereby amended to read in its entirety as
follows:
"(m) Subject to the further provisions of Section 2.9,
all of the Subsidiary's right, title and interest as of the Closing
in and to accounts receivable recorded by the Subsidiary as an
account receivable from Payors, patients and other third parties
together with rights to payment for services rendered through the
Closing Date to Straddle Patients
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referred to in Section 2.9(c) (collectively, "Receivables"); and".
3. Assumption of Liabilities. The parties wish to clarify certain
matters respecting Assumed Liabilities by amending the following provisions of
the Asset Sale Agreement:
a. Section 2.3(e) is hereby amended by deleting the phrase
"Sections 3.16 and 6.2(c)" from the first line thereof and inserting the
following phrase in its stead: "Section 3.16 and".
b. Clause (vi) of Section 2.3(j) is hereby amended to read in full
as follows:
"accrued salaries, benefits (including accrued vacation and sick
pay) and payroll taxes respecting Hired Employees (but not
including bonuses and applicable payroll taxes referred to in
Section 2.10(f));".
4. Excluded Liabilities. The parties wish to clarify certain matters
respecting Excluded Liabilities by amending Section 2.4(i) of the Asset Sale
Agreement to read in its entirety as follows:
"(i) Any liability of Seller or a Subsidiary repre-
senting indebtedness for money borrowed or the deferred portion of
the purchase price for any Owned Real Property (and any refinancing
thereof), including without limitation the indebtedness identified
on Schedule 2.4(i); provided that if, prior to Closing, the parties
mutually agree that any such indebtedness or obligation will be
assumed by Buyer and further agree upon an equitable reduction in
the cash portion of the Purchase Price (as defined in Section 2.5)
to reflect Buyer's assumption of such indebtedness or obligation,
then any such indebtedness or obligation will be deemed to
constitute an Assumed Liability for all purposes of this Agreement;
and provided further that with respect to any such indebtedness or
obligation not so assumed by Buyer that constitutes a lien or
encumbrance upon any Transferred Asset, Seller agrees that
substantially concurrently with or prior to the Closing it will
either pay or discharge such indebtedness or liability in full or
otherwise cause such lien or encumbrance to be removed from such
Transferred Asset, so that such Transferred Asset is sold,
conveyed, assigned, trans-
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<PAGE>
ferred and delivered to Buyer at the Closing free and clear of such
lien or encumbrance;".
5. Net Book Values. The parties wish to calculate Net Book Values as
of December 31, 1993, by amending the following provisions of the Asset Sale
Agreement:
a. Section 2.5 is hereby amended to read in its entirety as
follows:
"Section 2.5 Purchase Price. The purchase price (the
"Purchase Price") in the aggregate for all of the Transferred
Assets shall be equal to the sum of (a) Three Hundred Million
Dollars ($300,000,000) (which includes the Earnest Money Deposit
referred to in Section 2.6(a)), subject to such adjustments, if
any, as may occur pursuant to Sections 2.12, 8.5, 8.7, or 9.5, a
portion of which may be paid by way of any assumption of debt
pursuant to Section 2.4(i), plus (b) an amount equal (i) to the net
book values of the Inventory, Receivables and Prepayments (collec-
tively, "Accrued Operating Assets") which would be included in the
Transferred Assets calculated on the basis of the Closing occurring
on December 31, 1993, reduced by any cash received by Seller or the
Subsidiaries with respect to Accrued Operating Assets between and
including January 1, 1994 and the Closing Date, (ii) net of Accrued
Operating Expenses as of December 31, 1993, reduced by any payments
made by Seller or the Subsidiaries on account of Accrued Operating
Expenses between and including January 1, 1994 and the Closing Date
(the difference between clauses (i) and (ii) being referred to as
the "Net Book Values"), plus (c) an amount equal to any advances
made under Loan Commitment Agreements during the period following
the execution of this Agreement and through the Closing less the
amount of any principal payments received during such period with
respect to Loan Commitment Notes."
b. Section 2.6(b) is hereby amended to read in its entirety as
follows:
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<PAGE>
"(b) Payment of Tentative Purchase Price. No less
than three (3) business days prior to the Closing, Seller shall
deliver to Buyer a certificate executed on the Seller's behalf by
a responsible officer setting forth the Seller's estimate of what
the Net Book Values are (the "Estimated Net Book Values"), and
additionally setting forth (x) the Net Book Values that would have
been recorded by Seller had the Closing occurred as of the most
recent month-end prior to the delivery of such certificate for
which data is available and (y) the methodology used by Seller for
updating changes in Net Book Values since such month-end data to
arrive at such estimate. All determinations made with respect to
the Net Book Values shall be based upon the internal records of,
and the valuation methods customarily used by, Seller and the
Subsidiaries, absent manifest error, and under no circumstances
shall an additional physical inventory or audit be required. On
the terms and subject to the conditions contained in this Agree-
ment, at the Closing Buyer shall pay to Seller, in the manner set
forth herein, an amount equal to (i) the amount set forth in
Section 2.5(a) (including any debt assumptions pursuant to Section
2.4(i)), plus (ii) an amount equal to the Estimated Net Book Values
(the sum of clauses (i) and (ii) being referred to as the "Tenta-
tive Purchase Price"), less (iii) the Earnest Money Deposit previ-
ously delivered by Buyer to Seller, plus or minus, as the case may
be, (iv) any amounts arising under Section 2.5(c), plus (v)
interest on the sum of clauses (i) through (iv) from and including
January 1, 1994, through the Closing Date at a rate of five and
one-half percent (5-1/2%) per annum."
c. The first sentence of Section 2.6(c) is hereby
amended to read in its entirety as follows:
"As soon as practicable, but in no event later than forty-five (45)
days after the Closing, Seller shall cause a schedule to be
prepared and delivered to Buyer showing an interim calculation of
the Net Book Values (the "Interim Net Book Values") derived by
Seller from the internal books and records of Seller and the
Subsidiaries with respect to the Facilities as well as from a
physical inventory, taken after December 3, 1993 and prior to the
Closing, of property which would constitute Inventory if the
Closing had occurred on the date of such physical inventory."
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<PAGE>
d. Section 2.6(d) is hereby amended to read in its entirety as
follows:
"(d) Determination of Final Net Book Values. Within
ten (10) business days following expiration of six (6) months from
the Closing, Buyer shall provide a certificate to Seller, executed
on Buyer's behalf by a responsible officer, setting forth a
proposed calculation of final Net Book Values (the "Final Net Book
Values") as of June 30, 1994 (the "Working Capital Adjustment
Date") which shall contain a reconciliation of the Interim Net Book
Values, adjusted only for (i) errors claimed by Buyer to exist in
Seller's accruals for Accrued Operating Assets and Accrued
Operating Expenses included in the Net Book Values, (ii) Buyer's
ability to collect Receivables included in the Net Book Values in
excess of the carrying value therefor net of reserves, (iii)
Buyer's inability to collect Receivables included in the Net Book
Values in accordance with their net carrying values, and (iv)
Buyer's ability to pay Accrued Operating Expenses included in the
Net Book Values at less than their book value. For purposes of any
such calculation, (v) the accuracy of Seller's accrual for real and
personal property taxes shall be based upon the last notice of tax
assessment respecting such property prior to December 31, 1993,
that does not reflect the Transactions contemplated to occur at the
Closing, (vi) variable or undetermined charges arising under Real
Property Leases shall be accrued as of December 31, 1993, on an
historical basis, (vii) payments received on account of Receivables
shall be applied in accordance with Sections 2.9(b) and (c), (viii)
the Accrued Operating Expense in respect of sick pay for Hired
Employees shall be equal to the portion of unused sick pay of such
employees existing as of December 31, 1993 that is actually paid
by Buyer during the six month period after the Closing, and (ix)
expenses for such items as real and personal property taxes,
utility charges, charges arising under leases, insurance premiums
and the like shall be pro-rated as of December 31, 1993. Any
dispute concerning Buyer's calculation of the Final Net Book Values
that is unresolved for thirty (30) days shall be submitted for
resolution by the parties' independent certified public accountants
in accordance with the procedures contained in Section 2.6(c).
Within five (5) business days following determination of the Final
Net Book Values, either Buyer shall pay to Seller, or Seller shall
pay to Buyer, as the
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<PAGE>
case may be, in immediately available funds, the amount by which
the Final Net Book Values differ from the Estimated Net Book
Values, adjusted for payments, if any, on account of the Interim
Net Book Values. The pendency of a dispute shall not affect the
payment obligation hereunder of either Buyer or Seller to the
extent such payment is not disputed."
e. The first sentence of Section 2.9(b)(ii) is hereby
amended to read in its entirety as follows:
"On the tenth day of the first month that begins after the Closing,
on the tenth day of each month thereafter until the Working Capital
Adjustment Date, and on the tenth day following the Working Capital
Adjustment Date, Buyer shall execute appropriate instruments of
assignment to re-assign back to Seller, and shall turn over to
Seller all evidences of and documents pertaining to, any Receivable
included in the Net Book Values which, as of the end of the
immediately preceding month and/or the Working Capital Adjustment
Date, as the case may be, was uncollected and which either (A) is
a Receivable as to which Buyer has decided to cease collection
activity, or (B) is a Receivable in respect of a patient which, as
of such month end or Working Capital Adjustment Date, has remained
unpaid for a period of at least one hundred twenty (120) days
following (x) in the case of a Medicare patient, the date that the
first bill is rendered for either the patient's Medicare deductible
and/or for Medicare co-insurance, and (y) in the case of other
patients, the date of such patient's discharge from a Facility."
f. Section 2.9(c) is hereby amended to read in its entirety as
follows:
"(c) Straddle Patient Receivables. To compensate
Seller and the Subsidiaries for services rendered and medicine,
drugs and supplies provided through December 31, 1993, with respect
to patients ("Straddle Patients") who were admitted to a Facility
on or before such date and discharged by the Facility after such
date, the following shall apply:
"(i) Cut-Off Billings. Seller shall, or shall
cause the Subsidiaries to, prepare cut-off billings for all
Straddle Patients as of the close of business on
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such date. All payments which are received after such date
with respect to Straddle Patients and which relate to such
cut-off billings shall constitute Receivables for purposes
of calculating the Tentative Purchase Price and the Interim
Net Book Values.
"(ii) Cut-Off Billings Not Accepted. If the
Payor of any Straddle Patient cannot for any reason accept
cut-off billings, then Buyer shall notify Seller of same, and
Seller shall, or shall cause the Subsidiaries to, deliver to
Buyer a statement calculating the total charges made by
Seller and the Subsidiaries for services rendered and medi-
cine, drugs and supplies provided through December 31, 1993,
with respect to such Straddle Patient. Within ten (10) days
following the discharge of each such Straddle Patient, Buyer
shall deliver to Seller a statement reflecting the total
charges for the services rendered and medicine, drugs and
supplies billed to such Straddle Patient after such date and
the patient receivable (the "Straddle Patient Payments") of
Buyer with respect to such Straddle Patient (including any
cost per discharge limit imposed by the Tax Equity and Fiscal
Responsibility Act of 1982, as amended ("TEFRA") and all
deductibles and co-insurance payments). For purposes of
calculating the Final Net Book Values, the pro rata share of
the Straddle Patient Payments which shall be treated as a Re-
ceivable shall be equal to the amount obtained by multiplying
the Straddle Patient Payments by a fraction, the numerator
of which is the total charges of Seller and the Subsidiaries
with respect to such Straddle Patient through December 31,
1993, and the denominator of which is the total charges of
Buyer, Seller and the Subsidiaries with respect to such
Straddle Patient. Seller or Buyer, as may be applicable, may
have such statements as submitted by Buyer or Seller verified
by their respective independent public accountants within
thirty (30) days from delivery. If such statements, as
submitted by Buyer or Seller, are acceptable, then such
statements shall fix the value of the services, medicine,
drugs and supplies for the account of Seller and the Subsid-
iaries, on the one hand, and for the account of Buyer, on the
other, to each such Straddle Patient. If
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any such statement is challenged by Seller or Buyer, then
unless otherwise resolved by agreement of the parties within
thirty (30) days of any such challenge, such statement shall
be deemed in dispute, which dispute shall be resolved by the
parties' independent certified public accountants. If such
accountants cannot resolve the matter within thirty (30)
days, then it shall be submitted by them to a third account-
ing firm in accordance with the procedures contained in Sec-
tion 2.6(c). If Seller or Buyer does not give written notice
to the party preparing the statement of its challenge of such
statement within the first said thirty (30) day period, the
receiving party shall be deemed to have accepted the same."
6. Non-Assignable Receivables. The parties wish to clarify the
treatment of non-assignable Receivables by adding Subsection (e) to Section 2.9
of the Asset Sale Agreement to read as follows:
"(e) Non-Assignable Receivables. Notwithstanding
anything in this Agreement that might be construed to the contrary,
this Agreement shall not constitute an agreement to assign any
Receivable (including any Receivable respecting a Straddle Patient)
the assignment of which is either prohibited by Law or by the terms
of any contract with a Payor. However, without limiting the
generality of the foregoing, the Net Book Value of such non-assign-
able Receivables shall be included in the Net Book Values for all
purposes of this Agreement, including, but not limited to,
Sections 2.5 through 2.7 and this Section 2.9, as modified by the
provisions of this Section 2.9(e). That portion of the Purchase
Price which, but for the provisions of this Section 2.9(e), would
otherwise be attributable to the Net Book Value of such non-assign-
able Receivables shall be deemed to be a loan from Buyer to Seller
and to the pertinent Subsidiary that will be repaid from the
proceeds of such Receivables collected and held by Buyer and from
the adjustments to Estimated Net Book Values contemplated by
Sections 2.6, 2.9(b), and 2.9(c). All procedures and requirements
specified herein (including, without limitation, Buyer's best
efforts obligation under Section 2.9(b)) for the collection of
Receivables (including any Receivable in respect of a Straddle
Patient) shall be fully applicable to such non-assignable Receiv-
ables,
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except that (i) Buyer shall be deemed to collect and hold the
proceeds of such non-assignable Receivables as agent for the Seller
and the Subsidiaries and shall apply such proceeds to the repayment
of such loan, and (ii) any provision herein that would otherwise
require or provide for Buyer's "reassignment" of a Receivable
(including an Eligible Receivable) that is non-assignable to Buyer
in the first instance shall be construed to require or provide that
Buyer, as agent for Seller and the Subsidiaries, return pertinent
documentation respecting such Receivable to Seller and the
Subsidiaries to permit collection of such Receivable by them (in
accordance with such collection efforts and procedures as they, in
their sole discretion, shall determine)."
7. Employee Matters. The parties wish to clarify the treatment of
Retained Employees and Hired Employees by amending Sections 2.10(b) through (e)
to read in their entirety as follows and by adding a Subsection (f) immediately
following Subsection (e):
"(b) Retained Employees.
"(i) Buyer shall offer to hire at the Closing, on a
probationary basis, each of the direct employees of Seller
or a Subsidiary who, as of the Closing, work at the Facili-
ties (including any such direct employees who are on medical
disability or leaves of absence and who worked at the Facili-
ties immediately prior to such disability or leave), and each
employee of Seller or a Subsidiary who is primarily employed
in connection with Seller's Choice One Therapy Services
program, whether direct or indirect employees with respect
to such Program, except for those employees described in this
clause (i), if any, who are designated by Seller at least two
(2) days prior to the Closing.
"(ii) Buyer shall additionally offer to hire, on a
probationary basis, on February 1, 1994, such other employees
of Seller or of any of its subsidiaries who, as of January
31, 1994, are mutually agreed upon and who are indirect
employees with respect to the operations of the Facilities.
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"(iii) All such direct and indirect employees to whom
Buyer is required to make offers of employment pursuant to
clauses (i) and (ii) above are herein referred to as the "Re-
tained Employees."
"(iv) Any such offer of employment to a Retained
Employee by Buyer shall be to perform comparable services,
in such position as is comparable to the position such
Retained Employee held with Seller or any of its subsidiaries
as of the Closing, provided that Buyer may offer compensation
to such Retained Employees at levels commensurate with
compensation levels paid to other employees of Buyer holding
comparable positions, and provided further that any change
in compensation levels does not result in any constructive
discharge of any such Retained Employee, breach of any
employment contract assumed by Buyer hereunder or any other
liability of Seller and the Subsidiaries. Seller or its
Affiliates shall have the right to employ or offer to employ
any Retained Employee (including, but not limited to, the
chief executive officer and the chief financial officer of
each Facility) who declines Buyer's offer of employment.
"(c) Hiring of Retained Employees. Buyer shall hire
at the Closing, on a probationary basis, each Retained Employee
referred to in clause (b)(i) above who elects to accept employment
with Buyer (the "Hired Employees"), shall hire on February 1, 1994,
on a probationary basis, each Retained Employee referred to in
clause (b)(ii) above who elects to accept employment with Buyer,
and shall indemnify and hold Seller and its Affiliates harmless,
in accordance with Sections 11.4, 11.5 and 11.6, from and against
any Losses arising from or relating to any subsequent termination
of any such employee by Buyer. Subject to the proviso to Section
2.3(c), Buyer agrees to give such Retained Employees hired by it
full credit for the paid time off and sick pay earned or accrued
by them during, and to which they are entitled as a result of,
their employment by Seller and/or its subsidiaries, either by
allowing such employees such paid time off and sick pay as to which
such employees would have been entitled as of their termination
date by Seller and/or its subsidiaries under the policies of Seller
and/or its subsidiaries (as in effect
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on the date of this Agreement) if such employees had remained
employees of Seller and/or its subsidiaries or, upon termination
of employment, by making full payment to such employees of the paid
time off that such employees would have received had they taken
such paid time off, and Buyer further agrees to reimburse Seller
for any payments made by Seller and/or its subsidiaries with
respect to such accrued or earned paid time off or sick pay.
"(d) Health Benefits. Buyer shall provide the
Retained Employees hired by it a program of health care benefits
which is equivalent to the program of health care benefits
currently provided by Buyer to its existing employees, provided,
however, that such health care benefits shall be immediately
available to such Retained Employees as of their respective hire
dates by Buyer, and such employees shall become as of their
respective hire dates participants thereunder, without regard to
any applicable waiting period or any limitation with respect to
preexisting conditions. Buyer acknowledges and agrees that Buyer
is a successor employer for purposes of the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA"), that the
Retained Employees hired by it will not, as a result, be deemed to
have had a termination of employment for purposes of COBRA and that
any COBRA notices or coverages required to be given or made
available to any Retained Employee hired by it shall be given or
made by Buyer and not Seller or the Subsidiaries, provided that
Buyer does not assume, and shall not be deemed to have assumed, any
COBRA obligations which Seller or any Subsidiary may have to former
employees of Seller or such Subsidiary whose employment was
terminated on or prior to the Closing Date, or to any Retained
Employees who do not accept employment with Buyer, and provided
further that Seller shall be responsible for any COBRA coverages
required to be made available to any Retained Employee who is
entitled to COBRA coverage under existing plans of Seller or any
Subsidiary as a result of the Transactions.
"(e) Acknowledgement of Responsibility. Buyer
acknowledges and agrees that as of the date and time the Closing
is effective, or February 1, 1994, with respect to Retained
Employees to Retained Employees referred to in clause (b)(ii)
above, as the case may be, Buyer is considered
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for purposes of the Worker Adjustment and Retraining Notification
Act (the "WARN Act") the employer of the Retained Employees and
that Buyer (and not Seller or the Subsidiaries) shall thereupon be
responsible for complying with the WARN Act with respect to the
Retained Employees and that prior to such time none of the Retained
Employees shall be, nor shall they be deemed to be, terminated.
Buyer shall indemnify and hold Seller and its Affiliates harmless,
in accordance with Sections 11.4, 11.5 and 11.6, from and against
all Losses (i) resulting from any compliance obligation (including,
without limitation, the obligation to give notice or pay money)
Seller and its Affiliates or Buyer has under the WARN Act (whether
or not to Retained Employees) arising from the termination of any
Retained Employee, or (ii) resulting from any claims of the
Retained Employees hired by Buyer (including, without limitation,
claims for health care coverage or benefits)."
(f) Certain Bonuses. Within sixty (60) days following
the Closing, Seller anticipates providing Buyer with a list of the
Hired Employees eligible to receive bonuses for their services to
Seller and the Subsidiaries. Buyer hereby agrees that promptly
upon Seller's providing such list together with funds sufficient
to pay such bonuses (together with payroll taxes applicable
thereto), Buyer will cause such individuals to be paid by Buyer
such bonuses in accordance with Seller's instructions (net of
applicable withholding taxes) and will otherwise comply with
applicable payroll requirements respecting the payment of such
bonuses.
8. Absence of Consent or Authorization. The parties wish to clarify the
effect of the lack of any consent or authorization referred to in Section 2.12
of the Asset Sale Agreement. Accordingly, Section 2.12 of the Asset Sale
Agreement is hereby amended by adding a new Subsection (c) to read in its
entirety as follows:
"(c) Notwithstanding the provisions of Section
2.12(a), in the event the parties do not enter into a pertinent
cooperative arrangement by Closing with respect to a Transferred
Asset or Assumed Liability, the transfer or assumption of which,
as the case may be, requires the consent or authorization of a
private third party that has not been obtained by the Closing, then
and in such event, the provisions of this
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Section 2.12(c) shall apply. If such consent or authorization is
shown on the final Joint Escrow Instructions to be executed immedi-
ately prior to Closing as a consent or authorization which the
parties have agreed is required to be obtained prior to the
transfer of the pertinent Facility to Buyer, then the parties agree
that the provisions of Sections 2.12(a), 2.14, 2.15, 5.2 and 5.3
shall, following the Closing, continue to apply to the need for
such consent or authorization and to the reqirement that the same
be obtained (unless waived by the parties). With respect to all
other private third party consents or authorizations that have not
been obtained by the Closing, (i) Buyer hereby agrees to accept
the assignment of any such pertinent Transferred Asset, and to
assume any such pertinent Assumed Liability, as the case may be,
whether or not such assignment or assumption is made subject to
such consent or authorization being obtained after the Closing,
(ii) the parties agree to continue to cooperate with one another,
pursuant to the provisions of Sections 5.2 and 5.3, to obtain any
such requisite consent, and (iii) Buyer further hereby agrees to
indemnify and hold harmless the Seller and the Subsidiaries, in
accordance with the provisions of Sections 11.3 through 11.6, from
and against any and all Losses arising from or related to the lack
of any such consent or authorization (including without limitation
lease payments, license fees, penalties, termination costs and the
like); provided that the provisions of clause (iii) above shall
not apply to a personal services agreement of a natural person
(including a natural person doing business through such individual-
's professional corporation) or to a professional services
agreement of a medical group (whether doing business in corporate
form or otherwise), if, within fourteen (14) days following the
Closing, Buyer provides Seller with written notice that such
natural person or medical group has refused to provide services to
Buyer because of the lack of such natural person's or such medical
group's consent or authorization to the assignment and assumption
of such personal or professional services agreement. Nothwith-
standing the proviso to clause (iii) above, clause (iii) shall be
apply to any such personal or professional services agreement if
the pertinent natural person or medical group provides any
professional or personal services to Buyer or a Facility prior to
the first anniversary of the Closing."
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9. Closing Date. The parties wish to clarify the meaning of the term
"Closing Date" by amending the second sentence of Section 2.13 of the Asset
Sale Agreement to read in full as follows:
"The date on which the Seller receives the amount specified in the
last sentence of Section 2.6(b) is referred to herein as the
"Closing Date."
10. Deliveries by Buyer. The parties wish to clarify the amounts to be
paid by Buyer at Closing by amending Section 2.13(b)(i) of the Asset Sale
Agreement to read in its entirety as follows:
"(i) Immediately available funds, by way of wire
transfer to an account or accounts designated by Seller, in
an amount equal to the cash amount determined by the last
sentence of Section 2.6(b), as adjusted by the expenses due
at Closing pursuant to Section 5.5; and".
11. Purchase Price Adjustments. The parties wish to clarify certain
provisions respecting equitable adjustments in the Purchase Price by amending
Section 2.14 of the Asset Sale Agreement to add a Subsection (c) to read as
follows:
"(c) Nothing herein shall limit the parties' freedom
to agree upon further adjustments in the Purchase Price and/or the
cash portion thereof, any such adjustments to be evidenced by a
certificate executed by the parties as of the Closing."
12. Management Agreement. The parties wish to clarify certain
provisions respecting the Management Agreement arrangement referred to in
Section 2.15 of the Asset Sale Agreement by amending the following provisions
of the Asset Sale Agreement:
a. The introductory clause of Section 2.15 is hereby amended to
read in its entirety as follows:
"Section 2.15 Management Agreement. In the event that the
conditions to consummation of the Closing have otherwise been met
or waived, but:
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(i) Buyer has not been issued Licenses referred to in
Section 8.4(d) respecting the conduct of business from one
or more Facilities, and the absence of such Licenses would
result in a Material Adverse Effect upon the conduct of such
business from any such Facility by Buyer following the
Closing; or
(ii) Seller has not received one or more Consents (as
defined in Section 8.4) necessary to effectively assign to
Buyer (A) a Real Property Lease (and/or agreements which, by
the terms of the Real Property Lease in question, are tied
thereto, such as certain service contracts, subordination or
security agreements, parking leases or equipment leases) in
respect to a material portion of a Facility, or (B) any other
material Assumed Contracts mutually agreed upon by the
parties, and the parties have not entered into an alternative
arrangement pursuant to Section 2.12;
then and in either of such events the parties shall nevertheless
consummate the Transactions in accordance with the provisions of
this Agreement, as modified by the following provisions:".
b. Section 2.15(a) is hereby amended to read in its entirety as
follows:
"(a) At the Closing, the parties shall execute one or
more management agreements (each a "Management Agreement"),
substantially in the form of Exhibit D hereto, pursuant to which
Buyer shall undertake to manage such Facilities under Licenses held
by Seller and the Subsidiaries and/or pending the receipt of such
Consents, as the case may be."
c. The second line of Section 2.15(b) is hereby amended by
inserting the parenthetical "(or related or other agreement)" immediately after
the term "Real Property Lease".
d. Section 2.15(d)(iii) is hereby amended to read in its entirety
as follows:
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"(iii) If the provisions of clause 2.15(ii)
apply, the requisite Consents necessary to assign such Real
Property Lease(s) (or related or other agreement(s)) have
been obtained."
e. A new Section 2.15(h) is hereby added to the end of Section
2.15 to read as follows:
"(h) Notwithstanding this Section 2.15 and without
limiting the generality of the introductory paragraph of this
Section 2.15, the provisions of Section 2.5 through 2.11 shall be
fully operative as though all Licenses and Consents had been
received as of the Closing and all Transactions scheduled to occur
at the Closing had occurred without regard to this Section 2.15,
except that Buyer shall, with respect to Receivables not assigned
to it at Closing as a result of the provisions of this Section
2.15, collect such Receivables at managed Facilities in its
capacity as manager of the Facilities in question rather than as
principal, and the provisions of Section 2.9(e) shall apply to such
Receivables at managed Facilities as though all Receivables with
respect thereto were non-assignable."
13. Other Assets and Liabilities. The parties wish to provide for the
assignment and assumption of other assets and liabilities by adding a new
Section 2.18 to the Asset Sale Agreement to read as follows:
"Section 2.18 Other Assets and Liabilities.
"(a) Choice One Therapy Services Program. Seller
currently operates a program (the "Choice One Program") under which
physical therapists who may either be employees or independent
contractors of Seller may provide physical therapy services to
third parties as well as the Facilities. Effective as of the
Closing, and for the sum of Fifty Thousand Dollars ($50,000) plus
Seller's net book value for the accounts receivable referred to in
clause (i) below, payable at the Closing, Seller hereby sells, con-
veys, assigns, transfers and delivers to Buyer all of its right,
title and interest in and to the following assets of Seller, and
none other, related to the Choice One Program (the "Choice One As-
sets"):
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(i) To the extent lawfully and contractually
assignable, all accounts receivable of Seller existing as of
the Closing from third parties who are not Affiliates of
Seller that arise from services provided to such third
parties under the Choice One Program, it being agreed that
the amount of such receivables shall be treated as though
included in the Net Book Values for purposes of Sections
2.6(b) through (d) and shall be otherwise treated as though
part of the Receivables for purposes of Sections 2.9(b)
through (e);
(ii) Non-proprietary computer Equipment and
related transferable non-proprietary software of Seller that
is utilized in the Choice One Program and that is specified
in Schedule 2.18(a) hereto;
(iii) The trade name "Choice One" insofar as it
relates to the Choice One Program; and
(iv) To the extent the same are transferable,
contracts and agreements with third parties, if any, pursuant
to which Seller provides Choice One Program services to such
third parties (the "Choice One Contracts").
Effective as of the Closing, Buyer hereby assumes, and agrees to
pay, discharge and perform as and when due, all liabilities and
obligations of the Seller and the Subsidiaries which pertain to or
are to be performed during the period following the Closing Date
and which arise under any Choice One Contract (the "Choice One
Liabilities").
"(b) Career Achievement Program Related to Facilities.
Effective as of the Closing, and for the sum of Eighty Thousand
Dollars ($80,000) payable at the Closing, Seller hereby sells,
conveys, assigns, transfers and delivers to Buyer all of its right,
title and interest in and to rights to payment from the Citizens'
Scholarship Foundation of America arising from Seller's Career
Achievement Program, insofar as such rights to payment arise from
loans to students under such Program listed in Schedule 2.18(b)
hereto. Buyer hereby acknowledges that it understands and accepts
that,
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upon receipt of appropriate credentials, a student sponsored by a
Facility may meet its loan obligation by fulfilling a work
commitment at the sponsoring Facility.
"(c) DEC Mini-Computers. Seller hereby agrees to sell
to Buyer, and Buyer hereby agrees to purchase from Seller, up to
five (5) used mini-computers manufactured by Digital Equipment
Corporation, three of which are described in Schedule 2.18(c).
Each such computer shall be sold for a purchase price of Eighteen
Thousand Dollars ($18,000), net of any shipping costs, which shall
be borne by Buyer. The three computers described in Schedule
2.18(c) shall be released to, and paid for, Buyer at the Closing.
The balance of such computers shall be released to Buyer if and
when they are no longer needed by Seller and shall be paid for by
Buyer upon delivery, provided that the agreement to purchase and
sell the balance of such computers shall expire following the
expiration of ninety (90) days from the Closing."
14. Loan Commitment Notes. In order to clarify the status of certain
missing Loan Commitment Notes, the parties agree that Section 3.9 of the Asset
Sale Agreement is hereby amended by striking the word "and" immediately before
clause (e) thereof, replacing the period with a comma, and adding the following
clause (f):
"and (f) the obligors under the Loan Commitment Notes are reason-
ably current in their payments to the holders thereof."
15. Certain Expenses. The parties wish to address certain transitional
assistance expenses incurred by Seller and the Subsidiaries by: (a) striking
the word "and" at the end of Section 5.5(g) of the Asset Sale Agreement, (b)
replacing the period at the end of Section 5.5(h) of the Asset Sale Agreement
with a semicolon and adding the word "and" immediately after such semicolon,
and (c) adding a new Section 5.5(i) to the Asset Sale Agreement immediately
after Section 5.5(h) thereof, to read as follows:
"(i) Costs incurred by Seller and the Subsidiaries in
connection with providing transitional assistance to Buyer shall
be borne by Buyer, whether such assistance is provided before or
after the Closing, including costs associated with attendance at
meetings requested by Buyer, it being
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agreed that such costs shall include, without limitation, travel
expenses and the fully loaded costs (as determined in accordance
with Seller's normal methods for allocation of overhead) for the
time of employees of Seller and its Affiliates rendering such
transitional assistance to Buyer."
16. Environmental Matters. Sections 6.2 (b) and (c) of the Asset Sale
Agreement are hereby amended as follows:
a. The first sentence of Section 6.2(b) is hereby amended by
inserting immediately prior to the period the phrase "except with respect to
Owned Real Properties acquired after August 1, 1993."
b. Section 6.2(c) is hereby deleted, it being understood that
Seller and the Subsidiaries shall have no further obligation with respect to
environmental matters or compliance with Environmental Regulations respecting
the Facilities.
17. Certain Support Agreements. Buyer has determined not to purchase
the data processing services originally available under Section 6.7 of the
Asset Sale Agreement and Exhibit E thereto. The parties have additionally
agreed to permit Buyer to participate in certain national purchasing contracts
of Seller. Accordingly, Exhibit E of the Asset Sale Agreement is hereby
deleted, and Section 6.7 of the Asset Sale Agreement is hereby amended to read
in its entirety as follows:
"Section 6.7 National Purchasing Contract Program. Seller
shall provide Buyer the opportunity to participate in Seller's
national purchasing contracts for a transitional period for
purposes of providing support to the Facilities. Such participa-
tion shall be pursuant to a mutually agreeable contract for a term
of ninety (90) days unless the parties mutually agree upon an
extension."
18. Certain Support Services. The parties wish to provide for certain
support services by adding a new Section 6.8 of the Asset Sale Agreement to
read as follows:
"Section 6.8 Certain Support Services.
(a) Help Desk and Central Business Office Support.
Without limiting the provisions of Section 2.10,
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Seller agrees to cause to be made available to the Facilities the
customary support services that have been provided to the Facili-
ties, (i) for ninety (90) days following the Closing, by up to
three (3) employees at the so-called "Help Desk" of Seller located
in Fairfax, Virginia, which provides telephone assistance to
Facilities in connection with management information services and
Facility accounting, and (ii) until the Working Capital Adjustment
Date, by those so-called "Central Business Offices," located at
Seller's regional offices, for the purpose of providing support in
the collection of Receivables included in the Net Book Values.
Buyer agrees to pay Seller for the support services provided in
clause (i), on a mutually convenient periodic basis, within ten
(10) days of Seller's invoices therefor, an amount equal to the
payroll costs (including salary, wages, overtime, benefits and
payroll taxes) plus the reasonable overhead (as determined in
accordance with Seller's normal allocation methods) for Seller's
employees providing such support services. The support services
provided in clause (ii) shall be provided at no charge."
(b) Choice One Support. For a period of ninety (90)
days following the Closing, Hired Employees at Seller's headquar-
ters offices who were previously employed by Seller in connection
with the Choice One Program shall, as employees of Buyer, be
entitled to remain in their offices at Seller's headquarters, free
of charge, and to receive customary support services (such as
telephone, photocopy, etc.), at Seller's reasonably allocated cost,
in connection with their work on such Program.
19. Dubois RFP. A new Section 6.9 is hereby added to the Asset Sale
Agreement as follows:
"Section 6.8 Dubois Proposal. Seller and its Affiliates are
a finalist in connection with the selection of a manager of an
approximately 30-bed rehabilitation unit in Dubois, Pennsylvania.
For the sum of Fifty Thousand Dollars ($50,000) payable at the
Closing, Seller hereby agrees to exercise its reasonable commercial
efforts to have Buyer substituted in Seller's place in such
competition, but makes no warranty or representation that such
substitution will occur, or that, if it occurs, Buyer will be
ultimately selected as
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manager, or that, if Buyer is selected as manager, such management
will be on a profitable basis."
20. DEA Power of Attorney. In order to permit interim operation of
pharmacies at the Facilities, a new Section 6.10 is hereby added to the Asset
Sale Agreement as follows:
"Section 6.10 Use of Controlled Substance Licenses. To the
extent permitted by Law, Buyer shall have the right, either as
purchaser or as manager under a Management Agreement, for a period
not to exceed sixty (60) days following the Closing, to operate
under the Licenses of the Subsidiaries relating to controlled sub-
stances and the operation of pharmacies, until Buyer is able to
obtain such Licenses for itself. Seller shall cause the pertinent
Subsidiaries to execute and deliver to Buyer any powers of attorney
and other instruments which Buyer or the appropriate governmental
agency may reasonably require in connection with Buyer's use of
such Licenses. Buyer acknowledges that it shall apply for all such
Licenses as soon as reasonably possible after the Closing and
diligently pursue such applications in accordance with Section
5.1."
21. Assigned Stock and Venture Agreements. The parties wish to clarify
certain matters respecting Neuro-Rehab Associates, Inc. and joint venture
arrangements generally by amending the Asset Sale Agreement as follows:
a. A new Section 7.6 is hereby added to read as follows:
"Section 7.6 Neuro-Rehab Associates, Inc. Seller has made
various loans to Neuro-Rehab Associates, Inc. on open account
(having a balance on December 31, 1993, of approximately $2,000,00-
0). Buyer hereby covenants and agrees either to cause such loans
to be repaid, or to repay such loans itself, on or before March 31,
1994, without interest."
b. A new Section 7.7 is hereby added to read as follows:
"Section 7.7 Dividends and Distributions. The parties agree
that any dividends or distributions received by Buyer after the
Closing with respect to Neuro-Rehab Associates,
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Inc., or any distributions received by Buyer after the Closing with
respect to a Venture Agreement, shall be pro-rated as of December
31, 1993, and Buyer hereby agrees to promptly remit to Seller its
proportionate share of any such distribution or dividend based upon
the number of days in the period to which such dividend or
distribution relates through December 31, 1993 in relation to the
total number of days in the period to which such dividend or
distribution relates."
22. Title. In order to clarify their intentions respecting certain
Owned Real Properties, Section 8.7 of the Asset Sale Agreement is hereby
amended by adding the following sentence at the end thereof.
"In lieu of title insurance on Owned Real Properties acquired by
Seller or the Subsidiaries with respect to the Sunrise and Garden
State Facilities subsequent to August 1, 1993, Seller hereby
represents and warrants that any warranties in a special or limited
warranty deed given by a Subsidiary are accurate as of the date
made and as of the Closing, it being agreed that, notwithstanding
anything in this Agreement to the contrary, breach of the foregoing
representation and warranty shall entitle Buyer to indemnity under
the provisions of Section 11.3(a)(ii) rather than Section 11.3(a)(-
i)."
23. Indemnification. The parties wish to clarify certain provisions
relating to indemnification by amending the following provisions of the Asset
Sale Agreement.
a. The word "Related" is hereby inserted (i) before the word
"Agreements" in Section 11.2, (ii) before the word "Agreement" in Section
11.3(a)(i), (iii) before the last use of the word "Agreement" in Section
11.3(a)(ii), (iv) before the word "Agreement" in Section 11.4(a)(i), and (v)
before the last use of the word "Agreement" in Section 11.4(a)(ii).
b. Section 11.3(a)(iii) is hereby amended to read in its entirety
as follows:
"(iii) If the Closing occurs, the existence of,
or the failure of Seller or any Subsidiary to pay, discharge
or perform as and when due, any of the Excluded Liabilities
(including without limitation, any Losses as a result of or
in connection with the failure of Seller and the Subsidiaries
to comply with any Bulk
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Sales Laws referred to in Section 7.1), as well as the
failure of the Seller and the Subsidiaries to locate any
originally executed Loan Commitment Note."
c. Section 11.4(a) is hereby amended by (a) deleting the word
"and" following the semicolon in clause (iii); (b) adding the phrase "and the
Choice One Liabilities" at the end of clause (iii); (c) replacing the period
at the end of clause (iv) with a semicolon and adding the word "and" immediate-
ly after such semicolon; and (iii) adding a new clause (v) to read as follows:
"(v) Whether or not the Closing occurs, activi-
ties of Buyer prior to the Closing that relate to matters
respecting the future employment (including conditions and
terms of employment) of Hired Employees."
d. Section 11.4(b)(ii) is hereby amended by striking each use of
the phrase "Subsections (a)(ii)-(iv)" and inserting in its place the phrase
"Subsections (a)(ii)-(v)".
24. General Provisions. The first sentence of Section 12.6 of the Asset
Sale Agreement is hereby amended to read in its entirety as follows:
"This Agreement (including the Schedules and Exhibits hereto), the
Related Agreements and such other agreements, documents, instru-
ments and certifications as may be executed by the parties at or
as of the Closing contain the entire understanding between the
parties concerning the subject matter of this Agreement and such
other documents and instruments and, except as expressly provided
for herein, supersede all prior understandings and agreements,
whether oral or written, between them with respect to the subject
matter hereof and thereof."
25. Efficacy. This Amendment shall become effective upon its execution,
which may occur in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. Captions, paragraph headings and introductory language used herein
that do not actually amend the Asset Sale Agreement are used herein for
convenience only, are not a part of the Asset Sale Agreement as amended by this
Amendment, and shall not be used in construing the Asset Sale Agreement as
amended by this Amendment.
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Each reference to the Asset Sale Agreement in any Related Agreement, whether
or not accompanied by a reference to this Amendment, shall be deemed a
reference to the Asset Sale Agreement as amended by this Amendment.
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IN WITNESS WHEREOF, the parties have duly executed this Amendment
as of the date first above written.
Buyer:
HEALTHSOUTH Rehabilitation
Corporation
By: Michael D. Martin
Name: Michael D. Martin
Title: Vice President and Treasurer
Seller:
NATIONAL MEDICAL ENTERPRISES,
INC.
By: Raymond L. Mathiasen
Name: Raymond L. Mathiasen
Title: Senior Vice President
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AMENDMENT NO. 1 ("Amendment No. 1"), dated as of November 2,
1993, between MP Funding Corporation (the "Lender") and the Borrowers
parties hereto (the "Borrowers").
W I T N E S S E T H:
WHEREAS, the Lender and the Borrowers are parties to a First
Amended and Restated Master Loan Agreement, dated as of November 30, 1988,
as further amended and restated as of January 25, 1990 (the "Master Loan
Agreement"); and
WHEREAS, the Lender and the Borrowers now desire to further
amend the Master Loan Agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for good and other valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as
follows:
1. Capitalized terms used but not defined in this Amendment
No. 1 shall have the meanings given to those terms in the Master Loan
Agreement.
2. There is hereby added to the Agreement Schedule 1 -
Description of Certain Legal Proceedings, a copy of which is attached to
this Amendment No. 1 as Annex I. Schedule A to the Master Loan Agreement
shall be replaced with Schedule A which is attached to this Amendment No. 1
as Annex II.
3. The following new defined terms shall be added to Section
1.01 of the Master Loan Agreement:
"Adversely Determined" shall mean, with respect to
any cause of action, litigation or investigation, a
determination of liability or culpability on the
part of the defendant (or cross-defendant) or the
agreement by the defendant (or cross-defendant) to
settle such cause of action, litigation or
investigation, which, in any case requires the
payment of the maximum amount or the imposition of
the most disadvantageous alternative remedy or
sanction reasonably likely to be assessed, imposed
or required for settlement as opposed to the maximum
amount sought or which could be possible under any
circumstances.
"Amendment No. 1" shall mean this Amendment No. 1 to
the Agreement.
"Amendment No. 1 Effective Date" shall mean the date
on which this Amendment No. 1 becomes effective in
accordance with its terms.
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"Asset Sale" shall mean the sale, transfer, lease or
other disposition by NME or any of its Subsidiaries
in a single transaction or a series of related
transactions to any Person (other than NME or any of
its wholly-owned Subsidiaries) of (i) any of the
stock of any of NME's Subsidiaries, (ii)
substantially all of the assets of any division or
line of business of NME or any of its Subsidiaries,
or (iii) any other assets (whether tangible or
intangible) of NME or any of its Subsidiaries
outside of the ordinary course of business
(including the sale or securitization of any
receivable); provided that in the case of any such
sale, transfer, lease or other disposition that the
assets sold, transferred, leased or otherwise
disposed of have a fair market value in excess of
$1,000,000.
"Consolidated Adjusted EBITDA" shall mean, for any
period, the sum of the amounts for such period of
(i) Consolidated Net Income (excluding (a) any
extraordinary gains or gains or losses from Asset
Sales and (b) during the fiscal quarter ended August
31, 1993, any Realignment and Unusual Litigation
Costs and the FASB 109 Tax Credit), (ii)
Consolidated Interest Expense, (iii) provisions for
taxes based on income, (iv) total depreciation
expense, and (v) total amortization expense, all of
the foregoing as determined on a consolidated basis
for NME and its Consolidated Subsidiaries in
conformity with GAAP.
"Consolidated Capital Expenditures" shall mean, for
any period, the sum of (i) the aggregate of all
expenditures (whether paid in cash or other
consideration or accrued as a liability and
including that portion of capital leases which is
capitalized on the consolidated balance sheet of NME
and its Consolidated Subsidiaries) by NME and its
Consolidated Subsidiaries during that period that,
in conformity with GAAP, should be included in
"purchases of property, plant or equipment" or
comparable items reflected in the consolidated
statement of cash flows of NME and its Consolidated
Subsidiaries plus (ii) to the extent not covered by
clause (i) of this definition, the aggregate of all
expenditures by NME and its Subsidiaries during the
period to acquire (by purchase or otherwise) the
business, property or fixed assets of, or stock or
other evidence of beneficial ownership of, any
Person.
"Consolidated Interest Expense" shall mean, for any
period, the total interest expense (including that
portion attributable to capital leases in
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accordance with GAAP and capitalized interest) of
NME and its Consolidated Subsidiaries determined on
a consolidated basis with respect to all outstanding
Indebtedness of NME and its Subsidiaries, including,
without limitation, all commissions, discounts and
other fees and charges owed with respect to letters
of credit and any bankers' acceptance financing and
net costs under any interest rate agreements, but
excluding, however, any amendment fees (or the
amortization of such fees) payable in connection
with the Second Amendment, the Third Amendment and
the NME Reimbursement Agreement and the portion of
the Lender's financing cost payable by the Borrowers
under this Agreement attributable to any amendment
fees paid by the Lender on or before the effective
date of this Amendment No. 1 in connection with any
amendment of the Lender's Borrowing Facilities.
"Consolidated Net Income" shall mean, for any
period, the net income (or loss) of NME and its
Consolidated Subsidiaries for such period taken as a
single accounting period determined in conformity
with GAAP; provided that the calculation of
Consolidated Net Income shall exclude any non-cash
charges to income resulting from any sale of all or
a portion of NME's Psychiatric Division (as
constituted on the Second Amendment Effective Date)
during the period from such date to the date of
determination.
"Consolidated Rental Expense" shall mean for any
period, the aggregate amount of all rents paid under
all capital and operating leases of NME and its
Subsidiaries as lessee (net of any sublease income
and excluding any such rents or portions thereof
included in Consolidated Interest Expense).
"Contingent Value Rights" shall mean unsecured
instruments issued by NME to plaintiffs in
settlement of shareholder class-action litigation
that represent the right to receive a payment from
NME not earlier than three years from their
issuance.
"Environmental Laws" shall mean any and all laws,
statutes, rules, regulations or ordinances in effect
from time to time relating to the regulation or
protection of human or animal health or safety or of
the environment or to emissions, discharges,
releases or threatened releases of pollutants,
contaminants, chemicals or toxic, infectious or
hazardous substances or wastes into the indoor or
outdoor environment, including ambient air, soil,
surface water, ground water, wetlands, land or
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subsurface strata, or otherwise relating to the
manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling
of pollutants, contaminants, chemicals or toxic,
infectious or hazardous substances or wastes.
"FASB 109 Tax Credit" shall mean the credit taken
during NME's fiscal quarter ended August 31, 1993 in
the approximate amount of $60,000,000 resulting from
NME's giving effect to Financial Accounting
Standards Board Statement Number 109 "Accounting for
Income Taxes".
"Governmental Approval" shall mean any
authorization, consent, approval, license, lease,
ruling, permit, waiver, exemption, filing,
registration or notice by or with any Governmental
Authority.
"Hospitals" shall mean NME Hospitals, Inc.
"Non-Restricted Assets" shall mean any stock,
property or other assets of NME and its Subsidiaries
other than any Restricted Assets.
"NME Credit Agreement" shall mean the Seventh
Amended and Restated Revolving Credit and Term Loan
Agreement dated as of September 30, 1990, among NME,
Bankers Trust Company, as Agent thereunder and the
Banks parties thereto.
"NME Credit Parties" shall mean Bankers Trust
Company, as Agent under, and the Banks parties to,
the NME Credit Agreement.
"NME Reimbursement Agreement" means the First
Amended and Restated Letter of Credit and
Reimbursement Agreement dated as of October 1, 1993
between NME and The Sanwa Bank, Limited, Dallas
Agency.
"Permitted Line Rollovers" shall have the meaning
given to that term in the NME Credit Agreement as in
effect on the Amendment No. 1 Effective Date.
"Psychiatric Division" shall mean the operations of
NME and its Subsidiaries conducted at 61
freestanding psychiatric hospitals, residential
treatment centers and substance abuse recovery
facilities, including, without limitation, the stock
of such Subsidiaries and the assets used in such
operations.
"Realignment and Unusual Litigation Costs" shall
mean certain charges taken against income during
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NME's fiscal quarter ended August 31, 1993, in an
aggregate amount not exceeding $143,000,000 on an
after-tax basis, with respect to certain legal
proceedings against NME and its Subsidiaries
described in Schedule I to this Agreement.
"Rehabilitation Division" shall mean the operations
of NME and its Subsidiaries conducted at 35
freestanding rehabilitation hospitals, including,
without limitation, the stock of such Subsidiaries
and the assets used in such operations.
"Restricted Assets" shall mean (a) any of the Stock,
property or other assets of Hospitals or any of its
Subsidiaries, (b) any of the stock, properties or
other assets of NME's or its Subsidiaries'
international operations, including, without
limitation, the stock of International NME, Inc. or
any of its Subsidiaries, and (c) any stock or other
investment in Westminster Health Care Holdings plc
or Hillhaven Company or their respective
subsidiaries.
"Second Amendment" shall have the meaning given to
that term in the NME Credit Agreement as in effect
on the Amendment No. 1 Effective Date.
"Second Amendment Effective Date" shall have the
meaning given to that term in the NME Credit
Agreement as in effect on the Amendment No. 1
Effective Date.
"Third Amendment" shall mean the Third Amendment and
Limited Waiver to the NME Credit Agreement, dated as
of October 15, 1993, among NME and the NME Credit
Parties.
4. The following definitions set forth in Section 1.01 of the
Master Loan Agreement are hereby amended in their entirety to read as
follows:
"Borrower" shall mean the borrowers listed on
Schedule A attached hereto at the Amendment No. 1
Effective Date.
"Consolidated Current Liabilities" shall mean, at a
particular date, all amounts which, in conformity
with GAAP, would be included under current
liabilities on a consolidated balance sheet of NME
and its Consolidated Subsidiaries as at such date
(determined without giving effect to any current
portion of Realignment and Unusual Litigation
Costs).
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"Consolidated Net Worth" shall mean, at a particular
date, all amounts which, in conformity with GAAP,
would be included under shareholders' equity on a
consolidated balance sheet of NME and its
Consolidated Subsidiaries at such date, determined,
however, without giving effect to the FASB 109 Tax
Credit or any reduction to shareholders' equity
caused by any non-cash charge or other non-cash
effect of any sale, liquidation or disposition of
NME's Psychiatric Division (as constituted on the
Second Amendment Effective Date).
"Final Loan Date" shall mean April 1, 1995.
"Indebtedness" shall mean for any Person: (a) all
obligations for borrowed money and for the deferred
purchase price of property or services, and
obligations evidenced by bonds, debentures, notes or
other similar instruments which in accordance with
GAAP would be shown on the balance sheet of such
Person as a liability; (b) all rental obligations of
such Person under leases required to be capitalized
under GAAP; and (c) Contingent Value Rights.
5. The definition of "Extension Date" set forth in Section
1.01 of the Master Loan Agreement is hereby deleted.
6. The definition of "Liens" set forth in Section 1.01 of the
Master Loan Agreement is hereby amended by deleting clause (h) of the
proviso to such definition and redesignating clause (i) to such proviso as
clause (h).
7. Anything in the Master Loan Agreement to the contrary
notwithstanding, from and after the Amendment No. 1 Effective Date, no
Borrower may request, and the Lender shall not make, any Initial Loans,
additional Loans or Completion Loans under the Master Loan Agreement and
Sections 2.01 through 2.04, inclusive, Section 2.09, Section 2.10, Sections
5.01 through 5.03, inclusive and all sections in Articles VI, VII and VIII
of the Master Loan Agreement are hereby amended accordingly.
8. Section 2.06 of the Master Loan Agreement is hereby
amended by deleting (i) the comma and the words "Increase and Extension"
from the section heading and (ii) paragraphs (b) and (c) thereof.
9. The first sentence of Section 9.01 of the Master Loan
Agreement is hereby amended in its entirety to read as follows:
The consolidated balance sheet of NME and its
Consolidated Subsidiaries as at May 31, 1993 and
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the related consolidated statements of income, cash
flows and changes in common stock and other
stockholders' equity, and notes and schedules
thereto, certified by KPMG Peat Marwick on July 19,
1993, except as to Note 6B(2), which is as of August
26, 1993, copies of which have heretofore been
furnished to the Lender, are Accurate and Complete
and present fairly the consolidated financial
condition of NME and its Consolidated Subsidiaries
as at such date, and the consolidated results of
their operations and changes in financial position
(or statement of cash flows) for the period then
ended.
10. Section 9.02 of the Master Loan Agreement is hereby
amended in its entirety to read as follows:
"9.02. No Change. Since May 31, 1993, there
has been no material adverse change in the business,
operations, properties or financial or other
condition of NME and its Consolidated Subsidiaries,
taken as a whole, except matters disclosed in
Schedule 1 hereto and matters relating to NME or any
of its Subsidiaries (other than Hospitals or any of
Hospital's Subsidiaries or the Rehabilitation
Division) arising from substantially similar events,
facts or circumstances, or based upon substantially
similar allegations referred to therein.
11. The third sentence of Section 9.03 of the Master Loan
Agreement is hereby amended, and a fourth sentence is hereby added to such
section, each to read as follows:
Except for orders or notices received with respect
to matters referred to in Schedule 1 hereto and
matters relating to NME or any of its Subsidiaries
(other than Hospitals or any of Hospital's
Subsidiaries or the Rehabilitation Division) arising
from substantially similar events, facts or
circumstances, or based upon substantially similar
allegations against or with respect to NME or any of
its Subsidiaries (other than Hospitals or any of
Hospital's Subsidiaries or the Rehabilitation
Division), referred to therein, none of the
Borrowers or any of the Significant Subsidiaries has
received or expects to receive any order or notice
of any violation or claim of violation of any law,
regulation, decree, rule, judgment or order of any
governmental authority or agency relating to the
ownership or operation of any hospital or other
facility owned or operated by it, as to which the
costs or consequences of compliance or the
consequences of noncompliance, individually or in
the aggregate, would or might be material and
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adverse to the business, operations, properties,
prospects or financial or other condition of NME and
its Subsidiaries, taken as a whole, or Hospitals or
which might impair the ability of any of the
Borrowers to discharge any of its Obligations under
this Agreement or might impair the ability of the
Guarantor to perform its obligations under the
Guaranty. None of Hospitals or any of its
Subsidiaries or the Rehabilitation Division has
received or expects to receive any order or notice
of any violation or claim of violation of any law,
regulation, decree, rule, judgment or order of any
Governmental Authority relating to the ownership or
operation of any hospital or other facility owned or
operated by it, as to which the cost or consequence
of compliance or the consequences of noncompliance,
individually or in the aggregate, would or might be
material and adverse to the business, operations,
properties, prospects or financial or other
condition of NME and its Subsidiaries, taken as a
whole, or of Hospitals or the Rehabilitation
Division or which might impair the ability of any
of the Borrowers to discharge any of its Obligations
under this Agreement or might impair the ability of
the Guarantor to perform its obligations under the
Guaranty.
12. Section 9.06 of the Master Loan Agreement is hereby
amended in its entirety to read as follows:
Section 9.06. No Material Litigation. No litiga-
tion, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or
has been instituted or, to the knowledge of any
Borrower, threatened by or against NME or any
Subsidiary or against any of its or their properties
or revenues (a) with respect to this Agreement or
the Related Documents or any of the transactions
contemplated thereby or hereby, or (b) which,
individually or in the aggregate, if Adversely
Determined, would have a material adverse effect on
the business, operations, properties, condition
(financial or otherwise) or prospects of either NME
and its Subsidiaries, taken as a whole (except for
the matters set forth on Schedule 1 hereto) or
Hospitals and its Subsidiaries, taken as a whole
(without exception for the matters set forth on
Schedule 1 hereto). No developments have occurred
after August 31, 1993 in any such litigation,
investigation or proceeding which individually or in
the aggregate have a reasonable likelihood of either
(i) materially increasing the likelihood that such
litigation, proceeding or investigation will be
Adversely Determined if such
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adverse determination would have a material adverse
effect on the business, operations, properties,
condition (financial or otherwise) or prospects of
Hospitals and its Subsidiaries, taken as a whole, or
(ii) materially increasing the likelihood that, if
Adversely Determined, such litigation, investigation
or proceeding would, individually or in the
aggregate, have a material adverse effect in the
business, operations, properties, condition
(financial or otherwise) or prospects of Hospitals
and its Subsidiaries, taken as a whole. For the
purposes of this Section 9.06, it is assumed that
(x) medical malpractice litigation will not have a
material adverse effect on the business, operations,
properties, condition (financial or otherwise) or
prospects of NME and its Subsidiaries, taken as a
whole, or Hospitals and its Subsidiaries, taken as
whole, to the extent adequately covered by insurance
(and as to which the insurer has acknowledged
coverage) and (y) in medical malpractice actions now
pending or threatened against NME and its
Subsidiaries, damages would be assessed consistent
with NME's past experience. For the purposes of
this Section 9.06, it is agreed and understood that
the institution of lawsuits against or with respect
to NME or any of its Subsidiaries (other than
Hospitals or any of Hospital's Subsidiaries or the
Rehabilitation Division), or joinder in existing
lawsuits, by new plaintiffs, based upon facts,
circumstances or allegations against or with respect
to NME or any of its Subsidiaries (other than
Hospitals or any of Hospital's Subsidiaries or the
Rehabilitation Division) substantially similar to
existing litigation, shall not constitute the
institution of "new litigation" and will not
constitute a "development" in existing litigation
which would have such a material adverse effect.
13. A new Section 9.16 is hereby added to the Master Loan
Agreement as follows:
Section 9.16. Environmental Matters. Each Bor-
rower and Significant Subsidiary has obtained all
Governmental Approvals required under all Environ-
mental Laws to carry on its business as now being or
as proposed to be conducted, except to the extent
failure to have any such Governmental Approvals
would not have a material adverse effect on the
property, business, operations or financial
condition of NME and its Subsidiaries, taken as a
whole. Each of such Governmental Approvals is in
full force and effect and each Borrower and each
Significant Subsidiary is in compliance with the
terms and conditions of such Governmental
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Approvals, and also is in compliance with all other
provisions of any applicable Environmental Law, and
all rules or regulations adopted thereunder, except
to the extent failure to comply with such provisions
would not have a material adverse effect on the
property, business, operations or financial
condition of NME and its Subsidiaries, taken as a
whole.
14. Paragraph (b) of Section 10.01 of the Master Loan
Agreement is hereby amended by substituting the words "forty-five days" for
the words "sixty days" in the second line of such section.
15. Section 10.01 of the Master Loan Agreement is hereby
further amended by (i) redesignating paragraph (f) thereof as paragraph (l)
and (ii) adding new paragraphs (f) through (k) thereto which shall read as
follows:
(f) as soon as available, but in any event
not later than thirty days after the end of each
month other than any month in which any fiscal
quarter or fiscal year of NME shall end, unaudited
condensed consolidated financial statements of NME
and its Consolidated Subsidiaries, including a
condensed consolidated balance sheet of NME and its
Consolidated Subsidiaries as at the end of such
month, related condensed consolidated statements of
income and the related condensed consolidated
statement of changes in financial position (or
statement of cash flows) of NME and its Consolidated
Subsidiaries, all in reasonable detail and prepared
in accordance with GAAP (but without the
accompanying notes required by GAAP) and certified
by an Executive Vice President, a Senior Vice
President or the Treasurer of NME;
(g) as soon as available, but in any event
not later than thirty days after the end of each
month other than any month in which any fiscal
quarter or fiscal year of NME shall end, reports, in
form and substance satisfactory to the Lender,
providing condensed consolidated statement of income
and cash flows of each of NME's major divisions, all
in reasonable detail and prepared in accordance with
GAAP (but without the accompanying notes required by
GAAP) and certified by an Executive Vice President,
a Senior Vice President or the Treasurer of NME;
(h) promptly upon NME or any of its
Subsidiaries incurring any Indebtedness for borrowed
money (other than overdrafts permitted under Section
10.12(g) of this Agreement), a statement setting
forth in reasonable detail (i)
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the aggregate principal amount thereof, (ii) any
costs of issuance, loan fees or other expenses
incurred by NME or its Subsidiaries in connection
therewith, (iii) the rate(s) at which, and the dates
upon which, interest thereon is payable, (iv) the
scheduled amortization of the principal amount
thereof and (v) any uses of the proceeds thereof;
(i) promptly upon any sale, disposition or
liquidation of Non-Restricted Assets in excess of
$1,000,000, a certificate from an Executive Vice
President, a Senior Vice President or the Treasurer
of NME setting forth in reasonable detail any cash
or non-cash charges or other effects of such
disposition or liquidation;
(j) on or prior to the date of Amendment
No. 1, a detailed reconciliation of the change in
the amount of NME's investment in the Psychiatric
Division from May 31, 1993 to September 30, 1993;
(k) not later than the last Business Day of
each week, weekly reports or statements, in form and
substance satisfactory to the Lender, with respect
to the preceding week of deposit account and other
cash balances of NME and its Subsidiaries; and
16. Clauses (c) and (d) of Section 10.02 of the Master Loan
Agreement are hereby amended to read as follows:
(c) of any litigation, proceeding, investigation or
dispute which may exist at any time between any
Borrower or Subsidiary and any health or medical
insurance company or Governmental Authority which
might have a material and adverse effect upon the
business, operations, assets or condition, financial
or otherwise, of NME and its Subsidiaries, taken as
a whole, or could materially impair the ability of
any Borrower to perform its Obligations hereunder or
under the Related Documents to which it is a party,
and of any material development in any such
litigation, proceeding, investigation or dispute,
(d) of any other litigation or proceeding (and any
material developments therein) against any Borrower
or Subsidiary of any Borrower (i) in which, if
Adversely Determined, the amount involved equals or
exceeds $25,000,000 or (ii) in which injunctive or
similar relief is sought and which might have any
reasonable possibility of having a material adverse
effect on NME and its Subsidiaries, taken as a
whole,
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17. Section 10.03 of the Master Loan Agreement is hereby
amended by adding (i) the words "Environmental Laws," before the word
"ERISA" which is set forth in the parenthetical in the second sentence of
such section and (ii) the following proviso at the end of the last sentence
of such section:
;provided, however, that neither NME Psychiatric
Properties or any of its Subsidiaries nor Hospitals
or any of its Subsidiaries, shall merge or
consolidate with any Borrower or any Subsidiary,
except that Subsidiaries of NME Psychiatric
Properties may merge with other Subsidiaries of NME
Psychiatric Properties and Subsidiaries of Hospitals
may merge with other Subsidiaries of Hospitals.
18. Clause (ii) of Section 10.05 of the Master Loan Agreement
is hereby amended in its entirety to read as follows:
(ii) liquidate or dissolve itself (or suffer any liquidation or
dissolution), or dispose of or lease or sell or permit any other
Borrower with Outstanding Obligations (other than a Subsidiary)
or any Subsidiary to dispose of or lease or sell all,
substantially all or any substantial portion of its property,
assets or business or any Restricted Assets to any other Person,
except that:
(a) NME and its Subsidiaries may sell or otherwise
dispose of properties and assets of Hospitals (other
than the stock of any of its Subsidiaries) having an
aggregate fair market value not exceeding
$25,000,000; and
(b) NME and its Subsidiaries may sell Non-
Restricted Assets in one or more transactions
approved by NME's Board of Directors; provided that
(1) all such stock, property or assets are sold for
fair market value, (2) the proceeds of such sale or
disposition are deposited into a segregated deposit
account in the name of NME and thereafter either
held therein and invested in cash or cash equivalent
securities or withdrawn therefrom and used (i) to
prepay the term loans and the term notes under the
NME Credit Facility, (ii) to pay legal fees, or
(iii) to pay judgments, awards, fines or settlements
described in the first proviso of Section 10.07;
provided further that none of the stock or, except
as permitted by Section 10.13, property or assets of
Hospitals shall be encumbered by any Lien or
transferred to NME or any of its Subsidiaries other
than Subsidiaries of Hospitals.
19. Section 10.06 of the Master Loan Agreement is hereby
amended in its entirety to read as follows:
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Section 10.06. Limitation on Contingent
Obligations. NME shall not incur or remain liable
with respect to, or permit any Subsidiary to incur
or remain liable with respect to, any Contingent
Obligation except Contingent Obligations existing as
of the Second Amendment Effective Date and any
additional Contingent Obligations incurred after
September 30, 1993 provided that the aggregate
contingent liability of NME and its Subsidiaries
with respect to such additional Contingent
Obligations shall not at any time exceed
$50,000,000.
20. Section 10.07 of the Master Loan Agreement is hereby
amended in its entirety to read as follows:
Section 10.07. Limitation on Investments. NME
shall not make or commit to make, or permit any
Subsidiary to make or commit to make, any investment
(whether by means of stock purchase, capital
contribution, loan or advance or any other type of
investment) in any Person at any time when a
Potential Default or an Event of Default has
occurred and is continuing or would occur after
giving effect to such investment or any investment
in the Psychiatric Division except such investments
in the Psychiatric Division as existed on May 31,
1993; provided that, so long as no Event of Default
or Potential Default shall have occurred and be
continuing or be caused thereby, (i) NME or any of
its Subsidiaries may pay settlement costs or other
amounts in respect to any litigation existing as of
the Second Amendment Effective Date and described on
Schedule 1 (or subsequent litigation relating to NME
or any of its Subsidiaries (other than Hospitals or
any of Hospital's Subsidiaries or the Rehabilitation
Division) based upon facts or circumstances or
allegations against or with respect to NME or any of
its Subsidiaries (other than Hospitals or any of
Hospital's Subsidiaries or the Rehabilitation
Division) substantially similar to such existing
litigation) or government investigation and (ii) may
provide cash to the Psychiatric Division to fund
operations in amounts and at such times as are in
accordance with NME's past practice in regard to
cash management, provided that, in the case of
clause (ii) from and after October 1, 1993, in each
calendar month the Psychiatric Division's cash
contribution to NME's corporate cash account during
such month equals or exceeds the amount of
disbursements by the Psychiatric Division (or
disbursements by NME or any other Subsidiary of NME
to pay expenses of the Psychiatric Division other
than expenses arising from litigation or government
investigations
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described in the preceding proviso) from NME's
corporate cash account during such month (excluding
any disbursements in respect of expenses of NME and
its Subsidiaries other than the Psychiatric
Division), and provided further that, that in the
case of clause (ii) above, the amount of NME's
investment in the Psychiatric Division on September
30, 1993 shall not exceed by more than 5% the amount
of its investment in the Psychiatric Division
reflected in its audited financial statements dated
as of May 31, 1993. For the purposes of this
Section 10.07, the term "investment" shall include
capital contributions, advances and transfers of
assets.
21. Section 10.09 of the Master Loan Agreement is hereby
amended in its entirety to read as follows:
Section 10.09. Maintenance of Consolidated Net
Worth. NME shall not permit, at any time, its
Consolidated Net Worth to be less than 90% of the
greater of (a) Consolidated Net Worth determined as
of May 31, 1993 or (b) Consolidated Net Worth
determined as of August 31, 1993, in each case
increased by 50% of cumulative Consolidated Net
Earnings after such date (calculated without giving
effect to any operating loss in any period for NME
and its Subsidiaries or any non-cash charge or other
non-cash income effect of any sale or disposition of
NME's Psychiatric Division (as constituted on the
Second Amendment Effective Date)) during the period
from such date to the date of determination.
22. Section 10.10 of the Master Loan Agreement is hereby
amended in its entirety to read as follows:
Section 10.10. Ratio of Consolidated Indebtedness
to Consolidated Net Worth. NME shall not permit the
ratio of Consolidated Indebtedness to Consolidated
Net Worth to exceed 0.70:1.00 at any time in any
fiscal quarter ending on or before May 31, 1994 or
0.50:1.00 at any time in the fiscal quarters ending
August 31, 1994, November 30, 1994, February 28,
1995 or May 31, 1995.
23. Section 10.11 of the Master Loan Agreement is hereby
amended in its entirety to read as follows:
Section 10.11. Fixed Charge Coverage. NME shall not
permit the ratio of (a) Consolidated Adjusted EBITDA plus
Consolidated Rental Expense to (b) Consolidated Interest
Expense plus Consolidated Rental Expense plus the amount
of cash dividends declared by NME with respect to its
outstanding
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capital stock as of the last day of any fiscal quarter of
NME, in each case determined for the four consecutive
fiscal quarter period ending on the last day of such
fiscal quarter, to be less than the correlative ratio set
forth below opposite such fiscal quarter:
Fiscal Minimum Fixed Charge
Quarter Ending Coverage Ratio
August 31, 1993 2.10:1.00
November 30, 1993 2.10:1.00
February 28, 1994 2.10:1.00
May 31, 1994 2.20:1.00
August 31, 1994 2.20:1.00
November 30, 1994 2.30:1.00
February 28, 1995 2.30:1.00
May 31, 1995 2.40:1.00
24. Section 10.12 of the Master Loan Agreement is hereby
amended by (i) amending the reference to the financial statements in clause
(b) thereof to refer to the financial statements of NME and its
Consolidated Subsidiaries as at May 31, 1993 and for the period then ended,
(ii) deleting the word "and" which immediately precedes clause (e) thereof
and (iii) adding the following additional clauses after clause (e) thereof:
; (f) Contingent Value Rights issued in settlement
of litigation described in Schedule 1 or other
similar litigation; (g) Indebtedness caused by
overdrafts incurred consistent with historical
practices of the cash management arrangements for
NME and its Subsidiaries which are backed by
committed overdraft facilities from a commercial
bank; and (h) Indebtedness of Australian Medical
Enterprises Limited in an amount not exceeding
Australian $110,000,000 which shall not be
guaranteed by NME or any other Subsidiary of NME;
provided, however, that the aggregate outstanding
principal amount of unsecured Indebtedness incurred
after the Second Amendment Effective Date (excluding
for this purpose any Permitted Line Rollovers,
extensions and renewals (but not increases) of
unsecured Indebtedness outstanding as of May 31,
1993 or Indebtedness incurred to finance
Consolidated Capital Expenditures permitted under
Section 10.21) pursuant to the preceding clause (c)
shall not at any time exceed $25,000,000.
25. Section 10.13 of the Master Loan Agreement is hereby
amended and restated in its entirety as follows:
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Section 10.13. Limitations on Liens and Negative
Pledges. NME shall not (a) create, incur, assume or
suffer to exist, or permit any Subsidiary to create,
incur, assume or suffer to exist, any Lien upon any
of its properties, assets, income or profits,
whether now owned or hereafter acquired, except (i)
any Liens granted to the Lender pursuant to the
terms hereof or under any Related Document, (ii) the
Liens referred to in the financial statements of NME
and its Consolidated Subsidiaries as at May 31, 1993
and for the period then ended, (and any refinancing,
extensions or renewals of such Liens by reason of
any refinancing, extension or renewal of the
Indebtedness secured by such Liens provided that the
Indebtedness to be incurred in connection with such
refinancing, renewal or extension is otherwise
permitted under Section 10.12 hereof), provided that
such Liens are not spread to cover other or
additional Indebtedness of NME or any of its
Subsidiaries and provided further that any
refinancing permitted by this clause (ii) shall be
on terms no less favorable to NME or a Subsidiary
than the Indebtedness of NME or such Subsidiary
being refinanced; (iii) Liens securing Indebtedness
of a Subsidiary to another Subsidiary or to NME and
Liens securing Indebtedness of NME to any
Subsidiary; (iv) Liens on property, or on property
owned by corporations, acquired by NME or any
Subsidiary after September 30, 1990; (v) Liens
securing all or any part of the purchase price or
the cost of construction of property or equipment
acquired by NME or a Subsidiary, provided the
Indebtedness secured and related Lien are incurred
within one year after acquisition, or completion of
construction and full operation, whichever is later;
(vi) Liens on property owned by any Borrower or a
Subsidiary required to secure indebtedness incurred
to construct additions, substantial repairs or
alterations or substantial improvements to such
properties, provided the amount of the Indebtedness
secured does not exceed the expense incurred to
construct such additions, substantial repairs or
alterations or substantial improvements and provided
further that the Indebtedness secured and related
Lien are incurred within one year after the
completion of construction and full operation; (vii)
Liens to secure indebtedness on which the interest
payments to bondholders are exempt from Federal
income tax under Section 103 of the Internal Revenue
Code of 1986; (viii) Liens in favor of a government
or governmental entity which secure Indebtedness of
NME and its Subsidiaries which is guaranteed by the
government or governmental entity or Indebtedness of
NME and its Subsidiaries incurred to finance all or
some of the
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purchase price or cost of construction of goods,
products or facilities produced under contract or
subcontract for the government or governmental
entity; and (ix) other Liens securing Indebtedness,
provided that the aggregate amount of Indebtedness
of NME and its Subsidiaries secured by Liens
pursuant to this clause (ix) shall not exceed
$150,000,000 of Indebtedness incurred after
November 30, 1988 (giving effect to any Indebtedness
of Foreign Subsidiaries only if such Indebtedness is
guaranteed by NME or by any of its Subsidiaries that
are not Foreign Subsidiaries); or (b) after the
Second Amendment Effective Date, enter, or permit
any of its Subsidiaries to enter, into any agreement
whereby NME or any of its Subsidiaries agrees not to
grant Liens on any of its properties, assets, income
or profits, whether then existing or thereafter
acquired, to secure any Indebtedness, including,
without limitation, any agreement that would require
that Liens hereafter granted to secure the
Obligations hereunder equally and ratably secure any
other obligations or Indebtedness of NME or any of
its Subsidiaries owed to any other Person.
26. Sections 10.18 through 10.22 are hereby added to the
Master Loan Agreement, as follows:
Section 10.18. Prepayment of Indebtedness.
Except for any mandatory prepayments required to be
made by NME under Section 2.9(b) of the NME Credit
Agreement, NME shall not prepay or amend any
document in a manner that would reschedule existing
payments so as effectively to require an earlier
payment of, or permit any of its Subsidiaries to
prepay or amend any document in a manner that would
reschedule existing payments so as effectively to
require an earlier payment of, any Indebtedness for
borrowed money of NME or any of its Subsidiaries
provided that NME may prepay any such Indebtedness
that would by its terms, as in effect on the Second
Amendment Effective Date, mature on or before April
1, 1995 provided such prepayment is made solely with
the proceeds of Indebtedness incurred after the
Second Amendment Effective Date, the principal of
which is not scheduled to be paid, in full or in
part, at any time prior to October 1, 1995.
Section 10.19. Minimum Consolidated Adjusted
EBITDA. NME shall not permit the Consolidated
Adjusted EBITDA of NME and its Subsidiaries for any
fiscal quarter to be less than the correlative
amount set forth below opposite such fiscal quarter:
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Fiscal
Quarter Ending Minimum EBITDA
August 31, 1993 $111,000,000
November 30, 1993 $126,000,000
February 28, 1994 $131,000,000
May 31, 1994 $157,000,000
August 31, 1994 $122,000,000
November 30, 1994 $139,000,000
February 28, 1995 $144,000,000
May 31, 1995 $172,000,000
Section 10.20. Dividends. NME shall not declare
or pay any dividends on, make any other distribution
in respect of, or redeem, purchase or otherwise
acquire, any shares of the outstanding capital stock
of NME, provided that so long as no Event of Default
has occurred and is continuing or would result
therefrom, NME may declare dividends thereon in any
fiscal quarter up to the lesser of (a) $.12 per
outstanding share of common stock but in no event
more than $21,200,000 in the aggregate, and (b) (i)
47% of Consolidated Net Earnings (determined without
giving effect to Realignment and Unusual Litigation
Costs or the FASB 109 Tax Credit) for the fiscal
quarter ended August 31, 1993; (ii) 43% of the
Consolidated Net Earnings for the fiscal quarter
ending November 30, 1993; and (iii) for the fiscal
quarters ending on or after February 28, 1994 the
amount by which 40% of Consolidated Net Earnings for
the period from December 1, 1993 through the date of
determination exceeds the aggregate amount of such
dividends and distributions theretofore declared or
paid during the same period; provided further that
the aggregate amount of dividends paid for the
fiscal year ending May 31, 1994 shall not exceed 40%
of Consolidated Net Earnings (determined without
giving effect to Realignment and Unusual Litigation
Costs or the FASB 109 Tax Credit) for such fiscal
year. If NME is in compliance with this Section
10.20 on the date of the declaration of any
dividend, it may pay such dividend on the payment
date fixed in such declaration notwithstanding the
intervening occurrence of an Event of Default or
Potential Default (other than a Potential Default
arising from such declaration).
Section 10.21. Consolidated Capital Expenditures.
NME shall not make or incur, or permit its
Subsidiaries to make or incur, Consolidated Capital
Expenditures, in any fiscal year indicated below,
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in an aggregate amount in excess of the correlative
amount set forth below opposite such fiscal year:
Fiscal Year Ending Maximum
May 31 Capital Expenditures
1994 $225,000,000
1995 $224,000,000
Section 10.22. Mortgage or Deed of Trust;
Appraisals. Each Borrower shall deliver to the
Lender (a) as soon as reasonably practicable
following the Amendment No. 1 Effective Date, a
Mortgage or Deed of Trust encumbering each Parcel
and Project financed under this Agreement for which
the Lender does not already hold a Mortgage or Deed
of Trust, (b) as soon as reasonably practicable
following the Amendment No. 1 Effective Date, and in
any event by no later than December 2, 1993, an
amendment to each Mortgage or Deed of Trust held by
Lender pursuant to which all Obligations of the
Borrowers under this Agreement shall be secured by
such Mortgage or Deed of Trust, (c) as soon as
reasonably practicable following the Amendment No. 1
Effective Date, and in any event by no later than
(i) January 31, 1994 for each Parcel or Project
financed under this Agreement for which the Lender
holds a Mortgage or Deed of Trust on or prior to the
Amendment No. 1 Effective Date and (ii) 90 days
following the date of the delivery of a Mortgage or
Deed of Trust for each Parcel or Project financed
under this Agreement for which the Lender does not
hold a Mortgage or Deed of Trust on or prior to the
Amendment No. 1 Effective Date, an appraisal dated
as of a recent date from an MAI appraiser or
appraisers satisfactory to the Lender, and (d) as
soon as reasonably practicable following the
Amendment No. 1 Effective Date, and in any event by
no later than (i) December 2, 1993 for each Parcel
or Project financed under this Agreement for which
the Lender holds a Mortgage or Deed of Trust on or
prior to the Amendment No. 1 Effective Date and
(ii) the date of the delivery of a Mortgage or Deed
of Trust for each Parcel or Project financed under
this Agreement for which the Lender does not hold a
Mortgage or Deed of Trust on or prior to the
Amendment No. 1 Effective Date, fixture filings
under the Uniform Commercial Code in the county and
state in which each Parcel or Project with respect
to which the Borrowers have delivered a Mortgage or
Deed of Trust is located.
27. This Amendment No. 1 shall become effective on the date
when signed by the Lender and the Borrowers and the Lender shall have
received the following items:
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(a) a duly executed counterpart of Amendment No. 1 to Guaranty
dated as of the date hereof from the Guarantor to the Company, substantially
in the form attached hereto as Annex III;
(b) a duly executed counterpart of Amendment No. 1 to the
First Amended and Restated Credit Agreement dated as of the date hereof
among the Company, as borrower, Credit Suisse, as L/C Bank, the Banks
parties thereto and Credit Suisse, as Agent substantially in the form
attached hereto as Annex IV;
(c) opinions of counsel with respect to the matters set forth
in Annex V attached hereto and as to such other matters as the Lender may
reasonably require;
(d) a duly executed copy of the Third Amendment;
(e) a duly executed copy of the NME Reimbursement Agreement;
(f) a certificate dated the date this Amendment No. 1 becomes
effective, from the Secretary of each Borrower (or if such Borrower is a
limited partnership, the Secretary or Assistant Secretary of the general
partner thereof, or if such Borrower is a general partnership, the Secretary
or Assistant Secretary of the partner affiliated with NME) certifying (i) as
to the incumbency and signature of certain officers or officials of such
Borrower authorized to execute and deliver this Amendment No. 1, the
documents referred to in Section 10.22 of the Master Loan Agreement and each
other document or instrument to be furnished or delivered pursuant hereto or
thereto, and (ii) that attached thereto is a true and complete copy of (A)
the Certificate of Incorporation and By-Laws of such Borrower (or if such
Borrower is a partnership, the partnership agreement and any document
comparable to the By-Laws), and (B) the resolutions of the Board of
Directors of such Borrower (or if such Borrower is a partnership, a complete
copy of the appropriate action taken by the partnership or general partner
of the partnership, as the case may be) authorizing the execution, delivery
and performance of this Amendment No. 1, the documents referred to in
Section 10.22 of the Master Loan Agreement and the transactions contemplated
hereby and thereby;
(g) a certificate dated the date this Amendment No. 1 becomes
effective, from a Responsible Officer of each of the Borrowers certifying
that to the best knowledge of such officer the representations and
warranties contained in Article IX of the Master Loan Agreement are Accurate
and Complete and that no Event of Default or Potential Default which has not
been waived has occurred and is continuing or would result from the
transactions contemplated hereby;
(h) a non-refundable restructuring fee in the amount of
$1,275,000; and
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(i) such other documents, certificates, financial or other
information or opinions as the Agent or any Bank may reasonably request.
28. The Borrowers hereby agree to pay to the Lender all
reasonable out-of-pocket costs and expenses, including the reasonable fees
and disbursements of counsel, incurred by the Lender in connection with (i)
the preparation, execution and delivery of this Amendment No. 1, Amendment
No. 1 to Credit Agreement, each Mortgage and Deed of Trust and any
amendments thereto and each of the other documents and instruments
contemplated hereunder or thereunder or delivered in connection herewith and
(ii) Uniform Commercial Code and title searches and the filing of financing
statements and the recording of each Mortgage, Deed of Trust and Assignment
of Mortgage (as defined in the Credit Agreement).
29. The Borrowers hereby represent and warrant that each of
the representations and warranties made under Article IX of the Master Loan
Agreement, as amended by this Amendment No. 1, are Accurate and Complete
with the same force and effect as though made on and as of the date of this
Amendment No. 1, except to the extent that such representations and
warranties expressly relate to an earlier date , in which case, such
representations and warranties were Accurate and Complete on and as of such
earlier date.
30. Each of the Borrowers hereby represents and warrants that
as of the date of this Amendment No. 1, no Event of Default or Potential
Default which has not been waived, has occurred and is continuing or would
result from the consummation of the transactions contemplated by this
Amendment No. 1.
31. Except as expressly modified and amended hereby, the
Master Loan Agreement remains unchanged and in full force and effect in all
respects.
32. THIS AMENDMENT NO. 1 SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
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33. This Amendment No. 1 may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each
of which counterparts, when so executed and delivered, shall be deemed to be
an original and all of which counterparts, taken together, shall constitute
but one and the same Amendment No. 1.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment No. 1 to be executed by their officers thereunto duly authorized
as of the date first above written.
MP Funding Corporation
By: /s/
Name: TERESA A. MILES
Title: VICE PRESIDENT AND
ASSISTANT SECRETARY
National Medical Enterprises, Inc.
By: /s/
Name: MARIS ANDERSONS
Title: EXECUTIVE VICE PRESIDENT
Broward County Health Corporation
By: /s/
Name: MARIS ANDERSONS
Title: EXECUTIVE VICE PRESIDENT
Capital Hospital Corporation
By: /s/
Name: MARIS ANDERSONS
Title: EXECUTIVE VICE PRESIDENT
Extended Care Centers, Inc.
By: /s/
Name: MARIS ANDERSONS
Title: EXECUTIVE VICE PRESIDENT
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First Healthcare Corporation
By: /s/
Name: ROBERT K. SCHNEIDER
Title: VICE PRESIDENT AND TREASURER
Intervalley Health Corporation
By: /s/
Name: MARIS ANDERSONS
Title: EXECUTIVE VICE PRESIDENT
NME Headquarters, Inc.
By: /s/
Name: MARIS ANDERSONS
Title: SENIOR VICE PRESIDENT
NME Hospitals, Inc.
By: /s/
Name: MARIS ANDERSONS
Title: SENIOR VICE PRESIDENT
NME Limited Partnership I
By: NMV-1, Inc.
General Partner
By: /s/
Name: MARIS ANDERSONS
Title: SENIOR VICE PRESIDENT
Northwest Health Care, Inc.
By: /s/
Name: ROBERT K. SCHNEIDER
Title: VICE PRESIDENT AND TREASURER
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Pinecrest Rehabilitation
Hospital, Inc.
By: /s/
Name: MARIS ANDERSONS
Title: EXECUTIVE VICE PRESIDENT
Rehab of Melbourne, Inc.
By: /s/
Name: MARIS ANDERSONS
Title: EXECUTIVE VICE PRESIDENT
Rehabilitation Facility at
San Diego, Inc.
By: /s/
Name: MARIS ANDERSONS
Title: EXECUTIVE VICE PRESIDENT
Rehabilitation Facility
at Austin, Inc.
By: /s/
Name: MARIS ANDERSONS
Title: EXECUTIVE VICE PRESIDENT
R.H.S.C. El Paso, Inc.
By: /s/
Name: MARIS ANDERSONS
Title: EXECUTIVE VICE PRESIDENT
R.H.S.C. Hospitals, Inc.
By: /s/
Name: MARIS ANDERSONS
Title: SENIOR VICE PRESIDENT
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North Houston Healthcare Campus, Inc.
By: /s/
Name: MARIS ANDERSONS
Title: EXECUTIVE VICE PRESIDENT
R.H.S.C. Midland, Inc.
By: /s/
Name: MARIS ANDERSONS
Title: EXECUTIVE VICE PRESIDENT
R.H.S.C. Modesto, Inc.
By: /s/
Name: MARIS ANDERSONS
Title: EXECUTIVE VICE PRESIDENT
Rehabilitation Facility at
San Ramon, Inc.
By: /s/
Name: MARIS ANDERSONS
Title: EXECUTIVE VICE PRESIDENT
R.H.S.C. Texarkana, Inc.
By: /s/
Name: MARIS ANDERSONS
Title: EXECUTIVE VICE PRESIDENT
R.H.S.C. Wichita, Inc.
By: /s/
Name: MARIS ANDERSONS
Title: EXECUTIVE VICE PRESIDENT
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The Hillhaven Corporation
By: /s/
Name: ROBERT K. SCHNEIDER
Title: VICE PRESIDENT AND TREASURER
Treasure Coast Health Corporation
By: /s/
Name: MARIS ANDERSONS
Title: EXECUTIVE VICE PRESIDENT
York County Health Corporation
By: /s/
Name: MARIS ANDERSONS
Title: EXECUTIVE VICE PRESIDENT
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ANNEX I
LEGAL PROCEEDINGS
The Company currently is involved in significant legal proceedings
and investigations of an unusual nature related principally to its
psychiatric business. Except as disclosed in the Company's Report on Form
10-Q for the quarter ended August 31, 1993, neither the ultimate disposition
of the unusual lawsuits, investigations and claims discussed below nor the
amount of liabilities or losses arising from them can be determined. Until
these matters are disposed of, the Company expects to incur substantial
legal charges, for which a reserve has been established. A reserve of
$250,000,000, before taxes, has been established for unusual legal
proceedings. See Note 2 of the Company's Report on Form 10-Q for the
quarter ended August 31, 1993.
The shareholder derivative actions filed in the Los Angeles Superior
Court in October and November of 1991 were consolidated into one shareholder
derivative action entitled Harry Polikoff, Harry Ackerman, and Bette Rita
Grayson, Derivatively on Behalf of Nominal Defendant National Medical
Enterprises, Inc. v. Richard K. Eamer, Leonard Cohen, John C. Bedrosian,
William S. Banowsky, Ph.D., Jeffrey C. Barbakow, Bernice B. Bratter, Maurice
J. DeWald, Peter de Wetter, Edward Egbert, M.D., Michael H. Focht, Sr.,
Raymond A. Hay, Nita P. Heckendorn, Taylor R. Jenson, Lloyd R. Johnson,
James P. Livingston, A.J. Martinson, M.D., Howard F. Nachtman, M.D.,
Richard S. Schweiker, Richard L. Stever, Norman A. Zober, Maris Andersons,
Scott M. Brown, Raymond L. Mathiasen and Marcus E. Powers, Defendants.
Plaintiffs' suit was based primarily on alleged breaches of fiduciary duties
and constructive fraud on the part of the individual defendants. The
plaintiffs alleged that, among other things, the individual defendants knew
or should have known of allegedly improper marketing, billing and other
practices within what formerly was known as the Company's Specialty Hospital
Group and failed to take appropriate action as required by their fiduciary
responsibilities. Based on these claims, plaintiffs sought compensatory
damages on behalf of the Company, punitive damages, injunctive relief,
attorneys' fees, interest and costs. Defendants filed three separate
demurrers that were sustained and resulted in dismissal of the action with
prejudice on May 21, 1993. This judgment currently is being appealed by the
plaintiffs.
The federal class action lawsuits filed in October and November of
1991 were consolidated into one action now pending in the U.S. District
Court in the Central District of California entitled In Re National Medical
Enterprises, Inc. Securities Litigation. The defendants in this action are
National Medical Enterprises, Inc., Richard K. Eamer, Leonard Cohen, John C.
Bedrosian, William S. Banowsky, Michael H. Focht, Norman A. Zober, Marcus E.
Powers and Maris Andersons. The action is a consolidated class action
against each of the named defendants for alleged violations of Section 10(b)
of the Securities Exchange Act of 1934. Specifically, plaintiffs allege
that each defendant knew or recklessly disregarded that the public
statements made by the Company and several of its officers and directors in
reports to the Securities and Exchange Commission, in press releases,
communications with shareholders, and communications with the financial
community were false and misleading because the financial data and
projections were based upon a number of alleged illegal practices at many of
NME's psychiatric facilities. Plaintiffs claim that each of the defendants
was
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a direct participant in this wrongdoing and conspired with and aided and
abetted each of the other defendants in perpetrating the alleged fraudulent
scheme. Plaintiffs also challenge various transactions in which each of the
defendants sold shares of NME stock. Based on these claims, plaintiffs seek
compensatory damages, injunctive relief, attorneys' fees, interest and
costs. Currently, this action is in the active discovery stage.
On August 27, 1993, a new federal lawsuit entitled Jerrold Schaffer
and Jayne M. Furman v. National Medical Enterprises, Inc., Richard K. Eamer,
Leonard Cohen, Jeffrey Barbakow and Michael H. Focht, Sr. was filed in the
U.S District Court in the Central District of California. On August 31,
1993, a new federal lawsuit entitled Bernard Weisfeld v. National Medical
Enterprises, Inc., Richard K. Eamer, Leonard Cohen, Jeffrey Barbakow and
Michael H. Focht, Sr. was filed in the U.S District Court in the Central
District of California. These actions are on behalf of a purported class of
shareholders who purchased or sold stock of the Company between January 14,
1993 and August 26, 1993, and allege that each of the defendants violated
Section 10(b) of the Securities Exchange Act of 1934. Specifically,
plaintiffs allege that each defendant knew or recklessly disregarded that
the public statements made by the Company and several of its officers and
directors in reports to the Securities and Exchange Commission, in press
releases, communications with shareholders, and communications with the
financial community were false and misleading because the financial data and
projections were based upon a number of alleged illegal practices at many of
NME's psychiatric facilities. Plaintiffs claim that each of the defendants
was a direct participant in this wrongdoing and conspired with and aided and
abetted each of the other defendants in perpetrating the alleged fraudulent
scheme. Based on these claims, plaintiffs seek compensatory damages,
injunctive relief, attorneys' fees, interest and costs. Although these
lawsuits have not been served on the Company or any of the individual
defendants, counsel for the Company has agreed to accept service if and when
such service occurs. The Company believes that it has meritorious defenses
to these allegations.
On July 30, 1992, The Travelers Insurance Company, Prudential
Insurance Company, United of Omaha Life Insurance Company, Massachusetts
Mutual Life Insurance Company, Northwestern National Life Insurance Company,
Mutual of Omaha Insurance Companies, Time Insurance Company and Phoenix Home
Life Mutual Insurance Company filed suit in the United States District Court
for the District of Columbia against the Company and a subsidiary alleging
that psychiatric hospitals owned by NME subsidiaries engaged in certain
fraudulent practices. The suit does not allege a specific dollar amount of
damages, but seeks the return of alleged overpayments, punitive damages,
treble damages and attorney fees. On September 21, 1992, the Company filed
a Motion to Dismiss the Complaint. As of October 14, 1993, the Company's
Motion to Dismiss was still under submission with the court. On February 3,
1993 plaintiffs in this matter filed a First Amended Complaint in the U.S.
District Court for the District of Columbia. The amended complaint adds
five additional plaintiffs, namely, Benefit Trust Life Insurance Company,
Golden Rule Insurance Company, Hartford Life and Accident Insurance Company,
Great Western Life and Annuity Insurance Company, and The New England Mutual
Life Insurance Company. The allegations in the First Amended Complaint are
substantially similar to those contained in the original complaint. On
February 11, 1993 the court entered a discovery order resolving certain
discovery disputes in the case. In that order the case was bifurcated,
which requires discovery and trial to go forward first on the issue of
whether there is any
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liability, and if there is a finding of liability, then discovery and trial
would proceed on the issue of damages. On October 5, 1993, plaintiffs in
this matter filed a motion asking the court to order the case into
mediation. On October 14, 1993, the Company filed its response to this
motion. See Note 2 of the Company's Report on Form 10-Q for the quarter
ended August 31, 1993.
On September 14, 1992, Aetna Life Insurance Company and Metropolitan
Life Insurance Company filed a complaint in the U.S. District Court for the
Northern District of Texas, Dallas Division, against the Company and certain
of its subsidiaries alleging that psychiatric hospitals owned by
subsidiaries of the Company engaged in certain fraudulent practices. This
lawsuit is referred to hereinafter as the "Aetna lawsuit."
On March 24, 1993, following the expiration of a standstill
agreement, Connecticut General Life Insurance Company and two related
companies, Equitable Life Assurance Society of the United States, First
Equicor Life Insurance Company and Equicor Inc., (referred to herein
collectively as "CIGNA") filed suit against NME and certain of its
psychiatric subsidiaries in the United States District Court for the
Northern District of Texas, Dallas Division. The complaint alleges that
psychiatric hospitals owned or operated by certain NME subsidiaries engaged
in certain fraudulent practices. This lawsuit is referred to hereinafter as
the "CIGNA lawsuit."
The Company has reached an agreement in principle with the insurers
that are parties to the Aetna and CIGNA lawsuits. Under the terms of the
settlement the Company will pay up to $125,000,000. In return, the insurers
will agree to resume standard business relations with the Company. This
would include the opportunity to compete in managed care contracts. The
settlement also will address the processing of pending claims from
psychiatric facilities owned by the Company's subsidiaries. Once a
definitive settlement agreement has been signed, the parties will mutually
dismiss all pending litigation.
The Company and certain of its officers and directors also are
subject to various lawsuits related to alleged malpractice occurring at
individual psychiatric hospitals. Included are numerous cases that allege
the existence of a corporate-wide conspiracy to commit wrongful acts. The
underlying allegations in those cases are substantially similar to the
allegations in the insurance litigation discussed above.
On August 16, 1993, the Company was served with a lawsuit in the
matter of Nita P. Heckendorn vs. National Medical Enterprises, Inc., Jeffrey
C. Barbakow, Raymond A. Hay, Maurice J. DeWald and Peter de Wetter. Ms.
Heckendorn is a director of the Company. Ms. Heckendorn, who joined the
Company in 1982, alleges sex discrimination in employment and retaliation;
sexual harassment; breach of implied employment contract; constructive
discharge in violation of public policy and the California Fair Employment
and Housing Act; tortious interference with prospective economic advantage;
defamation; and intentional infliction of emotional distress. The suit
seeks damages in excess of $15,000,000 for wages, earnings and other
benefits, punitive damages, attorneys fees and costs of suit and other
equitable relief. On October 12, 1993 the Los Angeles Superior Court heard
the Company's demurrer and motion to strike in the Heckendorn vs. NME, et
al. matter. As a result of that hearing the court granted in part the
Company's challenge to the Heckendorn suit dismissing certain claims
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made against certain individuals and dismissing certain claims made against
the Company for constructive discharge. Plaintiff has 20 days to amend her
complaint. The Company believes that Ms. Heckendorn's claims are without
merit.
On August 19, 1993, the Company filed an amended complaint in the
Travelers lawsuit, discussed above, alleging conspiracy, consumer fraud,
tortious interference with contract and prospective economic advantage,
defamation, breach of contract, violations of the Employee Retirement Income
Security Act, violations of the deceptive trade practices acts, anti-trust
violations and breach of the duty of good faith and fair dealing. The
complaint seeks $250,000,000 in actual damages, equitable and injunctive
relief, treble damages, punitive damages and attorneys fees. At the same
time, the Company filed a new action, NME Psychiatric Properties, Inc. vs.
The Prudential Insurance Company of America, United of Omaha Life Insurance
Company, Northwestern National Life Insurance Company, Time Insurance
Company, Phoenix Home Life Mutual Insurance Company, Benefit Trust Life
Insurance Company, Golden Rule Insurance Company, Hartford Life and Accident
Insurance Company, Great West Life and Annuity Insurance Company, The New
England Mutual Life Insurance Company, Equicor, Inc., First Equicor Life
Insurance Company, Connecticut General Life Insurance Company, Equitable
Life Assurance Society of the United States, Aetna Life Insurance Company
and Metropolitan Life Insurance Company. The allegations in this action are
the same as those made in the amended complaint for the Travelers lawsuit
and the two matters have been consolidated.
On October 5, 1993, John Bedrosian filed the lawsuit John C.
Bedrosian vs. National Medical Enterprises, Inc., Jeffrey C. Barbakow,
Michael H. Focht, Sr., Bernice B. Bratter, Maurice J. DeWald, Peter de
Wetter and Lester B. Korn in the Los Angeles Superior Court. Mr. Bedrosian,
who is a director of the Company and served as its Senior Executive Vice
President until he was relieved of his duties on September 24, 1993,
alleges: breach of oral agreement; breach of implied in fact contract;
breach of the covenant of good faith and fair dealing; negligent
misrepresentation of material fact; bad faith denial of existence of a
contract; breach of written agreement; age discrimination in employment;
libel; tortious interference with contractual relations; conspiracy to
interfere with contractual relations; and intentional infliction of
emotional distress. The suit seeks damages in excess of $20,000,000,
exemplary and punitive damages, declaratory relief, including relief from
$3,730,251.27 of loans from the Company, attorneys fees and costs of suit
and other equitable relief. The Company intends to file a motion to have
Mr. Bedrosian's lawsuit referred to a Superior Court Referee as provided in
Mr. Bedrosian's employment agreement. The Company fully expects Mr.
Bedrosian to repay all loans made to him by the Company and will make a
demand upon him for such repayment. Based on the information currently
available to it the Company believes that Mr. Bedrosian's claims are without
merit.
Government agencies are investigating whether the Company and certain
of its subsidiaries engaged in improper practices. The federal government
is seeking documents by subpoena from certain facilities and hospitals and
the Company's regional offices in Indianapolis, Indiana and Tampa, Florida
and is interviewing and seeking testimony from present and former employees.
In addition, on August 26, 1993, the Psychiatric Division's headquarters in
Santa Monica, California, the Psychiatric Division's regional offices in
Dallas, Texas and Fairfax, Virginia and nine of the 61 psychiatric
facilities were served with
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search warrants, issued by the Department of Justice, for various categories
of documents. The warrants cover a broad variety of documents with respect
to operations of the psychiatric hospitals, including their marketing and
billing practices, policies and procedures. Although certain of the
subpoenas and warrants also seek certain information relating to the Company
and its acute care hospitals, the Company has been unable to determine as of
this time whether the government agencies have expanded their
investigations. The Company is cooperating with these investigations, but
because of the secrecy that surrounds such investigations, and the fact that
the Company has not been informed of the allegations underlying the search
warrants, the scope, nature and outcome of these investigations are unknown.
In the event that any government agency believes that wrongdoing related to
the investigations or allegations referred to above has occurred, a civil
and/or, in some instances, a criminal proceeding could be instituted against
a facility or hospital, the Company, certain employees or former employees.
The Company cannot predict the outcome of any such proceeding. If any
proceeding were to be instituted by a government agency, and the outcome
were to be unfavorable, any defendant could be subject to fines, penalties
and damages, the facility, hospital or Company could become ineligible to
receive reimbursement under government programs for patient care and the
civil litigation described in this Schedule may be affected.
The Company also is subject to claims and lawsuits relating to
injuries arising from patient treatment. The Company believes that its
liability for damages resulting from such claims and lawsuits is adequately
covered by insurance or is adequately provided for in its financial
statements.
In June, 1992, the Company reached a comprehensive settlement
agreement with the Office of the Attorney General of Texas concerning the
litigation instituted by the Attorney General's Office in September of 1991.
The settlement did not entail the finding of any wrongdoing on the part of
the Company or the payment of any fines, but the Company agreed to a
permanent injunction which required the Company to relinquish its then
existing claims, and not to make any future claims, against the Texas Crime
Victims Compensation Fund for past services (which claims already had been
written off), required the Company to reimburse the State of Texas for
$1,100,000 of costs incurred in connection with its investigation and
established new and stricter standards for psychiatric hospital operations
in Texas. In addition, the Company agreed to provide up to 2,560 days of
free patient care through September, 1993.
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ANNEX II
Schedule A
1. National Medical Enterprises, Inc.
2. Rehabilitation Facility at San Ramon, Inc.
3. R.H.S.C. Midland, Inc.
4. R.H.S.C. El Paso, Inc.
5. Rehabilitation Facility at Austin, Inc.
6. NME Headquarters, Inc.
7. North Houston Healthcare Campus, Inc.
8. R.H.S.C. Modesto, Inc.
9. Rehabilitation Facility at San Diego, Inc.
10. R.H.S.C. Hospitals, Inc.
11. Capital Hospital Corporation
12. NME Hospitals, Inc.
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AMENDMENT NO. 1 TO CREDIT AGREEMENT
AMENDMENT NO. 1 ("Amendment No. 1"), dated as of November 2,
1993, among MP Funding Corporation (the "Company"), Credit Suisse, as issuer
of the letter of credit under the Credit Agreement referred to below (in
such capacity, the "L/C Bank"), the banks parties hereto (the "Banks") and
Credit Suisse, as agent for such Banks (in such capacity, the "Agent").
WHEREAS, the Company, the L/C Bank, the Banks and the Agent are
parties to a First Amended and Restated Credit Agreement, dated as of
November 30, 1988, as further amended and restated as of January 25, 1990
(the "Credit Agreement"); and
WHEREAS, the Company, the L/C Bank, the Banks and the Agent now
desire to further amend the Credit Agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto agree as follows:
1. Capitalized terms used but not defined in this Amendment
No. 1 shall have the meanings given to those terms in the Credit Agreement.
2. The Credit Agreement is hereby amended by (i) deleting
Exhibits C and D and (ii) adding the following new exhibits, copies of which
are attached hereto as Annexes I and II, respectively:
G-1. Form of Assignment of Mortgage
G-2. Form of Assignment of Deed of Trust
3. The second "WHEREAS" clause on page 1 of the Credit
Agreement is hereby amended by deleting the words "and to make revolving
credit loans to the Company" which are set forth in the last two lines of
such clause and the "NOW THEREFORE" paragraph on page 1 of the Credit
Agreement is hereby amended by deleting the words "and the Banks' commitment
to make Advances" which are set forth in the first and second line of such
paragraph.
4. The following new defined term shall be added to Section
1.01 of the Credit Agreement:
"Assignment of Mortgage" shall mean, with respect to any
Parcel or Project, an Assignment of Mortgage substantially
in the form of Exhibit G-1 attached hereto or an
Assignment of Deed of Trust substantially in the form of
Exhibit G-2 attached hereto, as the case may be, in each
case with such
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changes or modifications thereto as may be required by the
law of the jurisdiction in which such Parcel or Project is
located, pursuant to which the Company has assigned to the
Collateral Agent its lien on such Parcel or Project.
5. The definition of "Base Rate" set forth in Section 1.01 of
the Credit Agreement is hereby amended by deleting the words "with respect
to any Base Rate Advance," which are set forth in the first and second line
of such definition.
6. The definition of "Commitment" set forth in Section 1.01
of the Credit Agreement is hereby amended in its entirety to read as
follows:
"Commitment" shall mean, as to each Bank, the obligation
of such Bank to participate in Reimbursement Obligations
pursuant to Section 2.08 hereof, in an aggregate amount at
any one time outstanding up to the amount set forth
opposite such Bank's name on the signature pages hereof
under the caption "Commitment" or as stated in a
Commitment Transfer Supplement, where appropriate (as the
same may be reduced pursuant to Section 5.05 hereof).
7. The definition of "Credit Event" set forth in Section 1.01
of the Credit Agreement is hereby amended by deleting the words "and each
making of an Advance hereunder" which are set forth in the second line of
such section.
8. The definition of "Final Date" set forth in Section 1.01
of the Credit Agreement is hereby amended in its entirety to read as
follows:
"Final Date" shall mean April 1, 1995.
9. The definition of "L/C Commitment" set forth in Section
1.01 of the Credit Agreement is hereby amended in its entirety to read as
follows:
"L/C Commitment" shall mean $170,000,000, as the same may
be decreased from time to time in accordance with the
provisions of this Agreement and as set forth in the
Letter of Credit.
10. The definition of "Majority Banks" set forth in Section
1.01 of the Credit Agreement is hereby amended in its entirety to read as
follows:
"Majority Banks" shall mean Banks having at least 66-2/3%
of the aggregate amount of the Commitments.
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11. The definition of "Obligations" set forth in Section 1.01
of the Credit Agreement is hereby amended in its entirety to read as
follows:
"Obligations" shall mean any and all debts, obligations
and liabilities of the Company provided for or arising
under this Agreement (including, without limitation, the
obligation to reimburse L/C Payments and to pay interest
thereon), whether now existing or hereafter arising,
voluntary or involuntary, direct or indirect, absolute or
contingent, liquidated or unliquidated, and whether or not
from time to time decreased or extinguished and later
increased, created or incurred.
12. The definition of "Outstanding" set forth in Section 1.01
of the Credit Agreement is hereby amended by (i) deleting clause (b) thereof
and (ii) redesignating clause (c) thereof as clause (b).
13. The definition of "Post-Default Rate" set forth in Section
1.01 of the Credit Agreement is hereby amended in its entirety to read as
follows:
"Post-Default Rate" shall mean in respect of any amount
payable by the Company under this Agreement which is not
paid when due (whether at stated maturity, by acceleration
or otherwise), a rate per annum during the period
commencing on the due date until such amount is paid in
full equal to 2% above the Base Rate as in effect from
time to time.
14. The definition of "Related Documents" set forth in Section
1.01 of the Credit Agreement is hereby amended in its entirety to read as
follows:
"Related Documents" shall mean the Master Loan Agreement,
each Assignment of Mortgage, the Dealer Agreement, the
Guaranty, the Consent, the Depositary Agreement, the
Guarantor's Consent, the Management Agreement and the
Security Agreement.
15. The definitions of "Adjusted CD Rate", "Advance",
"Applicable Margin", "Assessment Rate", "Base Rate Advance", "Borrowing",
"CD Rate", "CD Rate Advance", "Extension Date", "Fed Funds Rate", "Fed Funds
Rate Advance", "Fixed Rate Advance", "Interest Period", "Lending Office",
"LIBOR", "LIBOR Advance", "Note", "Notice of Borrowing", "Reference Banks",
"Reserve Adjusted LIBOR", "Reserve Requirement", "Revolving Credit Note" and
"Revolving Credit Notes" set forth in Section 1.01 of the Credit Agreement
are hereby deleted.
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16. Section 2.02 of the Credit Agreement is hereby amended by
deleting the third, fourth and fifth sentences thereof and inserting the
following in lieu thereof:
In addition, the Company may not issue any Commercial
Paper Notes if, after the issuance thereof and giving
effect to the application of the proceeds thereof, the sum
of (i) all Outstanding Commercial Paper Notes, plus (ii)
all outstanding L/C Payments, would exceed the Total
Commitment. Each Commercial Paper Note shall be in the
form of Exhibit A attached hereto with the blanks
appropriately completed. Each Commercial Paper Note
issued (a) shall be dated the issuance date thereof, (b)
shall have a stated maturity date (which shall be a
Business Day) not later than (1) 270 days from the
issuance date with respect to Commercial Paper Notes
issued before November 2, 1993 and (2) 90 days from the
issuance date with respect to Commercial Paper Notes
issued on and after November 2, 1993 and, in any event,
not later than 15 days before the Final Date, (c) shall be
in a face amount of not less than $100,000, and (d) shall
not be subject to any automatic renewal or roll-over.
17. Section 2.06 of the Credit Agreement is hereby amended by
deleting (i) the comma and the words "Increase and Extension" from the
section heading and (ii) paragraphs (b) and (c) thereof.
18. Sections 3.01 through 3.09 of the Credit Agreement are
hereby deleted and the words "Intentionally Omitted" inserted in
substitution therefor.
19. Section 4.01 of the Credit Agreement is hereby amended in
its entirety to read as follows:
Section 4.01. Increased Costs. If, after the date of
this Agreement, (a) the introduction of, or any change in,
any applicable law, rule or regulation applicable to Banks
generally, notwithstanding the financial condition of any
particular Bank, or in the interpretation or
administration thereof by any governmental authority or
(b) compliance by any Bank with any request, guideline,
policy or directive of any governmental authority (whether
or not having the force of law) applicable to Banks
generally, notwithstanding the financial condition of any
particular Bank, shall:
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(i) subject the L/C Bank or any
Bank to any tax, duty or other charge or shall
change the basis of taxation of payments to
the L/C Bank or any Bank of any amount due
under this Agreement (except for changes in
the tax on the overall net income of any
Bank);
(ii) impose, modify or deem
applicable any reserve, special deposit,
capital adequacy or similar requirement
against assets or liabilities of, deposits
with or for the account of, or commitments or
letters of credit issued by, the L/C Bank or
any Bank; or
(iii)impose on the L/C Bank or any Bank
or the money markets any other condition
affecting its Commitment, any L/C Payment or
the Letter of Credit;
and the result of any of the foregoing is to increase the
cost to the L/C Bank of issuing or maintaining the Letter
of Credit or making an L/C Payment or increase the cost to
any Bank of making or maintaining its Commitment, any
participation in an L/C Payment, or to reduce the amount
of any sum received or receivable by any Bank under this
Agreement, or (in the case of any capital adequacy
requirement) to reduce the rate of return on the L/C
Bank's or any Bank's capital as a consequence of its
obligations under this Agreement to a level below that
which the L/C Bank or such Bank could have achieved but
for the imposition of such requirement, then the Company
shall from time to time pay to the L/C Bank or such Bank,
as the case may be (an "Affected Bank"), upon its demand,
such additional amount or amounts as will compensate it
for such increased cost or reduction. The Affected Bank
shall promptly give the Company notice (copies of which
shall be sent to the Agent and to each other Bank) of the
occurrence of any event of which it has knowledge which
will entitle it to compensation pursuant to this Section
4.01, and will take such action as, in the sole and
absolute opinion of the Affected Bank, will avoid the need
for, or reduce the amount of, such compensation and will
not be otherwise disadvantageous to such Affected Bank;
provided that the failure of such Affected Bank so to
notify the Company will not discharge the Company of its
obligations under this Section 4.01. Such Affected Bank
shall furnish the
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Company with a certificate setting forth in reasonable
detail the basis for determining any additional amount or
amounts to be paid to it hereunder, and such certificate
shall be conclusive, absent manifest error, as to the
contents thereof.
20. Section 4.02(b) of the Credit Agreement is hereby deleted
and the words "Intentionally Omitted" inserted in substitution therefor.
21. Sections 4.03 and 4.04 of the Credit Agreement are hereby
deleted and the words "Intentionally Omitted" inserted in substitution
therefor.
22. Section 5.01(b) of the Credit Agreement is hereby amended
in its entirety to read as follows:
(b) The Company shall pay to the Agent for the account
of the L/C Bank and the Banks a letter of credit fee on
the daily average stated amount of the Letter of Credit at
a rate equal to (i) .575% per annum prior to but excluding
October 13, 1993, (ii) 1.75% per annum during the period
from and including October 13, 1993 to but excluding April
1, 1994, (iii) 2.00% per annum during the period from and
including April 1, 1994 to but excluding October 1, 1994,
and (iv) 2.25% per annum during the period from and
including October 1, 1994 and thereafter, which fee shall
be allocated among the L/C Bank and the Banks as agreed
among them; provided, however, that if at the close of
business on any day NME's long-term unsecured,
unsubordinated debt is rated below BB by Standard & Poor's
Corporation or below Ba2 by Moody's Investors Service,
Inc. or NME does not have any long-term unsecured,
unsubordinated debt which is rated by either of such
agencies on such day, then such rate shall be increased by
0.25% per annum for such day. Such fee shall be payable
monthly in arrears in respect of each Computation Period
on the last day of the calendar month in which such
Computation Period ends, commencing on December 31, 1988,
and on the Final Date.
23. Section 5.01(c) of the Credit Agreement is hereby deleted
and the words "Intentionally Omitted" inserted in substitution therefor.
24. Section 5.02 of the Credit Agreement is hereby amended by
deleting the last sentence thereof.
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25. Section 5.04 of the Credit Agreement is hereby amended in
its entirety to read as follows:
Section 5.04. "Computation of Interest and Fees.All
interest and fees payable under this Agreement shall be
computed on the basis of a year of 360 days and the actual
number of days elapsed.
26. Section 5.05 of the Credit Agreement is hereby amended by
(i) deleting the words "and Increase" from the section heading and (ii)
deleting paragraph (c) thereof.
27. Section 5.06 of the Credit Agreement is hereby deleted and
the words "Intentionally Omitted" inserted in substitution therefor.
28. Section 5.07(b) of the Credit Agreement is hereby amended
by deleting clauses (i) and (vii) thereof and redesignating clauses (ii)
through (vi) thereof and clauses (viii) and (ix) thereof as clauses (i)
through (vii), respectively.
29. Section 5.08 of the Credit Agreement is hereby amended by
deleting the words "of (in the case of a Bank) the proceeds of an Advance to
be made by it hereunder or (in the case of the Company) a payment to the
Agent for account of one or more of the Banks" which are set forth in the
third, fourth, fifth and sixth lines of such section.
30. The proviso in Section 6.02 of the Credit Agreement is
hereby amended in its entirety to read as follows:
provided, however, that if the conditions set forth in
paragraphs (b), (c) and (e) are satisfied, then the
Company may continue to issue Commercial Paper Notes
having a maturity of 30 days or less up to an aggregate
face amount at any one time Outstanding equal to the face
amount of Commercial Paper Notes then Outstanding.
31. Section 7.11 of the Credit Agreement is hereby amended to
read in its entirety as follows:
Section 7.11. Collateral.
(a) The Security Agreement creates a valid security
interest in the Collateral, securing the payment of the
Secured Obligations (as defined in the Security
Agreement). All action necessary to perfect such security
interest has been taken and such security interest has
priority over any other Lien on the Collateral, except as
otherwise permitted by Section 9.03 hereof.
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(b) Each Assignment of Mortgage will, when executed and
delivered, create a valid assignment of the Company's
interest in the Project or Parcel covered thereby. Upon
the delivery and recording of such assignment in the
appropriate jurisdiction, all action necessary to perfect
such assignment will have been taken.
32. Section 8.08 of the Credit Agreement is hereby amended by
deleting the words "the Advances and" which are set forth in the second line
of such section.
33. Section 8.09 of the Credit Agreement is hereby amended by
deleting the words "repay or prepay outstanding Advances to the extent
thereof, and then to" which are set forth in the fourth and fifth lines of
such section.
34. New Sections 8.12 and 8.13 are hereby added to Article
VIII of the Credit Agreement as follows:
Section 8.12. Mortgage Assignments.The Company will
enter into an Assignment of Mortgage with the Collateral
Agent in respect of each Parcel or Project financed under
the Master Loan Agreement as soon as reasonably
practicable after the later of (i) November 2, 1993 and
(ii) the date of the grant to the Company of a lien on a
Borrower's interest in such Parcel or Project.
Section 8.13. Appraisals.The Company will deliver to
the Agent appraisals dated as of a recent date from an MAI
appraiser or appraisers satisfactory to the Majority Banks
as soon as reasonably practicable after November 2, 1993
and in any event not later than (i) January 31, 1994 for
each Parcel or Project financed under the Master Loan
Agreement for which the Company holds a Mortgage or Deed
of Trust (as those terms are defined in the Master Loan
Agreement) on or prior to November 2, 1993 and (ii) 90
days following the date of the delivery of a Mortgage or
Deed of Trust for each Parcel or Project financed under
the Master Loan Agreement for which the Company does not
hold a Mortgage or Deed of Trust on or prior to November
2, 1993.
35. Section 9.10 of the Credit Agreement is hereby amended by
deleting the second sentence thereof.
36. Section 9.11 of the Credit Agreement is hereby amended in
its entirety to read as follows:
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Section 9.11. Loans under the Master Loan Agreement.
On and after October 13, 1993, the Company shall not make
any loans under the Master Loan Agreement.
37. Sections 10.01(b), (c) and (k) of the Credit Agreement are
hereby amended in their entirety to read as follows:
(b) Failure by the Company to pay when due (i) principal
of any L/C Payment if the failure to pay such amount
continues for one Business Day after the date such payment
became due or (ii) any fee payable by the Company
hereunder or under the Fee Agreement or any other amount
payable hereunder if the failure to pay such other amount
continues for five Business Days after the date such
payment became due; or
(c) Default in the performance of any covenant or
obligation contained in Section 8.02, 8.03, 8.05 (other
than 8.05(c)), 8.07, 8.08 or 8.12 or in Article IX hereof;
or
(k) The Security Agreement or any Assignment of Mortgage
securing any outstanding Note shall cease to be in full
force and effect or the representation contained in
Section 7.11 hereof shall at any time become untrue; or
38. Section 10.03 of the Credit Agreement is hereby amended by
deleting the words "or the Revolving Credit Notes" which are set forth in
the eleventh and twelfth lines of such section.
39. Section 10.04 of the Credit Agreement is hereby deleted
and the words "Intentionally Omitted" substituted therefor.
40. Section 11.01(b) of the Credit Agreement is hereby amended
by (i) deleting the words "the Advances," which are set forth in the seventh
line of the first sentence of such section and (ii) deleting the second
sentence thereof.
41. Section 11.02 of the Credit Agreement is hereby amended by
deleting the words "under the Revolving Credit Notes," which are set forth
in the first parenthetical in the first sentence of such section.
42. Section 11.03 of the Credit Agreement is hereby amended in
its entirety to read as follows:
Section 11.03. Sharing of Payments.If any
Bank shall at any time receive any payment on account of
principal or interest with respect to
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its share of Reimbursement Obligations (whether voluntary
or involuntary, by application of set-off or banker's lien
or otherwise) in excess of its pro rata share of the
aggregate payment of principal and interest on the
Reimbursement Obligations received by all the Banks, such
Bank shall (unless such payment was not of a kind required
to be made by the Company pro rata to all the Banks)
purchase from the other Banks such participation in the
Reimbursement Obligations acquired by such other Banks as
shall be necessary to cause such purchasing Bank to share
the excess payment with all other Banks ratably in the
proportion which, at the time of such excess payment, the
Outstanding amount of each Bank's share of the
Reimbursement Obligations bears to the Outstanding amount
of all Reimbursement Obligations. In the event that at any
time any Bank shall be required to refund or restore to
the Company, the Borrowers or the Guarantor any amounts
which have been paid to or received by such Bank on
account of its share of Reimbursement Obligations and
which have been applied to the purchase of a participation
in another Reimbursement Obligations as herein provided,
each other Bank shall upon notice from such Bank
repurchase the participation so sold by it, without
interest, to the extent of its ratable share of such
refund. Whenever any Bank receives any payment referred to
in this Section 11.03, it shall forthwith notify the Agent
and all other Banks of such payment.
43. Section 12.02 of the Credit Agreement is hereby amended in
its entirety to read as follows:
Section 12.02. Amendments, Modifications and Waivers. No
amendment, modification or waiver of any provision of this
Agreement and no consent to any departure by the Company
therefrom shall in any event be effective unless the same
shall be in writing and signed by the Agent on the
instructions of the Majority Banks, and then any such
waiver or consent shall be effective only in the specific
instance and for the purpose for which given; provided,
however, that no such amendment, modification, waiver or
consent (a) shall decrease the fees payable to any Bank or
change the amount of the Commitment of any Bank without
the written consent of such Bank, (b) shall change the
obligation of the Company to reimburse the L/C Bank for
any L/C Payment or decrease the rate of interest payable
by the Company with respect
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thereto, or increase the amount of any Bank's
participation in any Reimbursement Obligation without the
consent of all the Banks, (c) shall decrease the
percentage amount set forth in the definition of "Majority
Banks" without the written consent of all the Banks, (d)
extend the Final Date without the written consent of the
L/C Bank and all of the Banks, (e) shall change any
provision of the Letter of Credit, Article II hereof or
this clause (e) without the consent of the L/C Bank, (f)
shall increase the obligations of, or impose additional
duties on, the Agent or otherwise adversely affect the
Agent without the consent of the Agent, (g) shall amend
this Section 12.02 without the consent of all the Banks
and (h) shall release or terminate the Master Loan
Agreement or the Guaranty or reduce the amount or change,
waive or extend the time of payment of amounts payable
under the Master Loan Agreement or the Guaranty without
the consent of all of the Banks. Any amendment,
modification, consent or waiver duly made pursuant hereto
shall apply equally to each Bank and shall be binding upon
all the Banks, the L/C Bank and the Agent.
44. The first sentence of Section 12.04 of the Credit
Agreement is hereby amended by (i) adding the words "and Assignments of
Mortgages" after the word "statements" set forth in subclause (iii) of
clause (a) thereof, (ii) deleting the word "and" which immediately precedes
subclause (iii) of clause (b) thereof and (iii) adding a new subclause (iv)
to clause (b) thereof which shall read as follows:
and (iv) the filing of financing statements and obtaining
title searches and appraisals with respect to each Parcel
or Project financed under the Master Loan Agreement in
connection with any workout or enforcement of the rights
of the Agent, the L/C Bank and the Banks under this
Agreement or any of the Related Documents.
45. Section 12.10 of the Credit Agreement is hereby amended by
deleting the words "Advances or the" which are set forth in the fifth line
of such section.
46. Section 12.12 of the Credit Agreement is hereby amended to
read in its entirety as follows:
Section 12.12. Transfer by Banks.
(a) No Bank shall be entitled to sell,
assign, transfer or negotiate any interest in this
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Agreement, except as expressly provided in this
subsection.
(b) Each Bank shall have the right at any
time, with the prior written consent of the Company, the
L/C Bank and the Agent, which consent may be withheld for
any reason whatsoever, whether reasonable or unreasonable,
to sell, assign, transfer or negotiate to one or more
commercial banks or other financial institutions
("Purchasing Banks"), in minimum amounts of $5,000,000,
portions of its rights and obligations under this
Agreement, pursuant to a Commitment Transfer Supplement,
executed by such Purchasing Bank, such transferor Bank,
the Company, the L/C Bank and the Agent, and delivered to
the Agent. Upon such execution and delivery, from and
after the Transfer Effective Date specified in such
Commitment Transfer Supplement, (i) the Purchasing Bank
thereunder shall be a party hereto and, to the extent
provided in such Commitment Transfer Supplement, have the
rights and obligations of a Bank hereunder with a
Commitment as set forth therein, and (ii) the transferor
Bank thereunder shall, to the extent provided in such
Commitment Transfer Supplement, be released from its
obligations under this Agreement (and, in the case of a
Commitment Transfer Supplement covering all or the
remaining portion of a transferor Bank's rights and
obligations under this Agreement, such transferor Bank
shall cease to be a party hereto). Such Commitment
Transfer Supplement shall be deemed to amend this
Agreement to the extent, and only to the extent, necessary
to reflect the addition of such Purchasing Bank and the
resulting adjustment of Commitment Percentages arising
from the purchase by such Purchasing Bank of all or a
portion of the rights and obligations of such transferor
Bank under this Agreement. The Agent shall maintain at
its address referred to in Section 12.03 hereof a copy of
each Commitment Transfer Supplement delivered to it.
(c) A Bank may furnish any information
concerning the Company, NME or any of its subsidiaries in
the possession of such Bank in connection with the
transactions contemplated by this Agreement from time to
time to assignees and participants (including prospective
assignees and participants).
47. Section 12.13 of the Credit Agreement is hereby amended in
its entirety to read as follows:
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<PAGE>
<PAGE>
Section 12.13. Independent Remedies. The amounts payable by
the Company at any time hereunder to each Bank shall be a
separate and independent debt and subject to the last sentence
of Section 12.02 hereof, each Bank shall be entitled to protect
and enforce its rights arising out of this Agreement, and it
shall not be necessary for any other Bank or the L/C Bank or the
Agent to consent to, or be joined as an additional party in, any
proceedings for such purposes.
48. This Amendment No. 1 shall become effective on the date
when signed by the Majority Banks and the Company and the Agent shall have
received the following items, which effectiveness shall be promptly notified
to each of the parties hereto:
(a) a duly executed counterpart of Amendment No. 1 to Guaranty
dated as of the date hereof from the Guarantor to the Company, substantially
in the form attached hereto as Annex III;
(b) a duly executed counterpart of Amendment No. 1 to Master
Loan Agreement dated as of the date hereof among the Company, as lender, and
the Borrowers, substantially in the form attached hereto as Annex IV;
(c) a duly executed counterpart of Amendment No. 1 to Security
Agreement dated as of the date hereof between the Company and the Collateral
Agent, substantially in the form attached hereto as Annex V;
(d) opinions of counsel with respect to the matters set forth
in Annex VI attached hereto and as to such other matters as the Banks may
reasonably require;
(e) a duly executed copy of the Second Amendment and the Third
Amendment and Limited Waiver to the Seventh Amended and Restated Revolving
Credit and Term Loan Facility dated as of October 15, 1993 among NME and the
NME Credit Parties;
(f) a duly executed copy of the First Amended and Restated
Letter of Credit and Reimbursement Agreement dated as of October 1, 1993
between NME and The Sanwa Bank, Limited, Dallas Agency;
(g) a certificate dated the date this Amendment No. 1 becomes
effective, from the Secretary of the Company certifying (i) as the
incumbency and signature of one or more officers of the Company authorized
to execute and deliver this Amendment No. 1, each Assignment of Mortgage,
the documents referred to in clauses (b) and (c) of this Section 48 and each
other document or instrument to be furnished or delivered pursuant hereto or
thereto, (ii) that the Certificate of Incorporation and By-Laws of the
Company delivered on November 30, 1988 are in full force and effect
- 13 -
<PAGE>
<PAGE>
on the effective date of this Amendment No. 1 and that no amendments,
restatements or modifications have been made thereto since November 30, 1988
and (iii) that attached thereto is a true and complete copy of the
resolutions of the Board of Directors of the Company authorizing the
execution, delivery and performance of this Amendment No. 1, each Assignment
of Mortgage, the documents referred to in clauses (b) and (c) of this
Section 48 and the transactions contemplated hereby and thereby, together
with a certification of another officer of the Company as to the incumbency
and signature of the Secretary;
(h) a certificate dated the date this Amendment No. 1 becomes
effective, from a responsible officer of the Company certifying as to the
best knowledge of such officer that the representations and warranties of
the Company contained in Article VII of the Credit Agreement are Accurate
and Complete and that no Event of Default or Potential Default which has not
been waived has occurred and is continuing or would result from the
transactions contemplated hereby;
(i) a certificate dated the date this Amendment No. 1 becomes
effective, from the Secretary of the Guarantor certifying (i) as to the
incumbency and signature of each officer of the Guarantor authorized to
execute and deliver Amendment No. 1 to Guaranty and each other document or
instrument to be furnished or delivered pursuant hereto or thereto, and (ii)
that attached thereto is a true and complete copy of (A) the Certificate of
Incorporation and By-Laws of the Guarantor, and (B) the resolutions of the
Board of Directors of the Guarantor authorizing the execution, delivery and
performance of Amendment No. 1 to Guaranty and the transactions contemplated
thereby.
(j) a certificate dated the date this Amendment No. 1 becomes
effective, from a Responsible Officer of the Guarantor certifying that to
the best knowledge of such officer the representations and warranties
contained in Section 4 of the Guaranty are Accurate and Complete; and
(k) such other documents, certificates, financial or other
information or opinions as the Agent or any Bank may reasonably request.
49. Pursuant to Section 5.05(a) of the Credit Agreement, the
Company has requested that the Total Commitment be reduced to $170,000,000,
which reduction became effective on October 13, 1993. The amount of each
Bank's Commitment as so reduced, is set forth opposite such Bank's name on
Schedule 1 annexed hereto.
50. The Company hereby agrees to pay to the Agent for the
account of the Banks a non-refundable restructuring fee in the amount of
$1,275,000, which fee shall be payable on the date of this Amendment No. 1
and shall be distributed by the Agent to the
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<PAGE>
<PAGE>
Banks pro rata according to the respective amounts of their Commitments set
forth on Schedule 1 annexed hereto.
51. The Company hereby represents and warrants that each of
the representations and warranties made under Article VII of the Credit
Agreement are Accurate and Complete with the same force and effect as though
made on and as of the date of this Amendment No. 1, except to the extent
that such representations and warranties expressly relate to an earlier
date, in which case, such representations and warranties were Accurate and
Complete on and as of such earlier date. As of the date of this Amendment
No. 1, no Event of Default or Potential Default which has not been waived,
has occurred and is continuing or would result from the transactions
contemplated hereby.
52. The Company hereby agrees to pay to the Agent all
reasonable out-of-pocket costs and expenses incurred by the Agent in
connection with the preparation, execution and delivery of this Amendment
No. 1, including, without limitation, (i) the reasonable fees and
disbursements of counsel to the Agent and (ii) title searches and Uniform
Commercial Code searches ordered by the Agent in connection herewith.
53. By its signature below, each Bank and the Agent hereby
authorizes the Collateral Agent to consent (i) pursuant to Section 9 of the
Consent, to Amendment No. 1 dated as of November 2, 1993 to Master Loan
Agreement and (ii) pursuant to Section 7 of the Guarantor's Consent, to
Amendment No. 1 dated as of November 2, 1993 to Guaranty.
54. Except as expressly modified and amended hereby, the
Credit Agreement remains unchanged and in full force and effect in all
respects.
55. THIS AMENDMENT NO. 1 SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
56. This Amendment No. 1 may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each
of which counterparts, when so executed and delivered, shall be deemed to be
an original and all of which counterparts, taken together, shall constitute
but one and the same Amendment No. 1.
- 15 -
<PAGE>
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment No. 1 to be executed by their officers thereunto duly authorized
as of the date first above written.
MP Funding Corporation
By: /s/
Name:
Title:
Credit Suisse,
as L/C Bank and Agent
By: /s/
Name:
Title:
By: /s/
Name:
Title:
BANKS
Credit Suisse
By: /s/
Name:
Title:
By: /s/
Name:
Title:
Bankers Trust Company
By: /s/
Name:
Title:
Berliner Handels-Und Frankfurter Bank
By: /s/
Name:
Title:
By: /s/
Name:
Title:
- 16 -
<PAGE>
<PAGE>
Commerzbank, AG, Los Angeles Branch
By: /s/
Name:
Title:
By: /s/
Name:
Title:
Credit Lyonnais, Los Angeles Branch
By: /s/
Name:
Title:
Dresdner Bank AG
By: /s/
Name:
Title:
By: /s/
Name:
Title:
The Industrial Bank of Japan, Limited
By: /s/
Name:
Title:
National Westminster Bank PLC
By: /s/
Name:
Title:
Royal Bank of Canada
By: /s/
Name:
Title:
- 17 -
<PAGE>
<PAGE>
The Sumitomo Bank, Limited,
Los Angeles Branch
By: /s/
Name:
Title:
Swiss Bank Corporation
By: /s/
Name:
Title:
By: /s/
Name:
Title:
Texas Commerce Bank National
Association
By: /s/
Name:
Title:
Westdeutsche Landesbank Girozentrale
By: /s/
Name:
Title:
By: /s/
Name:
Title:
- 18 -
<PAGE>
<PAGE>
SCHEDULE 1
COMMITMENT BANK
$21,857,142.86 Credit Suisse
$ 9,714,285.71 Bankers Trust Company
$14,571,428.57 Berliner Handels-Und Frankfurter Bank
$19,428,571.43 Commerzbank, AG, Los Angeles Branch
$ 9,714,285.71 Credit Lyonnais, Los Angeles Branch
$19,428,571.43 Dresdner Bank AG
$ 7,285,714.29 The Industrial Bank of Japan, Limited
$14,571,428.57 National Westminster Bank PLC
$ 4,857,142.86 Royal Bank of Canada
$14,571,428.57 The Sumitomo Bank, Limited,
Los Angeles Branch
$ 9,714,285.71 Swiss Bank Corporation
$ 9,714,285.71 Texas Commerce Bank National
Association
$14,571,428.57 Westdeutsche Landesbank Girozentrale
TOTAL COMMITMENT:
$170,000,000
- 19 -
<PAGE>
<PAGE>
<PAGE>
Exhibit 11
NATIONAL MEDICAL ENTERPRISES, INC.
Statement Re: Computation of Per Share Earnings*
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
1993 1992 1993 1992
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
FOR PRIMARY EARNINGS PER SHARE
Shares outstanding at beginning of period. . . . . . 165,899 165,948 165,898 166,963
Shares issued upon exercise of stock options . . . . 15 7 8 19
Dilutive effect of outstanding stock options . . . . 186 142 198 232
Shares issued as grants of restricted stock,
net of cancellations . . . . . . . . . . . . . . . (23) (73) (11) (36)
Shares repurchased as treasury stock . . . . . . . . - - - (964)
Weighted average number of shares
and share equivalents outstanding. . . . . . . . . 166,077 166,024 166,093 166,214
Income from continuing operations before
cumulative effect of a change in accounting. . . . $ 61,180 $ 78,032 $ 113,908 $ 128,416
Loss from discontinued operations. . . . . . . . . . $ (287,371) $ (25,651) $ (441,000) $ (25,411)
Cumulative effect of a change in accounting. . . . . - - $ 60,121 -
Net income (loss). . . . . . . . . . . . . . . . . . $ (226,191) $ 52,381 $ (266,971) $ 103,005
Earnings per share from continuing operations. . . . $ 0.37 $ 0.47 $ 0.69 $ 0.77
Loss per share from discontinued operations. . . . . $ (1.73) $ (0.15) $ (2.66) $ (0.15)
Earnings per share from a change in accounting . . . - - $ 0.36 -
Net. . . . . . . . . . . . . . . . . . . . . . . . $ (1.36) $ 0.32 $ (1.61) $ 0.62
</TABLE>
Page 1<PAGE>
<PAGE>
Exhibit 11
NATIONAL MEDICAL ENTERPRISES, INC.
Statement Re: Computation of Per Share Earnings* (continued)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
1993 1992 1993 1992
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
FOR FULLY DILUTED EARNINGS PER SHARE
Weighted average number of shares used in
primary calculation. . . . . . . . . . . . . . . . 166,077 166,024 166,093 166,214
Additional dilutive effect of stock options. . . . . 88 48 44 25
Assumed conversion of dilutive convertible
notes and debentures . . . . . . . . . . . . . . . 13,978 14,460 13,978 14,634
Fully diluted weighted average number of shares. . . 180,143 180,532 180,115 180,873
Income from continuing operations
used in primary calculation. . . . . . . . . . . . $ 61,180 $ 78,032 $ 113,908 $ 128,416
Adjustments for interest expense,
contractual allowances and income taxes. . . . . . 1,405 1,106 2,491 2,449
Adjusted income from continuing operations
used in fully dilutive calculation . . . . . . . . $ 62,585 $ 79,138 $ 116,399 $ 130,865
Loss from discontinued operations used in
primary calculation. . . . . . . . . . . . . . . . $ (287,371) $ (25,651) $ (441,000) $ (25,411)
Cumulative effect of a change in accounting
used in primary calculation. . . . . . . . . . . . - - $ 60,121 -
Adjusted income (loss) used in fully dilutive
calculation. . . . . . . . . . . . . . . . . . . . $ (224,786) $ 53,487 $ (264,480) $ 105,454
Earnings per share from continuing operations. . . . $ 0.35 $ 0.44 $ 0.65 $ 0.72
Loss per share from discontinued operations**. . . . $ (1.60) $ (0.14) $ (2.45) $ (0.14)
Earnings per share from a change in accounting . . . - - $ 0.33 $ -
Net**. . . . . . . . . . . . . . . . . . . . . . . $ (1.25) $ 0.30 $ (1.47) $ 0.58
</TABLE>
* All shares in these tables are weighted on the basis of the number of
days the shares were outstanding or assumed to be outstanding during
each period.
** These calculations are submitted in accordance with Regulation S-K item
601(b)(11) although for the 1993 periods it is contrary to paragraph 40
of APB opinion No. 15 because it produces an anti-dilutive result.
Page 2<PAGE>
