SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [_]
[X] Preliminary Proxy Statement
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11c) or Rule 14a-12
[_] Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Consolidated Health Care Associates, Inc.
(Name of Registrant as Specified in its Charter)
Consolidated Health Care Associates, Inc.
(Name of Person Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(I)(1) and 0-11
(1) Title of each class of securities to which transaction applies: N/A
(2) Aggregate number of securities to which transaction applies: N/A
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11: N/A
(4) Proposed maximum aggregate value of transaction: N/A
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11 (a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration number, or the form or
schedule and the date of its filing.
(1) Amount Previously Paid: N/A
(2) Form, Schedule or Registration Statement no: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
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December ___, 1997
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders of
Consolidated Health Care Associates, Inc., to be held at 10:00 a.m. CST, on
January 13, 1998 at the offices of San Jacinto Securities, 5949 Sherry Lane,
Dallas, Texas 75225
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve adopt an Asset Purchase Agreement dated as of November 20,
1997 (the "Purchase Agreement") by and among Consolidated Health Care
Associates, Inc., a Nevada corporation ("Consolidated"), PTS Rehab, Inc., a
Connecticut corporation and a wholly-owned subsidiary of Consolidated ("PTS"),
Olympus Healthcare Group, Inc., a Delaware corporation ("Olympus") and Olympus
Outpatient Services, Inc., a Massachusetts corporation and a wholly-owned
subsidiary of Olympus ("Purchaser"). Pursuant to the Purchase Agreement, the
Purchaser will purchase substantially all of the assets of PTS relating solely
to the four outpatient clinics located in Attleboro, Leominster, Pittsfield and
West Bridgewater, Massachusetts and the related leases, provider agreements,
service agreements and professional contracts, and assume certain limited
disclosed liabilities of PTS and Consolidated related to such assets, for
aggregate consideration of approximately $1,700,000 in cash (the "Sale").
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the Purchase Agreement and has received the opinion (the "Fairness
Opinion") of The Mayflower Group, Ltd. of Boston, Massachusetts, Consolidated's
financial advisor, that, as of December 2, 1997 and based on the matters stated
therein, the consideration to be received by Consolidated in the Sale is fair to
Consolidated from a financial point of view. A copy of the Fairness Opinion is
attached as Annex B to the accompanying Proxy Statement. The Board of Directors
believes that the Sale is fair to, and in the best interests of, Consolidated
and its stockholders. The Board has approved the terms of the Sale and
recommends that you vote to approve the Purchase Agreement.
The accompanying Proxy Statement provides detailed information concerning
the proposed Sale and additional information, which you are urged to read
carefully.
Whether or not you expect to attend the meeting, we urge you to sign and
date the enclosed proxy and return it promptly in the envelope provided. You may
attend the meeting and vote in person even if you have previously returned your
proxy.
Sincerely,
/s/ James Kenney
---------------------------------
James Kenney
Chairman of the Board
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Consolidated Health Care Associates, Inc.
38 Pond Street
Franklin, Massachusetts 02038
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Notice of Special Meeting of Stockholders
-------------------------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders of
Consolidated Health Care Associates, Inc., (the "Company") will be held on
January 13, 1998, at 10:00 am CST at the offices of San Jacinto Securities, 5949
Sherry Lane, Dallas, Texas 75225.
The meeting is called for the purpose of considering and voting upon:
(1) A proposal to approve and adopt an Asset Purchase Agreement dated as of
November 20, 1997 (the "Purchase Agreement") among the Company, PTS Rehab, Inc.,
a Connecticut corporation and a wholly-owned subsidiary of Consolidated ("PTS"),
Olympus Healthcare Group, Inc. ("Olympus") and Olympus Outpatient Services,
Inc., a Massachusetts corporation and a wholly-owned subsidiary of Olympus
("Purchaser"). Pursuant to the Purchase Agreement, the Purchaser will purchase
substantially all of the assets of PTS related solely to the four outpatient
clinics operated by PTS which are located in Attleboro, Leominster, Pittsfield
and West Bridgewater, Massachusetts, and provide among other things, ancillary
health care and out patient rehabilitation services ( the "Business"), the
Leases therefor and related Provider Agreements, Service Agreements and
Professional Contracts with therapists, therapist aides and aides serving the
Business (the "Purchased Assets") and assume certain limited disclosed
liabilities of PTS and Consolidated related to such assets, for aggregate
consideration of $1,700,000 in cash (the "Sale"). A copy of the Purchase
Agreement is attached as Annex A to the Proxy Statement accompanying this
Notice.
(2) Matters incident to the conduct of the Special Meeting or any
adjournments or postponements thereof.
The proposed Sale and related matters are more fully described in the
accompanying Proxy Statement and the Annexes thereto.
The Board of Directors has fixed the close of business on November 26,
1997, as the record date for determining the stockholders entitled to notice of
and to vote at the meeting and any adjournment thereof.
If you would like to attend the meeting and your shares are held by a
broker, bank or other nominee, you must bring to the meeting a recent brokerage
statement or a letter from the nominee confirming your beneficial ownership of
the shares. You must also bring a form of personal identification. In order to
vote your shares at the meeting, you must obtain from the nominee a proxy issued
in your name.
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You can ensure that your shares are voted at the meeting by signing and
dating the enclosed proxy and returning it in the envelope provided. Sending in
a signed proxy will not affect your right to attend the meeting and vote in
person. You may revoke your proxy at any time before it is voted by notifying
the Secretary of the Company in writing, or by executing a subsequent proxy,
which revokes your previously executed proxy.
Whether or not you expect to attend, WE URGE YOU TO SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
By Order of the Board of Directors
/s/ Raymond L. LeBlanc
----------------------------------
Raymond L. LeBlanc, Secretary
Franklin, Massachusetts
December __, 1997
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CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
PROXY STATEMENT
This Proxy Statement is being furnished to holders of Common Stock, $.012
par value (the "Consolidated Common Stock") of Consolidated Health Care
Associates, Inc., a Nevada corporation ("Consolidated" or the "Company"), in
connection with the solicitation of proxies by its Board of Directors for use at
a Special Meeting of Stockholders of the Company (the "Special Meeting")
scheduled to be held on January 13, 1998, at 10:00 am CST, at offices of San
Jacinto Securities, 5949 Sherry Lane, Dallas, Texas 75225, and at any
adjournment or postponement thereof. At the Special Meeting, the holders of
Consolidated Common Stock will be asked to consider and vote upon a proposal
(the "Sale Proposal") to sell substantially all of the assets of PTS Rehab,
Inc., a Connecticut corporation and a wholly-owned subsidiary of Consolidated
("PTS") related solely to the four outpatient clinics operated by PTS which are
located in Attleboro, Leominster, Pittsfield and West Bridgewater,
Massachusetts, which provide among other things, ancillary health care and out
patient rehabilitation services ( the "Business"), the Leases therefor and
related Provider Agreements, Service Agreements and Professional Contracts with
therapists, therapist aides and aides serving the Business (the "Purchased
Assets") to Olympus Outpatient Services, Inc., a Massachusetts corporation and a
wholly-owned subsidiary ("Purchaser") of Olympus Healthcare Group, Inc. a
Delaware corporation ("Olympus"), pursuant to an Asset Purchase Agreement dated
as of November 20, 1997 among the Company and PTS (collectively the "Selling
Group") and Olympus and the Purchaser (Collectively the "Purchaser Group"), (the
"Purchase Agreement").
FOR A DESCRIPTION OF CERTAIN CONSIDERATIONS THAT SHOULD BE CONSIDERED BY
STOCKHOLDERS IN CONNECTION WITH THE SALE, SEE "THE SALE OF ASSETS - RISK
FACTORS." UNDER NEVADA LAW, HOLDERS OF CONSOLIDATED COMMON STOCK WILL NOT HAVE
DISSENTERS' RIGHTS OF APPRAISAL IN CONNECTION WITH THE SALE. SEE "THE SALE --
DISSENTER'S RIGHTS."
A proxy in the form accompanying this Proxy Statement, when properly
executed and returned, will be voted in accordance with the directions specified
on the proxy. Any proxy which does not withhold authority to vote or on which no
other instructions are given will be voted FOR the Sale Proposal. Any proxy may
be revoked at any time before it is voted by delivering written notice of
revocation to the Secretary of the Company, by duly executing a proxy bearing a
later date, or by voting in person at the Special Meeting.
This Proxy Statement and the accompanying Notice and form of proxy are
being mailed to Stockholders on or about December 23, 1997.
The date of this Proxy Statement is December __, 1997.
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TABLE OF CONTENTS
AVAILABLE INFORMATION
INCORPORATION OF DOCUMENTS BY REFERENCE
SUMMARY
The Meeting
Change of Vote
The Sale
Opinion of Financial Advisor
Interests of Certain Persons in the Sale
Federal Income Tax Consequences
Anticipated Accounting Treatment
Summary Historical and Pro Forma Financial Data
RISK FACTORS
CONSEQUENCES TO CONSOLIDATED SHOULD THE SALE PROPOSAL NOT BE
APPROVED
SPECIAL MEETING
Purpose of the Special Meeting
Record Date
Quorum
Required Vote
Voting Rights: Proxies
Solicitation of Proxies
THE SALE
Background of the Sale
Recommendation of the Board of Directors of Consolidated; Reasons for the Sale
Opinion of Consolidated's Financial Advisor
Interests of Certain Persons in the Sale
Certain Federal Income Tax Consequences
Anticipated Accounting Treatment
Certain Legal Matters
Dividends
Appraisal Rights
Fees and Expenses
THE PURCHASE AGREEMENT
Terms of the Sale
Representations and Warranties
Conduct of Business Pending the Sale
Additional Agreements
Conditions to the Sale
Termination
Amendment and Waiver
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OTHER AGREEMENTS
Management Agreement
Security Agreement
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION FOR
CONSOLIDATED
BUSINESS - CONSOLIDATED
PLAN OF OPERATION FOLLOWING THE SALE - CONSOLIDATED
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY - CONSOLIDATED
MANAGEMENT - CONSOLIDATED
BUSINESS - OLYMPUS
SELECTED FINANCIAL DATA FOR OLYMPUS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - OLYMPUS
MANAGEMENT - OLYMPUS
CERTAIN RISK CONSIDERATIONS - OLYMPUS
DESCRIPTION OF CONSOLIDATED CAPITAL STOCK
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS OF
CONSOLIDATED
OTHER MATTERS
LEGAL MATTERS
EXPERTS
STOCKHOLDER PROPOSALS
Annexes:
A. Purchase Agreement
B. Opinion of Consolidated's Financial Advisor, The Mayflower Group, Ltd.
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AVAILABLE INFORMATION
Consolidated is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, DC 20549 and may be available at the
following Regional Offices of the Commission: Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and New York Regional Office, 7 World Trade Center, 13th Floor,
New York, New York 10048. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, DC 20549. Consolidated makes filings of
reports, proxy statements and other information pursuant to the Exchange Act
with the Commission electronically, and such materials may be inspected and
copied at the Commission's Web site (http://www.sec.gov).
Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
Commission or attached as an Annex hereto.
INCORPORATION OF DOCUMENTS BY REFERENCE
Consolidated hereby incorporates by reference into this Proxy Statement the
following documents previously filed with the Commission pursuant to the
Exchange Act:
1. Consolidated's Current Report(s) on Form 8-K filed on December 12,
1997;
2. Consolidated's Quarterly Reports on Form 10-QSB for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997;
3. Consolidated's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996.
In addition, all reports and other documents filed by Consolidated pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the Special Meeting shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such reports
and documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement to the extent that a statement
contained herein (or in the case of any statement in such an incorporated
document), or in any other subsequently filed document that also is incorporated
or deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement.
This Proxy Statement incorporates documents by reference which are not
presented herein or delivered herewith. These documents (other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
herein) are available, without charge, upon written or oral request by any
person to whom this Proxy Statement is delivered, including any beneficial
owner, to Consolidated Health Care Associates, Inc., 38 Pond Street, Suite 305,
Franklin, Massachusetts 02038. Attention: Raymond L. LeBlanc, Secretary
(telephone no. (508) 520-2422). In order to ensure timely delivery of the
documents, any request should be made before January 5, 1998.
CAUTIONARY STATEMENT
When used in this Proxy Statement with respect to Consolidated, the words
"estimate," "project," "intend," "expect" and similar expressions are intended
to identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this Proxy Statement. Such
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statements are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements. Such risks and uncertainties include those risks, uncertainties and
risk factors identified under the heading "Forward-Looking Information Is
Subject to Risk and Uncertainty" accompanying "Management's Discussion and
Analysis of Results of Operations, Financial Condition and Business Environment"
that is in the Consolidated Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996. Consolidated does not undertake any obligation to
publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
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SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement and the Annexes hereto. This summary does not contain a
complete statement of all material information relating to the Purchase
Agreement and the Sale and is subject to, and is qualified in its entirety by,
the more detailed information and financial statements contained or incorporated
by reference in this Proxy Statement. Stockholders of Consolidated should read
carefully this Proxy Statement in its entirety. Certain capitalized terms used
in this summary are defined elsewhere in this Proxy Statement.
The Special Meeting
Time, Place and Date
The Special Meeting of Consolidated's stockholders will be held on January
13, 1998, at 10:00 am CST at the offices of San Jacinto Securities, 5949 Sherry
Lane, Suite 960, Dallas, Texas (including any and all adjournments or
postponements thereof, the "Special Meeting").
Purposes of the Special Meeting
At the Special Meeting, holders of Consolidated stock will consider and
vote upon the Sale Proposal. The assets to be purchased by the Purchaser (the
"Purchased Assets") consist primarily of the four outpatient clinics operated by
PTS as part of the Business which are located in Attleboro, Leominster,
Pittsfield and West Bridgewater, Massachusetts, the Leases therefor and related
Provider Agreements, Service Agreements and Professional Contracts with
therapists, therapist aides and aides serving the Business. See "The Sale - The
Sale Purchased Assets and Business."
The Board of Directors of Consolidated has approved the Purchase Agreement
and the Sale Proposal and recommends that Consolidated stockholders vote FOR
approval of the Sale Proposal. See "The Sale -- Background of the Sale" and
"Recommendation of the Board of Directors of Consolidated; Reasons for the
Sale."
Votes Required; Quorum; Record Date
Under Nevada law and Consolidated's Articles of Incorporation, the Sale
Proposal will require approval by the affirmative vote of the holders of a
majority of the votes cast on this matter, provided that the total vote cast on
this matter represents more than 50% in interest of the shares of Consolidated
Common Stock outstanding and entitled to vote. The presence in person or by
properly executed proxy of holders of a majority of the shares of Consolidated
Common Stock entitled to vote at the Special Meeting will constitute a quorum
for the transaction of business. Each outstanding share of Consolidated Common
Stock is entitled to one vote. Only holders of Consolidated Common Stock at the
close of business on November 26, 1997 (the
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"Record Date") will be entitled to notice of and to vote at the Special Meeting.
See "Special Meeting."
The directors and executive officers of Consolidated and their affiliates
own as a group approximately 7.04% of the outstanding shares of Consolidated
Common Stock. Holders of approximately 40.14% of the Consolidated Common Stock
outstanding as of the date of the Purchase Agreement (including the directors
and executive officers of Consolidated and their affiliates) have indicated in
writing their intentions to vote in favor of the Sale Proposal. See "The
Purchase Agreement - Additional Agreements."
Change of Vote
Consolidated stockholders who have executed a proxy may revoke the proxy at
any time prior to its exercise at the Special Meeting by giving written notice
to Raymond L. LeBlanc, Secretary, Consolidated Health Care Associates, Inc., 38
Pond Street, Franklin, Massachusetts 02038, by signing and returning a later
dated proxy, or by voting in person at the Special Meeting.
The Sale
The Sale; Purchased Assets; Business
Consolidated, through its wholly-owned subsidiary PTS, operates four
outpatient clinics located in Attleboro, Leominster, Pittsfield and West
Bridgewater, Massachusetts on premises leased from third parties (the
"Centers"), which provide ancillary health care and outpatient rehabilitation
services (the "Business"). Pursuant to the Purchase Agreement, the Purchaser
will acquire substantially all of the assets of PTS related solely to the
Business (the "Purchased Assets") and assume certain limited disclosed
liabilities of PTS and Consolidated related to such assets. Effective November
3, 1997, the Purchaser was engaged by the Company to manage the Centers and take
over operational responsibility for the Business pursuant to the terms and
conditions of a Management Agreement. See "The Purchase Agreement - Additional
Agreements."
The Purchased Assets to be purchased by the Purchaser consist among other
things of (i) leases which will be assumed by the Purchaser of the four Centers
with third parties (the "Leases"), (ii) provider agreements in effect for the
benefit of operation of the Business relating to rights of payment or
participation in third party payor programs (collectively, the "Provider
Agreements"), (iii) service, consulting or management agreements pursuant to
which PTS or professionals acting on its behalf provide rehabilitation, therapy,
health care management, home health care or other services to customers
(collectively, the "Service Agreements"), (iv) employment, service or management
agreements pursuant to which PTS employs or otherwise obtains the services of
therapists, therapist aides and aides (collectively, the "Professional
Contracts") and (v) other contracts related to the Business and requiring
consent to the assignment thereof to the Purchaser (collectively, the "Contracts
Requiring Consent").
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Sale Consideration
The Purchaser will pay PTS as aggregate consideration of $1,700,000 in
cash. The Purchaser will also assume certain limited disclosed outstanding debt
of PTS and Consolidated related to the Purchased Assets, which totaled
approximately $58,197 at September 30, 1997. See "The Purchase Agreement --
Terms of the Sale."
Conditions to the Sale; Termination; Fees
The obligations of the Purchaser Group and the Selling Group to consummate
the Sale are subject to various conditions, including but not limited to: (i)
obtaining requisite approval from Consolidated stockholders; (ii) obtaining
approvals or consents of lessors under the Leases of the Centers to be assigned
to the Purchaser; (iii) obtaining approvals or consents as to the assignment to
the Purchaser of the Provider Agreements, Service Agreements, Professional
Contracts and Contracts Requiring Consent and (iv) other customary conditions
which, if not fulfilled or waived, permit termination by the party entitled to
the benefits thereof. See "The Purchase Agreement --Conditions to the Sale."
In addition, the Purchase Agreement may be terminated at any time, whether
before or after approval of the matters presented in connection with the Sale by
the stockholders of Consolidated: (i) by mutual written consent of the Boards of
Directors of Consolidated and Olympus; (ii) by Consolidated or Olympus, if the
requisite vote of the stockholders of Consolidated shall not have been obtained
by January 30, 1997; (v) by Consolidated or Olympus, if the Board of Directors
of Consolidated withdraws, modifies or changes its approval of the Purchase
Agreement or the Sale in a manner adverse to Olympus; (vi) by Consolidated or
Olympus, if the Board of Directors of Consolidated recommends to the
stockholders of Consolidated an Alternative Transaction (as defined in the
Purchase Agreement). See "The Purchase Agreement -- Termination -- Conditions to
Termination."
The Selling Group will pay to the Purchaser Group a fee of (i) $250,000 in
cash if the Sale is not consummated as a result of Consolidated entering into an
Alternative Transaction or(ii) $50,000 in cash if the requisite vote of the
stockholders of Consolidated approving the Sale shall not have been obtained at
a duly held meeting of such stockholders. The fee payable by the Selling Group
to the Purchaser Group in the event both of the foregoing clauses (i) and (ii)
are applicable, shall be $250,000. See "The Sale -- Fees and Expenses."
Dividends
Under the terms of the Purchase Agreement, Consolidated is not permitted to
declare, set aside, make or pay any dividend or other distribution in respect of
its capital stock from the date of the Purchase Agreement until the earlier of
the termination of the Purchase Agreement and the consummation of the Sale.
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Dissenters' Rights
Under the General Corporation Law of the State of Nevada, the holders of
Consolidated Common Stock are not entitled to any appraisal or dissenters'
rights with respect to the Sale. See "The Sale - Dissenters' Rights."
Governmental Approvals Required
Prior to consummating the Sale, the Purchaser Group shall have obtained all
approvals necessary for its operation after the closing of the Centers.
Opinion of Financial Advisor
The Mayflower Group, Ltd. of Boston, Massachusetts ("Mayflower") delivered
its written Fairness Opinion dated December 2, 1997 to the Board of Directors
of Consolidated that, as of such date, among other matters, the Sale of the
Purchased Assets to Acquisition Sub on the terms and conditions set forth in the
Purchase Agreement, is fair to Consolidated and its stockholders, from a
financial point of view.
For information on the assumptions made, matters considered and limits of
the review undertaken by Mayflower in rendering its Fairness Opinion, see "The
Sale -- Opinion of Consolidated Financial Advisor." Stockholders are urged to
read in its entirety the Fairness Opinion of Mayflower attached as Annex B to
this Proxy Statement.
Interests of Certain Persons in the Sale
In considering the recommendation of the Consolidated Board of Directors
with respect to the Sale Proposal, Consolidated stockholders should be aware
that certain members of Consolidated management and the Consolidated Board of
Directors have certain interests in the Sale that are in addition to the
interests of stockholders of Consolidated generally.
In consideration of the employment of Mr. Robert M. Whitty, President and
Chief Executive Officer and Mr. Raymond L. LeBlanc, Treasurer, Secretary and
Chief Financial Officer, the Board of Directors have confirmed that Mr. Whitty
and Mr. LeBlanc as key officers of the Company shall be retained to complete all
required SEC filings along with required cost reports. In addition the Board of
Directors have acknowledged that all compensation due to Mr. Whitty and Mr.
LeBlanc pursuant to their respective Employment Agreements shall be paid in
accordance with the terms thereof.
In conjunction with the negotiations and due diligence completed by the
Company in regards to the proposed Sale, the Company entered into an agreement
with Duncan-Smith an investment banking firm of which Goodhue W. Smith III, a
member of the Board of Directors of
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the Company is a partner. The agreement provided for certain services to include
the assistance in the performance of due diligence on Olympus and the delivery
of a written report to the Board of Directors. The agreement also provided for
the assistance in negotiations with the letter of intent, term sheet and
definitive purchase agreement.
Robert M. Whitty, President of the Company, has provided Capital Healthcare
Financing, a division of Capital Factors, Inc. a personal guarantee on behalf
of the Company as part of the Factoring Agreement regarding the accounts
receivable of the Company. The guarantee is discharged only upon the complete
satisfaction of the indebtedness to Capital Factors, Inc. (See "The Sale --
Interests of Certain Persons in the Sale.")
Federal Income Tax Consequences
There will be no Federal income tax consequences to the stockholders of
Consolidated as a result of the Sale.
Anticipated Accounting Treatment
The transaction will be treated as a sale for cash of fixed assets and
related intangible assets, mainly goodwill, less certain assumed liabilities.
These assets and liabilities are identified elsewhere in this document. The
difference between the cash received and the book value of the fixed assets and
related intangibles less the assumed liabilities, will be accounted for as a
nonoperating gain or loss. The unaudited pro forma consolidated financial
statements included herein indicate that the transaction will generate a book
loss.
Selected Historical and Pro Forma Financial Data
Referenced is made to the discussion under the heading "Unaudited Pro Forma
Condensed Consolidated Financial Information" contained herein and to
Consolidated's Quarterly Reports on Form 10-QSB for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997; and Consolidated's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1996. See "Available
Information."
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RISK FACTORS
In considering whether to approve the Sale Proposal, the stockholders of
Consolidated should carefully consider the following risk factors, in
conjunction with the other information included and incorporated by reference in
this Proxy Statement. These risk factors assume consummation of the Sale
Proposal and do not include matters that could prevent the consummation of the
Sale Proposal. For a discussion of risks associated with failure to consummate
the Sale Proposal, see "Consequences to Consolidated Should the Sale Proposal
not be Approved."
Continued Financial Stress following the Sale. If the Sale is approved by
stockholders and consummated in accordance with the Purchase Agreement, the
Company will continue to experience financial stress. The $1,700,000 in cash
proceeds to be received in the Sale will not permit the Company to satisfy all
of its then remaining obligations in full. In addition, the Company will not
have sufficient resources to continue operating its remaining business or to
realize on its non-operating assets, including accounts receivable of the
Business which will be retained by the Company and PTS following the Sale, to
the full extent that may be practicable. As a financially distressed
organization and in the absence of adequate resources, the Company may be forced
to cease operations, to liquidate or to consider other alternatives, including
seeking protection under the Federal Bankruptcy Code. See "Consequence to
Consolidated Should the Sale Proposed Not be Approved."
Remaining Assets. After the Sale, and after giving effect to the
consummation of the possible sale of the remaining assets of the Company which
consists primarily of out-patient facilities located in Delaware and
Pennsylvania (the "Remaining Facilities"), Consolidated's assets will consist
primarily of (i) its Remaining Facilities, (ii) accounts receivable and (iii)
cash to be received upon consummation of the Sale. For a discussion of the
business of Consolidated after the Sale and Consolidated's plan to pursue the
sale of the Remaining Facilities, see "The Sale Business of Consolidated After
the Sale."
Compliance with Government Health Care Regulations. The health care
industry is subject to numerous federal, state, and local regulations.
Consolidated believes that its operations are currently materially in compliance
with applicable regulations, that Olympus will not inherit or confront any
compliance issues when it acquires the Centers and the Business consummation of
the Sale is subject to certain conditions of Closing, including the Purchaser
obtaining all consents, approvals, permits from and notices to any and all
governmental authorities (as defined under the Purchase Agreement) necessary or
required by any and all Legal Requirements (as defined in the Purchase
Agreement). Moreover, the possibility exists that the Centers and/or the
Business, before or after the Sale, could be found in violation of one or more
of such Legal Requirements. Such a determination could prevent the Closing from
being consummated or could impose significant costs on the Selling Group to
bring operations into compliance.
Although the Company does not anticipate that it or the Purchaser Group
will face any
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significant regulatory issues in connection with obtaining said approvals,
because health care regulation at all levels is subject to constant change, and
because there is frequently no procedure for obtaining advisory opinions from
government officials, no assurance can be given that all requisite Approvals can
be obtained on a timely basis, if at all. See "Business - Consolidated -
Regulation."
Indemnification Obligations Under the Purchase Agreement. Pursuant to the
provision of the Purchase Agreement, after the consummation of the Sale, the
Selling Group will be obligated to indemnify the Purchaser Group against losses
incurred by them which are attributable, among other things, to any breach of a
representation or warranty contained in the Purchase Agreement, any liabilities
of the Selling Group which become liabilities of the Purchaser Group other than
those which have been expressly assumed by the Purchase Group, taxes assessed
against PTS for any period whether before or after the closing date or against
the Acquired assets do in respect of any fiscal period ended before the closing
date, any failure to transfer good and clear marketable title to the Acquired
Assets, claims arising out of any recoupment matters and liabilities under
environmental laws occurring or arising prior to the closing date. In some
cases, the Selling Group's representations and warranties will survive for five
years and in other cases the representations and warranties will survive either
for two months after the expiration of applicable statue of limitations or
indefinitely. Payment of any indemnification claims under the Purchase Agreement
would have a material adverse effect on the Company and would contribute
substantially to its financial distress. Furthermore, the remaining assets
available to the Company after the Sale may not be adequate to fund any
potential claims for indemnification. See. "The Purchase Agreement -
Indemnification and Other Post Closing Obligations."
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Departure of Key Management Personnel. Pursuant to current employment
and/or consulting agreements with Consolidated, Mr. R. Michael Whitty,
Consolidated's current President, and Mr. Raymond L. LeBlanc, Consolidated's
current Treasurer, Secretary, and Chief Financial Officer, are entitled to leave
the Company during 1998. These departures may necessitate the installation of
new senior management at Consolidated, the effects of which are at this time
uncertain. New personnel, if any, who are hired to manage post-Sale Consolidated
may lack experience.
CONSEQUENCES TO CONSOLIDATED SHOULD THE
SALE PROPOSAL NOT BE APPROVED
Continued Financial Distress. If the Sale Proposal is not approved by the
Consolidated stockholders, the Purchase Agreement will be terminated and the
four Centers and the related Business and the other Acquired Assets which would
have been sold, in addition to the Remaining Facilities and related assets, and
all of the Company's liabilities will remain with the Company. The Company has
very recently experienced a slight revenue increase due to its efforts to follow
an austere budget and to improve the efficiency of the billing process. However,
the Company sustained serious capital shortages, operating losses, and debt
repayment problems in 1994, 1995 and 1996. If the Company is not acquired by
another corporation, or the Company is not successful in consummating
alternative transactions to realize on its assets, its history of substantial
losses and accumulated deficits may continue and force the Company out of
business and into bankruptcy. As a financially distressed organization, its
future saleability and prospects for acquisition would be uncertain at best.
Break-up Fee. Pursuant to the Purchase Agreement, Consolidated must pay to
Olympus a fee of $250,000 in cash if the Sale is not consummated as a result of
Consolidated entering into an Alternative Transaction. Consolidated must pay to
Olympus a fee of $50,000 in cash if the requisite vote of the stockholders of
the Company is not obtained at the Special Meeting. If the Company enters an
Alternative Transaction and fails to obtain the requisite vote of the
stockholders to approve the Sale, the fee payable to Olympus is $250,000 in
cash.
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SPECIAL MEETING
Purpose of the Special Meeting
At the Special Meeting, holders of Common Stock will consider and vote upon
the Sale Proposal, pursuant to which Acquisition Sub, a wholly-owned subsidiary
of Olympus, will purchase the Centers and the Business which comprise
substantially all of the assets of PTS related solely to the Business for an
aggregate Purchase Price of approximately $1,700,000, payable in cash at
closing. In addition, the Purchaser will assume certain limited disclosed
liabilities of PTS and Consolidated related to such assets. See "The Purchase
Agreement --Terms of the Sale."
The Board of Directors of Consolidated has approved the Purchase Agreement
and the Sale Proposal and recommends that Consolidated stockholders vote FOR
approval of the Sale Proposal. See "The Sale -- Background of the Sale" and
"Recommendation of the Board of Directors of Consolidated; Reasons for the
Sale."
Record Date
Only holders of Consolidated Common Stock at the close of business on
November 26, 1997 (the "Record Date") will be entitled to notice of and to vote
at the Special Meeting.
Quorum
The presence in person or by properly executed proxy of holders of a
majority of the shares of Consolidated Common Stock entitled to vote at the
Special Meeting will constitute a quorum for the transaction of business.
Required Vote
Under Nevada law and Consolidated's Articles of Incorporation, the Sale
Proposal will require approval by the affirmative vote of the holders of a
majority of the votes cast on this matter, provided that the total vote cast on
this matter represents more than 50% in interest of the shares of Consolidated
Common Stock outstanding and entitled to vote. Each outstanding share of
Consolidated Common Stock is entitled to one vote.
The directors and executive officers of Consolidated and their affiliates
own as a group approximately 7.04% of the outstanding shares of Consolidated
Common Stock. Holders of approximately 40.14% of the Consolidated Common Stock
outstanding as of the date of the Purchase Agreement (including the directors
and executive officers of Consolidated and their affiliates) have indicated in
writing their intentions to vote in favor of the Sale Proposal.
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Voting Rights; Proxies
All shares of Consolidated Common Stock represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated in such proxies. ANY PROXY WHICH DOES
NOT WITHHOLD AUTHORITY TO VOTE OR ON WHICH NO OTHER INSTRUCTIONS ARE GIVEN WILL
BE VOTED FOR THE SALE PROPOSAL. Consolidated stockholders who have executed a
proxy may revoke the proxy at any time prior to its exercise at the Special
Meeting by giving written notice to Raymond L. LeBlanc, Secretary, Consolidated
Health Care Associates, Inc., 38 Pond Street, Franklin, Massachusetts 02038, by
signing and returning a later dated proxy , or by voting in person at the
Special Meeting. Accordingly, stockholders who have executed and returned proxy
cards in advance of the Special Meeting may change their vote at any time prior
to or at the Special Meeting; however, mere attendance at the Special Meeting
will not by itself have the effect of revoking the proxy.
Votes cast either in person or by proxy at the Special Meeting will be
tabulated by The American Stock Transfer & Trust Company, the Company's transfer
agent. The election inspectors will treat abstentions as a votes against the
Sale Proposal. Broker non-votes will not be counted as votes for or against the
Sale Proposal, and will not be included in counting the number of votes
necessary for approval of the Sale Proposal.
Solicitation of Proxies
The cost of the solicitation of proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by regular employees
of the Company, either personally or be telephone or telegraph. The Company does
not expect to pay any compensation for the solicitation of proxies, but may
reimburse brokers, fiduciaries, nominees and others for expenses in forwarding
proxy materials to be beneficial owners of stock held in their names and
obtaining proxies of such owners.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE STOCKHOLDERS OF CONSOLIDATED. ACCORDINGLY, STOCKHOLDERS ARE URGED TO READ
AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT, AND TO
COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
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THE SALE
Background of the Sale
The terms of the Purchase Agreement and the related agreements are the
result of arm's-length negotiations between representatives, legal advisors and
financial advisors of Consolidated and Olympus. The following is a brief
discussion of these negotiations.
On April 15, 1997, James Kenney and Goodhue Smith, directors of
Consolidated, contacted Robert M. Whitty and Raymond L. LeBlanc, Consolidated's
president and chief financial officer, respectively, to discuss the possibility
of merging Consolidated into or selling Consolidated to a larger company, with
the hope of obtaining a higher value for shareholders.
On May 29, 1997, James Kenney, Robert M. Whitty and Norman Cox, a
representative of Renaissance, met with Dan Kane, President of Olympus and Brian
Pontililo, President of the rehabilitation subsidiary of Olympus, Inc., to
discuss the viability of an acquisition of Consolidated by, or a merger of
Consolidated into, Olympus. Consolidated and Olympus executed a confidentiality
agreement with respect to the exchange of nonpublic information between the
companies and certain other matters. The two companies exchanged information
regarding their financial statements and business plans.
On May 31, 1997, Renaissance notified all members of Consolidated's board
of directors that it had been contacted by Olympus, a prospective buyer or
merger partner, and had discussions with Olympus in order to determine the
viability of a potential transaction.
On June 17, 1997, Dan Kane met with Robert M. Whitty, Raymond L. LeBlanc,
Goodhue Smith, James Kenney and Renaissance representatives Norman Cox, Vance
Arnold and Russell Cleveland. Dan Kane proposed a transaction at a value of
$5,000,000 for Consolidated[, together with the assumption of Consolidated's
outstanding debt of approximately $2,500,000. It was agreed that Consolidated
would consider the transaction and that a presentation would be made to
Consolidated's Board of Directors at the upcoming annual meeting.
On June 20, 1997, Robert M.Whitty received a draft letter of intent from
Dan Kane setting forth the terms of the proposed transaction.
On June 27, 1997, Robert M. Whitty made a presentation to consolidated's
Board of Directors regarding the proposed transaction with Olympus. The members
of the Board unanimously voted to authorize the executive committee of the
Board, to negotiate a letter of intent with Olympus which valued Consolidated at
a minimum of $5,000,000. Goodhue Smith, James Kenney and Robert M. Whitty were
designated as members of the executive committee. The Board of Directors
discussed potential structures for the transaction and the need for a bridge
loan to pay for expenses of the transaction.
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On July 7, 1997, James Kenney, Goodhue Smith and Robert Whitty discussed
with Norm Cox of Renaissance the potential of Renaissance Capital Group, in
conjunction with a previous agreement with the Company to provide needed
capital, the possibility that Renaissance would provide all or a portion of the
$300,000 bridge loan to Consolidated, which was to have included a $100,000
working capital loan. Renaissance indicated that it was not willing to provide
more than $200,000, on terms to be determined.
From July 7 through July 10, 1997, James Kenney, Goodhue Smith and Robert
M. Whitty had telephone discussions and meetings with Consolidated's legal
advisors to discuss issues related to the proposed transaction, including
valuation, due diligence and structuring issues.
On July 10, 1997 Dan Kane and Ned Murphy, of Olympus, and Olympus's legal
counsel met with Robert M. Whitty, James Kenney, Goodhue Smith and
Consolidated's legal counsel to discuss the proposed transaction. It was agreed
that Consolidated's legal counsel would revise and circulate the previously
distributed letter of intent based upon the discussion.
On July 11, 1997, Ned Murphy and Olympus's legal counsel met with James
Kenney, Goodhue Smith and Consolidated's legal counsel to negotiate the revised
letter of intent. Robert M. Whitty participated in parts of the meeting via
telephone. The principal areas of negotiation included the terms upon which
Olympus could be required to buy back a portion of the Olympus Stock to be
received by Consolidated in the then contemplated sale; the structuring of the
acquisition as a sale of stock or assets of Consolidated's subsidiaries; the
events upon which a deposit made by Olympus would be payable to Consolidated;
and the events upon which Consolidated would be required to pay a fee to
Olympus.
From July 14 through July 17, representatives of Consolidated and Olympus
and their respective legal counsel had telephone conversations to finalize the
terms of the letter of intent.
On July 18, 1997, the Board of Directors of Consolidated held a telephonic
board meeting at which the negotiated letter of intent was reviewed. The Board
of Directors unanimously authorized the execution of the letter of intent upon
notification of the acceptance of the terms of the letter of intent by the
Olympus Board of Directors and the beginning of the negotiations and due
diligence to provide for a definitive agreement. On July 18, 1997, each of
Consolidated and Olympus executed the letter of intent and transmitted their
respective counterparts to the other party. The letter of intent was conditioned
upon, among other things, the completion of due diligence by both sides.
From July 22 through August 31, 1997, representatives of Olympus and its
legal counsel visited Consolidated's corporate headquarters in Franklin,
Massachusetts to gather information concerning Consolidated's business and had
frequent telephone conversations with representatives of Consolidated regarding
its due diligence investigation.
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From July 29 through August 1, 1997, representatives of Consolidated and
its financial advisors conducted a due diligence investigation of Olympus.
On August 13, 1997, Consolidated announced that it had signed the
non-binding letter of intent to sell all of its assets and business to a
wholly-owned subsidiary of Olympus for an aggregate purchase price of
$5,000,000, consisting of 175,620 shares of Olympus Common Stock and $750,000 in
cash, subject to a working capital adjustment. Additional shares of Olympus
Common Stock could be issued if certain post-closing targets for adjusted net
operating income for 1998 were achieved. In addition, Olympus was to assume all
disclosed liabilities of Consolidated.
From August 7, 1997 through September 4, 1997, representatives of Olympus,
Consolidated and their respective legal counsel were in frequent contact to
negotiate the terms of the definitive purchase agreement contemplated by the
letter of intent. During this time period, Olympus advised Consolidated that
Olympus wished to restructure and reprice the proposed transaction. A series of
negotiating sessions followed. The principal areas of negotiations were centered
around revising the structure of the transaction to an asset purchase of the
four Centers (located in Attleboro, Leominster, Pittsfield and West Bridgewater,
Massachusetts) and the related assets used in the operation thereof consisting
primarily of operating leases, improvements, equipment, furniture, patient
files, contract rights, general intangibles, licenses, linens and inventory and
the assumption by Olympus of only a limited category of obligations consisting
primarily of vacation and earned time accrual disclosed on a balance sheet and
liabilities arising from and after a date of closing under operating leases
associated with the Acquired Assets, and a corresponding reduction in the
consideration to be paid by Olympus to the Company. Although the cash component
of the aggregate purchase price was to be increased, the number of shares of
Olympus Common Stock to be acquired by the Company was reduced substantially,
the right to earn more shares was eliminated and a previously negotiated
provision relating to the Company's right to put shares of Olympus stock back to
Olympus for repurchase was eliminated.
From September 5, through September 18, representatives of Consolidated and
Olympus and their respective legal counsel had telephone conversations to
finalize the terms of the revised letter of intent. On September 17, 1997 the
Board of Directors of Consolidated held a telephonic Board meeting at which the
definitive version of the revised letter of intent with respect to the asset
sale as to the four Centers with the limited assumption of liability was
approved. On September 18, 1997, each of Consolidated and Olympus executed the
substituted letter of intent and transmitted their respective counterpart to the
other party.
On September 29, 1997, the revised non-binding letter of intent between
Consolidated and Olympus was publicly announced. In addition, on that day, the
letter of intent which would have expired on September 30 and if the conditions
set forth therein had not occurred by that date, was extended to the earlier of
October 15, 1997 or the date of the execution of the Purchase Agreement.
Subsequently, the parties agreed informally to further extended to the date.
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On September 29, 1997, legal counsel of Olympus submitted a proposed asset
purchase agreement to Consolidated and its legal counsel. On October 9, 1997,
Consolidated's legal counsel submitted comments and suggestions for change to
the proposed Purchase Agreement for consideration by Olympus and its legal
counsel.
At its meeting on September 18, 1997, after considering other financial
advisory firms and conferring with its legal counsel, Consolidated agreed to
engage Mayflower as its financial advisor to consider the terms and conditions
of the Purchase Agreement and to provide advice as to the consideration to be
received by Consolidated in the sale from a financial point of view.
On October 23, 1997, representatives of Olympus and Consolidated met (i) to
negotiate the terms and conditions of the proposed asset purchase agreement and
(ii) to consider an interim management services agreement to become effective on
or about November 3, 1997 and to remain in effect pending the expected
consummation of the Sale. During this meeting, Consolidated agreed to a
reduction in the aggregate amount of consideration to be received from
approximately $2,400,000 to approximately $1,700,000, the entire amount of which
reduction will be effected through no reduction in the cash component but only
in shares of Olympus Common Stock. As a result, the parties agreed that the
purchase price would include 12,765 shares rather than the 42,553 shares
previously agreed upon.
On October 23, 1997, representatives of Consolidated and Olympus met to
negotiate certain key business terms of the proposed sale, including the terms
and conditions of a management agreement under which Olympus or a subsidiary to
be formed by it would take over management of the day-to-day operations of the
four Centers pending consummation of the proposed purchase agreement. Between
that date and November 3, 1997, the parties negotiated the terms of the
management agreement and exchanged signature pages to the definitive Management
Agreement effective November 3, 1997. See "The Purchase Agreement Additional
Agreements."
Between November 4 and November 19, 1997, representatives of Consolidated
and Olympus together with their respective legal counsel completed the
negotiations of the terms and conditions of the Purchase Agreement and of the
Schedules and Exhibits referenced therein. On December 1, 1997, representatives
of Consolidated and Olympus agree to amend the terms of the sale to reflect an
all cash transaction thus eliminating the Olympus shares from the transaction.
Signature pages to the Purchase Agreement and other transaction documents
were executed and at approximately 5:00 PM EST on November 20, 1997 and were
held in escrow until December 10, 1997.
On December 2, 1997, the Board of Directors of Olympus had a telephonic
board meeting to consider the proposed Purchase Agreement and Sale and the
proposed opinion of Mayflower, as its financial advisor, as to the fairness of
the consideration to be received by the Company from a financial point of view.
Mayflower, through its president, gave oral statement of its opinion. After
discussion and consideration, Olympus's Board of Directors voted to approve the
Purchase Agreement and the Sale.
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RECOMMENDATION OF THE BOARD OF DIRECTORS OF CONSOLIDATED;
REASONS FOR THE SALE
THE BOARD OF DIRECTORS OF CONSOLIDATED HAS UNANIMOUSLY APPROVED THE SALE
AND BELIEVES THAT THE SALE IS FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY
AND ITS STOCKHOLDERS. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS APPROVE THE SALE.
In reaching its decision to approve the Sale, the Board of Directors of
Consolidated considered numerous factors, including without limitation: (i) the
amount and nature of the consideration to be received by the Company; (ii) the
financial results of the Company for the last three years and the prospects for
the Company; (iii) the debt of the Company; (iv) the historical stock prices of
the Company's Common Stock; (v) the absence of any better firm offer; (vi) the
opinion of the Company's independent investment banking firm that the Sale is
fair to the Company from a financial point of view.
In evaluating Olympus's offer, the Board of Directors of the Company
considered the following:
(A) Prospects for the Company. The Company has incurred net losses for the
years ended December 31, 1994, 1995 and 1996, and net losses before
extraordinary income for the nine months ended September 30, 1997 and there is
no assurance that the Company will be profitable in the future to service all of
the Company's debt and accumulate equity for stockholders. At September 30,
1997, the Company had an accumulated deficit of approximately $8,016,478. The
Company has not been able to pay all of its obligations when due, with the
result that the Company has been required to restructure its debt in 1994, 1995,
1996 and 1997. To alleviate the continuing negative cash flow of the Company,
the Company caused PTS to turn over management of the four Centers to the
Olympus Manager pending consummation of the Sale. This Management Agreement was
effective as of November 3, 1997. See "The Purchase Agreement - Additional
Agreements."
The Board of Directors determined that the Sale would allow the Company to
sell a substantial portion of its assets, to raise funds to pay down debt and to
give the Company additional time to dispose of the remaining portion of its
business, which has not been profitable in the past three years, to eliminate
additional Company debt and preserve to some extent its stockholders equity.
(B) Limited Available Capital. The Company's capital requirements have been
and, if the Company were to continue operations, will continue to be
significant. The Company has been substantially dependent upon private
placements of its debt and equity securities, on conversion of certain debt to
equity, on loans from its principal stockholder, and from time to
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time, on short-term loans from its officers, directors and other stockholders to
fund requirements. The Company has no current arrangements with respect to
sources of additional financing and there can be no assurance that the Company
will be able to obtain additional financing on terms acceptable to the Company.
Moreover, in May, 1997 the Company's principal stockholder informed the Company
that, other than a loan of $300,000 related to expenses of the Sale, it was
unwilling to advance additional funds to the Company. During 1997, the Company
also raised cash and/or reduced debt pursuant to the sale of its four
Pennsylvania clinics and return to a former owner the Company's non-performing
Florida clinic, both as noted below. See "Business Consolidated - Recent
Divestitures." The Company's former independent auditors have qualified its
report dated April 5, 1996 on the Company's financial statements that financing
uncertainties raise substantial doubt about the Company's ability to continue as
a going concern.
In recent years the health care industry in which the Company operates has
experienced substantial growth, consolidation and increasing competition. To
achieve the size and obtain the resources the Company considers necessary to
become competitive against this background, the Company believes that it would
need to raise substantial additional capital, which could be difficult or
impossible to raise on satisfactory terms and within the time frame required to
permit the Company to remain a going concern.
(C) The absence of any better firm offer. In this regard, the Company has
attempted to solicit other potential buyers with respect to acquiring the
Company's assets. In the six (6) months prior to approval of the Purchase
Agreement by the Board, management of the Company contacted certain companies in
similar businesses to solicit their interest in acquiring the Company. No other
party contacted indicated an interest in matching or exceeding Olympus's offer,
and no other party has approached the Company with an offer equal to or greater
than Olympus's offer.
(D) The consideration to be paid. Olympus will provide consideration in the
form of $1,700,000 in cash, subject to certain adjustments at closing. The Board
also retained the services of Mayflower, which rendered its opinion that the
Sale and the consideration to be paid for the Purchased Assets is fair from a
financial point of view to the Company.
The Board believes, therefore, that the Olympus offer is the best offer
available to satisfy a portion of the Company's obligations in addition to the
disclosed limited liabilities of PTS and Consolidated related to the Purchased
Assets to be assumed by the Purchaser, and to position the Company to pursue in
an orderly fashion the sale of the remaining assets of the Company for a
possible future return to its stockholders. See - "Business of Consolidated
After the Sale" and "Unaudited Pro Forma Condensed Consolidated Financial
Information."
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Business of Consolidated After the Sale
After the Sale is approved by stockholders and consummated, the Company
expects to pursue the sale of the remaining assets of the Company, which consist
primarily of out-patient facilities located in Delaware and Pennsylvania (the
"Remaining Facilities"). If the Company is successful in negotiating for and
consummating the sale of the Remaining Facilities, the Company does not expect
to remain an operating company or to continue in the health care business or to
diversify into other lines of business. Since the Sale to Olympus does not
include the Company's accounts receivable, after the Sale is approved by
stockholders and consummated, the Company will also be engaged in collecting
such receivables and using the proceeds of such collection to further reduce
debt. The Company expects to remain in existence until at least March 31, 1998.
After the consummation of the Sale, the Board of Directors of the Company
will consider the available alternatives to the Company. Such alternatives
include: (i) the institution of a stock repurchase program or the launch of a
cash tender for shares of Consolidated Common Stock by the Company, using the
cash proceeds, if any, to be realized from the sale of the Remaining Facilities,
(ii) the distribution of any remaining assets to stockholders and/or creditors
of the Company (or to a liquidating trust for their benefit); or (iii)
liquidation of the Company.
Opinion of Consolidated's Financial Advisor
Consolidated engaged The Mayflower Group, Ltd. of Boston, Massachusetts
("Mayflower") as its financial advisor to render certain financial advisory
services to Consolidated concerning the Proposed Sale, including rendering an
opinion with respect to the fairness to Consolidated and its stockholders, from
a financial point of view, of the Proposed Sale and of the Purchase Price to be
received in connection therewith. At the December 2, 1997 meeting of
Consolidated's Board of Directors, Mayflower rendered its oral opinion to the
Board and since that date has delivered a written confirmation of its opinion
(i.e., the Fairness Opinion), a copy of which is included in this Proxy
Statement as Annex B. Mayflower has not made and does not intend to make any
review or analysis with respect to the proposed Sale after the date of this
Proxy Statement.
As noted above, the full text of the Fairness Opinion of Mayflower dated
December 2, 1997, which sets forth the matters considered, the scope and
limitations of the review undertaken and the procedures followed by Mayflower in
rendering its opinion, is attached to this Proxy Statement as Annex B and is
incorporated herein by reference. Consolidated's stockholders should read the
Mayflower Fairness Opinion carefully in its entirety. Consolidated's
stockholders should note that the opinion expressed by Mayflower was provided
for the information of the Board of Directors of Consolidated only in connection
with its consideration of the Sale.
Interests of Certain Persons in the Sale
In considering the recommendations of its Board of Directors with respect
to the
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Proposed Sale, stockholders should be aware that certain members of
Consolidated's management and Board of Directors may have certain interests in
the Sale that are in addition to the interests of stockholders generally. The
Board of Directors of Consolidated was aware of these interests and considered
them, among other matters, in approving the Sale.
Employment and Related Agreements. Consolidated currently has employment
and related agreements with Robert M. Whitty, President and Chief Executive
Officer and Raymond L. LeBlanc, Chief Financial Officer and Treasurer,
respectively.
In November 1997, Consolidated and Mr. Whitty entered into an agreement
(the "Whitty Continuation Agreement") under which Mr. Whitty agreed to continue
his employment as President and Chief Executive Officer of Consolidated for
which he would be entitled to receive compensation of approximately $12,500 per
month, payable through March 31, 1998. Upon agreement of all parties, the
agreement provides for the continuation beyond March 31, 1998 if needed. Also,
in September, 1997, Consolidated and Mr. LeBlanc entered into an agreement (the
"LeBlanc Continuation Agreement") under which Mr. LeBlanc agreed to continue in
his position as Chief Financial Officer and Treasurer for which he would be
entitled to receive compensation of approximately $9,167 per month, payable
through March 31, 1998. Under the terms of both Agreements, Consolidated will
provide family health insurance through March 31, 1998.
Advisory Fees. In accordance with Consolidated's engagement of Mayflower
and in connection with its rendering its Fairness Opinion, upon receipt and
acceptance of the Fairness Opinion, Mayflower will receive advisory fees of
$25,000 in the aggregate, less the amount of prior payments made by Consolidated
to Mayflower for its financial advisory services. See " -- Opinion of Financial
Advisor."
Certain Federal Income Tax Consequences
There will be material no Federal income tax consequences to the
stockholders of Consolidated as a result of the Sale.
Anticipated Accounting Treatment
The transaction will be treated as a sale for cash of fixed assets and
related intangible assets, mainly goodwill, less certain assumed liabilities.
These assets and liabilities are identified elsewhere in this document. The
difference between the cash received and the book value of the fixed assets and
related intangibles less the assumed liabilities, will be accounted for as a
nonoperating gain or loss. The unaudited pro forma consolidated financial
statements included herein indicate that the transaction will generate a book
loss.
Dividend Policy
The Company is not in a position, financial or otherwise, to consider the
payment of
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dividends on its capital stock. See "Price Range of Common Stock and Dividend
Policy - Consolidated."
Dissenters' Rights
The Nevada General Corporation Law does not provide for dissenters' rights
to holders of Consolidated Common Stock or Preferred Stock with respect to the
Sale Proposal.
Fees and Expenses
Whether or not the transactions contemplated by the Purchase Agreement are
consummated, except for amounts payable upon termination, each of the parties
will bear its own expenses incident to preparing, entering into and consummating
the Purchase Agreement and the Sale. See "The Purchase Agreement - Certain
Payments."
The Purchase Agreement
This portion of the Proxy Statement describes various aspects of the Sale
and provisions of the Purchase Agreement. The following description does not
purport to be complete and is qualified in its entirety by reference to the
Purchase Agreement attached hereto as Annex A and incorporated herein by
reference. Stockholders of Consolidated are urged to read the Purchase Agreement
in its entirety.
Terms of the Sale
General. The Purchase Agreement provides that, subject to the satisfaction
or, in certain cases, waiver of certain conditions (including, among other
things, approval of the Purchase Agreement by the Stockholders of Consolidated,
receipt by Consolidated of the Fairness Opinion of Mayflower, receipt of
approval or consents of Lessors under the Leases of PTS consents as to the
assignment of the Provider Agreements, Service Agreements, Professional
Contracts and other Contracts Requiring Consent and receipt of all necessary
material regulatory approvals), substantially all of the assets of PTS will be
sold to the Purchaser in exchange for payment of the Purchase Price of a total
of $1,700,000, cash payable at closing. In addition, the Purchaser will assume
certain limited disclosed outstanding debt of PTS and Consolidated related to
the Purchased Assets, which total approximately $58,197.00 as of September 30,
1997. Under the Purchase Agreement the Purchaser has paid a $100,000 deposit
toward the Purchase Price. This deposit is being held in escrow and is
non-refundable unless the Purchase Agreement is not consummated as a result of a
breach by the Company or PTS or by the failure of the Consolidated stockholders
to approve the Sale Proposed.
In addition to the Leases, Provider Agreements, Service Agreements,
Professional Contracts and Contracts Requiring Consent that will be transferred
to the Purchaser, the Purchased Assets also include all tangible and intangible
assets owned by PTS and used in the Business, such as plans, surveys, policy
manuals, accounts, records, non-proprietary software and computer
19
<PAGE>
programs and documentation, if any, used in conducting the business and any and
all trademarks, service marks, copyrights and the associated goodwill, all
warranties with respect to the Purchased Assets and all goodwill and going
concern value of the business. The Excluded Assets which will be retained by PTS
will include cash, accounts receivable, notes receivable, certain listed items
of leasehold improvements, fixtures, furniture, furnishings, office and computer
equipment and telephone and computer systems and other assets not used by PTS in
connection with the business. The Purchaser will not assume, and the Selling
Group will remain liable for, among other obligations, any liability for
federal, state and local income, franchise, sales, use, withholding or property
taxes and other taxes of any kind or description, all employee compensation,
employee benefits, severance and similar obligations and tax liabilities
incurred in connection with their businesses that arose, accrued or were
incurred prior to the closing date, liabilities arising out of any threatened or
pending litigation and any other liability for any account, accounts payable,
note or note payable, whether due or to become due, of PTS of any nature
whatsoever other than those liabilities specifically assumed by Purchaser
pursuant to the Purchase Agreement.
The Purchase Price payable on the closing date will be subject to certain
adjustments including real estate taxes and municipal betterment assessments,
water and sewer trenches, utility deposits, fuel costs and advances,
prepayments, security deposits and the amount of the refundable deposit of
$100,000 previously deposited with the escrow agent under the Purchase
Agreement, as well as other items normally adjusted for commercial transactions
similar to the Proposed Sale.
Representations and Warranties
The Purchase Agreement contains various representations and warranties of
Consolidated and PTS, on the one hand, and Olympus and the Purchaser on the
other hand, relating, among other things, to all or, in the case of Olympus and
the Purchaser, some of the following:
(i) their incorporation, existence, good standing, corporate power,
qualification to do business and similar corporate matters;
(ii) the absence of conflicts, violations and defaults under their
charters and by-laws and certain other agreements and documents;
(iii) the ownership and title to the Acquired Assets free and clear of all
liens except certain permitted liens;
(iv) the possession of all licenses, permits and approvals to operate
the Business and qualification as a provider participant in the
Medicaid program;
(v) the condition of the Acquired Assets;
20
<PAGE>
(vi) the accuracy of financial statements;
(vii) the documents and reports filed with the SEC and the accuracy and
completeness of the information contained therein;
(viii) the absence of undisclosed liabilities;
(ix) compliance with laws, ordinances and regulations;
(x) environmental matters;
(xi) employee benefit matters;
(xii) the absence of certain material changes or events since September
30, 1997;
(xiii) tax matters; and
(xiv) the consents required to consummate the Sale.
As noted below under "Indemnification," the representations and
warranties of the parties expire at various times.
Conduct of Business Pending the Sale
The Purchase Agreement contains certain restrictions on the conduct of
the Business pending consummation of the Sale. In particular, unless the prior
written consent of the Purchaser Group is obtained, or as permitted by the
Purchase Agreement, prior to the closing date, the Purchase Agreement requires
the Selling Group, among other things, to:
(i) conduct the Business in the ordinary course and in the same manner as
theretofore conducted;
(ii) maintain and preserve the Acquired Assets intact and preserve in
effect each Service Agreement, each Professional Contract, each
agreement with a third party payor program, and other relationships
with customers, suppliers and others having a business relationship
with Seller in respect of the Business;
(iii) use reasonable efforts to retain each of the Employees and
Professionals so that they will be employable by the Purchaser after
the Closing;
(iv) punctually pay and discharge or make adequate provisions for all
taxes with respect to the Business or the Acquired Assets;
21
<PAGE>
(v) use reasonable efforts or commercially reasonable efforts to assist
the Purchaser in obtaining the transfer of Provider Agreements or in
obtaining new Provider Agreements if a transfer is not possible, and
to assist the Purchaser in obtaining or in the transfer to the
Purchaser of any licenses, consents and/or approvals necessary to
operate the business;
(vi) refrain from (a) increase in compensation to Employees or
Professionals other than in the ordinary course of business
consistent with past practices, (b) creating any lien (other than
certain permitted liens) or other encumbrance, security interest or
imperfection of title of or with respect to any of the Acquired
Assets; c) amending any lease, contract, agreement, understanding,
commitment or transaction with respect to any of the Acquired Assets
other than in the ordinary course of business, (d) incurring,
assuming, creating, guaranteeing, or permitting to exist any debt,
obligation or liability with respect to the Acquired Assets other
than in the ordinary course of business or in connection with any
permitted lien, (e) commencing any litigation or other adversarial
proceedings in respect of the Business or the Acquired Assets other
than in the ordinary course of business, and applications for
licenses, permits or other necessary approvals in the ordinary course
of business, (f) violating any legal requirements relating to the
operation of the Business, (g) making in respect of the Business and
the Acquired Assets capital expenditures or contracts for the
purchase of Fixed Assets in excess of $10,000 per expenditure and
$25,000 in the aggregate, (h) entering into leases, subleases,
licenses, occupancy and other agreements pursuant to which persons
hold rights to use the Acquired Assets or the premises covered by the
Leases, Ii) acquire or make any investments and any other corporation
or business concern, (j) making in respect of the Business and the
Acquired Assets loans or advances to any person or forgiving,
canceling, discharging, settling, reducing or compromising any debts,
obligations, liabilities or claims, (k) terminating, canceling,
modifying, amending or allowing termination, cancellation,
modification or amendment of any of the Service Agreements, or (l)
failing to notify the Purchaser Group of any fact or occurrence,
which if it existed on the date of the Purchase Agreement, would
constitute a breach of any of the representations and warranties of
Consolidated and PTS set forth therein.
Certain Conditions to Closing the Sale.
The Closing and the Purchaser Group's obligations to consummate the Sale on
the one hand, and the Selling Group's obligations to consummate the Sale on the
other hand, are subject to customary closing conditions including, among other
things, the following:
(i) the accuracy of representations and warranties of the Selling Group and
Purchaser
22
<PAGE>
Group, respectively; (ii) compliance with affirmative and negative covenants as
set forth in the Purchase.
Indemnification and Other Post Closing Obligations
The Selling Group's representations and warranties will survive for five
(5) years after the date of the Purchase Agreements, except as follows:
(i) the representations and warranties as to corporate organization and
authority;
(ii) title to the Acquired Assets, compliance with laws, environmental
matters and recoupment claims as well as any fraud or intentional
misrepresentation will survive indefinitely, and
(iii) the representations and warranties as to tax matters will survive for
two (2) months after the expiration of all applicable statutes of
limitations. The representations and warranties of the Purchaser
Group will survive indefinitely.
Consolidated and PTS, jointly and severally, have agreed to indemnify the
Purchaser Group against losses incurred by them which are attributable among
other thing, to any breach of a representation or warranty contained in the
Purchase Agreement, any liabilities of the Selling Group which become
liabilities of the Purchaser Group other than those which have been expressly
assumed by the Purchaser Group, any taxes assessed against PTS for any period
whether before or after the Closing Date or against the Acquired Assets due in
respect of any fiscal period ended before the Closing Date, breach of any
obligation or covenant made or to be performed by the Selling Group under the
Purchase Agreement, any failure to transfer good and clear marketable title to
the Acquired Assets, arising out of any recoupment claims, pre-closing
obligations and/or retained liabilities, arising by reason of any failure to
comply with the applicable tax lien or bulk sales laws, any liabilities under
environmental laws occurring or arising prior to the Closing Date, provided
notice is given to the Selling Group within the appropriate survival period
described above. Generally, the Selling Group is not obligated for any
indemnification obligation unless and until the aggregate amount of such claims
exceeds $25,000 (the "Threshold Amount") at which time the Sellers should be
liable for the full amount of such claims. Such Threshold Amount does not apply
to certain excepted representations and warranties as set forth therein.
The Purchaser Group has agreed to indemnify the Selling Group against
losses incurred by them that are attributable to a breach of the representations
and warranties of the Selling Group contained in the Purchase Agreement.
Generally, with respect to indemnification claims based on breaches of
representations or warranties, the Purchaser Group is not obligated to make
indemnification payments unless and until the amount thereof exceeds the
Threshold Amount except such Threshold Amount does not apply to certain
representations and warranties as set forth in the Purchase Agreement.
23
<PAGE>
Post Closing Transitional Matters
Under the terms of the Purchase Agreement, Consolidated and PTS have agreed
to cooperate with the Purchaser Group in timely obtaining licenses, permits and
other government authorizations to operate the business and pending receipt
thereof to hold such of the Acquired Assets that cannot be transferred at the
Closing in a constructive trust for the benefit of Purchaser until such transfer
is permissible. The parties have also made special provisions with respect to
access to information and matters relating to recoupment claims including
proposed audit adjustments asserted or imposed by any governmental authority,
third party payor or other persons with respect to services provided prior to
the Closing Date.
No Solicitations and Standstill
The Purchase Agreement provides that until consummation of the Sale, or the
earlier termination of the Purchase Agreement in accordance with its terms,
Consolidated and its subsidiaries and their respective officers, directors,
employees or representatives will refrain from participating in any discussions
or negotiations, if any, existing as of the date of the Letter of Intent with
any third party theretofore conducted with respect to any sale, lease, transfer
or other disposition of any kind with respect to the Acquired Assets, the
Capital Stock of Consolidated or assets of its subsidiaries (or any substantial
portion thereof, or any merger or consolidation of Consolidated or PTS with or
into any other entity) (each, an "Alternative Transactions"), and will not
solicit any proposal for any Alternative Transaction. However, notwithstanding
the foregoing, Consolidated may furnish information and access in the case of
unsolicited requests after the date of the Purchase Agreement to any person or
group pursuant to Confidentiality Agreements and may participate in discussions
and negotiations with any such person or group concerning any proposal for an
Alternative Transaction if such person or group has submitted a bona fide
written proposal to the Board of Directors of Consolidated related thereto which
the Board reasonably determines represents a superior transaction to the
transactions contemplated by the Purchase Agreement and, if in the opinion of
the Board of Directors of Consolidated after consultation with independent legal
counsel, a failure to provide such information or negotiations will be a breach
of their fiduciary duties to Consolidated's stockholders under applicable law.
Consolidated is obligated to notify the Purchaser Group immediately if any such
requests or proposals, or any inquiry or contact with any person or group with
respect thereto, is made and is obligated to keep the Purchaser apprised of all
developments related thereto which could reasonably be expected to culminate in
the Board of Directors of Consolidated withdrawing, modifying or amending its
recommendation of the Purchase Agreement or the transactions contemplated
thereby.
Under the Purchase Agreement, the parties have entered into reciprocal
covenants in the event the Purchase Agreement is terminated pursuant to certain
provisions thereof that until July 11, 1998, neither party will solicit or
employ any of the officers or key employees of the other party, with certain
limited exceptions.
24
<PAGE>
The Purchase Agreement also provides that, until July 11, 1999, unless such
shall have been specifically in writing, neither Purchaser Group nor any of its
affiliates (as defined under the Securities Exchange Act of 1934) or
representatives will in any manner, directly or indirectly, (a) effect or seek,
offer or propose (whether publicly or otherwise) to effect, or cause or
participate in or in any way assist any other person to effect or seek, offer or
propose (whether publicly or otherwise) to effect or participate in (I) any
acquisition of any securities (or beneficial ownership thereof) or assets of
Selling Group or any of their subsidiaries (other than open market purchases of
no more than 2% of Selling Group's outstanding shares of common stock); (ii) any
tender or exchange offer for a merger or other business combination involving
Selling Group or any of its subsidiaries; (iii) any of the capitalization,
restructuring, liquidation, dissolution or other extraordinary acquisition with
respect to Selling Group or any of its subsidiaries; or (iv) any solicitation of
proxies, (b) form, join or in any way participate in a "group" (as defined under
the Exchange Act); c) otherwise act, alone or in concert with others, to seek to
control or to influence the management, Board of Directors or policies of
Selling Group; (d) take any action which might force Selling Group to make a
public announcement regarding any of the types of manners set forth in (a)
above; or (e) enter into any discussions or arrangements with any third party
with respect to any of the foregoing.
Waiver of Conditions, Amendment, or Termination of the Purchase Agreement
Waiver. The Purchase Agreement provides that either the Purchaser Group or
the Selling Group may waive the conditions precedent to Closing or defer in
whole or in part any of the conditions precedent to Closing, but only in writing
and at its option and sole discretion.
Amendment. The Purchase Agreement may only be amended by a further
agreement, in writing, fully executed by each of the parties.
Rights of Termination and Remedies for Default
In the event that all of the conditions precedent of the Purchaser Group
have been satisfied or waived by the Purchaser Group on or prior to Closing Date
and the Purchaser Group is ready, willing and able to proceed with Closing, but
the Selling Group is unable, unwilling or refuses to consummate the Closing in
accordance with the terms of the Purchase Agreement, or in the event the Selling
Group is otherwise in breach of the Purchase Agreement, the Purchaser Group may,
at its option, terminate the Purchase Agreement or proceed to protect and
enforce its rights by any action at law, suit in equity or other appropriate
proceedings including seeking injunctive relief. In addition, the Purchase
Agreement may be terminated by the Purchaser Group if (I) a proposal for an
Alternative Transaction for the Selling Group exists and the Board of Directors
of Consolidated withdraws or modifies or amends its recommendation of this
Purchase Agreement or the transactions contemplated thereby in a manner adverse
to the Purchaser Group or (ii) the Board of Directors of Consolidated recommends
to the stockholders of Consolidated an Alternative Transaction. Notwithstanding
termination, the Selling Group would remain obligated with respect to the
payment of expenses and other payments in accordance with provisions of the
25
<PAGE>
Purchase Agreement (as summarized below) and to the compliance with the
Confidentiality Agreement by and between Consolidated and Olympus dated May 29,
1997.
In the event the Selling Group is ready, willing and able to proceed with
the Closing and the Purchaser Group fails to complete the transactions
contemplated by the Purchase Agreement, which failure is due to the
unwillingness, inability or refusal of the Purchaser Group to fulfill its
obligations at such Closing, other than those that give it a right to terminate
the Purchase Agreement, then the Selling Group may terminate the Purchase
Agreement whereupon, the Purchaser Group will be entitled to receive $50,000 of
the Selling Group's sole, exclusive and liquidated damages.
Certain Payments
The Purchase Agreement provides that if the Purchase Agreement is
terminated as a result of the Selling Group entering into an Alternative
Transaction, the Selling Group is obligated to pay the Purchaser Group a fee of
$250,000. However, if the Agreement is terminated due to the failure to obtain
the requisite approval of the stockholders of Consolidated at the stockholders'
meeting described in this Proxy Statement, the Selling Group will be obligated
to pay the Purchaser Group $50,000 in cash. Alternatively, if the Purchase
Agreement is duly terminated in the event of the occurrence of both the Selling
Group entering into an Alternative Transaction and the stockholders of
Consolidated failing to approve this Purchase Agreement as requested in
accordance with this Proxy Statement, the fee payable by the Selling Group to
the Purchaser Group shall be $250,000.
Additional Agreements
In order to assure an orderly transition in connection with the Sale,
effective November 3, 1997, the Company and PTS entered into a Management
Agreement (the "Management Agreement") with the Purchaser as Manager (the
"Manager") pursuant to which the Manager was engaged to provide advisory,
support, consulting and administrative services in the management of the Centers
and the Business, prior to consummation of the Sale.
26
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Condensed Balance Sheet and
Unaudited Pro Forma Consolidated Statements of Operations give effect to (I) the
sale of three of the Company's Pennsylvania clinics which was completed on
February 28, 1997 (the "Pennsylvania Disposition"), (ii) the sale of one Florida
clinic which was completed in March, 1997 (the "Florida Disposition"), and (iii)
the proposed Sale of the operating assets of PTS pursuant to the provisions of
the Purchase Agreement. The proposed Sale includes the assets of the Company's
four Massachusetts outpatient clinics. See "Business - Consolidated - Recent
Divestitures."
These Unaudited Pro Forma Consolidated Financial Statements have been
derived from the consolidated statements of operations of the Company for the
year ended December 31, 1996 and the nine months ended September 30, 1997
included elsewhere in the Proxy Statement. The Unaudited Pro Forma Consolidated
Statements of Operations give effect to the Pennsylvania Disposition, the
Florida Disposition and the Sale as if each transaction had occurred at the
beginning of each of the periods presented.
The Unaudited Pro Forma Consolidated Financial Statements should be read in
conjunction with the notes thereto and the Company's Consolidated Financial
Statements and related notes therein contained elsewhere in this Proxy
Statement. See "Index to Financial Statements." The Unaudited Pro Forma
Consolidated Financial Statements are presented for informational purposes only
and do not purport to be indicative of the results of operations that actually
would have resulted if the Pennsylvania Disposition, the Florida Disposition and
the Sale had been consummated previously nor which may result from future
operations of the Company.
27
<PAGE>
Consolidated Health Care Associates, Inc.
Unaudited Pro Forma Consolidated Condensed Balance Sheet
<TABLE>
<CAPTION>
September 30, 1997
-----------------------------------------------
Actual Adjustments Pro Forma
---------- ---------- ----------
<S> <C> <C> <C>
Assets
Current Assets:
Cash 44,575 1,700,000(1) 1,744,575
Accounts receivable, net 1,079,198 0 1,079,198
Other current receivable 907,068 0 907,068
Other current assets 64,469 0 64,469
---------- ---------- ----------
Total current assets 2,095,310 1,700,000 3,795,310
Property, plant and equipment, net 326,924 (98,410)(2) 228,514
Goodwill, net 2,371,754 (2,288,438)(3) 83,316
Deferred charges and other assets, net 378,665 0 378,665
---------- ---------- ----------
Total assets 5,172,653 (686,848) 4,485,805
========== ========== ==========
Liabilities and Stockholders Equity
Current Liabilities
Current portion long-term debt 902,705 0 902,705
Accounts payable 827,178 0 827,178
Accrued payroll, taxes and benefits 409,176 (87,906)(2) 321,270
Accrued expenses 121,954 0 121,954
---------- ---------- ----------
Total current liabilities 2,261,013 (87,906) 2,173,107
Long-term debt 796,269 0 796,269
---------- ---------- ----------
Total liabilities 3,057,282 (87,906) 2,969,376
Stockholders' equity:
Preferred Stock: 10,000,000 shares authorized
Issued: 1,727,305 1,727,305 0 1,727,305
Common Stock, $0.012 par value, 50,000,000
shares authorized; Issued, 16,273,500 198,715 0 198,715
Additional paid-in capital 4,492,330 0 4,492,330
Accumulated deficit (4,215,479) (598,942)(4) (4,814,421)
Less: treasury stock, 700,000 shares at cost (87,500) 0 (87,500)
---------- ---------- ----------
Total stockholders' equity 2,115,371 (598,942) 1,518,429
---------- ---------- ----------
Total liabilities and stockholders' equity 5,172,853 (686,848) 4,485,805
========== ========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Condensed Balance Sheet
28
<PAGE>
Notes to Unaudited Pro Forma Consolidated Condensed Balance Sheet
(1) Adjustments to reflect proceeds to be received by the Company from the
Disposition. The adjustments assume proceeds of $1,700,000 in cash.
Cash at closing $1,700,000
----------
Total purchase price $1,700,000
==========
(2) Adjustments to reflect the exchange of certain assets and liabilities
pursuant to the Sale and related transactions. The buyer will receive
$102,589 of net fixed assets to the outpatient clinics and will assume
$58,197 of accrued payroll and related benefits.
Fixed asset acquisition cost $ 350,298
Accumulated depreciation $ 251,888
----------
$ 98,410
==========
(3) Adjustment to reflect goodwill amortization expense that will be expensed
upon the completion of the Sale.
PTS Rehab, Inc.
Goodwill $2,720,313
Accumulated amortization $ (431,875)
----------
Goodwill net $2,288,438
==========
(4) Adjustment to reflect the gain realized upon the Sale.
29
<PAGE>
Consolidated Health Care Associates, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
<TABLE>
<CAPTION>
Year Ended
December 31, 1996
------------------------------------------------------------------------------
Adjusted Pro
Actual PA FL Olympus Forma
---------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenue, net $8,799,431 $2,156,678(1) $333,873(1) $2,348,689(8) $ 3,960,191
Costs and expenses:
Operating costs 7,015,664 1,931,633(2) 269,322(2) 1,448,796(9) 3,365,913
Admin and selling 1,771,723 0(3) 0(3) 132,660(10) 1,639,063
Deprecand amort 242,454 13,152(4) 8,993(4) 49,527(11) 170,782
---------- ---------- -------- ---------- -----------
Ttl costs and expenses 9,029,841 1,944,785 278,315 1,630,983 5,175,758
---------- ---------- -------- ---------- -----------
Operating income (loss) (230,410) 211,893 55,558 717,706 (1,215,567)
Interest expense, net (298,564) 39,299(5) 3,456(6) 99 (341,418)
Other (income) expense 86,562 0 0 0 86,562
---------- ---------- -------- ---------- -----------
Inc/(loss) before taxes (442,412) 172,594 52,102 717,607 (1,384,715)
Provision for taxes 30,830 0(7) 0(7) 0(7) 30,830
---------- ---------- -------- ---------- -----------
Net income (loss) $ (473,242) $ 172,594 $ 52,102 $ 717,607 $(1,415,545)
========== ========== ======== ========== ===========
Net income (loss) per $ (0.09)
share of common stock
Average number of 15,134,220
common shares
outstanding
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1997
------------------------------------------------------------------------------
Adjusted Pro
Actual PA FL Olympus Forma
---------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenue, net $5,895,281 $ 363,554(1) $ 62,600(1) $1,608,780(8) $ 3,860,347
Costs and expenses:
Operating costs 4,668,926 304,155(2) 73,210(2) 1,190,250(9) 3,101,311
Admin and selling 1,755,718 0(3) 0(3) 107,713(10) 1,648,005
Deprecand amort 154,575 2,192(4) 3,328(4) 72,972(11) 76,083
---------- ---------- -------- ---------- -----------
Ttl costs and expenses 6,579,219 306,347 76,538 1,370,935 4,825,399
---------- ---------- -------- ---------- -----------
Operating income (loss) (683,938) 57,207 (13,938) 237,845 (965,052)
Interest expense, net 211,773 6,905(5) 283(6) (560) 205,145
Other (income) expense (49,563) 0 0 (260) (49,303)
---------- ---------- -------- ---------- -----------
Inc/(loss) before taxes (846,148) 50,302 (14,221) 238,665 (808,210)
Provision for taxes 717 0(7) 0(7) 0(7) 717
---------- ---------- -------- ---------- -----------
Net income (loss) (846,865) $ 50,302 $(14,221) $ 238,665 $(1,121,611)
========== ========== ======== ========== ===========
Net income (loss) per $ (0.07)
share of common stock
Average number of 15,722,833
common shares
outstanding
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Operations
30
<PAGE>
Notes to Unaudited Pro Forma Consolidated Statements of Operations
(1) Adjustment to eliminate actual net revenues for the periods presented
attributable to the assets previously disposed.
(2) Adjustment to eliminate direct actual and accrued expenses relating to the
assets previously disposed, which consist principally of salaries, wages,
fringe benefits and other clinical costs.
(3) Assumes no reduction in the Company's administrative and selling expenses
resulting from the dispositions.
(4) Adjustment to eliminate actual depreciation and amortization expense for
the periods presented attributable to the assets previously disposed of.
(5) In January 1997, the Company agreed to satisfy a note of the Company held
by the buyer in the amount of $413,259, out of the proceeds of $484,000 in
face amount of receivable attributable the assets to be disposed of. The
pro forma adjustment eliminates actual and accrued interest expense
attributable to this note. Lower interest expense resulting from the use of
proceeds of the Sale to reduce the Company's outstanding debt is not
reflected in the pro forma adjustments.
(6) In April 1997, the Company agreed to satisfy a note of the Company held by
the buyer in the amount of $49,000, out of the proceeds of $50,000 in face
amount of receivable attributable to the assets to be disposed of. The pro
forma adjustment eliminates actual and accrued interest expense
attributable to this note.
(7) Excludes the gain on the Sale of the four Centers and the Business as well
as on the Pennsylvania and Florida Dispositions. Accordingly, the pro forma
adjustments do not assume any change in Federal and State tax.
(8) Adjustment to eliminate actual net revenues for the periods presented
attributable to the assets to be disposed of.
(9) Adjustment to eliminate direct actual and accrued expenses relating to the
assets to be disposed of, which consist principally of salaries, wages,
fringe benefits and other clinical costs.
(10) Adjustment to eliminate indirect actual and accrued expenses relating to
the assets to be disposed of, which consist principally of salaries, wages,
fringe benefits and other general and selling expense.
(11) Adjustment to eliminate actual depreciation and amortization expense for
the periods presented attributable to the assets to be disposed of.
31
<PAGE>
BUSINESS -- CONSOLIDATED
The Company provides outpatient rehabilitation services through a network
of outpatient clinics principally in the Northeast and Mid-Atlantic regions. The
Company owns and operates eight clinics, four in Massachusetts (one additional
clinic had been closed in April 1997) one in Pennsylvania and three in Delaware.
The Company also provides managed rehabilitation services through contract
staffing, principally in Massachusetts and New York. The executive offices of
the Company are located at 38 Pond Street, Suite 305, Franklin, Massachusetts
02038 and its telephone number is (508)520-2422.
In 1992, following the Company's initial public offering, the Company
operated nine facilities. In 1993, the Company acquired nine additional
facilities. The Company returned one clinic to is seller in 1995 and closed two
clinics in each of 1995 and 1996 that were not achieving desired results. In
February 1997, the Company sold three of its Pennsylvania clinics back to their
former owner. In March 1997, the Company returned one non-performing clinic in
Florida to its former owner. See "Recommendations of the Board of Directors of
Consolidated; Reasons for the Sale" and "Unaudited Pro Forma Condensed
Consolidated Financial Information."
In 1996, the Company had begun development of a program of managed
rehabilitation services ("MRS"), pursuant to which the Company would furnish
contract development, staffing, administrative, payroll, billing, collection and
management services to local, independently-owned host clinics and agencies,
that in turn would provide or coordinate the actual rehabilitative therapy
services. Two agreements have been executed and the Company expects that the MRS
program will be discontinued.
Industry Background
Physical and occupational therapy is the process of aiding in the
restoration of individuals disabled by injury or disease or recovering from
surgery. Management believes that the following factors are influencing the
growth of outpatient physical and occupational therapy services:
Economic Benefits of Physical and Occupational Therapy Services. Purchasers
and providers of health care services such as insurance companies, health
maintenance organizations, business and industry, are seeking ways to save on
traditional health care services. Management believes physical and occupational
therapy services represent a cost-effective service, by attempting to prevent
short-term disabilities from becoming chronic conditions, and by speeding the
recovery from surgery and musculoskeletal injuries.
Earlier Hospital Discharge. Changes in health insurance reimbursement, both
public and private, have encouraged the early discharge of patients in order to
contain and reduce costs. Management believes early hospital discharge practices
foster greater numbers of individuals requiring outpatient physical and
occupational therapy services.
32
<PAGE>
Outpatient Rehabilitation Services
The clinics provide pre- and post-operative care and treatment for a
variety of orthopedic-related disorders and sports related injuries, treatment
of neurologically related injuries, rehabilitation of injured workers and
preventative care. A patient who is referred to one of the Company's
rehabilitation facilities undergoes an initial evaluation and assessment process
that results in the development of a rehabilitation care plan designed
specifically for that patient. Rehabilitation services provided by the Company
include the following:
Conventional Clinical Services
All facilities provide routine acute clinical therapy services. Services
include preventive and rehabilitative services for neuromuscular,
musculoskeletal and cardiovascular injury or disease. Patients treated are
referred by physicians. Licensed physical therapists evaluate each patient and
initiate a program of rehabilitation to achieve each individual patient's
rehabilitation goals. Treatments or modalities rendered may include traction,
ultrasound, electrical stimulation, therapeutic exercise, heat treatment and
hydrotherapy. The Company's charge for its services is based upon the specific
treatments rendered. Patients requiring such services are usually treated for
one hour per day, three days per week over a period of two to five weeks.
Additionally, wherever appropriate, post-treatment maintenance and exercise
programs are provided to patients to continue their recovery on a cost-effective
basis.
Occupational-Industrial Services
At several of the Company's facilities, specific programs for the injured
workers compensation patient are rendered. Services unique to the injured worker
are as follows:
Work Capacity Evaluation (WCE). WCE is an intensive, objective evaluation of eh
injured worker's physical condition and capacity to perform the specific
requirement of the worker's employment. This evaluation is often used by
insurers to estimate the extent of rehabilitation treatment or as a basis for
settlement of disability claims.
Work Hardening. After the acute-care phase of an injury and often as an outcome
of a WE, there is a transitional need for the injured worker to regain the
physical capacity to safely perform employment requirements. Work hardening
provides graduated exercise and work stimulation therapies to rehabilitate the
injured worker. Patients in the Company's work hardening program gradually build
up their treatment time from three to seven hours per day, five days per week
for a four- to six-week period.
33
<PAGE>
Marketing
At each clinical location, the Company focuses its marketing efforts on
physicians, mainly orthopedic surgeons, neurosurgeons, psychiatrists,
occupational medicine practitioners, and general practitioners, which generally
account for the majority of physical and occupational therapy referrals. In
marketing to the physician community, the clinics emphasize their commitment to
quality patient care and communication with physicians regarding patient
progress. On a regional and corporate level, the Company seeks to improve and/or
establish referral relationships with health maintenance organizations,
preferred provider organizations, industry and case managers and insurance
companies.
Sources of Revenue/Reimbursement
Payor sources for the Company's services are primarily commercial health
insurance, managed care programs, workers' compensation insurance, Medicare and
proceeds from personal injury cases. Commercial health insurance and managed
care programs generally provide outpatient services coverage to patients
utilizing the clinics, and the patient is normally required to pay an annual
deductible and a co-insurance payment. Workers' compensation is a statutorily
defined employee benefit which varies on a state by state basis. Workers'
compensation laws generally require employers to pay for employees' costs of
medical rehabilitation, lost wages, legal fees and other costs associated with
work-related injuries and disabilities and, in certain jurisdictions, mandatory
vocational rehabilitation. These statutes generally require that these benefits
be offered to employees without any deductibles, co-payments of cost sharing.
Companies may provide such coverage to their employees through either the
purchase of insurance from private insurance companies, participation in
state-run funds or through self-insurance. Treatments for patients who are
parties to personal injury cases are generally paid for from the proceeds of
settlements with insurance companies.
Two of the Company's clinics have been certified as Medicare providers.
Medicare reimbursement for outpatient physical and/or occupational therapy
furnished by a Medicare-certified rehabilitation agency is equal to the lesser
of the providers's "reasonable cost" as allowed under Medicare regulations or
the providers's customary charges. Individual beneficiaries, or their "Medigap"
insurance carriers if such coverage exists, are required to pay a deductible and
co-payment amount, so that governmental payments to the Company do not exceed
80% of the reasonable costs of such services. The Company files annual cost
reports for each of its Medicare-certified clinics. These cost reports serve as
the basis for determining the regulations require that a physician must certify
the need for physical and/or occupational therapy services for each patient and
the services must be provided in accordance with an established plan of
treatment which is periodically revised. State Medicaid programs generally do
not provide coverage for outpatient physical and occupational therapy, and,
therefore, Medicaid is not and is not expected to be a material payor for the
Company.
34
<PAGE>
The following table sets forth the Company Percentage Revenues by category
of payor for the fiscal years 1994, 1995 and 1996.
Sources of Revenue/Reimbursement 1994 1995 1996
Workers Compensation 25% 10% 28%
Health Maintenance Organization 10% 13% 25%
Motor Vehicle Insurance 9% 6% 18%
Medicare 7% 5% 8%
Commercial Health Insurance 17% 39% 7%
Blue Cross/Blue Shield 7% 5% 5%
Self Pay 9% 7% 4%
Other 14% 12% 3%
Medicaid 2% 3% 2%
--- --- ---
Total 100% 100% 100%
=== === ===
Contract Services Division
The Company's Contract Services Division provides temporary physical,
occupational and speech therapist staffing, typically under intermediate term
contracts, to schools, hospitals, nursing homes, assisted living facilities and
home health care companies. In addition to hiring therapists locally, the
staffing division has established international sources of highly trained duly
licensed therapists who may provide services in the United States. Using these
relationships, the staffing division has been able to attract a growing supply
of staff at hourly rates below current market rates. The staffing division has
grown rapidly since its formation in September 1994.
Managed Rehabilitation Services
The Company has begun development of a program of managed rehabilitation
services ("MRS"), pursuant to which the Company would enter into licensing
arrangements with local, independently owned host providers of rehabilitative
therapy ("hosts"), such as outpatient clinics, small contract agencies and
independent home care agencies. Under these arrangements, the hosts would be the
actual provider or coordinator of rehabilitative therapy services, while the
Company would furnish the hosts with contract development and management
services.
35
<PAGE>
The Company believes that HMOs and other managed care payers are
increasingly seeking providers that can deliver multiple services in diverse
settings and locations. Under the MRS program, the Company would assist its
licenses hosts to develop a full range of rehabilitative therapies, including
physical, occupational, speech and respiratory services, and delivery of these
assisted living residences. Through its contractual relationships with managed
care payers, the Company would direct contracts with such payers to its host
licensees. The Company would also furnish the hosts with administrative,
payroll, billing and collection services, assist the hosts with staffing on an
as-requested basis and advise the hosts on contract management. For example,
based upon experience in the Company's own clinics and contract services
division, the Company would advise hosts on mix design -- establishing an
optimal balance between therapists and lesser paid therapist assistants -- and
employment of underutilized clinic staff to perform therapy at off-site
locations. Only one host would be licensed in any given locality, but multiple
hosts could participate in contracts arranged by the Company with regional or
national managed care payers.
The MRS model would benefit the hosts by offering contract opportunities
that otherwise would likely not be available to them and relieving them of
complex and costly administrative burdens. The model would benefit the Company
by leveraging off expertise developed in the company's clinics and contract
services operations and expanding the Company's operations into new regional
markets with relatively modest capital outlays. The Company would be compensated
by the hosts through direct payment for certain services and profit
participation in the hosts' businesses. Two agreements have been executed to
date. The Company expects to discontinue development of MRS prior to the closing
of the Sale.
Regulation
The health care industry is subject to numerous federal, state and local
regulations. Although many states prohibit commercial enterprises from engaging
in the corporate practice of medicine, the states in which the Company currently
operates do not prohibit the Company from providing physical therapy services.
There is a risk that the corporate practice of medicine could be interpreted in
those states to include the practice of physical therapy also, or that the
corporate practice of physical therapy itself could be specifically prohibited
in some states. In the event that the Company is found to be engaged in a
prohibited practice in any state, the Company would be required to restructure
its operations so as to be in compliance with applicable law. In addition, the
Company could be subject to fines and penalties. In addition, if the Company
were to seek to expand its operations to other states in which physical therapy
services could not be provided by a corporation, it would be required to seek
other arrangements in such states, which could reduce profitability.
Certain states in which the Company operates have laws that require
facilities that employ health professionals and provide health related services
to be licensed. The Company believes that the operations of its business, as
presently conducted, do not and will not require certificates of need or other
approvals and licenses. There can be no assurance, however, that existing laws
or regulations will not be interpreted or modified to require the Company to
obtain such approvals
36
<PAGE>
or licenses and, if so, that such approvals or licenses could be obtained.
Two of the Company's clinics are certified Medicare providers. In order to
receive Medicare reimbursement, a clinic must meet the applicable conditions or
participation set forth by the Department of Health and Human Services relating
to the type of facility, its equipment, record keeping, personnel and standards
of medical care as well as compliance with all state and local laws. Clinics are
subject to periodic inspections to determine compliance.
The Social Security Act imposes criminal sanctions and/or penalties upon
persons who pay or receive any "remuneration" in connection with the referral of
Medicare or Medicaid patients. The anti-kickback laws prohibit providers and
others from offering or paying (or soliciting or receiving), directly or
indirectly, any remuneration to induce or in return for making a referral for,
or ordering or recommending (or arranging for ordering or recommending) a
Medicare-covered service. Each violation of these rules may be punished by a
fine (of up to $250,000 for individuals and $500,000 for corporations, or twice
the pecuniary gain to the defendant or loss to another from the illegal conduct)
and or imprisonment for up to five years. In addition, a provider may be
excluded from participation in Medicaid or Medicare for violation of these
prohibitions through an administrative proceeding, without the need for any
criminal proceeding. Many states have similar laws, which apply whether or not
Medicare or Medicaid patients are involved.
Because the anti-kickback laws have been broadly interpreted to apply where
even one purpose (as opposed to a sole or primary purpose) of a payment is to
induce referrals, they limit the relationships which the Company may have with
referral sources, including any ownership relationships. The anti-kickback laws
may also apply to the structure of acquisitions by the Company of
physician-owned physical therapy clinics, to the extent that any portion of the
purchase price or terms of payment are deemed to be an inducement to the
physician to make referrals to the clinic which, under an interpretive letter
from the Office of Chief Counsel of the Department of Health and Human Services
Inspector General, could include payments for goodwill. Management considers
these anti-kickback laws in planning its clinic acquisitions, marketing and
other activities, and believes its operations are and will continue to be in
compliance with applicable law, but no assurance can be given regarding
compliance in any particular factual situation, as there is no procedure for
obtaining advisory opinions from government officials.
In addition, another federal law, known as the "Stark Law" was expanded in
1993 to impose a prohibition on referrals of Medicare or Medicaid patients for
physical therapy services by physicians who have a financial relationship with
the provider furnishing the services. With certain specified exceptions, the
referral prohibition will apply to any physician who has (or whose immediate
family member has) a direct or indirect ownership or investment interest in, or
compensation relationship with, a provider of physical therapy services such as
the Company's clinics. This law also prohibits billing for services rendered
pursuant to prohibited referral. Penalties for violation include denial of
payment for the services, significant civil monetary
37
<PAGE>
penalties, and exclusion from Medicare and Medicaid. Several states have enacted
laws similar to the Stark law, but which cover all patients as well. The Stark
law covers any financial relationship between the Company and referring
physicians, including any financial transaction resulting from a clinic
acquisition. As with the anti-kickback law, management will consider the Stark
law in planning its clinic acquisitions, marketing and other activities, and
expects that its operations will be in compliance with applicable law. However,
as noted above, no assurance can be given regarding compliance in any particular
factual situation, as there is not procedure for obtaining advisory opinions
from government officials.
Competition
The health care industry generally and the physical and occupational
business in particular are highly competitive and subject to continual changes
in the manner in which providers are selected. The competitive factors in the
physical and occupational therapy businesses are quality of care, cost treatment
outcomes, convenience of location, and relationships with ability to meet the
needs of referral and payor sources. The Company's clinics compete directly or
indirectly with the physical and occupational therapy departments of acute care
hospitals, physician-owned physical therapy clinics, private physical therapy
clinics, and chiropractors.
Discontinued Operations
From inception, the Company provided diagnostic imaging services and
equipment under contracts to hospitals under both mobile and fixed base
arrangements. Through its merger in July 1991 with PTS, the Company began to
provide inpatient and outpatient rehabilitation services pursuant to contracts
with hospitals. Effective March 26, 1993, the Company's Board of Directors
approved and adopted a plan to discontinue its diagnostic imaging services
division and sold all related assets, except accounts receivable, effective
September 30, 1994.
Recent Divestitures
On February 28, 1997, the Company completed the sale of three of its four
Pennsylvania clinics for a purchase price of $1,050,000 in cash and a note,
subject to adjustment. The clinics include those located in Millersburg, PA,
Mechanicsburg, PA and Shermansdale, PA. The Company had purchased these clinics
from the buyer in 1993. The cash portion of the transaction was $900,000 which
at the closing was reduced by the payment of certain operating expenses due the
buyer of $15,636. The buyer also assumed up to $230,000 in associated
liabilities. Additionally, in January 1997 the Company agreed to satisfy a note
held by the buyer issued in connection with the 1993 business acquisition in the
approximate amount of $413,000, by assigning and without guarantee as to the
amount of the collect ability to the note holder $484,000 in face amount of
accounts receivable, but only to the extent of collections in the amount due
under the note. The clinics sold accounted for approximately 22% of the
Company's total revenues for the year ended December 31, 1996.
In March 1997, the Company returned one non-performing clinic in Florida to
its former
38
<PAGE>
owner. The Company assigned approximately $64,000 of net trade receivables,
approximately $4,000 of prepaid assets and approximately $6,000 of net fixed
assets related to the returned clinic to the former owner. In conjunction with
the return of the clinic, the former owner agreed to forgive the balance of a
Company note held in the amount of $48,000, forfeit accrued earned time benefits
in the approximate amount of $10,000, and assumed certain accounts payable in
the approximate amount of $13,000. The returned clinic accounted for
approximately 4.7% of the Company's total net revenues for the period ended
December 31, 1996. The sale of the Pennsylvania clinics and the return of the
Florida clinic resulted in a net gain on sale of assets for the period ending
March 31, 1997 of $802,724.
Properties
The Company's principal executive offices are located at 38 Pond Street,
Franklin, Massachusetts. This office contains approximately 7,500 square feet of
space which the Company currently leases on five-year lease expiring January
2002. In addition, the Company currently operates eight outpatient
rehabilitation facilities, all of which are leased facilities typically located
in a medical office building or shopping center. The Company's typical clinic
occupies approximately 1,200 to 7,500 square feet of space with an average of
approximately 3,200 square feet of space per location. Each clinic employs one
or more licensed physical and/or occupational therapists, including a therapist
who is the facility manager, office personnel, aides and, at certain clinics,
athletic trainers, exercise physiologists and other appropriate personnel.
Set forth below is certain information concerning the Company's outpatient
facilities as of September 30, 1997.
Outpatient Rehabilitation Facilities
Location Sq. Ft. Year Opened
Attleboro, MA 2,800 1971
Leominster, MA 3,400 1990
Pittsfield, MA 2,500 1992
West Bridgewater, MA 3,500 1978
Philadelphia, PA 7,000 1992
Wilmington, DE 1,600 1993
Newark, DE 3,900 1993
Newark, DE 1,700 1993
39
<PAGE>
Employees
As of September 30, 1997, the Company employed 145 full and part-time
persons, 128 of whom are licensed therapists, assistants and aides at the
Company's outpatient facilities, 10 of whom function in administrative
capacities at such outpatient facilities and 14 of whom are employed in the
Company's executive office. None of the Company's employees are represented by a
labor union, and the Company is not aware of any current activities to unionize
its employees. Management of the Company considers the relationship between the
Company and its employees to be good.
In the states in which the Company's current clinics are located, persons
performing physical and occupational therapy services are required to be
licensed by the state. All persons currently employed by the Company and its
clinics who are required to be licensed are licensed, and the Company intends
that all future employees who are required to be licensed will be licensed.
Management is not aware of any federal licensing requirements applicable to its
employees. The Company carries professional liability insurance for its licensed
personnel.
Legal Proceedings
The Company is a party to legal proceedings arising from the normal
business operations of the Company. Management believes these proceedings will
not have a material impact on the financial condition and results of operations
of the Company.
40
<PAGE>
PLAN OF OPERATION FOLLOWING THE SALE
PRICE RANGE OF COMMON STOCK AND
DIVIDEND POLICY - CONSOLIDATED
The Company's Common Stock is traded on the Nasdaq Small-Cap Market under
the symbol "CHCA." The following table sets forth the high and low bid prices
for the Common Stock, as reported by the National Association of Securities
Dealers, Inc. For the quarters indicated. These prices represent quotations
between dealers, do not include retail markups, markdowns or commissions and may
not represent actual transactions.
1995 HIGH LOW
First Quarter $1.0625 $0.6250
Second Quarter $0.8125 $0.5000
Third Quarter $0.5625 $0.3750
Fourth Quarter $0.3750 $0.1875
1996 HIGH LOW
First Quarter $0.5625 $0.2500
Second Quarter $0.6250 $0.3437
Third Quarter $0.5312 $0.3125
Fourth Quarter $0.4375 $0.2500
1997 HIGH LOW
First Quarter $0.3750 $0.2500
Second Quarter $0.2500 $0.1250
Third Quarter $0.3750 $0.1875
As of December 31, 1996, the number of stockholders of record of the
Company's Common Stock was approximately 600. The Company believes that, in
addition, there are in excess of 600 beneficial owners of its Common Stock whose
shares are held in "street name".
The Company has paid no cash dividends on its Common Stock to date. The
Company is not in a position, financially and otherwise, to consider the payment
of any dividends to stockholders. Aside from an accumulated deficit of
approximately $4,200,000 on an actual basis and $4,800,000 on a pro forma basis,
respectively, at September 30, 1997, the Company is subject to certain financial
covenants in various agreements (including the Purchase Agreement) which
preclude the payment of dividends on its Common Stock (and in some cases its
other classes of capital stock). Moreover, the shares of Series A Preferred
Stock and Series B Preferred Stock are prior in right to the shares of Common
Stock as to dividends.
41
<PAGE>
MANAGEMENT -- CONSOLIDATED
Name Age Position
- ---- --- --------
James Kenney 55 Chairman of the Board(1)(3)
Robert M. Whitty 42 President
Joel Friedman* 56 Director(1)
Sidney Dworkin 76 Director(2)
Paul W. Frankel, M.D., Ph.D.* 47 Director(1)(3)
Goodhue W. Smith, III 46 Director(1)(2)
Raymond L. LeBlanc 41 Treasurer, Secretary and Chief
Financial Officer
* Resigned as of October 1997.
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of Compensation Committee
James Kenney became a director in March 1993 and Chairman of the Board of
Directors on November 1, 1996. Mr. Kenney is currently Executive Vice President
of San Jacinto Securities in Dallas, Texas. From February 1992 until June 1993,
he had been a partner of Renaissance Capital Group, Inc., a Dallas money
management firm. From 1989 to February 1992, Mr. Kenney was Senior Vice
President of Capital Institutional Services Inc., a brokerage firm located in
Dallas, Texas that provides third-party financial and business research. Mr.
Kenney is also a director of Ameriship Corp., Coded Communications Corp.,
Industrial Holdings, Inc., Scientific Measurement Systems, Inc., Appoint
Technologies, Inc., Technol Medical Products, and Tricom, Inc.
Joel Friedman became a director of the Company in December 1981. He was
Chairman and Chief Executive Officer from July 1994 to June of 1996. Mr.
Friedman has been involved for the past twenty five years in the financing and
management of several public and private companies and real estate ventures,
most recently, and for at least the past five years through Friedman
Enterprises, Inc. and Founders Capital Corporation. Mr. Friedman is also a
member of the Board of Directors of 3D Geophysical, Inc. Mr. Friedman resigned
as a director in October 1997.
Robert M. Whitty was elected President in November 1995 and became a
director of the Company in January 1997. Mr. Whitty has been Vice President of
the Company since 1994. Prior thereto, Mr. Whitty provided consulting services
for various health care companies, which services included financial planning,
strategic planning, acquisitions and business development. Mr. Whitty has over
20 years of experience in the health care field.
42
<PAGE>
Paul W. Frankel, M.D., Ph.D. has been a member of the Board of Directors
since July 1994. Dr. Frankel is currently, and has been since August 1993, the
President of Life Extension Institute, Inc., a New York Company specializing in
preventive health services. From April 1992 to August 1993, Dr. Frankel was a
Partner and the National Medical Director of Coopers & Lybrand. For the period
May 1988 to February 1992, Dr. Frankel served in various positions for
Metropolitan Life Insurance Company, ultimately serving as its Vice President
and National Medical Director. Dr. Frankel resigned as a director in October
1997.
Goodhue W. Smith, III has been a member of the Board of Directors since
July 1994. In 1978, Mr. Smith founded Duncan-Smith Co., an investment banking
firm in San Antonio, Texas and has since such time served as its Secretary and
Treasurer. Mr. Smith is also a Director of Citizens National Bank of Milam
County, and Ray Ellison Mortgage Acceptance Co.
Sidney Dworkin was elected to the Board of Directors in March 1996. Dr.
Dworkin was a founder, former President, Chief Executive Officer and Chairman of
Revco, Inc. Between 1987 and the present, Dr. Dworkin has also served as Chief
Executive Officer of Stonegate Trading, Inc., an importer and exporter of
various health and beauty aids, groceries and sundries. Between 1988 and the
present, Dr. Dworkin has served as Chairman of the Board of Advanced Modular
Systems, which is engaged in the sale of modular buildings. Between June 1993
and the present, Dr. Dworkin has also served as Chairman of Global
International, Inc., which is involved in the sale and leasing of modular
buildings to hospitals and Chairman of the Board of Comtrex Systems, which is
engaged in the provision of data processing services. Dr. Dworkin also serves on
the Board of Directors of CCA Industries, Inc., Interactive Technologies, Inc.,
and Northern Technologies International Corporation, all of which are
publicly-traded companies.
Raymond L. LeBlanc has been Controller of the Company since March 1996,
Treasurer and Chief Financial Officer since June 1996, and Secretary since
November 1, 1996. Previously, since 1987, Mr. LeBlanc was Treasurer of Luzo
Foodservice Corporation, a food manufacturer, retailer and distributor.
Renaissance Capital Partners II Ltd. ("Renaissance') is currently entitled
to designate two directors for nomination to the Company's Board of Directors,
including a director that it is entitled to designate as the holder of a
majority of the Company's Series A Preferred Stock (See "Description of
Securities -- Preferred Stock -- Series A Preferred Stock"). Messrs. Kenney and
Smith are designees of Renaissance.
Executive Compensation
The following summary compensation table sets forth, for the three fiscal
years ended December 31, 1996, the cash compensation of each Executive Officer
of the Company whose total salary and bonuses exceed $100,000 (the " Named
Executive Officers").
43
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Payouts Annual Compensation Award
Name and Restricted
Principal Other Annual Stock LTIP All Other
Position Year Salary Bonus Compensation Awards Options/SARs Payouts Compensations
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joel Friedman,
Chairman of the
Board and Chief 1996 $ 53,366 0 0 0 787,667(4) 0 0
Executive
Officer(1) 1995 75,000 0 0 0 1,250,000 0 0
1994 0 0 0 0 0 0
Alan Mantell, 1995 120,000 0 0 0 787,667(4) 0 0
Chief Executive
Officer(2)
Robert M. 1996 140,000 0 0 0 781,661 0 0
Whitty,
President (3) 1995 106,000 0 0 0 0 0 0
</TABLE>
- ----------
(1) Joel Friedman was Chief Executive Officer of the Company from July 1994 to
June 1, 1996.
(2) Mr. Mantell was Chief Executive Officer of the Company from June 1996
through November 1996.
(3) Mr. Whitty was elected President of the Company in November 1995.
(4) Options to acquire 500,000 shares awarded to each of Messrs. Friedman and
Mantell expired unexercised upon termination of employment in November
1996.
The aggregate amount of any miscellaneous compensation not set forth in the
table or the description of benefit plans, including any personal benefits
valued at their incremental cost to the Company, received in 1995 by any
executive officers included in the above table did not exceed 10% of such
person's 1995 cash compensation.
44
<PAGE>
1989 Stock Incentive Plan
Under its 1989 Stock Incentive Plan (the "Plan"), the Company grants awards
of Common Stock to those persons determined by the Board of Directors to be key
employees who are responsible for the management and growth of the Company. The
size of the award is generally determined on the basis of the level of
responsibility of the employee. Types of awards include non-statutory stock
options, incentive options (qualifying under Section 422A of the Internal
Revenue Code of 1986), restricted stock awards and stock appreciation rights
(SARs). Options and stock appreciation rights generally expire ten years from
the grant date and unless otherwise provided, are exercisable on a cumulative
basis with respect to 20% of the optioned shares on each of the five
anniversaries after the grant date. Restrictions on restricted stock awards
generally lapse with respect to 20% of the shares subject to the award after the
expiration of each year following the grant date and the portions of such awards
for which restrictions have not lapsed are subject to forfeiture upon
termination of employment. The Company may grant options to purchase an
aggregate of 500,000 shares of Common Stock under the Plan, 380,000 of which are
currently available for grant. No stock options or other awards under the Plan
were granted during 1996, nor were any options exercised by the individuals
named in the Summary Compensation Table during 1996.
1994 Stock Option Plan
The Company adopted the 1994 Stock Option Plan (the "1994 Plan") effective
November 3, 1994. The terms and conditions of the 1994 Plan are substantially
identical to the 1989 Plan, except that the 1994 Plan does not provide for
granting of SAR's. In September 1996, the Company accepted the surrender of
options to acquire 833,333 shares under the 1994 Plan that the holder had
earlier agreed to return and issued options to acquire 2,250,000 shares, as set
forth in the table below. Options to acquire 1,000,000 shares in September 1996
expired unexercised in November 1996. As of December 31, 1996, options to
acquire 1,449,999 were available for grant under the 1994 Plan.
45
<PAGE>
The following table sets forth information concerning grants of options by
the Company in 1996:
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Number of Securities Percentage of Total
Underlying Options Options Granted to Exercise or Base Price Per
Name Granted Employees in Fiscal Year Share Expiration Date
<S> <C> <C> <C> <C>
J. Friedman 37,667 $.28 2/01/01
750,000(1) 34% .38 9/01/06
A. Mantell 37,667 .28 2/01/01
750,000(1) 34% .38 9/01/06
M.Whitty 31,666 .28 2/01/01
750,000(1) 32% .38 9/01/06
</TABLE>
- ----------
(1) Granted under the 1994 Plan. Of the 750,000 options granted, 250,000 vested
immediately and the remaining 500,000 were to vest as determined by the
Board of Directors. The unvested options of Messrs. Friedman and Mantell
expired unexercised upon their termination of employment with the Company
in November 1996.
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<PAGE>
The following table sets forth information concerning any exercise of stock
options during the Company's fiscal year ended December 31, 1996 by the Named
Executive Officers, the number of options owned by the named individuals and the
value of any in-the-money unexercised stock options as of December 31, 1996:
Aggregate Option Exercises in Last Fiscal Year
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Options held at 12/31/96 at 12/31/96(1)
Shares
Acquired on Value
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
J.Friedman 35,714 $3,571 251,912 0 $ 191 --
A.Mantell 0 0 287,666 0 3,766 --
R.M.Whitty 0 0 281,666 500,000 3,166 0
</TABLE>
- ----------
(1) Based on the average bid and ask price on the Nasdaq Small-Cap Market of
the Company's common stock on that date ($0.38).
47
<PAGE>
Compensation of Directors
Non-employee directors are entitled to receive $500 per meeting of the
Board of Directors attended, which fees were waived during 1996. In September
1996, the Board of Directors made stock awards to its outside directors at a
rate of 25,000 shares for each year of service since 1993. Pursuant to such
awards, Messrs. Kenney, Frankel, Smith and Dworkin received 100,000 shares,
100,000 shares, 75,000 shares and 25,000 shares respectively.
Under the Company's stock option plans, directors who are not employees of
the Company (other than directors who are members of the Stock Option Committee
of the particular plan) are eligible to be granted non-qualified options under
such plan. The Board of Directors or the Stock Option Committee (the
"Committee") of each plan, as the case may be, has discretion to determine the
number of shares subject to each non-qualified option (subject to the number of
shares available for grant under the particular plan), the exercise price
thereof (provided such price is not less than the par value of the underlying
shares of Common Stock), the term thereof (but not in excess of 10 years from
the date of grant, subject to earlier termination in certain circumstances), and
the manner in which the option becomes exercisable (amounts, intervals and other
conditions). Directors who are employees of the Company (but not members of the
Committee of the particular plan) are eligible to be granted incentive stock
options under such plans. The Board or Committee of each plan, as the case may
be, also has discretion to determine the number of shares subject to each
incentive stock option ("ISO"), the exercise price and other terms and
conditions thereof, but their discretion as to the exercise price, the term of
each ISO and the number of ISO's that may vest in any year is limited by the
Internal Revenue Code of 1986, as amended.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective June 30, 1994, certain holders of the Company's convertible debt,
converted certain promissory notes from the Company into Common Stock of the
Company and into a newly issued, Series A Preferred Stock. Directors and
affiliates of the Company who participated in the conversion were as follows:
Renaissance Capital Partners II, Ltd. ("Renaissance"): Convertible debt and
accrued interest of $3,695,984 was converted into 5,000,000 shares of
Common Stock and 1,195,984 shares of Series A Preferred Stock. The Series A
Preferred Stock may be converted at any time, at the option of the holder
thereof, into Common Stock at a conversion price of $.57 per share of
Common Stock, subject to adjustment, on the basis of the par value of the
Series A Preferred Stock of $1.00 per share. See "Description of Securities
-- Preferred Stock -- Series A Preferred Stock."
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<PAGE>
Joel Friedman (the Company's former Chairman and Chief Executive Officer):
Convertible debt and accrued interest of $51,375 was converted into 71,429
shares of Common Stock and 15,661 shares of Series A Preferred Stock. Mr.
Friedman's children collectively converted an identical amount of debt and
accrued interest on identical terms.
Christopher Harkins (the Company's former President): Convertible debt and
accrued interest of $25,688 was converted into 51,375 shares of Common
Stock of the Company.
Diedre Benson (see below): Convertible debt and accrued interest of
$555,722 was converted into 1,111,444 shares of Common Stock of the
Company.
On September 8, 1994, effective November 11, 1994, the Company entered into
a Termination Agreement with Arnold E. Benson (the "Termination Agreement"), the
former Chairman of the Board and Chief Executive Officer of the Company. In
November 1994, Mr. Benson and his wife Diedre Benson sold an aggregate of
2,500,000 shares of Common Stock owned by Diedre Benson for an aggregate of
$1,075,000. Mr. Benson received a payment from the Company of $175,000 as
severance in consideration of the termination of his Employment Agreement.
The Company granted to Health Care Partners, Inc., a designee of Mr.
Benson, on the Effective Date of the Termination Agreement, an option to
purchase up to an aggregate of 400,000 shares of Common Stock for $.50 per share
for a period of three years. The Company also agreed to provide Mr. Benson with
other benefits, including the payment of health, life and disability insurance
costs through November 1996 and certain expenses in connection with the
negotiation of the Termination Agreement. Mr. Benson and Mrs. Benson entered
into a non-competition agreement with the Company with respect to certain
activities effective for a period of two years from the effective date of the
agreement. Mr. Benson resigned from the Board of Directors of the Company on
November 11, 1994.
On September 8, 1994, Renaissance loaned the Company $100,000 pursuant to a
convertible promissory note, convertible at the option of Renaissance into
Common Stock at a conversion price of $0.33 per share. On October 24, 1994, the
Company exchanged the convertible promissory note for 100,000 shares of Series B
Preferred Stock. Additionally, Renaissance invested $400,000 to acquire 400,000
shares of Series B Preferred Stock. The Series B Preferred Stock may be
converted at any time, at the option of the holder thereof, into Common Stock at
a conversion price of $0.25 per share, subject to adjustment, on the basis of
the par value of the Series B Preferred Stock of $1.00 per share. See
"Description of Securities --Preferred Stock -- Series B Preferred Stock." James
Kenney, now Chairman of the Board and a Director of the Company, was, until June
1993 a general partner of Renaissance. Renaissance has the right to designate
two members for nomination to the Board of Directors of the Company. Mr. Kenney
and Goodhue W. Smith, III are currently the designees of Renaissance to the
Board.
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<PAGE>
Under the terms of the Series A Preferred Stock and the Series B Preferred
Stock, the Company has agreed that it will not issue in excess of 1,500,000
additional shares of Common Stock in any single transaction or related series of
transactions without the consent of the majority holder of the Series A
Preferred Stock and the Series B Preferred Stock. Renaissance owns a substantial
majority of the Series A Preferred Stock and is the sole holder of the
outstanding shares of Series B Preferred Stock of the Company.
In January 1995, Sidney Dworkin, a director of the Company, loaned the
Company $100,000 pursuant to a convertible promissory note and received warrants
to purchase 50,000 shares of Common Stock for $0.75 per share. In August 1995,
Mr. Dworkin exchanged the note for 80,000 shares of Common Stock and a
convertible promissory note in the principal amount of $80,000. In addition, a
partnership in which Mr. Dworkin is a partner loaned the Company $50,000 under
the same terms and received a warrant to purchase 25,000 shares of Common Stock
for $0.75 per share. In August 1995, the note was exchanged for 40,000 shares of
Common Stock and a convertible promissory note in the amount of $40,000.
In November 1995, Joel Friedman, then the Chairman and Chief Executive of
the Company, and Robert M. Whitty, the President of the Company, jointly and
severally guaranteed those accounts receivable of the Company that were pledged
to Capital Factors, Inc., a lender to the Company. The amount of the line of
credit secured by the Company's accounts receivable is $500,000. In January
1996, additional guarantees were provided by Messrs, Friedman and Whitty in
connection with an additional line of credit secured by receivables in the
amount of $750,000. Subsequent to Mr. Friedman's resignation on November 1, 1996
as the Company's Chairman and as an officer of the Company, Mr. Friedman's
guarantees were released.
At the end of December 1995, Joel Friedman and Alan Mantell, then Chief
Operating Officer of the Company, each loaned the Company $30,000 to fund
certain obligations of the Company. The loans were repaid at the beginning of
January 1996.
In April of 1996, the Company executed a promissory note in favor of
Renaissance in connection with a $500,000 line of credit. Pursuant to the
promissory note, the Company is obligated to pay interest on the unpaid monthly
balance of the line of credit at the rate of 10% per annum, computed in arrears,
with the entire principal balance plus any unpaid interest due in full on April
17, 1999. As of December 31, 1996, $340,000 had been advanced to the Company
under these arrangements. Of this amount, $265,000 was loaned by Renaissance,
and the balance by the following persons participating in the loan: Alan
Mantell, $15,000; Joel Friedman, $15,000; Goodhue Smith, a member of the Board
of Directors, $20,000; and Duncan-Smith Co., an entity affiliated with Mr.
Smith, $25,000. In September and December 1996, the Company issued to
Renaissance and the other participants in the Renaissance credit line shares of
Common Stock in consideration of their loans to the Company, as follows:
Renaissance, 159,000 shares; Mr. Mantell, 9,000 shares; Mr. Friedman, 9,000
shares; Mr. Smith, 12,000 shares; and Duncan-Smith Co., 15,000 shares.
50
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DESCRIPTION OF CONSOLIDATED SECURITIES
General
The Company is authorized to issue 50,000,000 shares of Common Stock, $.012
par value per share and 10,000,000 shares of Preferred Stock, $1.00 par value
per share. As of September 30, 1997, there were [15,573,535] shares of Common
Stock outstanding and 1,227,305 shares of Series A Preferred Stock and 500,000
shares of Series B Preferred Stock outstanding.
Common Stock
The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is non-cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voting for the election of directors can
elect all of the directors. The holders of Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor. In the event of liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to share ratably in
all assets remaining available for distribution to them after payment of
liabilities and after provision has been made for each class of stock, if any,
having liquidation preference over the Common Stock. Holders of shares of Common
Stock, as such, have no conversion, preemptive or other subscription rights, and
there are no redemption or sinking fund provisions applicable to the Common
Stock. All of the outstanding shares of Common Stock are, and the shares of
Common Stock offered hereby, when issued against the consideration therefor,
will be, fully paid and nonassessable.
Reverse Stock Split
At the Company's Annual Meeting, stockholders approved an amendment to the
Company's charter pursuant to which the Board of Directors is authorized,
without further action by stockholders, to effect a reverse split of the Common
Stock at a rate of one share of new Common Stock for a whole number of shares of
existing Common Stock of between two and ten, in the discretion of the Board of
Directors. If a reverse stock split were effected, the exercise or conversion
rate of the Company's outstanding convertible preferred stock, convertible
notes, options and warrants would be appropriately adjusted. The Board of
Directors has not yet made a determination to effect such reverse stock split
or, if effected, the rate of the reverse split.
Preferred Stock
The Company is authorized to issue preferred stock with such designation,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of the Company's Common Stock. In the event of issuance,
the preferred stock could be utilized, under certain circumstances, as a method
of discouraging,
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<PAGE>
delaying or preventing a change in control of the Company. The Company has no
present intention to issue any additional shares of its preferred stock. See
"Certain Relationships and Related Transactions."
Pursuant to the foregoing authority, the Board of Directors of the Company
has designated a Series A Preferred Stock and a Series B Preferred Stock. The
following discussion of the terms of the Series A Preferred Stock and Series B
Preferred Stock is qualified in its entirety by reference to the Certificate of
Designation of Preferred Stock relating thereto which is filed as an exhibit to
the registration statement of which this Prospectus forms a part.
Series A Preferred Stock
There are authorized and outstanding 1,227,305 shares of the Company's
Series A Preferred Stock, par value $1.00 per share.
Conversion. Each share of Series A Preferred Stock is convertible at any
time, at the option of the holder, into the number of shares of Common Stock
obtained by dividing $1.00 by the conversion price then in effect. The
conversion price was originally $.75 per share. If and whenever the Company
issues shares of Common Stock (except shares issued pursuant to options and/or
shares under the Company's profit sharing plan) for consideration less than the
conversion price, the conversion price is reduced to the per share consideration
received by the Company in respect of any such issuance. If the Company issues
shares of Common Stock without consideration, the conversion price is reduced
such that a holder of Series A Preferred Stock will have the right to convert
such stock into the same percentage of the outstanding Common Stock as such
holder would have held had its Series A Preferred Stock been converted just
prior to such issuance. If the Company issues shares of Common Stock for
property other than cash, the amount of the consideration deemed received by the
Company for purposes of these provisions is the fair market value of such
property.
The Company has issued Common Stock below the initial conversion price of
the Series A Preferred Stock. The holders of the Series A Preferred Stock have
agreed, as of December 1, 1996, that the conversion price of the Series A
Preferred Stock will be $0.57 notwithstanding that, by the terms of the Series A
Preferred Stock, the issuance of Common Stock by the Company should have
resulted in a lower conversion price. Subsequently the conversion price of the
Series A Preferred Stock was adjusted to $0.38 per share, by unanimous action of
the Board of Directors. Such agreement does not constitute a waiver of the
rights of the holders of Series A Preferred Stock in respect of any future
issuances of Common Stock.
In the case of any capital reorganization, reclassification of the stock of
the Company, consolidation or merger or sale, exchange, lease, transfer or other
disposition of all or substantially all of the property and assets of the
Company, or the participation by the Company in a share exchange as the company
to be acquired, the Series A Preferred Stock will be convertible into the kind
and number of shares of stock or other securities or property to which the
holder of
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such shares would have been entitled to receive had the holder converted such
shares into Common Stock immediately prior to the event.
Mandatory Conversion. In the event the Company raises at least $1.5 million
of equity at a price per share equal to or greater than the conversion price,
the holders of the Series A Preferred Stock, upon notice by the Company, will be
required to convert all shares of Series A Preferred Stock into Common Stock.
Registration Rights. The holders of the Series A Preferred Stock have
certain rights to demand registration under the Securities Act and to
participate in the registration by the Company of its capital stock for its own
account or for the account of its security holders.
Board Representation. The holders of a majority of the Series A Preferred
Stock outstanding have the right, at their option, to designate one director of
the Company.
Redemption. The Company has the right to redeem the Series A Preferred
Stock, in whole or in part, at par value, on 30 days' notice to each holder of
such stock. Such redemption may not be sooner than 30 days nor later than 120
days following the filing with the Commission of the Company's most recent
annual report on Form 10-K. In the event that less than all shares of Series A
Preferred Stock are to be redeemed, such redemption will be pro rata among the
holders of such stock. If the Series A Preferred Stock is called for redemption,
the right to convert such Series A Preferred Stock expires on the redemption
date.
Financial Limitation. The Company may not issue any additional preferred
stock senior in priority of liquidation to the Series A Preferred Stock without
the prior written approval of the holders of at least 50% of the outstanding
Series A Preferred Stock.
Dividends. The Company is required to pay quarterly dividends on the Series
A Preferred Stock at a rate of 6% per annum. Such dividends are cumulative, with
interest payable on unpaid dividends. No such dividends have as yet been
declared or paid.
Series B Preferred Stock
There are authorized and outstanding 500,000 shares of Series B Preferred
Stock, par value $1.00 per share. The terms of the Series B Preferred Stock are
the same as the terms of the Series A Preferred Stock, except as follows:
Conversion. The initial conversion price of the Series B Preferred Stock
was $0.33. The Company has issued Common Stock below the initial conversion
price. The holder of the Series B Preferred Stock has agreed, as of December 1,
1996, that the conversion prices of the Series B Preferred Stock will be $0.25,
notwithstanding that, by the terms of the Series B Preferred Stock, the issuance
of Common Stock by the Company should have resulted in a lower conversion price.
Such agreement does not constitute a waiver of the rights of the holder of the
Series B Preferred Stock in respect of any future issuance of Common Stock.
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<PAGE>
Mandatory Conversion. In the event the Company raises at least $1.5 million
of equity at a price per share equal to or greater than $0.75, the holders of
the Series B Preferred Stock, upon notice by the Company, will be required to
convert all shares of Series B Preferred Stock into Common Stock. The Company's
right to mandatory conversion under these provisions expires on December 31,
1996.
Board Representation. The holders of the Series B Preferred Stock have no
right to designate a director.
Liquidation. In the event of a voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of the Series B Preferred
Stock are entitled to receive out of the assets of the Company an amount per
share equal to the par value of such shares, plus any accrued and unpaid
dividends, before any payment is made or assets distributed to the holders of
Common Stock.
Transfer Agent.
The transfer agent for the Common Stock is American Stock Transfer & Trust
Company, 40 Wall Street, New York New York 10005.
BUSINESS -- OLYMPUS
Olympus is an integrated post acute healthcare services company, located in
Westborough, Massachusetts. Olympus was founded in July 1994 by former members
of the senior management team of The Mediplex Group, Inc. ("Mediplex"), a
national provider of acute rehabilitation, subacute, behavioral and long-term
care services with a principal base of operations in the Northeast. These
founding individuals were responsible for running the day-to-day operations of
Mediplex's subacute, skilled nursing, acute rehabilitation, and specialty
services (pharmacy, therapy, gero-phychiatric). The Olympus management team has
since been joined by experienced members of the senior management teams of other
leading providers of acute care, long-term care, subacute care and behavioral
health services.
Olympus was incorporated in Delaware in 1994. Its principle executive
offices are located at 2000 Park Drive, Suite 310, Westboro, Massachusetts 01581
and its telephone number is (508) 898-2042.
Lines of Business
Olympus currently operates three lines of businesses: inpatient services
and ancillary services. As operations within markets mature and expand, Olympus
intends to reorganize its operations around individual markets.
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Inpatient Services
Olympus currently provides three basic types of inpatient services:
subacute, skilled nursing and behavioral health.
Subacute Services
Subacute Services (contrasting with skilled nursing services) are services
directed towards a more unstable and sicker patient population. Typically these
services cross all clinical disciplines and involve the full range of medical,
rehabilitation and allied health professionals within an individual patient's
plan of care. The sophistication of the direct care provider, the system that
supports such care, the cost of the care and the results achieved require a well
developed administrative and clinical infrastructure.
Olympus currently has or is pursuing affiliations with acute care hospitals
in Massachusetts, Maine, New Hampshire and Rhode Island for the development of
joint ventures to own, operate and manage inpatient facilities, outpatient
centers and home health agencies.
Skilled Nursing Services
Skilled Nursing Services are defined as a group of services, organized
around the five activities of daily living, oriented towards a chronic or
fragile patient whose condition is expected to change over a longer period of
time. Consequently, the cost of such care can be managed within desired payment
constraints. The ownership of nursing homes, either directly or through joint
ventures with acute care hospitals, is an essential component of Olympus' post
acute strategy.
Ancillary Services
Olympus provides a range of ancillary services to both its facilities and
to third parties. It is the intent of Olympus to use these ancillary businesses
to attract scarce professional resources (i.e., therapists) and as opportunities
for potential acquisition. Services include rehabilitation and restorative
programs.
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STOCK OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS OF CONSOLIDATED
The following table sets forth information at November 26, 1997 with
respect to the beneficial ownership of shares of Common Stock by (i) each person
known by the Company to be the owner of more than 5% of the outstanding shares
of Common Stock, (ii) each director and executive officer and (iii) all
executive officers and directors as a group. The beneficial ownership
information described and set forth below is based on information furnished by
the specified persons and is determined in accordance with Rule 13d-3 under the
Exchange Act. It does not constitute an admission of beneficial ownership for
any other purpose. Unless otherwise noted, the Company believes that all persons
named in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them.
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class
- --------------------------------------------------------------------------------
Joel Friedman 591,910 (1) 1.5%
James Kenney 180,000 (2) 1.1%
Paul Frankel 180,000 (3) 1.1%
Goodhue W. Smith, III 122,000 (4) Less than 1%
Alan M. Mantell 296,667 (5) 1.9%
Robert M. Whitty 281,666 (6) 1.8%
Sidney Dworkin 466,951 (7) 2.9%
Renaissance Capital Partners II, Ltd.
8080 N. Central Expressway
Suite 210 LB 59
Dallas, Texas 75206 10,306,324 (8) 49.06%
All executive officers and directors
as a group (7 persons) 2,119,708 (9) 12.1%
- --------------------------------------------------------------------------------
Unless otherwise indicated, each person listed maintains a mailing address c/o
Consolidated Health Care Associates, Inc., 38 Pond Street, Franklin,
Massachusetts 02038
(1) Includes 251,912 shares subject to currently exercisable stock options and
the right to acquire 41,213 shares upon conversion of Series A Preferred
Stock. Also includes 112,641 shares of Common Stock owned by Mr. Friedman's
children or which Mr. Friedman's children have the right to acquire upon
conversion of shares of Series A Preferred Stock as to which Mr. Friedman
disclaims beneficial ownership.
(2) Includes 80,000 shares subject to currently exercisable stock options.
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(3) Includes 30,000 shares subject to currently exercisable stock options.
(4) Includes 30,000 shares subject to currently exercisable stock options. Does
not include 15,000 shares owned by Duncan- Smith Co., of which Mr. Smith is
an officer.
(5) Includes currently exercisable stock options to acquire 287,667 shares.
(6) Consists of currently exercisable stock options.
(7) Includes 160,000 shares issuable upon a conversion of a convertible
promissory note, 50,000 shares issuable upon exercise of warrants. Also
includes 40,000 shares owned by a partnership of which Mr. Dworkin is a
partner, 80,000 shares issuable upon conversion of a promissory note held
by such partnership and 25,000 shares issuable upon exercise of warrants
held by such partnership.
(8) Includes the right to acquire 5,147,324 shares issuable upon conversion of
outstanding Series A Preferred Stock and Series B Preferred Stock.
(9) Includes 961,245 shares subject to currently exercisable non-qualified
stock options, the right to acquire 84,426 shares upon conversion of
outstanding Series A Preferred Stock, 75,000 shares issuable upon exercise
of warrants, and 240,000 shares issuable upon the conversion of convertible
notes.
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OTHER MATTERS
If sufficient votes in favor of the Sale Proposal are not received by the
time scheduled for the Special Meeting, the persons named as proxies may propose
one or more adjournments of the Special Meeting for a period or periods of not
more than 30 days in the aggregate to permit further solicitation of proxies.
The persons named as proxies will vote in favor of such adjournment those
proxies which authorize them to vote in favor of the Sale Proposal and do not
withhold discretion to vote on other matters. They will vote against any such
adjournment those proxies which direct them to vote against the Sale Proposal
and do not withhold discretion to vote on other matters. Any such adjournment
will require the affirmative vote of a majority of the votes cast on the
question in person or by proxy at the session of the Special Meeting to be
adjourned. The costs of any such additional solicitation and of any adjourned
session will be borne by Consolidated.
The Board of Directors does not intend to bring any matters before the
Special Meeting other than as stated in this Proxy Statement, and is not aware
that any other matters will be presented for action at the Special Meeting. If
any other matters come before the Special Meeting, the persons named in the
enclosed form of proxy will vote the proxy with respect thereto in accordance
with their best judgment, pursuant to the discretionary authority granted by the
proxy.
LEGAL MATTERS
Certain legal matters in connection with the Sale will be passed upon for
Consolidated upon by Robinson & Cole LLP, Boston, Massachusetts and for Olympus
by Hutchins, Wheeler & Dittmar, A Professional Corporation, Boston,
Massachusetts.
EXPERTS
The consolidated financial statements of Consolidated for the year ended
December 31, 1995 included in this Proxy Statement have been so included in
reliance on the report of Federman, Lally & Remis LLP, independent accountants,
given the authority of said firm as experts in auditing and accounting. The
consolidated financial statements of Consolidated for the year ended December
31, 1996 included in this Proxy Statement have been so included in reliance on
the report of Federman, Lally & Remis LLC, independent accountants, given the
authority of said firm as experts in auditing and accounting.
Representatives of Federman, Lally & Remis LLC are expected to be available
by telephone at the Special Meeting and, while such representatives do not plan
to make a statement at such meeting, they will be available to respond to
questions from stockholders in attendance.
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STOCKHOLDERS PROPOSALS
Any stockholder proposals intended to be presented at the Consolidated's
next annual meeting of stockholders must be received by Consolidated at its
offices on or before January 26, 1998 for consideration for inclusion in the
proxy material for such annual meeting of stockholders.
59
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CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
INDEX TO FINANCIAL STATEMENTS
F-1
<PAGE>
PURCHASE AGREEMENT
ANNEX A
F-2
<PAGE>
================================================================================
ASSET PURCHASE AGREEMENT
among
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
PTS REHAB, INC.
OLYMPUS HEALTHCARE GROUP, INC.
and
OLYMPUS OUTPATIENT SERVICES, INC.
Dated: As of November 20, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
ASSET PURCHASE AGREEMENT
<TABLE>
ARTICLE I
<S> <C>
Definitions.............................................................................. 2
ARTICLE II
General Provisions of Purchase and Sale.................................................. 10
Section 2.1 - Purchase and Sale of Acquired Assets....................................... 10
Section 2.2 - Excluded Assets............................................................ 12
Section 2.3 - Payment of Purchase Price.................................................. 12
Section 2.4 - Instruments of Transfer and Conveyance..................................... 13
Section 2.5 - Assumption of Liabilities.................................................. 13
Section 2.6 - Allocation of Purchase Price............................................... 15
Section 2.7 - Assignment of Rights of the Purchaser; Nominee and Lender.................. 16
Section 2.8 - Adjustments to Purchase Price.............................................. 16
Section 2.9 -Selling Group's Ability to Clear Title...................................... 16
Section 2.10 - Application of Purchase Price to Clear Title.............................. 17
Section 2.11 - Trust..................................................................... 17
Section 2.12 - Deposit................................................................... 17
ARTICLE III
Warranties, Representations and Covenants of the Selling Group........................... 18
Section 3.l - Corporate Organization and Authority....................................... 18
Section 3.2 - No Conflicts............................................................... 19
Section 3.3 - Ownership of Acquired Assets, Property..................................... 19
Section 3.4 - Operating Licenses, Permits, Approvals and Certificates.................... 20
Section 3.5 - Accreditation.............................................................. 21
Section 3.6 - Union Activity............................................................. 22
Section 3.7 - Employees.................................................................. 22
Section 3.8 - Compliance with Laws....................................................... 23
Section 3.9 - Executory Contracts with Third Parties..................................... 24
Section 3.10 - Condition of the Acquired Assets.......................................... 25
Section 3.11 - Environmental............................................................. 26
Section 3.12 - Litigation................................................................ 27
Section 3.13 - Assessments............................................................... 27
Section 3.14 - Financial Statements...................................................... 27
Section 3.15 - SEC Documents; Financial Statements....................................... 28
Section 3.16 - Tax Matters............................................................... 29
</TABLE>
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<TABLE>
<S> <C>
Section 3.17 - Insurance................................................................. 29
Section 3.18 - Charges and Rates, Rate Limitations, etc.................................. 30
Section 3.19 - Professionals............................................................. 30
Section 3.20 - Customers................................................................. 31
Section 3.21 - Employee Benefit Plans; ERISA............................................. 31
Section 3.22 - No Material Adverse Changes............................................... 33
Section 3.23 - Utilization Reviews....................................................... 33
Section 3.24 - Recoupment Claims......................................................... 34
Section 3.25 - Cost Reports and Reimbursement Documentation.............................. 34
Section 3.26 - Consents, etc............................................................. 34
Section 3.27 - Business Purchased and Sold............................................... 34
Section 3.28 - Intentionally Omitted..................................................... 34
Section 3.29 - Truth of Statements....................................................... 34
Section 3.30 - Vote Required............................................................. 35
Section 3.31 - Continuing Representations................................................ 35
ARTICLE IV
Warranties and Representations of the Purchaser.......................................... 35
Section 4.1 - Corporate Organization and Authority....................................... 35
Section 4.2 - No Conflicts............................................................... 36
Section 4.3 - Litigation................................................................. 36
Section 4.4 - Consents................................................................... 36
Section 4.5 - Truth of Statements........................................................ 36
ARTICLE V
Risks, Conduct and Covenants of the Parties.............................................. 37
Section 5.1 - Risk of Loss............................................................... 37
Section 5.2 - Affirmative Covenants of the Selling Group Regarding Conduct of
Business Prior to Closing.................................................. 37
Section 5.3 - Negative Covenants of the Selling Group Regarding Conduct of Business
Prior to Closing........................................................... 39
Section 5.4 - Access..................................................................... 41
Section 5.5 - Discharge of Obligations................................................... 41
Section 5.6 - Publicity.................................................................. 42
Section 5.7 - Transfer Fees.............................................................. 42
Section 5.8 - Assumption of Contracts, etc............................................... 42
Section 5.9 - Continuation of Service, Professional, Provider and Other Agreements
......................................................................................... 43
Section 5.10 - Post-Closing Agreements................................................... 44
Section 5.11 - Provision of Certain Information.......................................... 44
Section 5.12 - Asserted Claims........................................................... 44
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Section 5.13 - Final Cost Reports........................................................ 45
Section 5.14 - Access and Preliminary Inspection......................................... 45
Section 5.15 - Stockholder Meeting; Preparation of the Proxy Statement................... 46
Section 5.16 - Alternative Transactions.................................................. 46
Section 5.17 - No Solicitation........................................................... 47
Section 5.18 - Standstill................................................................ 47
Section 5.19 - Renaissance Capital Group Approval........................................ 48
Section 5.20 - Intentionally Omitted..................................................... 48
Section 5.21 - Opinion of Financial Advisor.............................................. 48
ARTICLE VI-A
Purchaser Group's Conditions Precedent to Closing........................................ 49
Section 6A.1 - Accuracy of Warranties; Compliance with Covenants and Title to
Acquired Assets........................................................... 49
Section 6A.2 - Closing Certificate....................................................... 49
Section 6A.3 - Casualty or Eminent Domain Taking......................................... 49
Section 6A.4 - Absence of Injunction, Etc................................................ 50
Section 6A.5 - Opinions of the Selling Group's Counsel................................... 50
Section 6A.6 - Conveyances............................................................... 50
Section 6A.7 - The Leases................................................................ 50
Section 6A.8 - Employment/Consulting Agreements; Non-Competition......................... 50
Section 6A.9 - Intentionally omitted..................................................... 51
Section 6A.10 - Consents................................................................. 51
Section 6A.11 - Provider Agreements...................................................... 51
Section 6A.12 - Licenses, Permits and Accreditation...................................... 51
Section 6A.13 - Service Agreements and Professional Contracts............................ 51
Section 6A.14 - Termination of Plans..................................................... 51
Section 6A.15 - Absence of Material Adverse Change....................................... 51
Section 6A.16 - Payment of Pre-Closing Obligations....................................... 51
Section 6A.17 - Opinion of Financial Advisor............................................. 52
Section 6A.18 - Reimbursement............................................................ 52
Section 6A.19 - Stockholder Approval..................................................... 52
Section 6A.20 - Deemed Waiver of Conditions Precedent.................................... 52
ARTICLE VI-B
The Selling Group's Conditions Precedent to Closing...................................... 52
Section 6B.1 - Accuracy of Warranties; Compliance with Covenants......................... 52
Section 6B.2 - Closing Certificate....................................................... 53
Section 6B.3 - Absence of Injunction..................................................... 53
Section 6B.4 - Opinion of Purchaser Group's Counsel...................................... 53
</TABLE>
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<TABLE>
<S> <C>
ARTICLE VII
Rights of Termination and Remedies for Default........................................... 53
Section 7.1 - Default by Selling Group................................................... 53
Section 7.2 - Purchaser Group's Right to Terminate....................................... 54
Section 7.3 - Default by Purchaser Group................................................. 55
Section 7.4 - Selling Group's Right to Terminate......................................... 55
ARTICLE VIII
Closing.................................................................................. 55
Section 8.1 - Closing Date............................................................... 55
Section 8.2 - Deliveries of the Selling Group at Closing................................. 56
Section 8.3 - Deliveries of Purchaser at Closing......................................... 57
ARTICLE IX
Indemnification.......................................................................... 57
Section 9.1 - The Selling Group's Obligations to Indemnify Purchaser..................... 57
Section 9.2 - The Purchaser Group's Obligations to Indemnify Selling Group............... 59
Section 9.3 - Procedures for Indemnification............................................. 60
Section 9.4 - Interest and Attorneys' Fees............................................... 62
ARTICLE X
Post-Closing Matters..................................................................... 62
Section 10.1 - Permits and Accreditation................................................. 62
Section 10.2 - Employees................................................................. 62
ARTICLE XI
Miscellaneous............................................................................ 63
Section 11.1. - Payment of Expenses and Other Payments................................... 63
Section 11.2 - No Broker................................................................. 63
Section 11.3 - Entire Agreement.......................................................... 63
Section 11.4 - Binding Effect; Assignment................................................ 63
Section 11.5 - Notices................................................................... 64
Section 11.6 - Captions.................................................................. 65
Section 11.7 - Joint Effort.............................................................. 65
Section 11.8 - Counterparts.............................................................. 65
Section 11.9 - Partial Invalidity........................................................ 65
Section 11.10 - No Offer................................................................. 65
</TABLE>
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<S> <C>
Section 11.11 - Amendments............................................................... 65
Section 11.12 - Schedules and Exhibits................................................... 65
Section 11.13 - Waivers.................................................................. 65
Section 11.14 - Further Assurances....................................................... 66
Section 11.15 - Governing Law............................................................ 66
Section 11.16 - Third Parties............................................................ 66
Section 11.17 - Arbitration.............................................................. 66
Section 11.18 - Rules of Construction; Interpretation.................................... 67
Section 11.19 - Letter of Intent......................................................... 67
</TABLE>
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (as currently existing and from time to time
in effect, this "Agreement") is made and entered into as of the 20th day of
November, 1997, by and between (a) OLYMPUS HEALTHCARE GROUP, INC., a Delaware
corporation having its principal place of business at 2000 West Park Drive,
Suite 310, Westborough, Massachusetts 01581 ("Olympus"), (b) OLYMPUS OUTPATIENT
SERVICES, INC., a Massachusetts corporation and wholly owned subsidiary of
Olympus having its principal place of business at 2000 West Park Drive, Suite
310, Westborough, Massachusetts 01581 (the "Purchaser", and sometimes together
with Olympus, the "Purchaser Group"), (c) CONSOLIDATED HEALTH CARE ASSOCIATES,
INC., a Nevada corporation having its principal place of business at 38 Pond
Street, Suite 305, Franklin, Massachusetts 02038 ("CHCA") and (d) PTS REHAB,
INC., a Connecticut corporation having its principal place of business at 38
Pond Street, Suite 305, Franklin, Massachusetts 02038 (the "Seller").
W I T N E S S E T H:
WHEREAS, the Seller owns and operates four outpatient clinics located in
Attleboro, Leominster, Pittsfield and West Bridgewater, Massachusetts on
premises leased from third parties (collectively, the "Centers"), which provide,
among other things, ancillary health care and outpatient rehabilitation services
(the "Business"); and
WHEREAS, the Purchaser desires to acquire from the Seller, and the Seller
desires to sell to the Purchaser, certain of the assets of the Seller,
including, without limitation, leases and certain related contracts used in
conducting the Business, as more fully described herein, all upon and subject to
the terms and conditions contained herein; and
WHEREAS, the Selling Group and Olympus have entered into a letter of intent
dated September 11, 1997 (the "Letter of Intent") with respect to the
acquisition by Purchaser of the Acquired Assets (as hereinafter defined).
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants, conditions, representations and undertakings hereinafter contained,
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto do hereby agree as follows:
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ARTICLE I
Definitions
"Accreditation Body" shall mean the Joint Commission on Accreditation of
Healthcare Organizations, the Commission on Accreditation of Rehabilitation
Facilities, and all other non-governmental accreditation entities by which the
Centers are accredited.
"Acquired Assets" shall have the meaning ascribed thereto in Section 2.1.
"Affiliate," as applied to any Person, shall mean a spouse or relative of
such Person, any member, director or officer of such Person, any corporation,
association, firm or other entity of which such Person is a member, director or
officer or owns or controls, directly or indirectly, more than five percent (5%)
of the voting stock, and any other Person directly or indirectly controlling,
controlled by or under direct or indirect common control with such Person.
"Agreement" shall have the meaning ascribed thereto in the preamble.
"Alternative Transaction" shall mean any sale, lease, transfer or other
disposition of any kind with respect to the Acquired Assets or the capital stock
of CHCA (or any substantial portion of the Acquired Assets or the capital stock
of the CHCA) or any merger or consolidation of the CHCA or Seller with or into
any other entity.
"Approvals" shall mean all consents, approvals, permits from and notices to
any and all Governmental Authorities necessary or required by any and all Legal
Requirements in order to consummate the transactions contemplated hereby. The
Approvals shall not be deemed to have been received until the earliest of (a)
the issuance of favorable determinations by the applicable Governmental
Authority under circumstances in which no adverse party has standing to appeal,
(b) the expiration of any applicable appeal periods with no appeals taken or (c)
resolution of any such appeal or final decision upon terms and conditions
satisfactory to Purchaser.
"Asserted Claim" shall have the meaning ascribed thereto in Section 5.12.
"Assumed Liabilities" shall have the meaning ascribed thereto in Section
2.5.
"Base Rate" shall mean the rate of interest announced from time to time by
BankBoston, in Boston, Massachusetts as its base rate or prime rate.
"Bill of Sale, Assignment and Assumption Agreement" shall mean the Bill of
Sale, Assignment and Assumption Agreement, to be dated as of the Closing Date,
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between the Selling Group and the Purchaser Group in substantially the form of
Exhibit B attached hereto.
"Business" shall have the meaning ascribed thereto in the preamble as
conducted as of the date hereof including, without limitation, the Comprehensive
Service.
"Business Day" shall mean any day other than Saturday, Sunday or any other
day which is a legal holiday in Boston, Massachusetts.
"Centers" shall have the meaning ascribed thereto in the preamble.
"CHAMPUS" shall mean the Civilian Health and Medical Program of the Uniform
Service, a program of medical benefits covering retirees and dependents of
members or former members of a uniformed service provided, financed and
supervised by the United States Department of Defense established by 10 USC
ss.ss.1071 et seq.
"CHCA" shall have the meaning ascribed thereto in the preamble.
"Closing" shall mean the consummation of the transactions described herein.
"Closing Date" shall have the meaning ascribed thereto in Section 8.1.
"COBRA" shall have the meaning ascribed thereto in Section 2.5(b).
"COBRA Coverage" shall have the meaning ascribed thereto in Section 2.5(b).
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, including all regulations promulgated pursuant thereto.
"Commission" shall mean the Securities and Exchange Commission.
"Comprehensive Service" shall mean collectively all of the Seller's
services as currently being operated and provided, including, but not limited
to, nursing and nursing assistance, physical therapy, speech and language
therapy and occupational therapy.
"Contract Requiring Consent" and "Contracts Requiring Consent" shall have
the meaning ascribed thereto in Section 5.9.
"Contracts" shall have the meaning ascribed thereto in Section 3.9.
"Customers" shall mean any of Seller's customers for whom Seller or any of
its Professionals render care or provide services.
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"Deposit" shall have the meaning ascribed thereto in Section 2.12.
"Designated Employees" shall mean those Employees and Professionals as are
named on Schedule 1.1.
"Employee Accruals" shall mean all Employee Benefits which have been earned
and/or accrued (on a true accrual basis, whether or not vested, without regard
to Seller's policies or procedures) but remain unpaid with respect to or for any
period ending on or prior to the Closing Date.
"Employee Benefits" shall mean all wages, salary, health insurance
coverage, disability coverage, severance pay, withholding, social security and
other employment taxes, vacation and sick pay, earned time, bonuses,
commissions, pensions, profit sharing, stock option and all other arrangements
and other fringe benefits and other employee benefit plans, practices or
arrangements, whether written or oral, covering any Employee or Former Employee,
whether or not yet payable.
"Employee Benefit Plan" shall mean all health insurance coverage,
disability coverage, severance pay, vacation and sick pay, bonuses, commissions,
pensions, profit sharing, stock option and other arrangements and other fringe
benefits and other employee benefit plans, practices or arrangements, whether
written or oral, covering any present or former employee of the Business,
whether or not yet payable, and whether or not constituting an employee benefit
plan as defined in ss.3(3) of ERISA.
"Employees" shall have the meaning ascribed thereto in Section 3.7(a).
"Environmental Laws" shall have the meaning ascribed thereto in Section
3.11(c).
"ERISA" shall mean the Employee Retirement Security Act of 1974, as
amended, including the regulations promulgated pursuant thereto.
"Escrow Agent" shall mean the law firm of Hutchins, Wheeler & Dittmar, A
Professional Corporation.
"Escrow Agreement" shall have the meaning ascribed thereto in Section 2.12.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Excluded Assets" shall have the meaning ascribed thereto in Section 2.2.
"Extension Date" shall have the meaning ascribed thereto in Section 7.2
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"Final Cost Reports" shall have the meaning ascribed thereto in Section
5.13.
"Financial Advisor Opinion" shall have the meaning ascribed thereto in
Section 5.21.
"Financial Advisor Opinion Period" shall have the meaning ascribed thereto
in Section 5.21.
"Financial Statements" shall have the meaning ascribed thereto in Section
3.14.
"Former Employee" shall have the meaning ascribed thereto in Section
3.7(b).
"GAAP" shall mean generally accepted accounting principles, consistent with
those adopted by the Financial Accounting Standards Board and its predecessor,
as in effect from time to time.
"Governmental Authority" shall mean all agencies, authorities, bodies,
boards, commissions, institutions, legislatures and offices of any nature
whatsoever for any governing unit or political subdivision, whether federal,
state, county, district, municipal, city or otherwise, and whether now or
hereafter in existence.
"Hazardous Substances" shall have the meaning ascribed thereto in Section
3.11(c).
"Indebtedness" shall mean, as applied to any Person, (i) all items (except
items of capital stock or capital or paid-in surplus or retained earnings) which
in accordance with GAAP would be included in determining total liabilities as
shown on the liability side of the balance sheet of such Person as of the date
of which Indebtedness is to be determined, including any capital lease; (ii) all
indebtedness secured by any mortgage, pledge, lien or conditional sale or other
title retention agreement to which any property or asset owned or held by such
Person is subject, whether or not the indebtedness secured thereby shall have
been assumed, or such Person is liable therefor; (iii) all indebtedness of
others which such Person has directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business),
discounted or sold with recourse or agreed (contingently or otherwise) to
purchase or repurchase or otherwise acquire, or in respect of which such Person
has agreed to supply or advance funds (whether by way of loan, stock purchase,
capital contributions or otherwise) or otherwise to become directly or
indirectly liable; and (iv) all amounts for which such Person may be liable,
contingently or otherwise, under reimbursement, indemnification or contribution
agreements and the like, whether with respect to letters of credit issued for
the account of such Person or others or otherwise.
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"Indemnification Notice" shall have the meaning ascribed thereto in Section
9.3(a).
"Inspection" shall have the meaning ascribed thereto in Section 5.14(a).
"Inspection Period" shall have the meaning ascribed thereto in Section
5.14(a).
"Knowledge" or "best knowledge" shall mean, with respect to any Person who
is a party hereto, that such Person has made, or caused to be made by personnel
or representatives reasonably competent to determine the accuracy thereof (and
the results thereof reported to such Person), a due and diligent investigation
and inquiry which is reasonably appropriate to determine the accuracy of the
statement in question. Neither the listing nor description of any item or matter
in any Schedule, Exhibit or Annex hereto nor the furnishing or availability for
review of any document referred to herein, in any agreement, instrument or
document given in connection herewith, or in any such Schedule, Exhibit or Annex
shall be construed to modify, qualify or disclose an exception to any
representation or warranty, except solely to the extent that such representation
or warranty relates to the existence or non-existence of the item, matter or
document itself.
"Leases" shall collectively mean Seller's leases of the premises listed on
Exhibit A, complete copies of which leases are attached hereto as Exhibit A.
"Legal Requirements" shall mean all statutes, laws, rules and regulations
and all orders, judgments, decrees, writs, and pronouncements having the effect
of law of any Governmental Authority, including, but not limited to, those
relating to employment of labor (for example, ERISA, equal opportunity,
occupational safety and health, worker adjustment and retraining, wages, hours,
and the payment of Social Security and similar taxes), the Medicare and Medicaid
programs (for example, fraud and abuse, false claims, and conditions of
participation), protection of the environment (for example, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ss.9601 et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. ss.6901 et seq., the
Federal Water Pollution Control Act, the Federal Clean Air Act, and state
equivalents, including M.G.L. c. 21C and 21E), all building, zoning, fire and
safety codes, and laws imposing taxes or other forms of similar payment to
Governmental Authorities.
"Letter of Intent" shall have the meaning ascribed thereto in the preamble.
"Licenses" shall mean any license, Permit, certification, accreditation,
franchise, approval, consent and other authorizations granted or required by any
Governmental Authority as a condition for the practice of medicine, nursing,
physical therapy, speech and language therapy, occupational therapy, or any
other nursing, rehabilitation or
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other service provided by the Seller or which is or may be necessary to operate
the Business and/or the Comprehensive Service, including, without limitation,
licenses for the Professionals.
"Lien" shall mean (a) any mortgage, pledge, lien, charge, security interest
or other similar encumbrance of any kind upon any property or assets of any
character, or upon the income or profits therefrom; (b) any acquisition of or
agreement to have an option to acquire any property or assets upon conditional
sale or other title retention agreement, device or arrangement (including a
capitalized lease); or (c) any sale, assignment, pledge or other transfer for
security of any accounts, general intangibles or chattel paper, with or without
recourse.
"Management Agreement" shall mean that certain Management Agreement, dated
as of November 3, 1997, by and among the Selling Group and Purchaser.
"Material" shall mean when used in reference to any quantifiable and
measurable obligation, liability, expense, asset, property, debt, claim or right
shall mean an obligation, liability, expense, asset, property, debt, claim or
right having a value, impact or likely impact equal to or greater than $25,000
or any aggregation of the foregoing having a value in excess of $100,000.
"Medicaid" shall mean the medical assistance program established by Title
XIX of the Social Security Act (42 USC ss.ss.1396 et seq.) and any statutes
succeeding thereto.
"Medicare" shall mean the health insurance program for the aged and
disabled established by Title XVIII of the Social Security Act (42 USC
ss.ss.1395 et seq.) and any statutes succeeding thereto.
"1996 Financials" shall have the meaning ascribed thereto in Section 3.14.
"Necessary Permits" shall have the meaning ascribed thereto in Section
3.4(c).
"Nurse" shall mean any registered nurse, licensed practical nurse or other
nurse employed by, under contract to, or who provides services to Customers or
for the benefit of the Seller.
"Nurse's Aide" shall mean any physician's assistant, nurse's aide, home
health aide, or other person who assists in the provision of medical services
and care and other services who is employed by, under contract to, or who
provides services to Customers or for the benefit of the Seller, or who is
employed by or is a subcontractor to any Nurse.
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"Olympus" shall have the meaning ascribed thereto in the preamble.
"OSHA" shall have the meaning ascribed thereto in Section 3.7(b).
"Permits" shall mean all licenses, approvals, franchises, accreditations,
certificates, certifications, consents, permits and other authorizations
affecting the operation of the Comprehensive Service issued to the Seller by or
entered into between the Seller and any Governmental Authority, and all
renewals, replacements and substitutions therefor.
"Permitted Liens" shall mean (a) Liens for current taxes not yet due, (b)
those Liens, if any, which are specifically identified in Schedule 1.2, (c)
Liens, if any, created by Purchaser Group, and (d) Liens which are or which
relate to the Assumed Liabilities.
"Person" shall mean a corporation (including a business trust),
association, trust, partnership, joint venture, joint stock company,
organization, proprietorship, natural person, government or governmental agency
or political subdivision thereof or any other entity of whatever nature.
"Plan" and "Plans" shall have the meaning ascribed thereto in Section 3.21.
"Pre-Closing Obligations" shall mean all debts, liabilities and obligations
of Seller of even kind, nature and description, direct or indirect, absolute or
contingent, now existing or hereafter arising, including, without limitation,
payroll, accrued vacation and other employee benefits and obligations and all
other accrued and unpaid obligations of any kind and all Employee Accruals,
including, without limitation, those that have accrued as of the Closing Date,
whether or not then due.
"Professional Contracts" shall mean all employment, service or management
agreements or arrangements (whether oral or written) in effect and pursuant to
which the Seller employs or otherwise obtains the services of Professionals.
"Professionals" shall mean Therapists, Nurses, Therapist Aides and Nurses
Aides, collectively.
"Provider Agreements" shall mean all participation, provider and
reimbursement agreements or arrangements in effect for the benefit of the
operation of the Business and the Comprehensive Service relating to any right of
payment or other claim arising out of or in connection with the Seller'
participation in any Third Party Payor Program.
"Proxy Statement" shall have the meaning ascribed thereto in Section
5.15(b).
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"Purchase Price" shall have the meaning ascribed thereto in Section 2.3.
"Purchaser Group" shall have the meaning ascribed thereto in the preamble.
"Recoupment Claims" shall mean any recoupment, recapture, refund,
recalculation, audit adjustment, overpayment, set-off, disallowance, fine,
penalty or assessment or other claim asserted by any Third Party Payor,
Governmental Authority, Customer or other Person against the Seller as a
reduction to the amount of claims filed by the Seller or to rates charged by the
Seller for health care services, medical equipment or other services or goods
provided by the Seller.
"Retained Liabilities" shall mean all debts, liabilities and obligations of
Seller, of any kind, nature or description, direct or indirect, absolute or
contingent, secured or unsecured, joint, several or joint and several, now
existing or hereafter arising, which are not specifically assumed by Purchaser
pursuant to Section 2.5(a) and shall include, without limitation, all of the
liabilities set forth in Section 2.5(b).
"SEC Documents" shall have the meaning ascribed thereto in Section 3.14.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Selling Group" shall mean CHCA and Seller, collectively.
"Service Agreements" shall mean all service, consulting or management
agreements or arrangements (whether oral or written, including arrangements on
open account) in effect pursuant to which the Seller or any of the Professionals
on behalf of Seller provides or may be requested to provide nursing, nursing
assistance, aid, assistance, rehabilitation, therapy, management, home health
care or other services to Customers.
"Stockholders Meeting" shall have the meaning ascribed thereto in Section
5.15(a).
"Subleases" shall have the meaning ascribed thereto in Section 3.3(d).
"Therapist" shall mean any physician, nurse, physical therapist, speech and
language therapist, occupational therapist or other therapist employed by, under
contract to, or who provides services to Customers or otherwise for the benefit
of the Seller.
"Therapist Aide" shall mean any physician's assistant, nurse's aide,
physical therapy assistant, speech and language therapy assistant, occupational
therapy assistant or other therapy assistant or person who assists in the
provision of therapy
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services who is employed by, under contract to, or who provides services to
Customers or otherwise for the benefit of, the Seller, or who is employed by or
is a subcontractor to any Therapist.
"Third Party Payor Programs" shall mean all programs with Third Party
Payors in which the Seller participate, including, without limitation, Medicare,
Medicaid, CHAMPUS, Blue Cross and/or Blue Shield, Managed Care Plans, other
private insurance programs and employee assistance programs.
"Third Party Payors" shall mean Medicare, Medicaid, CHAMPUS, Blue Cross
and/or Blue Shield, private or public insurers, health maintenance
organizations, preferred provider organizations or programs, self-insured
employers and any other Person which maintains and/or administers Third Party
Payor Programs.
ARTICLE II
General Provisions of Purchase and Sale
Section 2.1 - Purchase and Sale of Acquired Assets. Upon the basis of and
in reliance on the representations and warranties contained in, and subject to
the terms and conditions of, this Agreement, the Purchaser agrees to purchase
and acquire from the Seller, and the Seller agrees to sell, convey, transfer,
assign and deliver to Purchaser, on the Closing Date, all right, title and
interest of the Seller in and to the Acquired Assets (as defined below), free
and clear of any Lien or encumbrance of any kind whatsoever, other than
Permitted Liens, against receipt on the Closing Date of the Purchase Price. The
term "Acquired Assets" shall mean all of the assets owned by the Seller or in
which the Seller has any rights or interests, tangible and intangible, real,
personal and mixed, whether or not specifically referred to, and all of the
Seller's right, title and interest therein and thereto, which are used in or
related to the Business and described in subsections (a) through (l) hereof, as
such assets shall exist on the Closing Date, (but excluding the Excluded Assets,
as hereinafter defined).
(a) The name PTS Rehab, Inc., as used by Seller for the Centers and all
derivatives thereof;
(b) The Leases;
(c) All inventories of the Seller existing on the Closing Date, including,
without limitation, those listed on Schedule 2.1(c) hereto, to the extent not
used or sold in the ordinary course of business prior to the Closing Date,
wherever located and whether owned or leased (including, without limitation,
products ordered and held for shipment or in transit to or from the Seller) and
all supplies used in connection with the Business, including, without
limitation, at least a 30 day supply of each and every item
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of consumables used by the Seller in the ownership, management or operation of
the Business;
(d) All equipment, leasehold improvements, fixtures, motor vehicles,
signage, construction in progress, parts, furniture, furnishings, office and
computer equipment and other fixed assets and equipment now or hereafter owned
by the Seller and used in the Business prior to or on the Closing Date, other
than those constituting Excluded Assets, including, without limitation, those
fixed assets described on Schedule 2.1(d) hereto, including, without limiting
the generality of the foregoing, any of the following: electric panels,
switchboards, lighting equipment, wiring, shelving, office partitions,
wall-to-wall carpeting, drapery rods, venetian blinds, window shades, screens,
screen doors, storm windows and doors, awnings, shutters, kitchen equipment,
fixtures and trade fixtures and telephone and computer systems;
(e) The Professional Contracts, the Service Agreements, all other
agreements for services, any Provider Agreements (to the extent assignable), and
all other contracts, contract rights, agreements, commitments and equipment,
real estate and other leases (in addition to the Leases set forth on Exhibit A)
in which the Seller has any present or future right or interest prior to or on
the Closing Date;
(f) All other tangible and intangible assets owned by the Seller and used
in the Business, on the date hereof or on the Closing Date, customer and
supplier lists, patient lists, medical records, approvals, Licenses of the
Seller (including, without limitation, any Licenses, Permits, certifications,
registrations or authorizations from or with federal and state Governmental
Authorities and/or Medicare and/or Medicaid) to the extent relating to the
Acquired Assets or the Business, contracts, plans, surveys, policy manuals,
accounts, records (except the Seller's income and franchise tax returns,
corporate minute books and stock books), the Seller's forms and office supplies,
all advertising and promotional literature relating to the Seller's products,
services or operations of or with respect to the Business, all non-proprietary
software and computer programs and documentation, if any, used in conducting
such Business, including, without limitation, flow charts, diagrams, descriptive
texts and programs, computer printouts, underlying tapes, computer data bases
and similar items used in such Business, and all technical notebooks, manuals
and reports and all treatises, books and other publications, all names,
addresses, telephone numbers of, records of billings to and payments by patients
and/or Third Party Payors, and, subject to the provisions in Section 11.14,
other information relating to current patients and referral sources and accounts
(except the Seller may retain copies, as reasonably appropriate, of such medical
records and documentation as shall be reasonably required by Seller in
connection with the collection of any outstanding accounts receivable as of the
Closing Date); all medical books, operating manuals, procedures manuals,
reference books, and training manuals used by Seller for the current operation
of the Business;
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all personnel records; the rights to use the telephone numbers and listings
pertaining to same;
(g) Any and all trademarks and trademark applications, service marks and
service mark applications, trade and product names, copyrights and copyright
applications in each case to the extent used in connection with the Business and
as set forth on Schedule 1.3, and including the associated goodwill, the right
to sue for and recover such damages and such other relief as might be granted by
a court of competent jurisdiction for past infringement thereof, Licenses,
Permits of the Seller (including, without limitation, any Permits,
certifications, registrations or authorizations from or with federal and state
Governmental Authorities and/or Medicare and/or Medicaid);
(h) Any and all warranties and guaranties (to the extent assignable) made
to or in favor of the Seller or with respect to the Acquired Assets and any
components thereof;
(i) All goodwill and going concern value of the Business and the operation
thereof;
(j) All deposits made by Customers for services not yet rendered as of the
Closing;
(k) All records pertaining to patients, referral sources, Employees
licensing, reimbursement sources, financial results and other legal compliance
related to the Business, subject to the limitations, if any, of applicable laws
on the transfer thereof to Purchaser; and
(l) All other assets, tangible or intangible, real, personal and mixed, now
or hereafter held or used in connection with the Business, whether or not
included in or reflected on the books of the Seller or their financial
statements.
Section 2.2 - Excluded Assets. Anything to the contrary herein provided
notwithstanding, the Acquired Assets shall not include the cash, cash
equivalents, accounts receivable, notes receivable, stock in any subsidiaries
owned by the Seller, corporate minute books and stock books and the equipment,
leasehold improvements, fixtures, furniture, furnishings, office and computer
equipment, telephone and computer systems and other fixed assets and equipment
listed on Schedule 2.2, all of which shall be retained by the Seller (the
"Excluded Assets") and shall not be sold, assigned, transferred, conveyed or
delivered to Purchaser.
Section 2.3 - Payment of Purchase Price. In consideration of the Acquired
Assets, the Purchaser Group hereby agree to pay to the Selling Group, at the
Closing,
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the following amounts (the "Purchase Price"), subject to adjustment as
hereinafter set forth, against delivery of the documents referred to in Section
2.4, as follows:
(a) The Purchaser and Seller shall cause the Escrow Agent to deliver the
Deposit, plus all interest accrued thereon through the Closing Date, to the
Seller in accordance with the terms of the Escrow Agreement.
(b) The Purchaser Group shall pay to the Selling Group, by bank or
certified check or wire transfer of immediately available federal funds, the
difference between (a) One Million, Seven Hundred Thousand Dollars ($1,700,000)
minus (b) the amount delivered to Seller pursuant to subparagraph (a) of this
Section 2.3.
Section 2.4 - Instruments of Transfer and Conveyance.
(a) The sale, conveyance, transfer, assignment and delivery of the Acquired
Assets, as herein provided, shall be effected by delivery by the Selling Group
at the Closing of such bills of sale, endorsements, assignments, certificates,
drafts, checks or other instruments of transfer and conveyance, as the Purchaser
Group reasonably deem necessary to vest in Purchaser good and clear, record and
marketable title to the Acquired Assets, subject to Permitted Liens, if any.
Such instruments of transfer and conveyance shall transfer to Purchaser good,
clear and marketable title to, full use of, and full undisturbed peaceful
possession of, the Acquired Assets. Such instruments of transfer and conveyance
shall be in form reasonably satisfactory to the Purchaser Group and shall
contain warranties as to marketable title and that the Acquired Assets are free
and clear of all Liens of any kind whatsoever, and shall include, inter alia, a
Bill of Sale, Assignment and Assumption Agreement.
(b) The Selling Group agrees that it will, from time to time after the
Closing Date, upon the request of the Purchaser Group, promptly do, execute,
acknowledge and deliver and will cause to be done, executed, acknowledged and
delivered, all such further acts, deeds, certificates, assignments, transfers,
conveyances, powers of attorney, assurances and other documents as may be
reasonably necessary or advisable in the opinion of Purchaser Group's counsel to
assure or confirm Purchaser Group, subject to Permitted Liens, if any, good and
clear marketable title to and interest in, or to enable it to deal with and
dispose of, any of the Acquired Assets or to carry on the Business and operate
the Comprehensive Service.
Section 2.5 - Assumption of Liabilities.
(a) On the terms and subject to the conditions set forth herein, from and
after the Closing Date, Purchaser will assume and shall pay when due, perform or
otherwise satisfy all executory liabilities and obligations of the Seller (i)
for vacation accruals listed in the September Balance Sheet or arising
thereafter in the ordinary course of
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business and (ii) which are incurred after the Closing Date under the Leases and
Contracts listed on Schedule 5.8 (collectively, the "Assumed Liabilities");
provided, however, the Assumed Liabilities will not include any liabilities of
the Seller which arose, accrued or were incurred prior to the Closing Date or
which relate to actions or omissions occurring or arising prior to the Closing
Date, including, but not limited to, any claims for breach of contract or other
claims arising due to acts or omissions of the Selling Group.
(b) Purchaser shall not be deemed by anything contained in this Agreement
to have assumed any liabilities, obligations, expenses or indebtedness
(including any principal, interest or other amount owing in respect of any such
indebtedness) of Seller of any nature whatsoever, whether absolute, accrued,
contingent or otherwise, unless specifically assumed by Purchaser pursuant to
subsection (a) above, including but not limited to:
(i) Any liability of Seller to any person or entity the existence of
which constitutes a breach of any covenant, agreement, representation or
warranty of Selling Group contained in this Agreement;
(ii) Any liability of Seller for any federal, state, local or foreign
income, franchise, sales, use, withholding or property taxes or other taxes
of any kind or description (and any fine, penalty or interest with respect
thereto);
(iii) Any and all employee compensation, employee benefit, severance,
pension, profit sharing and other retirement obligations, and tax
liabilities incurred in connection therewith, that have accrued during the
course of Seller's employment of each of its employees or each person who
in the past has worked for Seller, including, without limitation, any
accrued or other liability for contributions or payments to be made in
respect of participation by any such employee or former employee in any
Employee Benefit Plan. Purchaser expressly assumes no liabilities or
obligations with respect to any of the Employee Benefit Plans, whether or
not such liabilities arise from the transactions contemplated herein,
including, without limitation, (i) health care continuation liability under
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"), and (ii) ERISA pension liability. Seller shall remain liable and
responsible for and pay all taxes for all time periods prior to the Closing
Date, relating to employee wages, salaries and benefits. Seller, to the
extent required by law, regulations or interpretations, shall be liable and
responsible for all obligations to give notice of and to provide health
care continuation coverage for any such employees, former employees and
their respective dependents and qualified beneficiaries, in accordance with
the requirements of COBRA (hereinafter referred to as "COBRA Coverage"),
including, without limitation, all liabilities, taxes, sanctions, interest
and penalties imposed upon, incurred by or assessed against Purchaser Group
or any affiliated corporation within a controlled group relationship with
Purchaser Group
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(as determined under Section 414 of the Code), and any of their employees,
arising by reason of or relating to any failure to provide the COBRA
Coverage, including, but not limited to, Purchaser's failure to provide
COBRA Coverage to any such employees or former employees who are receiving
COBRA Coverage under Seller's Employee Benefit Plans at the Closing Date as
well as any of the Seller's employees who are not hired by Purchaser. In
addition, to the extent required by law, regulations or interpretations,
Seller shall be responsible for providing notice of the availability of
COBRA Coverage to all of its employees and former employees, including any
employees of Seller who will not be employed by Purchaser immediately after
the Closing Date, and all such employees' dependents, entitled to such
notice because of a qualifying event occurring before or on the Closing
Date or as a result of the Closing, and for providing COBRA Coverage for
all such employees or their dependents, who elect or have elected such
coverage;
(iv) Any liability or obligation (contingent or otherwise) of Seller
arising out of any threatened or pending litigation, whether or not set
forth on Schedule 3.12 attached hereto;
(v) Any liability, obligation or damage to persons or property arising
out of defects in products sold or services provided by Seller prior to the
Closing Date;
(vi) Any liability for any account, account payable, Contract, note,
or note payable, whether due or to become due, of Seller and/or any of
their Subsidiaries of any nature whatsoever, other than those liabilities
specifically assumed by Purchaser pursuant to Section 2.5(a) hereof; and
(vii) Any liability for any account, account payable, Contract, note,
or note payable, whether due or to become due, of Seller of any nature
whatsoever, other than those liabilities specifically assumed by Purchaser
pursuant to Section 2.5(a) hereof; and
(viii) Any negative cash balances, bank overdrafts, held checks or
similar liabilities of Seller.
Section 2.6 - Allocation of Purchase Price. The Purchaser Group and the
Selling Group shall allocate the Purchase Price among the Acquired Assets in
accordance with Schedule 2.6 hereto. The Selling Group and the Purchaser Group
hereby covenant with each other that they shall record the transaction
contemplated hereby on their respective books and records, and otherwise act, in
accordance with such allocation.
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Section 2.7 - Assignment of Rights of the Purchaser; Nominee and Lender.
(a) It is understood and agreed by the Selling Group that the Purchaser
Group may assign this Agreement, in whole or in part, to an existing Affiliate
or an Affiliate to be formed by the Purchaser Group; provided that (i) Purchaser
Group shall provide the Selling Group with written notice of their designee
prior to the Closing Date and (ii) such designee shall assume all of the
Purchaser Group's rights and obligations hereunder ,provided that Olympus shall
not be relieved of any of its obligations under this Agreement, including,
without limitation, payment of the Purchase Price and its obligations in respect
of indemnification.
(b) The Purchaser Group, and any such Affiliate, shall have the right to
designate nominees to hold title to all or any portion of the Acquired Assets.
(c) It is further understood and agreed by the Selling Group that the
Purchaser Group may assign this Agreement and all of the rights of the Purchaser
Group or the Purchaser Group's designee hereunder to the Purchaser Group's
lender or lenders or other persons providing financing to the Purchaser Group,
and the Selling Group agrees to execute written consents to any such assignments
in a form acceptable to such lender or lenders or other persons providing
financing.
Section 2.8 - Adjustments to Purchase Price. Pass-through charges to the
Seller under the Leases, including but not limited to real estate taxes and
municipal betterment assessments, and water and sewer charges, utility deposits,
fuel costs, and advances and prepayments as of the Closing Date, security
deposits, items to be adjusted in accordance with the provisions of Sections
4.11 and 5 of the Management Agreement (including, without limitation,
Unreimbursed Payroll Expenses (as defined therein)), and other items normally
adjusted for in substantial commercial transactions of a type similar to this
transaction for the then current fiscal year, and all Employee Accruals, shall
be apportioned as of the Closing Date and the net amount thereof shall be added
to or deducted from, as the case may be, the Purchase Price at the Closing. If
the amount of said taxes or other adjustable items is not known as at the
Closing Date, they shall be apportioned on the basis of the taxes assessed or
other adjustable items for the preceding year, with a reapportionment as soon as
the new tax rate and valuation or other adjustable items can be ascertained.
Section 2.9 -Selling Group's Ability to Clear Title. If on the Closing Date
for any reason, (i) title to the Acquired Assets shall not conform to the
provisions of this Agreement; or (ii) any of the conditions precedent specified
herein have not been satisfied, then Purchaser Group may at their election,
without waiving any of Purchaser Group's other rights hereunder by virtue
thereof, at the written request of Purchaser Group, require Selling Group to
use, and Selling Group shall use, all commercially reasonable efforts to correct
and perfect said title (subject to Permitted Liens), make
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the Acquired Assets conform to the provisions hereof, or satisfy such conditions
precedent, as the case may be. Purchaser Group shall give reasonably prompt
notice to Selling Group of any such defect in title, condition or unsatisfied
condition upon discovery of the same. Upon such notice given by Purchaser Group,
the Closing Date shall be extended for a reasonable period of time not to exceed
thirty (30) days to permit the Selling Group to expend such efforts to satisfy
such conditions precedent as are unsatisfied as described above. Any such notice
to extend, if given, shall indicate a Closing Date which shall afford the
Selling Group a reasonable opportunity to cure such defects, make the title to
or condition of the Acquired Assets conform, or satisfy such condition
precedent, as the case may be, as above provided but, in any event, shall not
exceed thirty (30) days. If, at the expiration of such extended time, the
Selling Group shall have failed to remove such defect, or to make the Acquired
Assets conform, or to satisfy such condition precedent, as the case may be,
Purchaser Group shall be entitled to its remedies set forth herein.
Section 2.10 - Application of Purchase Price to Clear Title. To enable the
Selling Group to make conveyance as herein provided, the Selling Group may, at
the time of delivery of the Bill of Sale, Assignment and Assumption Agreement
use the Purchase Price or any portion thereof to clear the title of the Acquired
Assets of any or all Liens (other than Permitted Liens), provided that all
instruments so procured are recorded simultaneously with the delivery of the
Bill of Sale, Assignment and Assumption Agreement.
Section 2.11 - Trust. The Selling Group shall hold in trust for the benefit
of Purchaser Group any of the Acquired Assets that may not be transferred on the
Closing Date until such time the transfer is legally permissible, subject to the
provisions of Section 5.10 hereof.
Section 2.12 - Deposit. Upon the execution of this Agreement, the Purchaser
shall deliver to the Escrow Agent the sum of One Hundred Thousand Dollars (US
$100,000) as a deposit (the "Deposit"), to be held in escrow by the Escrow
Agent, pursuant to the terms of an Escrow Agreement in form and substance as set
forth in Exhibit C (the "Escrow Agreement"). The Deposit, together with all
accrued interest thereon, shall be held in an interest bearing account until the
earlier to occur of (a) the Closing Date or (b) the date of the termination of
this Agreement pursuant to Article VII hereof. If the transactions contemplated
hereby are consummated, the Deposit, together with all interest thereon, shall
be used by the Purchaser toward the payment of the Purchase Price. If this
Agreement is terminated pursuant to the provisions of Article VII, the Deposit,
together with all accrued interest thereon, shall be delivered in accordance
with the provisions of Article VII.
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ARTICLE III
Warranties, Representations and Covenants of the Selling Group
To induce the Purchaser Group to execute and deliver this Agreement and to
consummate the transactions contemplated hereby, except as set forth (the
"Disclosed Exceptions") in the disclosure letter delivered to the Purchaser
Group by Selling Group on or prior to the date of the execution hereof (the
"Selling Group's Disclosure Letter"), which is hereby made an integral part of
this Agreement as if fully set forth herein, the Selling Group hereby make each
of the representations, warranties and covenants set forth in this Agreement,
including those set forth in this Article, each of which shall survive the
execution and delivery hereof and the Closing Date hereunder to the extent set
forth in Section 9.5, all of which are material and have been relied upon by the
Purchaser Group and each of which shall be true and correct in all respects as
of the date hereof and as of the Closing Date hereunder. References to Schedules
in this Article III shall be deemed to refer to the Schedules set forth in the
Selling Group Disclosure Letter, unless otherwise indicated.
Section 3.l - Corporate Organization and Authority.
(a) Each of the Selling Group has the corporate power and authority and has
been duly authorized, is fully empowered and has the legal capacity to execute
and deliver this Agreement and all agreements and instruments delivered in
connection herewith, to perform all of its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby, and this
Agreement and all instruments and agreements delivered in connection herewith
are the valid and binding obligations of the Selling Group, enforceable against
the Selling Group in accordance with their respective terms.
(b) Each of the Selling Group is a corporation duly organized, validly
existing and in good standing under the laws of its respective state of
incorporation and has all requisite corporate power and authority to own,
operate and lease its properties and to carry on its businesses as now being
conducted.
(c) Each of the Selling Group has duly filed any and all corporate
certificates and reports required to be filed to date under the laws of its
respective state of incorporation and the Commonwealth of Massachusetts.
(d) Each of the Selling Group is duly qualified to do business and is in
good standing as a foreign corporation in the jurisdictions listed on Schedule
3.1(e) hereto and there are no other jurisdictions in which their conduct of
their business or their ownership of assets requires such qualification under
applicable law.
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(e) Seller is a wholly-owned subsidiary of CHCA.
Section 3.2 - No Conflicts. Except as set forth on Schedule 3.2, neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated by this Agreement will: (i) conflict with, or result
in a breach or violation of, the charter or by-laws of any of the Selling Group;
(ii) violate or conflict with any Legal Requirement, any rule or regulations of
any Accreditation Body, or any License, Permit or other approval necessary to
operate the Business; (iii) to the best of Selling Group's knowledge, violate or
conflict with or constitute a default under (or give rise to any right of
termination, cancellation or acceleration under) the terms, conditions or
provisions of any note, contract, indenture, bond, lease, mortgage, obligation,
agreement, understanding, arrangement or restriction of any kind in respect of
the Business or the Acquired Assets to which any of the Selling Group are a
party or by which either the Selling Group or the Acquired Assets may be bound;
or (iv) to the best of Selling Group's knowledge, require the consent, license,
permission, action or approval by or the registration with or notice to any
Governmental Authority, Accreditation Body or Third Party Payors or other Person
or violate or conflict with or constitute a default under (or give rise to any
right of termination, cancellation or acceleration under the terms, conditions
or provisions of) any Service Agreement, Nursing Contract, or other Contract,
agreement, understanding, arrangement or restriction of any kind to which the
Seller is a party or by which Seller or any Acquired Assets may be bound.
Section 3.3 - Ownership of Acquired Assets, Property.
(a) The Seller is the owner of, and hold good and clear record and
marketable title to, the Acquired Assets free and clear of any Liens other than
Permitted Liens. The Seller shall transfer on the Closing Date to the Purchaser
good and clear marketable title (and with respect to leasehold interests under
the Leases and the tangible assets constituting part of the Acquired Assets,
insurable at normal rates, under all applicable laws, in and to all of the
Acquired Assets, free and clear of all Liens, encumbrances, special assessments,
claims, tenancies, adverse interests, and federal or state taxes or defects.
(b) The Seller enjoys exclusive, peaceful and undisturbed possession under
the Leases (subject to the provisions thereof) and personal property leases
constituting part of the Acquired Assets to which they are a party. The Seller
has posted security deposits for the performance of their obligations under such
leases as set forth on Schedule 3.3, and there are no claims or charges against
such security deposits which have been asserted or, to the best of Selling
Group's knowledge, for which there exists a legal basis for such assertion. With
respect to the Leases and such personal property leases, the consent of only the
landlords and those lenders under financing documents identified on Schedule 3.3
are required for Selling Group to consummate
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the transactions required by this Agreement and, subject to the receipt of such
consents, the same shall not breach, or constitute a default of, such leases.
(c) The Acquired Assets constitute all of the assets required for the
continued operation of the Business as currently conducted by the Seller.
(d) Schedule 3.3 attached hereto contains a list of the Leases covering the
Centers, and any subleases (the "Subleases") thereunder as to which the Seller
is lessor, sublessee or sublessor. A copy of each such Lease and Sublease is
provided with Schedule 3.9. No other real property (owned or leased) is used in
connection with the Business. Except as indicated on Schedule 3.3:
(i) No officer, director, shareholder or employee of any of the
Selling Group, nor any spouse, child or other relative or Affiliate
thereof, owns directly or indirectly, in whole or in party, any of the real
properties described on Schedule 3.3 or any interest therein;
(ii) The Seller is not in default with respect to any term or
condition of any such Lease, nor, to the best knowledge of Selling Group,
has any event occurred which, through the passage of time or the giving of
notice, or both, would constitute a default thereunder, would cause the
acceleration of any obligation of Seller or the creation of a Lien (other
than a Permitted Lien) or interfere with Seller's right to occupy any
leasehold, which default or acceleration would have a material adverse
effect on the Business or the Acquired Assets taken as a whole;
(iii) All of the buildings, fixtures and other improvements described
on Schedule 3.3 are in good operating condition, subject to ordinary wear
and tear, and have been maintained as required by or on behalf of Seller,
and Selling Group has not received any notice that any such building,
fixtures or improvements is in violation of any applicable building code,
zoning ordinance, land use or other similar law or regulation; and
(iv) The Seller has not experienced any material interruption in the
delivery of adequate quantities any material utilities (including, without
limitation, electricity, natural gas, potable water, water for cooling or
similar purposes and fuel oil) or other public services (including, without
limitation, sanitary and industrial sewer service) required in the
operation of the Business.
Section 3.4 - Operating Licenses, Permits, Approvals and Certificates.
(a) The Seller is in possession of all Licenses, Permits and other
approvals listed on Schedule 3.4. There are no proceedings pending or, to the
knowledge of the Selling Group threatened or any basis therefor, which may
result in the appeal, repeal,
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revocation, cancellation, suspension or modification of any of such Licenses,
Permits or approvals. The Seller does not render hospice services.
(b) The Selling Group have delivered or caused to be delivered to the
Purchaser true and correct copies of all inspection reports and surveys relating
to the Business issued by any Governmental Authority or Accreditation Body
having direct supervisory authority over the Seller in respect of the Business
during the most recent inspection period, together with any plans of correction
with respect to the Business, and true and correct copies of reports and surveys
received with respect to the most recent inspection period in which the Business
was the subject of a plan of correction. All of such reports, surveys and plans
are listed on Schedule 3.4.
(c) Seller has all necessary Permits, Licenses, orders, ratings and
approvals of all federal, state, local or foreign Governmental Authorities and
all industrial bodies for it to operate and conduct the Business as presently
operated and as proposed to be operated ("Necessary Permits") and, to the
knowledge of Selling Group, after due inquiry, all other such Permits, Licenses,
orders, ratings and approvals required by applicable law or regulation. Such
Necessary Permits are listed on Schedule 3.4. All Necessary Permits are in full
force and effect and, to the best of the Selling Group's knowledge, after due
inquiry, (i) no suspension or cancellation of any Necessary Permit is
threatened, (ii) there is no reason to believe that on expiration any Necessary
Permit will not be renewed and (ii) none of the Necessary Permits will be
adversely affected by the consummation of the transactions contemplated in this
Agreement except for such Necessary Permits as are designated on Schedule 3.4 as
requiring a consent or approval prior to transfer by the Seller to Purchaser.
(d) Except as set forth in Schedule 3.4, the Seller is a qualified provider
participant in the Medicaid program and providers in Medicare; any deficiencies
cited under Medicare or Medicaid or state licensure laws as of the date hereof
are currently subject to a plan of correction which has been deemed acceptable
by all applicable Governmental Authorities, including the United States
Department of Health and Human Services, thereby qualifying the Business for the
renewal of their provider-participant reimbursement agreements with the
applicable state and federal agencies; and there is no action pending, or to the
best knowledge of Selling Group, recommended or threatened by the appropriate
state or federal agency having jurisdiction thereof, to terminate the
participation of any of the Business entitled to participate in the Medicare or
Medicaid Programs nor has Selling Group received written notice of any decision
not to renew any provider agreement related to the Business or any action of any
other type which would have a material adverse affect on the Business.
Section 3.5 - Accreditation. Seller is not accredited by any Accreditation
Body.
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Section 3.6 - Union Activity. The Seller has never been and is not
presently the object of any union organizing activity in respect of the Centers
or the Business, and, to the knowledge of the Selling Group, there are presently
no attempts to organize the Employees of the Seller, either by organized unions
or the Employees themselves. The Seller is not a party to any union or
collective bargaining agreement, and the Seller has not made any promises or
commitments to its employees with respect to any such agreement or arrangement.
No election or proceeding relating to the labor relations of Seller is pending
or, to the best of Selling Group's knowledge, threatened against Seller, nor is
any labor dispute or disturbance or work stoppage pending, or, to the knowledge
of Selling Group, threatened against the Seller, and the Seller has not
committed any unfair labor practice.
Section 3.7 - Employees.
(a) Schedule 3.7 sets forth a statement with respect to the policies of the
Seller as to vacation, earned time off, sick leave, and holiday time for all of
its employees employed by and/or engaged in or by the Business ("Employees"), or
for each Employee if different for different Employees, and the extent to which
any of such policies or practices are in writing, whether in letter, agreement
or other form.
(b) There have been no past proceedings, nor are any proceedings now
pending or, to the best of Selling Group's knowledge, threatened, with respect
to the operations of Seller in respect of the Business before the National Labor
Relations Board, State Commission on Human Rights and Opportunities, State
Department of Labor, U.S. Department of Labor or any other state or federal
agencies having jurisdiction over employee rights with respect to hiring, tenure
and conditions of employment in respect of Employees or each person who in the
past worked for Seller in connection with the Business ("Former Employees")
within the three-year period prior to the execution of this Agreement. To the
best of Selling Group's knowledge, there are no material violations of the
Occupational Safety and Health Act ("OSHA") at any premises covered by the
Leases.
(c) With respect to Employees (which term for purposes of this Agreement
shall include, without limitation, all Professionals), Seller has no (i)
agreements that contain any severance or termination pay liabilities or
obligations, (ii) bonus, deferred compensation, profit sharing, or retirement
arrangement, whether legally binding or not, nor is Seller currently paying or
bound to pay any pension, deferred compensation, severance pay, or retirement
allowance to anyone, and (iii) Employees except as shown in Schedule 3.7.
Schedule 3.7 accurately and completely sets forth all of the compensation and
other benefits to which each Employee is entitled.
(d) Schedule 3.7 lists all Employees of the Seller as of the Closing Date,
their positions and their rate of pay, and all accrued vacation earned time off,
and sick-pay
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days and other Employee Benefits available to each Employee as of the Closing
Date hereof, calculated a true accrual basis (to include both earned and
unearned benefits). Purchaser Group will assume accrued vacation as and to the
extent set forth in Section 2.5(a)(i), and Selling Group will pay all other
amounts. Except as listed on Schedule 3.7, at Closing, all of the Employees are
subject to termination at will.
(e) The Seller has a workers' compensation policy that now is, and has been
since the date of the commencement of the Business, in full force and effect at
all times, and: (i) all workers' compensation insurance premiums have been fully
paid, (ii) no Indebtedness is outstanding with respect to the workers'
compensation insurance premiums, (iii) no claims have been filed or are pending,
or, to the Selling Group's knowledge, threatened, under the Seller's workers'
compensation insurance policy, nor to Selling Group's knowledge, is there any
reasonable basis for any such claim, (iv) to Selling Group's knowledge, there is
no deficiency for any workers' compensation insurance premium payable, assessed,
proposed, threatened or in prospect, nor, to Selling Group's knowledge, is there
any reasonable basis for such a deficiency, and (v) to Selling Group's
knowledge, there is no basis for denial of coverage as to all or any part of the
Seller's workers' compensation insurance.
(f) Except as set forth on Schedule 3.7 (i) there are no pending claims by
any Employee or Former Employee against Seller other than for compensation and
benefits due in the ordinary course of employment, (ii) there are no pending
claims against Seller arising out of any Legal Requirements, (iii) there are no
pending or, to the best knowledge of Selling Group, threatened labor disputes,
strikes or work stoppages against Seller, and (iv) to the best knowledge of
Selling Group, there are no union organizing activities in process or
contemplated with respect to the Business. Schedule 3.7 also identifies all
Employees on leave of absence and all Employees and Former Employees and their
dependents receiving health benefits, or eligible to receive health benefits, as
required by COBRA. Notice of the availability of COBRA Coverage will have been
provided to all persons entitled thereto, and all persons electing such coverage
are being (or have been, if applicable) provided such coverage.
Section 3.8 - Compliance with Laws. The Seller is, in respect to the
Business, in compliance with, and the Seller has operated and is presently
operating the Business in all material respects in accordance with, all
applicable Legal Requirements, and the Seller is not liable for any arrears of
wages or any taxes or penalties for failure to comply with any of the foregoing
and no notice has been issued by any Governmental Authority stating that there
is any existing violation of any Legal Requirements, Licenses or Permits, which
violation has not been remedied and dismissed. The Selling Group will continue
the Business in the ordinary course and in such material compliance until the
date of the Closing.
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Section 3.9 - Executory Contracts with Third Parties.
(a) Schedule 3.9 (a) sets forth a description of all oral or written
leases, indentures, evidences of indebtedness, agreements and contracts
(including without limitation, Service Agreements) between the Seller, on the
one hand, and any third party, on the other hand, including, without limitation,
those relating to the ownership, management, or operation of the Business,
including, without limitation, the Service Agreements, the Professional
Contracts, Provider Agreements and contracts relating to unions or collective
bargaining arrangements (collectively, the "Contracts").
(b) The Selling Group have delivered to the Purchaser Group true and
complete copies of each of the Contracts, or where they are oral, true and
complete written summaries thereof. Except as set forth on Schedule 3.9(b), (i)
all of such Contracts are in full force and effect and binding upon Seller and
Seller has been paid in full or accrued all amounts now due thereunder and has
satisfied in full or provided for all of their respective liabilities and
obligations thereunder, (ii) the Seller has fulfilled all material obligations
required pursuant to each Contract to have been performed by Seller, and there
is no reason to believe that Seller through the Closing Date and Purchaser Group
immediately thereafter will not be able to fulfill, when due, all of their
respective obligations under the Contracts which remain to be performed after
the Closing Date, (iii) no amounts now or hereafter due under any of such
Contracts have been paid in advance or prior to the due date therefor, (iv)
Seller is not in default under or in violation of any provision of their charter
documents or any restriction, Lien, encumbrance, indenture, Contract, Lease,
Sublease, loan agreement, note or other obligation or liability to which any of
the Acquired Assets is subject or which would have a material adverse affect on
the Business or the Acquired Assets. Except as set forth in this Agreement or in
Schedule 3.9(b), no person or entity has any agreement, option, understanding or
commitment, or any right or privilege capable of becoming an agreement, for the
purchase or transfer from Seller of any of the Acquired Assets. Except as listed
and described in Schedule 3.9(b), (i) neither the Selling Group nor, to its
knowledge, any other party, are in default, nor have received a written notice
of a default under, any of the Contracts (a "default" being defined for purposes
hereof as an actual default or breach or the existence of any set of facts which
would, upon receipt of notice or passage of time, constitute a default); and
(ii) no approval or consent of any person is needed in order that the Contracts
will continue in full force and effect following the consummation of the
transactions contemplated by this Agreement.
(c) All of the records and books of account benefiting, relating to or
affecting the ownership, management and operation of the Seller and/or the
Business and the Acquired Assets, or the operation of any programs or services
in connection with the Business made or entered into with any Governmental
Authority, Accreditation Body, Third Party Payor, or other Person, including,
but not limited to, medical records of patients for whose care the Seller bills
the patient or a Third Party Payor Program
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directly, are either located at the Centers or, subject to the provisions of
Section 11.14, will be delivered by the Seller, at its sole cost and expense, to
the Centers on the Closing Date. All such records and books of the Seller and
the Business are in good order, complete, accurate, up-to-date and contain all
necessary signatures.
(d) Except as expressly described on Schedule 3.9, no consent of any party
to any of the Contracts is required for the execution, delivery or performance
of this Agreement or the consummation of the transactions contemplate hereby or
the assignment of any Contract to Purchaser Group.
Section 3.10 - Condition of the Acquired Assets.
(a) Schedule 3.10 includes (i) a list of each item of tangible personal
property (other than inventory) constituting a portion of the Acquired Assets
having on the date hereof a depreciated book value in excess of $500, or not
owned by Seller but in the possession of or used in the Business without regard
to the amount of rental payments, (ii) a list of computer software and programs
(excluding Excluded Assets and personal computer software generally available to
the public), software in process, computer operating systems and applications
constituting a portion of the Acquired Assets, and (iii) a list of the owners
of, and copies of any agreements relating to the use of, each such item of
tangible personal property not owned by Seller and the circumstances under which
such property is used and what consents or authorizations are necessary for
transfer such property to continue to be used by Purchaser Group. Except as
indicated on Schedule 3.10, each item of such tangible personal property not
owned by Seller is currently in such condition that, upon the return of such
property to its owner in its present condition at the end of the relevant lease
term or as otherwise contemplated by the applicable agreement between Seller and
the owner or lessor thereof, the obligations of Seller to such owner or lessor
would be discharged without further obligation or the payment of any termination
fee, penalty or other fees relating to such condition. Each item of tangible
personal property included in the Acquired Assets is, and, subject to casualty
or loss, as of the Closing Date will be, in good operating condition and repair,
ordinary wear and tear excepted.
(b) All tangible assets included in the Acquired Assets conform in all
material respects with all applicable Legal Requirements, and with the standards
of the fire insurance rating association with jurisdiction. The Selling Group
has not received any orders, notices, or allegations of violations from any
Governmental Authority or from any insurer relating to the Acquired Assets or
the use thereof.
(c) Except as disclosed on Schedule 3.10, Selling Group has not received
any notice of nor have any knowledge of any claim, requirement or demand of any
Governmental Authority, Accreditation Body, Third Party Payor or any insurance
body having or claiming any licensing, certifying, supervising, evaluating or
accrediting
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authority over the Business to remedy any violation (i) by its professional
staff or Professionals or (ii) with respect to its professional services,
procedures or practices in any material respect.
(d) There is no pending condemnation or similar proceeding with respect to
or affecting the premises occupied by the Seller under the Leases, nor any
violation of any Legal Requirement affecting the legal use of such Premises,
which violations would have a material adverse affect on the Business or the
Acquired Assets taken as a whole and no written notice of such a proceeding or
violation has been received by the Selling Group, and such premises' current use
as offices of the Seller is permitted under all such legal authorities.
(e) The Premises occupied by the Seller under the Leases are serviced by
public water, electric service, storm sewer, natural gas and telephone service.
Section 3.11 - Environmental.
(a) To the best of the Selling Group's knowledge, there are no Hazardous
Substances present at, nor is there or has there been any Hazardous Substance
dumped, spilled or disposed of at, on, under or upon the Premises occupied by
the Selling Group under the Leases. Seller has never dumped, spilled or disposed
of any Hazardous Substances at any site.
(b) Neither the Selling Group nor, to the Selling Group's knowledge, any
agent, employee, Affiliate or other Person acting on behalf of the Selling Group
has received notice from any Governmental Authority of a violation or an alleged
violation of compliance, or of a noncompliance or an alleged noncompliance with
any of the Environmental Laws of the land and building of which the Premises
occupied by the Seller under the Leases are a part.
(c) As used herein, the term "Hazardous Substances" shall mean "oil,"
"hazardous material," "hazardous waste," "hazardous substance" or any other
material which may be dangerous to health or the environment, either separately
or in combination with any other substance, when improperly "generated,"
"stored," "utilized," "heated," "disposed," "released," "transported" or
otherwise "managed," as the foregoing terms (in quotations) are defined by any
federal, state and/or local statute, ordinance, by-law, code, rule and/or
regulation applicable to (x) environmental conditions on, under or about the
land and building of which the Premises occupied by the Seller under the Leases
are a part; or (y) any disposal, release, transportation or storage of Hazardous
Substances by the Seller (collectively referred to herein as the "Environmental
Laws"), including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, 42 U.S.C. 9601 et seq. and the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. 6901, et seq.,
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the Federal Resource Conservation and Recovery Act, the Federal Water Pollution
Control Act, and the Federal Clean Air Act, and state equivalents (including,
without limitation, Chapters 21C and 21E of the Massachusetts General Laws), and
regulations promulgated thereunder.
Section 3.12 - Litigation. Except as set forth on Schedule 3.12, there is
no litigation, proceeding or investigation (including malpractice claims) of any
kind pending, or, to Selling Group's knowledge, threatened, against or relating
to Seller, its directors, officers, or Employees or which questions the validity
of this Agreement or any action taken or to be taken in connection herewith, and
there are no unsatisfied or outstanding judgments, orders, decrees or
stipulations affecting the Acquired Assets. Schedule 3.12 also lists all
disciplinary actions involving Seller's Employees (whether employed or under
contract) whether currently pending or completed within the past eighteen
months. Selling Group knows of no basis for any such action, proceeding or
investigation by any Governmental Authority relating to Seller, its directors,
officers, Employees and medical or professional staff (whether employed or under
contract). The right or ability of Selling Group to consummate the transactions
contemplated herein has not been challenged by any Governmental Authority or any
other Person, nor does Selling Group know or have reasonable grounds to know of
any basis for any such challenge or of any litigation, investigation or other
proceeding referred to in this Section.
Section 3.13 - Assessments. To the best of Selling Group's knowledge, there
are no proposed or actual assessments against the land and building of which the
premises occupied by the Seller under the Leases are a part relating to
utilities, sewers or other improvements on or to be placed on or otherwise
servicing such Premises, including, without limitation, any long-term sewer
assessment, or notice of any such improvements with respect to which assessments
have not been made.
Section 3.14 - Financial Statements. The Selling Group has furnished to the
Purchaser Group audited consolidated financial statements (including the notes
thereto) of CHCA and its wholly-owned subsidiaries, Consolidating Imaging
Systems, Inc., Associated Billing Corporation, Seller and Consolidated
Rehabilitation Services, Inc., a Delaware corporation, (collectively the "CHCA
Subsidiaries") for the fiscal year ended December 31, 1996, certified by
Federman, Lally & Remis LLC, CHCA"s auditors (the "Selling Group's Accountant"),
a true and correct copy of which is attached to Schedule 3.14 ("Financial
Statements"). The Financial Statements and the books and records of Selling
Group which gave rise thereto, as well as all other books and records maintained
by Selling Group with respect to the ownership and/or operation of the Acquired
Assets, are complete and accurate in all material respects and not misleading,
and the Financial Statements present fairly the assets, liabilities, operations
and financial condition of Selling Group and the results of its business
operations and have been prepared in conformity with GAAP. The Selling Group has
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furnished to the Purchaser Group a true and correct copy of CHCA's quarterly
reports on Form 10-QSB filed by CHCA with the Commission under the Exchange Act
for the fiscal quarters ended March 31, 1997, June 30, 1997 and September 30,
1997, respectively, which reports contain unaudited condensed consolidated
financial statements of CHCA and the CHCA Subsidiaries at and for the three (3)
month periods ending March 31, 1997 and June 30, 1997, and September 30, 1997,
respectively (the "Unaudited Interim Financial Statements"). Except as set forth
in this Agreement and the Schedules hereto, Selling Group has no material
liabilities in respect of the Business and the Acquired Assets as of or since
the date of the Financial Statements or as of this date which are not reflected
therein or in the Unaudited Interim Financial Statements, including, without
limitation, contingent liabilities, except for liabilities incurred in the
ordinary course of its business not in excess of $25,000 in the aggregate. The
charges, accruals and reserves shown in the Financial Statement in respect of
taxes and other governmental charges for all fiscal periods to December 31,
1996, are adequate, and no Seller knows of any basis for any assertion of any
assessment or claim for additional taxes or other governmental charges other
than those reflected in the Financial Statement or in the Unaudited Interim
Financial Statements.
Section 3.15 - SEC Documents; Financial Statements. CHCA has filed all
required reports, forms, and other documents with the Commission since January
1, 1997 (the "SEC Documents"). As of their respective dates, (i) the SEC
Documents complied in all material respects with the requirements of the
Securities Act, or the Exchange Act, as the case may be, and the rules and
regulations of the Commission promulgated thereunder applicable to such SEC
Documents, and (ii) none of the SEC Documents contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of CHCA and the CHCA Subsidiaries included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto, have been prepared in accordance with GAAP (except, in the case
of unaudited statements, as permitted by Form 10-QSB of the Commission) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present on a condensed basis the consolidated
financial position of CHCA and the CHCA Subsidiaries, on a condensed basis, as
of the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments, none of which will have a material adverse
effect on CHCA and the CHCA Subsidiaries). Except as set forth in the SEC
Documents filed and publicly available prior to the date of this Agreement, and
except for liabilities and obligations incurred in the ordinary course of
business consistent with past practice since the date of the most recent
consolidated balance sheet included in the Unaudited Interim Financial
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Statements or in the SEC Documents filed and publicly available prior to the
date of this Agreement and liabilities and obligations which would not,
individually or in the aggregate, have a material adverse effect on the
Business, its prospects or operations, or the Acquired Assets, neither CHCA nor
the CHCA Subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by GAAP to be set forth on
a consolidated balance sheet of CHCA and its Subsidiaries or in the notes
thereto.
Section 3.16 - Tax Matters. Seller has timely filed (timely being
understood to include all properly granted extensions) all federal, state and
local income, excise, payroll, franchise, real estate and sales, use and foreign
tax returns and other tax reports relating to the operations of the Business
required to be filed and due on or before the Closing Date in respect of any
fiscal period ended before the Closing Date and has paid all taxes shown thereon
as owing. All of the foregoing have been correct and complete in all material
respects. All federal, state and local income, profits, franchise, sales, use,
occupation, property, excise and other taxes (including interest and penalties)
due from Seller have been fully paid. There are no liens for federal or state
taxes, assessments or government charges or levies upon any property or assets
of Seller other than Liens for taxes not yet due. No extensions of time for the
assessment of deficiencies for any year are in effect. Neither the Internal
Revenue Service nor any other taxing authority has asserted or, to the knowledge
of Selling Group, threatened to assert against Seller any deficiency or claim
for additional taxes or interest thereon or penalties in connection therewith.
Seller has duly and properly withheld amounts and paid all taxes, including
Federal and state employee income taxes, social security or similar taxes,
payroll taxes, withholding taxes, unemployment taxes, and employment taxes of
every nature whatsoever, including any interest, penalty or addition thereto,
whether disputed or not, required to be withheld and paid by Seller with respect
to any person and has filed all required Federal, foreign, state and local and
other returns and reports with respect to any person in compliance in all
material respects with the tax withholding provisions of the Code and all other
applicable Federal, foreign, state or local laws.
Section 3.17 - Insurance.
(a) Schedule 3.17 is a complete, correct, and current list of all insurance
policies held by Seller and in effect as at the date of this Agreement,
including the types of coverage and amounts thereof and amounts of deductibles
thereunder. Included, without limitation, among such policies are full, valid,
effective, and collectible insurance against all claims, suits, obligations,
liabilities, and damages based upon, arising out of or resulting from:
(i) Any personal injuries to, or damage to the business or property of,
anyone, occurring or based upon, arising out of or resulting from any
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occurrence or situation in, on or about the premises occupied by the
Seller under the Leases, or based upon, arising out of or resulting
from any performance of services by the Seller or its employees
(including professional malpractice); and
(ii) Fire, accident, vandalism, and theft of and to the Acquired Assets.
All of such insurance relating to subsection 3.17(i) cover claims made on
an "occurrence" basis, so-called, rather than on a "claims made" basis.
(b) The names and addresses of the Seller's insurance agent(s) for the
insurance listed on Schedule 3.17 are also listed on said Schedule and the
Purchaser Group are hereby authorized to contact said agent(s) to verify such
coverage. The Selling Group will ensure that such insurance policies remain
effective or are replaced by comparable policies through the Closing Date.
Except as set forth on Schedule 3.17, all monthly premium installments due with
respect to all of such insurance policies have been paid in full through the
date of this Agreement and the Selling Group will take no action to cause such
insurance policies to lapse prior to the Closing.
Section 3.18 - Charges and Rates, Rate Limitations, etc. Schedule 3.9
includes a complete and accurate list of all Provider Agreements between Seller,
on the one hand, and Third Party Payors and other payment sources, on the other
hand, pursuant to which Seller agrees to provide services. The Seller's current
charges or rates under each such agreement with a Third Party Payor and with
each of its other Customers are set forth on Schedule 3.18 for the services
listed thereon (which is a complete and comprehensive list of all services
performed under each such agreement) and is reimbursed by Third Party Payors and
Customers at rates set forth for each Payor and other Customer on Schedule 3.18.
All of such rates are legal, valid and enforceable. Except as set forth on
Schedule 3.18, Seller does not have any claims, rate or charge appeals currently
pending before any Governmental Authority or any administrator of any Third
Party Payor Program or preferred provider program or other Customer or referral
source other than such appeals which, if determined adversely to Seller, would
not have a materially adverse effect on the Business or the Acquired Assets
taken as a whole, and Selling Group has no knowledge of any such actions
threatened against the Seller by any such Governmental Authorities, Third Party
Payors, or other Customer or referral source. Schedule 3.18 contains true and
complete information with respect to all Recoupment Claims against the Seller
and the Business which have not yet been fully repaid to the Third Party Payor
Program asserting the Recoupment Claim. Selling Group has no knowledge of any
investigation, audit or Recoupment Claim threatened against Seller except as
stated in Schedule 3.18.
Section 3.19 - Professionals. Each Professional required to be licensed
possesses each License which such Professional is required to possess in order
to
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perform services for the Seller and all applicable Customers as currently
provided, and each such License is effective and unrestricted, and free of any
probationary conditions, except as disclosed in Schedule 3.19. To the knowledge
of Selling Group, no Professional is the subject of any pending proceeding of
any Governmental Authority which may result in the suspension, restriction, or
revocation of, or attachment of any probationary condition to, any such License.
To the knowledge of Selling Group, no Professional has been excluded from
performing services under any of the Service Agreements, either by the voluntary
agreement of the Professional, by agreement of the Seller with the subject
Customer, or involuntarily by the subject Customer. To the best knowledge of
Selling Group, the participating status of each Professional in Third Party
Payor Programs has not been revoked, suspended, restricted, or subjected to any
probationary condition. To the best knowledge of Selling Group, no Professional
has had any of his or her medical or professional staff privileges suspended,
revoked, or restricted. To the knowledge of Selling Group, no Professional
having authority to store or dispense controlled substances has been the subject
of any disciplinary action or legal action by any Governmental Authority with
respect to controlled substance violations.
Section 3.20 - Customers. Attached hereto is Schedule 3.20 is an accurate
list of Customers which sets forth as of the date hereof each Customer's name
and address, the current status of their respective accounts, their rate and
source of their payments and the extent to which such Customer is qualified for
participation or is enrolled in any Third-Party Payor Program. Seller shall
provide Purchaser with an updated list in such format at Closing to be attached
hereto as Schedule 3.20A.
Section 3.21 - Employee Benefit Plans; ERISA.
(a) Schedule 3.21 sets forth an accurate and complete list of all bonus,
deferred compensation, hospitalization or other medical, stock purchase,
pension, life or other insurance, profit-sharing, sick leave, vacation, [earned
time], severance, retirement or stock option, post-retirement health or life
benefit, and any other employee benefit plan (as such term is defined in Section
3 of ERISA) arrangement or practice, whether formal or informal, written or not,
of Seller which relate to the Acquired Assets or to any current or Former
Employees at the Facilities (hereinafter individually referred to as "Plan" and
collectively referred to as "Plans"). Except as set forth on said Schedule 3.21,
Seller has made no commitment or representation to any of their current Employee
or Former Employees to establish any additional Plan, arrangement or practice or
to modify or change any existing Plan, arrangement or practice.
(b) None of the Plans is a "multiemployer plan" as that term is defined in
Section 3(37) of ERISA. Seller has not engaged in a transaction in connection
with any of the Plans, any trust created thereunder, or any trustee or
administrator thereof, that
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could be subject to either a civil penalty assessed pursuant to Section 502(i)
of ERISA or a tax imposed by Section 4975 of the Code. No liability to the
Pension Benefit Guaranty Corporation has been incurred by Seller since the
effective date of ERISA which relates to the Acquired Assets. The Pension
Benefit Guaranty Corporation has not instituted any proceedings to terminate any
of the Plans. There have been no notices of reportable events (within the
meaning of Section 4043(h) of ERISA) which Seller has filed with the Pension
Benefit Guaranty Corporation, and there are no Plans to which Title IV of ERISA
applies which have terminated. No event has occurred, and, to Selling Group's
knowledge, there exists no condition or set of circumstances as of the date of
this Agreement, which presents a risk as of such date of the termination of any
of the Plans which could result in any liability on the part of Seller or
Purchaser to the Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which Seller is required to
pay and which are due under the terms of each of the Plans as a contribution to
the Plans as of the last day of the most recent fiscal year of each of the Plans
ended prior to the date of this Agreement, and none of the Plans nor any trust
established thereunder has incurred any "accumulated funding deficiency" (as
defined in Section 302 of ERISA and Section 412 of the Code), whether or not
waived, as of the last day of the most recent fiscal year of each of the Plans
which ends prior to the date of this Agreement and the Closing Date.
(d) Except as otherwise disclosed on Schedule 3.21, the current value (as
of the latest valuation date) of all accrued benefits under each of the Plans
which is subject to Title IV of ERISA did not on a termination basis, using
Pension Benefit Guaranty Corporation assumptions, exceed the then current value
of the assets of such Plan allocable to such accrued benefit.
(e) Schedule 3.21 discloses each: (i) agreement with any director,
executive officer or other key employee of the Seller (A) the benefits of which
are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving the Seller or the nature of any of the
transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee or (C) providing severance benefits or
other benefits after the termination of employment of such director, executive
officer or key employee; (ii) agreement, plan or arrangement under which any
person may receive payments from the Seller that may be subject to the tax
imposed by Section 4999 of the Code or included in the determination of such
person's "parachute payment" under Section 280G of the Code; and (iii) agreement
or plan binding the Seller, including, without limitation any stock option plan,
stock appreciation right plan, restricted stock plan, stock purchase plan,
severance benefit plan, or any Employee Benefit Plan, any of the benefits of
which will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions
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contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement.
Section 3.22 - No Material Adverse Changes. Except as set forth on Schedule
3.22, since the date of the Unaudited Interim Financial Statements, there has
not been, with respect to the Business and the Acquired Assets, (i) any material
adverse change in the properties, assets, business, affairs or prospects of
Seller nor, to the best of Selling Group's knowledge, are any such changes
threatened, anticipated or contemplated; (ii) any actual or, to Selling Group's
knowledge, threatened, anticipated or contemplated material damage, destruction,
loss, conversion, termination, cancellation, default, or taking by eminent
domain or other action by any Governmental Authority which has materially
affected or may hereafter affect the properties, assets, business affairs or
prospects of Seller; (iii) any material and adverse pending or, to Selling
Group's knowledge, threatened, anticipated or contemplated dispute under any
Service Agreement, Professional Contract, Provider Agreement, or with any
customer, referral source, physician, Governmental Authority, supplier, source
of financing, employee, landlord, subtenant or licensee of Seller or any
pending, or to Selling Group's knowledge, threatened, anticipated or
contemplated occurrence or situation which is reasonably likely to result in a
material change in the terms or conditions of Seller's business or business
relationships; (iv) any pending or, to Selling Group's knowledge, threatened,
anticipated or contemplated occurrence or situation materially and adversely
affecting the properties, assets, business, affairs or prospects of Seller; (v)
any incurrence of any (A) material liabilities or obligations of the Seller,
except current liabilities and obligations incurred in the ordinary course of
business consistent with past practice, or (B) capital expenditures in excess of
$10,000 either individually or in the aggregate; (vi) any discharge of any
liabilities or obligations owing to Seller; (vii) any mortgage, pledge, lien or
security interest placed on any of the assets or properties of Seller; (viii)
any increase in the compensation of any officer, employee or Professional of
Seller, except as consistent with past practice or custom, or (except as noted
in Section 3.7(c)(i)) any granting of any severance or termination pay or
entering into or amendment of any employment agreement with respect thereto
which is not terminable without cause or penalties upon prior notice of not more
than thirty (30) days; (ix) acquisition or agreement to acquire any assets or
disposition of or agreement to dispose of any of its properties or assets,
except in the ordinary course of business; or (x) incurrence or cancellation or
forgiveness of any debts or claims, waiver of any rights of material value, or
disposition of any intellectual property.
Section 3.23 - Utilization Reviews. Utilization reviews by any Third Party
Payors, other reimbursement sources, or any Governmental Authority, and reviews
or scrutiny by any managed care or utilization review of Seller, has not had a
material adverse impact on the percentages of procedures billed by the Seller,
which are reimbursed, or on the percentage of the charges for such procedures
which are allowed for reimbursement.
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Section 3.24 - Recoupment Claims. All Third Party Payor cost reports,
financial reports and claims for payment submitted by the Seller have been
accurate, complete, and not misleading in any material way and all such reports
and claims have been submitted in compliance with all applicable laws,
regulations and policies. Except as set forth on Schedule 3.19, there are no
Recoupment Claims made or contests pending or, to the best of Selling Group's
knowledge, threatened. As of the date hereof, no cost reports remain open or
unsettled other than those listed on Schedule 3.19. The execution and
performance of this Agreement by the Purchaser shall not cause the Purchaser to
become legally responsible for the payment of any Recoupment Claim, solely
because the Purchaser Group continue the Selling Group's business or for any
other reason.
Section 3.25 - Cost Reports and Reimbursement Documentation. The Seller has
filed when due or after permitted extensions, all cost reports required to be
filed by Third Party Payors and Governmental Authorities in compliance with
applicable contractual provisions and/or rules and regulations. All of such cost
reports, all information contained therein, and the books and records giving
rise thereto are complete, accurate and correct.
Section 3.26 - Consents, etc. Except as set forth on Schedule 3.26, to the
best of the Selling Group's knowledge, no consents, approvals, authorizations,
orders, or approvals of, or filings or registrations with, any governmental
commission, board or other regulatory or public body or any other person or
entity required for or in connection with the execution and delivery of this
Agreement by Selling Group and the consummation by Selling Group of the
transactions contemplated hereby are required to be obtained or made.
Section 3.27 - Business Purchased and Sold. As of the date hereof, Selling
Group have not received notice of, and have no knowledge of any pending or
threatened termination of accounts from Customers that would cause the volume of
the Business to fall below that which exists as of the date hereof within three
months after the Closing Date.
Section 3.28 - Intentionally Omitted.
Section 3.29 - Truth of Statements. All representations and warranties by
Selling Group herein, whether relating to themselves and/or the Business
(including in all Exhibits and Schedules) are true, complete and accurate in all
material respects as of the date of this Agreement and will be true, complete
and accurate as of the Closing Date and do not contain and will not contain an
untrue statement of any material fact, or omit to state a material fact
necessary in order to make all of such representations and warranties not
materially misleading as of this date.
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Section 3.30 - Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of CHCA's capital stock approving this
Agreement is the only vote of the holders of any class or series of the CHCA's
capital stock necessary to approve this Agreement and the transactions
contemplated by this Agreement. The Board of Directors of CHCA (at a meeting
duly called and held) has unanimously (a) approved this Agreement and the
transactions contemplated hereby, (b) determined that this Agreement and the
transactions contemplated hereby are advisable and in the best interests of the
CHCA's stockholders and (c) determined to recommend this Agreement and the
transactions contemplated hereby to the stockholders of CHCA entitled to vote
for such approval and adoption.
Section 3.31 - Continuing Representations. The representations and
warranties of the Selling Group herein contained and the contents of all
Schedules referenced herein or annexed hereto shall be true and correct on and
as of the Closing Date with the same force and effect as if made on and as of
that date.
ARTICLE IV
Warranties and Representations of the Purchaser Group
To induce the Selling Group to execute and deliver this Agreement and to
consummate the transactions contemplated hereby, except as set forth in the
disclosure letter delivered to Selling Group by Purchaser Group on or prior to
the date of the execution hereof (the "Purchaser Group's Disclosure Letter")
which is hereby made an integral part of this Agreement as if fully set forth
herein, the Purchaser Group hereby make each of the representations, warranties
and covenants set forth in this Agreement, including those set forth in this
Article, each of which shall survive the execution and delivery hereof and the
Closing Date hereunder, all of which are material and have been relied upon by
the Selling Group and each of which shall be true and correct as of the date
hereof and as of the Closing Date hereunder. Reference to Schedules in this
Article IV shall be deemed to refer to the Schedules set forth in the Purchase
Group Disclosure Letter, unless otherwise indicated.
Section 4.1 - Corporate Organization and Authority.
(a) Each of the Purchaser Group has the corporate power and authority and
has been duly authorized, is fully empowered and have the legal capacity to
execute, deliver and perform this Agreement and all agreements and instruments
delivered in connection herewith, and to consummate the transactions
contemplated hereby and thereby, and this Agreement and all instruments and
agreements delivered in connection herewith are the valid and binding
obligations of the Purchaser Group, enforceable against the Purchaser Group in
accordance with their respective terms.
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(b) Each of the Purchaser Group is a the corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own, operate and lease
its properties and to carry on its businesses as now being conducted.
Section 4.2 - No Conflicts. Neither the execution nor the delivery of this
Agreement by the Purchaser Group will violate or conflict in any material
respect with any statute, law, rule or regulation or any order, writ, injunction
or decree of any court or Governmental Authority applicable to the Purchaser
Group; or violate or conflict in any material respect with or constitute a
default under (or give rise to any right of termination, cancellation or
acceleration under) the terms, conditions or provisions of any material note,
contract, indenture, bond, lease, mortgage, obligation, agreement,
understanding, arrangement or restriction of any kind to which the Purchaser
Group is a party or by which the Purchaser Group is bound.
Section 4.3 - Litigation. Except as set forth on Schedule 4.3, there is no
litigation, proceeding or investigation (including malpractice claims) of any
kind pending, or, to Purchaser Group's knowledge, threatened, against or
relating to the Purchaser Group, or any of their respective directors, officers,
employees and medical and professional staff (whether employed or under
contract) or which questions the validity of this Agreement or any action taken
or to be taken in connection herewith.
Section 4.4 - Consents. Except as set forth on Schedule 4.4, to the
Purchaser Group's knowledge, no consents, approvals, authorizations, orders, or
approvals of, filings or registrations with, any governmental commission, board
or other regulatory or public body or any other person or entity required for or
in connection with the execution and delivery of this Agreement by the Purchaser
Group and the consummation by the Purchaser Group of the transactions
contemplated hereby are required to be obtained or made.
Section 4.5 - Truth of Statements. All representations and warranties by
Purchaser Group herein, whether relating to it and/or its business (including
the contents of all Exhibits and Schedules related to Purchaser or Olympus
annexed hereto) are true, complete and accurate in all material respects as of
the date of this Agreement and, except to the extent a representation or
warranty specifies a certain date, will be true, complete and accurate in all
material respects as of the Closing Date with the same force and effect as if
made on such date, and do not contain as of the date hereof and will not contain
as of the Closing Date an untrue statement of any material fact, or omit to
state a material fact necessary in order to make all of such representations and
warranties not misleading.
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ARTICLE V
Risks, Conduct and Covenants of the Parties
Section 5.1 - Risk of Loss. The risk of loss, destruction, condemnation,
taking, eminent domain, of or damage to any component of the Acquired Assets or
to the premises occupied by the Seller under the Leases by any cause prior to
the Closing is assumed by the Selling Group, and the Selling Group shall
maintain in full force and effect through such date the scope and levels of
insurance coverage presently in effect on such properties. The Selling Group
shall immediately notify the Purchaser Group if, prior to, or at the Closing,
there shall have been any loss, destruction or damage to, or any commenced or
threatened proceedings to condemn or institute eminent domain taking of, all or
a portion of the Acquired Assets or the premises occupied by the Selling Group
under the Leases.
Section 5.2 - Affirmative Covenants of the Selling Group Regarding Conduct
of Business Prior to Closing. In addition to the other affirmative covenants set
forth in this Agreement, to induce the Purchaser Group to execute this
Agreement, Selling Group covenants that, from the date hereof through the
Closing Date, except as explicitly permitted otherwise by this Agreement or by
prior written consent of the Purchaser Group, Selling Group shall:
(a) conduct the Business in the ordinary course and in the same manner in
which it has heretofore been conducted, and in accordance with all applicable
Legal Requirements, and maintain its books of account in respect of the Business
in a manner that fairly and accurately reflects its income, expenses and
liabilities in respect of the Business in accordance with GAAP;
(b) notify the Purchaser Group of any unusual problems or developments with
respect to the Business and to the business or operations thereof which would
constitute a breach of any warranty hereunder or violation of any covenant
hereunder;
(c) deliver to the Purchaser Group to the extent prepared in the ordinary
course patient census reports in respect of the Business, projected consolidated
revenue and pre-tax profit reports, payroll and related cost reports, payroll
costs vs. program revenues reports, and financial budgets and reports, and all
other internal financial, operations and management reports (whether or not
prepared in the ordinary course) for all members or any member of the management
group of the Seller in respect of the Business, concurrently with such delivery
to such management member or members;
(d) maintain and preserve the Acquired Assets intact and preserve in effect
each Service Agreement, each Professional Contract, each agreement with a Third
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Party Payor Program, and other relationships with Customers, suppliers, and
others having business relations with Seller in respect of the Business, so that
the Business shall be in the condition required under the terms of this
Agreement on the Closing Date;
(e) maintain such quantities and qualities of inventory as have ordinarily
been maintained by Seller in respect of the Business in the regular course of
business but not less than a reasonable supply thereof;
(f) maintain the Acquired Assets which are tangible personal property in
the same condition as they were in at the time of the Preliminary Inspection,
ordinary wear and tear excepted, and make all necessary repairs and improvements
thereto;
(g) keep in full force and effect insurance comparable in amount and scope
of coverage to that now maintained by Seller for the benefit of the Acquired
Assets;
(h) perform in all material respects all of its obligations under all
contracts and commitments listed on Schedule 3.9 and under the Leases, and not
take any action to terminate or modify the terms thereof, except in the ordinary
course of business or except as required herein;
(i) use reasonable efforts to retain each of the Employees and
Professionals so that they will be employable by the Purchaser after the
Closing;
(j) punctually pay and discharge or make adequate provision for all taxes
and other governmental charges imposed upon Seller with respect to the Business
or the Acquired Assets;
(k) maintain corporate existence, good standing, and qualifications to do
business and to continue to conduct business as currently conducted;
(l) use its reasonable efforts to assist the Purchaser in the transfer to
the Purchaser of the Provider Agreements or, if a transfer is not possible, in
obtaining new Provider Agreements;
(m) use commercially reasonable efforts to assist the Purchaser in
obtaining or in the transfer to the Purchaser of any Licenses, consents, Permits
and/or approvals necessary to operate the Business as it is currently being
operated without any restrictions, limitations or delays and in obtaining the
Approvals;
(n) maintain and keep Seller's contract rights, claims and other intangible
assets with respect to the Acquired Assets as at present; and
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(o) not take any other action, or fail to take any other action, which
action or failure would have constituted a breach of the representations and
warranties of Selling Group contained herein, or would have rendered untrue,
inaccurate or incomplete any of said representations and warranties or any of
the Schedules or Exhibits to this Agreement, if such action or failure had
occurred prior to the time of execution of this Agreement, or otherwise cause
any material adverse change in the operations of the Business so as to impede,
delay or otherwise interfere with the occurrence of the Closing in accordance
with the terms hereof.
Section 5.3 - Negative Covenants of the Selling Group Regarding Conduct of
Business Prior to Closing. In addition to the negative covenants set forth in
other Sections of this Agreement, during the period from the date of this
Agreement through the Closing Date, Selling Group covenant that they shall not:
(a) increase compensation to the Employees or Professionals other than in
the ordinary course of business consistent with past practices, amend any Plan
or take any action to employ any new employees or execute any new employment
agreement or amendment of any existing agreement with any existing employee of
Seller (i) except in the ordinary course of business consistent with past
practices and (ii) except for severance agreements with Employees who will not
be employed by the Purchaser or any Affiliate of the Purchaser and with respect
to which Selling Group shall retain all liability as a Retained Liability;
(b) sell, lease, assign, transfer or otherwise dispose of or commit to
dispose of any of the Acquired Assets, except for sales of inventory in the
ordinary course of business;
(c) create any Lien (other than a Permitted Lien) or other encumbrance,
security interest or imperfection of title of or with respect to any of the
Acquired Assets, except as expressly permitted by this Agreement;
(d) enter into or amend any lease, contract, agreement, understanding,
commitment or transaction with respect to any of the Acquired Assets, other than
in the ordinary course of business;
(e) incur, assume, create, guarantee, suffer to exist or become
contingently liable for any debt, obligation or liability in respect of the
Acquired Assets, direct or indirect, absolute or contingent, other than in the
ordinary course of business or in connection with any Permitted Lien;
(f) take any other action, or fail to take any other action, which action
or failure would have constituted a breach of the representations and warranties
of Selling Group contained herein, or would have rendered untrue, inaccurate or
incomplete any
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of said representations and warranties or any of the Schedules or Exhibits to
this Agreement, if such action or failure had occurred prior to the time of
execution of this Agreement, or otherwise cause any material adverse change in
the operations of Seller's business so as intentionally to impede, delay or
otherwise interfere with the occurrence of the Closing in accordance with the
terms hereof;
(g) liquidate, dissolve, consolidate or merge (or be merged or
consolidated) with or into any other entity, or sell all or substantially all
its properties or assets or acquire or make any investment, directly or
indirectly, in any other corporation or business concern, whether by loan or
acquisition of assets, capital stock or otherwise, and whether in consideration
of payment of cash, issue of stock, notes, capital contributions or otherwise;
(h) commence any litigation or other adversarial proceeding in respect of
the Business or the Acquired Assets before any court, administrative board or
arbitrator, other than in the ordinary course of business and applications for
licenses, permits and other necessary approvals in the ordinary course of
business;
(i) destroy, discard or otherwise dispose of any books or records of the
Seller in respect of the Business or the Acquired Assets, other than in the
ordinary course of business;
(j) violate any Legal Requirements relating to the operation of the
Business;
(k) fail to notify the Purchaser Group of any fact or occurrence, which, if
it existed on the date hereof, would constitute a breach of any representations
and warranties of Selling Group set forth herein;
(l) make in respect of the Business and the Acquired Assets capital
expenditures or contracts for the making of capital expenditures for the
purchase of fixed assets in excess of $10,000 per expenditure and $25,000 in the
aggregate; provided, however, that Selling Group shall obtain the Purchaser
Group's consent (which shall not be unreasonably withheld) for individual
capital expenditures or capital expenditures related to a single project, which
cost is in excess of $5,000. For the purposes of this subsection, the term
"expenditure" shall mean the purchase price of any fixed asset or the entire
rental for the full term in the case of a capital lease;
(m) acquire or commit to acquire all or substantially all of the assets of
any person or entity;
(n) modify, alter, restate or amend their certificates of incorporation or
by-laws;
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(o) enter into any leases, subleases, tenancies, licenses, occupancy
agreements or other agreements pursuant to which Persons hold rights to use the
Acquired Assets or the premises occupied by the Seller under the Leases;
(p) acquire or make any investment, directly or indirectly, in any other
corporation or business concern, whether by loan or acquisition of assets,
capital stock or otherwise, and whether in consideration of payment of cash,
issue of stock, notes, capital contributions or otherwise;
(q) make loans or advances to any person or entity, including, without
limitation, its officers and employees, nor forgive, cancel, discharge, settle,
reduce or compromise any debts, obligations, liabilities or claims owed by any
person or entity to them; or
(r) terminate, cancel, modify, amend, or allow the termination,
cancellation, modification or amendment of any of the Service Agreements or
agreements or arrangements with any Third Party Payor.
Section 5.4 - Access.
(a) The Selling Group shall give, and cause its professional consultants to
give, to the Purchaser Group, its representatives, lenders, appraisers,
engineers, lawyers, accountants and its other professional consultants
reasonable access to the Selling Group and their offices, books and records, and
work papers, and accountants' work papers, input, cooperation and consultation
during normal business hours on all business days to and with all the directors,
officers, management employees, accountants, lawyers, offices, and books and
records of Selling Group, and to furnish such information and copies of
documents in its or their possession relating to Selling Group in respect of the
Business or the Acquired Assets as the Purchaser Group may reasonably request.
(b) From the date hereof until the Closing Date, the Selling Group shall
provide to the Purchaser Group, at any reasonable time and from time to time
after reasonable notice, access to Selling Group and to Selling Group's books
and records, and shall comply with such other reasonable requests of the
Purchaser Group to facilitate its inspections of the Selling Group and the
Comprehensive Service.
Section 5.5 - Discharge of Obligations. On or before the Closing Date, the
Selling Group shall discharge and obtain releases with respect to all
outstanding Liens (other than Permitted Liens) on the Acquired Assets, and shall
pay and perform or make arrangements to pay and perform all Indebtedness (other
than Indebtedness which is expressly assumed by Purchaser under Section 2.5) and
Pre-Closing Obligations of Selling Group (other than the Assumed Liabilities).
Selling Group shall,
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on or before the Closing Date, furnish to the Purchaser evidence of all such
discharges, releases and payments, except that, with respect to discharges and
releases to be obtained from institutional lenders, Selling Group and Purchaser
Group shall establish a mutually agreeable method for delivery after the Closing
Date of such discharges and releases.
Section 5.6 - Publicity. All press releases, filings and other publicity
concerning the transactions contemplated hereby will be subject to review and
approval by both the Selling Group and the Purchaser Group, such approval not to
be unreasonably withheld or delayed. Such approval shall not be required if the
person issuing such publicity reasonably believes it to be necessary for
compliance with Legal Requirements, but such person shall provide the other
party with reasonable notice and an opportunity to review same before release.
Both the Selling Group and the Purchaser Group hereby covenant and agree to keep
the terms and conditions of this Agreement and all documents and information
concerning other parties to this Agreement confidential except to the extent
that disclosure is required by law, and the Purchaser Group agrees that all
non-public documents delivered to it by the Selling Group pursuant to this
Agreement in connection with the business operations of the Selling Group shall
not be disseminated by the Purchaser Group, except to its attorneys,
accountants, officers, employees and agents on a need-to-know basis and shall be
returned to the Selling Group in the event that the transactions contemplated
hereby are not consummated.
Section 5.7 - Transfer Fees. The Selling Group shall be responsible for all
payments of any kind whatsoever required to be made in connection with the
transfers contemplated by this Agreement, including, without limitation,
document taxes, transfer fees or any other payments in the nature of or in lieu
of transfer fees as well as any recording or filing fees.
Section 5.8 - Assumption of Contracts, etc. On or before ten (10) Business
Days (the "Assumption Notice Date") after the date specified by the Selling
Group by notice to Purchaser as the date on which it intends to first mail the
Proxy Statement to its stockholders (which notice shall reference Purchaser's
obligations under this Section 5.8), the Purchaser Group shall notify the
Selling Group in writing of which of the leases, contracts, agreements and
commitments listed on Schedule 3.9, if any, that the Purchaser desire to assume
as part of the consummation of the transactions contemplated herein. All of such
leases, contracts and agreements which Purchaser elects to assume will be listed
on Schedule 3.9A and attached thereto and made a part hereof on or prior to such
Assumption Notice Date. The Seller shall transfer all of its right, title and
interest in, to and under all of such leases, contracts, agreements and
commitments to the Purchaser at the Closing pursuant to the Bill of Sale,
Assignment and Assumption Agreement . Failure of the Purchaser Group so to
notify the Selling
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Group within such period shall mean the Purchaser shall not assume any of such
leases, contracts, agreements or commitments, unless otherwise agreed by the
parties.
Section 5.9 - Continuation of Service, Professional, Provider and Other
Agreements.
(a) Following receipt by the Selling Group of notice from the Purchaser
Group in accordance with Section 5.8 of the Service Agreements, Professional
Contracts, Provider Agreements and other agreements which the Purchaser wishes
to assume or continue, the Selling Group and the Purchaser Group shall cooperate
with one another to enable the Purchaser Group to obtain prior to the Closing
all necessary consents to the assignments of such agreements or replacement
agreements in the name of the Purchaser upon terms and conditions identical in
all material respects to the terms and conditions of the corresponding Service
Agreements, Professional Contracts and Provider Agreements. Such consents to
assignments and replacement agreements shall expressly provide that the
Purchaser does not assume or become responsible for any liability incurred or
arising as a result of actions or inactions under such agreements prior to the
Closing. Such consents to assignment and replacement agreements shall not
contain any limitations, conditions or restrictions other than those currently
applicable to the Seller, and shall contain reimbursement rates no less
favorable to the Purchaser than those currently applicable to the Seller under
the corresponding agreement held by the Seller. All Contracts requiring consent
to the assignment thereof to Purchaser are separately identified on Schedule 3.9
(individually, a "Contract Requiring Consent" and collectively, the "Contracts
Requiring Consent").
(b) The terms of this Section 5.9(b) shall govern the transfer of the
benefits of any Contract Requiring Consent where the required consent has not
been obtained by the Closing Date. Notwithstanding anything herein to the
contrary, the parties hereto acknowledge and agree that at the Closing, Seller
will not assign to Purchaser any Contract Requiring Consent unless Purchaser has
agreed to assume such Contract and the applicable consent has been obtained
prior to the Closing Date. With respect to each such unassigned Contract
Requiring Consent, after the Closing Date, Seller shall continue to deal with
the other contracting party(is) to such Contract Requiring Consent as the prime
contracting party and shall use its best commercially reasonable efforts to
obtain the consent of all required parties to the assignment of such Contract
Requiring Consent, but Purchaser shall be entitled to all of the benefits of
such Contract Requiring Consent accruing after the Closing Date to the extent
that Seller may provide Purchaser with such benefits without violating the terms
of such Contract Requiring Consent. Notwithstanding the foregoing, failure by
Selling Group to obtain the necessary consent with respect to any Contract
Requiring Consent within 60 days after the Closing Date shall be deemed to be a
material breach of this Agreement. Purchaser agrees to perform at its sole
expense all of the obligations of Selling Group
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to be performed after the Closing Date, and to reimburse Selling Group for any
required, reasonable expenses, previously approved by Purchaser incurred by
Selling Group on Purchaser's behalf in keeping such Contracts Requiring Consent
in effect.
Section 5.10 - Post-Closing Agreements.
(a) The parties hereto acknowledge that Purchaser may not have all required
Licenses, Permits, consents and other governmental authorizations to take title
to all of the Acquired Assets at the Closing and to thereafter operate all
aspects of the Business. Selling Group agrees to cooperate with Purchaser Group
in timely obtaining such licenses, permits and other governmental
authorizations, as well as such consents to any Contract Requiring Consent and
further agrees at Purchaser Group's request (i) to hold such of the Acquired
Assets that cannot be transferred at the Closing in a constructive trust for the
benefit of Purchaser until such transfer is permissible, and (ii) to operate
such aspects of the Business as may not be operated by Purchaser after the
Closing for the benefit of Purchaser until such operation by Purchaser is
permissible.
(b) Purchaser Group agrees: (i) to indemnify, defend and hold Selling Group
harmless from and against any claim, cost or expense or liability arising from
or as a result of Selling Group's good faith performance of its obligations
pursuant to this Section 5.10; (ii) that its failure to obtain such licenses,
permits or other governmental authorizations will not create a claim for
rescission of its purchase of the Business; and (iii) to use its best efforts to
obtain such licenses, permits or other governmental authorizations at the
earliest date possible.
Section 5.11 - Provision of Certain Information. Anything contained herein
to the contrary notwithstanding, prior to the Closing Date, the Selling Group
shall, upon the reasonable request of the Purchaser Group, obtain from any
Governmental Authority any and all records pertaining to the Business and its
operation, including but not limited to the Professionals, requested by the
Purchaser Group and shall furnish a copy of such records to the Purchaser Group
promptly upon its receipt thereof. If any Governmental Authority requires that a
representative of the Selling Group review the records at such Governmental
Authority's offices, the Selling Group shall so notify the Purchaser Group and
use its best efforts to arrange for a mutually agreeable date and time jointly
to review such records. If Selling Group's consent is required by a Governmental
Authority before such records are released, Selling Group shall promptly provide
their consent.
Section 5.12 - Asserted Claims. Promptly after the receipt by Selling Group
of notice of any Recoupment Claim or adjustment and/or modification to any rate
of payment or proposed audit adjustment asserted or imposed by any Governmental
Authority, Third Party Payor, Customer or other Person, whether prior to or
after the
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Closing (an "Asserted Claim"), Selling Group shall provide Purchaser Group with
prompt written notice thereof (but, in any event, within ten (10) Business
Days), together with a copy of all Asserted Claims and all legal pleadings and
other related documents. The Purchaser Group, at their option, may, (but shall
not be obligated to) defend or oppose, at its own expense and by its own
counsel, any such matter involving any Asserted Claim. If Purchaser Group
chooses to do so, the Selling Group and their counsel shall cooperate in the
defense against, compromise of, or opposition to, any such Asserted Claim and
Selling Group shall make available to Purchaser Group, at Purchaser Group's
request, all pertinent records, materials and information in its possession
and/or under its control relating thereto and shall in good faith try to make
available any individuals with knowledge relating to the Asserted Claim or
information which may be pertinent to such defense. The Purchaser Group shall
have the right to settle or compromise any Asserted Claim at its option. Selling
Group shall not settle or compromise any Asserted Claim without first obtaining
in each instance the prior written approval of Purchaser Group.
Section 5.13 - Final Cost Reports. The Selling Group shall (i) file (if
required) accurate and timely final cost reports relating to the portion of the
current fiscal year of the Business from the commencement thereof through the
Closing Date, i.e., "short period cost reports" (collectively, the "Final Cost
Reports") with all applicable Governmental Authorities, Third Party Payors or
private Payors in accordance with the terms of the programs in which the
Business currently participates (including, without limitation, the Medicare and
Medicaid (to the extent required) programs), and (ii) seek and utilize all of
Purchaser's input and advice as to the preparation of the final cost reports and
provide copies of all drafts and final copies of such Final Cost Reports to the
Purchaser at the time of their filing.
Section 5.14 - Access and Preliminary Inspection.
(a) From the date hereof until and including December 29, 1997 (the
"Inspection Period"), unless extended in accordance with this Section, the
Purchaser Group may, at their option, conduct a due diligence inspection (the
"Inspections") of the Business and such other information of the Selling Group
it deems necessary or appropriate. The Selling Group shall promptly provide the
Purchaser or its agents or contractors with information reasonably requested and
in the possession of the Selling Group. If the results of any of the Inspections
are unsatisfactory to the Purchaser Group, the Purchaser Group in its sole
discretion shall have the right to terminate this Agreement upon notice to
Selling Group. In the event of any such termination of this Agreement, all of
Selling Group's and Purchaser Group's obligations hereunder shall terminate
without further loss, cost, damage, claim, right or remedy in favor of any
party, and none of the parties hereto shall have any further liability or
responsibility to the other without the need to exchange releases to confirm
same, except that the Deposit, together with all interest thereon, shall be
returned to Purchaser.
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(b) If Selling Group shall not have provided to Purchaser Group any
document or other information reasonably requested by Purchaser Group during any
of the Inspections on or before a date which is at least ten days prior to the
last day of the Inspection Period, the Inspection Period upon notice thereof
given by Purchaser Group to Selling Group shall be extended to a date which is
at least ten days after the date on which the last such document or other
information is provided to the Purchaser Group.
Section 5.15 - Stockholder Meeting; Preparation of the Proxy Statement.
(a) CHCA will, as soon as practicable following the execution of this
Agreement, duly call, give notice of, convene and hold a meeting of the CHCA's
Stockholders (the "Stockholders Meeting") if such meeting is required by
applicable law and its By-laws for the purpose of approving this Agreement and
the transactions contemplated by this Agreement.
(b) CHCA will, as soon as practicable following the execution of this
Agreement, prepare and file a preliminary proxy statement (the "Proxy
Statement") with the Commission and will use its best efforts to respond to any
comments of the Commission or its staff and to cause the Proxy Statement to be
mailed to CHCA's stockholders as promptly as practicable after responding to all
such comments to the satisfaction of the Commission. CHCA will notify Purchaser
Group promptly of the receipt of any comments from the Commission or its staff
and of any request by the Commission or its staff for amendments or supplements
to the Proxy Statement or for additional information and will supply Purchaser
Group with copies of all correspondence between CHCA or any of its
representatives, on the one hand, and the Commission or its staff, on the other
hand, with respect to the Proxy Statement. If at any time prior to the
Stockholders Meeting there shall occur any event that should be set forth in an
amendment or supplement to the Proxy Statement, CHCA will promptly prepare and
mail to its stockholders and Purchaser Group such an amendment or supplement. If
in the reasonable judgment of CHCA, an amendment or supplement to any Olympus
Proxy Statement Information is required, Olympus shall promptly furnish such
amendment or supplement which shall thereupon constitute Olympus' Proxy
Statement Information. CHCA will not mail any Proxy Statement, or any amendment
or supplement thereto, to which Purchaser Group reasonably objects.
Section 5.16 - Alternative Transactions. CHCA and its Subsidiaries and
their respective officers, directors, employees and representatives have ceased,
as of the date of the Letter of Intent, and will continue to refrain from
participation in any existing discussions or negotiations, if any, with any
parties conducted theretofore with respect to any Alternative Transaction and
will not solicit any proposal for any Alternative Transaction. CHCA may,
directly or indirectly, furnish information and access, in each case only in
response to requests which were not solicited by CHCA, any of its Subsidiaries
or their respective officers, directors, employees or representatives after
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the date of this Agreement, to any Person or group pursuant to confidentiality
agreements, and may participate in discussions and negotiations with any such
Person or group concerning any proposal for an Alternative Transaction if such
Person or group has submitted a bona fide written proposal to the Board of
Directors of CHCA relating to any such Alternative Transaction which the Board
of Directors of CHCA reasonably determines represents a superior transaction to
the transactions contemplated by this Agreement and if, in the opinion of the
Board of Directors of CHCA after consultation with independent legal counsel,
the failure to provide such information or negotiations would be a breach of
their fiduciary duties to CHCA's stockholders under applicable law. CHCA shall
notify the Purchaser Group immediately if any such request or proposal, or any
inquiry or contact with any Person or group with respect thereto, is made and
shall keep the Purchaser apprised of all developments which could reasonably be
expected to culminate in the Board of Directors of CHCA withdrawing, modifying
or amending its recommendation of this Agreement or the transactions
contemplated hereby. CHCA agrees not to release any third party from, or waive
any provisions of, any confidentiality or standstill agreement to which CHCA is
a party unless, in the opinion of the Board of Directors of CHCA after
consultation with independent legal counsel, the failure to provide such release
or waiver would be a breach of their fiduciary duties to CHCA's stockholders
under applicable law.
Section 5.17 - No Solicitation.
(a) In the event that this Agreement is terminated pursuant to Section 7.2,
CHCA agrees that, until July 11, 1998, neither CHCA nor any of its Affiliates
will solicit to employ any of the officers or key employees of the Purchaser
Group or any of their respective subsidiaries with whom CHCA or any of its
Affiliates had contact or who were specifically identified to CHCA or any of its
Affiliates during the period commencing on July 11, 1997 through the date of
such termination without obtaining the prior written consent of Olympus.
(b) In the event that this Agreement is terminated pursuant to Section 7.3,
the Purchaser Group agrees that, until July 11, 1998, neither the Purchaser
Group nor any of its Affiliates will solicit to employ any of the officers or
key employees of the Selling Group or any of their Subsidiaries with whom the
Purchaser Group or any of their Affiliates had contact or who were specifically
identified to the Purchaser Group or any of their Affiliates during the period
commencing on July 11, 1997 through the date of such termination without
obtaining the prior written consent of the Selling Group.
Section 5.18 - Standstill. In the event that this Agreement is terminated
pursuant to Section 7.2 or 7.3 (other than a termination due to Selling Group
entering into an Alternative Transaction, Selling Group being unable, unwilling
or refusing to consummate the Closing in accordance with the terms and
conditions of this
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Agreement or Selling Group being otherwise in breach of this Agreement), the
Purchaser Group agrees that, until July 11, 1999, unless such shall have been
specifically invited in writing by Selling Group, neither Purchaser Group nor
any of its affiliates (as such term is defined under the Exchange Act) or
representatives will in any manner, directly or indirectly, (a) effect or seek,
offer or propose (whether publicly or otherwise) to effect, or cause or
participate in or in any way assist any other person to effect or seek, offer or
propose (whether publicly or otherwise) to effect or participate in: (i) any
acquisition of any securities (or beneficial ownership thereof) or assets of
Selling Group or any of their Subsidiaries (provided that nothing herein shall
prohibit the Purchaser Group or any of its affiliates from acquiring in the open
market and holding, of record or beneficially, not more than 2% of Selling
Group's outstanding shares of common stock); (ii) any tender or exchange offer,
merger or other business combination involving Selling Group or any of its
Subsidiaries; (iii) any recapitalization, restructuring, liquidation,
dissolution or other extraordinary acquisition with respect to Selling Group or
any of its Subsidiaries; or (iv) any "solicitation" of "proxies" (as such terms
are used in the proxy rules of the Commission) or consents to vote any voting
securities of Selling Group, (b) form, join or in any way participate in a
"group" (as defined under the Exchange Act); (c) otherwise act, alone or in
concert with others, to seek to control or influence the management, Board of
Directors or policies of Selling Group, (d) take any action which might force
Selling Group to make a public announcement regarding any of the types of
matters set forth in (a) above; or (e) enter into any discussions or
arrangements with any third party with respect to any of the foregoing.
Purchaser Group also agrees during such period not to request Selling Group (or
their directors, officer, employees or agents) directly or indirectly, to amend
or waive any provision of this Section 5.18 (including this sentence).
Section 5.19 - Renaissance Capital Group Approval. The Selling Group
covenants that it shall use its best efforts to cause Renaissance Capital Group,
Inc. to (i) vote the shares of CHCA held by it in favor of the Acquisition and
(ii) execute and deliver a voting agreement to such effect at the time of the
execution and delivery of the Purchase Agreement.
Section 5.20 - Intentionally Omitted.
Section 5.21 - Opinion of Financial Advisor. During the period commencing
from the date hereof and ending on the date which is ten (10) days from the date
hereof (the "Financial Advisor Opinion Period"), CHCA shall use its best efforts
to obtain the opinion of Mayflower Group Ltd., Boston, Massachusetts (the
"Financial Advisor Opinion") to the effect that, as of the date of this
Agreement, the consideration to be received in the transactions contemplated by
this Agreement is fair to CHCA from a financial point of view, and a complete
and correct signed copy of the Financial Advisor Opinion shall be or promptly
upon receipt thereof will be, delivered to the Purchaser Group. If CHCA, despite
its best efforts, is unable to obtain the Financial Advisor
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Opinion during the Financial Advisor Opinion Period, then CHCA shall have the
right, prior to the expiration of the Financial Advisor Opinion Period, to
terminate this Agreement upon written notice to Purchaser. In the event of any
such termination of this Agreement, all of Selling Group's and Purchaser Group's
obligations hereunder shall terminate without further loss, cost, damage, claim,
right or remedy in favor of any party, and none of the parties hereto shall have
any further liability or responsibility to the other without the need to
exchange releases to confirm same, except that the Selling Group's obligations
under Section 11.1 shall survive any such termination. Upon the expiration of
the Financial Advisor Opinion Period, the Selling Group shall have no right to
terminate this Agreement due to its failure or inability to obtain a Financial
Advisor Opinion.
ARTICLE VI-A
Purchaser Group's Conditions Precedent to Closing
The Closing and the Purchaser Group's obligations hereunder and with
respect thereto are expressly contingent and conditional upon the fulfillment,
compliance, satisfaction and performance of each of the following conditions
prior thereto, any one or more of which may be waived or deferred in whole or in
part, but only in writing, by the Purchaser Group at its option and sole
discretion.
Section 6A.1 - Accuracy of Warranties; Compliance with Covenants and Title
to Acquired Assets. All representations and warranties by Selling Group
contained in and made pursuant to this Agreement shall be accurate and complete
at and as of the Closing Date as though such representations and warranties were
newly made on that date. In addition to the specific matters referred to in this
Article VI-A, the Selling Group shall have tendered to the Purchaser Group all
of the agreements, instruments, documents, certificates, insurance policies and
other materials required from Selling Group on or before the Closing Date
pursuant to the terms of this Agreement (including, without limitation, those
listed in Section 8.2); and the Selling Group shall have complied in all
material respects with all of its affirmative and negative covenants set forth
herein, and title to the Acquired Assets shall be in compliance with the
requirements of this Agreement.
Section 6A.2 - Closing Certificate. Selling Group shall deliver to the
Purchaser Group a duly executed confirmatory closing certificate executed by
Selling Group which represents and warrants that all conditions set forth in
this Article have been fulfilled and satisfied.
Section 6A.3 - Casualty or Eminent Domain Taking. There shall be no
casualty, loss, destruction or damage to the Acquired Assets or to the land and
building of which the premises occupied by the Seller under the Leases are a
part, nor any
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condemnation or any eminent domain taking, pending or threatened, as to any part
of such land and building which has not been restored, repaired or replaced to
its condition prior to such loss, destruction or damage without any material
diminution in value, space, or usefulness of the premises occupied by the Seller
under the Leases.
Section 6A.4 - Absence of Injunction, Etc. There shall (a) be no
injunction, writ, temporary restraining order or any order of any nature issued
or pending by any court or Governmental Authority directing that the
transactions contemplated by this Agreement not be consummated or (b) be or
occur after the date hereof any change in any federal, state or local law or
regulation or the adoption or making after such date of any interpretation,
directive or request applying to Purchaser of or under any such law or
regulation (whether or not having the force of law) by any Governmental
Authority charged with the interpretation or administration thereof which, in
Purchaser's judgment, acting reasonably, would make it illegal for Purchaser
Group to consummate the transactions contemplated hereby.
Section 6A.5 - Opinions of the Selling Group's Counsel. The Purchaser Group
shall have received opinions of counsel to the Selling Group, in form and
substance satisfactory to the Purchaser Group, with respect to: (a) the valid
existence and good standing of each of Selling Group and the due authorization,
execution, delivery and binding effect and enforceability of this Agreement and
each other agreement and instrument being executed in connection with this
transaction, and (b) such other matters as Purchaser Group's counsel may
reasonably request.
Section 6A.6 - Conveyances. Selling Group shall have executed and delivered
to the Purchaser Group bills of sale and effective absolute assignments
sufficient to vest in the Purchaser Group good and clear marketable title to all
of the Acquired Assets, all free and clear of all Liens, including, without
limitation, the Bill of Sale, Assignment and Assumption Agreement referred to in
Section 2.4.
Section 6A.7 - The Leases. The Purchaser shall have obtained an assignment
of the Leases and consent thereto from the landlords thereunder and such non
disturbance agreements as Purchaser Group may require upon terms reasonably
satisfactory to the Purchaser Group. The land and building of which the premises
occupied by the Seller under the Leases are a part, and the Seller's use of such
premises for commercial office uses, shall comply with all applicable state,
county and local zoning, environmental, land use and building laws, regulations
and ordinances.
Section 6A.8 - Employment/Consulting Agreements; Non-Competition. Purchaser
shall have entered into employment or consulting agreements in form and
substance satisfactory to Purchaser Group with the Designated Employees, and a
non-competition agreement with Seller in form and substance as set forth in
Exhibit D.
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Section 6A.9 - Intentionally omitted.
Section 6A.10 - Consents. Selling Group shall have delivered on the Closing
Date such consents, estoppel certificates, indemnities, affidavits and other
documentation as may be reasonably required by the Purchaser Group with respect
to the Lease and the Contracts Requiring Consent.
Section 6A.11 - Provider Agreements. The Purchaser shall have obtained such
Provider Agreements or assignments thereof pursuant to Section 5.9 as the
Purchaser has elected to assume under Section 5.8, to be effective upon the
Closing. Such Provider Agreements shall satisfy the conditions of Section 5.9.
Section 6A.12 - Licenses, Permits and Accreditation. The Purchaser shall
have obtained all Approvals necessary for the Purchaser's operation after the
Closing of the Business. Said all Approvals shall not contain any requirements,
conditions, limitations or restrictions other than those currently applicable to
the Seller.
Section 6A.13 - Service Agreements and Professional Contracts. With respect
to each Service Agreement and each Professional Contract identified by the
Purchaser pursuant to Section 5.8 as an agreement to be assumed by the
Purchaser: (a) the Purchaser shall have obtained the consent of each Customer
which is a party to such a Service Agreement to the assignment thereof to the
Purchaser, and the consent of each Professional who is a party to such a
Professional Contract to the assignment thereof to the Purchaser, or (b) the
Purchaser shall have obtained replacement Service Agreements and Professional
Contracts with each such Customer and Professional, and, in either event, such
consents and replacement agreements shall satisfy the conditions of Section 5.9.
Section 6A.14 - Termination of Plans. The Purchaser Group shall be
reasonably satisfied that all Plans and other employee fringe benefit
arrangements, personnel policies, stock purchase plans or rights, stock option
plans or rights, insurance plans and arrangements or other employee benefits
shall not be binding upon the Purchaser upon the Closing, or are terminable at
will by the Purchaser after the Closing.
Section 6A.15 - Absence of Material Adverse Change. There shall have been
no (a) material adverse change in the financial or business condition of Selling
Group or in the physical condition of the Acquired Assets since the date of the
Financial Statements and the date of the inspections thereof conducted by
Purchaser Group, or (b) decline in the net worth of the Seller below that shown
in the Financial Statement.
Section 6A.16 - Payment of Pre-Closing Obligations. The Selling Group shall
have paid or made a provision for the payment of the Indebtedness and
Pre-Closing Obligations of Selling Group in accordance with Section 5.5 which
the Purchaser
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Group shall identify to the Selling Group as Pre-Closing Obligations which must
be paid as so provided for prior to the Closing.
Section 6A.17 - Opinion of Financial Advisor. A complete and correct signed
copy of the Financial Advisor Opinion shall have been delivered to Purchaser
Group in accordance with Section 5.21.
Section 6A.18 - Reimbursement. At all times prior to the Closing, the
Business will continue to have all Medicare and Medicaid certification, Medicare
and Medicaid provider numbers and other reimbursement/payor documentation and
provider agreements required to receive reimbursement at least to the same
extent as existed as of the date of this Agreement, without pending or
threatened institution of any proceeding by any Governmental Authority to
terminate or suspend such certification or agreements or prevent the
transactions contemplated by this Agreement, and without new restrictions or
limitations.
Section 6A.19 - Stockholder Approval. This Agreement shall have been
approved and adopted by the affirmative vote of the holders of a majority of the
outstanding shares of CHCA in accordance with applicable law and CHCA's
Certificate of Incorporation.
Section 6A.20 - Deemed Waiver of Conditions Precedent. Any condition
precedent to the Closing which has not been fulfilled, complied with, satisfied
or performed at or prior to the Closing Date shall be conclusively deemed waived
if the Purchaser Group consummate the Closing despite the lack of fulfillment,
compliance with, satisfaction or performance of such condition, except that any
such consummation of the Closing without the fulfillment, compliance,
satisfaction or performance of any condition precedent shall not relieve the
Selling Group from their indemnification obligations pursuant to Section 9.1.
ARTICLE VI-B
The Selling Group's Conditions Precedent to Closing
The Closing and the Selling Group's obligations hereunder and with respect
thereto are expressly contingent and conditional upon the fulfillment,
compliance, satisfaction and performance of each of the following conditions
prior thereto; any one or more of which may be waived or deferred in whole or in
part, but only in writing, by the Selling Group at its option and sole
discretion.
Section 6B.1 - Accuracy of Warranties; Compliance with Covenants. All
representations and warranties by the Purchaser Group contained in and made
pursuant to this Agreement shall be accurate and complete in all material
respects at
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and as of the Closing Date. In addition to the specific matters referred to in
this Article VI-B, the Purchaser Group shall have tendered to the Selling Group
all of the materials required from the Purchaser Group on or before the Closing
Date pursuant to the terms of this Agreement (including, without limitation,
those listed in Section 8.3); and the Purchaser Group shall have complied with
all of its affirmative and negative covenants set forth herein.
Section 6B.2 - Closing Certificate. The Purchaser Group shall deliver to
the Selling Group a duly executed confirmatory closing certificate executed by
the Purchaser Group which represents and warrants that all conditions set forth
in this Article have been fulfilled and satisfied.
Section 6B.3 - Absence of Injunction. There shall be no injunction, writ,
temporary restraining order or any order of any nature issued or pending by any
court or governmental agency directing that the transactions contemplated by
this Agreement not be consummated.
Section 6B.4 - Opinion of Purchaser Group's Counsel. The Selling Group
shall have received an opinion of counsel to the Purchaser Group, in form and
substance reasonably satisfactory to the Selling Group, with respect to: (a) the
valid existence and good standing of each of the Purchaser Group; (b) the due
authorization, execution, delivery and binding effect and enforceability of this
Agreement and each other agreement and instrument being executed in connection
with this transaction by the Purchaser Group; and (c) such other matters as
Selling Group's counsel may reasonably request.
ARTICLE VII
Rights of Termination and Remedies for Default
Section 7.1 - Default by Selling Group. In the event that all of the
conditions precedent set forth in Article VI-A of this Agreement have been
satisfied or waived by the Purchaser Group on or prior to the Closing Date, and
the Purchaser Group are ready, willing and able to proceed with the Closing, but
Selling Group are unable, unwilling or refuse to consummate the Closing in
accordance with the terms and conditions of this Agreement, or in the event that
Selling Group are otherwise in breach of this Agreement, then the Purchaser
Group may proceed to protect and enforce their rights by an action at law, suit
in equity or other appropriate proceeding, whether for the specific performance
of any agreement contained herein or in any other document, agreement or
instrument from the Selling Group, or for the injunction against a violation of
any of the terms hereof or thereof, or in and of the exercise of any power
granted hereby or thereby or by law. The Selling Group recognizes that in such
event, any
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remedy at law may prove to be inadequate relief to the Purchaser Group and
therefore the Purchaser Group may obtain any such equitable relief, including,
without limitation, temporary and permanent injunctive relief in any such case
without the necessity of posting a bond or other security or proving actual
damages. No course of dealing and no delay on the part of the Purchaser Group in
exercising any right shall operate as a waiver thereof or otherwise prejudice
the Purchaser Group's rights. No right conferred hereby or by any other
document, agreement or instrument from the Selling Group upon the Purchaser
Group shall be exclusive of any other right referred to herein or therein or now
or hereafter available at law, in equity, by statute or otherwise. Without
limiting the generality of the foregoing, the Purchaser Group shall be entitled
to all damages and remedies available to Purchaser Group under all applicable
laws as a result of such default including, without limitation, the return of
the Deposit, together with all accrued interest thereon, together with
reasonable attorneys' fees and expenses incurred by the Purchaser Group to
enforce this Agreement.
Section 7.2 - Purchaser Group's Right to Terminate.
(a) If any one or more conditions set forth in Article VI-A has not been
fulfilled, satisfied or waived in writing by the Purchaser Group on or prior to
the Closing Date, then the Purchaser Group may, at their option, terminate this
Agreement, effective upon the receipt by the Selling Group of written notice of
such termination.
(b) This Agreement may be terminated by the Purchaser Group if (I) a
proposal for an Alternative Transaction for the Selling Group exists and the
Board of Directors of the Selling Group withdraws, modifies or amends its
recommendation of this Agreement or the transactions contemplated hereby in a
manner adverse to the Purchaser Group, (ii) the Board of Directors of the
Selling Group recommend to the stockholders of the Selling Group an Alternative
Transaction for the Selling Group, (iii) the Commission fails to approve the
Proxy Statement on or before December 30, 1997 (unless the Closing shall have
been extended pursuant to Section 8.1, in which case said date shall be the
earlier of (X) the date to which the closing shall have been so extended and (Y)
January 15, 1998 (in each case, the "Extension Date"),and (iv) the stockholders
of the Selling Group fail to approve this Agreement and the transactions
contemplated hereby on or December 30, 1997 or, if the Closing shall have been
extended pursuant to Section 8.1, the Extension Date.
(c) Subject to Sections 5.13 and 5.14 and the provisions relating to
payment of expenses and other payments in Section 11.1 hereof, in the event of
any such termination by the Purchaser Group of this Agreement, all of the
Selling Group's and the Purchaser Group's obligations hereunder shall terminate
without further loss, cost, damage, claim, right or remedy in favor of any
party, and none of the parties hereto shall have any further liability or
responsibility to the other without the need to exchange releases to confirm
same, except that (i) the Confidentiality Agreement
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between CHCA and Olympus, dated May 29, 1997 (the "Confidentiality Agreement"),
shall survive any termination of this Agreement and the provisions of the
Confidentiality Agreement shall apply to all information and material delivered
by any party hereunder and (ii) the Deposit, together with all accrued interest
thereon, shall be returned to the Purchaser.
Section 7.3 - Default by Purchaser Group. In the event that the Selling
Group is ready, willing and able to proceed with the Closing and the Purchaser
Group fails to complete the transactions contemplated in this Agreement, which
failure is due exclusively to the unwillingness, inability or refusal of the
Purchaser Group to fulfill their obligations at such Closing, other than
pursuant to the Purchaser Group's right to terminate under any provision of
Section 7.2, then the Selling Group may terminate this Agreement by delivering
notice thereof to the Purchaser Group. The parties agree that damages at law for
such termination are difficult or impossible to ascertain, and in lieu thereof
in the event of a proper and valid termination of this Agreement by the Selling
Group pursuant to this Section, the Selling Group shall retain the Deposit, as
the Selling Group's sole, exclusive and liquidated damages. In such event, this
Agreement shall terminate without further loss, cost, damage, claim, right or
remedy in favor of any party against the other, without the need for the
exchange of releases.
Section 7.4 - Selling Group's Right to Terminate. If any one or more
conditions set forth in Article VI-B has not been fulfilled, satisfied or waived
in writing by the Selling Group on or prior to the Closing Date, then the
Selling Group may, at its option, terminate this Agreement, effective upon the
receipt by the Purchaser Group of written notice of such termination. In the
event of any such termination of this Agreement, all of the Purchaser Group's
and the Selling Group's obligations hereunder shall terminate without further
loss, cost, damage, claim, right or remedy in favor of any party, and none of
the parties hereto shall have any further liability or responsibility to the
other without the need to exchange releases to confirm same.
ARTICLE VIII
Closing
Section 8.1 - Closing Date. The Closing under this Agreement shall take
place at the offices of Hutchins, Wheeler & Dittmar, A Professional Corporation,
101 Federal Street, Boston, Massachusetts at 10:00 a.m. on the last to occur of
(a) the fifth Business Day following receipt of all of the Approvals, (b) thirty
(30) days following the expiration of the Inspection Period and (c) December 31,
1997 (unless otherwise extended by either party to a date not beyond January 30,
1998, upon prior written notice to the other party sent on or before December
30, 1997) (such date of Closing being referred to herein as the "Closing Date").
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Section 8.2 - Deliveries of the Selling Group at Closing. At the Closing,
the Selling Group shall deliver to the Purchaser Group the following:
(a) Good and clear marketable title to, and full undisturbed possession of,
the Acquired Assets, free from all Liens (other than Permitted Liens), and full
use and enjoyment of same.
(b) Secretary's certificates and such certificates from public officials
relating to legal existence, corporate good standing, charter documents, state
sales tax clearance and municipal tax payments and assessments, which the
Purchaser Group may reasonably request to verify any warranties of the Selling
Group herein.
(c) Such discharges, termination statements, releases and the like with
respect to the Acquired Assets as the Purchaser Group may reasonably request.
(d) The Bill of Sale, Assignment, and Assumption Agreement and all other
documents, instruments, and agreements referred to in Section 2.4.
(e) The Financial Advisor Opinion.
(f) The Leases, duly assigned to the Purchaser with the consent of the
landlords, free and clear of any Lien (other than a Permitted Lien) and such non
disturbance agreements as Purchaser Group may reasonably require.
(g) Consents to the assignments of the Provider Agreements or replacement
agreements described in Section 6A.11.
(h) Consents to the assignments of the Service Agreements and Professional
Contracts or replacement agreements described in Section 6.A.
(i) Subject to the provisions of Section 11.14, all other books, records,
contracts, materials and properties related to the Acquired Assets, including,
without limitation, all such books, records, contracts and materials for periods
extending back not less than three years, which records shall be delivered to
the Purchaser Group or located at the premises leased by the Seller under the
Leases.
(j) Certificate of resolutions of the boards of directors and shareholders
of each of the Selling Group authorizing the transactions contemplated hereby,
certified by the Secretaries of each of the Selling Group.
(k) Certificate of the Secretaries of each of the Selling Group as to
Incumbency and other related matters.
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(l) A copy of the duly adopted by-laws of each of the Selling Group,
certified by the Secretaries of each of the Selling Group to be true, complete
and accurate as of the Closing Date.
(m) Closing Certificate referred in Section 6A.2 executed by Selling Group.
(n) Opinion of Counsel referred to in Section 6A.5.
(o) Any other document reasonably requested by the Purchaser Group to
confirm or verify the accuracy of the warranties by Selling Group herein and the
compliance by Selling Group with its covenants herein.
(p) Evidence of payment or provision for the payment of the Selling
Group's' Indebtedness and Pre-Closing Obligations referred to in Section 6A.18,
in form and substance satisfactory to the Purchaser Group.
(q) Evidence of payment of all personal property tax bills due and owing
related to the Acquired Assets, or an adequate hold-back in Purchaser Group's
reasonable judgment to pay such bills.
Section 8.3 - Deliveries of Purchaser at Closing. At the Closing, the
Purchaser Group shall deliver or cause to be delivered to the Selling Group the
following:
(a) Payment of the Purchase Price in accordance with Section 2.3 hereof,
together with a statement of any adjustments thereto.
(b) Certificate of resolutions of the boards of directors of each of the
Purchaser Group authorizing the transactions contemplated hereby, certified by
the clerks of the Purchaser Group.
(c) The Closing Certificate referred to in Section 6B.2.
(d) The Opinion of Counsel referred to in Section 6B.4.
ARTICLE IX
Indemnification
Section 9.1 - The Selling Group's Obligations to Indemnify Purchaser. (a)
The Selling Group jointly and severally agrees to indemnify and hold harmless
Purchaser Group from and against any claim, loss, damage, liability, tax,
interest, penalty, cost, suit, judgment, order, lien, obligation or expense
whether administrative, judicial or
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otherwise (including, but not limited to, reasonable attorneys', consultants',
accountants' and expert witness fees), suffered, sustained, incurred or required
to be paid at any time, whether or not suit is brought, arising out of,
resulting from or because of or from (i) any misrepresentation, inaccuracy,
incompleteness or breach of any warranty contained in this Agreement including,
but not limited to, Article III hereof; (ii) any liabilities of the Selling
Group which become liabilities of the Purchaser Group, except in accordance with
this Agreement; (iii) any federal, state or local taxes, penalties or interest
assessed against Seller for any period whether before or after the Closing Date
or against the Acquired Assets due in respect of any fiscal period ended before
the Closing Date; (iv) a breach of any obligation, covenant or agreement made or
to be performed by Selling Group under or pursuant to this Agreement and any
document given in connection herewith; (v) any failure of Seller to transfer to
Purchaser good, clear and marketable title to any of the Acquired Assets, free
and clear of all Liens (other than Permitted Liens); (vi) out of or by reason of
any Recoupment Claims, Pre-Closing Obligations and/or Retained Liabilities;
(vii) by reason of any failure to comply with applicable tax lien or bulk sales
laws; (viii) any act or omission of Selling Group creating liability under
Environmental Laws; (ix) the assertion of off-site liabilities under
Environmental Laws whose cause is alleged to originate as a result of actions,
omissions or conditions of or caused by Selling Group prior to the Closing Date;
(x) any Release (as defined in Section 101(22) of CERCLA) of any Hazardous
Materials on, to, in, under or from the real estate upon which the Business is
situated which occurred at any time prior to the Closing Date or which arises
after the Closing Date in connection with acts or omissions prior to the Closing
Date; (xi) by reason of enforcement of this indemnification provision; and (xii)
reasonable costs and expenses (including, without limitation, reasonable
attorneys' fees) incurred by Purchaser Group in connection with any matters
indemnified against.
(b) Each of the items set forth in this Section 9.1 shall be referred to as
the "Purchaser Group's Indemnified Claims." Every representation, warranty,
covenant and agreement of Selling Group set forth in this Agreement and every
one of the rights and remedies of Purchaser Group for any one or more breaches
of this Agreement by Selling Group, subject to the provision in Section 9.1(c)
shall survive and not be deemed waived by the Closing and shall be effective
regardless of any inspection or investigation that may have been made at any
time by or on behalf of the Purchaser Group or by their directors, officers,
employees or agents or any prior knowledge by or on the part of the Purchaser
Group or their directors, officers, employees or agents; provided, however, that
the Selling Group shall not be required to indemnify and hold harmless Purchaser
Group under Section 9.1(a)(i) unless such right to indemnification is asserted
by Purchaser Group by notice to Selling Group within the following time periods:
(i) with respect to the representations and warranties set forth in
Section 3.16 (tax matters), within the applicable statute of limitations
for a violation of
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the underlying law which forms the basis of such claim (including all
extensions thereof agreed to with tax authorities), plus two months;
(ii) with respect to (A) the representations and warranties set forth
in Sections 3.1, 3.3. 3.8, 3.11 and 3.24, (B) any fraud or intentional
misrepresentation by or on behalf of the Selling Group, and (C) the Selling
Group's obligations to indemnify the Purchaser Group pursuant to Section
9.1 for any damages, losses, obligations, tax, interest, penalty, suits,
judgments, orders, liens, liability, debts, claims, actions, causes of
action, encumbrances, costs and expenses arising from or relating to any
facts, matters, items, things or events which were intentionally or
fraudulently hidden or concealed by or on behalf of Selling Group, there
shall be no limitation on the time for making a claim; and
(iii) with respect to all other matters covered by Section 9.1(a)(i),
on or before the date which is five (5) years from the date hereof.
(c) The Selling Group shall not be liable to the Purchaser Group for
indemnification claims under Section 9.1(a)(i) until the aggregate amount of
indemnification claims under Section 9.1(a)(i) exceeds $25,000 (the "Threshold
Amount"), at which time the Seller shall be liable for the full amount of such
claims; provided, however, that the dollar limitation above shall not apply to
claims pertaining to a breach of the representations and warranties contained in
(i) Sections 3.1, 3.8, 3.11, 3.16 and 3.24, (ii) out of or in connection with
any Recoupment Claim, Pre-Closing Obligations or Retained Liabilities, or (iii)
any fraud or intentional misrepresentation on the part of the Selling Group or
things or matters that are intentionally or fraudulently hidden or concealed by
or on behalf of the Selling Group. In determining whether the aggregate amount
for which the Purchaser is entitled to be indemnified hereunder is at least the
Threshold Amount, and in determining the aggregate amount of any Indemnification
Claims hereunder, any requirement contained in this Agreement that any
misrepresentation, or breach of warranty or covenant, or event or fact be
"material" or have a "material" adverse effect in order to constitute a
misrepresentation, omission, or breach of warranty, covenant or agreement under
this Agreement shall be disregarded in its entirety.
Section 9.2 - The Purchaser Group's Obligations to Indemnify Selling Group.
The Purchaser Group agrees to indemnify and hold harmless Selling Group from and
against any claim, loss, damage, liability, tax, interest, penalty, cost, suit,
judgment, order, lien, obligation or expense whether administrative, judicial or
otherwise (including, but not limited to, reasonable attorneys', consultants',
accountants' and expert witness fees), whether or not suit is brought, arising
(i) by reason of or from any misrepresentation or breach of any warranty
contained in this Agreement including, but not limited to, Article IV hereof;
(ii) out of or in connection with any liabilities of the Selling Group
specifically assumed by the Purchaser Group hereunder; (iii) by reason
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of or from a breach of any covenant or agreement made or to be performed by the
Purchaser Group under or pursuant to this Agreement and any document given in
connection herewith; (iv) by reason of enforcement of this indemnification
provision; and (v) reasonable costs and expenses (including, without limitation,
reasonable attorneys fees) incurred by Selling Group in connection with any
matters indemnified against.
Each of the items set forth in this Section 9.2 shall be referred to as the
"Selling Group's Indemnified Claims." Every representation, warranty, covenant
and agreement of the Purchaser Group set forth in this Agreement and every one
of the rights and remedies of the Selling Group or any one or more breaches of
this Agreement by the Purchaser Group shall survive and not be deemed waived by
the Closing to the extent set forth herein and shall be effective regardless of
any investigation that may have been made at any time or their directors,
officers, employees or agent by or on behalf of the Selling Group.
The Purchaser Group shall not be liable to the Selling Group for
indemnification claims under this Section 9.2 until the aggregate amount of
indemnification claims under this Section 9.2 exceeds the Threshold Amount, at
which time the Purchaser Group shall be liable for the full amount of such
claims; provided, however, that the dollar limitations above shall not apply to
a breach of the representations and warranties contained in (i) Section 4.1 or
(ii) any fraud or intentional misrepresentation on the part of the Purchaser
Group or things or matters that are intentionally or fraudulently hidden or
concealed by or on behalf of the Purchaser Group. In determining whether the
aggregate amount for which the Purchaser Group is entitled to be indemnified
hereunder is at least the Threshold Amount, and in determining the aggregate
amount of any Indemnification Claims hereunder, any requirement contained in
this Agreement that any misrepresentation, or breach of warranty or covenant, or
event or fact be "material" or have a "material" adverse effect in order to
constitute a misrepresentation, omission, or breach of warranty, covenant or
agreement under this Agreement shall be disregarded in its entirety. Further,
the indemnification threshold set forth herein shall have no application for any
loss, expenses or damage incurred as a result of the breach by a party to this
Agreement of a covenant that requires an action to be taken or an obligation
(including a payment obligation) to be met after the Closing, or to any breach
or violation of any other written agreement entered into in connection with
Closing.
Section 9.3 - Procedures for Indemnification. The obligations and
liabilities of Selling Group with respect to any Purchaser Group's Indemnified
Claims and the obligations and liabilities of the Purchaser Group with respect
to Selling Group's Indemnified Claims shall be subject to the following terms
and conditions, with the indemnified party designated as the "Indemnitee," the
party with the indemnification obligation designated as the "Indemnitor," and
the Purchaser Group's Indemnified
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Claim or Selling Group's Indemnified Claim, as the case may be, designated as
the "Indemnified Claim" for the purposes of this Section 9.3:
(a) Within a reasonable period of time (but not to exceed (x) thirty (30)
days after Indemnitee receives written notice of any basis for an Indemnified
Claim with respect to which no action, suit or proceeding has been commenced, or
(y) ten (10) Business Days after Indemnitee receives written notice of any
action, suit or proceeding which may form the basis of any Indemnification
Claim, provided that failure to provide any such notice within such time period
will not bar any Indemnification Claim except to the extent (and only to the
extent) Indemnitor is actually prejudice thereby), Indemnitee shall give the
Indemnitor written notice of any such Indemnified Claim, which notice shall
state the facts giving rise to an alleged basis for the Indemnified Claim and an
approximation of the amount of liability under such Indemnified Claim, to the
extent known to Indemnitee (the "Indemnification Notice").
(b) In the event any action, suit or proceeding is brought against the
Indemnitee with respect to an Indemnified Claim, the action, suit or proceeding
shall, at the Indemnitor's written election made within forty-five (45) days of
the Indemnitor's receipt of written notice of the commencement of such action,
suit or proceeding, be defended by the Indemnitor (including all proceedings on
appeal or review in connection therewith) at the Indemnitor's expense and
liability. Pending the Indemnitor's election hereunder, Indemnitee shall have
the right to employ its own counsel to file a request for an extension of time
to file an answer, or to file an answer if the Indemnitor fails to have its
counsel file an answer within three days prior to the expiration of the period
within which an answer must be filed, as such period may be extended; without
waiving any of Indemnitee's rights hereunder. The Indemnitee shall have the
right to employ its own counsel, for the duration of such action, suit or
proceeding, but the fees and expenses of such counsel shall be at the expense of
the Indemnitee unless the Indemnitor has not elected within the required time
period to defend any such action, suit or proceeding, or unless the actions or
inactions by counsel retained by Indemnitor appears reasonably likely to result
in a judgment against Indemnitee because of a failure to defend the action in a
reasonably prudent manner (the burden to prove same by a preponderance of the
evidence to rest with Indemnitee), in which event the Indemnitor shall pay such
counsel fees and expenses. The Indemnitee shall be kept fully informed of such
action, suit or proceeding at all stages, whether or not it is so represented.
(c) If Indemnitor does not assume the defense of any Indemnified Claim in
accordance with the terms hereof, Indemnitee may defend against such Indemnified
Claim in such manner as it may deem appropriate or may settle or pay such claim,
after giving notice of the same to Indemnitor, on such terms as Indemnitee may
deem appropriate. If Indemnitor does assume the defense of any Indemnified Claim
and, for whatever reason (including, without limitation, Indemnitor's failure to
pay any judgment,
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settlement or attorney's fees with respect thereto) or if Indemnitee is
permitted to retain its own counsel with respect to any Indemnified Claim at
Indemnitor's expense, Indemnitee may pay such amounts which Indemnitee may deem
appropriate after giving notice of same to Indemnitor. In the event of any such
payments by Indemnitee pursuant to this Section 9.3(c), Indemnitor shall
reimburse Indemnitee for the amounts actually so paid by Indemnitee within ten
(10) days after Indemnitee's demand therefor.
Section 9.4 - Interest and Attorneys' Fees. In the event that any
Indemnitor fails to pay to an Indemnitee any of the payment obligations pursuant
to the terms and conditions of this Agreement, when such payments are due, the
amounts of such payments shall accrue interest at a rate equal to five percent
(5%) per annum over Base Rate in effect from time to time or the maximum rate
permitted by applicable law, whichever is less, from the due date thereof
through and including the date of such payment. The Indemnitor also shall be
liable to the Indemnitee for all reasonable attorneys' fees and expenses
incurred by such Indemnitee to enforce its rights and remedies hereunder,
whether or not suit is brought.
ARTICLE X
Post-Closing Matters
From and after the Closing Date, Selling Group and Purchaser Group covenant
and agree as follows, all of which shall survive the Closing:
Section 10.1 - Permits and Accreditation. Selling Group will cooperate with
and diligently assist the Purchaser Group with the filing of all notices and
requests required with respect to the transfer or the obtaining by the Purchaser
of all licenses, Permits, accreditations, certifications and other approvals
required to operate the Business.
Section 10.2 - Employees. Effective as of the Closing Date, Seller shall
terminate the employment of all of the Employees listed on Schedule 3.7. Seller
shall be responsible for any severance payments, accrued payroll, sick pay and
associated payroll tax liabilities, pension or other retirement plan
obligations, COBRA rights, WARN Act liability and any other liabilities
associated with such termination. Purchaser agrees to hire all of the Employees
immediately after the Closing Date at the same rates of pay as they enjoyed
immediately before the termination of their employment with Seller. Purchaser's
commitment to hire all of the employees shall not be construed as a contract of
employment and, except for those employees with written employment agreements
with or assumed by Purchaser, all of the employees hired by Purchaser shall be
employees at will.
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ARTICLE XI
Miscellaneous
Section 11.1. - Payment of Expenses and Other Payments.
(a) Whether or not the transactions contemplated hereby shall be
consummated, each party hereto shall pay its own expenses incident to preparing
for, entering into and carrying out this Agreement and the transactions
contemplated hereby.
(b) The Selling Group agrees that (i) if this Agreement is terminated as a
result of the Selling Group entering into an Alternative Transaction, the
Selling Group shall pay to the Purchaser Group a fee of $250,000 in cash; (ii)
if this Agreement is terminated due to the failure to obtain the requisite
approval of the Selling Group's stockholders, at a duly held stockholders'
meeting, of the transactions contemplated hereby and of this Agreement, the
Selling Group shall pay to the Purchaser Group $50,000 in cash; and (iii) if
this Agreement is duly terminated pursuant to Section 5.21, the Selling Group
shall pay Purchaser Group $50,000 in cash, provided that, in the event of the
occurrence of both (i) and (ii) or (i) and (iii), the fee payable by the Selling
Group to the Purchaser Group under this Section 11.1(b) shall be $250,000.
Section 11.2 - No Broker. Selling Group represents to the Purchaser Group,
and the Purchaser Group represents to the Selling Group, that no agent, finder
or broker has acted for it or was the producing and effective cause of this
Agreement or the transactions contemplated herein, and that no commissions or
finder's fees are due to any third parties. The parties agree to indemnify and
hold each other harmless with respect to any and all expenses, obligations, and
liabilities resulting from the claims or causes of action relating to any claims
made by any person retained or used by the indemnifying party for any agent's,
broker's or finder's fees or commissions relating to the transactions
contemplated herein.
Section 11.3 - Entire Agreement. This Agreement, together with the
Schedules and the Exhibits attached hereto or referred to herein and all
certificates and documents delivered in connection herewith contain the entire
understanding of the parties with respect to the subject matters hereof and
supersedes all prior and other contemporaneous oral or written understandings
and agreements between the parties hereto.
Section 11.4 - Binding Effect; Assignment. This Agreement, shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
successors, personal representatives and permitted assigns.
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Section 11.5 - Notices. Any notice, demand, offer or other writing required
or permitted pursuant to this Agreement shall be in writing, furnished in
duplicate and shall be transmitted by hand delivery, certified mail, return
receipt requested, or Federal Express or another nationally recognized overnight
courier service, postage prepaid, as follows:
(a) If to Selling Group:
Consolidated Healthcare Associates, Inc.
PTS Rehab, Inc.
38 Pond Street
Franklin, Massachusetts 02038
Attn: President
With a copy to:
Robinson & Cole LLP
One Boston Place
Boston, MA 02108
Attn: David A. Garbus, Esq.
(b) If to Purchaser Group:
Olympus Healthcare Group, Inc.
2000 West Park Drive
Suite 310
Westborough, Massachusetts 01581
Attn: President
With a copy to:
Hutchins, Wheeler & Dittmar
A Professional Corporation
101 Federal Street
Boston, Massachusetts 02110
Attn: Jack H. Fainberg, Esq.
Any party shall have the right to change the place to which such notice
shall be given by similar notice sent in like manner to all other parties
hereto. Any such notice, if sent by private express overnight courier service,
shall be deemed delivered on the earlier of the date of actual delivery or the
next business day following deposit, postage prepaid, with such private express
overnight courier service and if delivered by hand delivery shall be deemed
delivered on the date of the actual delivery and if sent by mail, shall be
deemed delivered on the earlier of the third day following deposit with the U.S.
Postal Service or actual delivery.
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Section 11.6 - Captions. The captions of this Agreement are for convenience
and reference only, and in no way define, describe, extend or limit the scope or
intent of this Agreement or the intent of any provisions hereof.
Section 11.7 - Joint Effort. The preparation of this Agreement has been the
joint effort of the parties, and the resulting document shall not be construed
more severely against one of the parties than the other.
Section 11.8 - Counterparts. This Agreement may be executed in counterparts
and each executed copy shall be deemed an original which shall be binding upon
all parties hereto.
Section 11.9 - Partial Invalidity. The invalidity of one or more of the
phrases, sentences, clauses, sections or articles contained in this Agreement
shall not affect the remaining portions so long as the material purposes of this
Agreement can be determined and effectuated.
Section 11.10 - No Offer. Neither the negotiations to date nor the
preparation of this Agreement shall be deemed an offer by any party to the
other. No such contract shall be deemed binding on any party until such party
has executed and delivered a written agreement.
Section 11.11 - Amendments. This Agreement may not be amended in any
respect whatsoever except by a further agreement, in writing, fully executed by
each of the parties.
Section 11.12 - Schedules and Exhibits. All Schedules and Exhibits referred
to in this Agreement shall be incorporated into this Agreement by such reference
and shall be deemed a part of this Agreement as if fully set forth in this
Agreement.
Section 11.13 - Waivers. No terms and provisions hereof, including, without
limitation, the terms and provisions contained in this sentence, shall be
waived, modified or altered so as to impose any additional obligations or
liability or grant any additional right or remedy, and no custom, payment, act,
knowledge, extension of time, favor or indulgence, gratuitous or otherwise, or
words or silence at any time, shall impose any additional obligation or
liability or grant any additional right or remedy or be deemed a waiver or
release of any obligation, liability, right or remedy except as set forth in a
written instrument properly executed and delivered by the party sought to be
charged, expressly stating that it is, and the extent to which it is, intended
to be so effective. No assent, express or implied, by either party, or waiver by
either party, to or of any breach of any term or provision of this Agreement or
of the Schedules or Exhibits shall be deemed to be an assent or waiver to or of
such or any succeeding breach of the same or any other such term or provision.
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Section 11.14 - Further Assurances. The Selling Group and the Purchaser
Group each agree that they will at any time before and after the Closing execute
and deliver all additional documents, and do any other acts or things that may
be reasonably requested by the Selling Group and the Purchaser Group, as the
case may be, in order to further perfect the rights and interests contemplated
hereunder. Each of the Selling Group and the Purchaser Group shall from time to
time execute and deliver prior to, at and after the Closing such further
instruments and documents and take such other action as may reasonably be
required in order to carry out and effectuate this Agreement and the
transactions contemplated hereby. In addition, following the Closing, each party
will afford the other party, its counsel and its accountants, during normal
business hours, reasonable access to the books, records and other data relating
to the Business the Acquired Assets or Assumed Liabilities in its possession
with respect to periods prior to the Closing and the right to make copies and
extracts therefrom, to the extent that such access may be reasonably required by
the requesting party in connection with (i) the preparation of tax returns, (ii)
the determination or enforcement of rights and obligations under this Agreement,
(iii) compliance with the requirements of any Governmental Authority, (iv) the
determination or enforcement of the rights or obligations of any party seeking
indemnification hereunder, (v) the collection of accounts receivable or notes
receivable, (vi) medical and patient records with respect to determining the
appropriateness, necessity, adequacy of services provided to patients; or (vii)
in connection with any actual or threatened action or proceeding with respect to
the provisions of Article IX hereof. Further, each party agrees for a period
extending six (6) years after the Closing Date or such longer period as may be
reasonably requested by the other party, not to destroy or otherwise dispose of
any such books, records and other data unless such party shall first offer in
writing to surrender such books, records and other data to the other party and
such other party shall not agree to take possession thereof during the ten (10)
days after such offer is made.
Section 11.15 - Governing Law. This Agreement including the validity
thereof and the rights and obligations of the parties hereunder shall be
governed by and construed in accordance with the laws of The Commonwealth of
Massachusetts.
Section 11.16 - Third Parties. Nothing in this Agreement, whether express
or implied, is intended to confer any rights or remedies under or by reason of
this Agreement on any Persons other than the parties hereto and their respective
legal representatives, successors and permitted assigns. No Person who is not a
party to this Agreement may rely hereon or derive any benefit hereby as a third
party beneficiary or otherwise.
Section 11.17 - Arbitration.
(a) In the event of any dispute among the parties hereunder, such dispute
shall be settled by arbitration in accordance with the rules of the American
Arbitration Association as then existing in Boston, Massachusetts, the award of
the arbitrators
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shall be final and binding upon the parties, and judgment upon the award
rendered may be entered in any court having jurisdiction but there shall be no
appeal from such award.
(b) The parties may, if they are able to do so, agree upon one arbitrator;
otherwise, there shall be three, one named in writing by the Selling Group, and
one by the Purchaser Group, within fifteen (15) days after notice of arbitration
is served upon either party by the other and a third arbitrator selected by
these two arbitrators within fifteen (15) days thereafter. If the two
arbitrators cannot select a third arbitrator within such fifteen (15) days,
either party may request that the American Arbitration Association select such
third arbitrator. If one party does not choose an arbitrator within fifteen (15)
days, the other party shall request that the American Arbitration Association
name such other arbitrator. No one shall serve as an arbitrator who is in any
way financially interested in this Agreement or in the affairs of either party.
(c) Each of the parties hereto shall pay its own expenses of arbitration
and one half of the expenses of the arbitrators. If any position by either party
hereunder, or any defense or objection thereto, is deemed by the arbitrators to
have been unreasonable, the arbitrators may assess, as part of their award
against the unreasonable party, all or part of the arbitration expenses
(including reasonable attorneys' fees) of the other party and of the
arbitrators.
(d) Nothing herein set forth shall prevent the parties from settling any
dispute by mutual agreement at any time.
Section 11.18 - Rules of Construction; Interpretation. References in this
Agreement to "herein," "hereof" and "hereunder" shall be deemed to refer to this
Agreement and shall not be limited to the particular text or Section in which
such words appear. The use of any gender shall include all genders, and the
singular number shall include the plural and vice versa as the context may
require so that, without limitation, any representation or covenant from all
Selling Group shall apply to Seller individually and all Seller collectively. In
the event of any inconsistency between the terms and provisions of this
Agreement and the terms and provisions of any other documents executed in
connection herewith, the terms and provisions hereof shall in each instance
prevail.
Section 11.19 - Letter of Intent. This Agreement supersedes the Letter of
Intent in its entirety, except for Sections 8 and 9 thereof.
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IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals as of the date first above appearing.
CONSOLIDATED HEALTHCARE
ASSOCIATES, INC.
By: /s/ Rober M. Whitty
- ------------------------ -----------------------------------
/s/ David Garbus Title: President
Witness
PTS REHAB, INC.
By: /s/ Robert M. Whitty
- ------------------------ -----------------------------------
/s/ David Garbus Title: President
Wintess
OLYMPUS HEALTHCARE GROUP, INC.
By: /s/ Paul Allison
- ------------------------ -----------------------------------
/s/ Jack Fainberg Title: Vice President
Wintess
OLYMPUS OUTPATIENT SERVICES, INC.
By: /s/ Paul Allison
- ------------------------ -----------------------------------
/s/ Jack Fainberg Title: Vice President
Wintess
S-1
<PAGE>
SCHEDULES
Schedule 2.1(c) Inventories
Schedule 2.1(d) Fixed Assets
Schedule 2.6 Allocation of Purchase Price
Schedule 3.1(e) Jurisdictions
Schedule 3.2 Conflicts
Schedule 3.3 Security Deposits; Landlord Consents
Schedule 3.4 Licenses, Permits and Other Approvals;
Reports, Surveys
Schedule 3.7 Employee Policies; NLRB proceedings,
etc.; Employee Accruals; Compensation
and Benefits for Employees; Positions
Schedule 3.9 Executory Contracts; Defaults
Schedule 3.10 Condition of Acquired Assets
Schedule 3.12 Litigation
Schedule 3.14 Financial Statements
Schedule 3.17 Insurance Policies
Schedule 3.18 Provider Agreements; Charges and Rates,
Rate Limitations, Rate Appeals, etc.
Schedule 3.19 Conditions to Professional Licenses
Schedule 3.20 Customers
Schedule 3.21 Employee Benefit Plans; ERISA
Schedule 3.22 No Material Adverse Change
Schedule 4.3 Litigation
Schedule 4.4 Financial Statements
S-2
<PAGE>
Schedule 4.5 No Material Adverse Change
Schedule 4.7 Consents
Schedule 5.8 Assumption of Contracts
S-3
<PAGE>
EXHIBITS
Exhibit A Leases
Exhibit B Bill of Sale, Assignment and Assumption
Agreement
Exhibit C Escrow Agreement
Exhibit D Non Competition Agreement
S-4
<PAGE>
Opinion of Consolidated's Financial Advisor
Annex B
<PAGE>
December 2, 1997
The Board of Directors
Consolidated Health Care Associates, Inc.
35 Pond Street
Franklin, MA 02038
Attn: James Kenney, Chairman
Gentlemen:
This letter to the Board of Directors of Consolidated Health Care
Associates, Inc., ("Consolidated" or the "Company") from The Mayflower Group,
Ltd. is to opine as to the fairness to Consolidated stockholders, from a
financial point of view, of the sale of substantially all of the assets of PTS
Rehab, Inc. ("PTS"), a wholly-owned subsidiary of Consolidated, consisting of
four outpatient clinics, located in Attleboro, Leominster, Pittsfield and West
Bridgewater, Massachusetts (the "Centers") which provide ancillary healthcare
and outpatient rehabilitation services (collectively, the "Business") and the
related leases, provider agreements, service agreements and professional
contracts and goodwill (collectively, the "Purchased Assets") to Olympus
Outpatient Services, Inc., a wholly-owned subsidiary (the "Purchaser") of
Olympus Healthcare Group, Inc., a Delaware corporation ("Olympus"), which is
headquartered in Westborough, Massachusetts, and the assumption by the Purchaser
of certain limited disclosed liabilities of Consolidated and PTS related to the
Business and such Purchased Assets (the "Sale").
Information Considered
Under the Purchase Agreement relating to the Sale, Olympus will pay
Consolidated a Purchase Price ("Purchase Price") of $1.7 million, payable in
cash at closing. A deposit of $100,000 has been paid as a refundable deposit
toward the Purchase Price.
In order to assure an orderly transition in connection with the Sale,
effective November 3, 1997, Consolidated and PTS entered into a Management
Agreement (the "Management Agreement") with the Purchaser as manager ("Olympus
Manager"), pursuant to which the Olympus Manager was engaged to provide
advisory, support, consulting, and administrative services in the management of
the Centers and the Business prior to consummation of the Sale.
The due diligence and analysis of the Sale to Olympus was conducted by
Mayflower's president, Marshall Sterman. In conducting its due diligence,
Mayflower interviewed the following Consolidated management people:
Robert M. Whitty, President and CEO
Raymond L. LeBlanc, CFO and Treasurer
Goodhue Smith, Director
<PAGE>
The Board of Directors
December 2, 1997
Page 2
In addition, besides Mayflower's own understanding of the Company's
situation as a result of past consulting services to Consolidated which included
structuring and helping fund a bridge loan prior to the recent sale by
Consolidated of three Pennsylvania clinics and one Florida clinic in February
and March 1997, the following information was considered:
(a) Consolidated's historical audited financial statements for the years
ended December 31, 1994, 1995 and 1996, respectively;
(b) Consolidated's historical unaudited financial statements for the
fiscal quarters ending March 31, June 30 and September 30 for the
years 1994, 1995, 1996 and 1997, respectively;
(c) Consolidated's unaudited internal monthly financial statements for
each of the months January through October, 1997;
(d) Consolidated's annual report on form 10-KSB and quarterly reports on
form 10- QSB for the year ending December 31, 1996 and the three
fiscal quarters ended March 31, June 30 and September 30, 1997,
respectively, as filed with the Securities and Exchange Commission;
(e) Consolidated's current business plan and the factors necessary for its
implementation;
(f) Consolidated's operating history vis a vis pro-forma expectations,
i.e., their inability to forecast with reliability due to the nature
of the Business;
(g) Relevant data with respect to the size, market and competition
directly affecting the Company;
(h) An overview of the health care regulatory climate and recent
enforcement activity;
(i) Consolidated's efforts and experience in obtaining both equity and
debt financing;
(j) Alternatives either under consideration or proposed to fund ongoing
operations;
(k) Consolidated's market valuation, trading activity and analyst and
brokerage coverage; and
(l) Recent stringent changes and enforcement by the National Association
of Securities Dealers and the NASDAQ listing committee relevant to
micro cap securities.
<PAGE>
The Board of Directors
December 2, 1997
Page 3
As for Olympus and its financial position and prospects, Mayflower
considered the following information:
(a) Olympus' audited financial statements for the fiscal years ended June
30, 1995, 1996 and 1997, respectively;
(b) Olympus' unaudited interim financial statements for the period ending
August 31, 1996 and 1997, respectively;
(c) Audited financial statements of LaHaina Realty Limited Partnership
("LaHaina") for the fiscal years ended June 30, 1996 and 1997,
respectively;
(d) Unaudited interim financial statements of LaHaina for the fiscal
period ending August 31, 1996 and 1997, respectively; and
(e) Summary of background information on Olympus furnished as confidential
information to Renaissance Capital Partners II, L.P. ("Renaissance"),
a major stockholder of Consolidated, including excerpts from an
Olympus confidential private placement memorandum dated September,
1996.
Opinion
Based on the foregoing, Mayflower is of the opinion that the Sale of the
Purchase Assets to Olympus on the terms and conditions set forth in the Purchase
Agreement is fair to Consolidated and its stockholders, from a financial point
of view, is in the best interests of all the stockholders and of Consolidated,
and preserves value which otherwise might be lost should Consolidated continue
to operate the Business and the Centers.
Valuation Techniques and Weight Given to Such Techniques
In determining the "fairness" from a financial point of view of the Sale to
Olympus, Mayflower considered a number of customary valuation techniques, some
of which were not given any weight because of the Company's relatively weak and
deteriorating financial position. The considerations given the greatest weight
to confirm the value of the Business and the Centers and of the Sale transaction
as a whole are discussed under the headings "Liquidation Value" and "Other
Considerations" below:
A Multiple of Free Cash Flow and a Multiple of Price x's Earnings. Although it
is customary to apply these valuation techniques in engagements of this nature,
both are obviously inapplicable because of the history of Consolidated's
continuing losses from operations before income tax
<PAGE>
The Board of Directors
December 2, 1997
Page 4
provisions, net of extraordinary gains:
Jan-June '97 1996 1995
- ------------ ---- ----
($196,742) ($473,242) ($598,855)
Liquidation Value. Under a liquidation scenario (i.e., assuming after the Sale,
Consolidated sold all of its remaining assets at book value (of which there can
be no assurance)), Consolidated would essentially have a negative net worth. If
goodwill (non-cash items) were eliminated from the June 30, 1997 audited balance
sheet, the deminimis equity remaining would be negated or offset by the expected
costs and losses to be incurred in the collection of receivables as well as in
the additional expenses related to legal, management and "winding up"
activities. Accordingly, Mayflower believes that since the Sale transaction will
generate some positive cash, the Sale brings additional value to Consolidated
shareholders under a liquidation scenario and as such is entitled to substantial
weight in determining its inherent fairness.
Stock Market valuation-price x's capitalization. In tracking the price of
Consolidated's common stock in trading on the Nasdaq Small Cap Market over the
past few years (and the Nasdaq's electronic bulletin board since earlier in
1997), there has been a steady erosion with respect to bid prices to as low as
1/8 or approximating $.125 per share. At this level, the market cap is under
$2.5 million. Based on revenues, the four Centers and the Business to be sold to
Olympus represents approximately 27% of Consolidated total net revenues but
constitutes 15% and 14% of its aggregate loss for operations during 1996 and the
first nine months of 1997, respectively. Accordingly, the Olympus purchase price
represents a discount of approximately 20%. Mayflower does not consider this an
unrealistic differential as (a) the dollar differential is small and is more
important than the percentage differential when dealing in numbers in the lower
price ranges and (b) Consolidated is not being bought out completely and will be
left with other disposable assets (see information in the Proxy Statement in
which this opinion will be included as Annex B) and will have a relatively clean
"shell" which has value as yet to be determined.
Pro Forma Valuation - Earnings in the Near Term. If one accepts the efficient
market theory, then price times capitalization (see above) is a strong indicator
of value relative to near term potential. However, the Company is not followed
by analysts who set forth various earnings projections, industry and company
comparable's, nor have there been forward looking statements made by management,
all of which would be necessary in valuing a company which has yet to achieve
earnings or positive cash flow.
Intangible Values - Non-Balance Sheet Items. As far as we can ascertain, there
are no intangibles which might add to Consolidated's value. There are no
patents, proprietary knowledge,
<PAGE>
The Board of Directors
December 2, 1997
Page 5
contractual agreements, geographic or territorial "franchises" or any
non-balance sheet assets which can be sold, joint ventured, or transferred.
The Free Market: What Motivated Buyers Might Pay - the Auction. While there is
no certainty that other buyers may not pay more for the Purchased Assets and/or
Consolidated's other assets or seek a merger or take over of Consolidated under
other terms and conditions, management appears to have taken prudent steps in
seeking either other buyers or alternatives to the proposed Sale. In any event,
no other potential buyers appear to be available as prospects for negotiation.
Other Considerations. Having had an ongoing business relationship and an
insider's access to management as part of the "fairness opinion" process,
Mayflower has concluded that under present conditions Consolidated could not be
profitable even before the recent downsizing and can only return to
profitability (and viability) with substantial additional equity and its
concomitant dilution. Pro forma valuation based on a projection of earnings over
the near term, in Mayflower's opinion, is therefore not a pricing option in
evaluating the Olympus Sale transaction although it does speak to the need for
the Board to have sought other options in order to protect whatever value can be
retained for stockholders over the longer term.
As germane as the aforementioned pricing techniques relate to the
"fairness" of the Sale transaction, the situation that Consolidated finds itself
in relative to its options is almost as important as the proposed Purchase
Price. Over the past four years, in an effort to reverse the Company's losses
and strengthen its balance sheet, Consolidated's Board has made significant
management and business changes. Without a viable alternative to preserving
Consolidated as a whole and as an ongoing operation - and with tight cash flow
and continued operating losses operating assets (e.g. the sale of clinics in
Florida and Pennsylvania) were sold as a necessary and prudent step in
repositioning the Company and preserving its value. While such sales allowed the
Company to pursue other options, the paradox of the downsizing reduced cash flow
and made the search for either additional equity or an outright sale or merger
with a stronger company a less viable alternative.
The maneuverability of the Company was further impacted by its default on
note obligations which will require renegotiation for the third straight year.
While these notes might be "rolled-over" once more, it is probable that future
terms and conditions to be imposed by holders of these notes would be more
onerous to the Company and its stockholders and that stockholders' equity, in
view of the recent asset sales, would be severely diluted.
In addition, the winding down of the Company's primary activity could have
a materially adverse effect on its ability to collect receivables that otherwise
might be available to fund operations. With the Company's day to day operations
currently being funded through expensive and full recourse receivable's
financing, one should assume that this lender will reduce the
<PAGE>
The Board of Directors
December 2, 1997
Page 6
availability of funds to the Company as the size (and possibly the collection
period) is negatively impacted. The health care industry and more particularly
the Company's segment, with reimbursement from third parties, has been fraught
with examples of delays, non-payment and renegotiation for services rendered.
Any of these occurrences could seriously impair the Company's ability to
continue operating without expensive, dilutive and/or disastrous financial
effects on the value of the Company's securities.
The fact that the Olympus Manager has taken over the day-to-day management
of the operations of the four Centers and the Business pursuant to the
Management Agreement effective November 3, 1997, is an important determinant
that the entire Sale transaction is "fair" to Consolidated and its stockholders.
This Management Agreement relieves Consolidated and PTS from some of the
financial strain of continuing to operate the Centers and the Business solely on
their own pending consummation of the Sale.
Other Matters
It is understood that this opinion is for the information of the Board of
Directors of Consolidated only in connection with its consideration of the Sale.
This opinion may not otherwise be quoted or referred to, in whole or in part,
without Mayflower's written consent. However, this opinion may be included in
full in any Proxy Statement or Schedule filed under the Securities Exchange Act
of 1934, as amended, that is used in connection with seeking stockholder
approval of the Sale.
The Mayflower Group, Ltd.
By: /s/ Marshall S. Sterman
--------------------------------
Marshall S. Sterman, President
<PAGE>
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
38 Pond Street, Franklin, Massachusetts 02038
The undersigned hereby appoints Robert M. Whitty and Raymond L. LeBlanc and each
of them acting singly, with full power of substitution, attorneys and proxies to
represent the undersigned at the Special Meeting of Stockholders of Consolidated
Health Care Associates, Inc. ("Consolidated") to be held December 19, 1997 and
at any adjournments thereof with all power which the undersigned would possess
if personally present, and to vote all shares of stock which the undersigned may
be entitled to vote at said meeting upon the matters set forth in the Notice of
Special Meeting in accordance with the following instructions and with
discretionary authority on such other matters as may come before the Special
Meeting or at any adjournment thereof. All previous proxies are hereby revoked.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. IT WILL BE VOTED AS
DIRECTED BY THE UNDERSIGNED AND, IF NO DIRECTION IS INDICATED, IT WILL BE VOTED
FOR PROPOSAL NO. 1.
(1) Proposed adoption of the Purchase Agreement pursuant to which Olympus
Healthcare Group, Inc. and Olympus Outpatient Services, Inc. will purchase
substantially all of the assets of PTS Rehab, Inc. ("PTS"), related solely
to the four outpatient clinics operated by PTS located in Attleboro,
Leominster, Pittsfield and West Bridgewater, Massachusetts, the Leases
therefor and related Provider Agreements, Service Agreements and
Professional Contracts and assume certain liabilities of PTS and
Consolidated related to such assets for aggregate consideration of
approximately $1,700,000. A copy of the Purchase Agreement is attached as
Annex A to the Proxy Statement.
|_| FOR |_| AGAINST |_| ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
|_| Check here for address change |_| Check here if you plan to attend
and note change below. the meeting.
New Address:____________________________________________________________________
(Please complete, date, sign and mail in the enclosed envelope)
(Signature should be the same as the
name printed on your stock certificate.
Executors, administrators, trustees,
guardians, attorneys and officers of the
corporation should add their titles when
signing.)
Signature:______________________________
Date:_____________________________, 1997
Signature:______________________________
Date:_____________________________, 1997
