UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): SEPTEMBER 30, 1998
Commission file number 1-12055
PARACELSUS HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3565943
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
515 W. GREENS ROAD, SUITE 800, HOUSTON, TEXAS
(Address of principal executive offices)
77067 (281) 774-5100
(Zip Code) (Registrant's telephone number,
including area code)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Effective September 30, 1998, Paracelsus Healthcare Corporation ("the
Company")completed the sale of substantially all of the assets of the eight
hospitals (one of which had been previously closed) located in metropolitan Los
Angeles (collectively, "LA Metro") to Alta Healthcare System LLC, a California
limited liability company and certain subsidiaries thereof. The purchase price
of approximately $33.7 million, which included the purchase of net working
capital, was arrived at through an arms length negotiation and was paid by a
combination of $16.5 million in cash, the assumption of approximately $3.2
million in debt, and issuance by the purchaser of $9.9 million of secured
promissory notes and an additional secured second lien subordinated note in the
principal amount of $3.8 million. This subordinated note may be adjusted for
any increase or decrease of net working capital and certain other adjustments.
The transaction resulted in a $4.2 million reduction in amounts outstanding
under the Company's Amended and Restated Reducing Revolving Credit Facility
(the "Credit Facility"), a $9.3 million reduction in the Company's off balance
sheet receivable financing program, and the assumption by the purchaser of
approximately $3.2 million in other secured debt. The Company does not expect
to record a significant gain or loss on the sale. The facilities sold are as
follows:
Licensed
Facility/Location/Type Beds
- -------------------------------------------------------------------------------
Bellwood General Hospital, Bellflower, California (Medical/Surgical) 85
Orange County Hospital of Buena Park, Buena Park, California (Psychiatric) 53
Hollywood Community Hospital of Hollywood, Los Angeles, California (Medical
Surgical) 100
Los Angeles Community Hospital, Los Angeles, California (Medical/Surgical) 130
Los Angeles Community Hospital, Norwalk, California (Medical/Surgical) 50
Monrovia Community Hospital, Monrovia, California (Medical/Surgical) 49
Hollywood Community Hospital of Van Nuys, Van Nuys, California (Psychiatric)60
Orange County Hospital of Orange, Orange, California (Psychiatric) previously
closed
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
In addition to reflecting the sale of LA Metro, the pro forma financial
information required by Item 7b also reflects the Company's sale of Chico
Community Hospital and Chico Community Rehabilitation Hospital on June 30,
1998, and the Company's acquisition of Dakota Medical Foundation's (the
"Foundation") 50% partnership interest in a general partnership operating as
Dakota Heartland Health System ("DHHS") on July 1, 1998. Accordingly, the
financial statements of DHHS as of and for the six months ended June 30, 1998,
have been provided herein.
<PAGE> 3
(a) Financial Statements (attached following the signature page):
For the six months ended June 30, 1998 (Unaudited) for Dakota Heartland
Health System
1. Consolidated Balance Sheets as of June 30, 1998 and December 31,
1997
2. Consolidated Statements of Income for the three months and six
months ended June 30, 1998 and 1997
3. Consolidated Statement of Partners' Equity for the six months
ended June 30, 1998
4. Consolidated Statements of Cash Flows for the six months ended
June 30, 1998 and 1997
(b) Unaudited Pro Forma Financial Information:
Unaudited Pro Forma Condensed Combining Statement of Operations
For the Six Months Ended June 30, 1998
Unaudited Pro Forma Condensed Combining Statement of Operations
For the Year Ended December 31, 1997
Unaudited Pro Forma Condensed Combining Balance Sheet - June 30, 1998
Notes to Unaudited Pro Forma Condensed Combining Financial Statements
(c) Exhibits
10.70 Asset Purchase Agreement, dated September 30, 1998, by and among
Alta Healthcare System LLC, Alta Bellwood Hospitals, Inc., Alta Hollywood
Hospitals, Inc., Alta Los Angeles Hospitals, Inc., Alta Monrovia Hospital,
Inc., Alta Orange Hospital, Inc., Alta Healthcare Building Corporation and
Paracelsus Healthcare Corporation, Paracelsus Real Estate Corporation,
Paracelsus Medical Building Corporation, Lincoln Community Medical Corporation,
Bellwood Medical Corporation, Hollywood Community Hospital Medical Center,
Inc., Paracelsus Los Angeles Community Hospital, Inc., Monrovia Hospital
Corporation.
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Paracelsus Healthcare Corporation
(Registrant)
Dated: October 15, 1998 By: /S/ JAMES G. VANDEVENDER
----------------------------------
James G. VanDevender
Senior Executive Vice President,
Chief Financial Officer
& Director
<PAGE> 5
PARACELSUS HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
The following table presents the Unaudited Pro Forma Condensed Combining
Statements of Operations for the six months ended June 30, 1998, and the year
ended December 31, 1997, to illustrate the effect of the sale of eight of the
Company's hospitals located in metropolitan Los Angeles (collectively, "LA
Metro") on September 30, 1998, the sale of Chico Community Hospital and Chico
Community Rehabilitation Hospital on June 30, 1998, and the Company's
acquisition of Dakota Medical Foundation's (the "Foundation") 50% partnership
interest in a general partnership operating as Dakota Heartland Health System
("DHHS") on July 1, 1998. The Unaudited Pro Forma Condensed Combining
Statements of Operations assume the above transactions occurred on January 1,
1997. The Pro Forma Condensed Combining Balance Sheet assumes the above
transactions occurred on June 30, 1998.
Effective September 30, 1998, the Company completed the sale of substantially
all of the assets of its LA Metro hospitals (one of which had been previously
closed) to Alta Healthcare System LLC, a California limited liability company,
and certain subsidiaries thereof. The purchase price of approximately $33.7
million, which included the purchase of net working capital, was arrived at
through an arms length negotiation and was paid by a combination of $16.5
million in cash, the assumption of approximately $3.2 million in debt, and
issuance by the purchaser of approximately $9.9 million of secured promissory
notes and an additional secured second lien subordinated note in the principal
amount of approximately $3.8 million. This subordinated note may be adjusted
for any increase or decrease of net working capital and certain other
adjustments. The transaction resulted in a $4.2 million reduction in amounts
outstanding under the Company's Amended and Restated Reducing Revolving Credit
Facility (the "Credit Facility"), a $9.3 million reduction in the Company's off
balance sheet receivable financing program, and the assumption by the purchaser
of approximately $3.2 million in other secured debt. The Company does not
expect to record a significant gain or loss on the sale.
On July 1, 1998, the Company (through its subsidiary, Paracelsus Healthcare
Corporation of North Dakota, Inc.) completed the purchase of the Foundation's
50% partnership interest in a general partnership operating as Dakota Heartland
Health System ("DHHS" or the "Partnership") for $64.5 million dollars, thereby
giving the Company 100% ownership of DHHS. The purchase price was pursuant to a
right of the Dakota Medical Foundation to require the Company to purchase its
50% interest. Such right was negotiated on an arms length basis and was part
of the original partnership agreement entered into as of December 31, 1994,
which also established the formula for the purchase price. The Company funded
the acquisition from borrowings under its Credit Facility. Prior to the
purchase, the Company owned 50% of DHHS and accounted for its investment under
the equity method. DHHS is a 218 licensed bed tertiary care hospital in
Fargo, North Dakota.
On June 30, 1998, the Company completed the sale of substantially all of the
assets of Chico Community Hospital, Inc., which included a 123 licensed bed
acute care hospital and a 60 licensed bed rehabilitation hospital, both located
in Chico, California, (collectively "Chico") to N.T. Enloe Memorial Hospital
and Enloe Health System, both California nonprofit public benefit corporations,
for $25.0 million in cash plus working capital and the termination of a
facility operating lease and an associated letter of credit obligation. The
working capital component of the transaction is subject to a post-closing
settlement. The purchase price was arrived at through an arms length
negotiation. The transaction resulted in a $24.6 million reduction in amounts
outstanding under the Credit Facility, and a $3.1 million reduction in the
Company's off balance sheet receivable financing program.
<PAGE> 6
These Unaudited Pro Forma Condensed Financial Statements do not purport to
present the financial position or results of operations of the Company had the
above transactions occurred on the dates specified, nor are they necessarily
indicative of results of operations that may be expected in the future. The
Unaudited Pro Forma Condensed Combining Financial Statements are qualified in
their entirety by reference to, and should be read in conjunction with, the
Company's audited consolidated financial statements for the year ended December
31, 1997, included in the Company's Annual Report on Form 10-K, the Company's
unaudited condensed consolidated financial statements for the quarter ended
June 30, 1998, included in the Company's Quarterly Report on Form 10-Q, and the
unaudited historical financial statements for DHHS for the six months ended
June 30, 1998, included elsewhere herein. The historical financial statements
for DHHS for the year ended December 31, 1997, were previously reported in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
<PAGE> 7
PARACELSUS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED
COMBINING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Paracelsus Chico Pro Forma DHHS Pro Forma
Healthcare Pro Forma Chico Pro Forma Chico/DHHS/
Corporation Adjustments Rf Disposition DHHS Adjustments Rf Paracelsus
----------- ----------- -- ----------- ------- ----------- -- ----------
(1) (1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue $ 311,558 $(18,850) (2) $292,708 $ 52,017 $344,725
Costs and expenses:
Salaries and
benefits 127,893 (8,217) (2) 119,676 19,998 139,674
Other operating
expense 128,161 (6,718) (2) 121,443 17,821 139,264
Provision for
bad debts 18,431 (355) (2) 18,076 1,449 19,525
Interest 25,674 (1,257) (3) 24,417 $ 2,983 (3) 27,400
Depreciation &
amortization 15,844 (758) (2) 15,086 2,282 122 (5) 17,490
Equity in earnings
of DHHS (5,061) (5,061) 5,061 (6)
Unusual items (1,072) (1,072) 1,050 (22)
Gain on sale of
facilities (7,100) 7,100 (2)
--------- ------- -------- --------- ------- -------
Total costs &
expenses 302,770 (10,205) 292,565 42,600 8,166 343,331
--------- ------- -------- --------- ------- -------
Income before minority
interest and
income taxes 8,788 (8,645) 143 9,417 (8,166) 1,394
Minority interest 855 855 855
--------- ------- -------- --------- ------- -------
Income before
income taxes 9,643 (8,645) 998 9,417 (8,166) 2,249
Provision for
income taxes 2,320 (2,015) (4) 305 215 307 (4) 827
--------- ------- -------- --------- ------- -------
Net income $ 7,323 $(6,630) $ 693 $ 9,202 $(8,473) $ 1,422
========== ======= ======== ========= ======= ========
Income per share
- - basic and
assuming
dilution $ 0.13 $ 0.01 $ 0.02
========= ======== ========
Weighted average
number of common
and common
equivalent
shares 57,544 57,544 57,544
======== ======= ========
</TABLE>
See notes to Unaudited Pro Forma Condensed Combining Financial Statements.
<PAGE> 8
PARACELSUS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINING
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma LA Metro
Chico/DHHS/ Pro Forma Pro Forma
Paracelsus Adjustments Rf Paracelsus
----------- ----------- -- -----------
<S> <C> <C> <C><C> <C>
Net revenue $ 344,725 $(38,855) (7)(8) $305,870
Costs and expenses:
Salaries and
benefits 139,674 (17,266) (7) 122,408
Other operating
expense 139,264 (21,408) (7) 117,856
Provision for
bad debts 19,525 (1,178) (7) 18,347
Interest 27,400 (648) (3)(7) 26,752
Depreciation &
amortization 17,490 17,490
Unusual items (22) (22)
--------- ------- --------
Total costs &
expenses 343,331 (40,500) 302,831
--------- ------- --------
Income before minority
interest and
income taxes 1,394 1,645 3,039
Minority interest 855 (937) (7) (82)
--------- ------- --------
Income before
income taxes 2,249 708 2,957
Provision for
income taxes 827 142 (4) 969
--------- ------- --------
Net income $ 1,422 $ 566 $ 1,988
========= ======= ========
Income per share
- - basic and
assuming
dilution $ 0.02 $ 0.03
========= ========
Weighted average
number of common
and common
equivalent
shares 57,544 57,544
========= =======
</TABLE>
See notes to Unaudited Pro Forma Condensed Combining Financial Statements.
<PAGE> 9
PARACELSUS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED
COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Paracelsus Chico Pro Forma DHHS Pro Forma
Healthcare Pro Forma Chico Pro Forma Chico/DHHS/
Corporation Adjustments Rf Disposition DHHS Adjustments Rf Paracelsus
----------- ----------- -- ----------- ------- ----------- -- ---------
(1) (1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue $ 659,219 $(33,751) (2) $625,468 $ 99,927 $725,395
Costs and expenses:
Salaries and
benefits 271,300 (16,086) (2) 255,214 36,509 291,723
Other operating
expenses 269,653 (14,030) (2) 255,623 37,028 292,651
Provision for
bad debts 46,606 (1,390) (2) 45,216 3,407 48,623
Interest 47,372 (2,305) (3) 45,067 $ 5,965 (3) 51,032
Depreciation and
amortization 30,179 (1,270) (2) 28,909 4,595 203 (5) 33,707
Equity in earnings
of DHHS (9,794) (9,794) 9,794 (6)
Impairment charges 7,782 7,782 7,782
Unusual items (6,531) (6,531) (6,531)
--------- ------- -------- --------- ------- --------
Total costs
& expenses 656,567 (35,081) 621,486 81,539 15,962 718,987
--------- ------- -------- --------- ------- --------
Income before
minority interest
and income taxes 2,652 1,330 3,982 18,388 (15,962) 6,408
Minority interest (1,996) (1,996) (1,996)
--------- ------- -------- --------- ------- --------
Income before
income taxes 656 1,330 1,986 18,388 (15,962) 4,412
Provision for
income taxes 1,812 546 (4) 2,358 580 414 (4) 3,352
-------- ------- -------- --------- ------- --------
Net (loss) income $ (1,156) 784 $ (372) $ 17,808 $(16,376) $ 1,060
========= ======= ======== ========= ======= ========
(Loss) income per
share- basic
and assuming
dilution $ (.02) $ (.01) $ .02
========= ======== ========
Weighted average
number of common
and common
equivalent
shares 54,946 54,946 1,392 (9) 56,338
========= ======== ======= ========
</TABLE>
See notes to Unaudited Pro Forma Condensed Combining Financial Statements.
<PAGE> 10
PARACELSUS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINING
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma LA Metro
Chico/DHHS/ Pro Forma Pro Forma
Paracelsus Adjustments Rf Paracelsus
----------- ----------- -- -----------
<S> <C> <C> <C><C> <C>
Net revenue $ 725,395 $(94,474) (7)(8) $630,921
Costs and expenses:
Salaries and
benefits 291,723 (37,168) (7) 254,555
Other operating
expense 292,651 (49,124) (7) 243,527
Provision for
bad debts 48,623 (2,050) (7) 46,573
Interest 51,032 (1,283) (3) 49,749
Depreciation &
amortization 33,707 (90) (7) 33,617
Impairment charges 7,782 (7,782) (7)
Unusual items (6,531) (6,531)
--------- ------- --------
Total costs &
expenses 718,987 (97,497) 621,490
--------- ------- --------
Income before minority
interest and
income taxes 6,408 3,023 9,431
Minority interest (1,996) 1,795 (7) (201)
--------- ------- --------
Income before
income taxes 4,412 4,818 9,230
Provision for
income taxes 3,352 1,976 (4) 5,328
--------- ------- --------
Net income $ 1,060 $ 2,842 $ 3,902
========= ======= ========
Income per share
- - basic and
assuming
dilution $ 0.02 $ 0.07
========= ========
Weighted average
number of common
and common
equivalent
shares 56,338 56,338
========= =======
</TABLE>
See notes to Unaudited Pro Forma Condensed Combining Financial Statements.
<PAGE> 11
PARACELSUS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINING
BALANCE SHEET
JUNE 30, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Paracelsus DHHS Pro Forma LA Metro
Healthcare Pro Forma DHHS Pro Forma Pro Forma
Corporation DHHS Adjustments Rf Acquisition Adjustments Rf Paracelsus
----------- ----------- ----------- --- ----------- ----------- -- ----------
<S> <C> <C> <C> <C> <C> <C> <C><C> <C>
ASSETS: (1) (1)
Current assets:
Cash and cash
equivalents $ 10,291 $ 5,250 $ 15,541 $ (250) (12)$ 15,291
Restricted cash 9,855 9,855 9,855
Accounts
receivable,
net 57,952 18,961 76,913 (2,255)(7)(12) 74,658
Deferred income
taxes 24,999 24,999 (10,695) (13) 14,304
Other 43,664 5,880 49,544 (3,169)(7)(14) 46,375
--------- ------- -------- --------- --------
Total current assets 146,761 30,091 176,852 (16,369) 160,483
--------- ------- -------- --------- --------
Property and
equipment, net 290,238 60,445 $ 7,076 (10) 357,759 357,759
Investment in Dakota
Heartland Health
System 116,708 (116,708) (10)
Goodwill 112,522 28,306 (10) 140,828 140,828
Other assets 84,184 3,263 (534) (10) 86,913 1,488 (7)(14) 88,401
--------- ------- ------- -------- --------- (13) --------
Total assets $750,413 $ 93,799 $(81,860) $ 762,352 $(14,881) $ 747,471
========= ======= ======= ======== ========= ========
</TABLE>
See notes to Unaudited Pro Forma Condensed Combining Financial Statements.
<PAGE> 12
PARACELSUS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINING
BALANCE SHEET
JUNE 30, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Paracelsus DHHS Pro Forma LA Metro
Healthcare Pro Forma DHHS Pro Forma Pro Forma
Corporation DHHS Adjustments Rf Acquisition Adjustments Rf Paracelsus
----------- ---------- ----------- -- ----------- ----------- -- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 35,054 $ 5,084 $ 40,138 $ (6,790) (7) $ 33,348
Accrued liabilities
and other 76,803 6,855 83,658 (507) (7) 83,151
Current maturities
of long-term debt 7,276 7,276 (95) (7) 7,181
--------- ------- -------- -------- --------
Total current
liabilities 119,133 11,939 131,072 (7,392) 123,680
--------- ------- -------- -------- --------
Long term debt 521,916 521,916 (7,489)(12)(7) 514,427
Other long-term
liabilities 61,158 61,158 61,158
Partners' equity 81,860 $(81,860) (11)
Stockholders' equity
Common stock 224,542 224,542 224,542
Additional
paid-in capital 390 390 390
Accumulated
deficit (176,726) (176,726) (176,726)
--------- -------- --------
Total stockholders'
equity 48,206 48,206 48,206
--------- -------- --------
Total liabilities
& shareholders'
equity $ 750,413 $ 93,799 $(81,860) $ 762,352 $(14,881) $ 747,471
========= ======== ======== ========= ======== ========
</TABLE>
See notes to Unaudited Pro Forma Condensed Combining Financial Statements.
<PAGE> 13
PARACELSUS HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
The following is a summary of the pro forma adjustments by line item.
Reference to
Notes to
Pro Forma
Financial
Statements Explanations
- ----------- -------------------------------------------------------------------
(1) The statements of operations and balance sheet for Paracelsus
Healthcare Corporation are summarized from its quarterly and
annual reports on Form 10-Q and Form 10-K, respectively. DHHS'
financial statements as of and for the six months ended June 30,
1998, are summarized from the unaudited consolidated historical
financial statements included elsewhere herein. DHHS' statement of
operations for the year ended December 31, 1997, are summarized
from the Company's annual report on Form 10-K.
(2) To remove Chico's historical results of operations and the gain
on sale of the Chico facilities.
(3) To record interest expense on (i) the net pro forma increase
in the Credit Facility resulting from the Company's acquisition of
the Foundation's 50% interest in DHHS, less net proceeds from the
sale of Chico and LA Metro, and (ii) the pro forma decrease in
amounts outstanding under the Company's off balance sheet
receivable financing program as a result of the sale of Chico and
LA Metro accounts receivable, certain accounts of which served as
collateral under the program.
With respect to the Chico sale, the Unaudited Pro Forma
Condensed Combining Statements of Operations assume $24.6 million
in net sales proceeds were used to reduce amounts outstanding
under the Credit Facility and $3.1 million in net sales proceeds
were used to reduce amounts outstanding under the Company's off
balance sheet receivable financing program. With respect to sale
of LA Metro, the Unaudited Pro Forma Condensed Combining
Statements of Operations assume $4.2 million in net sales proceeds
were used to reduce amounts outstanding under the Credit Facility
and a $9.3 million in net sales proceeds were used to reduce
amounts outstanding under the Company's off balance sheet
receivable financing program (see Note 12). The average interest
rate in effect under the Credit Facility was 9.2% for the six
months ended June 30, 1998, and 8.3% for the year ended December
31, 1997. The average interest rate in effect under the commercial
paper program was 6.7% for the six months ended June 30, 1998, and
6.9% for the year ended December 31, 1997.
With respect to DHHS, the Unaudited Pro Forma Condensed
Combining Statements of Operations assume the Company increased
the principal amount outstanding under the Credit Facility by
$65.0 million. The interest rate currently in effect under the
revolver portion of the Credit Facility is 9.2%
<PAGE> 14
PARACELSUS HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
Reference to
Notes to
Pro Forma
Financial
Statements Explanations
- ----------- -------------------------------------------------------------------
(4) To record the pro forma provision for income taxes after taking
into effect the sale of LA Metro and Chico and the consolidation
of DHHS pursuant to the Company's acquisition of the Foundation's
50% interest in DHHS, thereby giving the Company 100% ownership of
DHHS. Previously, the Company accounted for its investment in DHHS
under the equity method. The incremental effective tax rate on
income from continuing operations was 20% and 41% for the six
months ended June 30, 1998, and the year ended December 31, 1997,
respectively.
(5) To adjust depreciation and amortization expense for the step up in
basis for the depreciable assets of DHHS and the increase in
goodwill in connection with the allocated purchase price (see
Note 10). The acquired assets are estimated to have an average
remaining useful life of approximately 20 years based on
management's assumptions that DHHS's assets consist of 65%
building and 35% equipment with the useful life of such assets
determined in accordance with the Company's depreciation policy
(35 years, 20 years and 10 years for buildings, improvements and
equipment, respectively). Cost in excess of fair market value of
net assets acquired ("Goodwill") is amortized on a straight line
basis over a 20-year period. Based on this preliminary
allocation, depreciation and amortization expense increased
approximately $122,000 and $203,000 on a pro forma basis for the
six months ended June 30, 1998, and the year ended December 31,
1997, respectively.
(6) To remove equity in the earnings of DHHS previously recorded by
the Company.
(7) To remove LA Metro's historical results of operations, an
impairment charge of $7.8 million taken in the fourth quarter of
1997 on certain LA Metro facilities, assets sold, and liabilities
assumed by the purchaser in conjunction with the sale of LA Metro.
The unaudited pro forma condensed combining statements of
operations assume LA Metro was sold on January 1, 1997;
accordingly, the subsequent $7.8 million impairment charge would
have been reflected in the gain or loss on disposal and is
therefore removed from the pro forma presentation. Working capital
balances are as of June 30, 1998. Actual working capital proceeds
are to be based on balances at September 30, 1998, subject to
adjustment and final settlement by the parties. The Company does
not expect to record a significant gain or loss on the sale of LA
Metro.
<PAGE> 15
PARACELSUS HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
Reference to
Notes to
Pro Forma
Financial
Statements Explanations
- ----------- -------------------------------------------------------------------
(8) To record pro forma interest income of $695,000 and $1,390,000
for the six months ended June 30, 1998, and the year ended
December 31, 1997, respectively, on $9.9 million of secured
promissory notes and an secured second lien subordinated note in
the principal amount of $3.8 million issued by the purchaser in
conjunction with the LA Metro sale. The principal amounts and
terms of the notes are as follows:
(a) Non-Negotiable Secured Promissory Note in the principal
sum of $3,500,000 with interest at a per annum rate of 11%.
The principal balance and aggregate accrued interest are due
and payable on March 30, 1999.
(b) Non-Negotiable Secured Promissory Note in the principal sum
of $6,410,000 with interest at a per annum rate increasing
annually from 11% to 19% over the term of the note. Interest
only payments are payable quarterly the first four quarters
following the note's issue date. Thereafter interest and
principal payments are payable monthly based on a 15 year
amortization of principal balance with all unpaid principal
and accrued and unpaid interest due in full on September 30,
2003.
(c) Non-Negotiable Subordinated Secured Promissory Note in the
principal sum of $3,788,078, subject to further adjustment for
final settlement of working capital and certain other
adjustments, with interest at a per annum rate equal to the
interest rate effective on the Non-Negotiable Secured
Promissory Note discussed in Note 8(b) above plus 2%, provided
that interest in no event shall be less than 12% per annum.
Interest is due and payable quarterly. The principal balance
of this note and aggregate accrued interest are due and
payable on the earlier of (i) March 30, 2000 or the date the
Non-Negotiable Secured Promissory Note discussed in Note 8(b)
is repaid or refinanced with a third party lender.
(9) To adjust the common and common equivalent shares to reflect the
effect of dilutive securities on pro forma net income for the year
ended December 31, 1997.
<PAGE> 16
PARACELSUS HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
Reference to
Notes to
Pro Forma
Financial
Statements Explanations
- ----------- -------------------------------------------------------------------
(10) To record the acquisition of DHHS using the purchase
method of accounting, including the adjustment of DHHS's balance
sheet to reflect the estimated fair market value of property and
equipment acquired in excess of the DHHS' historical cost. The
purchase price allocation reflected in the Pro Forma Condensed
Combining Balance Sheet is based upon the best information
currently available without a final independent appraisal of the
net assets of DHHS. For the purpose of allocating net acquisition
costs among the various assets acquired, the Company has
tentatively allocated 20% of the net excess acquisition cost over
DHHS' carrying value of the acquired assets to property and
equipment and 80% to Goodwill. It is the Company's intention to
more fully evaluate the net assets acquired and, as a result, the
allocation of acquisition cost may change. The Company does not
expect the final allocation of acquisition cost to be materially
different from that assumed in the Pro Forma Condensed Combining
Balance Sheet. The following table summarizes the calculation of
the preliminary purchase price allocation(in thousands):
Total cash consideration $ 64,528
Estimated transaction costs 450
Company's prior investment in DHHS 51,730
--------
Total cost to be allocated 116,708
Less net working capital acquired (18,152)
Less DHHS' investment in equity investees (3,262)
Plus intangible assets not allocated value (a) 533
Less DHHS' historical property and equipment value, net (60,445)
--------
Purchase price in excess of DHHS' cost 35,382
Purchase price allocated to property and equipment(b) (7,076)
--------
Purchase price allocated to Goodwill $ 28,306
========
(a) Pro forma reduction in other long term assets.
(b) Calculated as follows:
Total purchase price allocated to property
and equipment $ 74,598
Less DHHS' historical property and equipment
value, net (60,445)
--------
Step up in basis of property and equipment 14,153
Ownership percentage acquired 50%
--------
Purchase price allocated to property and
equipment in excess of the DHHS' cost $ 7,076
========
<PAGE> 17
PARACELSUS HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
Reference to
Notes to
Pro Forma
Financial
Statements Explanations
- ----------- -------------------------------------------------------------------
(11) To remove partnership equity.
(12) To reflect the pro forma sources and uses of cash in connection
with the sale of LA Metro (in thousands).
Sources:
Cash proceeds from the sale $16,500
Uses:
Estimated transaction costs 2,750
Repayment of Credit Facility (a) 4,210
Repayment of amounts outstanding
under off balance sheet receivable
financing program (a)(b) 9,300
Other 490
------
Total uses 16,750
------
Net use of funds $ (250)
======
(a) Based on actual amounts paid at closing of the LA Metro sale.
(b) Total accounts receivable sold exceeded amounts outstanding
under the Company's off balance sheet receivable financing
program.
(13) To reflect the recognition of current net tax assets and the
impact on net operating loss carryforwards as a result of the LA
Metro sale.
(14) To record notes receivable issued by the purchaser consisting of
approximately $9.9 million of secured promissory notes and an
additional secured second lien subordinated note in the principal
amount of approximately $3.8 million (See Note 8). The
subordinated note may be adjusted for any increase or decrease of
net working capital and certain other adjustments. Summarized as
follows (in thousands):
Current portion $ 3,500
Long term portion 10,198
-------
$13,698
=======
<PAGE> 18
DAKOTA HEARTLAND HEALTH SYSTEM
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998
CONTENTS
Consolidated Balance Sheets 19
Consolidated Statements of Income 20
Consolidated Statements of Partners' Equity 21
Consolidated Statements of Cash Flows 22
Notes to Consolidated Financial Statements 23
<PAGE> 19
Dakota Heartland Health System
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, Decenber 31,
1998 1997
------------------------------------
(Unaudited) (Note 1)
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,250,372 $ 7,276,675
Patient receivables, net of allowance for
uncollectible accounts of $2,255,639 and
$1,278,500 at June 30, 1998, and
December 31, 1997, respectively 18,961,106 14,374,894
Supplies inventory 3,278,114 2,197,815
Prepaid expenses and other current assets 2,601,776 1,833,996
------------ -----------
Total current assets 30,091,368 25,683,380
Property and equipment, net 60,445,028 60,663,177
Other assets:
Investment in and advances to affiliates 2,495,122 2,316,137
Organizational costs, less accumulated
amortization of $542,850 and $435,300 in
June 30, 1998 and December 31, 1997,
respectively 532,636 640,186
Other 234,896 234,915
------------ ------------
Total assets $ 93,799,050 $ 89,537,795
============ ============
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable $ 5,084,199 $ 5,017,075
Estimated third-party payor settlements 1,945,373 2,905,822
Accrued salaries and benefits 3,113,934 2,999,265
Other current liabilities 1,795,357 2,923,616
------------ ------------
Total current liabilities 11,938,863 13,845,778
Partners' equity 81,860,187 75,692,017
------------ ------------
Total liabilities and partners' equity $ 93,799,050 $ 89,537,795
============ ============
</TABLE>
See accompanying notes.
<PAGE> 20
Dakota Heartland Health System
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
Revenue:
Net patient service revenue $ 24,474,622 $ 23,660,634 $ 49,930,370 $ 47,543,168
Other revenue 1,069,646 1,181,902 2,086,403 1,982,078
------------ ----------- ----------- -----------
Net revenue 25,544,268 24,842,536 52,016,773 49,525,246
Expenses:
Salaries and benefits 10,311,069 8,904,814 19,997,684 17,815,717
Professional fees 2,342,391 3,186,577 4,877,245 6,474,107
Supplies 4,354,968 4,013,108 9,102,634 7,882,067
Depreciation and amortization 1,192,853 1,170,231 2,281,539 2,298,306
Provision for uncollectible
accounts 624,394 672,906 1,449,230 1,531,234
Repairs and maintenance 441,500 312,465 850,507 540,018
Utilities 309,555 279,690 637,606 612,706
Rent and leases 268,963 254,210 565,665 620,532
Property taxes 273,255 270,241 544,453 556,155
Unusual item (Note 2) 1,050,000 - 1,050,000 -
Other 781,472 928,221 1,458,053 1,691,822
------------ ----------- ----------- -----------
Total expenses 21,950,420 19,992,463 42,814,616 40,022,664
------------ ----------- ----------- -----------
Net income $ 3,593,848 $ 4,850,073 $ 9,202,157 $ 9,502,582
============ ============ =========== ===========
</TABLE>
See accompanying notes.
<PAGE> 21
Dakota Heartland Health System
Consolidated Statements of Partners' Equity
(Unaudited)
<TABLE>
<CAPTION>
Paracelsus Dakota
Healthcare Medical
Corporation Foundation Total
------------ ------------ ------------
<S> <C> <C> <C>
Partners' equity at December 31, 1997 $ 48,621,776 $ 27,070,241 $ 75,692,017
Net income 5,061,186 4,140,971 9,202,157
Partners' distributions (1,668,693) (1,365,294) (3,033,987)
------------ ------------ ------------
Partners' equity at June 30, 1998 $ 52,014,269 $ 29,845,918 $ 81,860,187
============ ============ ============
</TABLE>
See accompanying notes.
<PAGE> 22
Dakota Heartland Health System
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 9,202,157 $ 9,502,582
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,281,539 2,298,306
Provision for uncollectible accounts 1,449,230 1,531,234
Changes in operating assets and liabilities:
Patient receivables, net (6,035,442) 2,142,353
Supplies inventory (1,080,299) (160,428)
Prepaid expenses and other current assets (767,780) (892,990)
Other assets (178,966) (226,384)
Accounts payable and other
liabilities (1,906,915) (3,392,857)
----------- ------------
Net cash provided by operating activities 2,963,524 10,801,816
INVESTING ACTIVITIES
Purchase of property and equipment (1,955,840) (3,458,023)
FINANCING ACTIVITIES
Partners' distributions (3,033,987) (8,961,986)
----------- ------------
Decrease in cash and cash equivalents (2,026,303) (1,618,193)
Cash and cash equivalents at beginning of year 7,276,675 6,718,589
----------- ------------
Cash and cash equivalents at end of year $ 5,250,372 $ 5,100,396
=========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for taxes $ 215,000 $ 417,000
</TABLE>
See accompanying notes.
<PAGE> 23
Dakota Heartland Health System
Notes to Consolidated Financial Statements
June 30, 1998
1. ORGANIZATION AND BASIS OF PRESENTATION
On December 21, 1994, Dakota Heartland Health System (the "Partnership"), a
general partnership, was formed by a wholly-owned subsidiary of Champion
Healthcare Corporation ("Champion") that owned Heartland Medical Center, a 140-
bed general acute facility in Fargo, North Dakota, and Dakota Medical
Foundation (the "Foundation"), a not-for-profit corporation that owned Dakota
Hospital, a 199-bed general acute care hospital also in Fargo, North Dakota.
Champion and the Foundation contributed certain assets and liabilities,
excluding long-term debt except capital leases, of their respective hospitals,
and Champion contributed an additional $20 million in cash, each in exchange
for 50% ownership in the Partnership. The Partnership then made a $20 million
cash distribution to the Foundation. On December 21, 1994, Champion entered
into an operating agreement with the Partnership to manage the combined
operations of the two hospitals. Champion will receive 55% of the net income
and distributable cash flow ("DCF") of the Partnership until such time as it
has recovered, on a cumulative basis, an additional $10 million of DCF in the
form of an "excess" distribution. In 1996, Paracelsus Healthcare Corporation
("Paracelsus") became the sole owner of Champion.
BASIS OF PRESENTATION - The accompanying unaudited condensed consolidated
financial statements of the Partnership have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q. Accordingly, they do not include all of
the information and notes required by generally accepted accounting principles
for annual financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. The balance
sheet at December 31, 1997, has been derived from the audited financial
statements at that date but does not include all of the information and notes
required by generally accepted accounting principles for complete financial
statements. The Partnership's business is seasonal in nature and subject to
general economic conditions and other factors. Accordingly, operating results
for the three months and six months ended June 30, 1998, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998. These financial statements should be read in conjunction with the
Partnership's audited consolidated financial statements and notes thereto for
the year ended December 31, 1997, included in Paracelsus Healthcare
Corporation's 1997 Form 10-K.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INCOME TAXES - The Partnership's income is attributed to its partners for
income tax purposes. Accordingly, it has not accrued any liability for income
taxes. An entity owned by the Partnership has paid income taxes of $180,000 and
$266,700 for the quarters ended June 30, 1998 and 1997, respectively, and
$215,000 and $417,000 for the six months ended June 30, 1998 and 1997,
respectively.
<PAGE> 24
Dakota Heartland Health System
Notes to Consolidated Financial Statements
June 30, 1998
2. UNUSUAL ITEMS
In April 1998, the Partnership recognized an unusual charge of $1.1 million in
connection with the settlement of a 1995 dispute over certain contract
services.
3. SUBSEQUENT EVENT
On August 20, 1997, the Foundation exercised its right to require Paracelsus to
purchase the Foundation's 50% ownership interest in the Partnership. On July 1,
1998, Paracelsus (through its subsidiary Paracelsus Healthcare Corporation of
North Dakota, Inc.) completed the purchase of the Foundation's 50% ownership in
the Partnership for a negotiated purchase price of $64.5 million, inclusive of
working capital, thereby giving Paracelsus 100% ownership of Dakota Heartland
Health System. Paracelsus has sole power and authority to wind up the
Partnership's business after July 1, 1998, and the Partnership shall terminate
as of the date Paracelsus completes the wind up of the Partnership's business.
ASSET PURCHASE AGREEMENT
BY AND AMONG
ALTA HEALTHCARE SYSTEM LLC
ALTA BELLWOOD HOSPITALS, INC.
ALTA HOLLYWOOD HOSPITALS, INC.
ALTA LOS ANGELES HOSPITALS, INC.
ALTA MONROVIA HOSPITAL, INC.
ALTA ORANGE HOSPITAL, INC.
ALTA HEALTHCARE BUILDING CORPORATION
AND
PARACELSUS HEALTHCARE CORPORATION
PARACELSUS REAL ESTATE CORPORATION
PARACELSUS MEDICAL BUILDING CORPORATION
LINCOLN COMMUNITY MEDICAL CORPORATION
BELLWOOD MEDICAL CORPORATION
HOLLYWOOD COMMUNITY HOSPITAL MEDICAL CENTER, INC.
PARACELSUS LOS ANGELES COMMUNITY HOSPITAL, INC.
MONROVIA HOSPITAL CORPORATION
SEPTEMBER 30, 1998
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made and entered into
effective as of September 30, 1998, by and among ALTA HEALTHCARE SYSTEM
LLC, A CALIFORNIA LIMITED LIABILITY COMPANY ("ALTA LLC"), ALTA BELLWOOD
HOSPITALS, INC., A CALIFORNIA CORPORATION ("ALTA BELLWOOD"), ALTA HOLLYWOOD
HOSPITALS, INC., A CALIFORNIA CORPORATION ("ALTA HOLLYWOOD"), ALTA LOS
ANGELES HOSPITALS, INC., A CALIFORNIA CORPORATION ("ALTA LA"), ALTA
MONROVIA HOSPITAL, INC., A CALIFORNIA CORPORATION ("ALTA MONROVIA"), ALTA
ORANGE HOSPITAL, INC., A CALIFORNIA CORPORATION ("ALTA ORANGE") AND ALTA
HEALTHCARE BUILDING CORPORATION, A CALIFORNIA CORPORATION ("ALTA BUILDING")
(referred to herein individually as a "Buyer" and collectively as
"Buyers"), and PARACELSUS REAL ESTATE CORPORATION, A CALIFORNIA CORPORATION
("PREC"), PARACELSUS MEDICAL BUILDING CORPORATION, A CALIFORNIA CORPORATION
("PMBC"), LINCOLN COMMUNITY MEDICAL CORPORATION, A CALIFORNIA CORPORATION
("LCMC"), BELLWOOD MEDICAL CORPORATION, A CALIFORNIA CORPORATION ("BMC"),
HOLLYWOOD COMMUNITY HOSPITAL MEDICAL CENTER, INC., A CALIFORNIA CORPORATION
("HCNMC"), PARACELSUS LOS ANGELES COMMUNITY HOSPITAL, INC., A CALIFORNIA
CORPORATION ("PLACH"), MONROVIA HOSPITAL CORPORATION, A CALIFORNIA
CORPORATION ("MHC") (sometimes referred to herein individually as a
"Seller" and collectively as "Sellers") and PARACELSUS HEALTHCARE
CORPORATION, A CALIFORNIA CORPORATION ("PHC") with respect to Article 11.
All capitalized terms shall have the meanings ascribed to them in Section
1.7 hereof.
RECITALS:
A. Sellers own the following assets (including related medical
office buildings) and operations constituting the following healthcare
facilities:
1. Hollywood Community Hospital, Hollywood, California;
2. Hollywood Community Hospital of Van Nuys, Van Nuys, California;
3. Los Angeles Community Hospital, East Los Angeles, California;
4. Los Angeles Community Hospital of Norwalk, Norwalk, California;
5. Monrovia Community Hospital, Monrovia, California;
B. LCMC owns 51% of the member interest in Lincoln Community Medical
LLC (the "LLC") which leases and operates Bellwood General Hospital,
Bellflower, California and Orange County Community Hospital-Buena Park,
Buena Park, California;
C. Sellers own the assets (including related medical office
buildings) constituting the following healthcare facilities:
1. Orange County Community Hospital-Orange, Orange, California;
2. Bellwood General Hospital, Bellflower, California;
3. Orange County Community Hospital-Buena Park, Buena Park,
California;
D. PMBC owns a 71.322% general partnership interest in Bellwood
Medical Office Building Partnership which owns and leases the Bellwood
Medical Office Building in Bellflower, California to PMBC.
E. At Closing, each Seller desires to convey to Buyers, and Buyers
desire to accept from Sellers, on the terms and conditions more
particularly set forth in this Agreement, the Hospital Businesses.
NOW, THEREFORE, in consideration of the premises, and the agreements,
covenants, representations and warranties hereinafter set forth, and other
good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1. SALE AND TRANSFER OF THE ASSETS; PURCHASE PRICE.
1.1 SALE OF ASSETS. Subject to the terms and conditions of this
Agreement, each Seller shall sell, assign, convey, transfer and deliver to
Buyers and Buyers shall purchase at Closing (as defined in Section 2.1),
all assets, real, personal and mixed, tangible and intangible, owned or
leased by such Seller at Closing and employed in the operations of the
Hospital Businesses (including the related medical office buildings) and
all of Sellers' interest in the Joint Venture (collectively, the
"ASSETS"), including the following, but excluding the Excluded Assets:
(a) fee or leasehold title to all Real Property, including the Real
Property described in SCHEDULE 1.1(A) hereto;
(b) all owned and leased major, minor and other equipment (including
all computer equipment and hardware at the Facilities), vehicles, furniture
and furnishings;
(c) all usable supplies and inventory;
(d) prepaid expenses, claims for refunds and rights to offset in
respect thereof;
(e) all claims and recorded or unrecorded interests in real property;
(f) all current financial, patient, medical staff and personnel
records (including equipment records, medical/administrative libraries,
medical records, documents, catalogs, books, records, files, non-
proprietary operating manuals and current personnel records), to the extent
transferable;
(g) all interests of Sellers in all Assumed Contracts, to the extent
transferable;
(h) all licenses and permits, to the extent assignable, held by
Sellers relating to the ownership, development and operation of the
Facilities (including any pending or approved governmental approvals
regarding the Facilities);
(i) all intellectual properties and all hospital-based computer
software, programs and similar systems owned by or licensed to Sellers and
used in the conduct of the Hospital Businesses;
(j) all property, real, personal and mixed, tangible and intangible,
arising or acquired in the ordinary course of the Hospital Businesses
between the effective date hereof and the Closing Date;
(k) the Joint Venture;
(l) all insurance proceeds arising in connection with damage to the
Assets occurring prior to the Closing Date;
(m) all accounts receivable;
(n) any claims of Sellers against any third party vendor or payor
relating to the Assets, whether known or unknown, contingent or otherwise,
other than (1) any claims for which any Buyer has filed a Claim Notice or
an Indemnity Notice or (2) any claims for insurance refunds for policy
periods prior to the Closing Date;
(o) all workmen's compensation and other insurance policies
maintained by Sellers as of the Closing Date, including any prepaid
premiums under such policies, to the extent transferable; and
(p) all other property of every kind (including vehicles maintained
at or used in connection with the Hospital Businesses), character or
description, tangible and intangible, known or unknown, owned or leased by
Sellers and used or held for use in the Hospital Businesses or the
Facilities, whether or not reflected on financial statements of Seller and
wherever located and whether or not similar to the things specifically set
forth above, to the extent transferable.
1.2 EXCLUDED ASSETS. The term "EXCLUDED ASSETS" shall refer to the
following:
(a) all cash and cash equivalents and temporary investments;
(b) all (i) amounts payable or to become payable to Seller from third
party payors in respect of periods prior to the Closing Date in respect of
third party payor cost reports, including, without limitation, Medicare and
Medicaid cost reports, filed or to be filed by any Seller (the "COST REPORT
RECEIVABLES"), (ii) accounts receivable from the Medicare, Medicaid and
CHAMPUS government programs with respect to the Hospital Businesses arising
from the rendering of services to inpatients and outpatients at any of the
Hospitals, billed and unbilled, recorded and unrecorded, accrued and
existing in respect of services up to the Effective Time (such accounts
receivable, excluding the Cost Report Receivables, are referred to herein
as the "MEDICARE RECEIVABLES"), and (iii) accounts receivable set forth in
SCHEDULE 1.2 hereto, (such receivables referred to in clauses (i), (ii) and
(iii) above, the "EXCLUDED RECEIVABLES");
(c) Sellers' corporate minute books, minutes, tax records and other
records of any Seller required to be maintained by such Seller as a matter
of law (it being understood that patient medical records of the Hospitals
are not intended to be excluded);
(d) all prepaid expenses identified as such in SCHEDULE 1.2 hereto
("EXCLUDED PREPAID EXPENSES");
(e) all supplies, drugs, food and other disposables and consumables
disposed of or exhausted prior to the Closing Date in the ordinary course
of business;
(f) the name "Paracelsus" and all variations thereof;
(g) all rights and privileges under Excluded Contracts;
(h) any claims by any Seller against third parties whether known or
unknown, contingent or otherwise, except those expressly described in
Section 1.1;
(i) all intercompany accounts of any Seller and PHC and its
Affiliates;
(j) any proprietary information contained in Sellers' employees or
operation manual that does not pertain to the ongoing operations of the
Hospital Businesses and all computer hardware and software owned or
licensed by PHC and maintained and located at PHC's Houston data center;
(k) all commitments, contracts, leases, notes, and agreements between
any Seller and the parent of such Seller or any of its Affiliates;
(l) all notes made by any physician and relating to the Hospital
Businesses in any manner whatsoever;
(m) the property described in SCHEDULE 1.2 hereto;
(n) any interest in and to Paracelsus Pride<trademark> and
ServiceAdvantage programs; and
(o) any interest in PPM I and PPM II.
1.3 ASSUMED LIABILITIES. As of the Closing Date, Buyers shall assume
the future payment and performance of (i) the Disclosed Liabilities, (ii)
Sellers' current account payables and accrued expenses, but only to the
extent Buyers receive a credit to the Purchase Price, and (iii) such other
liabilities of Sellers which Buyers elect to assume in writing and which
are identified in SCHEDULE 1.3 hereto, (collectively, the "ASSUMED
LIABILITIES"). Buyers shall not assume or be liable in any manner
whatsoever for the Excluded Liabilities. Schedule 1.3 shall include the
assumption by Buyers of the cost for removal of the underground storage
tanks at the Facilities, but will not include and Buyers will not assume
any liability with respect to the termination of the professional services
agreement between Lim-Keith Medical Group and Hollywood Community Hospital
and the discontinuance of the Lim-Keith Clinic. As of the Closing Date,
Alta Building expressly assumes the Seller's obligations under the master
lease with the Bellwood Medical Office Building Partnership and Alta LLC
shall assume the guaranty thereof by PHC.
1.4 PURCHASE PRICE.
(a) Subject to the terms and conditions hereof, in reliance upon the
representations, warranties and covenants of Sellers herein set forth, and
as consideration for the sale of the Assets as herein contemplated, Buyers
shall tender to Sellers at Closing, as the purchase price hereunder
(collectively, the "PURCHASE PRICE"), and in the manner hereinafter
provided, an amount equal to:
(i) Twenty-Three Million Eight Hundred Seventy-Five Thousand
Dollars ($23,875,000) (the "BASE PURCHASE PRICE"), PLUS
(ii) The net book value of patient and other accounts receivable
of less than 120 days (excluding only Medicare Receivables)
including the value of such receivables held by LLC except
to the extent included in Section 1.4(a)(vi) below (the
"PRIVATE PAY RECEIVABLES") at Closing; PLUS
(iii)The amount of the Medicare Reconciliation Note, which shall
be in the amount of the net book value (based upon a
mutually acceptable valuation method) of the Medicare
Receivables (excluding Cost Report Receivables), including
the value of the Medicare Receivables held by LLC except to
the extent included in Section 1.4(a)(vi) below at Closing
(the "PROGRAM RECEIVABLES"); PLUS
(iv) The cost (valued at the lower of cost or market method as of
the date of such inventory) of the inventory (excluding
obsolete items), including the value of such inventory held
by the LLC except to the extent included in Section
1.4(a)(vi) below, identified in a physical inventory
conducted at Sellers' cost, by a mutually acceptable third
party, no earlier than three (3) days prior to the Closing
(the "PHYSICAL INVENTORY"); PLUS
(v) Prepaid expenses, including the value of such expenses of
the LLC except to the extent included in Section 1.4(a)(vi)
below, (in an amount acceptable to Buyer) at Closing; PLUS
(vi) The LLC Assets Amount payable to Sellers pursuant to Section
1.9 hereof; provided all of the conditions described in
Section 1.9 hereof have been satisfied to Buyers' reasonable
satisfaction; PLUS
(vii)Four Hundred Thousand Dollars ($400,000) payable to Sellers
for the covenant by Sellers, in Section 5.16 hereof, to
terminate the professional services agreement between Lim-
Keith Medical Group and Hollywood Community Hospital and the
discontinuance of operations of the Lim-Keith Clinic.
(b) An initial payment of the Purchase Price shall be paid at Closing
in an amount agreed to by Buyers and Sellers at Closing based upon the July
31, 1998 consolidated balance sheet of Sellers and the LLC prepared prior
to the Closing Date and reviewed by Buyers (the "CLOSING BALANCE SHEET"),
the form of which is set forth in SCHEDULE 1.4(B). The Purchase Price
shall be further adjusted, if necessary, by the Final Purchase Price
Adjustment based upon the relevant accounting entries in the Final Balance
Sheet as provided in Section 1.6(a) below. Any increase in the Purchase
Price as a result of the Final Purchase Price Adjustment over the initial
payment of the Purchase Price paid at Closing shall be added to and
increase the principal amount of the Paracelsus Subordinated Note, and any
decrease in the Purchase Price as a result of the Final Purchase Price
Adjustment shall first be applied to decrease the outstanding principal
amount of the Paracelsus Subordinated Note and any remaining amount shall
thereafter be applied to decrease the outstanding principal amount of the
Monrovia Note and then, to the extent necessary, the Orange Note, in each
case any increase or decrease in the principal amount of any adjusted Note
shall be effective as of the Closing Date. Upon any adjustment to the
Monrovia Note, Orange Note or the Paracelsus Subordinated Note pursuant to
any of the adjustments provided for by this Section 1.4 and Section 1.6,
Sellers shall deliver the original signed Notes to Buyers for cancellation
within ten (10) business days of the effective date of any such adjustment
and the Buyers shall simultaneously therewith issue new promissory notes,
identical in form and substance to such canceled notes, except for the
adjusted principal amount and dated the Closing Date.
(c) Buyers have deposited with the Title Company the amount of
$500,000 ("DEPOSIT") to be disbursed by the Title Company pursuant to the
terms and conditions of the Escrow Agreement, as amended to the same date
hereas, in the form attached hereto as EXHIBIT 1.4(C). The disposition of
the Deposit shall be governed by the terms thereof and of this Agreement.
(d) At the Closing, the Sellers shall accept from Buyers the
following promissory notes and other documents in part payment of the
Purchase Price:
(i) a promissory note in the principal amount of $6,410,000,
substantially in the form set forth in EXHIBIT 1.4(D)(I)-1
hereof (the "MONROVIA NOTE"), to be issued by Alta Monrovia
to PREC, PMBC and MHC, and secured by a first lien and deed
of trust on the real property assets and equipment of the
Monrovia Community Hospital Facility, substantially in the
form set forth in EXHIBIT 1.4(D)(I)-2 hereof (the "MONROVIA
DEED OF TRUST").
(ii) a promissory note in the principal amount of $3,500,000,
substantially in the form set forth in EXHIBIT 1.4(D)(II)-1
hereof (the "ORANGE NOTE"), to be issued by Alta Orange to
LCMC, and secured by a first lien and deed of trust on the
real property assets and equipment of the Orange County
Community Hospital - Orange Facility, substantially in the
form set forth in EXHIBIT 1.4(D)(II)-2 hereof (the "ORANGE
DEED OF TRUST").
(iii)a promissory note in the original principal amount of
$3,788,078, substantially in the form set forth in EXHIBIT
1.4(D)(III)-1 hereof (the "PARACELSUS SUBORDINATED NOTE"),
to be issued by Buyers (other than Alta Orange) to Sellers,
and secured by a subordinated deed of trust on the real
property assets and equipment of the Sellers (other than the
Monrovia Community Hospital Facility and the Orange County
Community Hospital-Orange Facility), substantially in the
form set forth in EXHIBIT 1.4(D)(III)-2 hereof (the
"SUBORDINATED DEED OF TRUST") and further secured by the
Limited Guaranty Agreement of Buyers (other than Alta
Monrovia and Alta Orange), substantially in the form set
forth in EXHIBIT 1.4(D)(III)-3 hereof (the "LIMITED
GUARANTY"). The principal amount of the Paracelsus
Subordinated Note may be (x) increased or decreased in
accordance with Sections 1.5 and 1.6 and (y) increased by
the amount, if any, required to be paid by Buyers under the
Limited Guaranty. The maximum principal amount of the
Paracelsus Subordinated Note shall be the sum of (x) and (y)
and shall not exceed $8,000,000.
The outstanding principal amounts of the Monrovia Note, the Orange Note and
the Paracelsus Subordinated Note shall be reduced in the event Buyers make
full payment on all three Notes within the first anniversary of the Closing
Date according to the following schedule:
(a) Payment within first 180 days following the Closing
Date shall reduce the outstanding aggregate principal
balance of the three Notes by $1,000,000;
(b) Payment within first 270 days following the Closing
Date shall reduce the outstanding aggregate principal
balance of the three Notes by $750,000;
(c) Payment within first 360 days following the Closing
Date shall reduce the outstanding aggregate principal
balance of the three Notes by $500,000;
(d) Payment within first 455 days following the Closing
Date shall reduce the outstanding aggregate principal
balance of the three Notes by $250,000.
1.5 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be due and
payable at Closing by Buyers as follows:
(a) Cash equal to the Purchase Price less the Deposit; PLUS
(b) The Deposit; LESS
(c) The principal amount of the Monrovia Note; LESS
(d) The principal amount of the Orange Note; LESS
(e) The principal amount of the Paracelsus Subordinated Note; LESS
(f) Assumption of capital leases related to Sellers in the amount set
forth on the Final Balance Sheet (in amounts mutually acceptable
to Buyers and Sellers), LESS
(g) Assumption of Assumed Liabilities in the amounts determined from
the Final Balance Sheet according to the categories set forth in
SCHEDULE 1.4(B); LESS
(h) An amount equal to the Bellwood Long Term Debt and related
prepayment penalty at the Closing Date.
The cash portion of the Purchase Price (less the Deposit) payable to
Sellers at Closing shall not exceed Sixteen Million Dollars ($16,000,000)
and, to the extent such cash portion amount exceeds $16,000,000, the excess
shall be added to and increase the principal amount of the Paracelsus
Subordinated Note, subject to all of its terms and conditions.
1.6 FINAL BALANCE SHEET; RECONCILIATION.
(a) On a date not later than ninety (90) days after the Closing Date,
Buyer shall deliver to Sellers an unaudited balance sheet for the Hospital
Businesses as of the Closing Date (the "FINAL BALANCE SHEET"), prepared in
accordance with the terms of this Agreement and otherwise in accordance
with GAAP. The Purchase Price shall be adjusted, if necessary, by the
amount in the account balances Buyers and Sellers agreed to use, as
reflected in SCHEDULE 1.4(B) and based upon the Closing Balance Sheet,
differ from the same account balances reflected on the Final Balance Sheet
(the "FINAL PURCHASE PRICE ADJUSTMENT"). In the event that Sellers shall
dispute any entry in the Final Balance Sheet and such dispute is not
resolved to the mutual satisfaction of Sellers and Buyers within one
hundred twenty (120) days after the Closing Date, Sellers and Buyers shall
each have the right to require that such dispute be submitted to Deloitte &
Touche LLP or, if Deloitte & Touche LLP is unable or unwilling to
participate, another mutually acceptable independent "big five" certified
public accounting firm, in any event acting as experts and not as
arbitrators, for computation or verification of the Final Balance Sheet
entries in accordance with the provisions of this Agreement and otherwise
where applicable in accordance with GAAP. The foregoing provisions for
certified public accounting firm review shall be specifically enforceable
by the parties. The decision of such accounting firm shall be final and
binding upon Sellers and Buyers and there shall be no right of appeal from
such decision. Such accounting firm's fees and expenses shall be borne by
the party whose determination has been adversely modified by such
accounting firm's decision or by both parties in proportion to the relative
amount each party's determination has been adversely modified.
(b) Sellers shall remit promptly to Buyers any payments Sellers may
receive which constitute payments of accounts receivable of Buyers,
including any of the Accounts Receivable purchased pursuant to this
Agreement. Sellers also shall remit promptly to Buyers any payments
Sellers may receive which constitute payments with respect to the Program
Receivables that Sellers are obligated to pay to Buyers pursuant to the
Medicare Reconciliation Note. Buyers shall remit promptly to Sellers any
payments Buyers may receive that constitute payments of the Excluded
Receivables except payments Buyers may receive which constitute payments
with respect to the Program Receivables that Sellers are obligated to pay
to Buyers pursuant to the Medicare Reconciliation Note. Sellers shall
provide Buyers with such agreements, and shall issue such instructions to
their fiscal intermediary, as may be necessary to permit Buyers to
negotiate, deposit and otherwise receive for its own account the Assets and
receive payments on the Medicare Reconciliation Note.
(c) Within two hundred ten (210) days after the Closing, Buyers shall
prepare and deliver to Sellers a reconciliation of the Program Receivables
(the "RECONCILIATION") identifying the amount collected on the Program
Receivables and credited as payments by Sellers on the Medicare
Reconciliation Note for the period one hundred eighty (180) days after the
Closing. In the event that the amount collected differs from the amount
paid by Buyers to Sellers at Closing for the Medicare Reconciliation Note,
Sellers shall pay to Buyers such balance of the Medicare Reconciliation
Note within thirty (30) days of demand by Buyers. In the event that
Sellers shall dispute the Reconciliation and such dispute is not resolved
to the mutual satisfaction of Buyers and Sellers within two hundred and
forty (240) days of the Closing Date, Sellers and Buyers shall each have
the right to require such disputed determinations to be handled pursuant to
the dispute resolution process set forth in Section 1.6(a). Sellers'
obligations under this provision shall be secured by the Medicare
Reconciliation Note. The Medicare Reconciliation Note shall be delivered
to Buyers at the Closing by Sellers fully executed. In lieu of making a
payment to Buyers of any amount determined as finally due on the Medicare
Reconciliation Note, Sellers may credit such amount against the amount due
Sellers under first the Paracelsus Subordinated Note, and then the Monrovia
Note. If neither such Note exists at the time such payment is due,
Paracelsus shall make such payment in cash.
1.7 DEFINITIONS; INTERPRETATION. In this Agreement, unless the
context otherwise requires:
(1) the term "ACCOUNTS RECEIVABLE" shall have the meaning
ascribed to it in Section 3.8 of this Agreement;
(2) the term "AFFILIATE" means any Person that, directly or
indirectly through one or more intermediaries, controls, is controlled
by, or is under common control with another Person and includes the
power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of securities, by contract
or otherwise;
(3) the term "AFFILIATED GROUP" shall have the meaning ascribed
to it in Section 3.21(a) of this Agreement;
(4) "AGREEMENT" means this Agreement and all Exhibits and
Schedules hereto;
(5) the term "ASSETS" shall have the meaning ascribed to it in
Section 1.1 of this Agreement;
(6) the term "ASSOCIATE" shall have the meaning ascribed to it in
Section 3.16(a) of this Agreement;
(7) the term "ASSUMED CONTRACTS" shall mean such Contracts
specifically assumed by Buyer and listed on SCHEDULE 6.6 hereof;
(8) the term "ASSUMED LIABILITIES" shall mean the liabilities
described in Section 1.3 hereto;
(9) the term "AUDITED BALANCE SHEET" shall have the meaning
ascribed to it in Section 3.5(a)(i) of this Agreement;
(10) the term "BALANCE SHEET DATE" shall mean July 31, 1998;
(11) the term "BASE PURCHASE PRICE" shall have the meaning
ascribed to it in Section 1.4(a)(i) of this Agreement;
(12) the term "BELLWOOD MOB" shall mean the medical office
building described on SCHEDULE 1.7 hereto;
(13) the term "BELLWOOD LONG TERM DEBT" shall mean the amount
outstanding by the Bellwood Medical Office Building Partnership under
the loan payable to Met Life Capital Financial Corporation in the
original principal amount of $3,500,000, which outstanding balance as
of April 30, 1998 was $3,334,548.31;
(14) the term "BUYERS' INDEMNIFIED PERSONS" shall have the
meaning ascribed to it in Section 11.1 of this Agreement;
(15) the term "CLAIM NOTICE" shall have the meaning ascribed to
it in Section 11.5(e) of this Agreement;
(16) the term "CLOSING" shall have the meaning ascribed to it in
Section 2.1 of this Agreement;
(17) the term "CLOSING BALANCE SHEET" shall have the meaning
ascribed to it in Section 1.4 of this Agreement;
(18) the term "CLOSING DATE" shall have the meaning ascribed to
it in Section 2.1 of this Agreement;
(19) the term "CODE" shall have the meaning ascribed to it in
Section 3.19(a) of this Agreement;
(20) the term "CONFIDENTIAL INFORMATION" shall have the meaning
ascribed to it in Section 6.4 of this Agreement;
(21) the term "CONTRACTS" shall have the meaning ascribed to it
in Section 3.14 of this Agreement;
(22) the term "CONTROLLED GROUP OF CORPORATIONS" shall have the
meaning ascribed to it in Section 3.19(a) of this Agreement;
(23) the term "COST REPORTS" shall have the meaning ascribed to
it in Section 3.22 of this Agreement;
(24) the term "COST REPORT RECEIVABLES" shall have the meaning
ascribed to it in Section 1.2;
(25) the term "DEPOSIT" shall have the meaning ascribed to it in
Section 1.4(c);
(26) the term "DISCLOSED LIABILITIES" shall mean all obligations
of Sellers under the Assumed Contracts assumed by Buyer arising on or
after the Closing Date;
(27) the term "EFFECTIVE DATE" shall mean the date as of which
this Agreement was entered into by the parties, as set forth on the
first page hereof;
(28) the term "EFFECTIVE TIME" shall have the meaning ascribed to
it in Section 2.1 of this Agreement;
(29) the term "EMPLOYEE BENEFIT PLAN" shall have the meaning
ascribed to it in Section 3.19(a) of this Agreement;
(30) the term "EMPLOYEE PENSION BENEFIT PLAN" shall have the
meaning ascribed to it in Section 3.19(a) of this Agreement;
(31) the term "EMPLOYEE WELFARE BENEFIT PLAN" shall have the
meaning ascribed to it in Section 3.19(a) of this Agreement;
(32) the term "ENCUMBRANCES" means liabilities, levies, claims,
charges, taxes, assessments, mortgages, security interests, liens, LIS
PENDENS, pledges, conditional sales agreements, title retention
contracts, leases, subleases, rights of first refusal, options to
purchase, restrictions and other encumbrances and agreements to give
any of the foregoing which may, in any way, otherwise affect the title
of the Real Property or Personal Property;
(33) the term "ENVIRONMENTAL CLAIM" shall have the meaning
ascribed to it in Section 3.11(a) of this Agreement;
(34) the term "ENVIRONMENTAL LAWS" shall have the meaning
ascribed to it in Section 3.11(a) of this Agreement;
(35) the term "ENVIRONMENTAL REPORT" shall have the meaning
ascribed to it in Section 3.11(a) of this Agreement;
(36) the term "ERISA" shall have the meaning ascribed to it in
Section 3.19(a) of this Agreement;
(37) the term "ESCROW AGREEMENT" shall mean the Escrow Agreement
of even date herewith by and among Sellers, Buyer and Title Company;
(38) the term "EXCLUDED ASSETS" shall have the meaning ascribed
to it in Section 1.2 of this Agreement;
(39) the term "EXCLUDED LIABILITIES" shall mean all liabilities
relating to the Hospital Businesses other than the Assumed
Liabilities;
(40) the term "EXCLUDED LIENS" shall mean the liens affecting the
Hospital Businesses listed on Schedule 11.1(ii) and the underlying
liabilities and obligations which those liens represent;
(41) the term "EXCLUDED CONTRACTS" shall mean all Contracts, and
such other agreements, commitments, leases, contracts and
understandings relating to the Hospital Businesses other than the
Assumed Contracts listed in SCHEDULE 6.6;
(42) the term "EXCLUDED PREPAID EXPENSES" shall have the meaning
ascribed to it in Section 1.2 of this Agreement;
(43) the term "EXCLUDED RECEIVABLES" shall have the meaning
ascribed to it in Section 1.2 of this Agreement;
(44) the term "FACILITIES" shall mean the Hospitals, the clinics,
and the other properties (including medical office buildings) owned,
managed or leased by Sellers at which the Hospital Businesses are
conducted;
(45) the term "FIDUCIARY" shall have the meaning ascribed to it
in Section 3.19(a) of this Agreement;
(46) the term "FINAL BALANCE SHEET" shall have the meaning
ascribed to it in Section 1.6 of this Agreement;
(47) the term "FINAL PURCHASE PRICE ADJUSTMENT" shall have the
meaning ascribed to it in Section 1.6 of this Agreement;
(48) the term "FINANCIAL STATEMENTS" shall have the meaning
ascribed to it in Section 3.5(a) of this Agreement;
(49) the term "GOVERNMENT REIMBURSEMENT PROGRAMS" shall have the
meaning ascribed to it in Section 3.22 of this Agreement;
(50) the term "GAAP" shall mean generally accepted accounting
principles;
(51) the term "HSR ACT" shall mean the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended;
(52) the terms "HEREOF," "HEREIN," "HEREBY," and derivative or
similar words refer to this entire Agreement;
(53) the term "HILL-BURTON ACT" shall have the meaning ascribed
to it in Section 3.27 of this Agreement;
(54) the term "HOSPITALS" shall mean the general acute care
hospitals licensed in the State of California and listed in the
Recitals of this Agreement;
(55) the term "HOSPITAL BUSINESSES" shall mean the businesses
described in the Recitals or otherwise owned, managed or leased by
Sellers and related to the Facilities;
(56) the term "INCLUDE" or "INCLUDING" means including without
limitation;
(57) the term "INDEMNIFIED PARTY" shall have the meaning ascribed
to it in Section 11.5(a)(i) of this Agreement;
(58) the term "INDEMNIFYING PARTY" shall have the meaning
ascribed to it in Section 11.5(a)(i) of this Agreement;
(59) the term "INDEMNITY NOTICE" shall have the meaning ascribed
to it in Section 11.5(f) of this Agreement;
(60) the term "INTELLECTUAL PROPERTIES" shall have the meaning
ascribed to it in Section 3.14(c) of the Agreement;
(61) the term "INTEREST COMMENCEMENT DATE" shall have the meaning
ascribed to it in Section 1.8 of this Agreement;
(62) the term "INTERIM BALANCE SHEET" shall have the meaning
ascribed to it in Section 3.5(a)(ii) of this Agreement;
(63) the term "INVESTMENTS" shall have the meaning ascribed to it
in Section 3.4(b) of this Agreement;
(64) the term "JCAHO" shall mean Joint Commission on
Accreditation of Healthcare Organizations;
(65) the term "JOINT VENTURE" shall mean the 71.322% general
partnership interest of PMBC relating to the Bellwood Medical Office
Building Partnership pursuant to that certain Partnership Agreement
dated September 30, 1985 by and among the parties named as partners in
Exhibit A thereof;
(66) the term "JUDGMENT" includes any order, writ, injunction,
decree, determination or award of any court, governmental agency or
authority or tribunal (including arbitration panels);
(67) the term "LLC ASSETS" shall have the meaning ascribed to it
in Section 1.9 of this Agreement;
(68) the term "LLC ASSETS AMOUNT" shall have the meaning ascribed
to it in Section 1.9 of this Agreement;
(69) the term "LOSSES" shall have the meaning ascribed to it in
Section 11.1 of this Agreement;
(70) the term "MATERIALS OF ENVIRONMENTAL CONCERN" shall have the
meaning ascribed to it in Section 3.11(a) of this Agreement;
(71) the term "MEDICARE RECEIVABLE" shall have the meaning
ascribed to it in Section 1.2 of this Agreement;
(72) the term "MEDICARE RECONCILIATION NOTE" shall have the
meaning ascribed to it in Section 5.7;
(73) the term "MONROVIA NOTE" shall have the meaning ascribed to
it in Section 1.4(d)(i) of this Agreement;
(74) the term "MULTI-EMPLOYER PLAN" shall have the meaning
ascribed to it in Section 3.19(a) of this Agreement;
(75) the term "NOTICE PERIOD" shall have the meaning ascribed to
it in Section 11.5(a)(i) of this Agreement;
(76) the term "ORANGE NOTE" shall have the meaning ascribed to it
in Section 1.4(d)(ii) of this Agreement;
(77) the term "OTHER PERMITTED ENCUMBRANCES" shall have the
meaning ascribed to it in Section 3.17 of this Agreement;
(78) the term "OTHER PLAN" shall have the meaning ascribed to it
in Section 3.19(a) of this Agreement;
(79) the term "PARACELSUS SUBORDINATED NOTE" shall have the
meaning ascribed to it in Section 1.4(d)(iii) of this Agreement;
(80) the term "PARTNER" includes general and limited partners,
limited liability company members, limited liability partnership
partners, and co-venturers;
(81) the term "PARTY" means any party to this Agreement, its
respective successors and permitted assigns;
(82) the term "PBGC" shall have the meaning ascribed to it in
Section 3.19(a) of this Agreement;
(83) the term "PERMITTED ENCUMBRANCES" shall mean encumbrances
described on SCHEDULE 3.10 and specifically approved by Buyer;
(84) the term "PERSON" means any individual, company, body
corporate, association, partnership, firm, joint venture, trust and
governmental agency;
(85) the term "PERSONAL PROPERTY" shall have the meaning ascribed
to it in Section 3.17 of this Agreement;
(86) the term "PHC" shall mean Paracelsus Healthcare Corporation,
a California corporation;
(87) the term "PHYSICAL INVENTORY" shall have the meaning
ascribed to it in Section 1.4(a)(iv);
(88) the term "PRIVATE PAY RECEIVABLES" shall have the meaning
ascribed to it in Section 1.4(a)(ii);
(89) the term "PROGRAM RECEIVABLES" shall have the meaning
ascribed to it in Section 1.4(a)(iii) of this Agreement;
(90) the term "PROHIBITED TRANSACTION" shall have the meaning
ascribed to it in Section 3.19(a) of this Agreement;
(91) the term "PURCHASE PRICE" shall have the meaning ascribed to
it in Section 1.4 of this Agreement;
(92) the term "REAL PROPERTY" shall have the meaning ascribed to
it in Section 3.10 of this Agreement;
(93) the term "REPORTABLE EVENT" shall have the meaning ascribed
to it in Section 3.19(a) of this Agreement;
(94) the term "SELLERS' INDEMNIFIED PERSONS" shall have the
meaning ascribed to it in Section 11.3 of this Agreement;
(95) the term "SUBSIDIARY" shall have the meaning ascribed to it
in Section 3.4(a) of this Agreement;
(96) the term "TAX" shall have the meaning ascribed to it in
Section 3.21(a) of this Agreement;
(97) the term "TAX RETURN" shall have the meaning ascribed to it
in Section 3.21(a) of this Agreement;
(98) the term "THIRD PARTY CLAIM" shall have the meaning ascribed
to it in Section 11.5(a)(i) of this Agreement;
(99) the term "TITLE COMPANY" shall mean Chicago Title Company;
(100) the term "WARN ACT" shall mean the Worker Adjustment and
Retraining Notification Act, as amended;
(101) references to any document (including this Agreement) are
references to that document as amended, consolidated, supplemented,
novated or replaced by the parties from time to time in accordance
with this Agreement;
(102) references to any law are references to that law as
amended, consolidated, supplemented or replaced from time to time
prior to the Closing Date and all rules and regulations promulgated
thereunder prior to the Closing Date;
(103) the mere listing (or inclusion of a copy) of a document or
other item shall not be deemed adequate to disclose the contents of
such document as an exception to a representation or warranty made
herein unless the representation or warranty has to do with the
existence of the document or other item itself;
(104) each representation, warranty and covenant contained herein
shall have independent significance. If any party has breached any
representation, warranty or covenant contained herein in any respect,
the fact that there exists another representation, warranty or
covenant relating to the same subject matter (regardless of the
relative levels of specificity) that such party has not breached shall
not detract from or mitigate the fact that the party is in breach of
the first representation, warranty or covenant;
(105) references to time are references to Los Angeles,
California time; and
(106) references to "KNOWLEDGE OF SELLERS" or "SELLERS'
KNOWLEDGE" mean (i) the actual knowledge of such Person or (ii) the
knowledge such Person should have after making such due inquiry and
exercising such due diligence as a prudent businessperson would have
made or exercised in the management of his or her business affairs,
including due inquiry of those officers, directors, key employees
(including each Facility's chief executive officer and chief financial
officer or employees with comparable responsibilities) and
professional advisers (including attorneys, accountants, reimbursement
specialists, and consultants) of the Person who could reasonably be
expected to have knowledge of the matter in question; and
(107) "ARTICLES" and "SECTIONS" are references to articles and
sections of this Agreement.
1.8 INTEREST. Unless otherwise provided herein to the contrary, any
payment required to be made by any party pursuant to this Agreement, if not
paid before ten (10) business days after the date such payment is required
to be made (the "INTEREST COMMENCEMENT DATE"), shall include interest from
the Interest Commencement Date to the date such payment is made, computed
at an annual rate equal to the average prime rate of Citibank, N.A., during
such period PLUS one percent (1%) per annum. All requests for payment
pursuant to this Section shall be accompanied by a certificate of an
officer of the party entitled to receive such payment setting forth the
amount of the payment due pursuant to this Agreement (without regard to any
amounts payable through operation of this Section), the applicable Interest
Commencement Date and applicable interest rate.
1.9 SALE OF LINCOLN COMMUNITY MEDICAL LLC'S ASSETS. Provided the
Closing has occurred with respect to the purchase and sale of the Hospital
Businesses in accordance with the terms of this Agreement, simultaneous
with such Closing, Sellers shall cause the LLC to sell, assign, convey,
transfer and deliver to Alta Bellwood and Alta Bellwood shall purchase at
such Closing all of the LLC's interests in and to all assets, real,
personal and mixed, tangible and intangible owned or leased by the LLC at
Closing, including all Assets described or listed in Section 1.1, and
employed in the operations of the Bellwood Facility and the Buena Park
Facility (the "LLC ASSETS"). The purchase and sale of the LLC Assets, as
set forth in the preceding sentence, shall be subject to all of the terms
and conditions of this Agreement to the extent such Agreement would apply
if the LLC Assets were a part of the "Assets," defined in Section 1.1 of
this Agreement, and the LLC were one of the "Sellers" as defined and used
in this Agreement. Alta Bellwood agrees to pay Sellers as the purchase
price for the LLC Assets (the "LLC ASSETS AMOUNT") an amount equal to the
sum of (a) Four Hundred Ninety Thousand Dollars ($490,000), and (b) forty
nine (49%) percent of the total of the following amounts, determined in
each case as of the Closing Date and limited solely to the LLC Assets:
(a) The net book value of the Private Pay Receivables of LLC at
Closing; PLUS
(b) The amount of the Program Receivables of LLC at Closing (which
amount shall be included in the Medicare Reconciliation Note); PLUS
(c) The cost (valued at the lower of cost or market method as of the
date of such inventory) of the Physical Inventory of LLC; PLUS
(d) Prepaid expenses of LLC (in an amount acceptable to Buyer) at
Closing; LESS
(e) Assumption of Assumed Liabilities of LLC in the amounts
determined from the Final Balance Sheet according to the categories set
forth in Schedule 1.4(b).
Without limiting the preceding, the LLC Assets Amount shall initially
be determined in the manner provided in Section 1.4(b), and thereafter,
shall be adjusted in the manner provided in Sections 1.6 and 5.7 for Final
Balance Sheet reconciliation and the Medicare Reconciliation Note, in each
case, applicable to the LLC Assets.
2. CLOSING.
2.1 CLOSING. Subject to the satisfaction or waiver by the
appropriate party of all the conditions precedent to Closing specified in
Articles 7 and 8, the consummation of the sale and purchase of the Hospital
Businesses and the other transactions contemplated by and described in this
Agreement (the "CLOSING") shall take place at the offices of Manatt, Phelps
& Phillips, LLP, 11355 West Olympic Boulevard, Los Angeles, California
90064-1614, Los Angeles, California, at 10:00 A.M. on September 30, 1998,
or on such earlier or later date or at such other location as the parties
may mutually agree in writing (the "CLOSING DATE"). The Closing shall be
effective as of 11:59.99 P.M. on the Closing Date (the "EFFECTIVE TIME").
2.2 ACTIONS OF SELLERS AT CLOSING. At the Closing and unless
otherwise waived in writing by Buyers, Sellers shall deliver to Buyers:
(a) Deeds containing general warranties of title, fully executed by
Sellers in recordable form, conveying to Buyers good and marketable fee
title (either fee or leasehold as the case may be) to the Real Property,
free and clear of all Encumbrances except the Permitted Encumbrances;
(b) General Bills of Sale and Assignment, fully executed by Sellers,
in form and substance acceptable to Buyers, conveying to Buyers good and
valid title (fee or leasehold as the case may be) to all Assets, other than
the Real Property, free and clear of all Encumbrances other than the
Assumed Liabilities;
(c) Assignments of Leases and Contracts, fully executed by Sellers,
in form and substance acceptable to Buyers, conveying Sellers' interests in
the Assumed Contracts to Buyers;
(d) copies of resolutions duly adopted by the board of directors of
each Seller authorizing and approving the consummation of the transactions
contemplated hereby and the execution and delivery of this Agreement and
the documents described herein, certified as true and in full force and
effect as of the Closing Date by the appropriate officers of such Seller;
(e) certificates of the duly authorized President or a Vice President
of each Seller certifying that each representation and warranty of such
Seller set forth herein and not qualified as to materiality is true and
correct in all material respects as of the Closing Date, and each
representation and warranty of such Seller qualified as to materiality is
true and correct as of the Closing Date and that each covenant and
agreement of such Seller to be complied with or performed on or prior to
the Closing Date pursuant to this Agreement has been complied with or
performed in all material respects;
(f) certificates of incumbency for the respective officers of Sellers
executing this Agreement or making certifications for Closing, dated as of
the Closing Date;
(g) certificates of existence and good standing of each Seller from
the State of California, each dated the most recent practical date prior to
Closing;
(h) comfort letters from reputable law firms, in such forms
acceptable to Buyers, relating to the legality of the Joint Venture;
(i) all governmental and third party consents and approvals, to the
extent necessary; and
(j) such other instruments and documents as Buyers reasonably deems
necessary to effect the transactions contemplated hereby.
2.3 ACTIONS OF BUYERS AT CLOSING. At the Closing and unless
otherwise waived in writing by Sellers, Buyers shall deliver to Sellers:
(a) the Purchase Price in the form set forth in Section 1.5;
(b) assumption of liabilities agreements evidencing Buyers assumption
of Sellers liabilities and obligations under the Assumed Contracts,
including the master lease with the Bellwood Medical Office Building
Partnership and the guaranty thereof;
(c) the Environmental Indemnification Agreement, dated the Closing
Date among Alta LLC, Alta Monrovia and PREC, PMBC and MHC;
(d) the Monrovia Deed of Trust;
(e) the Orange Deed of Trust;
(f) the Subordinated Deed of Trust;
(g) the Limited Guaranty;
(h) the Notice and Agreement required by Section 8.9;
(i) copies of resolutions duly adopted by the governing body of each
Buyer authorizing and approving Buyers' performance of the transactions
contemplated hereby and the execution and delivery of this Agreement and
the documents described herein, certified as true and in full force and
effect as of the Closing Date by the appropriate officers of Buyers;
(j) certificates of the duly authorized President or a Vice President
of Buyers certifying that each representation and warranty of Buyers set
forth herein and not qualified as to materiality is true and correct in all
material respects as of the Closing Date, and each representation and
warranty of Buyers qualified as to materiality is true and correct on the
Closing Date, and that each covenant and agreement of Buyers to be complied
with or performed on or prior to the Closing Date pursuant to this
Agreement has been complied with or performed in all material respects;
(k) certificates of incumbency for the respective officers of Buyers
executing this Agreement or making certifications for Closing, dated as of
the Closing Date;
(l) certificates of existence and good standing of each Buyer from
the state of its incorporation, dated the most recent practical date prior
to Closing; and
(m) such other instruments and documents as Sellers reasonably deem
necessary to effect the transactions contemplated hereby.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS.
As of the date hereof and as of the Closing Date, Sellers jointly and
severally represent and warrant to Buyers that:
3.1 ORGANIZATION AND CAPACITY.
(a) Each Seller is a corporation duly organized, validly existing and
in good standing under the laws of its state of incorporation. None of
Sellers is licensed, qualified or admitted to do business in any
jurisdiction other than the State of California and there is no other
jurisdiction in which the ownership, use or leasing of any of Sellers'
assets or properties, or the conduct or nature of their businesses, makes
such licensing, qualification or admission necessary. The information
concerning each of Sellers set forth on SCHEDULE 3.4 is accurate in all
respects. True and complete copies of the articles of incorporation and
bylaws of each Seller and PHC are attached to SCHEDULE 3.1.
(b) The minutes of meetings of Sellers' boards of directors and
executive committees (if any) since January 1, 1996, have been made
available to Buyers prior to the effective date hereof, and contain a true,
correct and complete record of all material actions taken at all meetings,
and by all written consents in lieu of meetings, of the boards of directors
and executive committees (if any) of the boards of directors of each of
Sellers.
(c) The Joint Venture is duly organized, validly existing and in good
standing under the laws of its state of organization. SCHEDULE 3.1(C) sets
forth the name of each Person that owns or to Sellers' knowledge, has the
right to acquire, directly or indirectly, an interest in the Joint Venture.
Except as set forth on SCHEDULE 3.1(C), since January 1, 1998, there have
been no distributions of any kind (including any return of capital) to any
Person with an interest in the Joint Venture.
3.2 CORPORATE POWERS; CONSENTS; ABSENCE OF CONFLICTS WITH OTHER
AGREEMENTS, ETC.
(a) The execution, delivery and performance of this Agreement by each
Seller and PHC and all other agreements referenced in or ancillary hereto
and relating to the transactions contemplated by this Agreement to which
such Seller is a party and the consummation of the transactions
contemplated herein by such Seller:
(i) will be duly and validly authorized, executed and delivered
on behalf of Sellers;
(ii) are within such Seller's corporate powers, are not in
contravention of law or of the terms of its articles or certificate of
incorporation and bylaws;
(iii) except as otherwise expressly herein provided or listed on
SCHEDULE 3.2, do not require any approval or consent of, or filing
with, any governmental agency or authority bearing on the validity of
this Agreement;
(iv) do not conflict, result in any breach or contravention of,
or permit the acceleration of the maturity of any liabilities of
Sellers, and do not create or permit the creation of any Encumbrance
on or affecting any of the assets of any Seller;
(v) do not violate any statute, law, rule or regulation of any
governmental authority to which any of Sellers or its assets may be
subject (including any bulk transfer law);
(vi) do not violate any judgment, consent decrees or injunctions
to which any of Sellers may be subject; and
(vii) do not conflict with or result in a breach or violation of
any agreement to which any of Sellers is a party or to which any of
them is bound.
(b) This Agreement and all agreements hereunder to which any Seller
or PHC becomes a party, upon the satisfaction of the condition precedent
set forth in Section 8.6, are valid and legally binding obligations of such
Seller, enforceable against such Seller in accordance with the respective
terms hereof or thereof.
3.3 LIMITED DISCLAIMER OF WARRANTIES. The physical condition of the
Assets will be sold by Sellers and purchased by Buyers in their condition
at Closing, "AS IS", WITH NO WARRANTY OF HABITABILITY OR FITNESS FOR
HABITATION and WITH NO WARRANTIES, INCLUDING THE WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, any and all of which
warranties (both express and implied) Seller hereby disclaims.
Notwithstanding the foregoing, Sellers warrant that they have good and
valid title to all of the Assets, free and clear of all claims, liens,
mortgages, charges, security interests, encumbrances LIS PENDENS and other
restrictions or limitations of any kind whatsoever except Permitted
Encumbrances. Except as set forth on SCHEDULE 3.3, none of Sellers is a
party to, or bound by, any other agreement, instrument or understanding
restricting the transfer of the Assets. Further, nothing in this
Section 3.3 shall be construed to limit the scope or effect of the express
representations and warranties contained in Sections 3.10 and 3.12.
3.4 SUBSIDIARIES; INVESTMENTS; THIRD PARTY OPTIONS. Except as set
forth on SCHEDULE 3.4:
(a) none of Sellers (i) is a member of or owns a majority of the
common stock of any corporation or (ii) has the power to vote or direct the
voting of sufficient securities, interests or members to elect a majority
of the directors, members or trustees of any corporation, limited liability
company, limited liability partnership or general or limited partnership
(each such corporation described in clause (i) or (ii) above, a
"SUBSIDIARY");
(b) none of Sellers owns or has the right to acquire, directly or
indirectly, any shares of capital stock of any corporation, interests in
general or limited partnerships, interests in limited liability companies
or partnerships, and interests in joint ventures, or other equity or debt
instruments in any such Persons (collectively, "INVESTMENTS");
(c) there are no existing agreements, options, commitments or rights
with, of or to any Person to acquire, directly or indirectly, any Assets
(including the Joint Venture) or any interest therein.
3.5 FINANCIAL STATEMENTS.
(a) Sellers attach hereto as SCHEDULE 3.5 true and complete copies of
the following financial statements prepared on an accrual basis (together
with the Closing Balance Sheet) (collectively, the "FINANCIAL STATEMENTS"):
(i) an audited combined balance sheet of Paracelsus Healthcare
Corporation as of December 31, 1997 (including the notes thereto, the
"AUDITED BALANCE SHEET"), and the related combined statements of
revenue and expenses and combined statements of cash flow, and notes
thereto, for the years then ended, together with the report thereon of
Ernst & Young LLP, independent auditors accompanied by the related
opinions of such auditors;
(ii) an unaudited balance sheet of each Facility and the related
statement of revenue and expenses and statements of cash flow for the
seven months ended July 31, 1998 (collectively, the "INTERIM BALANCE
SHEET").
(b) The Financial Statements are true, complete and accurate and
fairly present in all material respects the financial condition and results
of operations of Sellers as of the respective dates thereof and for the
periods therein referred to, all in accordance with generally accepted
United States accounting principles, subject in the case of interim
financial statements, to normal recurring year-end adjustments (the effect
of which will not, individually or in the aggregate, be materially adverse)
and the absence of notes (which, if presented, would not differ materially
from those included in the Audited Balance Sheet); and the Financial
Statements reflect the consistent application of such accounting principles
throughout the periods involved, except as otherwise expressly set forth
therein.
3.6 EXTRAORDINARY LIABILITIES. Sellers attach hereto an accurate
list as SCHEDULE 3.6 of all liabilities of Sellers not included within
SCHEDULE 3.5 which are of the kind and character required in financial
statements prepared in accordance with GAAP, whether accrued, absolute,
contingent or otherwise, together with, in the case of those liabilities
which are not fixed in amount, a reasonable estimate of the maximum amount
which may be payable in respect thereof. None of Sellers have any
indebtedness or liabilities of any nature, whether accrued, absolute,
contingent or otherwise, whether due or to become due in the future, except
as disclosed in the Schedules attached hereto that would have a material
adverse effect on a Hospital. There are no facts that are not fully
disclosed in the Schedules attached hereto which might serve as the basis
for any liability or obligation of Sellers that would have a material
adverse effect on a Hospital.
3.7 POST-BALANCE SHEET RESULTS. Since the Balance Sheet Date and
except as set forth on SCHEDULE 3.7, there has not been:
(a) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), working capital reserves, income or
business of Sellers or the Facilities;
(b) any property damage, destruction or loss (whether or not covered
by insurance) affecting the Assets exceeding in the aggregate $50,000,
provided that Sellers shall have the right to repair (at their sole cost)
such damage, destruction or loss in a timely fashion or Buyers shall be
entitled to a Purchase Price reduction in a mutually acceptable amount for
such damage, destruction or loss; PROVIDED, FURTHER, that if any of the
Hospital Businesses is materially and adversely affected by such damage,
loss or destruction, Buyers may cancel this Agreement in accordance with
Section 10.5 hereof;
(c) any increase in the compensation payable or to become payable by
any of Sellers relating to the Facilities to any of their employees or
agents, or any bonus payment or arrangement made to or with any employees
or agents, except in the ordinary course of business in accordance with
existing personnel policies and employment Contracts described on
SCHEDULE 3.14, and none of Sellers has employed any additional management
personnel;
(d) any labor dispute, enactment of law or adoption of regulation or
any event or condition of any character materially adversely affecting the
business of any Seller;
(e) any sale, assignment, transfer, distribution or other disposition
of any asset of Sellers, except in the ordinary course of their business;
(f) the incurrence of any liability or obligation of any nature
(whether absolute, accrued, contingent or otherwise) except in the ordinary
and regular course of the Hospital Businesses or except as otherwise
described in or contemplated by this Agreement;
(g) the payment, discharge or satisfaction of any liability or
obligation (whether absolute, accrued, contingent or otherwise) other than
by payment, discharge or satisfaction in the ordinary and regular course of
the Hospital Businesses, except as otherwise described in or contemplated
by this Agreement;
(h) the imposition on any of the Assets of any mortgage, pledge,
lien, LIS PENDENS, security interest, encumbrance or restriction;
(i) the cancellation or waiver of any rights in respect of any of the
Assets, except in the ordinary and regular course of Sellers' business;
(j) any change in any method of accounting or accounting practice;
(k) other than compensation paid in the ordinary course of employment
or pursuant to the Contracts, the payment of any amount to, the payment of
any amount on behalf of, the sale of any Assets to, or the entering into of
any agreement or arrangement with, any officer, director, trustee or
shareholder of Sellers, or any Affiliate or Associate of any officer,
director, trustee or shareholder of Sellers;
(l) except as described in SCHEDULE 3.11, the payment of any amount
to any Person in respect of any claim, obligation, liability, loss, damage
or expense, of whatever kind or nature, based upon any provision of
federal, state or local law or regulations or common law pertaining to
environmental protection; or
(m) the initiation or prosecution of any transaction relating to the
Hospital Businesses by any Seller, shareholder, director, officer or third
party outside the ordinary course of business.
3.8 ACCOUNTS RECEIVABLE. Except as set forth in SCHEDULE 3.8, the
accounts receivable of Sellers, including the Program Receivables (the
"Accounts Receivable"), to the extent uncollected, arose from bona fide
commercial transactions and are not subject to any Encumbrances. To
Sellers' knowledge, there are not any refunds, discounts or setoffs payable
or assessable with respect to the Accounts Receivable (taken as a whole)
not reflected in reserves or allowances in the Financial Statements. To
Sellers' knowledge, Sellers adequately record on the Financial Statements
all estimates for future Cost Report settlements under the Government
Reimbursement Programs for all years open to settlement. Sellers have
heretofore delivered to Buyers the following information about the Accounts
Receivable as of April 30, 1998: (a) the aging of the Accounts Receivable
by financial classification; and (b) each Account Receivable in excess of
$500 and outstanding more than 15 days after the date of discharge.
3.9 INVENTORY. The inventory and supplies of Sellers are valued on
the Financial Statements at the lower of cost (on a first-in, first-out
basis) or market and are properly stated in the Interim Balance Sheet as of
the Balance Sheet Date.
3.10 REAL PROPERTY. Sellers own, or at Closing will own, fee or
leasehold title to the real property described in SCHEDULE 3.10 as the
"Real Property", together with all buildings, improvements and fixtures
thereon and all appurtenances and rights thereto (the "Real Property"), and
no Seller, any Affiliate of any Seller or any third party has created or
may assert any rights in respect of any Encumbrances which will interfere
with Buyer's use of the Real Property after Closing; and
(a) at Closing the Real Property will be subject only to the
Permitted Encumbrances;
(b) the Real Property comprises all of the real property owned and
leased by Sellers associated with or employed in the operation of the
Hospital Businesses of Sellers;
(c) except as set forth on SCHEDULE 3.10, to Sellers' knowledge, none
of Sellers has received a written notice (or reduced to writing an oral
notice) of a violation of any applicable ordinance or other law, order,
regulation or requirement, and none has received a written notice (or
reduced to writing an oral notice) of condemnation or similar proceeding
relating to any part of the Real Property or the operation thereof;
(d) except as set forth on SCHEDULE 3.10, to Sellers' knowledge, the
Real Property and its operation are in compliance in all material respects
with all planning, zoning and building codes and ordinances; to Sellers'
knowledge, none of Sellers has received any outstanding or uncured notice
alleging that the Facilities violate local planning, zoning and building
codes and ordinances; and, except as set forth on SCHEDULE 3.10, to
Sellers' knowledge the consummation of the transactions contemplated herein
will not result in a violation of any applicable planning, zoning or
building code or ordinance, or the termination of any applicable zoning
variances or "grandfathering" now existing;
(e) to Sellers' knowledge and except as set forth on any survey
certified to Buyers at Closing or otherwise disclosed on SCHEDULE 3.10, no
part of the Real Property contains, is located within or abuts any flood
plain, navigable water or other body of water, tideland, wetland, marshland
or any other similar area which is subject to special State, federal or
municipal regulation, control or protection;
(f) except for those tenants in possession of the Real Property under
Contracts described in SCHEDULE 3.14, there are no parties in possession
of, or claiming any possession, adverse or not, to or other interest in,
any portion of the Real Property as lessees, tenants at sufferance,
trespassers or otherwise;
(g) no tenant is entitled to any rebate, concession, or free rent,
other than as reflected in the Contract with such tenant; no commitments
have been made to any Tenant for repairs or improvements other than for
normal repairs and maintenance in the future or improvements required by
the tenant Contract; no rents due under any of the tenant Contracts have
been assigned or hypothecated to, or encumbered by, any Person, other than
pursuant to Permitted Encumbrances, as additional security for the payment
thereof; and rents reflected in the Contracts were at fair market value as
of the date of such Contract;
(h) except as set forth on SCHEDULE 3.10, all painting, repairs,
alterations and other work required to be performed by Sellers as landlord
under each of the tenant Contracts, and all of the other obligations of
Sellers as landlord required to be performed thereunder, have been, or will
be as of the Closing Date, fully performed and either paid for or accrued
on the Final Balance Sheet; and
(i) to Sellers' knowledge, all essential utilities (including water,
sewer, gas, electricity and telephone service) are available to the Real
Property, as currently developed by Sellers, and, to the knowledge of
Sellers, there are no conditions existing which could result in the
termination or reduction of the current access from the Real Property to
existing roadways.
3.11 ENVIRONMENTAL MATTERS.
(a) The following definitions apply to this Section: (i)
"ENVIRONMENTAL CLAIM" means any written notice (or oral notice reduced to
writing by any Seller) by a Person alleging potential liability of any of
Sellers (including potential liability for investigatory costs, cleanup
costs, governmental response costs, natural resources damages, property
damages, personal injuries or penalties) arising out of, based on or
resulting from (1) the presence, or release into the environment, of any
Materials of Environmental Concern (as defined below) at any location,
whether or not owned by Sellers, or (2) circumstances forming the basis of
any violation, or alleged violation, of any Environmental Laws; (ii)
"ENVIRONMENTAL LAWS" means any and all federal, state and local laws and
regulations (including common law) relating to pollution or protection of
the environment (including ground water, land surface or subsurface
strata), including laws and regulations relating to emissions, discharges,
releases or threatened releases of Materials of Environmental Concern, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, recycling, reporting or handling
of Materials of Environmental Concern; (iii) "MATERIALS OF ENVIRONMENTAL
CONCERN" means pollutants, contaminants, hazardous waste, medical waste,
toxic substances, petroleum and petroleum products; and (iv)
"ENVIRONMENTAL REPORT" means any and all environmental assessments or
reports, including all exhibits and/or appendices attached thereto,
described on SCHEDULE 3.11 or otherwise prepared by an environmental
consulting or engineering firm selected by Buyers in anticipation of the
consummation of the transactions described herein.
(b) To Sellers' knowledge, each Seller, in the conduct of its
Hospital Business, is in compliance in all material respects with all
applicable Environmental Laws. Except as described in the Environmental
Report or on SCHEDULE 3.11, to Seller's knowledge, none of Sellers has
received any written communication (or reduced to writing any oral
communication), whether from a governmental authority, employee or other
Person, that alleges that any of Sellers is not in full compliance with all
applicable Environmental Laws. Each Seller has all material permits,
licenses and approvals required under applicable Environmental Laws to own
its properties and to conduct its Hospital Businesses thereon. All such
permits and other governmental authorizations currently held by Sellers
pursuant to the Environmental Laws are identified in SCHEDULES 3.11 AND
3.18.
(c) There is no Environmental Claim pending or, to Sellers'
knowledge, threatened against Sellers or, to Sellers' knowledge, against
any Person whose liability for any Environmental Claim any Seller has or
may have retained or assumed either contractually or by operation of law.
(d) To Sellers' knowledge, during the period Sellers have operated
any of the Facilities, no actions, activities, circumstances, conditions,
events or incidents, including the release, emission, discharge or disposal
of any Materials of Environmental Concern, have occurred that could
reasonably be expected to form the basis of any Environmental Claim against
any of Sellers, except as set forth in the Environmental Report or on
SCHEDULE 3.11.
(e) Without in any way limiting the generality of the foregoing, (i)
all on-site and off-site locations where Sellers currently store, dispose
or arrange for the disposal of Materials of Environmental Concern are
identified in SCHEDULE 3.11, (ii) to Sellers' knowledge, all Contracts
dealing with the removal, storage, disposal and handling of Materials of
Environmental Concern are with properly licensed vendors, (iii) to Sellers'
knowledge, all underground storage tanks, and the capacity and contents of
such tanks, located on the Real Property are identified in the
Environmental Report or on SCHEDULE 3.11, (iv) to Sellers' knowledge and
except as set forth in the Environmental Report or on SCHEDULE 3.11, there
is no asbestos contained in or forming part of the Real Property owned or
ground leased by Sellers, and (v) except as set forth on SCHEDULE 3.11, no
polychlorinated biphenyls (PCBs) are used or stored at any Real Property
owned or ground leased by Sellers.
3.12 EQUIPMENT. Since the Balance Sheet Date, none of Sellers has
sold or otherwise disposed of any item of equipment having a value in
excess of $5,000, except with a comparable replacement thereof. Except as
set forth on SCHEDULE 3.12, Sellers own (or have valid leasehold titles to)
all equipment located on the Real Property or within the Facilities and
which is ordinarily and typically required by any hospital, or medical
clinic, as the case may be, providing a similar scope and level of care as
Sellers. Except as set forth on SCHEDULE 3.12, all equipment (except for
leased equipment as to which the lessors have valid security interests) is
held by Sellers free and clear of any Encumbrance. No Person other than
Sellers owns any equipment situated on the Real Property, except for (i)
items leased by Sellers pursuant to Assumed Contracts, (i) ordinary items
customarily owned or leased by tenants of the Facilities and wholly within
their respective leased premises, and (iii) other items with an aggregate
value of less than $5,000. Except as set forth on SCHEDULE 3.12, all
equipment will be in the same operating condition, reasonable wear and tear
excepted, as existed on March 31, 1998, which equipment as of March 31,
1998 was in such operating condition necessary for the Facilities to meet
JACHO accreditation standards.
3.13 TRADEMARKS, COMPUTER SOFTWARE, ETC. Except as set forth on
SCHEDULE 3.13 or in Contracts described on SCHEDULE 3.14, each of Sellers
has the right to use, free and clear of any royalty or other payment
obligations, claims of infringement or other Encumbrances, (a) all
Intellectual Properties used or needed by it in the conduct of its Hospital
Businesses, including those Intellectual Properties described in
SCHEDULE 3.13; and (b) all computer software, programs and similar systems
owned by or licensed under Contracts to Sellers or used in the conduct of
the Hospital Businesses, including those computer software, programs and
similar systems described in SCHEDULE 3.13; and, except as set forth on
SCHEDULE 3.13, none of Sellers is in conflict with or violation or
infringement of, nor has any of Sellers received any notice alleging any
conflict with, or violation or infringement of, any Contract or other
alleged rights of any Person with respect to any such Intellectual
Properties or any computer software, programs or similar systems. To the
knowledge of Sellers, no other Person is in conflict with or in violation
or infringement of any Contract or other rights of Sellers in and to the
Intellectual Properties, or any computer software, programs or similar
systems. Except as set forth in SCHEDULE 3.13, subsequent to the Closing
and without further action or the payment of additional fees, royalties or
other compensation to any Person, Buyers will be entitled to unrestricted
(except as provided in the Contracts) use of all Intellectual Properties,
computer software, programs and similar systems currently used in the
Facilities. The computer software, programs and similar systems currently
used in the Facilities support the accounting and operational requirements
of the Hospital Businesses.
3.14 AGREEMENTS AND COMMITMENTS. Sellers attach hereto an accurate
list as SCHEDULE 3.14 of all commitments, contracts, leases, licenses,
agreements and understandings relating to the Hospital Businesses, and all
outstanding offers or solicitations to enter into any of the foregoing
(hereinafter called "CONTRACTS"), written or oral, relating to the
Facilities or operation thereof, to which any of Sellers is a party, or by
which any of them or any of the Assets are affected, title clouded or bound
(including provider based physician agreements, managed care agreements,
agreements with health maintenance organizations, independent practice
organizations, preferred provider organizations or other alternative
delivery systems, joint venture, partnership or purchase agreements,
employment agreements, tenant leases, property management agreements,
equipment leases and schedules, equipment maintenance agreements and
schedules, agreements with municipalities and labor organizations, loan
agreements, bonds, mortgages, liens and other security agreements).
Sellers have made available true and correct copies of the Contracts for
Buyers' review. Except as set forth on SCHEDULE 3.14, there are no
Contracts which render, or at or after Closing would render, Sellers unable
to perform their respective obligations under this Agreement. Except for
Contracts listed on SCHEDULE 3.14, there are no other Contracts.
3.15 ASSUMED CONTRACTS.
(a) The Assumed Contracts constitute lawful, valid and legally
binding obligations of one or more of Sellers, as the case may be, and are
enforceable against the respective Seller, as the case may be, in
accordance with their terms;
(b) each Assumed Contract constitutes the entire agreement by and
between the parties thereto;
(c) in all material respects, all obligations required to have been
performed under the terms of the Assumed Contracts by the respective
Seller, as the case may be, and, to Sellers' knowledge, by the other
parties to the Assumed Contracts, have been performed, no act or omission
has occurred or failed to occur which, with the giving of notice, the lapse
of time or both would constitute a default under the Assumed Contracts, and
each of such Assumed Contracts is in full force and effect;
(d) except as described on SCHEDULE 3.2, none of the Assumed
Contracts requires the consent of any Person to the purchase by Buyers of
the Assets; and
(e) except as set forth on SCHEDULE 3.14, the purchase of the Assets
by Buyers at Closing will not result in any penalty, premium or variation
or violation of the rights, remedies, benefits or obligations of any party
to the Assumed Contracts.
3.16 CERTAIN AFFILIATE TRANSACTIONS. Except as set forth in
SCHEDULE 3.16:
(a) none of Sellers is indebted, either directly or indirectly, to
any officer, trustee or director of any Seller, or to any other Person in
which any of the foregoing has a financial interest ("ASSOCIATE"), in any
amount whatsoever relating to the Hospital Businesses, other than current
obligations for payments of salaries, bonuses and other fringe benefits for
past services rendered or payments under any Contract disclosed on
SCHEDULE 3.14; and
(b) no officer, trustee or director of any Seller, and no Associate,
is indebted to any Seller.
3.17 TITLE TO PERSONAL PROPERTY. Sellers own, or at Closing will own,
and hold good and valid title or leasehold title to all Assets, other than
the Real Property (the "PERSONAL PROPERTY"), free and clear of any and all
Encumbrances other than Permitted Encumbrances and those other Encumbrances
described on SCHEDULE 3.17 and approved by Buyers (the "OTHER PERMITTED
ENCUMBRANCES").
3.18 HEALTHCARE LICENSES.
(a) The following Hospitals are duly licensed by the California
Department of Health Services as general acute care hospitals with the
number of licensed beds listed across from its name:
<TABLE>
<CAPTION>
Medical/ Acute CCU ICU SUB-ACUTE PEDIATRIC PERINATAL
Surgical PSYCHIATRIC
ACUTE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(i) Hollywood Community
Hospital 92 0 3 5 0 0 0
(ii) Hollywood Community
Hospital of
Van Nuys 1 59 0 0 0 0 0
(iii) Los Angeles
Community
Hospital 66 0 0 6 30 12 16
(iv) Los Angeles Community
Hospital of
Norwalk 44 0 0 6 0 0 0
(v) Bellwood General
Hospital 69 0 4 4 0 0 8
(vi) Orange County
Community Hospital-
Buena Park 17 36 0 0 0 0 0
(vii) Monrovia Community
Hospital 45 0 0 4 0 0 0
</TABLE>
(b) Except as set forth on SCHEDULE 3.18, the clinics and the ancillary
departments located at the Facilities which are required to be specifically
licensed are duly licensed as health facilities by the appropriate state health
agencies or exempt from licensure. Except as set forth on SCHEDULE 3.18, the
Facilities are in compliance in all material respects with such licensing
requirements. Sellers attach hereto an accurate list and summary description
and copy (SCHEDULE 3.18) of all material licenses, permits and franchises owned
or held by Sellers relating to the ownership, development or operations of the
Facilities, all of which are, to Sellers' knowledge, in good standing and not
subject to meritorious challenge. There are no provisions in or agreements
relating to any such licenses, permits and franchises which would preclude or
limit Sellers from operating the Facilities and using all the beds therein as
they are currently classified. Sellers have delivered, or prior to Closing
will deliver, to Buyers copies of all licensure survey reports of the
California Department of Health Services, and all fire marshal reports,
relating to the Facilities issued after December 31, 1995. All violations set
forth in such reports, if any, or of which any of Sellers has notice or
knowledge, have been or prior to Closing will be corrected in all material
respects. SCHEDULE 3.18 also lists the Hospital's peer review organizations.
3.19 EMPLOYEE BENEFIT PLANS.
(a) As used herein, the term: (i) "CODE" means the Internal Revenue
Code of 1986, as amended; (ii) "ERISA" means the Employment Retirement
Income Security Act of 1974, as amended; (iii) "EMPLOYEE PENSION BENEFIT
PLAN" has the meaning set forth in ERISA Sec. 3(2); (iv) "Employee Welfare
Benefit Plan" has the meaning set forth in ERISA Sec. 3(1); (v) "EMPLOYEE
BENEFIT PLAN" means any (1) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan,
(2) qualified defined contribution retirement plan or arrangement which is
an Employee Pension Benefit Plan, (3) qualified defined benefit retirement
plan or arrangement which is an Employee Pension Benefit Plan (including
any Multiemployer Plan), or (4) Employee Welfare Benefit Plan or material
fringe benefit plan or program; (vi) "OTHER PLAN" means any Contract or
program (other than those described on SCHEDULE 3.20) which provides cash
or non-cash benefits or perquisites to employees of any of Sellers, but
which is not an Employee Benefit Plan; (vii) "FIDUCIARY" has the meaning
set forth in ERISA Section 3(21); (viii) "MULTIEMPLOYER PLAN" has the
meaning set forth in ERISA Sec. 3(37); (ix) "CONTROLLED GROUP OF
CORPORATIONS" has the meaning set forth in Code Sec. 1563; (x) "PBGC" means
the Pension Benefit Guaranty Corporation; (xi) "PROHIBITED TRANSACTION" has
the meaning set forth in ERISA Sec. 406 and Code Sec. 4975; and (xii)
"REPORTABLE EVENT" has the meaning set forth in ERISA Sec. 4043;
(b) SCHEDULE 3.19 lists each Employee Benefit Plan and Other Plan
that Sellers maintain or to which any of them contributes.
(i) Except as set forth in SCHEDULE 3.19, each Employee Benefit
Plan (and related trust, insurance contract or fund) complies in form
and in operation in all material respects with the applicable
requirements of ERISA, the Code, and other applicable laws, and has
been administered and operated in all material respects accordance
with the terms of the Plan;
(ii) Except as set forth in SCHEDULE 3.20, all required reports
and descriptions (including Form 5500 Annual Reports, Summary Annual
Reports, PBGC-1's and Summary Plan Descriptions) have been filed or
distributed appropriately with respect to each Employee Benefit Plan,
and the requirements of Part 6 of Subtitle B to Title I of ERISA and
of Code Sec. 4980B have been met with respect to each Employee Benefit
Plan which is an Employee Welfare Benefit Plan;
(iii) all contributions (including employer contributions and
employee salary reduction contributions) to each Employee Benefit Plan
which is an Employee Pension Benefit Plan that are required to be paid
prior to the Closing Date have been paid, and all contributions in
respect of periods ending the day prior to the Closing Date that are
not required to be paid prior to the Closing Date have been accrued on
the Final Balance Sheet in accordance with applicable laws and
consistent with the past custom and practice of Seller; all premiums
or other payments for all periods ending on or before the Closing Date
have been paid with respect to each Employee Benefit Plan which is an
Employee Welfare Benefit Plan;
(iv) each Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code
Sec. 401(a) and has received a favorable determination letter from the
Internal Revenue Service, copies of which have been provided to
Buyers;
(v) the market value of assets under each Employee Benefit Plan
which is an Employee Pension Benefit Plan equals or exceeds the
present value of all vested and nonvested liabilities thereunder
determined in accordance with PBGC methods, factors and assumptions
applicable to an Employee Pension Benefit Plan terminating on the date
for determination; and
(vi) Seller has delivered to Buyers correct and complete copies
of the plan documents and summary plan descriptions, the most recent
determination letters received from the Internal Revenue Service, the
most recent Form 5500 Annual Report, and all related trust agreements,
insurance contracts and other funding agreements which implement each
Employee Benefit Plan.
(c) With respect to each Employee Benefit Plan that any of Sellers,
or the Controlled Group of Corporations which includes any of Sellers,
maintains or ever has maintained or to which any of them contributes, ever
has contributed, or ever has been required to contribute:
(i) no such Employee Benefit Plan which is an Employee Pension
Benefit Plan has been completely or partially terminated or the
subject of a Reportable Event as to which notices would be required to
be filed with the PBGC. No proceeding by the PBGC to terminate any
Employee Pension Benefit Plan has been instituted or threatened;
(ii) to Sellers' knowledge, there have been no Prohibited
Transactions with respect to any Employee Benefit Plan that would
subject any of the Sellers or the Controlled Group of Corporations
which includes any of Sellers to any material liability; no Fiduciary
has any material liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or
investment of the assets of any such Employee Benefit Plan; no action,
suit, proceeding, hearing or investigation with respect to the
administration or the investment of the assets of any Employee Benefit
Plan (other than routine claims for benefits) is pending or
threatened; and, to Sellers' knowledge, there exists no basis for any
such action, suit, proceeding, hearing or investigation; and
(iii) none of Sellers has incurred, and, to Sellers' knowledge,
there is no reason to expect that any of Sellers will incur or be
responsible for, any liability to the PBGC (other than PBGC premium
payments) or otherwise under Title IV of ERISA (including any
withdrawal liability) or under the Code with respect to any Employee
Benefit Plan which is an Employee Pension Benefit Plan.
(d) None of Sellers, and none of the other members of the Controlled
Group of Corporations that includes any of Sellers, contributes to, ever
has contributed to, or ever has been required to contribute to any
Multiemployer plan or has any material liability (including withdrawal
liability) under any Multiemployer Plan.
(e) None of Sellers, and none of the other members of the Controlled
Group of Corporations that includes Sellers, maintains or contributes, or
ever has maintained or contributed, or ever has been required to contribute
to any Employee Welfare Benefit Plan providing medical, health or life
insurance or other welfare-type benefits for current or future retired or
terminated employees, their spouses, or their dependents (other than in
accordance with Code Sec. 4980B).
3.21 EMPLOYEES AND EMPLOYEE RELATIONS. SCHEDULE 3.20 attached hereto
sets forth a complete list (as of the date set forth therein) of names,
positions, current annual salaries or wage rates, and bonus and other
compensation arrangements of all full-time and part-time employees of
Sellers employed in the operation of the Facilities and Hospital Businesses
(indicating whether each employee is part-time or full-time). Except as
set forth on SCHEDULE 3.20, to Sellers' knowledge, Sellers' relations with
its employees are good. Except as set forth on SCHEDULE 3.20, there is no
pending or, to Sellers' knowledge, threatened employee strike, work
stoppage or labor dispute. Except as set forth on SCHEDULE 3.20, to
Sellers' knowledge, no union representation question exists respecting any
employees of any of Sellers, no collective bargaining agreement exists or
is currently being negotiated by any of Sellers, no demand has been made
for recognition by a labor organization by or with respect to any employees
of any of Sellers, no union organizing activities by or with respect to any
employees of any of Sellers are taking place, and none of the employees of
any of Sellers is represented by any labor union or organization. Except
as set forth on SCHEDULE 3.20, there is no unfair practice claim against
any of Sellers before the National Labor Relations Board, or any strike,
dispute, slowdown, or stoppage pending or, to Sellers' knowledge,
threatened against or involving the Hospital Businesses, and none has
occurred. To Sellers' knowledge, Sellers are in compliance in all material
respects with all federal and state laws respecting employment and
employment practices, terms and conditions of employment, and wages and
hours. To Sellers' knowledge, none of Sellers is engaged in any unfair
labor practices. Except as set forth on SCHEDULE 3.20 OR 3.24, there are
no pending or, to Sellers' knowledge, threatened EEOC, wage and hour,
unemployment compensation, workers' compensation or similar claims against
any of Sellers or the Facilities. SCHEDULE 3.20 also sets forth a complete
list of employees whose employment with any of Sellers has terminated for
any reason (a) as of the effective date hereof, at any time during the
ninety (90) day period ending no earlier than two business days prior to
the effective date hereof, and (b) as of two business days before the
Closing Date, since the date of the immediately preceding list. None of
Sellers will be subject to any claim or liability for severance pay as a
result of the transactions contemplated by this Agreement. All claims of
present and former employees of Sellers on the account of or for (x)
overtime pay for any period on or before the Closing Date, (y) wages,
salary, bonuses or amounts accruing under any Employee Benefit Plan or
Other Plan, or (z) sick pay, severance pay, claim for unlawful discharge,
holiday or vacation pay or paid time off, have been or will be fully
accrued on the Financial Statements.
3.21 TAXES.
(a) As used herein, the term (i) "Tax" means any federal, state,
local or foreign income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Code Sec. 59A), customs duties,
capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property,
stamp, sales, use, transfer, registration, value added, alternative or add-
on minimum, estimated, tax, assessment, charge, levy or fee of any kind
whatsoever, including any interest or penalties thereon and additions
thereto, which are due or alleged to be due to any taxing authority,
whether disputed or not; (ii) "Tax Return" means any federal, state or
local return, declaration, report, claim for refund, information return or
statement, including any schedule or attachment thereto and amendments
relating to Taxes; and (iii) "Affiliated Group" means any affiliated group
within the meaning of Code Sec. 1504 or any similar group defined under a
similar provision of state, local or foreign law.
(b) Sellers have filed all Tax Returns required to be filed by or on
behalf of any of them, all such Tax Returns are correct and complete in all
material respects, and Sellers have duly paid or made provision in the
Financial Statements for the payment of all Taxes; except as set forth on
SCHEDULE 3.21, none of Sellers currently is the beneficiary of any
extension of time within which to file any Tax Return; no claim has ever
been made by a taxing authority in a jurisdiction where any of Sellers does
not file Tax Returns that it is or may be subject to Tax by that
jurisdiction; and there are no Encumbrances on any assets of any of Sellers
that arose in connection with any failure (or alleged failure) to pay any
Tax.
(c) Each Seller has withheld proper and accurate amounts from its
employees' compensation in full and complete compliance with all
withholding and similar provisions of the Code and any and all other
applicable laws, and has withheld and paid, or caused to be withheld and
paid, all Taxes on monies paid by Sellers to independent contractors,
creditors, stockholders, partners and other Persons for which withholding
or payment is required by law.
(d) No taxing authority intends to assess any additional Taxes for
any period for which Tax Returns have been filed. Except as set forth on
SCHEDULE 3.21 OR 3.24, there is no dispute or claim concerning any Tax
liability of Sellers either (i) claimed or raised by any authority in
writing, or (ii) as to which either Seller or any of Sellers has notice or
knowledge based upon personal contact with any agent of such authority;
SCHEDULE 3.21 lists all federal, state, local and foreign income Tax
Returns filed with respect to Sellers on or after December 31, 1993, and
indicates those Tax Returns that have been audited and those that currently
are the subject of audit or that have not been audited; Sellers have
provided to Buyer access to all Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by any Seller
prior to December 31, 1993.
(e) There is not currently in effect any waiver of a statute of
limitations in respect of Taxes by any of Sellers or any agreement to
extend the time with respect to a Tax assessment or deficiency.
(f) None of Sellers has filed a consent under Code Sec. 341(f)
concerning collapsible corporations; none of Sellers has made any payments,
is obligated to make any payments, and is a party to any Contract that
under certain circumstances could obligate it to make any payments, that
will not be deductible under Code Sec. 280G; none of Sellers has been a
United States real property holding corporation within the meaning of Code
Sec. 897(c)(2) during the applicable period specified in Code Sec.
897(c)(1)(A)(ii); Sellers have disclosed on their federal income Tax
Returns, to the extent required by law, all positions taken therein that
could give rise to a substantial understatement of federal income Tax
within the meaning of Code Sec. 6662; none of Sellers is a party to any Tax
allocation or sharing agreement.
(g) None of Sellers has any liability for the Taxes of any Person
other than Sellers (i) under Reg. <section>1.1502-6 (or any similar
provision of state, local, or foreign law), (ii) as a transferee or
successor, (iii) by contract, or (iv) otherwise.
3.22 MEDICARE PARTICIPATION/ACCREDITATION. The Facilities (other than
Orange County Community Hospital - Orange) are qualified for participation
in the Medicare and MediCal programs (together with their respective
intermediaries or carriers, the "GOVERNMENT REIMBURSEMENT PROGRAMS"), are
entitled to reimbursement under the Medicare Program for services rendered
to qualified Medicare beneficiaries, and comply in all material respects
with the conditions of participation in, and have received all approvals or
qualifications necessary for capital reimbursement on the assets of Sellers
from, all Government Reimbursement Programs. There is no pending or, to
Sellers' knowledge, threatened proceeding or investigation by any of the
Government Reimbursement Programs, or for reimbursement of amounts due or
to become due to Sellers from the Government Reimbursement Programs (the
"AGENCY RECEIVABLES"). The cost reports of the Facilities (other than
Orange County Community Hospital - Orange) for which cost reports may be
filed under the Government Reimbursement Programs, and for reimbursement of
any other Agency Receivables ("COST REPORTS") for all Cost Report periods
through September 30, 1997, have been filed and have been audited through
the Cost Report period ending September 30, 1995. The Cost Reports were
filed when due and do not claim, and the Facilities (other than Orange
County Community Hospital - Orange) have not received, reimbursement in
excess of the amount provided by law or any applicable agreement, except to
the extent set forth in the Financial Statements. Except as set forth on
SCHEDULE 3.22, there exists no dispute or issue under appeal between any of
Sellers and any governmental authority, fiscal intermediary or carrier or
other Person regarding the Government Reimbursement Programs, other than
with respect to adjustments made in the ordinary course of business for
open Cost Report years which do not involve more than $100,000 in the
aggregate. All liabilities and contractual adjustments of the Facilities
(other than Orange County Community Hospital - Orange) under the Government
Reimbursement Programs have been properly reflected and adequately reserved
in the Financial Statements. Each Hospital (other than Orange County
Community Hospital - Orange) is duly accredited by the JCAHO for the three
(3) year period ending identified on SCHEDULE 3.22 hereof. Sellers have
made available for Buyers' review a true and complete copy of the most
recent JCAHO survey report for each Facility (other than Orange County
Community Hospital - Orange). Sellers have taken all reasonable steps to
correct all material deficiencies noted therein.
3.23 LEGAL AND REGULATORY COMPLIANCE. Except as set forth on
SCHEDULE 3.23, each of Sellers are in compliance with all applicable laws
of federal, state and local authorities and all applicable rules,
regulations and requirements of all federal, state and local commissions,
boards, bureaus and agencies having jurisdiction over the Facilities and
the Hospital Businesses, including the Internal Revenue Service, the
California Franchise Tax Board, the Office of Statewide Health Planning and
Development, the South Coast Air Quality Management District, and the
California Department of Health Services; and Sellers have timely filed all
reports, data and other information required to be filed with such
commissions, boards, bureaus and agencies where a failure to file timely
would have a material adverse effect on Sellers, the Assets or the
Facilities. Except as set forth on SCHEDULE 3.23, none of Sellers has
received written notice of, nor to Sellers' knowledge is there threatened,
any investigation by governmental authorities regarding a violation of the
Medicare fraud and abuse provisions of the federal Social Security Act or
any comparable state legislation or any investigation by any third party
(including banks, insurance companies, lenders and others) regarding any
allegations of fraud and to Sellers' knowledge, there exist no facts which
might reasonably form the basis of any such claim, action, suit, proceeding
or investigation on or after the Closing Date.
3.24 LITIGATION OR PROCEEDINGS. Sellers attach hereto an accurate
list and summary description as SCHEDULE 3.24 of all litigation,
arbitration or other proceedings with respect to the Facilities and
Hospital Businesses in which any Seller, or any insurer of any Seller, is a
party with respect to the Facilities and Hospital Businesses. Except as
set forth on SCHEDULE 3.24, all such proceedings are fully insured (except
for applicable deductibles). Except as set forth on SCHEDULE 3.24, none of
Sellers is in default in any material respect under any judgment of any
court, arbitration tribunal or federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality wherever located. Except to the extent set forth on
SCHEDULE 3.24, there are no material claims, actions, suits, proceedings or
investigations pending, or to Sellers' knowledge, threatened against or
affecting any of Sellers, at law or in equity, or before or by any court,
arbitration tribunal, federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality wherever
located. To Sellers' knowledge, there exist no facts that might reasonably
form the basis of any such claim, action, suit, proceeding or investigation
on or after the Closing Date.
3.25 INSURANCE. Sellers attach hereto an accurate schedule
(SCHEDULE 3.25) disclosing the insurance policies covering the ownership
and operations of the Assets and Hospital Businesses, including the Joint
Venture, which Schedule sets forth the names of each insurer and the
number, coverage and limit, term and premium of each such policy. All of
such policies are outstanding and in full force and effect with insurers
unaffiliated with Sellers, with no premium arrearages. Except as described
on SCHEDULE 3.25, to Sellers' knowledge, since January 1, 1991, no
liability insurance carrier has canceled or reduced, or given notice of its
intention to cancel or reduce, the policy limit (including an increase in
the self-insured retention) of any liability insurance coverage with
respect to the Facilities or the Joint Venture and, to Sellers' knowledge,
there exist no grounds particular to Sellers or the Joint Venture for an
insurer to cancel or avoid any such policies or the coverages provided
thereby. True and correct copies of all such policies and any endorsements
thereto have been or will be delivered to Buyer prior to Closing.
3.26 MEDICAL STAFF MATTERS. Sellers have made available to Buyers
true, correct and complete copies of the bylaws and rules and regulations
of the medical staff and medical executive committee of the Facilities.
Except as set forth on SCHEDULE 3.26, there are no pending or, to Sellers'
knowledge, threatened disputes with medical staff members or applicants or
allied health professionals, and, except as set forth on SCHEDULE 3.26, all
appeal periods in respect of any medical staff member or applicant against
whom an adverse action has been taken have expired. SCHEDULE 3.26 sets
forth a complete and accurate list and description of (a) the name of each
member of the medical staff (active, associate, courtesy or other) of the
Facilities since January 1, 1995, (b) the age of each current medical staff
member, and (c) the title, specialty and board certification, if any, of
each medical staff member.
3.27 SPECIAL FUNDS. Except as set forth on SCHEDULE 3.27, none of
Sellers or the Assets are subject to any liability in respect of funds
received by any Person for the purchase or improvement of any of Sellers'
assets under restricted or conditioned grants or donations, including
monies received under the Public Health Service Act, 42 U.S.C. Section 291
ET SEQ. (the "Hill-Burton Act").
3.28 BROKERS AND FINDERS. Except as set forth on SCHEDULE 3.28, none
of Sellers, any Affiliate of any Seller, and any officer, director,
employee or agent thereof, has engaged any finder or broker in connection
with the transactions contemplated hereunder.
3.29 EXPERIMENTAL PROCEDURES. Except as set forth on SCHEDULE 3.29,
none of Sellers has performed or specifically authorized the performance of
any experimental or research procedures or studies involving patients in
the Facilities that, to Sellers' knowledge, requires the prior approval of
any governmental agency.
3.30 SOLVENCY. No Seller is, and after Closing as a result of the
transactions contemplated hereby will be, rendered insolvent or otherwise
unable to pay its debts as they become due. No Seller has any intention of
filing in any court pursuant to any statute either of the United States or
of any state a petition in bankruptcy or insolvency or for reorganization
or for the appointment of a receiver or trustee of all or any portion of
such Seller's property; and, to Sellers' knowledge, no other Person has
filed or threatened to file such a petition against any Seller.
3.31 OPERATION OF THE FACILITIES. The Assets constitute all assets,
properties, goodwill and businesses necessary to operate the Hospital
Businesses in all material respects in the manner in which they have been
operated prior to the effective date hereof.
3.32 FULL DISCLOSURE. This Agreement and Schedules hereto do not and
will not include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements made herein not
misleading.
4. REPRESENTATIONS AND WARRANTIES OF BUYERS.
As of the date hereof and as of the Closing Date, each Buyer
represents and warrants to Sellers the following:
4.1 CORPORATE CAPACITY. Each Buyer is or will be as of the Closing
duly organized and validly existing in good standing under the laws of the
State of California. Each Buyer has the requisite power and authority to
enter into this Agreement, perform its obligations hereunder and to conduct
its businesses as now being conducted.
4.2 CORPORATE POWERS; CONSENTS; ABSENCE OF CONFLICTS WITH OTHER
AGREEMENTS, ETC. The execution, delivery and performance of this Agreement
by Buyers and all other agreements referenced in or ancillary hereto to
which any Buyer is a party and the consummation of the transactions
contemplated herein by Buyers:
(a) are within each Buyer's corporate powers and are not in
contravention of the terms of its governing documents, or any amendments
thereto, and have been approved by all requisite corporate action;
(b) except as otherwise expressly herein provided, do not require any
approval or consent of, or filing with, any governmental agency or
authority bearing on the validity of this Agreement;
(c) do not violate any statute, law, rule or regulation of any
governmental authority to which any Buyer may be subject and which may have
an effect on the Hospital Businesses subsequent to Closing; and
(d) do not violate any judgment to which any Buyer may be subject and
which may have an effect on the Hospital Businesses subsequent to Closing.
4.3 BINDING EFFECT. This Agreement and all other agreements to which
any Buyer becomes a party hereunder are valid and legally binding
obligations of such Buyer, enforceable against such Buyer in accordance
with the respective terms hereof and thereof, except as enforceability
against such Buyer may be restricted, limited or delayed by applicable
bankruptcy or other laws affecting creditors' rights generally and except
as enforceability may be subject to general principles of equity.
5. COVENANTS OF SELLERS.
5.1 BOARDS OF DIRECTORS' APPROVALS. As of the Closing Date, the
Boards of Directors of Sellers shall have voted to authorize this Agreement
and the transactions contemplated herein and therein and the Secretary of
each Seller shall have delivered to Buyers, within such time frame, a
certified copy of the resolution of its Board of Directors and shareholders
(if required) to such effect.
5.2 REAL PROPERTY DOCUMENTATION. Sellers shall obtain, at least five
(5) days prior to Closing, a commitment for an ALTA Policy, from Chicago
Title Company, including zoning, survey and inflation endorsements, as to
all Real Property being acquired by Buyers pursuant to the transaction
contemplated by this Agreement which shall be subject to approval of Buyers
(subject to the opportunity of Sellers to cure items disapproved by
Buyers), and shall by the Closing Date have obtained title policies or
commitments of title policies with respect to all such properties showing
the Real Property to be free and clear of all liens, encumbrances, or other
assessments, charges, easements, restrictions and stipulations or credits,
if any, (except (i) liens for current taxes and assessments, (ii)
rights-of-way, building or use restrictions, exceptions, variances,
reservations or other limitations which do not materially impair the
current use of the Real Property or for which title insurance coverage has
been obtained, and (iii) those standard printed exceptions set forth in the
title commitment, and insuring Buyers title to the real property assets in
an amount equal to the Purchase Price of the Real Property. The cost of
title insurance together with the cost of the ALTA surveys shall be paid by
Sellers. Notwithstanding the foregoing, if the Title Company shall charge
more than the quote by Commonwealth Title Company (which is attached hereto
as EXHIBIT 5.2) for such insurance, Buyers shall pay such difference.
Buyers shall use their best efforts to cause the Title Company to utilize
Commonwealth Title Company as an excess carrier for such title policy.
5.3 OPERATIONS. From the effective date hereof until the Closing
Date and except as otherwise provided in this Agreement, Sellers will use
their best efforts to:
(a) carry on the Hospital Businesses in substantially the same manner
as Sellers have heretofore and not make any material change in personnel,
operations, finances, accounting policies, or real or personal property of
the Facilities;
(b) maintain the Assets and all parts thereof in as good working
order and condition as at present, ordinary wear and tear excepted;
(c) operate the Hospital Businesses and the Facilities in accordance
with all applicable laws, rules, regulations and judgments;
(d) perform all of Sellers' obligations under the Contracts as they
become due;
(e) take all actions necessary and appropriate to render title to the
Assets free and clear of all Encumbrances (except for the Permitted
Encumbrances and the Other Permitted Encumbrances) and to obtain
appropriate releases, consents, estoppels and other instruments as Buyer
may reasonably request;
(f) keep in full force and effect present insurance policies or other
comparable insurance and maintain sufficient liquid assets to meet all
deductible, self-insurance or copayment requirements under present
insurance policies; and
(g) maintain and preserve Sellers' business organizations and
operations intact; retain the present employees at the Facilities; maintain
Sellers' relationships with physicians, suppliers, customers and others
having business relations with Sellers; and take such actions as are
necessary and to cause the smooth, efficient and successful transition to
Buyers of such business organizations and operations and employee and other
relations at Closing.
5.4 NEGATIVE COVENANTS. From the effective date hereof until the
Closing and except as otherwise expressly provided in this Agreement,
Sellers will not, without the prior written consent of Buyers, which
consent shall not be unreasonably withheld:
(a) amend or terminate any of the Contracts, enter into any Contract
or incur or agree to incur any liability;
(b) make offers of employment to any employees of Sellers for
employment with Sellers or any Affiliate of Sellers after Closing;
(c) increase compensation payable or to become payable to, make a
bonus payment to, or otherwise enter into one or more bonus agreements
with, any employee or agent of Sellers, except in the ordinary course of
business in accordance with existing personnel policies;
(d) create, assume or permit to exist any new Encumbrance upon any of
the Assets;
(e) sell, assign, transfer, distribute or otherwise dispose of any
property, plant or equipment of Sellers having a value in excess of $5,000
as to any one Seller, except in the ordinary course of business or with
comparable replacement thereof;
(f) take any action outside the ordinary course of business;
(g) amend the articles or certificate of incorporation or bylaws of
Sellers, or take any action relating to any such amendment or any
liquidation or dissolution of Sellers;
(h) make any distribution or return any capital in respect of the
Joint Venture;
(i) either (i) acquire or agree to acquire all or substantially all
the assets or properties or capital stock or other equity securities of any
Person, (ii) otherwise acquire or agree to acquire control or ownership of
any Person by merger, consolidation or other combination, or (iii) make any
capital expenditures except in the ordinary course of business and
consistent with past practice and in an amount exceeding $50,000 for each
Facility or $250,000 in the aggregate; or
(j) create, incur, assume, guarantee or otherwise become liable for,
cancel, pay, agree to cancel or pay, otherwise provide for a complete or
partial discharge in advance of a scheduled payment date with respect to,
or waive any right of any Seller to receive any direct or indirect payment
or other benefit under, any liability of any Seller, except in the ordinary
course of business consistent with past practices and in an amount not
exceeding $50,000 individually or $500,000 in the aggregate.
5.5 GOVERNMENTAL APPROVALS. From the effective date hereof until the
Closing Date, Sellers shall (a) promptly apply for and use their best
efforts to obtain prior to Closing all consents, approvals, authorizations
and clearances of governmental and regulatory authorities required of
Sellers to consummate the transactions contemplated hereby, (b) provide
such information and communications to governmental and regulatory
authorities as Buyers or such authorities may reasonably request, and (c)
assist and cooperate with Buyers to obtain all consents, licenses, permits,
approvals, authorizations and clearances of governmental and regulatory
authorities that Buyers reasonably deem necessary or appropriate, and to
prepare any document or other information required of Sellers by any such
authorities, to consummate the transactions contemplated herein.
5.6 TERMINATION OF EMPLOYMENT OF EMPLOYEES. Sellers shall terminate
all employees at Closing and shall pay to such employees all amounts
accrued and owing to such employees.
5.7 MEDICARE RECONCILIATION NOTE. Sellers shall have delivered to
Buyers a promissory note in the form of EXHIBIT 5.7 hereto (the "MEDICARE
RECONCILIATION NOTE"). The original principal balance of the Medicare
Reconciliation Note will be an amount equal to the book value of the
Medicare Receivables, net of the allowance for doubtful accounts and
contractual adjustments related thereto, all as reflected on the Closing
Balance Sheet. As provided in such Medicare Reconciliation Note and in
Section 1.6(c), the principal balance of such note will be adjusted to
reflect changes in such net book value amount between the date of the
Closing Balance Sheet and the Final Balance Sheet.
5.8 INSURANCE RATINGS. From the effective date hereof until the
Closing Date, Sellers will take all action reasonably requested by Buyers
(including providing any information requested by Buyers' insurance
companies) to enable Sellers to maintain or obtain and preserve the
Workmen's Compensation and Unemployment Insurance ratings, insurance
policies, deposits and other interests of Sellers and the Facilities for
insurance or other purposes. Buyers shall not be obligated to succeed to
any such rating, insurance policy, deposit or other interest, except as it
may elect to do so.
5.9 CLOSING CONDITIONS. From the effective date hereof until the
Closing Date, Sellers will use reasonable best efforts to cause the
conditions specified in Articles 7 and 8 over which they have control to be
satisfied as soon as reasonably practicable, but in all events before the
Closing Date.
5.10 CHANGE OF NAME. Buyers shall cause all signs, if any,
incorporating the names "Paracelsus" and "Paracelsus Healthcare
Corporation" (and all variations thereof) which are located at any of the
Hospital Businesses to be removed or modified as soon as reasonably
practicable after the Closing Date and in any event within 180 days after
the Closing Date, such that such names are no longer used at the Hospital
Businesses.
5.11 ADVERSE ACTIONS AFTER CLOSING. Sellers shall not take, or fail
to take, any action after Closing that would render Sellers unable to
perform its post-Closing obligations under this Agreement.
5.12 MAINTENANCE OF SUPPLIES. Sellers shall maintain and restore all
drugs, medicines, foods or other supplies used in connection with the
operation of each of the Facilities substantially in the same condition and
quantity as presently being maintained and as required to properly operate
the Hospital Businesses.
5.13 EXCLUDED CONTRACTS. Sellers legally shall cause the termination,
and shall be responsible for all liabilities in connection therewith, of
all Excluded Contracts, effective no later than thirty (30) days after the
Effective Time or, if later, within the terms of the Contracts provided
that notice of termination is given by Sellers at or prior to the Effective
Time. Notwithstanding the foregoing, Sellers shall use their best efforts
to cause such terminations to occur no later than the Effective Time.
5.14 SECURITY INTEREST. As security for the due and punctual payment
of the Medicare Reconciliation Note, each Seller hereby grants to Buyers a
security interest in all of its rights, title and interest in and to the
Program Receivables. Each Seller shall execute and deliver to Buyers at
Closing a security agreement, in the form attached as EXHIBIT 5.14 hereto.
5.15 FURTHER ACTS AND ASSURANCES. At any time and from time to time
at and after the Closing, upon request of Buyers, Sellers shall do,
execute, acknowledge and deliver, or cause to be done, executed,
acknowledged and delivered, such further acts, deeds, assignments,
transfers, conveyances, powers of attorney, confirmations and assurances as
Buyers may reasonably request to more effectively convey, assign and
transfer to and vest in Buyers, their successors and assigns, full legal
right, title and interest in and actual possession of the Assets,
Facilities and Hospital Businesses, to confirm Sellers' capacities and
abilities to perform their post-Closing covenants and agreements under this
Agreement, and to generally carry out the purposes and intent of this
Agreement. Sellers also shall furnish Buyers with such information and
documents in their possession or under their control, or which Sellers can
execute or cause to be executed, as will enable Buyers to prosecute any and
all petitions, applications, claims and demands relating to or constituting
a part of the Assets and Hospital Businesses.
5.16 LIM-KEITH CLINIC. Sellers legally shall cause the termination,
and shall be responsible for all liabilities in connection therewith, of
the professional services agreement between the Lim-Keith Medical Group and
Hollywood Community Hospital and the operation of the Lim-Keith Clinic at
the Hospital. The termination of the agreement is to be effective no later
than thirty (30) days after the Effective Time or, if later, within the
terms of such agreement provided that notice of termination shall be given
by Sellers at or prior to the Effective Time. Notwithstanding the
foregoing, Sellers shall use their best efforts to cause such terminations
to occur no later than the Effective Time.
6. COVENANTS OF BUYERS.
6.1 MAINTENANCE OF PATIENT RECORDS. Buyers understand that all of
Sellers' patient records with respect to the Hospital Businesses are being
transferred at the Closing to Buyers. With respect to all such patient
records, Buyers, as required by law shall: (a) maintain such records in
material compliance with applicable law; and (b) allow Sellers, or their
agents or representatives, subject to applicable law, to examine such
records relating to the period of Sellers' operation of the Hospitals
Businesses at any reasonable time and to use or make copies thereof at
Sellers' sole expense (provided that the same is permissible by law).
6.2 REGULATORY APPROVALS. From the effective date hereof until the
Closing Date, Buyers shall (a) promptly apply for and use their best
efforts to obtain prior to Closing all consents, licenses, permits,
approvals (including planning approvals), authorizations and clearances of
governmental and regulatory authorities required of them to consummate the
transactions contemplated hereby, (b) provide such information and
communications to governmental and regulatory authorities as Sellers or
such authorities may reasonably request, and (c) assist and cooperate with
Sellers to obtain all consents, approvals, authorizations and clearances of
governmental and regulatory authorities that Sellers reasonably deem
necessary or appropriate, and to prepare any document or other information
required of Buyers by any such authorities, to consummate the transactions
contemplated hereby.
6.3 CLOSING CONDITIONS. From the effective date hereof until the
Closing Date, Buyers will use their best efforts to cause the conditions
specified in Articles 7 and 8 over which Buyers have control to be
satisfied as soon as reasonably practicable, but in all events before the
Closing Date.
6.4 ADVERSE ACTIONS AFTER CLOSING. Buyers shall not take, or fail to
take, any action after Closing that would render Buyers unable to perform
its post-Closing obligations under this Agreement.
6.5 EMPLOYEE MATTERS.
(a) Subject to the exclusions set forth in this Section, and in
reliance upon the representations and warranties of Sellers made in
Section 3.20, Buyers will interview all of Sellers' employees who are
actively at work (I.E., not on a leave of absence) or on the active payroll
(excluding for this purpose any employee of Seller who elects to be treated
as a retiree of Seller as of the Effective Time for the purpose of
qualifying for certain employee benefits) at the Facilities immediately
prior to Closing and may choose to make offers to employ such of Sellers'
employees acceptable to Buyers provided that Buyers shall be required to
extend offers of employment to all but up to fifteen (15) of such
employees. For ninety (90) days after the Closing Date, Buyers shall not
terminate the employment of the employees hired except for cause. All such
employees who accept Buyers' offer of employment shall be referred to as
the "HIRED EMPLOYEES."
(b) Each offer of employment under Section 6.5(a) shall be for a
substantially equivalent position, and at a substantially similar wage or
salary, as provided by Seller to the Hired Employee immediately prior to
the Closing Date (or, as to any employee who is in paid or unpaid inactive
status as of the Closing Date who receives an offer of employment from
Buyers upon becoming available to return to active status, immediately
prior to the first day of such employee's paid or unpaid leave from Seller.
As to each Hired Employee, Buyers shall also provide employee welfare
benefits, paid time-off and other terms and conditions of employment that
are commensurate with those of other employees of Buyers having similar
positions. For the purpose of determining welfare benefits coverage and
other related matters (including eligibility and participation, but not
vesting or benefit accrual, under any Buyer pension benefit plan), each
Hired Employee will be considered to have commenced employment with a Buyer
on the date such Hired Employee commenced uninterrupted employment with any
Seller (whichever is earlier). Notwithstanding the preceding sentence,
Buyers shall not be obligated to provide Hired Employees any accrued sick
or vacation days upon hiring them. For the purpose of determining vesting
and benefit accrual under all Buyers pension benefit plans, each Hired
Employee will be considered to have commenced employment with a Buyer on
the Employment Commencement Date (as defined below). Health benefits
coverage provided by Buyer for Hired Employees shall apply to covered
expenses incurred on and after the Employment Commencement Date. The term
"EMPLOYEE COMMENCEMENT DATE" shall mean the Closing Date; provided,
however, that with respect to any employee who is in paid or unpaid
inactive status as of the Closing Date and to whom any Buyer offers
employment pursuant to this Section 6.5(b) the term "Employee Commencement
Date" shall mean such employee's first day of employment with a Buyer.
(c) Buyers will not assume or provide COBRA continuation benefits to
those former employees of Sellers who have elected COBRA continuation
benefits.
(d) Notwithstanding the provisions of Section 6.5(a) or (b), Buyers
shall not be required to offer employment to (i) any person whom Buyers
could otherwise terminate for cause, or (ii) the President and Chief
Executive Officer (or Administrator), the Chief Financial Officer (or
Controller) or the Chief Operating Officer of any Facility.
6.6 ASSUMED CONTRACTS. Notwithstanding Section 7.7, within ten (10)
business days of the delivery of a complete SCHEDULE 3.14 to Buyers by
Sellers, Buyers shall provide to Sellers SCHEDULE 6.6 which shall list such
Contracts Buyers shall assume as of the Effective Time.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYERS.
The obligations of Buyers hereunder are, at the option of Buyers,
subject to the satisfaction, on or prior to the Closing Date, of the
following conditions unless waived in writing by Buyers:
7.1 REPRESENTATIONS/WARRANTIES. The representations and warranties
of Sellers contained in this Agreement shall be (a) true and correct when
made, (b) if not qualified as to materiality, true and correct in all
material respects as of the Closing Date as though such representations and
warranties had been made on and as of the Closing Date, and (c) if
qualified as to materiality, true and correct as of the Closing Date as
though such representations and warranties had been made on and as of the
Closing Date, and all of the terms, covenants and conditions of this
Agreement to be complied with or performed by Sellers on or before the
Closing Date pursuant to the terms hereof shall have been duly complied
with and performed by Sellers in all material respects.
7.2 APPROVALS.
(a) Buyers shall have fully complied with the applicable
provisions of the HSR Act and any and all applicable waiting periods
thereunder shall have expired or been terminated, or a legal opinion,
reasonably acceptable to Buyers, that no such filing is required shall have
been delivered to Buyers.
(b) All consents and approvals listed in Section 2.2(i) shall
have been obtained, and Buyers shall have been furnished with appropriate
evidence, reasonably satisfactory to Buyers and their counsel, of the
granting of such consents and approvals.
7.3 PRE-CLOSING CONFIRMATIONS. Buyers shall have obtained
documentation or other evidence reasonably satisfactory to Buyers that
Buyers and Sellers have received all consents, permits, approvals,
authorizations and clearances of governmental and regulatory authorities
required to complete the transactions herein contemplated, and that Buyers
have:
(i) no reason to believe it will not obtain Government
Reimbursement Programs certification of the Facilities for their
operation by Buyers from or after the Closing Date so that Buyers may
participate in and receive reimbursement from such programs as of the
Closing Date; and
(ii) obtained such other consents and approvals as may be legally
or contractually required for Buyers' consummation of the transactions
described herein.
7.4 ACTION/PROCEEDING. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened
to restrain or prohibit the transactions herein contemplated, wherein an
unfavorable judgment would prevent or make materially unfavorable the
carrying out of this Agreement or render any of the transactions described
herein subject to rescission, and there shall not be in effect any order
restraining, enjoining or otherwise preventing consummation of the sale of
the Assets and other transactions contemplated herein.
7.5 EXTRAORDINARY LIABILITIES/OBLIGATIONS. Sellers shall not have
incurred any liability or obligation outside the ordinary course of
business since the effective date hereof which materially affects its
Assets; no Seller shall (a) be in receivership, (b) have made any
assignment for the benefit of creditors, (c) have admitted in writing its
inability to pay its debts as they mature, (d) have been adjudicated a
bankrupt, (e) have filed a petition in voluntary bankruptcy, a petition or
answer seeking reorganization, or an arrangement with creditors under the
federal bankruptcy law or any other similar law or statute of the United
States or any state, nor shall any such petition have been filed against
any of them, or (f) have entered into any Contract to do or permit the
doing of any of the foregoing on or after the Closing Date.
7.6 TRANSFER OF ASSETS. Sellers shall have furnished to Buyers, in
form reasonably acceptable to Buyers and approved by Buyers' counsel,
warranty deeds, bills of sale, assignments or other instruments of
transfer, and consents and waivers by others, necessary or appropriate to
transfer to and effectively vest in Buyers all of the Assets.
7.7 SCHEDULES. Sellers shall have delivered the Schedules required
to be delivered by Sellers, and Buyers shall have approved such Schedules
within five (5) business days of delivery by Sellers of a complete set of
such Schedules to Buyers. In addition, the updated Schedules delivered by
Sellers pursuant to Section 12.1(b) shall not disclose any new matters
that, individually or in the aggregate, have or would have a material
adverse change in the financial condition, assets, liabilities, income or
businesses of Sellers, the Company or the Hospital Businesses, taken as a
whole.
7.8 CLOSING DOCUMENTS. Sellers shall have executed and delivered to
Buyers all agreements, instruments, certificates or other documents
required to be executed by Sellers pursuant to any term or provision of
this Agreement.
7.9 UCC SEARCHES. Sellers shall have obtained and delivered to
Buyers UCC lien, judgment and tax searches showing no Encumbrances on any
of the Assets except for Encumbrances that secure the Long Term Debt and
the Permitted Encumbrances and the Other Permitted Encumbrances which
Buyers accept in writing.
7.10 PHYSICAL INVENTORY. Seller shall have caused the Physical
Inventory to be conducted.
7.11 APPROVAL OF BOARDS OF DIRECTORS OF SELLERS AND PHC. Sellers
shall have obtained the approvals of the Boards of Directors of Sellers and
PHC in accordance with Section 5.1 hereof.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS.
The obligations of Sellers hereunder are, at the option of Sellers,
subject to the satisfaction, on or prior to the Closing Date, of the
following conditions unless waived in writing by Sellers:
8.1 REPRESENTATIONS/WARRANTIES. The representations and warranties
of Buyers contained in this Agreement shall be (a) true and correct when
made, (b) if not qualified as to materiality, true and correct in all
material respects as of the Closing Date as though such representations and
warranties had been made on and as of the Closing Date; and (c) if
qualified as to materiality, true and correct as of the Closing Date as
though such representations and warranties had been made on and as of the
Closing Date; and each and all of the terms, covenants and conditions of
this Agreement to be complied with or performed by Buyers on or before the
Closing Date shall have been duly complied with and performed by Buyers in
all material respects.
8.2 HSR APPROVAL. All applicable waiting periods specified in the
HSR Act, if applicable, shall have expired or been terminated.
8.3 ACTION/PROCEEDING. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened
to restrain or prohibit the transactions herein contemplated, wherein an
unfavorable judgment would prevent or make materially unfavorable the
carrying out of this Agreement or render any of the transactions described
herein subject to rescission, and there shall not be in effect any order
restraining, enjoining or otherwise preventing consummation of the sale of
the Assets.
8.4 PRE-CLOSING CONFIRMATIONS. Sellers shall have obtained
documentation or other evidence reasonably satisfactory to Sellers that
Sellers and Buyers have received all consents, approvals, authorizations
and clearances of governmental and regulatory authorities required of it to
consummate the transactions contemplated hereby, and that Sellers have
obtained such other consents and approvals as may be legally or
contractually required for Sellers' consummation of the transactions
described herein.
8.5 EXTRAORDINARY LIABILITIES/OBLIGATIONS. Buyers shall not (a) be
in receivership or dissolution; (b) have made any assignment for the
benefit of creditors; (c) have admitted in writing its inability to pay its
debts as they mature; (d) have been adjudicated a bankrupt; (e) have filed
a petition in voluntary bankruptcy, a petition or answer seeking
reorganization, or an arrangement with creditors under the federal
bankruptcy law or any other similar law or statute of the United States or
any state, nor shall any such petition have been filed against Buyers; or
(f) have entered into any Contract to do or permit the doing of any of the
foregoing on or before the Closing Date.
8.6 APPROVAL OF BOARDS OF DIRECTORS OF SELLERS AND PHC. Sellers
shall have obtained the approvals of the Boards of Directors of Sellers and
PHC in accordance with Section 5.1 hereof.
8.7 PHC GUARANTY FEE. Unless Sellers shall have obtained the release
of the guaranty of PHC for the lease described on SCHEDULE 8.7 hereto,
Buyers agree to pay PHC a guaranty fee equal to two percent (2%) of the
outstanding principal balance of the Bellwood Long Term Debt for each year,
or portion thereof, such guaranty remains in effect. Notwithstanding the
preceding, if Buyers assume the master lease and the guaranty thereof,
securing the loan by MetLife Capital Financial Corporation to the Bellwood
Medical Office Building Partnership according to the September 16, 1998
letter from MetLife Capital Financial Corporation attached to Schedule 8.7
by October 25, 1998 and pay the one percent (1%) assumption fee, Sellers
will waive the incurrance of the 2% guaranty fee for the period from
Closing until October 25, 1998. Buyers agree to use all reasonable efforts
necessary to assume the master lease and guaranty thereof in the manner and
on the terms described in the September 16, 1998 letter from MetLife
Capital Financial Corporation to the Bellwood Medical Office Building .
8.8 PHC SENIOR LENDER CONSENT. PHC shall have received all necessary
consents and releases from its senior lenders to consummate the
transactions contemplated by this Agreement.
8.9 CORPORATE INTEGRITY AGREEMENT. PHC shall have received an
acknowledgment of and agreement to the Corporate Integrity Agreement
between the Office of Inspector General of the Department of Health and
Human Services and Lincoln Community Medical Limited Liability Company and
Paracelsus Healthcare Corporation in the form of the Notice and Agreement
attached hereto as SCHEDULE 8.9.
9. [ARTICLE 9 INTENTIONALLY OMITTED]
10. ADDITIONAL AGREEMENTS.
10.1 CASUALTY. If any part of the Assets are destroyed, damaged or
lost (whether by fire, theft, vandalism or other cause or casualty) prior
to the Closing Date, and such destruction, damage or loss does not have a
material adverse effect on the conduct of the Hospital Businesses, Buyers
shall close this transaction in accordance with its terms, and retain the
proceeds (or the right to receive the proceeds) of the applicable insurance
policy, and Sellers shall pay or cause to be paid to Buyers any and all
applicable insurance proceeds, deductibles and/or coinsurance amounts due
or to become due on or after the Closing Date.
10.2 ALLOCATION OF PURCHASE PRICE. Buyers shall allocate the Purchase
Price among the Assets within sixty (60) days after Closing and deliver a
copy of such allocation to Sellers. Any Tax Returns or other tax
information the parties may file or cause to be filed with any governmental
agency shall be prepared and filed consistent with such agreed upon
allocation.
10.3 KEANE SUBLEASE. PHC is licensed to use the KEANE software system
and the license is not assignable. The KEANE software system will be
provided, together with the data processing services, to Buyers, at
Sellers' actual cost, for the first six (6) months following the Closing,
pursuant to the terms of a Services Agreement, substantially in the form
attached hereto as EXHIBIT 10.3.
10.4 PHYSICAL INVENTORY. Sellers shall cause to be conducted the
Physical Inventory and deliver a report of such Physical Inventory to
Buyers which shall be attached as EXHIBIT 10.4.
10.5 TERMINATION PRIOR TO CLOSING.
(a) Notwithstanding anything herein to the contrary, this Agreement
may be terminated at any time: (i) on or prior to the Closing Date by
mutual consent of Buyers and Sellers; (ii) on the Closing Date by Buyers if
any of the conditions specified in Article 7 of this Agreement have not
been satisfied or waived in writing by Buyers; (iii) on the Closing Date by
Sellers if any of the conditions specified in Article 8 of this Agreement
have not been satisfied or waived in writing by Sellers; (iv) by Buyers if
there has been any property damage, destruction or loss at any Facility
which materially affects the operation of such Facility; (v) by Buyers if
Buyers orders a Phase II Environmental Report and an issue relating to
Materials of Environmental Concern at any of the Facilities is identified
and is unacceptable to Buyers, (vi) by Buyers if Buyers shall not have
approved the Schedules in accordance with Section 7.8, (vii) by Buyers or
Sellers if the Closing shall not have taken place on or before 11:59.99
P.M. on September 30, 1998 (which date may be extended by mutual written
agreement of Buyers and Sellers), in any event unless the party desiring to
terminate this Agreement is in default hereunder, and (viii) by Buyers if
the form of Services Agreement referred to in Section 10.3 is not
acceptable to Buyers.
(b) In the event of a termination for any of the reasons set forth in
Section 10.5(a), Buyers shall be entitled to the return of the Deposit.
10.6 POST-CLOSING MAINTENANCE OF AND ACCESS TO INFORMATION.
(a) Sellers and Buyer acknowledge that after Closing each party may
need access to information or documents in the control or possession of the
other party for the purposes of concluding the transactions herein
contemplated, Tax Returns or audits, compliance with the Government
Reimbursement Programs and other laws and regulations, and the prosecution
or defense of third party claims. Accordingly, each party shall keep,
preserve and maintain in the ordinary course of business, and as required
by law and relevant insurance carriers, all books, records (including
patient medical records), documents and other information in the possession
or control of such party and relevant to the foregoing purposes at least
until the expiration of any applicable statute of limitations or extensions
thereof.
(b) Each party shall cooperate fully with, and make available for
inspection and copying by, the other party, its employees, agents, counsel
and accountants or governmental agencies, upon written request and at the
expense of the requesting party, such books, records documents and other
information to the extent reasonably necessary to facilitate the foregoing
purposes. In addition, each party shall cooperate with, and shall permit
and use its reasonable best efforts to cause its respective former and
present directors, officers and employees to cooperate with, the other
party on and after Closing in furnishing information, evidence, testimony
and other assistance in connection with any action, proceeding, arrangement
or dispute of any nature with respect to the subject matters of this
Agreement and pertaining to periods prior to the Closing Date.
(c) The exercise by Sellers of any right of access granted herein
shall not materially interfere with the business operations of Buyers.
10.7 REPRODUCTION OF DOCUMENTS. This Agreement and all documents
relating hereto, including, without limitation, (a) consents, waivers and
modifications which may hereafter be executed, (b) the agreements,
instruments and other documents delivered at the Closing, and (c) financial
statements, certificates and other information previously or hereafter
furnished to Sellers or to Buyers, may be reproduced by any photographic,
photostatic, microfilm, micro-card, miniature photographic or other similar
process and Sellers and Buyers may destroy any original documents so
reproduced. Sellers and Buyers stipulate that any such reproduction shall
be admissible in evidence as the original itself in any judicial, arbitral
or administrative proceeding (whether or not the original is in existence
and whether or not such reproduction was made by Sellers or Buyers in the
regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
10.8 MISDIRECTED PAYMENTS, ETC. Each of Sellers and Buyers shall
remit to the other with reasonable promptness any payments received, which
payments are on or in respect of accounts or notes receivable owned by and
due to (or are otherwise payable to) the other. In addition, if any
Government Reimbursement Program or other Person determines that funds
previously paid or credited to any of Sellers, any other Affiliate of
Sellers, or the Facilities in respect of services rendered prior to the
Closing Date have resulted in an overpayment or must be repaid, Sellers
shall be responsible for, and reimburse Buyers for, the repayment of said
monies (and the defense of such actions) subject to the provisions and
limitations of Article 11. Subject to the provisions and limitations of
Article 11, if any Buyer suffers any deduction to or offset against amounts
due such Buyer of funds previously paid or credited to any Seller, any
Affiliate of Sellers, or the Facilities in respect of services rendered
prior to the Closing Date, Sellers shall pay immediately to such Buyers the
amounts so billed or offset upon demand.
10.9. GOVERNMENT REIMBURSEMENT PROGRAMS. Sellers will prepare, submit
and timely file the terminating Cost Report relating to the Hospital
Businesses for the cost report period ending on or prior to the Closing
Date.
11. INDEMNIFICATION AND OTHER RELIEF.
11.1 INDEMNIFICATION BY SELLERS AND PHC. (a) Subject to and only to
the extent provided in this Article 11, from and after the Closing, Sellers
and PHC shall indemnify, defend and hold harmless each Buyer, and each
Buyers' subsidiaries, designees, stockholders, Affiliates, officers,
directors, employees, agents, successors and assigns after Closing (each
Buyer and such persons, collectively, "BUYERS' INDEMNIFIED PERSONS"), from
and against any damages, claims, costs, losses, liabilities, expenses or
obligations (including interest, penalties, court costs, costs of
preparation and investigation, reasonable attorneys', accountants' and
other professional advisors' fees and associated expenses) (collectively,
"LOSSES") incurred or suffered by Buyers' Indemnified Persons, directly or
indirectly, as a result of or arising from:
(i) any breach of any representation or warranty of any Seller
contained herein or the nonfulfillment of any covenant, agreement or
other obligation of any Seller or PHC, set forth in this Agreement, or
any agreement, instrument, certificate or other document delivered or
to be delivered pursuant hereto;
(ii) the Excluded Liabilities, the Excluded Contracts and the
Excluded Liens; and
(iii) Sellers' interest in the Joint Venture arising prior to the
Closing Date.
(b) The indemnification rights provided herein to Buyers' Indemnified
Persons shall apply only to Losses that any such Buyers' Indemnified
Persons shall suffer as a result of or due to being such Buyers'
Indemnified Persons.
11.2 LIMITATIONS/SELLERS AND PHC. Sellers and PHC shall have no
liability under Section 11.1 and no claim under Section 11.1 of this
Agreement shall be made unless notice thereof shall have been given by or
on behalf of any of Buyers' Indemnified Persons to Sellers in the manner
provided in Section 11.5.
11.3 INDEMNIFICATION BY BUYERS. Subject to and only to the extent
provided in this Article 11, from and after the Closing Date, Buyers shall
indemnify, defend and hold harmless Sellers and each of their respective
subsidiaries, stockholders, members, Affiliates, officers, directors,
trustees, employees, agents, successors and assigns after Closing (Sellers
and such persons, collectively, "SELLERS' INDEMNIFIED PERSONS") from and
against any Losses incurred or suffered by Sellers' Indemnified Persons,
directly or indirectly, as a result of or arising from
(a) any breach of any representation or warranty of any Buyer
contained herein or the nonfulfillment of any covenant, agreement or other
obligation of any Buyer, set forth in this Agreement, or any agreement,
instrument, certificate or other document delivered or to be delivered
pursuant hereto, and
(b) the Assumed Liabilities.
11.4 LIMITATIONS/BUYER. Buyers shall have no liability under
Section 11.3 and no claim under Section 11.3 of this Agreement shall be
made unless notice thereof shall have been given by or on behalf of any of
Sellers' Indemnified Persons to Buyers in the manner provided in
Section 11.5.
11.5 NOTICE AND PROCEDURE. All claims for indemnification by any
Person against whom claims of indemnification are being asserted (an
"INDEMNIFYING PARTY") under any provision of Article 11 hereof shall be
asserted and resolved as follows:
(a)(i) If any claim or demand for which an indemnifying party
(the "Indemnifying Party") would be liable for Losses to a Buyers'
Indemnified Person or a Seller's Indemnified Person, as the case may
be (the "INDEMNIFIED PARTY") is asserted against or sought to be
collected from the Indemnified Party by a Person other than a Buyer or
Seller or any Affiliate thereof (a "THIRD PARTY CLAIM"), the
Indemnified Party shall deliver a Claim Notice (as defined below) with
reasonable promptness to the Indemnifying Party. If the Indemnified
Party fails to deliver the Claim Notice to the Indemnifying Party
within thirty (30) days after the Indemnified Party receives notice of
such Third Party Claim, the Indemnifying Party will not be obligated
to indemnify the Indemnified Party with respect to such Third Party
Claim if and only to the extent that the Indemnifying Party's ability
to defend the Third Party Claim has been irreparably prejudiced by
such failure. The Indemnifying Party will notify the Indemnified
Party within ten (10) days after receipt of the Claim Notice (the
"NOTICE PERIOD") whether the Indemnifying Party intends, at the sole
cost and expense of the Indemnifying Party (but subject to the
limitations contained herein), to defend the Indemnified Party against
the Third Party Claim. The assumption by the Indemnifying Party of
the defense of the Third Party Claim shall not constitute an admission
by the Indemnifying Party that the claim is one for which the
Indemnifying Party is ultimately liable under this Article 11 to the
extent provided herein.
(ii) If the Indemnifying Party notifies the Indemnified Party
within the Notice Period that the Indemnifying Party intends to defend
the Indemnified Party against the Third Party Claim, then the
Indemnifying Party will have the right to defend, at its sole cost and
expense (but subject to the limitations contained herein), the Third
Party Claim by all appropriate proceedings, which proceedings will be
diligently prosecuted by the Indemnifying Party to a final conclusion
or settled at the discretion of the Indemnifying Party (with the
consent of the Indemnified Party, which consent will not be
unreasonably withheld). The Indemnifying Party will have full control
of such defense and proceedings; PROVIDED that the Indemnified Party
may file during the Notice Period, at the sole cost and expense of the
Indemnified Party, any motion, answer or other pleading that the
Indemnified Party may deem necessary or appropriate to protect its
interests and not irrevocably prejudicial to the Indemnifying Party
(it being understood and agreed that, except as provided in
Section 11.5(a)(iii), if an Indemnified Party takes any such action
that is irrevocably prejudicial and conclusively causes a final
adjudication that is materially adverse to the Indemnifying Party, the
Indemnifying Party will be relieved of its obligations hereunder with
respect to that portion of the Third Party Claim prejudiced by the
Indemnified Party's action); and PROVIDED FURTHER that, if requested
by the Indemnifying Party, the Indemnified Party shall cooperate, at
the sole cost and expense of the Indemnifying Party, with the
Indemnifying Party and its counsel in contesting any Third Party Claim
that the Indemnifying Party elects to contest or, if appropriate in
the judgment of the Indemnified Party and related to the Third Party
Claim, in making any counterclaim or cross-claim against any Person
(other than the Indemnified Party). The Indemnified Party may
participate in, but not control, any defense or settlement of any
Third Party Claim assumed by the Indemnifying Party pursuant to this
Section 11.5(a)(ii) and, except as provided in the preceding sentence,
the Indemnified Party will bear its own costs and expenses with
respect to such participation. Notwithstanding the foregoing, the
Indemnifying Party may not assume the defense of the Third Party Claim
if (1) the Persons against whom the claim is made, or any impleaded
Persons, include both the Indemnifying Party and any Indemnified
Party, and (2) representation of both such Persons by the same counsel
would be inappropriate due to actual or potential differing interests
between them, in which case any Indemnified Party shall have the right
to defend the Third Party Claim and to employ counsel at the expense
of the Indemnifying Party, subject to the limitations contained
herein.
(iii) If the Indemnifying Party fails to notify the Indemnified
Party within the Notice Period that the Indemnifying Party intends to
defend the Indemnified Party against the Third Party Claim, or if the
Indemnifying Party gives such notice but fails diligently to prosecute
or settle the Third Party Claim, or if the Indemnifying Party fails to
give any notice whatsoever within the Notice Period, then the
Indemnified Party will have the right (but not the obligation) to
defend, at the sole cost and expense of the Indemnifying Party
(subject to the limitations contained herein), the Third Party Claim
by all appropriate proceedings, which proceedings will be prosecuted
diligently by the Indemnified Party to a final conclusion or settled
at the discretion of the Indemnified Party. The Indemnified Party
will have full control of such defense and proceedings, including any
compromise or settlement thereof; PROVIDED that, if requested by the
Indemnified Party, the Indemnifying Party shall cooperate, at the sole
cost and expense of the Indemnifying Party (subject to the limitations
contained herein), with the Indemnified Party and its counsel in
contesting the Third Party Claim which the Indemnified Party is
contesting, or, if appropriate in the judgment of the Indemnified
Party and related to the Third Party Claim, in making any counterclaim
or cross claim against any Person (other then the Indemnifying Party).
(iv) Notwithstanding the foregoing provisions of
Section 11.5(a)(iii), if the Indemnifying Party notifies the
Indemnified Party within the Notice Period that the Indemnifying Party
disputes its obligation to indemnify the Indemnified Party against the
Third Party Claim, and if such dispute is resolved pursuant to
Section 11.5(c) in favor of the Indemnifying Party, the Indemnifying
Party will not be required to bear the costs and expenses of the
Indemnified Party's defense pursuant to this Section 11.5(a)(iii) or
of the Indemnifying Party's participation therein at the Indemnified
Party's request, and the Indemnified Party will reimburse the
Indemnifying Party in full for any such costs and expenses. The
Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to
Section 11.5(a)(iii), but the Indemnifying Party will bear its own
costs and expenses with respect thereto if such participation is not
at the request of the Indemnified Party.
(b) In the event any Indemnified Party should have a claim against
any Indemnifying Party hereunder that is not a Third Party Claim, the
Indemnified Party shall deliver an Indemnity Notice (as defined below) with
reasonable promptness to the Indemnifying Party. The failure by any
Indemnified Party to give timely notice referred to in the preceding
sentence shall not impair such party's rights hereunder except to the
extent that an Indemnifying Party demonstrates that it has been irreparably
prejudiced thereby. If the Indemnifying Party fails to notify the
Indemnified Party within twenty (20) days following its receipt of the
Indemnity Notice that the Indemnifying Party disputes its obligation to
indemnify the Indemnified Party hereunder, the claim will be conclusively
deemed a liability of the Indemnifying Party hereunder (subject to the
limitations contained herein).
(c) If the Indemnifying Party timely disputes its liability with
respect to a claim described in a Claim Notice or an Indemnity Notice, the
Indemnifying Party and the Indemnified Party shall proceed promptly and in
good faith to negotiate a resolution of such dispute within sixty (60) days
following receipt by the Indemnifying Party of a Claim Notice or an
Indemnity Notice.
(d) Subject to the limitations contained herein, the Indemnifying
Party shall pay the amount of any liability to the Indemnified Party within
thirty (30) days following its receipt of a Claim Notice or an Indemnity
Notice which is indemnifiable hereunder, or on such later date (i) in the
case of a Third Party Claim, as the Indemnified Party suffers Losses in
respect of the Third Party Claim, or (ii) in the case of an Indemnity
Notice in which the amount of the claim is estimated, promptly after the
amount of such claim becomes finally determined to the extent such claim is
indemnifiable hereunder. In the event the Indemnified Party is not paid in
full for its claim in a timely manner after the Indemnifying Party's
obligation to indemnify and the amount thereof has been determined in
accordance with this Article 11, the amount due shall bear interest from
the date that the Indemnifying Party received the Claim Notice or the
Indemnity Notice until paid at the interest rate provided in Section 1.9,
and in addition to any other rights it may have against the Indemnifying
Party, the Indemnified Party shall have the right to set-off the unpaid
amount of such claim against any amounts owed by it to the Indemnifying
Party.
(e) The term "CLAIM NOTICE" means written notification of a Third
Party Claim by an Indemnified Party to an Indemnifying Party under Article
11, enclosing a copy of all papers served, if any, and specifying the
nature of and alleged basis for the Third Party Claim and, to the extent
then feasible, the alleged amount or the estimated amount of the Third
Party Claim.
(f) The term "INDEMNITY NOTICE" means written notification of a claim
for indemnity under Article 11 hereof other than a Third Party Claim by an
Indemnified Party to an Indemnifying Party pursuant to Section 11.5(b)
hereof, specifying the nature of and specific basis for the claim and, to
the extent then feasible, the amount or the estimated amount of the claim.
(g) Any estimated amount of a claim submitted in a Claim Notice or an
Indemnity Notice shall not be conclusive of the final amount of such claim,
and the giving of a Claim Notice when an Indemnity Notice is due, or the
giving of an Indemnity Notice when a Claim Notice is due, shall not impair
such Indemnified Party's rights hereunder except to the extent that an
Indemnifying Party demonstrates that it has been irreparably prejudiced
thereby. Notice of any claim comprised in part of Third Party Claims and
claims that are not Third Party Claims may be given pursuant to either
Section 11.5(a) or 11.5(b).
(h) For purposes of this Article 11 and with respect to Taxes, a
Third Party Claim includes a Revenue Agent's Report, Statutory Notice of
Deficiency, Notice of Proposed Assessment, or any other official written
notice from a Taxing authority that Taxes are due or that a Tax audit will
be conducted.
11.6 LIMITATION ON INDEMNIFICATION PAYMENTS.
(a) Neither a Seller Indemnified Party nor a Buyer Indemnified
Party shall make any claim for indemnification pursuant to Sections
11.1 or 11.3 with respect to any matter unless the amount of the
Losses arising out of such matter is in excess of $25,000 (a "RELEVANT
CLAIM"). Losses that are $25,000 and less for which indemnification
would otherwise be provided for shall be accumulated, but such
accumulated amount shall be reduced by the amount paid as a Relevant
Claim, and once such net accumulated Losses exceeds $100,000, Sellers
or Buyers as appropriate shall pay fully such net accumulated Losses.
Thereafter Losses less than $25,000 shall again accumulate and be paid
in a similar manner.
(b) Notwithstanding the provisions of Section 11.6(a), any
indemnified claim having its basis in any of the following shall not
be subject to the thresholds established by such provisions: (i) fraud
or intentional misrepresentation, (ii) the failure by any Buyer to pay
or observe any Assumed Liability, (iii) the failure by any Seller to
pay or observe any Excluded Liability or Excluded Contract, (iv) a
breach by Sellers of its obligations to satisfy prior to Closing all
obligations secured by a lien on, or a security interest in, the
Assets, (v) any breach by Buyers to pay the Purchase Price hereunder,
(vi) a breach by any Seller to tender any amounts due under the
Medicare Reconciliation Note, or (vii) a breach by Buyers or Sellers
of their obligation to pay any post-Closing adjustment to the Purchase
Price.
11.7 TREATMENT OF INDEMNIFICATION PAYMENTS. Any indemnification
payment made by either party pursuant to this Article 11 shall be treated
by the parties as an adjustment to the Purchase Price of the Assets.
11.8 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY PERIOD.
Notwithstanding any right of Buyers (whether or not exercised) to
investigate the affairs of Sellers or any right of any party (whether or
not exercised) to investigate the accuracy of the representations and
warranties of the other party contained in this Agreement, Sellers have, on
the one hand, and each Buyer has, on the other hand, the right to rely
fully upon the representations, warranties, covenants and agreements of the
other contained in this Agreement. The representations and warranties
respectively made by Sellers, on the one hand, and each Buyer, on the other
hand, in this Agreement or in any certificate respectively delivered by
Sellers or Buyers will survive the Closing twenty-four months except that
representations and warranties contained in Sections 3.10 and 3.17 shall
survive indefinitely and the representations and warranties contained in
Section 3.1, 3.2, 3.3, 3.4, 3.11, 3.13, 3.21, 3.22, 3.23 and 3.27 shall
survive the Closing Date until the expiration of the applicable statutes of
limitations for Third Party Claims applicable to the matters covered
thereby. For convenience of reference, the date upon which any
representation or warranty contained herein shall terminate, if any, is
referred to herein as the "SURVIVAL DATE."
12. GENERAL.
12.1 SCHEDULES.
(a) The Schedules and all exhibits and documents referred to in or
attached to this Agreement are integral parts of this Agreement as if fully
set forth herein and all statements appearing therein shall be deemed to be
representations. Except as set forth in the Schedules, Sellers represent
and warrant to Buyers that Sellers have provided or prior to Closing will
provide to Buyers access to or complete and genuine copies of all
Contracts, instruments and other documents described in, attached to or
referenced in the Schedules.
(b) Sellers shall have the right to update the Schedules prior to and
as of Closing for the purpose of ensuring that Sellers' representations and
warranties are true and correct in all material respects at such time.
Such updating shall not be effective retroactively to the effective date of
this Agreement and shall not qualify any representation or warranty made by
Sellers as of the effective date hereof.
12.2 CONSENTED ASSIGNMENT. Sellers shall use its best efforts to
obtain the necessary consents to the assignment of the Assumed Contracts to
Buyers.
12.3 TIME OF ESSENCE. Time is of the essence in the performance of
this Agreement. This Section may not be waived except in a writing
expressly referring hereto.
12.4 WAIVER OF TRIAL BY JURY. Each party hereby knowingly,
voluntarily and irrevocably waives any and all rights it may have to demand
that any action, proceeding or counterclaim arising out of or in any way
related to this Agreement or the relationships of the parties be tried by a
jury. This waiver extends to any and all rights to demand a trial by jury
arising from any source including, but not limited to, the Constitution of
the United States, the Constitution of the State of California, common law
or any applicable law, rule, or regulation.
12.5 CONSENTS, APPROVALS AND DISCRETION. Except as herein expressly
provided to the contrary, whenever this Agreement requires any consent or
approval to be given by any party or any party must or may exercise
discretion, such consent or approval shall not be unreasonably withheld or
delayed and such discretion shall be reasonably exercised.
12.6 EXPENSES; LEGAL FEES AND COSTS.
(a) Except as otherwise expressly set forth in this Agreement, all
expenses of the preparation of this Agreement and of the purchase of the
Assets, including counsel fees, accounting fees, brokerage or finder fees
and commissions, investment advisor's fees and disbursements, shall be paid
or accrued by the party incurring such expense, whether or not such
transactions are consummated.
(b) Sellers shall pay or accrue all sales taxes, if any, arising out
of the sale and transfer of the Assets.
(c) In the event any party incurs legal expenses to enforce any
provision of this Agreement, the prevailing party will be entitled to
recover such legal expenses, including attorneys' fees, costs and necessary
disbursements, in addition to any other relief to which such party shall be
entitled at law or in equity.
(d) In connection with any HSR filing fees, Sellers shall pay fifty
percent (50%) and Buyers shall pay fifty percent of such fees.
12.7 CHOICE OF LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California without regard to
such state's conflicts of laws rules.
12.8 BENEFIT/ASSIGNMENT. Subject to provisions herein to the
contrary, this Agreement shall inure to the benefit of and be binding upon
the parties and their respective legal representatives, successors and
assigns; PROVIDED that no party may assign this Agreement or any part
hereof, or delegate any duty or obligation to be performed hereunder, to
another Person without the prior written consent of the other party except
that Buyer may assign this Agreement to one or more designees.
12.9 ACCOUNTING DATE. The transactions contemplated hereby shall be
effective for accounting purposes as of the Effective Time, unless
otherwise agreed in writing by Sellers and Buyers.
12.10 NO THIRD PARTY BENEFICIARY. The terms and provisions of this
Agreement (including Section 6.5) are intended solely for the benefit of
Buyers and its designees and Sellers and their respective successors or
assigns, and it is not the intention of the parties to confer third-party
beneficiary rights upon any other Person.
12.11 WAIVER OF BREACH. The waiver by either party of a breach or
violation by another party of any provision of this Agreement shall not
operate as, or be construed to constitute, a waiver of any subsequent
breach or violation of the same, or a breach or violation of any other,
provision hereof. All remedies, either under this Agreement, or by law or
otherwise afforded, will be cumulative and not alternative.
12.12 NOTICES. Any notice, demand or communication required, permitted
or desired to be given hereunder shall be deemed effectively given when
personally delivered, when received by facsimile or other electronic means,
including telegraph and telex (other than for a Claim Notice or Indemnity
Notice) , when delivered by overnight courier, or five (5) days after being
deposited in the United States mail, with postage prepaid thereon,
certified or registered mail, return receipt requested, in any event
addressed as follows:
Buyers: Alta Healthcare System LLC
11726 San Vicente Boulevard
Suite 300
Los Angeles, California 90049
Attn.: Mr. Samuel Lee
Facsimile: (310) 442-4707
with a copy to: Manatt, Phelps & Phillips, LLP
11355 West Olympic Boulevard
Los Angeles, California 90064
Attn.: Nancy H. Wojtas, Esq.
Facsimile: (310) 312-4224
Sellers: Paracelsus Healthcare Corporation
Paracelsus Real Estate Corporation
515 W. Greens Road
Suite 800
Houston, Texas 77067
Attn.: Chief Executive Officer
Facsimile: (281) 774-5413
with a copy to: Michener, Larimore, Swindle, Whitaker,
Flowers, Sawyer, Reynolds & Chalk, L.L.P.
3500 City Center Tower II
301 Commerce Street
Fort Worth, Texas 76102-4186
Attn.: Wayne Whitaker, Esq.
Facsimile: (817) 335-6935
or to such other address or number, or to the attention of such other
Person, as any party may designate, at any time, in writing in conformity
with these notice provisions. Failure to send a copy to counsel shall not
invalidate the notice.
12.13 SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future law, and if
the rights or obligations of Buyers or Sellers under this Agreement will
not be materially and adversely affected thereby, (a) such provision will
be fully severable, (b) this Agreement will be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part
hereof, (c) the remaining provisions of this Agreement will remain in full
force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom, and (d) in lieu of
such illegal, invalid or unenforceable provision, there will be added
automatically as a part of this Agreement a legal, valid and enforceable
provision as similar in terms to such illegal, invalid or unenforceable
provision as is possible.
12.14 GENDER AND NUMBER. Whenever the context of this Agreement
requires, the gender of all words herein shall include the masculine,
feminine and neuter, and the number of all words herein shall include the
singular and plural.
12.15 DIVISIONS AND HEADINGS. The Table of Contents, the divisions of
this Agreement into sections and subsections and the use of captions and
headings in connection therewith are solely for convenience and shall have
no legal effect in construing the provisions of this Agreement.
12.16 ENTIRE AGREEMENT/AMENDMENT. This Agreement supersedes all
previous contracts, and constitutes the entire agreement of whatsoever kind
or nature existing between or among the parties representing the within
subject matter and no party shall be entitled to benefits other than those
specified herein. As between or among the parties, no oral statement or
prior written material not specifically incorporated herein shall be of any
force and effect. The parties specifically acknowledge that in entering
into and executing this Agreement, the parties rely solely upon the
representations and agreements contained in this Agreement and no others.
All prior representations or agreements, whether written or verbal, not
expressly incorporated herein are superseded unless and until made in
writing and signed by the parties. The representations and warranties set
forth in this Agreement shall survive the Closing and remain in full force
and effect as provided in Article 11, and shall survive the execution and
delivery of all other agreements, instruments or other documents described,
referenced or contemplated herein and shall not be merged herewith or
therewith. This Agreement may be executed in two or more counterparts,
each and all of which shall be deemed an original and all of which together
shall constitute but one and the same instrument. This Agreement may not
be amended or otherwise modified except in a writing duly executed by the
parties.
12.17 DRAFTING. No provision of this Agreement shall be interpreted
for or against any party hereto on the basis that such party was the
draftsman of such provision, both parties having participated equally in
the drafting hereof, and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in multiple originals by their authorized officers, all as of
the date and year first above written.
BUYERS:
Alta Healthcare System LLC
Alta Healthcare Building Corporation
Alta Bellwood Hospitals, Inc.
Alta Hollywood Hospitals, Inc.
Alta Los Angeles Hospitals, Inc.
Alta Monrovia Hospital, Inc.
Alta Orange Hospital, Inc.
By: _______________________________
David R. Topper
Their: President
SELLERS:
Paracelsus Healthcare Corporation
By:____________________________________
Michael M. Brooks
Its: Senior Vice-President
Paracelsus Real Estate Corporation
Paracelsus Medical Building Corporation
Lincoln Community Medical Corporation
Bellwood Medical Corporation
Hollywood Community Hospital Medical Center, Inc.
Paracelsus Los Angeles Community Hospital, Inc.
Monrovia Hospital Corporation
By:____________________________________
Michael M. Brooks
Their: Vice-President
ACKNOWLEDGED AND AGREED:
LLC: Lincoln Community Medical LLC
By: ____________________________________
Louis G. Rubino
Its:Vice President of the Board of Managers
<PAGE>
TABLE OF CONTENTS
PAGE
RECITALS 1
1. SALE AND TRANSFER OF THE ASSETS; PURCHASE PRICE 2
1.1 Sale of Assets 2
1.2 Excluded Assets 3
1.3 Assumed Liabilities 4
1.4 Purchase Price 5
1.5 Payment of Purchase Price 8
1.6 Final Balance Sheet; Reconciliation 8
1.7 Definitions; Interpretation 9
1.8 Interest 17
1.9 Sale of Lincoln Community Medical LLC's Assets 18
2. CLOSING 18
2.1 Closing 18
2.2 Actions of Sellers at Closing 19
2.3 Actions of Buyers at Closing 20
3. REPRESENTATIONS AND WARRANTIES OF SELLERS 21
3.1 Organization and Capacity 21
3.2 Corporate Powers; Consents; Absence of Conflicts With Other Agreements,
Etc.........................................................21
3.3 Limited Disclaimer of Warranties 22
3.4 Subsidiaries; Investments; Third Party Options 22
3.5 Financial Statements 23
3.6 Extraordinary Liabilities 23
3.7 Post-Balance Sheet Results 24
3.8 Accounts Receivable 25
3.9 Inventory 25
3.10 Real Property 25
3.11 Environmental Matters 27
3.12 Equipment 28
3.13 Trademarks, Computer Software, etc 28
3.14 Agreements and Commitments 29
3.15 Assumed Contracts 29
3.16 Certain Affiliate Transactions 30
3.17 Title to Personal Property 30
3.18 Healthcare Licenses 30
3.19 Employee Benefit Plans 31
3.20 Employees and Employee Relations 34
3.21 Taxes 34
3.22 Medicare Participation/Accreditation 36
3.23 Legal and Regulatory Compliance 36
3.24 Litigation or Proceedings 37
3.25 Insurance 37
3.26 Medical Staff Matters 38
3.27 Special Funds 38
3.28 Brokers and Finders 38
3.29 Experimental Procedures 38
3.30 Solvency 38
3.31 Operation of the Facilities 38
3.32 Full Disclosure 38
4. REPRESENTATIONS AND WARRANTIES OF BUYERS 39
4.1 Corporate Capacity 39
4.2 Corporate Powers; Consents; Absence of Conflicts With Other Agreements,
Etc....................................................39
4.3 Binding Effect 39
5. COVENANTS OF SELLERS 39
5.1 Boards of Directors' Approvals 39
5.2 Real Property Documentation 40
5.3 Operations 40
5.4 Negative Covenants 41
5.5 Governmental Approvals 42
5.6 Termination of Employment of Employees 42
5.7 Medicare Reconciliation Note 42
5.8 Insurance Ratings 42
5.9 Closing Conditions 42
5.10 Change of Name 42
5.11 Adverse Actions After Closing 43
5.12 Maintenance of Supplies 43
5.13 Excluded Contracts 43
5.14 Security Interest 43
5.15 Further Acts and Assurances 43
5.16 Lim-Keith Clinic 43
6. COVENANTS OF BUYERS. 44
6.1 Maintenance of Patient Records 44
6.2 Regulatory Approvals 44
6.3 Closing Conditions 44
6.4 Adverse Actions After Closing 44
6.5 Employee Matters 44
6.6 Assumed Contracts 45
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYERS 45
7.1 Representations/Warranties 45
7.2 Approvals 46
7.3 Pre-Closing Confirmations 46
7.4 Action/Proceeding 46
7.5 Extraordinary Liabilities/Obligations 46
7.6 Transfer of Assets 47
7.7 Schedules 47
7.8 Closing Documents 47
7.9 UCC Searches 47
7.10 Physical Inventory 47
7.11 Approval of Boards of Directors of Sellers and PHC 47
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS 47
8.1 Representations/Warranties 47
8.2 HSR Approval 48
8.3 Action/Proceeding 48
8.4 Pre-Closing Confirmations 48
8.5 Extraordinary Liabilities/Obligations 48
8.6 Approval of Boards of Directors of Sellers and PHC 48
8.7 PHC Guaranty Fee 48
8.8 PHC Senior Lender Consent 48
9. [ARTICLE 9 INTENTIONALLY OMITTED] 49
10. ADDITIONAL AGREEMENTS 49
10.1 Casualty 49
10.2 Allocation of Purchase Price 49
10.3 KEANE Sublease 49
10.4 Physical Inventory 49
10.5 Termination Prior to Closing 49
10.6 Post-Closing Maintenance of and Access to Information 50
10.7 Reproduction of Documents 50
10.8 Misdirected Payments, etc 50
10.9. Government Reimbursement Programs 51
11. INDEMNIFICATION AND OTHER RELIEF 51
11.1 Indemnification by Sellers and PHC 51
11.2 Limitations/Sellers and PHC 51
11.3 Indemnification by Buyers 52
11.4 Limitations/Buyer 52
11.5 Notice and Procedure 52
11.6 Limitation on Indemnification Payments 55
11.7 Treatment of Indemnification Payments 56
11.8 Survival of Representations and Warranties; Indemnity Period 56
12. GENERAL 56
12.1 Schedules 56
12.2 Consented Assignment 57
12.3 Time of Essence 57
12.4 Waiver of Trial by Jury 57
12.5 Consents, Approvals and Discretion 57
12.6 Expenses; Legal Fees and Costs 57
12.7 Choice of Law 57
12.8 Benefit/Assignment 57
12.9 Accounting Date 58
12.10 No Third Party Beneficiary 58
12.11 Waiver of Breach 58
12.12 Notices 58
12.13 Severability 59
12.14 Gender and Number 59
12.15 Divisions and Headings 59
12.16 Entire Agreement/Amendment 59
12.17 Drafting 60
