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): October 8, 1999
Commission file number 001-12055
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 500, 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
Pursuant to a recapitalization agreement completed on October 8, 1999,
Paracelsus Healthcare Corporation (the "Company") sold 93.9% of the outstanding
common stock of a wholly owned subsidiary ("HoldCo") to JJL Healthcare, LLC, an
affiliate of the private equity firm of Joseph Littlejohn & Levy, Inc., for
$280.0 million in cash, inclusive of working capital. The Company retained
6.1% of the outstanding common stock of HoldCo, which owned substantially all
of the assets of five hospitals, with 640 licensed beds, and related facilities
located in Salt Lake City, Utah. Subsequent to the closing of the
recapitalization agreement, IASIS Healthcare Corporation, a Tennessee
corporation, was merged with and into a wholly owned subsidiary of HoldCo, with
the HoldCo subsidiary as the surviving entity. Following the Merger, HoldCo
changed its name to IASIS Healthcare Corporation.
The recapitalization agreement was arrived at through an arms length
negotiation. Net cash proceeds were used to eliminate all indebtedness then
outstanding under the Company's senior credit facilities totaling $223.5
million and to reduce $12.8 million in borrowings under the commercial paper
financing program. The Company also eliminated $7.8 million in annual
operating lease payments related to one of the Utah Facilities. The Company
expects to record a gain, subject to the final settlement of working capital,
of approximately $82.0 million ($30.4 million after-tax) on the transaction and
an extraordinary charge of approximately $4.0 million ($2.4 million after-tax)
from the write-off of deferred financing costs due to early extinguishment of
debt under the senior credit facilities.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
In addition to reflecting the Utah Facilities transaction, the pro forma
financial information required by Item 7(b) also reflects the Company's sale of
(i)Paracelsus Senatobia Community, Inc. ("Senatobia") on September 30, 1999
(ii) all of the assets of four skilled nursing facilities (collectively, the
"Convalescent Hospitals") on July 2, 1999, (iii) Paracelsus Bledsoe County
General Hospital, Inc.("Bledsoe") on April 15, 1999, (iv) Chico Community
Hospital and Chico Community Rehabilitation Hospital (collectively "Chico")
on June 30, 1998 and (v) the eight hospitals located in metropolitan Los
Angeles ("LA Metro") on September 30, 1998 and (vi) the acquisition of the
remaining 50 % partnership interest in a general partnership operating as
Dakota Heartland Health System ("DHHS") on July 1, 1998, each of which were
previously reported in the Company's Current Report on Form 8-K for the
respective dates indicated above.
(b) Unaudited Pro Forma Financial Information (attached following the
signature page):
Unaudited Pro Forma Condensed Combining Statement of Operations -
For the six months ended June 30, 1999
Unaudited Pro Forma Condensed Combining Statement of Operations -
For the year ended December 31, 1998
Unaudited Pro Forma Condensed Combining Balance Sheet - June 30, 1999
Notes to Unaudited Pro Forma Condensed Combining Financial Statements
(c) Exhibits
10.26 Recapitalization Agreement, dated August 16, 1999, by and among
Paracelsus Healthcare Corporation, PHC/CHC Holdings, Inc., as parents, and
PHC/Psychiatric Healthcare Corporation, PHC-Salt Lake City, Inc., Paracelsus
Pioneer Valley Hospital, Inc., Pioneer Valley Health Plan, Inc., PHC-Jordan
Valley, Inc., Paracelsus PHC Regional Medical Center, Inc., Paracelsus Davis
Hospital, Inc., PHC Utah, Inc., and Clinicare of Utah, Inc., as sellers, and
JLL Hospital, LLC, as buyer.
<PAGE> 3
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 25, 1999 By:/S/ LAWRENCE A. HUMPHREY
-------------------------------
Lawrence A. Humphrey
Executive Vice President
& Chief Financial Officer
<PAGE> 4
ITEM 7(b)
PARACELSUS HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
The following table presents the Unaudited Pro Forma Condensed Combining
Financial Statements as of and for the six months ended June 30, 1999 and the
year ended December 31, 1998 to illustrate the effect of the Utah Facilities
transaction on October 8, 1999 and the sale of Senatobia effective September
30, 1999, the Convalescent Hospitals effective June 30, 1999, Bledsoe effective
on March 31, 1999, LA Metro on September 30, 1998 and Chico on June 30, 1998
and the acquisition of DHHS on July 1, 1998. The Unaudited Pro Forma Condensed
Combining Statements of Operations assume the above transactions occurred at
the beginning of each period presented. The Pro Forma Condensed Combining
Balance Sheet assumes the Utah transaction and the sale of Senatobia occurred
on June 30, 1999.
Pursuant to a recapitalization agreement completed on October 8, 1999, in
exchange for 93.9% ownership interest in its wholly owned subsidiary HoldCo,
which owned substantially all of the Utah Facilities' assets, the Company
received $280.0 million in cash and retained 6.1% of HoldCo's outstanding
common stock. The proceeds were used to eliminate all indebtedness then
outstanding under the Company's senior credit facilities totaling $223.5
million and to reduce $12.8 million in borrowings under the commercial paper
financing program. The Company also eliminated $7.8 million in annual
operating lease payments related to one of the Utah Facilities. The Company
expects to record a gain, subject to the final settlement of working capital,
of approximately $82.0 million ($30.4 million after-tax) on the transaction and
an extraordinary charge of approximately $4.0 million ($2.4 million after-tax)
from the write-off of deferred financing costs due to early extinguishment of
debt under the senior credit facilities.
Effective September 30, 1999, the Company completed the sale of the stock of
Senatobia for approximately $4.7 million, including net working capital. The
sales price was paid by a combination of cash and second lien promissory notes,
and the assumption by the buyer of approximately $3.0 million in capital lease
obligations and of certain lease guaranty payments. Certain of the notes are
subject to final working capital adjustments and to discounts under certain
circumstances. The Company expects to record a gain of approximately $2.3
million ($1.3 million net of tax) on the sale of Senatobia.
Effective June 30, 1999, the Company sold substantially all of the assets of
the Convalescent Hospitals. The sales price of approximately $6.9 million,
which excluded working capital, was paid by a combination of cash and a second
lien promissory note, which is subject to prepayment discounts. Additionally,
the buyer also assumed an operating lease at one of the facilities. Proceeds
from the sale, net of related transaction costs, were used to reduce
outstanding indebtedness under the senior credit facilities. The Company
recorded a gain of approximately $1.3 million ($774,000 net of tax) on the sale
of the Convalescent Hospitals.
Effective March 31, 1999, the Company completed the sale of the stock of
Bledsoe for approximately $2.2 million, which included net working capital and
was paid by a combination of cash and secured promissory notes. The Company
recorded no material gain or loss on the sale.
On September 30, 1998, the Company completed the sale of the eight LA Metro
hospitals for approximately $33.7 million, which included net working capital
and was paid by a combination of $16.5 million in cash, $13.7 million in
secured promissory notes and the assumption by the buyer of approximately $3.2
million in debt. Proceeds from the sale, net of related transaction costs,
were used to reduced indebtedness under the senior credit facilities and
borrowings under the Company's commercial paper financing program. The Company
recorded a loss of $3.7 million from the final settlement of working capital
and from discounts on the prepayment of promissory notes.
<PAGE> 5
Effective July 1, 1998, the Company acquired the remaining 50% interest in DHHS
from its partner for $64.5 million, thereby giving the Company 100% ownership.
The purchase price was financed from borrowings under the Company's senior
credit facilities.
On June 30, 1998, the Company sold the assets of Chico for $25.0 million in
cash plus working capital and the termination of an operating lease. Net
proceeds from the sale were used to reduce $24.6 million in indebtedness under
the credit facilities and $3.1 million in borrowings under the commercial paper
financing program. The Company recorded a gain of $7.1 million ($4.2 million
after tax) on the Chico sale.
These Unaudited Pro Forma Condensed Combining 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 unaudited consolidated financial statements as of and for
the six months ended June 30, 1999, included in the Company's Quarterly Report
on Form 10-Q and the audited consolidated financial statements for the year
ended December 31, 1998, included in the Company's Annual Report on Form 10-K.
<PAGE> 6
PARACELSUS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED
COMBINING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Bledsoe/
Convalescent Pro Forma
Hospitals/ Bledsoe/ Utah
Paracelsus Senatobia Convalescent Facilities
Healthcare Pro Forma Hospitals/ Pro Forma Pro Forma
Corporation Adjustments Rf Senatobia Adjustments Rf Paracelsus
----------- ----------- -- ----------- ----------- -- ----------
(1)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue $ 294,211 $ (10,368) (2) $ 283,843 $ (94,817) (3) $ 189,026
Costs and expenses:
Salaries and
benefits 117,100 (5,973) (2) 111,127 (32,161) (3) 78,966
Other operating
expense 115,024 (3,990) (2) 111,034 (38,383) (3) 72,651
Provision for
bad debts 21,485 (877) (2) 20,608 (6,759) (3) 13,849
Interest 26,183 (194) (2)(4) 25,989 (8,154) (3)(4) 17,835
Depreciation &
amortization 19,785 (187) (2) 19,598 (6,249) (3) 13,349
Unusual items 7,668 7,668 7,668
Loss on sale of
facilities 2,387 (2,387) (2) (7)
--------- -------- --------- ------- -------
Total costs &
expenses 309,632 (13,608) 296,024 (91,706) 204,318
--------- -------- --------- ------- -------
Loss before
minority interest
and income taxes (15,421) 3,240 (12,181) (3,111) (15,292)
Minority interest 121 121 (65) (3) 56
--------- -------- --------- -------- -------
Loss before
income taxes (15,300) 3,240 (12,060) (3,176) (15,236)
Provision for
income taxes (6,105) 1,329 (5) (4,776) (1,620) (5) (6,396)
--------- -------- --------- -------- -------
Loss from continuing
operations $ (9,195) $ 1,911 $ (7,284) $ (1,556) $ (8,840)
========= ======== ========= ======== ========
Loss per share
- - basic and
assuming
dilution $ (0.17) $ (0.13) $ (0.16)
========= ========= =========
Weighted average
number of common
and common
equivalent
shares 55,118 55,118 55,118
========= ========= ==========
</TABLE>
See notes to Unaudited Pro Forma Condensed Combining Financial Statements.
<PAGE> 7
PARACELSUS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED
COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Chico/ Pro Forma
Paracelsus DHHS LA Metro DHHS/
Healthcare Pro Forma Pro Forma Chico/
Corporation Adjustments Rf Adjustments Rf LA Metro
----------- ----------- -- ----------- -- --------------
(1)
<S> <C> <C> <C> <C> <C> <C>
Net revenue $ 664,058 $ $ (76,873) (7) $ 587,185
Costs and expenses:
Salaries and
benefits 276,200 (33,889) (7) 242,311
Other operating
expense 265,735 (37,808) (7) 227,927
Provision for
bad debts 42,659 (2,270) (7) 40,389
Interest 51,859 2,983 (6) (1,990) (7)(4) 52,852
Depreciation &
amortization 38,330 486 (6) (758) (7) 38,058
Impairment charges 1,417 1,417
Unusual items (6,637) (233) (7) (6,870)
(Gain)loss on sale of
facilities (6,825) 7,100 (7) 275
--------- ------- --------- -------
Total costs &
expenses 662,738 3,469 (69,848) 596,359
--------- ------- --------- -------
Income (loss) before
minority interest
and income taxes 1,320 (3,469) (7,025) (9,174)
Minority interest (3,180) 4,141 (6) (961) (7)
--------- ------- --------- -------
Loss before
income taxes (1,860) 672 (7,986) (9,174)
Provision for
income taxes 693 275 (5) (3,274) (5) (2,306)
--------- ------- --------- -------
Loss from continuing
operations $ (2,553) $ 397 $ (4,712) $ (6,868)
========= ========= ========= =========
Loss per share
- - basic and
assuming
dilution $ (0.05) $ (0.12)
========== =========
Weighted average
number of common
and common
equivalent
shares 55,108 55,108
========= ==========
</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 YEAR ENDED DECEMBER 31, 1998
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Bledsoe/
Convalescent Pro Forma
Pro Forma Hospitals/ Bledsoe Utah
DHHS/ Senatobia Convalescent/ Facilities
Chico/ Pro Forma Hospitals/ Pro Forma Pro Forma
LA Metro Adjustments Rf Senatobia Adjustments Rf Paracelsus
----------- ----------- ---- ----------- ------------- -- ----------
(1)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue $ 587,185 $ (25,840) (2) $ 561,345 $ (184,151) (3) $ 377,194
Costs and expenses:
Salaries and
benefits 242,311 (17,118) (2) 225,193 (65,799) (3) 159,394
Other operating
expense 227,927 (9,479) (2) 218,448 (74,289) (3) 144,159
Provision for
bad debts 40,389 (1,658) (2) 38,731 (11,757) (3) 26,974
Interest 52,852 (468) (2)(4) 52,384 (16,570) (3)(4) 35,814
Depreciation &
amortization 38,058 (550) (2) 37,508 (11,770) (3) 25,738
Impairment charges 1,417 (1,104) (2) 313 313
Unusual items (6,870) (6,870) 7,500 (3) 630
Loss on sale
of facilities 275 275 275
--------- ------- --------- ------- --------
Total costs &
expenses 596,359 (30,377) 565,982 (172,685) 393,297
--------- ------- --------- ------- --------
Loss before minority
interest and
income taxes (9,174) 4,537 (4,637) (11,466) (16,103)
Minority interest
--------- ------- --------- ------- --------
Loss before
income taxes (9,174) 4,537 (4,637) (11,466) (16,103)
Provision for
income taxes (2,306) 1,861 (5) (445) (5,338) (5) (5,783)
--------- ------- --------- ------- --------
Loss from continuing
operations $ (6,868) $ 2,676 $ (4,192) $ (6,128) $ (10,320)
========= ========= ========= ========= =========
Loss per share
- - basic and
assuming
dilution $ (0.12) $ (0.08) $ (0.19)
========= ======== =========
Weighted average
number of common
and common
equivalent
shares 55,108 55,108 55,108
========= ======== =========
</TABLE>
See notes to Unaudited Pro Forma Condensed Combining Financial Statements.
<PAGE> 9
PARACELSUS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINING
BALANCE SHEET
JUNE 30, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Utah
Paracelsus Senatobia Facilities
Healthcare Pro Forma Pro Forma Pro Forma
Corporation Adjustments Rf Adjustments Rf Paracelsus
----------- ----------- -- ----------- -- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS: (1)
Current assets:
Cash and cash equivalents $ 12,364 $ (234) (8) $ 55,554 (9)(a) $ 67,684
Restricted cash 1,111 11,550 (9)(a) 12,661
Accounts receivable, net 60,182 (1,803) (8) (22,723) (9) 35,656
Deferred income taxes 10,757 (1,809) (9)(c)(d) 8,948
Other 39,842 183 (8) (6,871) (9) 33,154
-------- --------- -------- ----------
Total current assets 124,256 (1,854) 35,701 158,103
-------- --------- -------- ----------
Property and equipment, net 360,291 (324) (8) (133,934) (9) 226,033
Goodwill 134,751 (45,577) (9)(b) 89,174
Other assets 84,444 (721) (8) (44,430) (9)(c)(d) 39,293
-------- --------- -------- ----------
Total assets $703,742 $ (2,899) $(188,240) $ 512,603
======== ========= ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 47,124 $ (392) (8) $ (14,353) (9) $ 32,379
Accrued liabilities
and other 52,392 (739) (8) 1,544 (9)(d) 53,197
Current maturities
of long-term debt 4,379 (145) (8) (3,743) (9)(a) 491
-------- --------- -------- ----------
Total current liabilities 103,895 (1,276) (16,552) 86,067
-------- --------- -------- ----------
Long term debt 537,759 (2,964) (8) (198,217) (9)(a) 336,578
Other long-term liabilities 36,942 (1,536) (9) 35,406
Stockholders' equity
Common stock 222,977 222,977
Additional paid-in capital 390 390
Accumulated deficit (198,221) 1,341 (8) 28,065 (9)(c)(d) (168,815)
-------- --------- -------- ----------
Total stockholders'
equity 25,146 1,341 28,065 54,552
-------- --------- -------- ----------
Total liabilities
& stockholders' equity $703,742 $ (2,899) $ (188,240) $ 512,603
======== ========= ========= ==========
</TABLE>
See notes to Unaudited Pro Forma Condensed Combining Financial Statements.
<PAGE> 10
PARACELSUS HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
Note
Reference Explanations
- ----------- -------------------------------------------------------------------
(1) The statements of operations and balance sheet for Paracelsus
Healthcare Corporation as of and for the six months ended June 30,
1999 are summarized from its June 30, 1999 Quarterly Report on
Form 10-Q. The statement of operations for the year ended December
31, 1998 is summarized from the 1998 Annual Report on Form 10-K.
(2) To remove the historical results of operations of Bledsoe, the
Convalescent Hospitals and Senatobia(including an impairment
charge of $1.1 million relating to the write-down of certain
assets in the fourth quarter of 1998 and the gain on sale of the
Convalescent Hospitals). Pro forma adjustments to net revenue
included interest income of $283,000 and $685,000 on the
promissory notes received in connection with the sale of these
facilities for the six months ended June 30, 1999 and the year
ended December 31, 1998, respectively.
(3) To remove the Utah Facilities' historical results of operations
for the six months ended June 30, 1999 and the year ended
December 31, 1998, including the removal of an unusual gain of
$7.5 million related to the settlement in 1998 of a capitation
contract. See (4) and (9) below regarding other pro forma
adjustments.
(2) To record a reduction in interest expense from the pro forma
decrease in indebtedness under the senior credit facilities and
the commercial paper financing program.
With respect to the Utah Facilities transaction, the Unaudited Pro
Forma Condensed Combining Statements of Operations assume the net
proceeds were used to eliminate all indebtedness outstanding under
the senior credit facilities and to reduce $12.8 million in
borrowings under the commercial paper financing program. The pro
forma reduction in interest expense under the senior credit
facilities included the net pro forma interest adjustments related
to prior acquisition and dispositions. The average interest rate
in effect under the senior credit facility was 8.4% and 9.0% for
the six months ended June 30, 1999 and for the year ended December
31, 1998, respectively. The average interest rate in effect under
the commercial paper program was 5.9% and 6.7% for the six months
ended June 30, 1999 and for the year ended December 31, 1998,
respectively.
With respect to the sale of the Convalescent Hospitals, the
Unaudited Pro Forma Condensed Combining Statements of Operations
assume $2.0 million in net sales proceeds were used to reduce
amounts outstanding under the senior credit facilities. The
average interest rate in effect under the senior credit facilities
was 8.4% for the six months ended June 30, 1999 and 9.0% for the
year ended December 31, 1998.
With respect to the Chico sale effective June 30, 1998, the
Unaudited Pro Forma Condensed Combining Statement of Operations
assumes $24.6 million in net sales proceeds were used to reduce
amounts outstanding under the senior credit facilities and
$3.1 million in net sales proceeds were used to reduce amounts
outstanding under the commercial paper financing program. The
average interest rate in effect under the credit facility was 9.2%
for the six months ended June 30, 1998. The average interest rate
in effect under the commercial paper program was 6.7% for the six
months ended June 30, 1998.
<PAGE> 11
PARACELSUS HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
Note
Reference Explanations
- ----------- -------------------------------------------------------------------
(3) With respect to sale of LA Metro effective September 30, 1998, the
Unaudited Pro Forma Condensed Combining Statement of Operations
assumes $4.2 million in net sales proceeds were used to reduce
amounts outstanding under the senior credit facilities and a $9.3
million in net sales proceeds were used to reduce borrowings under
the commercial paper financing program. The average interest rate
in effect under the senior credit facilities was 9.1% for the nine
months ended September 30, 1998. The average interest rate in
effect under the commercial paper program was 6.7% for the nine
months ended September 30, 1998.
(4) To record the pro forma provision for income taxes after taking
into effect the sale of the Utah Facilities, Senatobia, the
Convalescent Hospitals, Bledsoe, LA Metro and Chico and the
consolidation of DHHS pursuant to the Company's acquisition of
DHHS. The income tax provision on the pro forma adjustments was
calculated using the statutory tax rate of 41.0%. The pro forma
income tax provision related to the Utah facilities differed from
the statutory rate due to nondeductible goodwill amortization at
to these facilities.
(5) In connection with the acquisition of DHHS, pro forma adjustments
to the historical results of operations include (a) an increase in
interest expense from borrowings of $65.0 million to finance the
acquisition, (b) the removal of minority interest for the six
months ended June 30, 1998 prior to the change in control and (c)
an increase in 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.
(7) To remove Chico's historical results of operations and the gain on
sale of the Chico facilities and to remove LA Metro's historical
results of operations (including an unusual charge of $233,000).
Pro forma adjustments to net revenue for the year ended December
31, 1998 included interest income of $1.4 million on the
promissory notes received in connection with the LA Metro sale.
Additionally, other pro forma adjustments to historical results of
operations for the six months ended June 30, 1999 included the
removal of a $3.7 million loss from the final working capital
settlement and prepayment discounts on promissory notes related
to the LA Metro sale.
(8) To remove Senatobia's assets and liabilities as of June 30, 1999,
and to record the promissory notes, net of certain discounts,
received in connection with the sale. The Company expects to
record a gain of approximately $2.3 million ($1.3 million after
tax) on the transaction.
(6) To remove assets sold and liabilities assumed as of June 30, 1999,
in connection with the Utah Facilities transaction. Pro forma
adjustments to the historical Unaudited Condensed Combining
Balance Sheet as of June 30, 1999 also included the following:
(a) An increase of $55.6 million and $11.5 million in cash and
restricted cash, respectively, from the use of the proceeds of
$280.0 million to eliminate all indebtedness under the senior
credit facilities as of June 30, 1999, of $200.2 million, to
reduce borrowings under the commercial paper program by $12.8
million and to provide collateral of $11.5 million on certain
outstanding letters of credit.
<PAGE> 12
PARACELSUS HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
Note
Reference Explanations
- ----------- -------------------------------------------------------------------
(9) (b) A reduction of goodwill associated with the Company's 1996
acquisition of the Utah Facilities.
(c) A reduction to long-term assets, including intangible assets
capitalized in connection with the Company's 1996 acquisition of
the Utah facilities. Pro forma adjustments also included (i) the
recording of deferred taxes related to the estimated gain on the
Utah Facilities transaction as calculated below, (ii) the write-
off of $4.0 million ($2.4 million net of tax) in deferred
financing costs from the early extinguishment of debt under the
senior credit facilities and (iii) the recording of approximately
$10.9 million related to the Company's 6.1% interest in HoldCo on
a historical cost basis.
(d) The estimated net gain on the Utah Facilities transaction as
calculated below:
Cash proceeds $280,025
Assets sold & liabilities assumed:
Net working capital (19,451)
Property and equipment and other assets (137,164)
Goodwill (45,577)
Liabilities assumed 3,344
---------
(198,848)
Minority interest in HoldCo 10,926
---------
Net assets sold (187,922)
Transaction costs (6,900)
Other adjustments (3,205)*
---------
Pre-tax gain 81,998 81,998
Nondeductible goodwill 43,734
---------
Taxable gain 125,732
---------
Deferred taxes (statutory rate of 41%) (51,550)
---------
Gain, net of tax $ 30,448
=========
* Other adjustments primarily reflected capital expenditures from
June 30, 1999 to the effective date of transaction, October 8,
1999.
RECAPITALIZATION AGREEMENT
BY AND AMONG
PARACELSUS HEALTHCARE CORPORATION,
PHC/CHC HOLDINGS, INC.
AS PARENTS,
and
PHC/PSYCHIATRIC HEALTHCARE CORPORATION.,
PHC-SALT LAKE CITY, INC.,
PARACELSUS PIONEER VALLEY HOSPITAL, INC.,
PIONEER VALLEY HEALTH PLAN, INC.,
PHC-JORDAN VALLEY, INC.,
PARACELSUS PHC REGIONAL MEDICAL CENTER, INC.,
PARACELSUS DAVIS HOSPITAL, INC.,
PHC UTAH, INC., and
CLINICARE OF UTAH, INC.
AS SELLERS,
and
JLL HOSPITAL, LLC, AS BUYER
Dated as of August 16, 1999
<TABLE>
table of contents
<S> <C> <C> <C>
ARTICLE I. DEFINITIONS....................................................................................1
1.1. Definition of Certain Terms..................................... 1
ARTICLE II. PRE-CLOSING TRANSACTIONS; RECAPITALIZATION.................................. 12
2.1. Pre-Closing Transactions...................................... 12
2.2. Assets..................................................................... 12
2.3. Excluded Assets............................................................ 14
2.4. Assumption of Liabilities.................................................. 15
2.5. Excluded Liabilities...................................................... 15
2.6. Consent of Third Parties................................................... 17
ARTICLE III. THE CLOSING..................................................................... 18
3.1. Closing.................................................................... 18
3.2. Buyer's Delivery of the Transaction Consideration.......................... 18
3.3. Closing Deliveries......................................................... 18
3.3.1. Seller Deliveries............................................... 18
3.3.2. Buyer Deliveries................................................ 20
3.4. Post-Closing Adjustments to Cash Purchase Price........................... 20
ARTICLE IV. REPRESENTATIONS AND WARRANTIES................................................... 22
4.1. Representations and Warranties of the Seller............................... 22
4.1.1. Authorization, etc.............................................. 22
4.1.2. Corporate Status................................................ 23
4.1.3. No Conflicts, etc............................................... 23
4.1.4. Seller Financial Statements..................................... 23
4.1.5. Absence of Changes.............................................. 23
4.1.6. Litigation...................................................... 24
4.1.7. Compliance with Laws............................................ 24
4.1.8. Government Program Participation................................ 24
4.1.9. Cost Reports.................................................... 25
4.1.10. JCAHO Accreditation............................................. 25
4.1.11. Governmental Approval........................................... 25
4.1.12. Fraud and Abuse................................................ 25
4.1.13. Hill-Burton Loans.............................................. 26
4.1.14. Interests...................................................... 26
4.1.15. Assets.......................................................... 26
4.1.16. Material Contracts.............................................. 27
4.1.17. Intellectual Property........................................... 27
4.1.18. Owned Real Property............................................. 28
4.1.19. Leases.......................................................... 28
4.1.20. Environmental Matters........................................... 29
4.1.21. Employment Relations............................................ 29
4.1.22. Employee Benefit Plans.......................................... 30
4.1.23. Accounts Receivable............................................. 31
4.1.24. Insurance....................................................... 32
4.1.25. Taxes........................................................... 32
4.1.26. Affiliate Transactions......................................... 34
4.1.27. Brokers, Finders, etc.......................................... 34
4.1.28. Disclosure...................................................... 35
4.1.29. Solvency...................................................... 35
4.1.30. Disclaimer of Warranties........................................ 35
4.1.31. Absence of Undisclosed Liabilities.............................. 35
4.1.32. Inventory....................................................... 35
4.1.33. Year 2000 Compliance............................................ 35
4.1.34. Holdco Capitalization........................................... 36
4.1.35. Holdco Information............................................... 36
4.2. Representations and Warranties of the Buyer. Buyer represents
and warrants to Seller as follows: 37
4.2.1. Corporate Status; Authorization, etc............................ 37
4.2.2. No Conflicts, etc............................................... 37
4.2.3. Litigation...................................................... 38
4.2.4. Financial Capability............................................ 38
4.2.5. No Current Operations........................................... 38
4.2.6. No Brokers...................................................... 38
4.2.7. Disclosure...................................................... 38
4.2.8. Solvency........................................................ 38
4.3. Representations and Warranties of Parent.
4.3.1. Authorization, etc.............................................. 38
4.3.2. Corporate Status................................................ 39
4.3.3. No Conflicts, etc............................................... 39
4.3.4. Fraud and Abuse................................................. 39
4.3.5. Solvency........................................................ 39
ARTICLE V. COVENANTS......................................................................... 40
5.1. Covenants of Seller........................................................ 40
5.1.1. Conduct of Business............................................ 40
5.1.2. Access and Information.......................................... 41
5.1.3. Further Assurances.............................................. 42
5.1.4. Schedules....................................................... 42
5.1.5. Purchasing Contract......................................... 42
5.1.6. Use of Names................................................... 42
5.1.7. Title and Survey Matters.........................................42
5.1.8. Expansion Project............................................... 44
5.1.9. Year 2000 Project Plan.......................................... 44
5.1.10. Bonuses........................................................ 44
5.2. Covenants of Buyer......................................................... 45
5.2.1. Further Assurances.......................................... 45
5.2.2. Post-Closing Access to Information............................. 45
5.2.3. Preservation and Access to Patient Records After the Closing.... 45
5.2.4. Confidentiality.......................................... 45
5.2.5. Release of Letter of Credit..................................... 46
5.2.6. Financing Commitment. .......................................... 46
5.2.7. Return of Privileged Documents.................................. 46
5.2.8. Amendment to Holdco Certificate of Incorporation................ 47
5.3. Additional Covenants..................................................... 47
5.3.1. Hart Scott Rodino............................................... 47
5.3.2. Other Government Consents....................................... 47
5.3.3. Best Efforts; No Inconsistent Action............................ 48
5.3.4. Press Releases................................................ 48
5.3.5. Stockholders Agreement.......................................... 48
5.3.6. Termination of Affiliate Transactions........................... 48
5.4. Tax Matters Covenants..................................................... 48
5.4.1. Code Section 338(h)(10) Election; Allocation of Transaction
Consideration........... 48
5.4.2. Transferors'Taxes and Returns................................. 49
5.4.3. PHC's Returns for Tax Periods Including the Closing Date........ 49
5.4.4. Tax Periods Ending on or Before the Closing Date................ 50
5.4.5. Tax Periods Beginning Before and Ending After the Closing Date.. 50
5.4.6. Cooperation on Tax Matters...................................... 52
5.4.7. Tax Sharing Agreements........................................ 52
5.4.8. Audits.......................................................... 52
5.4.9. Carrybacks..................................................... 53
5.4.10. LLC Entity Tax Years Beginning Before and Ending After Closing.. 53
5.4.11. Tax Indemnification....................................... 53
5.4.12. Procedures Relating to Indemnification of Tax Claims............ 54
ARTICLE VI. CONDITIONS PRECEDENT................................................... 55
6.1. Conditions to Obligations of Each Party............................. 55
6.1.1. HSR Action Notification..................................... 55
6.1.2. No Injunction, etc............................................ 55
6.1.3. Government Approvals......................................... 55
6.2. Conditions to Obligations of the Buyer................................. 55
6.2.1. Representations, Performance.................................. 55
6.2.2. Collateral Agreements........................................... 56
6.2.3. Reorganization.................................................. 56
6.2.4. No Material Adverse Effect...................................... 56
6.2.5. Title Commitment.............................................. 56
6.2.6. Consents........................................................ 56
6.2.7. FIRPTA Affidavit............................................... 56
6.2.8. Financing..................................................... 56
6.3. Conditions to Obligations of the Seller.................................... 56
6.3.1. Representations, Performance, etc............................... 56
6.3.2. Collateral Agreements.......................................... 57
6.3.3. Letter of Credit................................................ 57
6.3.4. Buyer's Certificate............................................. 57
ARTICLE VII. EMPLOYEES AND EMPLOYEE BENEFIT PLANS............................................ 57
7.1. Employment of Seller's Employees........................................... 57
7.2. Welfare and Fringe Benefit Plans.......................................... 58
7.3. Workers Compensation....................................................... 59
7.4. Employment Taxes........................................................... 59
7.5. No Continuing Obligation................................................... 59
ARTICLE VIII. TERMINATION................................................................. 60
8.1. Termination............................................................... 60
8.2. Break-Up Fee............................................................... 60
8.3. Effect of Termination...................................................... 60
ARTICLE IX. ADDITIONAL AGREEMENTS............................................................ 60
9.1. Seller's Cost Reports...................................................... 60
9.2. Misdirected Payments...................................................... 61
9.3. WARN Act................................................................... 61
9.4. Power of Attorney for D.E.A. Registration Number(s) and Utah Pharmacy
License(s)............... 61
9.5. Covenant Not to Compete.................................................... 61
ARTICLE X. INDEMNIFICATION............................................................... 62
10.1. Indemnification.......................................................... 62
10.2. Survival of Representations and Warranties, etc............................ 64
10.3. Limitations on Indemnification Provisions; Exclusive Remedy................ 65
10.3.1. Limitation on Indemnification................................... 65
10.3.2. Waiver of Non-Compensatory Damages.............................. 65
10.3.3. Exclusive Remedy; Waiver and Release............................ 65
ARTICLE XI. MISCELLANEOUS.................................................................... 65
11.1. Expenses................................................................... 65
11.2. Severability........................................................... 66
11.3. Notices.................................................................... 66
11.4. Miscellaneous.............................................................. 67
11.4.1. Headings........................................................ 67
11.4.2. Entire Agreement................................................ 67
11.4.3. Counterparts.................................................... 67
11.4.4. Governing Law, etc.............................................. 67
11.4.5. Binding Effect.................................................. 67
11.4.6. Assignment...................................................... 67
11.4.7. No Third Party Beneficiaries.................................... 67
11.4.8. Amendment; Waivers, etc......................................... 68
11.4.9. Specific Performance............................................ 68
</TABLE>
<TABLE>
SCHEDULES
<S> <C>
Schedule 2.3 Assets
Schedule 2.3(n) Excluded Interests
Schedule 2.5(b) Certain Excluded Liabilities
Schedule 3.1 Recapitalization Transactions
Schedule 4.1.3 Conflicts
Schedule 4.1.5 Changes Post-Seller Financial Statements Date
Schedule 4.1.6 Litigation (Seller)
Schedule 4.1.7 Compliance with Laws (Seller)
Schedule 4.1.8 Medicare/Medicaid Contingencies
Schedule 4.1.9 Amounts Owed to the Programs
Schedule 4.1.10 JCAHO Contingencies
Schedule 4.1.11 Governmental Approvals
Schedule 4.1.12 Applicable Executives
Schedule 4.1.14 Interests
Schedule 4.1.15 Encumbrances
Schedule 4.1.16(a) Material Contracts
Schedule 4.1.16(b) Defaults on Material Contracts
Schedule 4.1.17 Intellectual Property
Schedule 4.1.18 Owned Real Property
Schedule 4.1.19 Leases
Schedule 4.1.20 Environmental Matters
Schedule 4.1.20(a) Certain Leased Real Property
Schedule 4.1.21 Employment Relations
Schedule 4.1.22(a) Employee Benefit Plans
Schedule 4.1.22(e) Exceptions to ERISA and the Code
Schedule 4.1.22(f) Exceptions to "qualifications" under the Code
Schedule 4.1.22(k) Exceptions to the WARN Act
Schedule 4.1.23 Accounts Receivable
Schedule 4.1.24 Insurance Policies
Schedule 4.1.25 Tax Matters
Schedule 4.1.33 Year 2000 Compliance
Schedule 4.1.35 Holdco Assets
Schedule 4.2.2 Governmental Approvals or Consents to be obtained by Buyer
Schedule 4.2.3 Litigation (Buyer)
Schedule 5.3.6 Affiliate Transactions
Schedule 5.4.1 Allocation of Transaction Consideration
Schedule 7.1 Additional Offerees
Schedule 7.2 COBRA Employees
LIST OF EXHIBITS
Exhibit A Facilities
Exhibit B Interests
Exhibit C Net Working Capital
Exhibit D Terms of License Agreement
Exhibit E Terms of Stockholders Agreement
Exhibit F Terms of Transition Services Agreements
Exhibit G Matters to be covered by Seller Legal Opinion
</TABLE>
RECAPITALIZATION AGREEMENT
THIS RECAPITALIZATION AGREEMENT ("Agreement") is made and entered into
as of August 16, 1999, by and among PARACELSUS HEALTHCARE CORPORATION, a
California corporation ("PHC"), PHC/CHC HOLDINGS, INC., a Delaware corporation
("PHC Holdings" and, together with PHC, collectively, "Parent"), PHC/PSYCHIATRIC
HEALTHCARE CORPORATION, a Delaware corporation ("Holdco"), PHC-SALT LAKE CITY,
INC., a Utah corporation ("PHC-Salt Lake"), PARACELSUS PIONEER VALLEY HOSPITAL,
INC., a Utah corporation ("Paracelsus Pioneer"), PIONEER VALLEY HEALTH PLAN,
INC., a Utah Corporation ("PVHP"), PHC-JORDAN VALLEY, INC., a Utah corporation
("PHC-Jordan"), PARACELSUS PHC REGIONAL MEDICAL CENTER, INC., a Utah corporation
("Paracelsus-PHC"), PARACELSUS DAVIS HOSPITAL, INC., a Utah corporation
("Paracelsus Davis"), PHC UTAH, INC., a Delaware corporation ("PHC Utah"),
CLINICARE OF UTAH, INC., a Utah Corporation, ("Clinicare"), (Holdco, PHC-Salt
Lake, Paracelsus Pioneer, PVHP, PHC-Jordan, Paracelsus-PHC, Paracelsus Davis,
PHC Utah and Clinicare, are referred to hereinafter individually, jointly and
severally as the "Seller"), and JLL HOSPITAL, LLC, a Delaware limited liability
company ("Buyer").
W I T N E S S E T H:
WHEREAS, Seller owns or leases the acute care hospitals and other
health care facilities set forth in Exhibit A hereto (collectively, the
"Facilities");
WHEREAS, Seller owns the capital stock or other equity interests set
forth on Exhibit B hereto in the various corporations, partnerships, limited
liability companies and other entities listed therein in connection with
Seller's health care-related operations in the Salt Lake City, Utah area
(collectively, "the Interests");
WHEREAS, Buyer wishes to acquire, and Seller wishes to sell, assign and
transfer substantially all of the assets and properties, including the
Facilities and the Interests, owned, leased or used by Seller in the operations
of the Business in the manner and upon the terms and subject to the conditions
hereinafter set forth;
WHEREAS, an election will be made to treat Buyer as a corporation for
U.S. federal income Tax purposes;
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties made herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
1.1. Definition of Certain Terms. The terms defined in this Article I,
whenever used in this Agreement (including in the Schedules), shall have the
respective meanings indicated below for all purposes of this Agreement. All
references herein to a Section, Article or Schedule are to a Section, Article or
Schedule of or to this Agreement, unless otherwise indicated.
Accounts Receivable: as defined in Section 2.2(d).
Adjusted Cash Purchase Price: as defined in Section 3.4(a).
Affiliate: of a Person means a Person that directly or
indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the first
Person.
Affiliate Transactions: all accounts payable, notes payable,
accounts receivable and Contracts, whether or not entered into in the
ordinary course of the Business, to or by which Seller or the Business,
on the one hand, and Seller's Affiliates, on the other hand, are a
party or are otherwise bound, or by which any of the Assets is bound or
pursuant to which Seller or the Business has made or is obligated to
make payments or incur expenses to or for the benefit of Seller's
Affiliates.
Agreement: this Recapitalization Agreement, including the
Schedules hereto.
Applicable Executives: the individuals set forth on Schedule
4.1.12 hereto.
Applicable Law: all applicable statutes, laws, rules,
regulations, ordinances, codes, judgments, decrees or
order of any Governmental Authority having jurisdiction over
Seller, the Assets or the Business.
Applicable Rate: as defined in Section 3.4(b)
Assets: as defined in Section 2.2.
Assumed Liabilities: as defined in Section 2.4
Assumption Agreement: as defined in Section 2.4.
Benefit Liabilities: liabilities, obligations, commitments,
damages and costs payable under any Employee Benefit Plan.
Best Efforts: best efforts reasonable under the
circumstances, excluding, except to the extent specifically
provided herein, the payment of any money or other
consideration to any third party or the commencement of any
litigation.
Books and Records: as defined in Section 2.2(g).
Business: the business conducted by Seller relating to
Seller's ownership and operation of the Facilities,
Clinicare, PVHP and the Interests.
Business Day: shall mean a day other than a Saturday,
Sunday or other day on which commercial banks in Utah are
authorized or required to close.
Buyer: as defined in the first paragraph of this Agreement.
Buyer Indemnitees: as defined in Section 10.1(a).
Buyer's Certificate: the certificate to be executed by Buyer
(i) describing the agreements and instruments executed by Seller in
connection with the Pre-Closing Transactions and the transaction
contemplated by Paragraph 1 of Schedule 3.1 that have been furnished to
Buyer and (ii) certifying that the Pre-Closing Transactions and the
transactions contemplated by Paragraph 1 of Schedule 3.1 have been
completed in a manner satisfactory to Buyer.
Buyer's 401(k) Plan: as defined in Section 7.1(d)
Buyer's Pre-Closing Expansion Costs: as defined in Section
3.4(c)
Cash Purchase Price: the cash to be delivered to Seller at
Closing as set forth on Schedule 3.1.
CERCLA: the Comprehensive Environmental Response,Compensation
and Liability Act, 42 U.S.C. ss.9601 et seq.
Clean Up: all action required to: (1) cleanup, remove, treat
or remediate Hazardous Materials in the indoor or outdoor environment,
(2) prevent the Release of Hazardous Materials so that they do not
migrate, endanger or threaten to endanger public health or welfare or
the indoor or outdoor environment; (3) perform pre-remedial studies and
investigations and post-remedial monitoring and care; or (4) respond to
any government requests for information or documents in any way
relating to cleanup, removal, treatment or remediation or potential
cleanup, removal, treatment or remediation of Hazardous Materials in
the indoor or outdoor environment.
Closing: as defined in Section 3.1.
Closing Date: as defined in Section 3.1.
Closing Net Working Capital: as defined in Section 3.4(a)
Code: the Internal Revenue Code of 1986, as amended.
Collateral Agreements: the Stockholders Agreement, the
Transition Services Agreement, the License Agreement, the
Buyer's Certificate and each of the agreements and other
documents and instruments described in Section 3.3.
Commitment Letter: as defined in Section 4.2.4
Confidential Information: as defined in 5.2.4
Consent: any consent, approval, authorization, waiver, permit,
grant, franchise, concession, agreement, license, exemption or order of
registration, certificate, declaration or filing with, or report or
notice to, any Person, including but not limited to any Governmental
Authority but expressly excluding the procurement by Buyer of provider
contracts with the Programs.
Construction Agreement: the agreement dated as of December 1,
1998, by and between PHC-Jordan and McDevitt Street
Bovis relating to additions and renovations at Jordan Valley
Hospital.
Contracts: those Assets described in Section 2.2(h).
Contractor: collectively, the General Contractor, the
Sub-Contractors and the Other Contractors.
Contractors' Interim Invoices: as defined in Section 5.1.8.
Control (including the terms "controlled by" and "under common
control with"): the possession, directly or indirectly, of the power to
direct or cause the direction of the management policies of a Person,
whether through the ownership of voting securities, by contract or
credit arrangement, as trustee or executor, or otherwise.
Corporation: as defined in Section 4.1.14.
Cost Reports: as defined in Section 4.1.9
Current Program Receivables: Program Receivables which
have been billed since the close of the most recent cost
reporting fiscal year.
Cut-Off Invoices: as defined in Section 5.1.8.
D.E.A.: the United States Department of Justice Drug
Enforcement Agency.
Deliverables: the deliverables summarized in the Year
2000 Project Plan with respect to the operation of the
Business and the Facilities.
Department of Health: The Utah Department of Health.
$ or dollars: lawful money of the United States.
DOJ: the United States Department of Justice.
Draw Request: the monthly invoice of the General Contractor
representing the monthly draw, in arrears, of the
General Contractor and the Sub-Contractors, with respect to
the Expansion Project.
Effective Time: as defined in Section 3.1.
Election: as defined in Section 5.4.1
Employees: collectively, any employee or former employee
employed or formerly employed in the operation of the
Business or the beneficiaries or dependents of any such
employee or former employee.
Employee Benefit Plan: as defined in Section 4.1.22.
Environmental Authorities: the United States
Environmental Protection Agency, and all other federal,
state, regional, county or local government authorities
authorized or having jurisdiction to enforce Environmental
Laws.
Environmental Laws: any applicable federal, state or local
statute, law, rule, regulation, ordinance, code or rule of common law
in effect as of the Closing Date (including any amendments in effect as
of the Closing Date) relating to the pollution or protection of the
environment, or to exposure to or Releases into the indoor or outdoor
environment of Hazardous Substances, including without limitation,
CERCLA; The Resource Conservation and Recovery Act of 1976, 42 U.S.C.
ss.ss. 6901, et seq.; the Federal Water Pollution Control Act, 33
U.S.C. ss.ss. 1201, et seq.; the Toxic Substances Control Act, 15
U.S.C. ss.ss. 2601, et seq.; the Clean Air Act, 42 U.S.C. ss.ss. 7401,
et seq.; and the Medical Waste Tracking Act of 1988, 42 U.S.C., ss.
6992, et seq.
Environmental Permits: all permits, licenses, registrations
and other authorizations required under Environmental Laws to operate a
Facility or to Release, use or dispose of Hazardous Substances used,
stored, generated, treated, transported or Released by or on behalf of
the Facilities.
Environmental Proceedings: any proceeding initiated by an
Environmental Authority or by any other third party, under any
Environmental Law related to or regarding the Facilities, the Assets or
the Real Property or the use, release or disposal of Hazardous
Substances by Seller or otherwise on or from the Facilities.
Environmental Reports: as defined in Section 4.1.20.
Equipment: as defined in Section 2.2(b).
Equity Investment: as defined in Section 5.2.6.
ERISA: the Employee Retirement Income Security Act of 1974,
as amended.
ERISA Affiliates: as defined in Section 4.1.22(a).
Excluded Assets: as defined in Section 2.3.
Excluded Liabilities: as defined in Section 2.5.
Expansion Costs: as defined in Section 5.1.8.
Expansion Costs Invoices: as defined in Section 3.4(c).
Expansion Project: as defined in Section 5.1.8.
Facilities: as defined in the Recitals.
Financing Ceiling: as defined in Section 5.2.6
FIRPTA Affidavit: as defined in Section 6.2.7.
FTC: the Federal Trade Commission.
GAAP: generally accepted accounting principles as in effect
in the United States.
General Contractor: McDevitt Street Bovis.
Governmental Approval: any consent, permit, license,
certificate, franchise approval or authorization of any
Governmental Authority, but expressly excluding any
Environmental Permit and the procurement by Buyer of
provider contracts with the Programs.
Governmental Authority: any federal, state or local
governmental authority, agency, court, department, bureau,
board or commission, domestic or foreign.
Hazardous Substances: all substances defined as Hazardous
Substances, Oils, Pollutants or Contaminants in the
National Oil and Hazardous Substances Pollution Contingency
Plan, 40 C.F.R. ss.300.5, or defined as such by, or regulated
as such under, any Environmental Law, including, without
limitation, friable asbestos, asbestos-containing material
and poly-chlorinated biphenyls, radioactive wastes and
radioactive substances.
Holdco: PHC/Psychiatric Healthcare Corporation.
Holdco Common Stock: as defined in Section 4.1.34.
Hospitals: the hospitals set forth on Exhibit A hereto.
HSR Act: the Hart-Scott-Rodino Anti-trust Improvements Act of
1976, as amended.
Indemnified Party: as defined in Section 10.1(c).
Independent Accounting Firm: as defined in Section 3.4(a)(ii).
Initial Allocation: as defined in Section 5.4.1.
Indemnifying Party: as defined in Section 10.1(c).
Intellectual Property: all (a) trademarks (registered or
unregistered), service marks, trade names, assumed names and logos
(other than the Excluded Assets) (b) copyrights and computer software
and registrations thereof and applications therefor (other than the
Excluded Assets); and (c) if any, patents and patent applications (as
applicable) and (d) all agreements and licenses relating to any of the
foregoing owned, filed or licensed by Seller and used in the Business.
Interests: as defined in the Recitals.
Inventory: as defined in Section 2.2(c).
IRS: the Internal Revenue Service.
Jordan Valley Hospital: The Hospital owned and operated by
PHC-Jordan and listed on Exhibit A.
Leased Real Property: the Real Property subject to the Leases.
Leases: means the real property leases and subleases pursuant
to which the Seller is the lessee, lessor, sublessee
or sublessor and that pertain to the Business as listed and
described in Schedule 4.1.19.
Letter of Credit: the letter of credit in the amount of
$7,550,750 issued by Paribas in favor of AHP of Utah, Inc.
or any successor thereof, securing obligations under the
Pioneer Valley Lease.
License Agreement: the agreement to be executed by
Seller and Buyer providing for the license of certain
Intellectual Property substantially in the form of Exhibit D
hereto.
Lien: any mortgage, pledge, security interest, encumbrance,
recorded easement, encroachment, option or lien on any
real or personal property.
Litigation: as defined in Section 4.1.6.
LLC Interests: as set forth on Exhibit B.
Losses: as defined in Section 10.1.
Material Adverse Effect: a material adverse effect (i) with
respect to Seller, on the Assets, business, operations, environmental
liability, financial condition or results of operations of the Business
taken as a whole, and (ii) with respect to Buyer, on the assets,
business, operations, environmental liability, financial condition or
results of operations of Buyer taken as a whole.
Material Contract: as defined in Section 4.1.16(a).
Material Intellectual Property: as defined in Section 4.1.17.
Medical Benefit Plan: as defined in Section 7.2(a).
Minimum Claim Amount: as defined in Section 10.3.1.
Net Working Capital: as defined in Exhibit C hereto.
Offerees: as defined in Section 7.1(a).
Other Contractors: any architect, construction manager,
contractor, engineer, laborer, supplier, independent
contractor or construction consultant used in connection with
the Expansion Project, other than the General Contractor
and the Sub-Contractors.
Other LLC Entities: as defined in Section 4.1.25
Owned Real Property: the real property owned by Seller and
used in the operation of the Business, as listed on
Schedule 4.1.18.
Parent: collectively, PHC and PHC Holdings.
Party or Parties: either the Buyer or any of the Sellers, or
all of them, as the context requires.
Permitted Liens: (i) Except for Liens securing the Seller
Indebtedness, Liens securing liabilities which are reflected or
reserved against in the Seller Financial Statements to the extent so
reflected or reserved, (ii) Liens for Taxes not yet due and payable or
which are being contested in good faith and by appropriate proceedings
(iii) Liens arising or imposed by law in the ordinary course of
business (including easements, permits, zoning requirements and other
restrictions of record or limitations on the use of real property or
irregularities in title thereto and Liens for obligations not yet due
to carriers, warehousemen, laborers, materialmen and the like) that do
not materially detract from the value of the Assets or materially
interfere with Seller's use thereof in the operation of the Business
and which do not involve an amount in excess of $50,000 individually,
(iv) Liens, including those arising by operation of law, otherwise
relating to the liabilities to be assumed by Buyer pursuant to Section
2.4 hereof and (v) Liens set forth on Schedules 4.1.14, 4.1.15 and
4.1.18.
Person: any natural person, firm, partnership,
association, corporation, company, trust, business trust,
Governmental Authority or other entity.
PHC: Paracelsus Healthcare Corporation.
Pioneer Valley Hospital: the Hospital leased and operated by
Paracelsus Pioneer and listed on Exhibit A.
Pioneer Valley Lease: the lease dated as of May 15, 1996 by
and between Paracelsus Pioneer and American Health Properties, Inc., as
amended from time to time, governing the lease of the real property and
the improvements thereon used by Paracelsus Pioneer to operate Pioneer
Valley Hospital.
Pioneer Valley Real Property: the real property governed by
the Pioneer Valley Lease.
Pre-Closing Net Working Capital: an amount equal to
$19,451,000.
Pre-Closing Period: as defined in Section 3.4(c).
Pre-Closing Tax Period: as defined in Section 5.4.11.
Pre-Closing Transactions: as defined in Section 2.1.
Privileged Documents: shall mean any documents of Seller
subject to the attorney-client privilege or the work product privilege
except for those documents the disclosure or transfer of which would
not, in the good faith opinion of Seller after consulting with legal
counsel, result in a loss of any such privilege with respect to the
subject matter of any pending, threatened or possible cause of action
or judicial or administrative action, suit, proceeding or
investigation.
Program Receivables: accounts receivable owing to Seller
pursuant to its provider contracts with the Programs.
Programs: the Medicare, Medicaid and TRICARE programs.
Progress Reports: as defined in Section 4.1.33.
Purchasing Contracts: (i) the Purchasing Agreement dated
August 2, 1999 entered into by and between Paracelsus Healthcare
Corporation and Tenet HealthSystem Medical, Inc., having a term of two
(2) years commencing on August 1, 1999 and ending on July 31, 2001 and
(ii) the Agreement dated November 20, 1996 entered into by and between
Health Services Corporation of America and Paracelsus Healthcare
Corporation, having a term of three (3) years commencing on November
20, 1996 and ending on November 19, 1999.
Pro-Rated Draw Requests: as defined in Section 5.1.8.
Real Property: as defined in Section 2.2(a).
Recapitalization Transactions: the transactions to be
completed as set forth on Schedule 3.1 hereto.
Release: any release, spill, emission, discharge, leaking,
pumping, injection, deposit, disposal, dispersal, leaching or migration
into the indoor or outdoor environment (including, without limitation,
ambient air, surface water, groundwater and surface or subsurface
strata) or into or out of any property, including the movement of
Hazardous Substances through or in the air, soil, surface water,
groundwater or property.
Securitization Program: the accounts receivable securitization
program governed by the documents, instruments, and agreements executed
and delivered by PHC Funding Corp. II, PHC and certain Subsidiaries of
PHC, initially entered into as of April 16, 1993 with Sheffield
Receivables Corporation, together with any documents, instruments and
agreements from time to time executed and delivered in connection
therewith.
Seller: as defined in the Recitals.
Seller Cost Reports: as defined in Section 9.1.
Seller Financial Statements: as defined in Section 4.1.4.
Seller Financial Statements Date: as defined in Section 4.1.4.
Seller Indebtedness: the Senior Bank Credit Facility and the
Securitization Program.
Seller Indemnitees: as defined in Section 10.1(a).
Seller's 401(k) Plan: as defined in Section 7.1(d).
Senior Bank Credit Facility: the Paracelsus Healthcare
Corporation Amended and Restated Credit Agreement, providing for a
$140,000,000 Reducing Revolving Credit Facility and a $115,000,000 Term
Loan Facility, dated as of March 30, 1998, as amended.
Severance Plan: as defined in Section 7.1(b).
Shares: as defined in Section 4.1.34.
SLRMC: Salt Lake Regional Medical Center, the Hospital
owned and operated by PHC - Salt Lake and listed on
Exhibit A.
Statement: as defined in Section 3.4(a).
8023 Statement: as defined in Section 5.4.1.
Stockholders Agreement: as defined in Section 5.3.5.
Straddle Period: as defined in Section 5.4.5(a).
Sub-Contractors: those sub-contractors and suppliers whose
services in connection with the Construction Agreement
are invoiced by the General Contractor in the Draw Requests.
Subsidiaries: each corporation or other Person in which a
Person owns or controls, directly or indirectly, capital stock or other
equity interests representing at least 50% of the outstanding voting
stock or other equity interests.
Survey: as defined in Section 5.1.7(b).
Tax: includes all foreign, federal, state, or local government
income, franchise, withholding, estimated, excise, sales, use, gross
receipt, employment, payroll, transfer, property, profit, value added,
service, capital stock, license, social security, workers compensation,
unemployment, utility, gains, severance, stamp, occupation, premium,
windfall, environmental, disability, registration, alternative or
add-on minimum, gift, ad valorem, export, import, customs duties or
other taxes, charges, fees, duties, levies, penalties, or other
assessments of any kind whatsoever, together with any interest and any
penalties, additions to tax or additional amounts imposed by any taxing
authority, whether disputed or not; provided, however, Tax does not
include any charge, fee or penalty imposed exclusively under the
Programs on Seller or its Affiliates as a result of services provided
by Seller or its Affiliates.
Tax Claim: as defined in Section 5.4.12(a).
Taxing Authority: includes any federal, state, local, or
foreign governmental authority responsible for the
imposition of any Tax.
Tax Returns: any return, report, declaration, form, claim
for refund or information return or statement relating to
Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
Termination Notice: as defined in Section 8.1(b)
Title Commitment: as defined in Section 5.1.7(a).
Title Company: as defined in Section 5.1.7(a).
Title Policy: as defined in Section 5.1.7(a).
Transaction Consideration: the consideration to be delivered
to Seller as set forth on Schedule 3.1 hereto.
Transaction Expenses: as defined in Section 11.1.
Transferor: as defined in Section 4.1.25.
Transferred Corporation: as defined in Section 4.1.25
Transferred Employees: as defined in Section 7.1(a).
Transferred Entities: those entities listed on Exhibit B
hereto.
Transition Services Agreement: the agreement to be executed
by Seller and Buyer providing for certain transition
services substantially in the form of Exhibit F hereto.
Underlying Documents: as defined in Section 5.1.7(a).
WARN Act: Worker Adjustment and Retraining Notification Act
of 1988.
Work: as defined in Section 5.1.8.
Year 2000 Compliance: as defined in Section 4.1.33.
Year 2000 Project Plan: as defined in Section 4.1.33.
ARTICLE II.
PRE-CLOSING TRANSACTIONS; RECAPITALIZATION
2.1. Pre-Closing Transactions. Upon the terms and subject to the
conditions set forth in this Agreement, the parties agree that prior to the
consummation of the Closing, Parent and Seller shall take such actions and
undertake such transactions as they deem necessary or appropriate to cause
Holdco or a Subsidiary of Holdco to acquire all of the Assets as of the Closing
free and clear of all liabilities and obligations other than the Assumed
Liabilities and Permitted Liens, in a manner mutually acceptable to Buyer and
Seller. Such actions and transactions shall be referred to herein as the
"Pre-Closing Transactions."
2.2. Assets. The term "Assets" shall mean all right, title and interest
of the Seller in and to all assets, real, personal and mixed, tangible and
intangible, other than the Excluded Assets, owned or leased and used by Seller
in the operation of the Business, whether carried on the books of Seller or not
carried on the books of Seller, due to expense, full depreciation or otherwise,
as the same may exist on the Closing Date, including, without limitation except
to the extent included in the Excluded Assets those in the following categories
(collectively, the "Assets"):
(a) fee or leasehold title to all real property including,
without limitation, the real property described in Schedules 4.1.18 and
4.1.19 hereto, together with all improvements, buildings and fixtures
located thereon or therein other than those improvements, buildings and
fixtures owned by third parties that have leased real property from
Seller pursuant to ground leases, and all rights and appurtenances
pertaining thereto and all construction in progress (collectively, the
"Real Property");
(b) all leased and owned tangible personal property, including
all equipment, furniture, furnishings, parts, machinery, fixtures,
computer equipment, tools, spare parts, motor vehicles and leasehold
improvements owned or leased by Seller and used in the Business
("Equipment"), as well as manufacturers' warranties associated with
such items;
(c) all inventories owned or leased by Seller and used in the
Business, including all inventories of supplies, drugs, food,
janitorial and office supplies and other disposables and consumables
located at the Facilities or purchased by Seller for use in the
Business ("Inventory"), as well as all manufacturer's and vendor's
warranties associated with such items;
(d) all accounts receivable and notes receivable arising out
of the operation of the Business ("Accounts Receivable");
(e) all claims and causes of action of Seller against third
parties and Seller's rights to offset amounts against claims and causes
of action made by third parties with respect to the Assets, Assumed
Liabilities or the operation of the Business, including, but not
limited to, all rights against suppliers under warranties covering any
of the Inventory or Equipment, and all rights against insurers arising
out of the insurance policies maintained by Seller or otherwise
relating to the Assets, Assumed Liabilities or operation of the
Business;
(f) all rights to causes of action, lawsuits, judgments,
claims and demands of any nature available to or being pursued by the
Seller with respect to the Business or the ownership, use, function or
value of any Asset, whether arising by way of counterclaim or
otherwise;
(g) all books and records and other documents (whether on
paper, computer diskette, tape or other storage media) associated with
the Assets or the Assumed Liabilities and used in the operation of the
Business, including, without limitation, all financial, patient,
medical staff and personnel records, property records, production
records, engineering records, environmental compliance records,
purchase and sales records, credit data, marketing, advertising and
promotional materials, payroll records, accounting records, fixed asset
lists, supplier lists, manuals, technical and repair data,
correspondence, files and any similar items ("Books and Records");
(h) All commitments, contracts, leases, and agreements in
respect of the Business, including, without limitation, Seller's
provider contracts with the Programs (collectively, the "Contracts");
(i) to the extent assignable, all licenses and permits
relating to the ownership, development and operations of the Assets and
the Business (including, without limitation, any pending or approved
Governmental Approvals regarding the Business) necessary, or required
by Applicable Laws, to own or lease and operate the Assets and to
conduct the Business as it is presently conducted by Seller;
(j) all Intellectual Property;
(k) all Hospital-based computer software, programs and similar
systems owned or licensed by Seller and used in the Business;
(l) the Interests;
(m) to the extent assignable, all prepaid expenses, deposits
and other similar items of Seller associated with the operation of the
Business;
(n) except those relating to Excluded Assets, all claims,
refunds and rebates and similar items with respect to the Assets;
(o) all stationery, forms, labels, shipping materials,
brochures, art work, photographs, advertising materials and any similar
items owned by Seller and used in the operation of the Business;
(p) all goodwill of the businesses evidenced by the
Assets;
(q) all insurance proceeds arising in connection with property
damage to the Assets occurring after the date hereof and on or prior
the Closing Date, to the extent not expended on the repair or
restoration of the Assets or required to be applied to amounts
outstanding under the Senior Bank Credit Facility pursuant to the terms
thereof;
(r) the names, symbols and telephone numbers used with respect
to the operation of any of the Business, including, without limitation,
the names of any of the Facilities set forth on Exhibit A and the
Related Entities set forth on Exhibit C; and
(s) all of Seller's right, title and interest in and to all
other assets, property and rights owned or leased by Seller and used in
the Business, tangible and intangible, real, personal or mixed,
wherever located, whether or not carried at value or listed on the
books and records of Seller, and whether in the possession of Seller or
others.
Subject to the terms and conditions hereof, prior to the Closing, the
Assets shall be transferred or otherwise conveyed to Holdco or a Subsidiary
thereof free and clear of any and all Liens other than the Permitted Liens.
2.3. Excluded Assets. The Seller will retain and not transfer, and
Holdco or a Subsidiary thereof will not purchase or acquire, the following
properties, assets and rights (collectively, the "Excluded Assets"):
(a) cash and cash equivalents;
(b) rights to settlements and retroactive adjustments, if any,
for cost reporting periods ending on or prior to the Closing Date
arising from or against the United States government under the terms of
the Programs;
(c) all Privileged Documents;
(d) all claims of Seller against third parties, and Seller's
rights to offset amounts against claims made by third parties, with
respect to any Excluded Liabilities;
(e) all proceeds, benefits, income or revenues accruing (and
any security or other deposits made) with respect to any of the
Excluded Assets;
(f) Seller's corporate minute books, minutes, tax records and
other records of Seller required to be maintained by Seller as a matter
of law (it being understood that patient medical records are not
intended to be excluded);
(g) the name "Paracelsus" and all variations thereof, all
trademarks and logos related thereto and all stationery, forms, labels,
brochures, advertising materials and similar items bearing any of the
foregoing;
(h) all intercompany accounts of Seller and its Affiliates;
(i) all commitments, contracts, leases, capital leases, notes,
and agreements between Seller and its Affiliates; and
(j) all policies, procedures, internal controls and reporting
systems that have been developed and maintained by PHC at its principal
offices located in Houston, Texas;
(k) all computer hardware and software owned and licensed by
PHC and maintained and located at PHC's Houston data center;
(l) any interest in and to the "Paracelsus Pride" and
"Service Advantage" programs;
(m) all other assets located outside of the State of Utah
other than assets used primarily in the Business or located outside the
State of Utah on a temporary basis;
(n) the equity interest held by Seller in the entitie
set forth on Schedule 2.3(n); and
(o) the other assets set forth on Schedule 2.3.
2.4. Assumption of Liabilities. Subject to the terms and conditions set
forth herein and except for the Excluded Liabilities, at the time of the
Pre-Closing Transactions, Seller shall cause Holdco or a Subsidiary thereof to
assume and agree to be responsible for and agree to discharge or otherwise
satisfy all liabilities, obligations and commitments of Seller of any nature,
whether known or unknown absolute, accrued, contingent or otherwise and whether
due or to become due, relating to or arising out of the operation of the
Business. Prior to the Closing, Holdco or a Subsidiary thereof shall assume the
liabilities described in this Section 2.4 (the "Assumed Liabilities") by
executing and deliveringto Seller an assumption agreement in form and substance
satisfactory to Buyer and Seller (the "Assumption Agreement").
2.5. Excluded Liabilities. None of Holdco, any Subsidiary thereof or
Buyer have agreed to pay, shall be required to assume and shall have any
liability or obligation with respect to, any of the following liabilities or
obligations, direct or indirect, absolute or contingent, of Seller or the
Business (the "Excluded Liabilities"):
(a) liabilities or obligations of Seller in respect of periods
prior to Closing arising under the terms of the Programs, Blue Cross or
othe third party payor programs, including, without limitation, any
retroactive denial of claims, civil monetary penalties or any gain on
sale that may be recognized under the Medicare or Medicaid program as a
result of the consummation of the transactions described herein;
(b) any cause of action or judicial or administrative action,
suit, proceeding or investigation, pending or threatened on or prior to
the Closing Date or relating to periods prior to the Closing Date
including, without limitation, those items listed on Schedules 2.5(b)
and 4.1.6;
(c) any failure to comply with, or any violation of, any law,
rule, regulation, statute, ordinance, permit, judgment, injunction,
order, decree, license or other Governmental Approval applicable to the
Assets (other than Environmental Laws, which are addressed in
subsections (l) and (m) below), which failure or violation occurred on
or prior to the Closing Date;
(d) any obligations of Seller under this Agreement and
the Collateral Agreements;
(e) any obligations or liabilities of Seller for expenses or
fees incident to or arising out of the negotiation, preparation,
approval or authorization of this Agreement and the other agreements
contemplated hereby or the consummation (or preparation for the
consummation) of the transactions contemplated hereby and thereby,
including brokers', attorneys' and accountants' fees;
(f) any obligation of Seller under provider contracts with the
Programs in respect of periods prior to and including the Closing Date;
(g) any obligation or liability of Seller or any of its
Affiliates with respect to any Tax (including any obligation or
liability pursuant to Treas. Reg. ss. 1.1502-6 or any similar provision
of state, local, or foreign law or as a result of the election under
Section 338(h)(10) of the Code, as contemplated by Section 5.4.1 of
this Agreement) relating to (i) any taxable period (or portion thereof)
ending on or prior to the Closing Date, other than Buyer's share of any
Taxes specifically required to be prorated pursuant to the terms of
this Agreement or any Collateral Agreement, (ii) the portion of a
Straddle Period (as defined in Section 5.4.5(a)), ending on the Closing
Date (with due regard being given to Sections 5.4.5(b) and (c)), but
with respect to liabilities imposed pursuant to Treas. Reg. ss.
1.1502-6 or any similar provision of state, local or foreign law, for
the entire Straddle Period, or (iii) the Seller's or its Affiliates'
share of Taxes as set forth in Section 5.4.2;
(h) all Benefit Liabilities except as specifically
assumed in Article VII hereof;
(i) liabilities or obligations arising at any time under any
Contract not assumed by Buyer except to the extent provided pursuant to
Section 2.6(c);
(j) liabilities or obligations attributable to any breach of
or default under any Contract by Seller prior to the Closing Date
(whether or not Buyer has assumed such Contract), which breach or
default has not been cured on or prior to the Closing Date;
(k) any obligation or liability asserted under any federal
Hill-Burton program or other restricted grant and loan programs with
respect to the ownership or operation of the Facilities;
(l) liabilities or obligations arising out of or relating to
(i) violations of Environmental Laws on or prior to the Closing Date by
Seller or any of its Affiliates relating to the Facilities or Real
Properties, (ii) Environmental Proceedings pending or threatened on or
prior to the Closing Date against Seller or any of its Affiliates
relating to the Facilities or Real Properties or (iii) the Cleanup of
Hazardous Substances Released, disposed of or discharged by Seller or
any of its Affiliates; (A) on, beneath or adjacent to any of the Real
Properties prior to or on the Closing Date; or (B) at any other
location if such substances were generated, used, stored, treated,
transported or Released by or on behalf of a Facility prior to or on
the Closing Date;
(m) liabilities or obligations arising out of or relating to
(i) violations of Environmental Laws on or prior to the Closing Date by
Persons other than Seller or any of its Affiliates relating to the
Facilities or Real Properties, (ii) Environmental Proceedings pending
or threatened on or prior to the Closing Date against Persons other
than Seller or any of its Affiliates relating to the Facilities or Real
Properties or (iii) the Cleanup of Hazardous Substances Released,
disposed of or discharged by Persons other than Seller or any of its
Affiliates; (A) on, beneath or adjacent to any of the Real Properties
prior to or on the Closing Date; or (B) at any other location if such
substances were generated, used, stored, treated, transported or
Released by or on behalf of a Facility prior to or on the Closing Date;
(n) liabilities or obligations arising out of or relating
to the entities set forth on Schedule 2.3(n); or
(o) liabilities or obligations of Parent, Seller or any of
their Affiliates that do not arise out of or relate to the Business.
2.6. Consent of Third Parties.
(a) Notwithstanding anything to the contrary in this
Agreement, this Agreement shall not constitute an agreement to assign
or transfer any Governmental Approval, Environmental Permit,
instrument, contract, lease, permit or other agreement or arrangement
or any claim, right or benefit arising thereunder or resulting
therefrom if an assignment or transfer or an attempt to make such an
assignment or transfer without the Consent of a third party would
constitute a breach or violation thereof; and any transfer or
assignment to the Buyer by the Seller of any interest under any such
instrument, contract, lease, license, permit or other agreement or
arrangement that requires the Consent of a third party shall be made
subject to such Consent or approval being obtained. The Seller shall
use its Best Efforts to obtain any such Consent or approval prior to
the Closing Date. In the event any such Consent or approval is not
obtained on or prior to the Closing Date, the Seller shall continue to
use its Best Efforts to obtain any such approval or consent after the
Closing Date until such Consent or approval has been obtained.
Notwithstanding anything contained herein to the contrary, the failure
to obtain such a Consent or approval despite otherwise complying with
the terms of this Section 2.6 shall not constitute a breach hereof or a
default hereunder.
(b) If any such Consent is not obtained by Seller prior to the
Closing, until such Consent is obtained, Seller shall use its Best
Efforts, at Seller's sole cost and expense, to (i) provide Holdco or
its Subsidiaries the benefits of any Governmental Approval,
Environmental Permit or Contract to which such Consent relates, (ii)
cooperate in any reasonable and lawful arrangement designed to provide
such benefits to Holdco or its Subsidiaries, without incurring any
financial obligation to Holdco or its Subsidiaries, and (iii) enforce
for the account and benefit of Holdco or its Subsidiaries any and all
rights of Seller arising from such Governmental Approval, Environmental
Permit or Contract against such issuer thereof and all other parties
thereto (including the right to elect to terminate in accordance with
the terms thereof on the advice of Holdco). Notwithstanding the
foregoing, no action taken pursuant to this Section 2.6 shall be deemed
to satisfy the conditions set forth in Sections 6.1.3 or 6.2.6 hereof.
(c) To the extent that Holdco or its Subsidiaries are provided
the benefits pursuant to Section 2.6(b) of any Governmental Approval,
Environmental Permit or Contract, Holdco or such Subsidiaries shall
perform, on behalf of Seller, for the benefit of the issuer thereof and
all other parties thereto, the obligations of Seller thereunder or in
connection therewith, but only to the extent that (i) such action by
Holdco or such Subsidiaries would not result in any material default
thereunder or in connection therewith and (ii) such obligation would
have been an Assumed Liability but for the non-assignability or
non-transferability thereof.
ARTICLE III.
THE CLOSING
3.1. Closing. Upon the terms and subject to the conditions set forth in
this Agreement, the parties agree to complete the transactions set forth on
Schedule 3.1 hereto (the "Recapitalization Transactions"), and the closing of
the Recapitalization Transactions and other transactions contemplated hereby
(the "Closing") that have not been consummated prior to such time shall take
place at 10:00 A.M. local time on the 15th day of October, 1999 at the offices
of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, NY
10022, or at such other time and place upon which the parties may agree (the
"Closing Date"); provided, however, that the parties shall pre-close the
transactions contemplated hereby within two business days of the Closing at the
offices of Mayor, Day, Caldwell & Keeton, L.L.P., 700 Louisiana, 19th Floor,
Houston,Texas 77002. The Closing shall be effective as of 11:59 P.M. local time
on the Closing Date (the "Effective Time"). If the conditions set forth in
Article VI have not been satisfied prior to October 15, 1999, the Closing Date
shall be on the third business day after the last of such conditions have been
satisfied; provided that the Closing Date shall not be later than November 30,
1999.
3.2. Buyer's Delivery of the Transaction Consideration.
Buyer agrees to deliver or cause to be delivered the Transaction
Consideration in accordance with Schedule 3.1.
3.3. Closing Deliveries.
3.3.1. Seller Deliveries. Seller and Parent shall deliver the
following documents, as applicable, duly executed and delivered to the
Buyer at the Closing, each in form and substance reasonably
satisfactory to Buyer's counsel:
(a) bills of sale, assignment and general conveyance,
with respect to the transfer of Assets to Holdco or a
Subsidiary thereof (other than any Asset to be transferred
pursuant to any of the instruments referred to in any other
clause of this Section 3.3.1);
(b) assignments of all Contracts, Permits and any
other agreements and instruments constituting Assets,
assigning to Holdco or a Subsidiary thereof, all of Seller's
right, title and interest therein and thereto, with any
required Consent endorsed thereon;
(c) a special warranty deed, with covenants against
grantor's acts, or its equivalent, with respect to each parcel
of Owned Real Property in form and substance reasonably
satisfactory to Buyer and Seller, conveying fee simple title
to the Owned Real Property to Holdco or a Subsidiary thereof,
together with any necessary transfer declarations, or other
filings;
(d) assignments and assumptions of the Leases
conveying leasehold title to Holdco or a Subsidiary thereof,
subject to the Permitted Liens, together with any necessary
transfer declarations or other filings;
(e) an assignment of names and Intellectual
Property, in recordable form;
(f) certificates representing the Interests, duly
endorsed or accompanied by stock powers duly executed in
blank, with appropriate stock transfer tax stamps, if any,
affixed, or any other documents that are necessary to transfer
good and valid title to the Interests to Holdco;
(g) the compliance certificate referred to in
Section 6.2.1 hereof;
(h) each of the Collateral Agreements to which
Seller or Parent is a party;
(i) the Books and Records;
(j) certified copies of resolutions duly adopted by
each Seller's and Parent's board of directors authorizing the
execution, delivery and performance of this Agreement and the
other agreements contemplated hereby as applicable;
(k) certified copies of each Seller's and
Parent's certificate of incorporation and bylaws;
(l) a certificate of the Secretary or an Assistant
Secretary of each Seller and Parent as to the incumbency of
the officer(s) of such Seller and Parent executing this
Agreement and the Collateral Agreements;
(m) resignations of the directors and officers of the
Transferred Entities that are designated by Seller effective
as of the Closing;
(n) a short-form certificate of good standing of
each Seller and Parent;
(o) a legal opinion from counsel to Seller and Parent
reflecting the matters specified in Exhibit G hereto;
(p) evidence of the release of the liens
attributable to the Seller Indebtedness;
(q) the FIRPTA Affidavit as provided for in
Section 6.2.7;
(r) estoppel certificates from the landlords
under the material Leases;
(s) copies of the material Consents referred to
in Section 6.2.6 hereof; and
(t) such other documents, certificates and
instruments (i) to be delivered to Buyer as contemplated by
this Agreement or the Collateral Agreements or (ii) as Buyer
reasonably deems necessary to effect the transfer of the
Assets to Holdco or a Subsidiary thereof as contemplated
hereby.
3.3.2. Buyer Deliveries. Buyer shall deliver or cause to be
delivered the following to Seller at Closing, each in form and
substance reasonably satisfactory to Seller:
(a) an aggregate amount equal to the Cash Purchase
Price by wire transfer in immediately available funds to the
bank account or accounts designated by Parent in writing at
least two business days prior to the Closing Date;
(b) certified copies of resolutions duly adopted by
Buyer's board of managers authorizing the execution, delivery
and performance of this Agreement and the other agreements
contemplated hereby;
(c) certified copies of Buyer's certificate of
formation and limited liability company agreement;
(d) a certificate of the Secretary or an Assistant
Secretary of Buyer as to the incumbency of the officer(s) of
Buyer executing this Agreement and the Collateral Agreements;
(e) a short-form certificate of good standing of
Buyer;
(f) the Assumption Agreement;
(g) each of the Collateral Agreements to which
Buyer is a party; and
(h) such other payments, documents, certificates and
instruments to be delivered to Seller as contemplated by this
Agreement and the Collateral Agreements.
3.4. Post-Closing Adjustments to Cash Purchase Price.
(a) The Cash Purchase Price shall be adjusted following the
Closing as follows (as so adjusted, the "Adjusted Cash Purchase
Price"):
(i) As soon as practicable, but in no event later
than 60 days after the Closing Date, Seller shall deliver to
Buyer a statement (the "Statement") setting forth Seller's
determination of Seller's Net Working Capital as of the
Closing Date (the "Closing Net Working Capital"), and setting
forth in reasonable detail Seller's calculation thereof. The
Statement shall be prepared in accordance with GAAP,
consistently applied in accordance with Seller's historical
financial statements.
(ii) Buyer and its accountants shall have 60 days
following receipt by Buyer of the Statement during which to
review the Statement and any related work papers prepared in
connection with the calculation of Closing Net Working Capital
and to dispute any item contained in the Statement. If Buyer
fails to notify Seller of any such dispute within such 60-day
period, the Statement shall be the "Final Settlement." If
Buyer timely notifies Seller of any such dispute, and Seller
and Buyer cannot resolve any such dispute within 20 days of
receipt by Seller of such notice, such dispute shall be
resolved by Ernst & Young, LLP, or if such accounting firm is
unable to so act, by a nationally recognized accounting firm
selected by Ernst & Young (the accounting firm so engaged
shall hereinafter be referred to as the "Independent
Accounting Firm"); the determination of the Independent
Accounting Firm shall be made as promptly as practicable (but
no later than 165 days after the Closing Date) and shall be
final and binding on both Buyer and Seller. Any expenses
relating to engagement of the Independent Accounting Firm
shall be shared equally by Buyer and Seller. In the event of a
dispute, the Statement, as modified by resolution by Buyer and
Seller, or by the Independent Accounting Firm, shall be the
"Final Settlement."
(iii) The Adjusted Cash Purchase Price shall be equal
to the Cash Purchase Price, increased or decreased, as the
case may be, as follows: The Cash Purchase Price shall be (i)
reduced by the amount, if any, by which the Closing Net
Working Capital is less than the Pre-Closing Net Working
Capital or (ii) increased by the amount, if any, by which the
Closing Net Working Capital is greater than the Pre-Closing
Net Working Capital.
(b) Notwithstanding the foregoing, the Cash Purchase Price
shall not be reduced or increased if the aggregate difference between
(i) the Closing Net Working Capital and the Pre-Closing Net Working
Capital is less than $250,000, whether positive or negative. To the
extent that the Cash Purchase Price is reduced as contemplated hereby,
PHC shall pay such amount to Holdco or, to the extent that the Cash
Purchase Price is increased as contemplated hereby, Holdco shall pay
such amount to PHC, in either case, within five (5) days of the final
determination of such amount together with interest thereon at the
prime rate as then in effect at Citibank (the "Applicable Rate")
calculated on the basis of the number of days elapsed from the Closing
Date to the date of the payment, by wire transfer of immediately
available funds to an account designated by Holdco or PHC, as
applicable.
(c) The Parties agree that Seller shall be responsible for
Expansion Costs incurred prior to the date hereof (regardless of
whether or not such Expansion Costs have been paid on or prior to the
date hereof) and (assuming the Closing occurs) Buyer shall be
responsible for Expansion Costs incurred during the period of time from
the date hereof through the Closing Date (the "Pre-Closing Period") and
thereafter. Accordingly, the Cash Purchase Price shall be increased by
an amount equal to the Expansion Costs incurred and paid by Seller
during the Pre-Closing Period ("Buyer's Pre-Closing Expansion Costs")
in accordance with the provisions of this Section 3.4(c). At least
three (3) business days prior to the Closing Date, Seller shall deliver
to Buyer the Pro-Rated Draw Request, any subsequent Draw Requests and
all Contractors' Interim Invoices which have been paid by Seller
(collectively, the "Expansion Costs Invoices"), copies of which may
have previously been provided to Buyer pursuant to the provisions of
Section 5.1.8 hereof. Upon receipt of the Expansion Costs Invoices,
Buyer shall have the right to review any item contained therein, and
Buyer and Seller shall use Best Efforts to resolve any dispute with
respect thereto at or prior to the Closing. At the Closing, Holdco
shall pay to Seller by wire transfer of immediately available funds to
an account designated by Parent, an amount equal to Buyer's Pre-Closing
Expansion Costs as set forth in the Expansion Costs Invoices, or as
otherwise agreed to by Buyer and Seller, plus interest on any amounts
reflected in the Expansion Costs Invoices as Buyer's Pre-Closing
Expansion Costs which Seller has actually paid during the Pre-Closing
Period to third parties, at the Applicable Rate on the basis of the
number of days elapsed from the date of such payment by Seller of
Buyer's Pre-Closing Expansion Costs to the Closing Date. All Draw
Requests and Contractors Interim Invoices, in each case for the
Pre-Closing Period, which have not been paid by Seller as of the
Closing Date shall be assumed by Holdco as part of the Assumed
Liabilities.
(d) The Cash Purchase Price shall be decreased by an amount
equal to any insurance proceeds arising in connection with damage to
the Assets and received by Seller during the Pre-Closing Period that
are applied by Seller to amounts outstanding under the Senior Bank
Credit Facility pursuant to the terms thereof.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
4.1. Representations and Warranties of the Seller. Each Seller jointly
and severally represents and warrants to Buyer as follows:
4.1.1. Authorization, etc. Each Seller has the corporate power
and authority to execute and deliver this Agreement and each of the
Collateral Agreements to which it will be a party, to perform fully its
obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. The execution and
delivery by each Seller of this Agreement, and the consummation of the
transactions contemplated hereby, have been, and on the Closing Date
the execution and delivery by each Seller of each of the Collateral
Agreements and the consummation of the transactions contemplated
thereby will have been, duly authorized by all requisite corporate
action of each Seller. Each Seller has duly executed and delivered this
Agreement and on the Closing Date each Seller will have duly executed
and delivered each of its respective Collateral Agreements. This
Agreement is, and on the Closing Date each of the Collateral Agreements
to which each Seller is a party will be, legal, valid and binding
obligations of each Seller, enforceable against such Seller in
accordance with their respective terms except that (a) such enforcement
may be subject to any bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other laws, now or hereafter in
effect, relating to or limiting creditors' rights generally and (b) the
remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be
brought.
4.1.2. Corporate Status. Each Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, is duly qualified or licensed to do
business and is in good standing in each of the jurisdictions in which
the ownership of its Assets or the operation of the Business makes such
qualification or licensing necessary, except to the extent that any
failure to be so licensed or qualified would not result in a Material
Adverse Effect. Each Seller has all requisite corporate power and
authority to own, lease and operate the Assets and to conduct the
Business as it is now being conducted.
4.1.3. No Conflicts, etc. The execution, delivery and
performance by each Seller of this Agreement and each of the Collateral
Agreements, and the consummation of the transactions contemplated
hereby and thereby, do not and will not (a) conflict with or result in
a violation of or a default under (i) any Applicable Law applicable to
such Seller, the Business or the Assets, or (ii) the certificate of
incorporation or bylaws or other organizational documents of such
Seller, or (b) except as set forth in Schedule 4.1.3, conflict with, or
result in any material violation of or constitute a material default
(or an event or condition which, with notice or lapse of time or both,
would constitute a material default) under, or result in the
termination of, or accelerate the performance required by, or cause the
acceleration of the maturity of any liability or obligation pursuant
to, or result in the creation or imposition of any Lien (as hereinafter
defined) under, any Material Contract. Except as set forth in Schedule
4.1.11, no material Consent of any Governmental Authority is required
to be obtained or made by or with respect to Seller in connection with
the execution and delivery of this Agreement or the Collateral
Agreements, or the consummation by Seller of the transactions
contemplated hereby or thereby, or the conduct of the Business by Buyer
after the Closing, other than compliance with the filings under the HSR
Act.
4.1.4. Seller Financial Statements. Seller has delivered to
Buyer (i) the unaudited balance sheet of each Seller dated at December
31, 1998, 1997 and 1996 and the related unaudited statements of income
of such Seller for each such year then ended used in preparing the
audited consolidated financial statements of Parent and its
consolidated subsidiaries for the years ended December 31, 1998, 1997
and 1996 and (ii) the unaudited balance sheet of each Seller at June
30, 1999 (the "Seller Financial Statements Date") and the related
unaudited statements of income for the six months then ended (together,
the "Seller Financial Statements"). The Seller Financial Statements
were prepared in accordance with GAAP consistently applied and fairly
present in all material respects the financial position and results of
operations of the respective Sellers at their respective dates, subject
in the case of unaudited interim financial statements to normal year
end adjustments and the absence of explanatory footnote disclosure
required by GAAP.
4.1.5. Absence of Changes. Except as set forth in Schedule
4.1.5, since the Seller Financial Statements Date through the date
hereof, Seller has conducted the Business only in the ordinary course
consistent with prior practice and has not, on behalf of, in connection
with or relating to the Business or the Assets:
(a) suffered any event or change which individually
or in the aggregate, has had or would reasonably be expected
to result in a Material Adverse Effect;
(b) taken any action which, if taken after the
execution and delivery of this Agreement, would constitute a
breach or violation of Section 5.1.1 hereof; or
(c) entered into any contract, agreement or
arrangement with respect to any of the foregoing.
4.1.6. Litigation. Except as set forth on Schedule 4.1.6,
there is no action, claim, suit, investigation or proceeding material
to the Business ("Litigation") pending, or to Seller's knowledge
threatened, against or relating to Seller in connection with the
Assets, the Assumed Liabilities, or the Business or against or relating
to the transactions contemplated by this Agreement at law or in equity
or before any Governmental Authority or arbitration tribunal by any
private party or any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign. Seller is not in default with respect to any
judgment, order, writ, injunction or decree material to the Business
and served upon it of any court or of any Governmental Authority. The
Privileged Documents do not contain any information with respect to any
pending, threatened or possible cause of action or judicial or
administrative action, suit, proceeding or investigation or any other
facts or circumstances that are reasonably likely to have a Material
Adverse Effect.
4.1.7. Compliance with Laws. Except as disclosed in Schedule
4.1.7, to Seller's knowledge, since August 16, 1996, Seller has
complied in all material respects, and is presently complying in all
material respects, with all Applicable Laws material to the operation
of the Business or the Assets, and Seller has not received any notice
alleging any violation of an Applicable Law material to the operation
of the Business or the Assets. Seller has not been indicted, convicted
or, to Seller's knowledge, subject to an investigation of the Office of
Inspector General of the Department of Health and Human Services (the
"OIG") or other applicable Governmental Authority, or received a notice
from the OIG or other applicable Governmental Authority, with respect
to a violation or an alleged violation of the Medicare and Medicaid
fraud and abuse provisions of the federal Social Security Act, and to
Seller's knowledge has not committed a violation of any of such
provisions.
4.1.8. Government Program Participation. Each of the
Facilities is eligible to receive payment from the Programs and is a
"provider" under existing provider agreements with the Programs. Each
of the Facilities is in substantial compliance with the conditions of
participation in the Programs and has received all approvals or
qualifications necessary for reimbursement on the Assets. Except as set
forth on Schedule 4.1.8, there is not pending, nor to Seller's
knowledge threatened, any proceeding or investigation under the
Programs involving the Facilities or any of the Assets.
4.1.9. Cost Reports. All cost reports ("Cost Reports")
required to be filed by the Hospitals under the Programs, or any other
Applicable Laws, have been prepared and filed in accordance with such
Applicable Laws. Seller has made available to Buyer true and complete
copies of the Cost Reports relating to the Business which the Seller
has filed with the Programs for the last three (3) years, as well as
all correspondence and other documents relating to any disputes and/or
settlements with the Programs by the Seller within the last three (3)
years; except as set forth on Schedule 4.1.9, Seller has paid all
amounts which, to Seller's knowledge, are owed to the Programs for
periods ended prior to March 31, 1997. Schedule 4.1.9 sets forth, for
each of the Facilities, the years for which Cost Reports remain to be
settled. Except for disputes between Seller and the intermediary which
concern the payment of individual claims (as opposed to a dispute
concerning the right of Seller to receive reimbursement generally or to
participate in the Programs), and except as set forth on Schedule
4.1.9, to Seller's knowledge, there is no dispute between Seller and
any Governmental Authorities regarding such Cost Reports other than
with respect to adjustments thereto made in the ordinary course of
business.
4.1.10. JCAHO Accreditation. Each Hospital is duly accredited
with no contingencies (except as set forth in Schedule 4.1.10), by the
Joint Commission on Accreditation of Healthcare Organizations ("JCAHO")
for the period specified in Schedule 4.1.10. Seller has made available
to Buyer copies of each Hospital's most recent JCAHO accreditation
survey report and deficiency list, if any and each Hospital's most
recent Statement of Deficiencies and Plan of Correction, if any.
4.1.11. Governmental Approval. Schedule 4.1.11 sets forth all
Governmental Approvals that are material to the conduct of the
Business. Schedule 4.1.11 includes a complete description of all
licenses, permits, franchises and certificates of need, if any, and
their respective dates of termination or renewal, owned or held by
Seller that are material to the ownership or operation of the Assets or
the Business, together with any formal and specific notices or
directives received by Seller from the agency responsible for such
Schedule 4.1.11 item, for which noncompliance with such notice or
directive would likely cause the revocation or suspension for such item
or a material fine or penalty. Except as set forth in Schedule 4.1.11,
all such Governmental Approvals have been duly obtained and are in full
force and effect, and the Seller is in compliance with each of such
Governmental Approvals held by it with respect to the Assets and the
Business, except where non-compliance would not result in damages in
excess of $100,000. There is no claim, action, suit, investigation or
proceeding pending or, to the knowledge of Seller, threatened regarding
suspension or cancellation of any such Governmental Approval. Except as
set forth in Schedule 4.1.11, none of such Governmental Approvals will
lapse, terminate or expire as a result of the performance of this
Agreement by Seller or the consummation of the transactions
contemplated hereby or by the Collateral Agreements.
4.1.12. Fraud and Abuse. To the knowledge of the Applicable
Executives, Seller has not engaged in any activities which are
prohibited under 42 U.S.C. ss.ss. 1320a-7, 1320a-7a, 1320a-7b, 1395nn
and 1396b, the federal Civil False Claims Act (31 U.S.C. ss. 3729 et
seq.), the federal TRICARE statute, or the regulations promulgated
pursuant to such statutes or related state or local statutes or
regulations.
4.1.13. Hill-Burton Loans. The Seller does not have any
outstanding obligation to repay any loans, grants, or loan guarantees,
or to provide uncompensated care in consideration thereof, pursuant to
the Hill-Burton Act (42 U.S.C. ss. 291a et seq.)
4.1.14. Interests. Except as set forth on Schedule 4.1.14, the
membership interests (the "LLC Interests") in each limited liability
company (an "LLC") set forth opposite the name of a Seller or Parent on
Exhibit B hereto are owned by such Seller and constitute, except as set
forth in Schedule 4.1.14, all of its equity interests in such LLC. Such
Seller has good and valid title to the LLC Interests owned directly by
it, free and clear of all Liens other than Permitted Liens, and upon
delivery to Holdco or a Subsidiary thereof of an assignment of the LLC
Interests executed by Seller, good and valid title to the LLC Interests
will pass to Holdco or a Subsidiary thereof, free and clear of any
Liens other than Permitted Liens. Except as set forth on Schedule
4.1.14, neither such Seller or any other Person has any right to
acquire any additional membership or other equity interest in such LLC
or any securities convertible into membership or other equity interests
in such LLC. Except as set forth on Schedule 4.1.14, there are no
outstanding options, rights, calls, commitments of any kind relating
to, or any presently effective voting trusts, agreements or
understandings, with respect to any of the LLC Interests which would
prevent the assignment and transfer of the LLC Interests as provided
herein or restricting or otherwise relating to the voting, dividend
rights or disposition of the LLC Interests. All of the LLC Interests
are validly issued and outstanding, fully paid and nonassessable. The
LLC Interests have not been issued in violation of, and are not subject
to, any preemptive, subscription or similar rights. No LLC owns,
directly or indirectly, any capital stock or other equity interest in
or of any corporation, partnership, joint venture or other entity.
Except as set forth on Schedule 4.1.14, each such Seller is, and at all
times from the date hereof to the transfer to Holdco or a Subsidiary
thereof will be, the sole record and beneficial owner of the LLC
Interests set forth opposite its name on Exhibit B, free and clear of
any lien, charge, security interest, encumbrance or claim other than
Permitted Liens.
4.1.15. Assets. Except as disclosed in Schedule 4.1.15, Seller
has, and on the Closing Date, Holdco or Subsidiaries thereof will have,
good and valid title to the Assets owned by it, other than the Real
Property (which is addressed in Section 4.1.18) and valid leasehold
interests in, or other rights to use, all of the Assets not owned by
Seller, whether or not such Assets are reflected on the December 31,
1998 balance sheet, included in the Seller's Financial Statements or
thereafter acquired, in each case, free and clear of any and all Liens
other than Permitted Liens. Except as set forth on Schedule 4.1.15, as
of the date hereof and as of the Closing Date, all Equipment material
to the conduct of the Business will be in substantially the same
operating condition, reasonable wear and tear excepted, as existed on
the Seller Financial Statements Date. The Assets comprise all assets,
properties, licenses, rights and agreements (i) in each case, being
used in the conduct of the Business on the date hereof and (ii)
required for the conduct of the Business by Seller as now being
conducted, except for the Excluded Assets.
4.1.16. Material Contracts.
(a) Schedule 4.1.16 contains a complete and correct
list of all Material Contracts. "Material Contracts" shall
mean those Contracts relating to the Business to which a
Seller is a party or by which a Seller or the Assets are
bound, other than any Leases or any contract, agreement or
commitment that (i) by its terms, terminates, or may be
terminated by the Seller unconditionally and without penalty
within one year of the Closing Date and is in an amount less
than $100,000; (ii) relates to the Seller Indebtedness; or
(iii) is set forth on Schedules 4.1.18 and 4.1.19 hereto.
Notwithstanding the foregoing, each of the following Contracts
is a "Material Contract" and is set forth on Schedule 4.1.16:
(i) collective bargaining agreements and other contracts with
any labor union; (ii) agreements including covenants which
restrict the Business' rights to compete; (iii) consent
decrees of Governmental Authorities to which the Assets or the
Facilities are bound; (iv) employment agreements and severance
agreements, including severance arrangements included in
Seller's policies applicable to employees generally; (v) other
than the Contracts relating to the Seller Indebtedness, any
Contract under which Seller has borrowed or loaned money in
excess of $100,000, or any mortgage, note, bond, indenture or
other evidence of indebtedness (excluding advances, deposits
or similar obligations) or any guarantee of indebtedness; or
(vi) joint ventures or similar agreements.
(b) There does not exist under any Material Contract
any material event of default or event or condition that,
after notice or lapse of time or both, would constitute a
material violation, breach or event of default thereunder on
the part of Seller or, to Seller's knowledge, any other party
thereto except as set forth in Schedule 4.1.16. Except as set
forth in Schedule 4.1.16, no consent of any third party is
required under any Material Contract as a result of or in
connection with the execution, delivery and performance of
this Agreement or the consummation of the transactions
contemplated hereby. Each Material Contract is in full force
and effect and is the valid and binding obligation of Seller
and, to the knowledge of Seller, of each other party thereto.
Seller has made available to Buyer copies of all Material
Contracts. Except as set forth in Schedule 4.1.16 the
consummation of the transactions contemplated by this
Agreement will not result in any Material Contract failing to
remain in full force and effect (without imposition of any
material restriction, adverse condition, limitation, cost or
penalty to Seller, Buyer or the Business). Except as set forth
on Schedule 4.1.16, Seller has satisfied all of its material
obligations under the Material Contracts to the extent that
such obligations can be determined as of the date of this
Agreement and Seller will continue to satisfy all such
obligations pursuant to such Material Contracts through the
Closing Date.
4.1.17. Intellectual Property. Schedule 4.1.17 contains a
complete and correct list of Intellectual Property material to the
operation of the Business (the "Material Intellectual Property").
Seller owns or has the right to use pursuant to license, sublicense,
agreement or permission all Material Intellectual Property. Except as
set forth in Schedule 4.1.17, Seller is the sole and exclusive owner of
the Material Intellectual Property for which it is identified as the
owner thereof on Schedule 4.1.17, and is listed in the records of the
appropriate agency as the sole and exclusive owner of record for each
such registration, grant and application listed thereon. Except as set
forth in Schedule 4.1.17, Seller has the full right to use (without
payment) the Material Intellectual Property in the conduct of the
Business, as currently conducted. Except as set forth in Schedule
4.1.17, no claims have been asserted or, to the knowledge of Seller,
threatened, nor has Seller received notice of any such claim that (i)
the operations of the Business infringe upon or conflict with the
rights of any other Person in respect of any Material Intellectual
Property or (ii) any Material Intellectual Property or the use by the
Business of any Material Intellectual Property is invalid or
unenforceable. To the knowledge of Seller, no Person is presently
infringing or, since January 1, 1997, has infringed upon Seller's
rights in respect of the Material Intellectual Property.
4.1.18. Owned Real Property. Schedule 4.1.18 contains a
complete and correct list of the Owned Real Property setting forth the
address of each parcel of Owned Real Property including, without
limitation, the properties reflected as being so owned on the Seller
Financial Statements and not disposed of after the Seller Financial
Statements Date in the ordinary course of business and in accordance
with the terms of this Agreement. Seller has, and on the Closing Date,
Holdco or a Subsidiary thereof will have, good and valid fee title to
the Owned Real Property free and clear of all Liens other than
Permitted Liens. All of the buildings, structures and material
appurtenances owned by Seller and situated on the Owned Real Property
are in substantially good operating condition, and substantially in a
state of good maintenance and repair, subject to ordinary wear and
tear. The Owned Real Property has adequate rights of ingress and egress
for operation of the Business in the ordinary course. Except as
disclosed on Schedule 4.1.18, no condemnation or similar proceeding is
pending or, to the best knowledge of Seller, threatened, with respect
to the Owned Real Property. Except for Owned Real Property subject to
any of the Leases, Seller is not obligated under any option, right of
first refusal or other contractual right to sell, lease or otherwise
dispose of any Owned Real Property.
4.1.19. Leases. Schedule 4.1.19 contains a complete and
correct list of all Leases to which a Seller is a party setting forth
the address, landlord and tenant for each Lease. Seller has made
available to the Buyer true, correct and complete copies of the Leases.
Except as disclosed on Schedule 4.1.19, no event has occurred and is
continuing that constitutes or, with notice or the passage of time or
both, would constitute a material default, violation or breach by
Seller in any respect under any Lease. Except as disclosed on Schedule
4.1.19, to the best knowledge of Seller, all of the buildings,
structures and material appurtenances situated on the Leased Real
Property are in reasonably good operating condition, and in a state of
good maintenance and repair, subject to ordinary wear and tear. The
Leased Real Property has adequate rights of ingress and egress for
operation of the Business in the ordinary course. Except as disclosed
on Schedule 4.1.19, to the best knowledge of Seller, no condemnation or
similar proceeding is pending or threatened with respect to the Leased
Real Property. Except as set forth in Schedule 4.1.19, no Consent of
any third party is required under any Lease as a result of or in
connection with the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby.
Each Lease is in full force and effect and is the valid and binding
obligation of Seller and, to the knowledge of Seller, of each other
party thereto. Except as set forth on Schedule 4.1.19, Seller has not
assigned its interest under any such Lease, sublet any interest in any
Leased Real Property or pledged its interest therein. Except as set
forth in Schedule 4.1.19 the consummation of the transactions
contemplated by this Agreement will not result in any Lease failing to
remain in full force and effect (without imposition of any material
restriction, adverse condition, limitation, cost or penalty to Seller,
Buyer or the Business). Except as set forth in Schedule 4.1.19, Seller
has satisfied all of its material obligations under the Leases to the
extent that such obligations can be determined as of the date of this
Agreement and Seller will continue to satisfy all such obligations
pursuant to such Leases through the Closing Date.
4.1.20. Environmental Matters. Except as set forth in Schedule
4.1.20 (i) to Seller's knowledge, the Facilities are in compliance in
all material respects with Environmental Laws; (ii) Seller has obtained
all material Environmental Permits necessary for the operation of the
Facilities, and all such Environmental Permits are in full force and
effect; (iii) Seller is in compliance with all such Environmental
Permits, except for noncompliance, individually or in the aggregate,
that does not have a Material Adverse Effect; (iv) there are no pending
or, to the best knowledge of Seller, threatened Environmental
Proceedings; (v) Seller has not generated, handled, stored, disposed of
or released any Hazardous Substances on any of the Owned Real Property
or Leased Real Property other than in compliance, in all material
respects, with applicable Environmental Laws; (vi) there have been no
Releases of Hazardous Substances by Seller on or underneath any of the
Owned Real Property or Leased Real Property, except pursuant to and in
material compliance with an Environmental Permit; (vii) there are not
now and to Seller's knowledge there never have been any underground
storage tanks, PCBs or asbestos located on the Owned Real Property or
on the Pioneer Valley Real Property or the Leased Real Property set
forth on Schedule 4.1.20(a) hereto except as allowed by and in material
compliance with all applicable Environmental Permits and Environmental
Laws; and (viii) Seller has not received any written communication,
whether from a Governmental Authority, citizens group, employee or
otherwise, that alleges that Seller is not in full compliance with
Environmental Laws. There is no Environmental Proceeding pending or to
the knowledge of Seller, threatened against Seller or with respect to
the Assets. Seller has made available to Buyer all environmental
reports and studies relating to the Assets, the Facilities or the Real
Property of which Seller is aware and of which Seller has possession
(the "Environmental Reports"). Notwithstanding anything in this
Agreement to the contrary, this Section 4.1.20 sets forth the exclusive
representations and warranties of Seller to Buyer with respect to
environmental matters of any kind or nature whatsoever. The inclusion
of any item disclosed in Schedule 4.1.20 does not constitute an
admission by any Party that any matters disclosed in such Schedule
constitute a violation of any Environmental Law.
4.1.21. Employment Relations. Except as set forth on Schedule
4.1.21, (a) no Seller is now engaging or has since August 16, 1996
engaged in any unfair labor practice involving the Business that could
reasonably be expected to result in a material liability to the
Business, (b) no Seller has been notified of any material grievance
involving an employee of the Business, (c) no Seller is a party to any
collective bargaining agreement involving the Business and no such
collective bargaining agreement is currently being negotiated by any
Seller, (d) there is no labor strike, slowdown or work stoppage pending
or, to the knowledge of Seller, threatened against Seller relating to
the Business, and (e) to the knowledge of Seller, there have been no
union-organizing efforts relating to the Business. Seller has not
received written notice of the intent of any federal, state or local
agency responsible for the enforcement of labor or employment laws to
conduct an investigation of or relating to Seller or the Business, and
no such investigation is in progress except, in each case, for
investigations in the ordinary course of business.
4.1.22. Employee Benefit Plans.
(a) Schedule 4.1.22(a) contains a true and complete
list of each deferred compensation and each bonus or other
incentive compensation, stock purchase, stock option and other
equity compensation plan, program, agreement or arrangement;
each severance or termination pay, medical, surgical,
hospitalization, life insurance and other "welfare" plan, fund
or program (within the meaning of section 3(1) of "ERISA");
each profit-sharing, stock bonus or other "pension" plan, fund
or program (within the meaning of section 3(2) of ERISA); each
employment, termination or severance agreement; and each other
employee benefit plan, fund, program, agreement or
arrangement, in each case, that is sponsored, maintained or
contributed to or required to be contributed to by any Seller
or by any trade or business, whether or not incorporated (an
"ERISA Affiliate"), that together with any Seller would be
deemed a "single employer" within the meaning of section
4001(b) of ERISA, or to which any Seller or an ERISA Affiliate
is party, whether written or oral, for the benefit of any
employee or former employee of the Business (the "Employee
Benefit Plans").
(b) With respect to each Employee Benefit Plan,
Seller has heretofore delivered or made available to Buyer
true and complete copies of each of the plan and all related
documents, including annual reports, Summary Plan
Descriptions, trust agreements and the most recent
determination letter received from the Internal Revenue
Service with respect to each Employee Benefit Plan intended to
qualify under section 401 of the Code.
(c) No Employee Benefit Plan is subject to Title IV
of ERISA, and no liability under Title IV or section 302 of
ERISA has been incurred by the Seller or any ERISA Affiliate
that has not been satisfied in full. Insofar as the
representation made in this Section (c) applies to sections
4064, 4069 or 4204 of Title IV of ERISA, it is made with
respect to any employee benefit plan, program, agreement or
arrangement subject to Title IV of ERISA to which the Company
or any ERISA Affiliate made, or was required to make,
contributions during the five (5)-year period ending on the
last day of the most recent plan year ended prior to the
Closing Date.
(d) All contributions required to be made with
respect to any Employee Benefit Plan on or prior to the
Closing Date have been timely made or are reflected on the
Seller Financial Statements.
(e) Except as set forth in Schedule 4.1.22(e), each
Employee Benefit Plan has been operated and administered in
all material respects in accordance with its terms and
applicable law, including, but not limited to, ERISA and the
Code.
(f) Except as set forth in Schedule 4.1.22(f), each
Employee Benefit Plan intended to be "qualified" within the
meaning of section 401(a) of the Code is so qualified and the
trusts maintained thereunder are exempt from taxation under
section 501(a) of the Code.
(g) No Employee Benefit Plan provides medical,
surgical, hospitalization, death or similar benefits (whether
or not insured) for employees or former employees of the
Business for periods extending beyond their retirement or
other termination of service, other than coverage mandated by
applicable law.
(h) No amounts payable under the Employee Benefit
Plans will fail to be deductible for federal income tax
purposes by virtue of section 162(a)(1), 162(m) or 280G of the
Code.
(i) The consummation of the transactions contemplated
by this Agreement will not, either alone or in combination
with another event, (i) entitle any current or former employee
or officer of Seller or any ERISA Affiliate to severance pay,
unemployment compensation or any other payment, except as
expressly provided in this Agreement, or (ii) accelerate the
time of payment or vesting, or increase the amount of
compensation due any such employee or officer.
(j) There are no pending, threatened or anticipated
claims by or on behalf of any Employee Benefit Plan, by any
employee or beneficiary covered under any such Employee
Benefit Plan, or otherwise involving any such Employee Benefit
Plan (other than routine claims for benefits).
(k) Except as set forth in Schedule 4.1.22(k), (i)
since the enactment of the WARN Act, Seller has not
effectuated a "plant closing" or a "mass layoff" (as such
terms are defined in the WARN Act); (ii) Seller has not
effected any transaction or engaged in layoffs or employment
terminations sufficient in number to trigger application of
any similar state, local or foreign law or regulation; and
(iii) none of Seller's employees has suffered an "employment
loss" (as defined in the WARN Act) during the 90-day period
prior to the date of this Agreement.
4.1.23. Accounts Receivable. Except as set forth on Schedule
4.1.23, the Accounts Receivable on the Seller Financial Statements and
all Accounts Receivable that exist as of the Closing Date constitute
valid claims arising from bona fide transactions in the ordinary course
of business, and are collectible, net of any reserves for bad debt and
contractual allowances (which reserves and allowances are determined in
accordance with GAAP as applied by Seller, consistent with past
practice).
4.1.24. Insurance. Seller has made available to Buyer or its
representatives copies of, and Schedule 4.1.24 lists, all insurance
policies that Seller maintains with respect to the Business and the
Assets or on the employees of the Business. In Seller's judgment, such
policies, with respect to their amounts and types of coverage, are
adequate to insure against risks to which Seller and its property and
the Assets are normally exposed in the operation of the Business,
subject to customary deductibles and policy limits. All such policies
are in full force and effect. Except as set forth in Schedule 4.1.24,
there are no pending, nor to the knowledge of Seller, threatened
disputes relating to coverage or other disputed claims under any of the
foregoing insurance policies and there are no pending defaults and
Seller has received no notices of cancellation of such policies.
4.1.25. Taxes. For purposes of this Section 4.1.25 and Section
5.4, (i) "Transferors" shall mean PHC Holdings, PHC - Salt Lake, PHC -
Jordan, Paracelsus Davis, Paracelsus-PHC, Paracelsus Pioneer, PHC Utah,
Clinicare and PVHP (each a "Transferor"); (ii) "Transferred
Corporation" shall mean Holdco; (iii) "Other LLC Entities" shall mean
SouthRidge Professional Plaza, LLC, and Davis Surgical Center, LLC,
(each an "Other LLC Entity"). (Sandy City ASC, LLC, and Other LLC
Entities are sometimes collectively referred to in this 4.1.25 and
Section 5.1.4 as the "LLC Entities." Except as set forth on Schedule
4.1.25:
(a) All Tax Returns required to be filed by or on
behalf of the Transferors, the Transferred Corporation or
Sandy City ASC, LLC on or before the Closing Date have been
(or will be as of the Closing Date) timely filed. All such Tax
Returns are (or will be as of the Closing Date) true, correct
and complete in all respects. None of the Transferors, the
Transferred Corporation or Sandy City ASC, LLC is at present
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 the Transferors, the
Transferred Corporation or Sandy City ASC, LLC do not file Tax
Returns to the effect that any Transferor, the Transferred
Corporation or Sandy City ASC, LLC is or may be subject to
Taxes imposed by that jurisdiction. None of the Transferors,
the Transferred Corporation or Sandy City ASC, LLC is required
to file any state Tax Returns other than in those states set
forth in Schedule 4.1.25.
(b) Each Transferor, the Transferred Corporation and
Sandy City, ASC, LLC have timely paid or will pay prior to the
Closing Date all Taxes due from it. Each Transferor, the
Transferred Corporation and Sandy City, ASC, LLC have
established (and until the Closing will establish) on their
books and records reserves that are adequate for the payment
of all Taxes not yet due or payable.
(c) There are no Liens for Taxes upon the assets,
properties or business of any Transferor, the Transferred
Corporation or Sandy City ASC, LLC. No facts exist which would
reasonably be expected to result in the assessment of any
liability for Taxes by any Taxing Authority against any
Transferor, the Transferred Corporation or Sandy City ASC,
LLC.
(d) Prior to the date of this Agreement, Parent has
provided Buyer with written schedules of (i) the taxable years
of the Transferors, the Transferred Corporation, Sandy City
ASC, LLC and, to Parent's knowledge, Other LLC Entities for
which any statute of limitations with respect to any Tax has
not expired and (ii) with respect to U.S. federal income
Taxes, for all taxable years of the Transferors, the
Transferred Corporation, Sandy City ASC, LLC, and, to Parent's
knowledge, Other LLC Entities for which the statutes of
limitations have not yet expired, those years for which
examinations have been completed, those years for which
examinations are presently being conducted and those years for
which examinations have not yet been initiated. No deficiency
or material adjustment to taxable income or deductions for any
Taxes has been proposed, asserted, or assessed against the
Transferors, the Transferred Corporation, Sandy City ASC, LLC
or, to Parent's knowledge, Other LLC Entities which has not
been resolved and paid in full and no issue has been raised by
a Taxing Authority in any such examination which reasonably
would be expected to result in a proposed deficiency, penalty
or interest for any other period. There are no outstanding
waivers or comparable consents regarding the application of
any statute of limitations with respect to any Taxes or Tax
Returns of the Transferors, the Transferred Corporation, Sandy
City ASC, LLC or, to Parent's knowledge, any Other LLC
Entities, and no power of attorney with respect to the
Transferors, any Transferred Corporation, Sandy City ASC, LLC
or, to Parent's knowledge, any Other LLC Entity has been
granted which currently remains in force.
(e) Parent has delivered to Buyer correct and
complete copies of all Tax Returns, examination reports, and
statement of deficiencies assessed against or agreed to with
respect to the Transferred Corporation, Sandy City ASC, LLC
and, to Parent's knowledge, Other LLC Entities.
(f) Neither the Transferors, the Transferred
Corporation, Sandy City ASC, LLC, or to Parent's knowledge,
the Other LLC Entities, nor any of their respective
representatives has received notice or is otherwise aware of
any pending audit or other proceeding by any federal, state,
local or foreign court, governmental, regulatory,
administrative or similar authority with respect to any Taxes
or Tax Returns.
(g) Neither Sandy City ASC, LLC nor, to Parent's
knowledge, any of the Other LLC Entities is a party to, is
bound by, or has any obligation under, any Tax allocation,
sharing agreement or similar contract or arrangement. The
Transferred Corporation will have no liability under any Tax
allocation, sharing agreement or similar contract or
arrangement. None of the Transferors, the Transferred
Corporation, Sandy City ASC, LLC or, to Parent's knowledge,
the Other LLC Entities have any liability for the Taxes of any
Person (other than the Parent and its Subsidiaries) as a
transferee or successor or otherwise (including under Treas.
Reg. ss. 1.1502-6 or any similar provision of state, local or
foreign law).
(h) None of the Transferors, the Transferred
Corporation, or, to Parent's knowledge, the LLC Entities have
failed to withhold and pay over to the appropriate Taxing
Authority all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third
party.
(i) The Transferred Corporation has not filed a
consent under Section 341(f) of the Code concerning
collapsible corporations.
(j) No Transferor or Transferred Corporation has been
a member of an affiliated group, within the meaning of Section
1504(a) of the Code, filing a consolidated federal income Tax
Return (other than a group the common parent of which is
Parent).
(k) Neither Parent nor its Affiliates have ever been
the Tax Matters Partner as defined in ss. 6231(a)(7) of the
Code with respect to the Other LLC Entities.
(l) Parent or its Affiliates have paid all Taxes due
with respect to any ownership interest of Parent or its
Affiliate in the in the LLC Entities.
(m) Seller believes that neither the Pre-Closing
Transactions nor any transactions contemplated in this
Agreement will terminate one or more of the LLC Entities under
Section 708 of the Code. Prior to Seller or any of its
Affiliates transferring interests in an LLC Entity, Seller
shall confirm that such transfer will not terminate the LLC
Entity under Section 708. If a transfer contemplated by this
Agreement would terminate an LLC Entity, either (i) Seller
shall obtain the consent of (A) Buyer and (B) any Members of
the affected LLC Entity whose consent is required under the
LLC's operating agreement to the termination of the LLC under
Section 708 or (ii) the portion of the LLC Entity Interest
which may be transferred without causing a termination shall
be transferred immediately and Seller or its Affiliates shall
enter into an agreement to sell the balance of the interest to
Holdco no more than 13 months from the date of the initial
transfer. In the event (ii) applies, the Transaction
Consideration shall be reduced by the amount to be paid by
Holdco for the balance of the LLC Entity Interest.
4.1.26. Affiliate Transactions. Schedule 4.1.26 sets forth a
true, correct and complete description of all material Affiliate
Transactions. Except as set forth in Schedule 4.1.26, each of the
Affiliate Transactions will terminate at or prior to the Closing
without any payment by or liability to the Business or relating to any
Asset.
4.1.27. Brokers, Finders, etc. Other than Chase Securities
Inc. no agent, broker, Person or firm acting on behalf of Seller or any
of its Affiliates is, or will be, entitled to any fee, commission or
broker's or finder's fees in connection with this Agreement or any of
the transactions contemplated hereby.
4.1.28. Disclosure. No representation or warranty by Seller
contained in this Agreement or any Collateral Agreement, and no
information contained in any certificate delivered by Seller pursuant
to this Agreement or any Collateral Agreement, contains any untrue
statement of a material fact or omits to state any material fact
necessary in order to make the statements contained herein or therein
not misleading.
4.1.29. Solvency. Except as set forth on Schedule 4.1.29, no
Seller is, nor after Closing as 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 under
bankruptcy laws or for the appointment of a receiver or trustee of all
or any portion of such Seller's property; and, to Seller's knowledge,
no other Person has filed or threatened to file such a petition against
any Seller.
4.1.30. Disclaimer of Warranties. Except for the warranties
and representations expressly set forth herein, the Assets will be
transferred by Seller to Holdco or a Subsidiary thereof in their
condition at Closing, "AS IS", WITH NO WARRANTY OF HABITABILITY OR
FITNESS FOR HABITATION, with respect to the Real Property, and WITH NO
OTHER WARRANTIES, INCLUDING THE WARRANTIES OF SUITABILITY,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, with respect to
the other Assets, any and all of which warranties (whether express or
implied, statutory or otherwise) Seller hereby disclaims.
4.1.31. Absence of Undisclosed Liabilities. Except for
liabilities and obligations (i) set forth in Schedule 4.1.31, (ii)
reflected in the Seller Financial Statements or (iii) incurred in the
ordinary course of business consistent with past practice, Seller does
not have any material liabilities or obligations of any nature, direct
or indirect, whether accrued, fixed, contingent or otherwise, relating
to the Business. This Section 4.1.31 shall not be deemed to apply to
any obligations or liabilities of the types that (i) are covered by any
other representations and warranties under this Section 4.1 and (ii)
are either (a) disclosed in the Schedules or (b) are specifically
excluded or excepted from the terms of such representations and
warranties under the express language of such representations and
warranties or by reason of qualifications of such representations and
warranties relating to materiality, Seller's knowledge or other
specific qualifications set forth therein.
4.1.32. Inventory. The inventory with respect to each Facility
is, and at Closing will be, maintained in all material respects in such
quality and quantities as is consistent with such Facility's historical
practices.
4.1.33. Year 2000 Compliance. Seller has provided Buyer with
copies of Parent's Year 2000 Project Plan and the weekly progress
reports the "Progress Reports" under the Year 2000 Project Plan
prepared as of the date hereof, and has provided Buyer with access to
all supplementary material and documentation with respect at the steps
taken to cause the Business and the Facilities to be in Year 2000
Compliance. The Year 2000 Project Plan and the Progress Reports
accurately set forth (i) the steps to implement the Deliverables (ii)
the actions completed by Seller as of the date of this Agreement to
implement the Deliverables, which actions are set forth on Schedule
4.1.33 and (iii) those remaining actions identified in the Year 2000
Project Plan to implement the Deliverables which have not been
completed as of the date of this Agreement. Seller believes that upon
completion of such remaining patient critical and operations critical
actions as set forth in and in accordance with the Year 2000 Project
Plan, that the systems described in the Year 2000 Project Plan will
function in Year 2000 Compliance in all material respects. For purposes
of this Agreement, "Year 2000 Compliance" means that such systems will
operate without resulting in material disruption to the operation of
the Facilities or material liability to the Business as a result of
errors relating to the processing of date data in connection with the
year change from December 31, 1999 to January 1, 2000, provided that
such systems are used with accurate date and other data.
4.1.34. Holdco Capitalization. The authorized capital stock of
Holdco consists of 1000 shares of no par value common stock ("Holdco
Common Stock"), all of which are issued and outstanding as of the date
hereof (the "Shares") and are owned by PHC Holdings, and all of which
will be issued and outstanding and owned by PHC Holdings immediately
prior to consummation of the transactions contemplated by Schedule 3.1.
There are no outstanding options, rights, calls or commitments of any
kind relating to, or any presently effective agreements or
understandings, with respect to, the Shares which would affect or
prevent the transfer of the Shares contemplated by Schedule 3.1 or
restricting or otherwise relating to the voting, dividend rights or
disposition of the Shares. All of the Shares are validly issued and
outstanding, fully paid and nonassessable. None of the Shares have been
issued in violation of, and are not subject to, any preemptive,
subscription or similar rights. Neither Parent, nor Seller nor any
other Person (other than Buyer) has any right to acquire any additional
shares of Holdco Common Stock or any securities convertible or
exchangeable into Holdco Common Stock. Except as set forth on Schedule
4.1.34, Holdco does not own any capital stock or other equity interest
in or of any corporation, partnership, joint venture or other entity.
PHC Holdings is, and at all times from the date hereof until
immediately prior to the consummation of the transactions contemplated
by Schedule 3.1 will be, the sole record and beneficial owner of the
Shares, free and clear of all Liens, other than Permitted Liens. Upon
delivery by Buyer of the Transaction Consideration in accordance with
such Schedule 3.1, and upon delivery to Buyer of a certificate or
certificates representing the shares of Holdco Common Stock to be
issued to Buyer at the Closing in accordance with Schedule 3.1, such
shares of Holdco Common Stock will be duly authorized and validly
issued, fully paid and non-assessable.
4.1.35. Holdco Information. Seller has made available to Buyer
or its representatives all material agreements and instruments that
relate to Holdco, its assets, business or operations as well as any
documents executed in connection with the transactions set forth on
Schedule 3.1 hereto. Except for the Assets being acquired in connection
with the consummation of the transactions set forth on Schedule 3.1,
and except as set forth on Schedule 4.1.35, Holdco does not own any
assets and has not since January 1, 1997 entered into any agreements or
been bound by or a party to any agreements under which it has any
obligations in excess of $10,000.
4.2. Representations and Warranties of the Buyer. Buyer represents and
warrants to Seller as follows:
4.2.1. Corporate Status; Authorization, etc. Buyer is a
limited liability company duly formed, validly existing and in good
standing under the laws of the jurisdiction of its organization with
full power and authority to execute and deliver this Agreement and the
Collateral Agreements to which it is a party, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by Buyer of
this Agreement, and the consummation of the transactions contemplated
hereby, have been, and on the Closing Date the execution and delivery
by Buyer of the Collateral Agreements to which it is a party will have
been, duly authorized by all requisite corporate action of Buyer. Buyer
has duly executed and delivered this Agreement and on the Closing Date
Buyer will have duly executed and delivered the Collateral Agreements
to which it is a party. This Agreement is, and on the Closing Date each
of the Collateral Agreements to which Buyer is a party will be, valid
and binding obligations of Buyer, enforceable against Buyer in
accordance with their respective terms except that (a) such enforcement
may be subject to any bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other laws, now or hereafter in
effect, relating to or limiting creditors' rights generally and (b) the
remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be
brought.
4.2.2. No Conflicts, etc. The execution, delivery and
performance by Buyer of this Agreement and each of the Collateral
Agreements to which it is a party, and the consummation of the
transactions contemplated hereby and thereby, do not and will not (a)
conflict with or result in a violation of or a default under (i) the
organizational documents of Buyer, or (ii) any Applicable Law
applicable to Buyer or any of its properties or assets, or (b) except
as set forth in Schedule 4.2.2, conflict with, or result in any
violation of or constitute a default (or an event or condition which,
with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the performance
required by, or cause the acceleration of the maturity of any liability
or obligation pursuant to, or result in the creation or imposition of
any Lien under, any contract, agreement or other instrument applicable
to Buyer or any of its properties or assets, except, in the case of
clause (ii), for violations and defaults that, individually and in the
aggregate, have not and will not materially impair the ability of Buyer
to perform its obligations under this Agreement or under any of the
Collateral Agreements to which it is a party. Except as specified in
Schedule 4.2.2, no Governmental Approval or other Consent is required
to be obtained or made by Buyer in connection with the execution and
delivery of this Agreement or the Collateral Agreements or the
consummation of the transactions contemplated hereby and thereby.
Except as set forth in Schedule 4.2.2, no material Consent of any
Governmental Authority is required to be obtained or made by or with
respect to Buyer in connection with the execution and delivery of this
Agreement or the Collateral Agreements, the consummation by Buyer of
the transactions contemplated hereby or thereby, other than compliance
with and filings under the HSR Act.
4.2.3. Litigation. Except as set forth on Schedule 4.2.3,
there is no action, claim, suit, investigation or proceeding material
to Buyer pending, or to Buyer's knowledge threatened, against or
relating to Buyer or against or relating to the transactions
contemplated by this Agreement at law or in equity or before any
Governmental Authority that is reasonably likely to have a Material
Adverse Effect.
4.2.4. Financial Capability. Prior to the execution of this
Agreement, Buyer executed a commitment letter dated August 11, 1999
with The Bank of Nova Scotia (the "Commitment Letter"), complete and
current copies of which have been furnished to Seller.
4.2.5. No Current Operations. Buyer does not currently own or
operate an acute care hospital in the geographic area encompassing the
Salt Lake City - Ogden Metropolitan Statistical Area (encompassing the
three contiguous counties in Northern Utah of Weber County, Davis
County and Salt Lake County).
4.2.6. No Brokers. No agent, broker, Person or firm acting on
behalf of Buyer is, or will be, entitled to any fee, commission or
broker's or finder's fees in connection with this Agreement or any of
the transactions contemplated hereby.
4.2.7. Disclosure. No representation or warranty by Buyer
contained in this Agreement or any Collateral Agreement, and no
information contained in any certificate delivered by Buyer pursuant to
this Agreement or any Collateral Agreement, and no information
contained in any certificate delivered by Buyer pursuant to this
Agreement or any Collateral Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary in order
to make the statements contained herein or therein not misleading.
4.2.8. Solvency. Buyer is not, nor after Closing as result of
the transactions contemplated hereby will be, rendered insolvent or
otherwise unable to pay its debts as they become due. Buyer has no
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 under bankruptcy laws or for the appointment of a
receiver or trustee of all or any portion of Buyer's property; and, to
Buyer's knowledge, no other Person has filed or threatened to file such
a petition against Buyer.
4.3. Representations and Warranties of Parent. Each Parent
jointly and severally represents and warrants to Buyer as
follows:
4.3.1. Authorization, etc. Each Parent has the corporate power
and authority to execute and deliver this Agreement and each of the
Collateral Agreements to which it will be a party, to perform fully its
obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. The execution and
delivery by each Parent of this Agreement, and the consummation of the
transactions contemplated hereby, have been, and on the Closing Date
the execution and delivery by each Parent of each of the Collateral
Agreements and the consummation of the transactions contemplated
thereby will have been, duly authorized by all requisite corporate
action of each Parent. Each Parent has duly executed and delivered this
Agreement and on the Closing Date each Parent will have duly executed
and delivered each of the Collateral Agreements to which it is a party.
This Agreement is, and on the Closing Date each of the Collateral
Agreements to which each Parent is a party will be, legal, valid and
binding obligations of each Parent, enforceable against such Parent in
accordance with their respective terms except that (a) such enforcement
may be subject to any bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other laws, now or hereafter in
effect, relating to or limiting creditors' rights generally and (b) the
remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be
brought.
4.3.2. Corporate Status. Each Parent is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, is duly qualified or licensed to do
business and is in good standing in each of the jurisdictions in which
the ownership of its assets or the operation its business makes such
qualification or licensing necessary, except to the extent that any
failure to be so licensed or qualified would not result in a material
adverse effect on the operations of such Parent's business taken as a
whole.
4.3.3. No Conflicts, etc. The execution, delivery and
performance by each Parent of this Agreement and each of the Collateral
Agreements, and the consummation of the transactions contemplated
hereby and thereby, do not and will not (a) conflict with or result in
a violation of or a default under (i) any Applicable Law applicable to
such Parent, or (ii) the certificate of incorporation or bylaws or
other organizational documents of such Parent or (b) conflict with, or
result in any material violation of or constitute a material default
(or an event or condition which, with notice or lapse of time or both,
would constitute a material default) under, or result in the
termination of, or accelerate the performance required by, or cause the
acceleration of the maturity of any liability or obligation pursuant
to, or result in the creation or imposition of any Lien under, any
material Contract to which such Parent is a party or by which such
Parent or its assets are bound or affected. Except as set forth in
Schedule 4.1.11, no material Consent of any Governmental Authority, or
any third party is required to be obtained or made by or with respect
to Parent in connection with the execution and delivery of this
Agreement or the Collateral Agreements, or the consummation by Parent
of the transactions contemplated hereby or thereby, or the conduct of
the Business by Buyer after the Closing, other than compliance with the
filings under the HSR Act.
4.3.4. Fraud and Abuse. To the knowledge of the Applicable
Executives, Parent has not engaged in any activities with respect to
the Business which are prohibited under 42 U.S.C. ss.ss. 1320a-7,
1320a-7a, 1320a-7b, 1395nn and 1396b, the federal Civil False Claims
Act (31 U.S.C. ss. 3729 et seq.), the federal TRICARE statute, or the
regulations promulgated pursuant to such statutes or related state or
local statutes or regulations.
4.3.5. Solvency. Parent is not, nor after Closing as result of
the transactions contemplated hereby will be, rendered insolvent or
otherwise unable to pay its debts as they become due. Parent has no
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 under bankruptcy laws or for the appointment of a
receiver or trustee of all or any portion of Parent's property; and, to
Parent's knowledge, no other Person has filed or threatened to file
such a petition against Parent.
ARTICLE V.
COVENANTS
5.1. Covenants of Seller.
5.1.1. Conduct of Business. From the date hereof to the
Closing Date, except as expressly permitted or required by this
Agreement or as otherwise consented to by the Buyer, or as required to
effect the transactions set forth on Schedule 3.1 hereto, Seller will
use its Best Efforts to carry on the Business in the ordinary course,
in substantially the same manner as heretofore conducted, and to
preserve intact its present business organization, its current
relationships with customers, suppliers and others having business
dealings with it with respect to the Business or the Assets. Without
limiting the generality of the foregoing, and, except as contemplated
by this Agreement or as set forth on Schedule 5.1.1, during the period
from the date of this Agreement to the Closing Date, without the prior
written consent of Buyer, Seller will not, with respect to the Business
or the Assets:
(a) increase the rate of compensation of, or pay or
agree to pay any benefit to, its directors, officers or
employees, except in the ordinary course of business or as may
be required by any existing plan, agreement or arrangement;
(b) enter into, adopt or amend any Plan, or
employment or severance agreement, except in the ordinary
course of business;
(c) (i) sell, lease, transfer, or otherwise dispose
of any of the Assets, other than in the ordinary course of
business, or (ii) mortgage or encumber any of the Assets which
have an aggregate book value in excess of $100,000;
(d) acquire or agree to acquire by merging or
consolidating with, or by purchasing the stock or a
substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or
other business organization, or division thereof or otherwise
acquire or agree to acquire any assets which are material
individually, or in the aggregate, to Seller, except to the
extent any of the foregoing do not relate to the Business;
(e) amend the certificate of incorporation, by-laws
or similar organizational documents of any of the
Corporations, LLCs or partnerships;
(f) modify, amend or terminate any Material Contract
to be assumed by Holdco or a Subsidiary thereof, pursuant to
this Agreement (except modifications or amendments associated
with renewals in the ordinary course of business consistent
with past practice);
(g) enter into any Contract other than in the
ordinary course of business (i) obligating Seller or the
Business to expend more than $100,000 or (ii) relating to the
Assets and extending beyond the Closing Date;
(h) permit any change to any of the Assets (other
than normal wear and tear, depreciation or casualty or changes
that would not materially and adversely affect the conduct of
the Business) or enter into any agreement or commitment to
sell to any third party any of the Assets, other than
transactions in the ordinary course of business or that would
not materially and adversely affect the conduct of the
Business, including, without limitation, sales of obsolete
Assets not currently used in the conduct of the Business; or
solicit any offers or proposals in connection with the
foregoing;
(i) (i) incur, assume or prepay any material
indebtedness or any other liabilities other than borrowings in
connection with the Seller Indebtedness or otherwise in the
ordinary course of business, consistent with past practice;
(ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for
any material obligations of any other person other than in the
ordinary course of business, consistent with past practice; or
(iii) make any material loans, advances or capital
contributions to, or investments in, any other person; or
(j) agree, whether in writing or otherwise, to do any
of the foregoing.
5.1.2. Access and Information.
(a) From the date hereof to the Closing Date, Seller shall
afford to the officers and authorized representatives and agents of
Buyer, full access, during normal business hours, upon reasonable
notice and at such time(s) and in such manner as will not disrupt or
adversely affect the delivery of care to patients, to all documents,
records, work papers and information relating to the Assets and the
Business (except for Privileged Documents) and all facilities, offices
and warehouses of the Business as Buyer shall from time to time
reasonably request. In addition, Seller will permit Buyer's officers
and authorized representatives and agents reasonable access to such
personnel of Seller during normal business hours, upon reasonable
notice and at such times and in such manner as will not disrupt or
adversely affect the delivery of care to patients, as reasonably
required by Buyer in its review of the properties, assets and business
affairs of the Business. Seller will keep Buyer generally informed as
to the affairs of the Business.
(b) Seller acknowledges that prior to the Closing, Buyer
intends to cause its accountants to conduct an audit of the Business.
Seller agrees to cooperate with such accountants to the extent
reasonably required by Buyer's accountants to effect such audit in a
timely fashion, including by providing management representation
letters as may be reasonably requested. Accordingly, Seller shall
afford such accountants full access, during normal business hours, upon
reasonable notice and at such time(s) and in such manner as will not
disrupt or adversely affect the delivery of care to patients, to all
documents, records, work papers and information relating to the Assets
and the Business (except for Privileged Documents) and all Facilities,
offices and warehouses of the Business, as such accountants shall from
time to time reasonably request.
(c) Seller will cooperate with and provide such information
and assistance to Buyer as is reasonably requested in connection with
obtaining the financing contemplated by the Commitment Letter.
5.1.3. Further Assurances. Following the Closing, Seller shall
from time to time, at no additional expense to Seller, execute and
deliver such additional instruments, documents, conveyances or
assurances and take such other actions as shall be necessary, or
otherwise reasonably requested by Buyer, to confirm and assure the
rights and obligations provided for in this Agreement and in the
Collateral Agreements and render effective the consummation of the
transactions contemplated hereby and thereby.
5.1.4. Schedules. Seller may revise or supplement the
Schedules at any time on or prior to the Closing Date to reflect
information that either (i) existed on the date hereof and should have
been included on one or more Schedules but was not, or (ii) came into
existence after the date hereof and would have been required to be
disclosed on one or more Schedules if such information was in existence
on the date hereof. Such revisions and supplements, if any, shall not
be deemed disclosed as of the date hereof and shall not prohibit Buyer
from relying on the condition set forth in Section 6.2.1 hereof.
5.1.5. Purchasing Contract. For a period of one (1) year from
and after the Closing, Parent shall use its Best Efforts, and shall
cause its Affiliates to use their respective Best Efforts to, provide
Holdco and its Affiliates, for their use in connection with the
Business, with benefits under the Purchasing Contracts, as the same may
be in effect from time to time, in substantially the same manner as
presently provided, provided, however, that neither Parent nor its
Affiliates shall be required to take any action that could reasonably
be expected to (i) adversely affect their rights under any Purchasing
Contract or their relationship with the other parties to such contract,
(ii) subject Parent or its Affiliates to any liability or require them
to make any payments or (iii) otherwise significantly and adversely
affect Parent or its Affiliates.
5.1.6. Use of Names. At or prior to the Closing, Seller shall
cause an amendment to the certificate of incorporation or other
organizational documents of Seller to be filed with the Secretary of
State of the State of jurisdiction of its incorporation or formation,
or other appropriate official, changing its name or a name bearing no
resemblance to those set forth on Schedule 5.1.6. At the Closing,
Seller will deliver to Holdco duplicate originals of such amendments,
each duly executed and suitable for filing, or file-stamped copies of
such amendments, if previously filed. After the Closing, neither Seller
nor any Affiliate of Seller shall use or permit any of its affiliates
to use the names set forth on Schedule 5.1.6 or any variant or
derivative thereof.
5.1.7. Title and Survey Matters.
(a) Title Commitment. Prior to Closing, Seller shall cause to
be furnished to Buyer current title commitments (collectively, the
"Title Commitment") issued by Chicago Title (the "Title Company") to
issue to Holdco, at or as soon as possible after Closing, its ALTA Form
B owner's title insurance policies (for each of the Owned Real
Property) and, at Buyer's election, its leasehold title insurance
policy for the Pioneer Valley Real Property, without standard
exceptions and, at Buyer's election, with normal endorsements
(including, without limitation, endorsements relating to zoning,
access, tax parcel, contiguity (if applicable and available), survey
and the owner's comprehensive endorsement), subject to all Permitted
Liens in an amount equal to the fair market value of each such Owned
Real Property or the leasehold value of the Pioneer Valley Real
Property as determined by Buyer. The Title Commitment will commit the
insurer to insure that, with respect to the Owned Real Property, the
fee simple title to such Owned Real Property is marketable and valid
and vested in Holdco, and, with respect to the Pioneer Valley Real
Property, that the leasehold estate is good and marketable subject to
the terms and conditions of the lease, and the lessor named in the
lease was the owner of such Pioneer Valley Real Property on the date of
the signing of the lease, subject, in each case, only to Permitted
Liens. The Title Commitments will be accompanied by readable copies of
all documents cited as exceptions to title therein (the "Underlying
Documents"), which will be certified by the Title Company as true,
correct and complete copies of the Underlying Documents. The cost of
such title insurance (including premiums) will be borne by Buyer. To
the extent that reference is made in the Title Commitment to any
material exceptions ("additional exceptions") other than the Permitted
Liens, Buyer will have ten (10) days from the later of (x) the date
Seller delivers the Title Commitment to Buyer and (y) the date Seller
delivers the Survey to Buyer, to notify Seller in writing of any
material objections to such additional exceptions. If notice of such
objection is not given to Seller within such period, then any objection
to the additional exceptions shall be deemed to have been waived by
Buyer, and all those additional exceptions shall be Permitted Liens.
Seller shall have the right (including without limitation the right to
use all or any part of the Purchase Price for this purpose), but not
the obligation, up to and including the Closing to cure or remove any
objectionable exceptions, so that the Title Policies can be issued to
Buyer at the Closing at Buyer's expense without making exception to the
objectionable exceptions. If, at or prior to the Closing, Seller
notifies Buyer that Seller is unable or unwilling to cure or remove any
such objectionable exceptions, and if any such objectionable exception
would materially and adversely affect the conduct of the Business after
the Closing, then Buyer shall have the option of giving notice to
Seller within ten (10) days after receipt of Seller's notice or on the
date of the Closing, whichever date first occurs, either to terminate
this Agreement or to waive any such objections, in which case the
objectionable exceptions shall be Permitted Liens; and if no such
notice is given by Buyer, then Buyer will be deemed to have elected to
waive any such objections.
(b) Survey. As soon as reasonably practical after the date
hereof, but in no event less than twenty (20) days prior to Closing,
Seller shall deliver to Buyer surveys (collectively, the "Survey") of
the Owned Real Property and the Pioneer Valley Real Property acceptable
to the Title Company for purposes of deleting standard survey
exceptions as provided above and reflecting all improvements visible on
the ground and all easements, rights of way, means of ingress or egress
encroachments and drainage ditches, whether abutting or interior, of
record or on the grounds. The legal description of the Real Property
set forth in the title policies issued pursuant to the Title
Commitments will conform to the legal descriptions set forth in any
surveys required under this Section. The expense of preparing any
surveys hereunder will be borne by Seller.
5.1.8. Expansion Project. Seller has construction work in
progress at Jordan Valley Hospital with a budgeted completion cost of
$15,512,401 (the "Expansion Project"). Both Seller and Buyer wish for
the work on the Expansion Project to continue during the Pre-Closing
Period. To this end, Seller agrees, in all material respects and
consistent with Seller's practice prior to the date hereof with respect
thereto, to (i) continue to plan, design, construct, equip, obtain
government approvals and implement the Expansion Project consistent
with its approved plans, specifications, schedule and budget; (ii)
discharge its obligations and enforce its rights against the
Contractors; (iii) pay all invoices and other amounts owed to any
Contractor or other party in order to fund the costs and expenses of
the Expansion Project, including, without limitation, the cost of
labor, materials, equipment, tools and services (the "Work") provided
by any Contractor (but excluding retainage under each individual
contract), in accordance with the terms and conditions of such invoice
or any contract relating to the Expansion Project, including the
Construction Agreement (the "Expansion Costs"); (iv) obtain from (a)
the Other Contractors, an invoice (a "Cut-Off Invoice") for all
Expansion Costs incurred for Work performed in connection with the
Expansion Project for the period between the date of the most recent
invoice prior to the date hereof and the date hereof and monthly
invoices for work performed in connection with the Expansion Project
thereafter in the ordinary course of business and (b) the General
Contractor, all Draw Requests in the ordinary course of business; (v)
provide to Buyer as soon as practicable after Sellers receipt thereof,
copies of the Cut-Off Invoices and a copy of the Draw Request for the
calendar month during which the date hereof occurs (the "Pro-Rated Draw
Request") together with a calculation of the pro-rated amount of the
Pro-Rated Draw Request, if applicable, representing the Expansion Costs
for Work performed in connection with the Expansion Project from and
after the date hereof; (vi) provide to Buyer monthly reports of the
Expansion Costs throughout the Pre-Closing Period (which reports shall
be provided within three (3) business days of the end of each calendar
month and shall include, for such month, (a) the Draw Request and (b)
the Other Contractor's invoices (collectively, the "Contractors'
Interim Invoices"); and (vii) obtain from Buyer the approval of any
material changes in the scope or schedule of the Expansion Project, or
any material increase in the budgeted costs.
5.1.9. Year 2000 Project Plan. During the Pre-Closing Period
Seller will continue to take the steps set forth in the Year 2000
Project Plan to implement the Deliverables in accordance with such Plan
and Seller's past practices with respect thereto, including the
preparation of Progress Reports. Seller will provide Buyer with copies
of all Progress Reports prepared during the Pre-Closing Period as they
are completed. On the Closing Date or as soon thereafter as
practicable, Seller will provide Buyer with an update of Schedule
4.1.33 setting forth the actions completed by Seller to implement the
Deliverables as of the Closing Date.
5.1.10. Bonuses. At or prior to the time of the final
determination of the Adjusted Cash Purchase Price pursuant to Section
3.4, Seller shall pay all amounts owing pursuant to bonus letters
addressed to the individuals set forth on Schedule 5.1.10 hereto in
accordance with the terms of such letters.
5.2. Covenants of Buyer.
5.2.1. Further Assurances. Following the Closing, Buyer shall,
and shall cause its Affiliates to, from time to time, at no additional
expense to Buyer or such Affiliates, execute and deliver such
additional instruments, documents, conveyances or assurances and take
such other actions as shall be necessary, or otherwise reasonably
requested by Seller, to confirm and assure the rights and obligations
provided for in this Agreement and in the Collateral Agreements and
render effective the consummation of the transactions contemplated
hereby and thereby.
5.2.2. Post-Closing Access to Information. Buyer acknowledges
that subsequent to Closing, Seller may need access to information or
documents in the control or possession of Buyer (or its Affiliates) for
the purposes of concluding the transactions set forth herein, audits,
compliance with Applicable Laws and requirements of Governmental
Authorities, and the prosecution or defense of third party claims.
Accordingly, Buyer agrees that, after Closing, Buyer (and its
Affiliates) will, at the expense of the Seller and upon written
request, make available to agents, independent auditors and/or
governmental agencies, such documents and information as may be
available relating to the Assets for periods prior and subsequent to
Closing to the extent necessary to facilitate concluding the
transactions set forth herein, audits, compliance with Applicable Laws
and requirements of Governmental Authorities and the prosecution or
defense of claims.
5.2.3. Preservation and Access to Patient Records After the
Closing. After the Closing, Buyer shall, in the ordinary course of
business and as required by law, keep and preserve all medical records
and other records of the Facilities existing as of the Closing Date.
Buyer acknowledges that as a result of entering into this Agreement and
its ownership of the Assets, it will gain access to patient and other
information which is subject to rules and regulations concerning
confidentiality. Buyer agrees to abide by any such rules and
regulations relating to the confidential information it acquires. Buyer
agrees to maintain the patient records delivered to Buyer at Closing at
the Facilities after Closing in accordance with applicable law
(including, if applicable, Section 1861(v)(i)(1) of the Social Security
Act (42 U.S.C. ss. 1395(v)(1)(1)), and requirements of relevant
insurance carriers. Upon reasonable notice, during business hours, and
upon receipt of appropriate consents and authorizations, Buyer shall
afford to the representatives of Seller, including its counsel and
accountants, full and complete access to, and copies of, the records
transferred to Buyer at the Closing (including, without limitation,
access to patient records in respect of patients treated by Seller at
the Facilities). In addition, Seller shall be entitled to remove from
the Facilities any such patient records for purposes of pending
litigation involving a patient to whom such records refer, upon receipt
of appropriate consents and authorizations.
5.2.4. Confidentiality. With respect to Confidential
Information provided by either Seller or Buyer or their respective
Affiliates in connection with and relative to the transactions
contemplated by this Agreement, each Party hereto agrees to use Best
Efforts to cause its officers, employees, representatives and agents to
hold all such Confidential Information in strict confidence and only to
disclose such Confidential Information to such duly authorized persons
as are necessary to effect the transactions contemplated hereby, and,
if requested, to return all originals and copies of any such written
Confidential Information to the other Party hereto or its Affiliates
(as applicable) in the event, for any reason, the transactions
contemplated hereby are not consummated. Nothing in this Section shall
prohibit the use of such Confidential Information for such governmental
filings as are required by law or governmental regulations or the
disclosure of such Confidential Information if such disclosure is
compelled by judicial or administrative process or, in the opinion of
such disclosing Party's counsel, other requirements of law. Each Party
agrees that it will not use, and will not knowingly permit others to
use, any Confidential Information in a manner detrimental to the
Business, the other Party hereto or to their competitive disadvantage.
Each Party and its officers, employees and agents recognize that any
breach of this Section by a Party would result in irreparable harm to
the other Party and its Affiliates and that therefore such other Party
hereto shall be entitled to an injunction to prohibit any such breach
in addition to all of their other legal and equitable remedies. For the
purposes hereof, "Confidential Information" shall mean all information
of any kind concerning either Seller or Buyer or their respective
Affiliates obtained, directly or indirectly, from the other Party
hereto in connection with the transactions contemplated by this
Agreement except information (i) ascertainable or obtained from public
or published information, (ii) received from a third party not under an
obligation to keep such information confidential, (iii) which is or
becomes known to the public (other than through a breach of this
Agreement), or (iv) which was in such Party's possession prior to
disclosure thereof to such Party in connection herewith.
5.2.5. Release of Letter of Credit. On or prior to Closing,
Buyer shall replace or otherwise cause the Letter of Credit to be
terminated and released and shall cause Seller to be fully released
from all liabilities and obligations with respect thereto.
5.2.6. Financing Commitment. Buyer will immediately provide
Seller with written notice of any amendments to or modifications of the
terms and conditions of the Commitment Letter and will promptly notify
Seller in writing of any fact or occurrence that might cause any
conditions to the financing provided for by the Commitment Letter not
to be satisfied. Buyer agrees that it will not agree to any amendments
or modifications to the Commitment Letter providing for an increase in
the aggregate amount of financing contemplated thereby to an amount
exceeding $200,000,000 (the "Financing Ceiling") or to eliminate or
reduce the equity investment to be made in Buyer to an amount below
$125,000,000 (the "Equity Investment"). In the event that Buyer
determines to pursue financing in lieu of the financing contemplated by
the Commitment Letter, Buyer agrees that it will not seek financing
with respect to the transactions contemplated hereby that would exceed
the Financing Ceiling or that would permit Buyer to consummate the
transactions contemplated hereby without the Equity Investment having
been made.
5.2.7. Return of Privileged Documents. In the event that
Seller inadvertently furnishes to Buyer any Privileged Documents, Buyer
agrees to use its Best Efforts to protect and preserve the privilege
applicable to such Privileged Documents at Seller's expense and to
promptly return the same to Seller immediately upon Seller's request.
5.2.8. Amendment to Holdco Certificate of Incorporation. At
Closing or within five (5) business days thereof, Buyer shall cause an
amendment to the Certificate of Incorporation of Holdco to be filed
with the Secretary of State of Utah changing the name of Holdco to a
name that bears no resemblance to "PHC" or "Paracelsus."
5.3. Additional Covenants.
5.3.1. Hart Scott Rodino. Each of Buyer and Seller will,
within five business days after executing this Agreement, prepare and
file with the FTC and the DOJ the premerger notification form required
under the HSR Act and a request for early termination of the waiting
period. The Parties will further (i) discuss with each other any
comments the reviewing Party may have; (ii) cooperate with each other
in connection with such filings, which cooperation will include, but
not be limited to, furnishing the other with such information or
documents as may be reasonably required in connection with such
filings; (iii) promptly file after any request by the FTC or the DOJ
any appropriate information or documents so requested by FTC or the
DOJ; and (iv) notify each other of any other communications with the
FTC or the DOJ that relate to the transactions contemplated by this
Agreement and, to the extent appropriate, permit the other to
participate in any conferences with the FTC or the DOJ. The Parties
will use Best Efforts to accelerate and obtain HSR Act clearance. Buyer
and Seller will each pay one-half of the filing fee required by the HSR
Act. Each of Buyer and Seller will pay its own expenses in connection
with the preparation of the premerger notification form. The Parties
will each pay one-half of the fees of any experts or advisers mutually
retained to assist the parties to obtain HSR Act clearance.
5.3.2. Other Government Consents. Promptly following the
execution of this Agreement, the Parties will proceed to prepare and
file with the appropriate Governmental Authority any requests for
approval or waiver (in addition to those specifically described above),
if any, that are required from any Governmental Authority which may be
necessary or appropriate or are reasonably deemed necessary or
appropriate by a Party's counsel in connection with the transactions
contemplated by this Agreement, including, without limitation, the
consent of the FTC to the transfer of SLRMC, and the Parties will
diligently and expeditiously prosecute and cooperate fully in the
prosecution of such requests for approval or waiver and all proceedings
necessary to secure such approvals and waivers. Each Party shall, in
good faith, take all reasonable steps that are within its power to
cause to be satisfied the conditions precedent to its obligations or
other Parties' obligations to close that are dependent upon its
actions. Each Party shall cooperate fully with the other Parties to
provide such support, assistance and information to the other Parties
as may be reasonably requested by them in connection with its
applications for all necessary Consents by Governmental Authorities and
by private parties in connection with the transactions contemplated
hereunder and to consult regularly with the other Parties in the
preparation of any such applications or requests for consent. The
Parties shall pay any and all customary fees and charges in connection
with the foregoing. The Parties will use Best Efforts to obtain any
Consents or Governmental Authorities required to be obtained in
connection with the transactions contemplated hereby.
5.3.3. Best Efforts; No Inconsistent Action. Subject to the
terms and conditions hereof, each Party will use its Best Efforts to
effect the transactions contemplated by this Agreement and to fulfill
the conditions to the obligations of the Parties hereto set forth in
Article VI of this Agreement. No Party will take any action
inconsistent with its obligations under this Agreement or that could
hinder or delay the consummation of the transactions contemplated by
this Agreement, except that nothing in this Section 5.3.3 will limit
the rights of the Parties under Article VIII of this Agreement.
5.3.4. Press Releases. No press releases or other public
announcements concerning the transactions contemplated by this
Agreement may be made by any Party without the prior written consent of
the other Party, which consent will not be unreasonably withheld;
provided, however, that (i) Seller's consent shall not be required for
Buyer to include the Facilities (by Facility name) in payer provider
directories (both new and existing) and (ii) nothing in this provision
will prevent a Party from making such releases or announcements as are
necessary for a Party to satisfy its legal obligations or the
requirements of the New York Stock Exchange, but in any such case the
affected Party will promptly notify the other Party.
5.3.5. Stockholders Agreement. At Closing, Parent, Holdco,
Buyer and certain other investors in Holdco shall enter into a
Stockholders Agreement substantially on the terms specified in Exhibit
F hereto.
5.3.6. Termination of Affiliate Transactions. Seller shall
cause all Affiliate Transactions, including, without limitation, those
listed in Schedule 5.3.6 to be cancelled, terminated, waived and
released at or prior to the Closing without any consideration being
paid or payable by the Business in respect thereof, pursuant to
appropriate agreements or other instruments, in form and substance
satisfactory to Buyer.
5.4. Tax Matters Covenants.
5.4.1. Code Section 338(h)(10) Election; Allocation of
Transaction Consideration. PHC and Buyer shall jointly make an election
under Section 338(h)(10) of the Code (and any comparable provision of
applicable state or local income tax law) with respect to the purchase
of the stock of Holdco by Buyer (and, at Buyer's Option, with respect
to those lower-tier Subsidiaries of Holdco for which such an election
may be made) and, as soon as practicable after the Closing shall
mutually prepare a Form 8023, with all attachments (the "8023
Statement") and shall cooperate with each other to take all actions
necessary and appropriate (including filing such additional forms,
returns, elections, schedules and other documents as may be required)
to effect and preserve a timely election, in accordance with the
provisions of Treas. Reg. ss. 1.338(h)(10)-1 (or any comparable
provisions of state or local tax law) or any successor provisions (the
"Election"). The Buyer shall make an allocation of that portion of what
it estimates will be the Modified ADSP (as defined in Treas. Reg. ss.
1.338(h)(10)) allocable to assets of Class I, II, and III (as defined
in Treas. Reg. ss. 1.338(b)-2T) among the Assets and among the
properties of each subsidiary corporation for which an Election is made
that are Class I, II, or III assets (the "Initial Allocation"). The
Initial Allocation shall be submitted to PHC within 90 days of Closing.
If PHC agrees with the Initial Allocation (or fails to notify Buyer of
any disagreement within 30 days of receipt of the Initial Allocation)
such allocation shall be the basis for allocating the Modified ADSP
once the Adjusted Cash Purchase Price has been determined. If PHC
disagrees with the Initial Allocation, Buyer and PHC shall attempt to
resolve their differences during the 30 day period following PHC's
giving notice of the disagreement to Buyer. If the Parties are unable
to resolve their differences during such 30 day period, the differences
shall be resolved by a mutually agreed upon mediator within 180 days of
Closing. If the Parties are unable to agree on a mediator, it shall be
a national accounting firm mutually agreed upon by the independent
accounting firms which audit PHC and Buyer and the differences shall be
resolved within 180 days of Closing. Nothing in this Section 5.4.1
shall prevent the parties from agreeing to vary the timing requirements
herein to make an Election under any Applicable Law.
After the later of the determination of the Adjusted Cash
Purchase Price and the determination of Initial Allocation, but in no
event later than 70 days prior to the due date of the Form 8023, the
Buyer shall prepare, and submit to PHC, a draft of Form 8023 based upon
the Initial Allocation and the Adjusted Cash Purchase Price. If PHC
accepts the draft Form 8023 (or fails to notify Buyer of any
disagreement within 15 days of receipt of the draft Form 8023) such
draft shall be the basis for the Form 8023 filed with the IRS. If PHC
disagrees with the draft Form 8023, Buyer and PHC shall attempt to
resolve their differences during the 15 day period following PHC's
giving notice of the disagreement to Buyer. If the Parties are unable
to resolve their differences during such 15 day period, the differences
shall be resolved by a mutually agreed upon mediator not later than 10
days prior to the due date of the Form 8023. If the Parties are unable
to agree on a mediator, it shall be a national accounting firm mutually
agreed upon by the independent accounting firms which audit PHC and
Buyer and the differences shall be resolved not later than 10 days
prior to the due date of the Form 8023.
5.4.2. Transferors' Taxes and Returns. Tax Returns and Taxes
of the Transferors will be the responsibility of Parent and the
Transferors, except that (i) Buyer shall pay any sales or use Taxes
related to the transfers of assets or property in connection with the
Pre-Closing Transactions and (ii) any other transfer or recordation
taxes shall be allocated between the Buyer and the Transferor in the
manner customary in the taxing jurisdiction.
5.4.3. PHC's Returns for Tax Periods Including the Closing
Date. PHC will include the income of the Transferred Corporation
(including any deferred income triggered into income by Treas. Reg. ss.
1.1502-13 and Treas. Reg. ss. 1.1502-14, any excess loss accounts taken
into income under Treas. Reg. ss. 1.1502-19 and any income from the
deemed sale of assets pursuant to the Election) for the Transferred
Corporation's tax periods ending on and including the Closing Date on
PHC's consolidated federal and applicable state and local income Tax
Returns that include the Closing Date and pay any income Taxes
attributable to such income. Holdco and its Affiliates will furnish Tax
information to PHC for inclusion in such Tax Returns for the period
which includes the Closing Date in general accordance with the past
custom and practice of PHC and its Subsidiaries. PHC will allow the
Buyer an opportunity to review and comment upon such Tax Returns
(including any amended returns) to the extent that they relate to the
Transferred Corporation. Except to the extent consistent with past
practice, or required by applicable law, PHC and its Affiliates will
take no position on such Tax Returns that relates to the Transferred
Corporation that would adversely affect the Transferred Corporation
after the Closing Date. The income of the Transferred Corporation will
be apportioned to the period up to and including the Closing Date and
the period after the Closing Date by closing the books of the
Transferred Corporation as of the end of the Closing Date.
5.4.4. Tax Periods Ending on or Before the Closing Date.
Parent shall prepare or cause to be prepared and file or cause to be
filed all income Tax Returns for the Transferred Corporation for all
periods ending on or prior to the Closing Date which are due after the
Closing Date. Buyer shall provide (or shall cause its Subsidiaries to
provide) (i) cooperation in the preparation and filing of such Tax
Returns, which shall include reasonable access to the books and records
of its Subsidiaries, and (ii) such powers of attorney or other
instruments as are necessary to file such Tax Returns (including, if
necessary, causing an appropriate authorized officer of the Transferred
Corporation to sign the return). Parent shall reimburse Buyer for Taxes
of the Transferred Corporation with respect to such periods within
fifteen (15) days after payment by Buyer or its Affiliates to the
extent such Taxes are not reflected in Taxes payable (rather than in
any general Tax reserve or any reserve for deferred Taxes established
to reflect timing differences between book and Tax income) shown on the
face of the balance sheet as of the Closing Date.
5.4.5. Tax Periods Beginning Before and Ending After the
Closing Date.
(a) Any Tax period of a Transferor or of a Transferred
Corporation that both begins before and ends after the Closing Date is
referred to in this Section 5.4 as a "Straddle Period."
(i) Buyer shall prepare or cause to be prepared and
file or cause to be filed any Tax Returns due after the
Closing Date with respect to Straddle Periods of the
Transferred Corporation and shall provide Parent with adequate
opportunity to review and comment on such Tax Returns prior to
their due date. Upon notice from Buyer, the Parent shall pay
to Buyer, prior to the due date of any such Tax Returns, the
portion of the Taxes due on such Tax Returns that are
attributable to the portion of the Straddle Period ending on
the Closing Date.
(ii) Parent shall prepare or cause to be prepared and
file or cause to be filed any Tax Returns due on or before the
Closing Date with respect to Straddle Periods of the
Transferred Corporation and shall provide Buyer with adequate
opportunity to review and comment on such Tax Returns prior to
their due date (unless filed prior to the date of this
Agreement). Upon notice from Parent, the Buyer shall pay to
Parent prior to the due date of any such Tax Returns (or, if
later, on the Closing Date), the portion of the Taxes due on
such Tax Returns that are attributable to the portion of the
Straddle Period following the Closing Date.
(iii) Buyer shall prepare or cause to be prepared and
file or cause to be filed any Tax Returns due after the
Closing Date with respect to Straddle Periods of Transferors,
other than PHC Holdings, for Taxes not measured by income
imposed with respect to its Business or Assets and shall
provide Parent with adequate opportunity to review and comment
on such Tax Returns prior to their due date. Upon notice from
Buyer, Parent shall pay to Buyer, prior to the due date of any
such Tax Returns, the portion of the Taxes due on such Tax
Returns that are attributable to the portion of the Straddle
Period ending on the Closing Date.
(iv) Parent shall prepare or cause to be prepared and
file or cause to be filed any Tax Returns due on or before the
Closing Date with respect to Straddle Periods of the
Transferors imposed with respect to its Business or Assets and
shall provide Buyer with adequate opportunity to review and
comment on such Tax Returns prior to their due date (unless
filed prior to the date of this Agreement). Upon notice from
Parent, the Buyer shall pay to Parent prior to the due date of
any such Tax Returns (of, if later, on the Closing Date), the
portion of the Taxes due on such Tax Returns that are
attributable to the portion of the Straddle Period following
the Closing Date.
(v) Parent shall prepare or cause to be prepared and
file or cause to be filed all income Tax Returns for the
Transferors with respect to Straddle Periods.
(b) Except as provided in the final sentence of this (b) of
Section 5.4, for purposes of Section 5.4.5(a) in the case of any sales
and use, income, gross receipts, franchise or similar taxes that are
imposed on a periodic basis and payable for a Straddle Period, the
portion of such Taxes attributable to the portion of the Straddle
Period ending on the Closing Date shall be deemed equal to the amount
which would be payable if the relevant Straddle Period ended on the
Closing Date. Any deductions, credits, or other items relating to a
Straddle Period shall be taken into account as though the relevant
taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner
consistent with the prior practice of Parent and its Affiliates.
Notwithstanding the preceding sentences of this (b), Taxes which are
described in Section 5.4.2 and are reportable on a Tax Return described
in (a) of this Section 5.4.5 shall (i) be treated as attributable to
the portion of the Straddle Period ending on the Closing Date to the
extent they are the responsibility of the Parent under Section 5.4.2
and (ii) not be treated as attributable to the portion of the Straddle
Period ending on the Closing Date to the extent they are the
responsibility of the Buyer under Section 5.4.2.
(c) For purposes of Section 5.4.5(a), in the case of any Taxes
payable for a Straddle Period (other than those described in Section
5.4.5(b)) that are imposed on a periodic basis and with respect to the
business or assets of the Transferors or the Transferred Corporation,
the portion of such Taxes attributable to the portion of the Straddle
Period ending on the Closing Date shall be deemed equal to the amount
of such Taxes for the entire Straddle Period (or, in the case of such
Taxes determined on an arrears basis, the amount of such Taxes for the
immediately preceding Tax period) multiplied by a fraction the
numerator of which is the number of calendar days in the portion of the
Straddle Period ending on and including the Closing Date and the
denominator of which is the number of calendar days in the entire
Straddle Period.
5.4.6. Cooperation on Tax Matters.
(i) Buyer, Parent, and their respective Subsidiaries
shall cooperate fully, as and to the extent reasonably
requested by any Party, in connection with the filing of Tax
Returns pursuant to this Section 5.4 and any audit, litigation
or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other Party's
request) the provision of records and information which are
reasonably relevant and making employees available on a
mutually convenient basis to provide additional information
and explanation of any material provided hereunder.
(ii) Buyer, Parent, and their respective Subsidiaries
further agree, upon request, to use their best efforts without
incurring unreasonable cost or expense to obtain any
certificate or other document from any governmental authority
or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed with respect to the
transactions contemplated hereby.
(iii) Buyer, Parent and their respective Subsidiaries
further agree, upon request, to provide the other party with
all information that either party may be required to report
pursuant to Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder.
(iv) Buyer, Parent and their respective Subsidiaries
shall take all actions necessary to cause Buyer to replace PHC
Utah as the Tax Matters Partner for Sandy City ASC, LLC
effective as of the Closing Date.
5.4.7. Tax Sharing Agreements. All Tax allocation, sharing
agreements or similar agreements with respect to or relating to the
Transferred Corporation or (to the extent Parent or any of Parent's
Subsidiaries is a party to such Agreement) LLC Entity shall be
terminated as of the Closing Date and, after the Closing Date, the
Transferred Corporation or LLC Entity shall not be bound thereby or
have any liability thereunder.
5.4.8. Audits. Parent will promptly inform Buyer of any audit
commenced by a Taxing Authority with respect to a Tax Return filed
pursuant to Section 5.4.3, Section 5.4.4 or Section 5.4.5 above. Buyer
will promptly inform Parent of (a) any audit commenced by a Taxing
Authority with respect to a Tax Return filed pursuant to Section 5.4.5
above and (b) any issue raised with respect to an audit of a return
filed pursuant to Section 5.4.5 above which relates (i) to a
transaction occurring on or before the Closing Date or (ii) to an item
or items which cannot be specifically allocated to either the period
ending on the Closing Date or the period beginning on the day after the
Closing Date or (iii) which would otherwise affect the amount of Tax
allocated to the period ending on the Closing Date. Parent shall have
the right (but not the obligation) to control that portion of the
defense of any such audit or resulting litigation (using counsel of its
choice, paid for by Parent), and to settle any such issue raised on any
terms in its sole discretion. Each Party shall cooperate with the other
in the defense of any such audit as such Party may reasonably request.
Such cooperation shall include the retention and (upon the other
Party's request) the provision of records and information which are
reasonably relevant and making employees available on a mutually
convenient basis to provide additional information and explanation of
any material provided hereunder.
5.4.9. Carrybacks. Except to the extent required by law,
Parent will not cause any Tax item or attribute of the Transferred
Corporation to be carried back from a tax period beginning after
Closing to a tax period ending on or before the Closing without the
express written permission of Buyer. Parent shall not file or cause to
be filed any Tax Return that includes any such carryback following
receipt of permission granted pursuant to the preceding sentence
without the prior written consent of Buyer. Parent, Buyer and their
respective Subsidiaries shall not file or cause to be filed any Tax
Return with respect to any taxable year or other taxable period
beginning after the Closing Date which reflects positions which are (i)
inconsistent with the tax reporting contemplated by sections 5.4.1
through 5.4.5 for the transactions pursuant to this Agreement and (ii)
could reasonably be expected adversely to affect the liability of the
other Party or any of its Affiliates with respect to Taxes.
5.4.10. LLC Entity Tax Years Beginning Before and Ending After
Closing. The Taxable income or loss for an LLC Entity's Taxable year
which includes (but does not end on) the Closing Date shall be
apportioned between the Transferor (which owned the interest in the LLC
Entity prior to its transfer to Holdco) and Holdco in a manner mutually
acceptable to Buyer and Seller. If Buyer and Seller are unable to agree
on a method of allocation, (i) any income or loss associated with a
transaction outside the ordinary course of business and involving gross
proceeds in excess of $100,000 shall be allocated to the person who
owned the interest on the date the extraordinary transaction occurred
and (ii) the balance of the taxable income or loss shall be pro rated
between the Transferor and Holdco based on the number of days they
owned the interest in the LLC Entity; provided, however, that if the
bases of an LLC Entity's assets are changed as a result of the transfer
of the interest to Holdco or the Section 338(h)(10) election (i.e.,
there is an election under Section 754 of the Code), depreciation
deductions shall be apportioned between the Transferor and Holdco based
on a closing of the books methodology.
5.4.11. Tax Indemnification.
(a) Notwithstanding anything in this Agreement to the
contrary, Parent and Seller, jointly and severally, shall indemnify the
Buyer Indemnitees and hold them harmless from and against and pay or
reimburse the Buyer Indemnitees for, any and all Losses resulting from
or arising out of: (i) all liability for Taxes with respect to Seller
and any of its Affiliates for all taxable periods ending on or prior to
the Closing Date and the portion of any Straddle Period ending on (and
including) the Closing Date ("Pre-Closing Tax Period"), including,
without limitation, any liability for Taxes imposed with respect to
Holdco and its Subsidiaries pursuant to Treas. Reg. ss. 1.1502-6 (or a
comparable provision under state or local tax law), (ii) all liability
for Taxes with respect to Seller and any of its Affiliates imposed with
respect to Holdco and its Subsidiaries pursuant to Treas. Reg. ss.
1.1502-6 (or a comparable provision under state or local tax law ) for
a taxable year that includes, but does not end on, the Closing Date,
(iii) all liability for Taxes accruing on or before the Closing Date
which result from (A) the deemed sale of assets pursuant to the
election to be made by the Buyer and the Seller pursuant to Section
338(h)(10) of the Code, as contemplated by Section 5.4.1 of this
Agreement and (B) the deemed sale of assets pursuant to any comparable
elections under state or local tax laws, and (iv) Seller's share of all
Taxes under Section 5.4.2 hereof.
(b) For purposes of this Section 5.4.11, the portion of any
Taxes for any Straddle Period which is attributable to the portion of
the Straddle Period ending on (and including) the Closing Date shall be
computed as set forth in Section 5.4.5.
5.4.12. Procedures Relating to Indemnification of Tax Claims.
(a) If a claim for Taxes shall be made by any Taxing Authority
in writing, which, if successful, might result in an indemnity payment
pursuant to Section 5.4.11, the Buyer ("Indemnified Party") shall,
within 90 days of such written claim, notify the Seller ("Indemnifying
Party") in writing of such claim (a "Tax Claim").
(b) With respect to any Tax Claim which might result in an
indemnity payment to the Buyer Indemnitees thereof pursuant to Section
5.4.11, except as provided in the final sentence of this (b), Seller
shall control all proceedings taken in connection with such Tax Claim
and, without limiting the foregoing, may in its sole discretion and at
its sole expense pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with any taxing authority with
respect thereto, and may, in its sole discretion, either pay the Tax
claimed and sue for a refund where applicable law permits such refund
suits or contest such Tax Claim. In connection with such proceedings,
(i) Seller shall keep the Buyer informed of all significant
developments and events relating to such Tax Claim and (ii) the Buyer
shall have the right to participate in (but not control) any such
proceedings. The Buyer shall cooperate with Seller and Holdco in
contesting such Tax claim. The contest of any Tax Claim that relates to
(A) Taxes which are being shared by the Seller and Buyer pursuant to
Section 5.4.2, (B) Taxes for a Straddle Period of the Transferred
Corporation, or (C) Taxes for a Straddle Period of a Transferor (other
than Taxes with respect to a Tax Return described in (a)(v) of Section
5.4.5) shall be jointly controlled by the Buyer and Seller.
ARTICLE VI.
CONDITIONS PRECEDENT
6.1. Conditions to Obligations of Each Party. The obligations of the
Parties to consummate the transactions contemplated hereby shall be subject to
the fulfillment or (to the extent permitted by Applicable Law) waiver on or
prior to the Closing Date of the following conditions:
6.1.1. HSR Action Notification. In respect of the
notifications of Buyer and Seller pursuant to the HSR Act, the
applicable waiting period and any extensions thereof shall have expired
or been terminated.
6.1.2. No Injunction, etc. Consummation of the transactions
contemplated hereby shall not have been restrained, enjoined or
otherwise prohibited by any Applicable Law, including any order,
injunction, decree or judgment of any court or other Governmental
Authority that shall have become final and non-appealable. No court or
other Governmental Authority shall have determined any Applicable Law
to make illegal the consummation of the transactions contemplated
hereby or by the Collateral Agreements, and no Litigation or proceeding
with respect to the application of any such Applicable Law to such
effect or seeking to restrain, enjoin or otherwise prohibit the
transactions contemplated hereby, shall be pending.
6.1.3. Government Approvals. The Parties shall have obtained
all Governmental Approvals required to be obtained in order to permit
consummation of the transactions contemplated by this Agreement, in
usual and customary form or in such other form as may be satisfactory
to each of the Parties in its reasonable discretion.
6.2. Conditions to Obligations of the Buyer. The obligations of the
Buyer to consummate the transactions contemplated hereby shall be subjectto the
fulfillment (or waiver by the Buyer) on or prior to the Closing Date of the
following additional conditions, which the Seller agrees to use reasonable good
faith efforts to cause to be fulfilled:
6.2.1. Representations, Performance. The representations and
warranties of the Seller contained in this Agreement, without giving
effect to any revisions or supplements to the Schedules authorized by
Section 5.1.4., (i) shall be true and correct in all respects (in the
case of any representation or warranty containing any materiality or
Material Adverse Effect qualification) or in all material respects (in
the case of any representation or warranty without any materiality
qualification) at and as of the date hereof, and (ii) shall be repeated
and shall be true and correct in all respects (in the case of any
representation or warranty containing any materiality or Material
Adverse Effect qualification) or in all material respects (in the case
of any representation or warranty without any materiality or Material
Adverse Effect qualification) on and as of the Closing Date with the
same effect as though made on and as of the Closing Date provided,
however, that this condition shall be deemed satisfied unless the
failure or failures of such representations and warranties to be so
true and correct (disregarding for this purpose all qualifications in
such representations and warranties relating to materiality, Material
Adverse Effect and knowledge), in the aggregate, would have a Material
Adverse Effect. Seller shall have duly performed and complied in all
material respects with all agreements, covenants and conditions
required by this Agreement to be performed or complied with by it prior
to or on the Closing Date. Seller shall have delivered to the Buyer a
certificate, dated the Closing Date and signed by its duly authorized
officers, to the foregoing effect.
6.2.2. Collateral Agreements. Seller shall have delivered
to Buyer each of the Collateral Agreements to which
Seller is a party.
6.2.3. Reorganization. Seller shall have consummated the
Pre-Closing Transactions as contemplated by Section 2.1
above.
6.2.4. No Material Adverse Effect. There shall not have been,
since the date of this Agreement, any event or occurrence which has had
or would reasonably be expected to result in a Material Adverse Effect
on Seller.
6.2.5. Title Commitment. Buyer shall have received the Title
Commitment and the Survey required pursuant to Section 5.1.7 hereof,
each in form and substance reasonably satisfactory to Buyer, and the
Title Company will have extended the effective date thereof to the
Closing Date and will be committed to issue its title insurance policy
pursuant to such Title Commitment.
6.2.6. Consents. Seller shall have provided to Buyer evidence,
in form and substance reasonably satisfactory to Buyer, that all
material Consents of third Persons, including, without limitation, any
Consents required to assign the Material Contracts, have been obtained
or given in accordance with this Agreement.
6.2.7. FIRPTA Affidavit. Seller shall have delivered to Buyer
an affidavit, in a form reasonably satisfactory to Buyer, stating under
penalties of perjury each of the Sellers' taxpayer identification
numbers and that none of the Sellers is a foreign person within the
meaning of Section 1445(b)(2) of the Code (the "FIRPTA Affidavit");
provided, however, that if the Seller fails to provide the FIRPTA
Affidavit, the transaction shall nonetheless close and Buyer shall
withhold and pay over to the appropriate Taxing Authority the amount
required to be withheld under Section 1445 of the Code as determined by
Buyer.
6.2.8. Financing. Provided Buyer has complied with Section
5.2.6 hereof, Buyer shall have received the proceeds under the
Commitment Letter or other financing agreements satisfactory to Buyer.
6.3. Conditions to Obligations of the Seller. The obligation of Seller
to consummate the transactions contemplated hereby shall be subject to the
fulfillment (or waiver by Seller), on or prior to the Closing Date, of the
following additional conditions which Buyer agrees to use reasonable good faith
efforts to cause to be fulfilled.
6.3.1. Representations, Performance, etc. The representation
and warranties of Buyer contained in this Agreement and the Collateral
Agreements (i) shall be true and correct in all respects (in the case
of any representation or warranty containing any materiality or
Material Adverse Effect qualification) or in all material respects (in
the case of any representation or warranty without any materiality or
Material Adverse Effect qualification) at and as of the date hereof and
(ii) shall be repeated and shall be true and correct in all respects
(in the case of any representation or warranty containing any
materiality or Material Adverse Effect qualification) or in all
material respects (in the case of any representation or warranty
without any materiality or Material Adverse Effect qualification) on
and as of the Closing Date with the same effect as though made at and
as of such time provided, however, that this condition shall be deemed
satisfied unless the failure or failures of such representations and
warranties to be so true and correct (disregarding for this purpose all
qualifications in such representations and warranties relating to
materiality, Material Adverse Effect and knowledge), in the aggregate,
would have a Material Adverse Effect. Buyer shall have duly performed
and complied in all material respects with all agreements, covenants
and conditions required by this Agreement and the Collateral Agreements
to be performed or complied with by it prior to or on the Closing Date.
Buyer shall have delivered to Seller a certificate, dated the Closing
Date and signed by its duly authorized officer, to the foregoing
effect.
6.3.2. Collateral Agreements. Buyer shall have delivered
to Seller each of the Collateral Agreements to which
Buyer is a party.
6.3.3. Letter of Credit. Buyer shall have replaced the Letter
of Credit and shall have caused Seller to be released from all
liabilities and obligations with respect thereto.
6.3.4. Buyer's Certificate. Buyer shall have delivered to
Seller the Buyer's Certificate.
ARTICLE VII.
EMPLOYEES AND EMPLOYEE BENEFIT PLANS
7.1. Employment of Seller's Employees.
(a) Effective as of the Closing Date, Buyer shall
offer employment to all employees of each Seller engaged in
the Business or who are otherwise listed on Schedule 7.1
hereto (the "Offerees"), at wage or salary levels, as
applicable, and with employee benefits no less than those
currently in effect for the Offerees. Those employees who
accept such offers of employment effective as of the Closing
Date shall be referred to herein as the "Transferred
Employees." Buyer acknowledges and agrees that solely for
purposes of the WARN Act, any person who is an employee of
Seller and who is engaged in the Business (other than
part-time employees as defined under the WARN Act) as of the
Closing Date shall be deemed an employee of Buyer for purposes
of the WARN Act on the Closing Date. With respect to such
"deemed" employees, Buyer further agrees and acknowledges that
Buyer will be responsible for all applicable notices and
liabilities under the WARN Act resulting from the termination
of any such employees on and after the Closing Date.
(b) As of the Closing Date, Buyer shall adopt and
maintain (without substantial changes except as may be
required by applicable law) for a period of at least one year
from the Closing Date the terms and conditions of Seller's
policies providing for severance benefits described on
Schedule 4.1.22(a) (hereinafter called the "Severance Plan")
for the Transferred Employees. For purposes of determining
benefits under the Severance Plan, the Transferred Employees
will be credited with all service with Seller or its
Affiliates. On and after the Closing Date, Buyer shall be
solely responsible and liable for benefits that are payable
under the Severance Plan (but only if severance occurs after
the Closing Date), as modified as necessary to reflect Buyer's
adoption of the Severance Plan.
(c) As of the Closing Date, Buyer shall assume all of
the Seller's obligations with respect to accrued but unpaid
vacation for Transferred Employees as accrued on the books of
Seller and any accrued sick pay for Transferred Employees.
(d) Buyer will adopt an employee pension benefit plan
(as such term is defined in section 3(2) of ERISA ("Buyer's
401(k) Plan") that is no less favorable to the Transferred
Employees than Seller's 401(k) Plan described on Schedule
4.1.22(a) ("Seller's 401(k) Plan"). All Transferred Employees
who were participants in Seller's 401(k) Plan prior to Closing
shall become participants in Buyer's 401(k) Plan as of
Closing. Subject to Buyer's completion of due diligence with
respect to Seller's 401(k) Plan, which shall occur as soon as
reasonably possible following the date hereof, Buyer shall
submit an application for a favorable determination letter to
the IRS on Buyer's 401(k) Plan and, contingent upon the
receipt of such favorable determination letter, Seller shall,
upon completion of the voluntary compliance audit with respect
to the Seller's plan under the IRS walk-in closing agreement
program, transfer all the assets attributable to the accounts
(both vested and unvested) of the Transferred Employees to
Buyer's 401(k) Plan in a manner that is in compliance with
Section 414(l) of the Code. Buyer's 401(k) Plan shall at all
times be maintained in compliance with the Code and ERISA.
Seller will provide copies of all plan documents, summary plan
descriptions and other records pertaining to Seller's 401(k)
Plan which will be necessary for the administration of Buyer's
401(k) Plan for the Transferred Employees.
7.2. Welfare and Fringe Benefit Plans.
(a) Effective as of the Closing Date, Buyer shall
assume, with respect to the Transferred Employees and their
dependents and beneficiaries Seller's medical benefit plan
described on Schedule 4.1.22(a) (the "Medical Benefit Plan").
In addition, Buyer shall provide the Transferred Employees and
their dependents and beneficiaries coverage commencing on the
Closing Date under group life, short-term disability and
long-term disability plans established by Buyer for such
Persons who for all purposes of this Section will be credited
with all service with Seller or its Affiliates, provided that,
from and after the Closing Date, Seller shall remain
responsible for any and all Benefit Liabilities to or in
respect of the Employees or their beneficiaries or dependents
relating to or arising in connection with any claims for life,
disability, accidental death or dismemberment, supplemental
unemployment compensation, medical, dental, hospitalization,
other health or other welfare or fringe benefits or expense
reimbursements, to the extent such claims relate to or are
based upon medical, dental, hospitalization or health services
provided prior to the Closing Date and are not included in Net
Working Capital or in connection with the requirements of
Section 4980B of the Code to provide continuation of health
care coverage under any Employee Benefit Plan in respect of
Employees to the extent such Benefit Liabilities relate to
terminations of employment occurring on or prior to the
Closing Date. With respect to any Employee Benefit Plan that
is subject to Section 125 of the Code, Seller shall transfer
assets equal to the aggregate account balances of all
Transferred Employees, as of the Closing Date, to Buyer or
shall take other action mutually agreed to by Buyer and Seller
to avoid the loss by Transferred Employees of any part of such
balances.
(b) From and after the Closing Date, Buyer shall be
responsible for any and all Benefit Liabilities that relate to
the period from and after the Closing Date (other than any
Excluded Liabilities) relating to or arising in connection
with the requirements of Section 4980B of the Code to provide
continuation of health care coverage under any Employee
Benefit Plan in respect of Transferred Employees, including
the former Employees set forth on Schedule 7.2, any other
Employees whose employment with Seller terminates between the
date hereof and the Closing Date (a list of whom shall be
provided to Buyer at or prior to the Closing), and the
beneficiaries and covered dependents of any of the foregoing
persons.
(c) Buyer shall provide the appropriate notices
required under Section 4980B of the Code with respect to
continuation of health care coverage under any Employee
Benefit Plan in respect of Transferred Employees, their
beneficiaries and covered dependents.
7.3. Workers' Compensation. From and after the Closing Date, Buyer
shall be responsible for any and all Benefit Liabilities to orin respect of any
transferred Employee relating to or arising in connection with any and all
claims for workers' compensation benefits or benefits for work-related injuries
or illnesses that are covered under any occupational benefits plan of Seller)
that relate to the period from and after the Closing Date.
7.4. Employment Taxes. To the extent permitted by law, Seller will and
Buyer will (i) treat Buyer as a "successor employer" and the Seller as a
"predecessor," within the meaning of Sections 3121(a)(1) and 3306(b)(1) of the
Code, with respect to Transferred Employees who are employed by the Buyer for
purposes of Taxes imposed under the United States Federal Unemployment Tax Act
("FUTA") or the United States Federal Insurance Contributions Act ("FICA") and
(ii) and cooperate with each other to avoid, to the extent possible, the filing
of more than one IRS Form W2 with respect to each such Transferred Employee for
the calendar year within which the Closing Date occurs.
7.5. No Continuing Obligation. Subject to Buyer's obligations pursuant
to Section 9.3 below, this Agreement (a) shall not require Buyer, Holdco or any
of their respective subsidiaries to employ any Employee on or after the Closing
Date or (b) constitute a guarantee of continuing employment to any Transferred
Employee.
ARTICLE VIII.
TERMINATION
8.1. Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) by the written agreement of Buyer and the
Seller; or
(b) by either Seller or Buyer by written notice to
the other (a "Termination Notice") if the Closing has failed
to occur on or before 5:00 P.M. Houston, Texas time on
November 30, 1999, (or such later date as Seller and Buyer
shall agree in writing), except that neither Buyer nor Seller
shall terminate this Agreement by delivery of a Termination
Notice while such Party is in breach or default of its
obligations hereunder.
8.2. Break-Up Fee. In the event that the Closing does not occur for any
reason other than as a result of (a) Seller's inability to satisfy the
conditions set forth in Sections 6.2.1 or 6.2.4 or (b) the inability of the
Parties to satisfy the conditions set forth in Sections 6.1.1, 6.1.2 or 6.1.3
(and provided Seller is ready, willing and able, assuming compliance by Buyer
with its obligations hereunder, to satisfy the conditions set forth in Sections
6.2.2, 6.2.3, 6.2.5 and 6.2.6), including any termination of this Agreement by
Buyer as a result thereof, then Buyer shall pay or cause to be paid to Seller,
in same day funds, upon demand, as liquidated damages and not as a penalty, the
sum of $7,500,000. The Parties acknowledge and agree that the actual damages
resulting from the failure of the Closing to occur for the reasons set forth
above, would be difficult or impracticable to calculate and that, in light of
the circumstances, the foregoing represents a reasonable approximation of such
damages and shall be in lieu of other damages in respect of such occurrence.
Upon payment of such amount, Buyer shall have no further obligation hereunder,
except as provided in Section 8.3 hereof.
8.3. Effect of Termination. In the event of the termination of this
Agreement pursuant to the provisions of Section 8.1 this Agreement shall become
void and have no effect, without any liability to any Person in respect hereof
or of the transactions contemplated hereby on the part of any Party hereto, or
anyof its directors, officers, employees, agents, consultants, representatives,
advisers, stockholders or Affiliates, except for any liability resulting from
such Party's breach of this Agreement, provided however, that the provisions of
Section 5.2.4, 5.3.4, 8.2 and 11.1 shall survive the termination of this
Agreement.
ARTICLE IX.
ADDITIONAL AGREEMENTS
9.1. Seller's Cost Reports. Seller will prepare and file all
terminating cost reports inconnection with Current Program Receivables with the
applicable agencies and shall provide Buyer with a copy thereof (the "Seller
Cost Reports"). Such Seller Cost Reports shall be, in all material respects,
prepared and filed in accordance with all Applicable Laws. Buyer shall forward
to Seller any and all correspondence relating to the Seller Cost Reports within
three (3)Business Days after receipt by Buyer. Buyer shall retain all rights to
the Current Program Receivables and to the Seller Cost Reports including,
without limitation, the right to appeal any Medicare determinations relating to
the Current Program Receivables and Seller Cost Reports. Seller shall retain
the originals of the Seller Cost Reports, correspondence,
work papers and other documents relating to Seller Cost Reports and the
Current Program Receivables.
Seller will furnish copies of such documents to Buyer prior to Closing.
9.2. Misdirected Payments. Seller and Buyer covenant and agree to
remit, within three (3) days after receipt, to the other any payments received,
which payments are on or in respect of accounts or notes receivable owned by
(or are otherwise payable to) the other.
9.3. WARN Act. Buyer agrees and acknowledges that the purchase of the
Assets constitutes the sale of one or more businesses within the meaning of the
WARN Act and the rules and regulations promulgated thereunder. Anything in this
Agreement to the contrary notwithstanding, Buyer agrees and acknowledges that
for purposes of the WARN Act, any person who is an employee of a Seller (other
than part-time employees as defined under the WARN Act) at a Facility as of the
Closing Date (which shall constitute the effective date of the sale within the
meaning of the WARN Act) shall be considered an employee of Buyer immediately
upon the Closing. With respect to such "deemed" employees, Buyer further agrees
and acknowledges that Buyer will be responsible for all applicable notices and
liabilities under the WARN Act resulting from the termination of any such
employees after the Closing Date.
9.4. Power of Attorney for D.E.A. Registration Number(s) and Utah
Pharmacy License(s). Buyer covenants that it shall promptly apply for all
necessary DEA. registration(s) or Utah Pharmacy License(s) with respect to the
Facilities as soon as possible. At or prior to Closing, Seller shall execute in
favor of Buyer one or more Powers of Attorney for Order Forms authorizing Buyer
or a representative of Buyer to execute applications for books of official order
forms and to sign such order forms, under Seller's D.E.A.Registration Number(s)
or Seller's Pharmacy License(s) as required for all necessary controlled
substances on an interim basis until such time as Buyer shall receive approval
of all necessary D.E.A. registration(s) or Utah Pharmacy License(s). Seller
covenants that it shall cooperate with Buyer and provide such information as
Buyer may reasonably request in making all such applications for registration
or licensing.
9.5. Covenant Not to Compete.
(a) Seller acknowledges that Buyer would be irreparably
damaged if the knowledge of Seller of the business and affairs, trade
secrets or confidential information of the Business were disclosed or
utilized on behalf of any person which is in, or contemplates entering
into, competition in any respect, directly or indirectly, with the
Business. In furtherance of this Section 9.5 and to secure the interest
of Buyer hereunder, Seller hereby covenants and agrees that, from and
after the Closing and until the third anniversary of the Closing Date,
Seller shall not, and shall cause each of its Affiliates not to,
directly or indirectly, participate in the ownership, management,
operation or control of, or be connected with or employed by, or act as
a consultant for, or have any financial interest in or aid or knowingly
assist anyone else in the conduct of, any business or entity which (i)
is similar to the Business in the Salt Lake City, Utah region, or (ii)
is actively pursuing the conduct of such business in such region;
provided, however, that this Agreement shall not restrict or prohibit
Seller or its Affiliates from (i) conducting any business of Seller or
its Affiliates that is unrelated to the Business, in substantially the
same manner as presently conducted (ii) owning, managing or operating
the Excluded Assets, (iii) selling the business of Parent, whether by
merger, sale of stock or assets or (iv) otherwise being the owner of up
to 2% of any class of outstanding securities of any public company or
entity.
(b) From and after the Closing Date, Seller shall not use for
its benefit or disclose to any person, any proprietary information of
the Business or information with respect to customers, suppliers,
employees or financial affairs of the Business, or any other
confidential matter, obtained or developed by any of them prior to the
Closing Date with respect to any aspect of the Business.
(c) From and after the Closing Date until the third
anniversary of the Closing Date, neither Seller shall, nor shall it
permit of its Affiliates to, without the prior written consent of
Buyer, solicit any person who is a Transferred Employee and continues
to be an employee of the Business at the time of such proposed
solicitation, or induce such person to terminate his or her employment
with Buyer; provided, however, that Seller shall not be prohibited from
conducting generalized solicitation for employees (which solicitations
are not specifically targeted at Buyer employees) through the use of
media advertisements, professional search firms or otherwise.
(d) Seller acknowledges and agrees that if it were to breach
any provision of this Section 9.5, any remedy at law would be
inadequate and that Buyer, in addition to seeking monetary damages in
connection with any such breach, shall be entitled to specific
performance, and injunctive and other equitable relief, without the
necessity of posting any bond or other security, to prevent or restrain
a breach of this Section 9.5 or to enforce the provisions hereof.
(e) Seller and Buyer intend that the provisions of this
Section 9.5 be enforced to the fullest extent permissible under the
laws applied in each jurisdiction in which enforcement is sought. If
any provision of this Section 9.5, or any part hereof, shall be held by
a court of competent jurisdiction to be invalid or unenforceable, this
Section 9.5 shall be amended to revise the scope of such provision to
make it enforceable, if possible, or to delete such provision or such
part.
ARTICLE X.
INDEMNIFICATION
10.1. Indemnification. For purposes of this Agreement, the term
"Losses" means, any and all claims, liabilities, obligations, losses, fines,
interests, penalties, costs, royalties, proceedings, deficiencies or damages
(whether absolute, accrued, conditional or otherwise and whether or not
resulting from third party claims), including out-of-pocket expenses and
reasonable attorneys' and accountants' fees incurred in the investigation or
defense of any of the same or in asserting any of their respective rights
hereunder. To the extent any Indemnification or Loss is governed by Section
5.4, this Section 10.1 shall not apply.
(a) By Parent and Seller. Parent and Seller jointly
and severally covenant and agree to defend, indemnify and hold
harmless Buyer, its officers, directors, employees, and
Affiliates (collectively, the "Buyer Indemnitees") from and
against, and pay or reimburse the Buyer Indemnitees for, any
and all Losses resulting from or arising out of:
(i) any breach of any representation or
warranty made by the Seller herein or under any
Collateral Agreement (or any facts or circumstances
constituting such breach);
(ii) any breach by Seller of its covenants
or obligations under this Agreement or under any
Collateral Agreement other than covenants or
obligations to be performed by Holdco after the
Closing;
(iii) the Excluded Liabilities, other
than those set forth in Sections 2.5(j) and 2.5(m)
or the Excluded Assets; or
(iv) the Excluded Liabilities set forth in
Sections 2.5(j) and 2.5(m).
(b) By Buyer and Holdco. Buyer, from and after the
date hereof, and Holdco, from and after the Closing, jointly
and severally covenant and agree to defend, indemnify and hold
harmless Seller and its officers, directors, employees, and
Affiliates (collectively, the "Seller Indemnitees") from and
against, and pay or reimburse the Seller Indemnitees for, any
and all Losses resulting from or arising out of:
(i) any breach of any representation or
warranty by the Buyer made or contained in this
Agreement or any Collateral Agreement (or any facts
or circumstances constituting such breach);
(ii) any breach by Buyer of its covenants or
obligations under this Agreement or any Collateral
Agreement;
(iii) the Assumed Liabilities assumed by
Holdco pursuant to Section 2.4 and any breach by
Holdco or its Subsidiaries of any covenants or
obligations to be performed by any of them after the
Closing under this Agreement or any Collateral
Agreement; or
(iv) the operation of the Business by Buyer
or by Holdco or its Subsidiaries or Buyer's or
Holdco's or its Subsidiaries' ownership, operation or
use of the Assets following the Closing Date,
including, without limitation, (A) any Tax
liabilities arising in connection with operations of
the Business after the Closing Date and (B) any
liabilities, including liabilities to customers of
the Business or users of its products, or to
employees, agents or contractors of the Business, in
connection with the operation of the Business
following the Closing Date;
it being understood that Holdco shall have no obligations or
liabilities with respect to these indemnification provisions
prior to the Closing or in the event that the Closing fails
for any reason to occur.
(c) Indemnification Procedures. In the case of any
claim asserted by a third party against a party entitled to
indemnification under this Agreement (the "Indemnified
Party"), notice shall be given by the Indemnified Party to the
party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual
knowledge of any claim as to which indemnity may be sought,
and the Indemnified Party shall permit the Indemnifying Party
(at the expense of such Indemnifying Party) to assume the
defense of any Litigation resulting therefrom, provided that
(i) the counsel for the Indemnifying Party who shall conduct
the defense of such Litigation shall be reasonably
satisfactory to the Indemnified Party and (ii) the Indemnified
Party may participate in such defense at such Indemnified
Party's expense. Except with the prior written consent of the
Indemnified Party which consent shall not be unreasonably
withheld, no Indemnifying Party, in the defense of any such
Litigation, shall consent to entry of any judgment or enter
into any settlement that (i) does not provide for the
unconditional release of the Indemnified Party from all
liability or (ii) provides that the Indemnified Party is
subject to any contractual obligations following such
settlement. The Indemnifying Party and the Indemnified Party
shall cooperate in the defense of any Litigation subject to
this Section 10.1 and the records of each shall be available
to the other with respect to such defense and the Indemnifying
Party's defense.
(d) WITHOUT LIMITING OR ENLARGING THE SCOPE OF THE
INDEMNIFICATION, RELEASE AND ASSUMPTION OBLIGATIONS SET FORTH
HEREIN, AN INDEMNIFIED PARTY SHALL BE ENTITLED TO
INDEMNIFICATION HEREUNDER IN ACCORDANCE WITH THE TERMS HEREOF,
REGARDLESS OF WHETHER THE INDEMNIFIABLE LOSS GIVING RISE TO
SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE,
GROSS, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE,
STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF ANY LAW OF OR
BY SUCH INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS
STATEMENT CONSTITUTES A CONSPICUOUS LEGEND.
10.2. Survival of Representations and Warranties, etc. The
representations and warranties contained in this Agreement shall survive the
execution and delivery of this Agreement for a period of two years from the
Closing Date, provided, however, that the representations and warranties set
forth in (i)Section 4.1.25 (Taxes), 4.1.8 (Government Program Participation),
4.1.9(Cost Reports), 4.1.10 (JCAHO Accreditation), 4.1.12 (Fraud and Abuse) and
4.1.13(Hill-Burton Loan) and 4.3.4 (Fraud and Abuse) hereof shall survive until
one year after the expiration of the statute of limitations applicable to legal
claims and causes of action arising from the matters referenced in such Section
(ii) Sections 4.1.15 and 4.1.18 hereof (Title to Assets) shall survive
indefinitely and (iii)Section 4.1.22 (Employee Benefit Plans) shall survive for
a period of three years from the Closing Date.
10.3. Limitations on Indemnification Provisions; Exclusive Remedy.
10.3.1. Limitation on Indemnification. No claim for
indemnification by Buyer or Seller against the other party hereto shall
be made unless: (i) each claim for Losses pursuant to Section
10.1(a)(i), 10.1(a)(iv) or 10.1(b)(i), as the case may be, resulting
from a single inaccuracy or breach (or, if more than one claim for
Losses are substantially similar in nature and arise from the same
facts or circumstances, then the sum of such claims) is for Losses in
an amount equal to or in excess of $250,000 (the "Minimum Claim
Amount"), and (ii) the aggregate amount of claims pursuant to Section
10.1(a)(i), 10.1(a)(iv) or 10.1(b)(i) that exceed the Minimum Claim
Amount exceed $2,500,000, at which time all claims pursuant to Section
10.1(a)(i), 10.1(a)(iv) or 10.1(b)(i), in excess of $2,500,000,
including those used to aggregate the floor of $2,500,000, shall be
subject to indemnification and recovery by the Indemnified Party to the
extent herein provided. Notwithstanding the foregoing, for purposes of
determining whether any breach or inaccuracy has occurred, all
references to "Material Adverse Effect" or other materiality qualifiers
in Article III or Article IV, as the case may be, shall be disregarded.
No claim for indemnification pursuant to Section 10.1(a)(i),
10.1(a)(iv) or 10.1(b)(i) shall be effective unless such claim is made
in writing and delivered to the Indemnifying Party hereunder prior to
expiration of the survival period set forth in Section 10.2 hereof. The
maximum amount of liability by Seller and Buyer, for indemnification
pursuant to Sections 10.1(a)(i), and 10.1(b)(i) shall be an amount
equal to 50% of the Transaction Consideration. This Section 10.3.1
shall not apply to, and shall not limit, any claim for indemnification
under Section 5.4 hereof.
10.3.2. Waiver of Non-Compensatory Damages. No Indemnified
Party shall be entitled to recover from an Indemnifying Party for any
losses, costs, expenses, or damages as to which indemnification is
provided under this Agreement any amount in excess of the actual
compensatory damages, court costs and reasonable attorney's fees,
suffered by such party; and Buyer and Seller waive any right to recover
punitive, special, exemplary and consequential damages arising in
connection with or with respect to the indemnification provisions
hereof.
10.3.3. Exclusive Remedy; Waiver and Release. The
indemnifications under this Article X shall be Buyer's and Seller's
sole and exclusive remedies, each against the other, with respect to
matters arising under this Agreement, of any kind or nature, or
relating to the Business, the ownership, operation, management, use or
control of the Facilities. Buyer and Seller hereby waive and release
any other rights, remedies, causes of action or claims that they have
or that may arise against the other with respect to matters arising
under this Agreement, of any kind or nature, or relating to the
Business, the ownership, operation, management, use or control of the
Facilities.
ARTICLE XI.
MISCELLANEOUS
11.1. Expenses. Except as provided in Section 5.2.2, Seller, on the one
hand, and Buyer, on the other hand, shall bear their respective expenses, costs
and fees (including attorneys', auditors', investment bankers' or brokers and
financing commitment fees) in connection with the transaction contemplated
hereby, including the preparation, execution and delivery of this Agreement and
compliance herewith (the "Transaction Expenses"), whether or not the
transactions contemplated hereby shall be consummated, provided, however, that
Seller shall bear all transfer, sales or excise Taxes arising out of the
consummation of the transactions contemplated hereby,and Buyer and Seller shall
each bear 50% of (i) the costs in connection with a dispute pursuant to Section
3.4(a)(ii) hereof, and (ii) costs to apply for and obtain Consents of
Governmental Authorities required in connection with consummation of the
transactions contemplated hereby (including under the HSR Act).
11.2. Severability. If any provision of this Agreement, including any
phrase, sentence, clause, Section or subsection is inoperative or unenforceable
for any reason, such circumstances shall not have the effect of rendering the
provision in question inoperative or unenforceable in any other case or
circumstance,or of rendering any other provision or provisions herein contained
invalid, inoperative, or unenforceable to any extent whatsoever.
11.3. Notices. All notices, requests, demands, waivers and other
communication required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (i) delivered
personally, (ii) mailed by first-class, registered or certified mail,
return receipt requested, postage prepaid, (iii) sent by next-day or
overnight mail or delivery, or (iv) sent by telecopy or telegram.
(i) if to the Buyer to,
JLL Hospital, LLC
c/o Joseph, Littlejohn & Levy
450 Lexington Avenue
New York, New York 10017
Attention: Jeffrey Lightcap
Fax: (212) 286-8686
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
1 Rodney Square
P. O. Box 636
Wilmington, Delaware 19899
Attention: Robert B. Pincus, Esq.
Fax: (302) 651-3001
(ii) if to the Seller,
Paracelsus Healthcare Corporation
515 W. Greens Road
Suite 800
Houston, TX 77067
Attn: President
Fax: (281) 774-5200
with a copy to:
Diana M. Hudson
Mayor, Day, Caldwell & Keeton, L.L.P.
700 Louisiana, Suite 1900
Houston, Texas 77002
Fax: (713) 225-7047
or, in each case, at such other address as may be specified in writing
to the other Parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on
the date of such delivery, (x) if by certified or registered mail, on
the seventh business day after the mailing thereof, (y) if by next-day
or overnight mail or delivery, on the day delivered, (z) if by telecopy
or telegram, on the day on which such telecopy or telegram was sent,
provided that a copy is also sent by certified or registered mail.
11.4. Miscellaneous.
11.4.1. Headings. The headings contained in this Agreement are
for purposes of convenience only and shall not affect the meaning or
interpretation of this Agreement.
11.4.2. Entire Agreement. This Agreement (including the
Schedules hereto) and the Collateral Agreements (when executed and
delivered) constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof.
11.4.3. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed an original and all
of which shall together constitute one and the same instrument.
11.4.4. Governing Law, etc. This Agreement shall be governed
in all respects, including as to validity, interpretation and effect,
by the internal laws of the State of Delaware, without giving effect to
the conflict of laws rules thereof.
11.4.5. Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective
heirs, successors and permitted assigns.
11.4.6. Assignment. This Agreement shall not be assignable or
otherwise transferable by any party hereto without the prior written
consent of the other party hereto provided that (a) Buyer shall be
permitted to assign its rights hereunder to the lenders under its
Credit Agreement or other financing source of Buyer or its Subsidiaries
or (b) Seller shall be permitted to assign its rights hereunder to the
lenders under the Senior Indebtedness.
11.4.7. No Third Party Beneficiaries. Except as provided in
Section 10.1 with respect to indemnification of Indemnified Parties
hereunder, nothing in this Agreement shall confer any rights upon any
person or entity other than the parties hereto and their respective
heirs, successors and permitted assigns.
11.4.8. Amendment; Waivers, etc. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or
binding unless set forth in writing and duly executed by the party
against whom enforcement of the amendment, modification, discharge or
waiver is sought. Any such waiver shall constitute a waiver only with
respect to the specific matter described in such writing and shall in
no way impair the rights of the party granting such waiver in any other
respect or at any other time. Neither the waiver by any of the parties
hereto of a breach of or a default under any of the provisions of this
Agreement, nor the failure by any of the parties, on one or more
occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder, shall be construed as a
waiver of any other breach or default of a similar nature, or as a
waiver of any of such provisions, rights or privileges hereunder.
11.4.9. Specific Performance. Each party hereto acknowledges
that money damages would be both incalculable and an insufficient
remedy for any breach of this Agreement by such party and that any such
breach would cause the other parties hereto irreparable harm.
Accordingly, each party hereto also agrees that, in the event of any
breach or threatened breach of the provisions of this Agreement by such
party, the other parties hereto shall be entitled to equitable relief
without the requirement of posting a bond or other security, including
in the form of injunctions and orders for specific performance.
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of
The date first above written.
PARENT: PARACELSUS HEALTHCARE CORPORATION
By:
James G. VanDevender, Interim Chief Executive Officer
and Chief Financial Officer
PHC/CHC HOLDINGS, INC.
By:
James G. VanDevender, President
SELLER: PHC-SALT LAKE CITY, INC.
By:
James G. VanDevender, Vice-President
and Chief Financial Officer
PARACELSUS PIONEER VALLEY HOSPITAL, INC.
By:
James G. VanDevender, Vice-President
and Chief Financial Officer
PHC-JORDAN VALLEY, INC.
By:
James G. VanDevender, Vice-President
and Chief Financial Officer
PIONEER VALLEY HEALTH PLAN, INC.
By:
James G. VanDevender, Vice-President
PARACELSUS PHC REGIONAL MEDICAL CENTER, INC.
By:
James G. VanDevender, President
PHC UTAH, INC.
By:
James G. VanDevender, Vice-President
and Chief Financial Officer
PARACELSUS DAVIS HOSPITAL, INC.
By:
James G. VanDevender, Vice President
and Chief Financial Officer
PHC/PSYCHIATRIC HEALTHCARE CORPORATION
By:
James G. VanDevender, President
CLINICARE OF UTAH, INC.
By:
James G. VanDevender, President
BUYER: JLL HOSPITAL, LLC
By:
Jeffrey C. Lightcap, Authorized Person
